[Federal Register Volume 88, Number 162 (Wednesday, August 23, 2023)]
[Rules and Regulations]
[Pages 57792-57859]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-17992]



[[Page 57791]]

Vol. 88

Wednesday,

No. 162

August 23, 2023

Part IV





Department of Agriculture





-----------------------------------------------------------------------





Food and Nutrition Service





-----------------------------------------------------------------------





7 CFR Parts 210, 215, 220, et al.





Child Nutrition Program Integrity; Final Rule

Federal Register / Vol. 88, No. 162 / Wednesday, August 23, 2023 / 
Rules and Regulations

[[Page 57792]]


-----------------------------------------------------------------------

DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

7 CFR Parts 210, 215, 220, 225, 226, and 235

[FNS-2016-0040]
RIN 0584-AE08


Child Nutrition Program Integrity

AGENCY: Food and Nutrition Service (FNS), U.S. Department of 
Agriculture (USDA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: This action implements statutory requirements and policy 
improvements to strengthen administrative oversight and operational 
performance of the Child Nutrition Programs.

DATES: 
    Effective date: The provisions of this rulemaking are effective 
September 22, 2023.
    Compliance dates: This rulemaking consists of multiple provisions. 
Compliance for each provision is referenced in the SUPPLEMENTARY 
INFORMATION section of this final rule and detailed in the section-by-
section analysis.

FOR FURTHER INFORMATION CONTACT: Megan Geiger, Senior Technical 
Advisor, Program Monitoring and Operational Support Division--4th 
floor, USDA Food and Nutrition Service, 1320 Braddock Place, 
Alexandria, VA 22314 or at <a href="/cdn-cgi/l/email-protection#4a272f2d2b24642d2f232d2f380a3f392e2b642d253c"><span class="__cf_email__" data-cfemail="4d20282a2c23632a28242a283f0d383e292c632a223b">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION:
Outline:
I. Child Nutrition Program Integrity Proposed Rule
    A. Background
    B. Public Comments
    C. Section-By-Section Discussion of the Regulatory Provisions
    1. Fines for Violating Program Requirements
    2. Reciprocal Disqualification in All Child Nutrition Programs
    3. Serious Deficiency Process and Disqualification in SFSP and 
CACFP
    4. State Agency Review Requirements in CACFP
    5. State Liability for Payments to Aggrieved Child Care 
Institutions
    6. CACFP Audit Funding
    7. Financial Review of Sponsoring Organizations in CACFP
    8. Informal Purchase Methods for CACFP
    9. School Food Authority Contracts With Food Service Management 
Companies
    10. Annual NSLP Procurement Training
II. CACFP Amendments
    A. Background
    B. Codifying the CACFP Amendments
    1. Elimination of the Annual Application for Institutions
    2. Timing of Unannounced Reviews
    3. Standard Agreements Between Sponsoring Organizations and 
Sponsored Child Care Centers
    4. Collection and Transmission of Household Income Information
    5. Calculation of Administrative Funding for Sponsoring 
Organizations of Day Care Homes
    6. Carryover of Administrative Funding for Sponsoring 
Organizations of Day Care Homes
III. Simplifying Monitoring in NSLP and SBP
    A. Background
    B. Streamlining the Administrative Review Process
    1. Return to a 5-Year Review Cycle
    2. Substitution of Local-Level Audits
    3. Completion of Review Requirements Outside of the 
Administrative Review
    4. Framework for Integrity-Focused Process Improvements
    5. Assessment of Resource Management Risk
    6. Buy American Area of Review
    7. Discretion in Taking Fiscal Action for Meal Pattern 
Violations
    C. Reducing Performance-Based Reimbursement Reporting
IV. Miscellaneous Amendments
    A. State Administrative Expense (SAE) Funds
    B. FNS Contact Information
    C. Program Application Requirements
V. Procedural Matters

I. Child Nutrition Program Integrity Proposed Rule

A. Background

    FNS cannot accomplish its mission to provide access to food, a 
healthful diet, and nutrition education in ways that inspire public 
confidence without a strong and sustained effort to ensure that 
integrity is always a priority in the administration of the Child 
Nutrition Programs. On March 29, 2016, FNS published a proposed rule, 
Child Nutrition Program Integrity, 81 FR 17564, https://www.fns.usda.gov/cn/fr-032916, to address criteria and procedures to 
strengthen administrative oversight and operational performance of the 
National School Lunch Program (NSLP), School Breakfast Program (SBP), 
Special Milk Program (SMP), Summer Food Service Program (SFSP), Child 
and Adult Care Food Program (CACFP), and State Administrative Expense 
Funds (SAE).
    Many of the modifications proposed by FNS were based on amendments 
to the Richard B. Russell National School Lunch Act (NSLA), 42 U.S.C. 
1751 et seq., https://www.fns.usda.gov/nsla-amended-pl-117-328, 
mandated by the Healthy, Hunger-Free Kids Act of 2010, Public Law 111-
296, https://www.fns.usda.gov/pl-111-296, including:
    <bullet> Implementation of fines;
    <bullet> Prohibition of participation of any terminated entity or 
terminated individual in any Child Nutrition Program;
    <bullet> Termination and disqualification of SFSP sponsors and 
unaffiliated CACFP centers through extension of the serious deficiency 
process;
    <bullet> Termination of permanent agreements of SFSP sponsors and 
CACFP institutions and facilities;
    <bullet> More frequent reviews of CACFP institutions that are at 
risk of having serious management problems;
    <bullet> State agency liability for payments when hearings for 
CACFP institutions are delayed; and
    <bullet> Additional State agency funding for audits of CACFP 
institutions.
    These provisions were added to the NSLA to strengthen the 
administration of Child Nutrition Programs, at all levels, through 
enhanced oversight and enforcement tools. They were designed to help 
FNS and State administering agencies reduce program error of all types, 
resulting in more efficient operations and improved compliance with 
program requirements.
    The proposed rule also incorporated recommendations from the USDA 
Office of Inspector General (OIG), including management decisions from 
audits--National School Lunch Program--Food Service Management Company 
Contracts, published January 2013, https://usdaoig.oversight.gov/reports/audit/national-school-lunch-program-food-service-management-company-contracts, and Review of Management Controls for the Child and 
Adult Care Food Program, published November 2011--and FNS management 
evaluations of State agency administration of NSLP, SBP, SFSP, and 
CACFP. The recommendations address improvements to contract management, 
adherence to Federal procurement standards, and financial oversight to 
further enhance program integrity.
    This final rule adds strong integrity safeguards to a variety of 
aspects of the Child Nutrition Programs. The provisions codified in 
this rulemaking are designed to increase program operators' 
accountability and operational efficiency, while improving the ability 
of FNS and State agencies to address severe or repeated violations of 
program requirements. This rulemaking also provides States and program 
operators with targeted flexibilities which allow oversight efforts to 
be tailored to specific program circumstances. These provisions will be 
effective on September 22, 2023. However, each provision has a separate 
compliance date for implementation, which is explained in the section-
by-section analysis. Although the proposed rule required implementation 
for most

[[Page 57793]]

provisions 90 days after publication of the final rule, numerous 
respondents requested a 1-year delay in implementation, and FNS agrees 
that additional time is needed to implement this rulemaking. The 
extended implementation period gives State agencies time to make 
necessary systems changes, and gives FNS time to provide technical 
assistance and develop resources to support successful implementation.
    FNS intends each of the provisions of this rule to be severable. 
Were a court to stay or invalidate any provision of this rule, or to 
hold a provision unlawful as applied in certain factual circumstances, 
FNS would intend that all other provisions set forth in this rule 
remain in effect to the maximum possible extent.

B. Public Comments

    FNS received 5,659 comments from a cross section of stakeholders 
during a 90-day comment period, which was extended to July 7, 2016. Of 
these, 3,261 responses were from 11 form letter campaigns, 2,266 
responses were unique, and an additional 108 were unique responses that 
contained particularly substantive comments on specific aspects of FNS' 
proposed implementation of the statutory and discretionary 
requirements. The letter campaigns were organized primarily by the 
Freedom Works Foundation (2,652), the Food Research and Action Center 
(377), and the National CACFP Sponsors Association (147). Many of the 
comments expressed general opposition to Federal oversight policies, 
citing issues of government overreach. FNS is not responding to those 
comments, because they did not provide feedback on provisions that were 
specifically proposed for revisions as part of this rulemaking. 
Moreover, many of the requirements addressed in the proposed rule are 
based on statutory provisions in the NSLA and, therefore, cannot be 
removed through the rulemaking process.
    Responses were generated from State administering agencies (21) and 
a wide variety of child nutrition program stakeholders, including those 
who identified as parents and private citizens (5,472), school food 
authorities (37), advocates (34), schools and educational institutions 
(9), community and faith-based organizations (7), food service 
management companies (7), health and child care professional 
associations (6), food banks (4), and students (2). Only 15 respondents 
unconditionally favored the proposed rule. Respondents expressed wide 
support for implementing robust integrity practices and valuable 
suggestions for improvement. However, the vast majority of respondents 
(4,769) expressed general opposition to the penalties that FNS 
proposed. Of the remaining 875 comments, 687 were mixed and 188 were 
either out of scope (164) or duplicative (24). The comments (5,599) are 
posted at http://www.regulations.gov under docket ID FNS-2016-0040, 
Child Nutrition Program Integrity.

C. Section-by-Section Discussion of the Regulatory Provisions

1. Fines for Violating Program Requirements
    Section 22(e)(1)(A) of the NSLA, 42 U.S.C. 1769c(e), requires the 
Secretary to establish criteria by which a State agency or the 
Secretary may impose a fine against any school food authority (SFA) or 
school administering a Child Nutrition Program. Section 22(e)(2)(A) 
requires the Secretary to establish criteria by which the Secretary may 
impose a fine against any State agency administering a Child Nutrition 
Program. In both cases, the statute states that a fine may be imposed 
if it is determined that the SFA, school, or State agency has:
    <bullet> Failed to correct severe mismanagement of the program;
    <bullet> Disregarded a program requirement of which the SFA, 
school, or State has been informed; or
    <bullet> Failed to correct repeated program violations.
    Current regulations require State agency and FNS oversight to 
ensure program compliance, improve management, and promote integrity. 
The regulations at 7 CFR 210.26 provide FNS the authority to penalize 
individuals or entities for criminal violations, such as theft or 
fraud. However, existing regulations do not include a strong 
enforcement mechanism to protect Federal funds and maintain program 
integrity when an exceptional, non-criminal circumstance arises.
    FNS proposed a process to implement the statutory authority to 
establish fines, referred to as ``assessments'' in the proposed rule. 
FNS expected assessments to serve as a new accountability measure to 
address severe or repeated program violations that seriously threaten 
the integrity of Child Nutrition Programs, but do not meet the 
threshold for criminal action. The proposed rule:
    <bullet> Identifies violations that warrant assessments, as 
specified in statute;
    <bullet> Allows FNS to establish assessments against State agencies 
and to direct State agencies to establish assessments against SFAs, 
sponsors, or institutions;
    <bullet> Allows State agencies to establish assessments against 
SFAs, schools, sponsors, or institutions;
    <bullet> Identifies the calculations used to determine the first, 
second, and subsequent assessments;
    <bullet> Requires assessments to be paid from non-Federal funds;
    <bullet> Requires the State agency to notify FNS at least 30 days 
prior to establishing an assessment;
    <bullet> Provides the ability to appeal any assessment through 
existing processes;
    <bullet> Provides FNS and State agencies the authority to suspend 
or terminate for cause the participation of an entity, if the 
established assessment is not paid; and
    <bullet> Requires implementation one school year after the 
publication of the final rule.
Public Comments
    Of the comments that discussed assessments or fines, 6 were 
supportive, 3,955 were opposed, and 23 were mixed. Of the 3,955 
responses in opposition, 3,132 were form letters. Many were opposed to 
the idea of government fines in general, citing issues of government 
overreach.
    Proponents noted this provision would give State agencies an 
additional mechanism to address program violations and strengthen 
accountability. One stated that fines would be a useful compliance tool 
in exceptional situations and supported extending this provision to all 
Child Nutrition Programs.
    Opponents argued that fines are unnecessary and punitive, and 
voiced concern that the risk of fines would discourage Child Nutrition 
Program operators from seeking technical assistance. They cited the 
potential for inconsistent application of fines across States, and 
expressed concern about bribery, collusion, and abuse. Opponents also 
disputed FNS authority to establish fines against non-school operators, 
and suggested State agencies have adequate accountability tools in SFSP 
and CACFP.
FNS Response
    As required by statute, this final rule codifies the criteria and 
procedures that FNS has developed for State agencies to use to 
establish fines for program violations. Although the proposed rule used 
the term ``assessment,'' FNS has opted to use the term ``fine'' in this 
final rule for clarity and for consistency with statute. A fine is 
commonly known to be a monetary penalty for a prohibited act.

[[Page 57794]]

This change responds to concerns that terms used in the proposed rule 
created confusion. Consistent with the statute and the proposed rule, 
the criteria that warrant fines include:
    <bullet> Failure to correct severe program mismanagement;
    <bullet> Disregard of a program requirement of which an SFA or 
State agency has been informed; or
    <bullet> Failure to correct repeated violations of program 
requirements.
    FNS stresses that fines will be applied under exceptional, not 
routine, circumstances. For example, fines may be warranted to address 
a serious violation, such as the intentional destruction of records or 
the intentional misappropriation of program funds. Fines would not be 
warranted for routine problems, such as a menu planning or meal pattern 
violation or a recordkeeping or resource management error, which can be 
corrected with State agency oversight and technical assistance.
    A fine would never replace established technical assistance, 
corrective action, or fiscal action measures to solve commonplace or 
unintentional problems. Rather, the assessment of fines provides a new 
accountability tool for FNS and State agencies to use when there are 
severe or repeated non-criminal violations--the types of programs 
abuses that seriously threaten the integrity of Federal funds or 
significantly impair the delivery of service to eligible students. Each 
situation is different, and FNS and State agencies, in consultation 
with their legal counsel, will carefully consider whether a fine is the 
appropriate response.
    As required by statute, this final rule allows fines to be 
established against SFAs and State agencies in the operation of any 
Child Nutrition Program, including the issuance of fines against SFA 
sponsors in SFSP and SFA institutions in CACFP. This is a change from 
the proposed rule, which would have extended fines to all types of SFSP 
sponsors and CACFP institutions. FNS has decided to pursue a separate 
rulemaking to propose amendments to SFSP and CACFP regulations that 
would strengthen the serious deficiency processes to safeguard Federal 
funds and program integrity against mismanagement, abuse, and fraud.
    This final rule allows State agencies to suspend or terminate the 
participation of an SFA, if the established fine is not paid, and 
provides the ability to appeal any fine through existing processes at 7 
CFR 210.18(p), 225.13, 226.6(k), and 235.11(f). Fines must be paid 
using non-Federal funds, as required by statute, which may include 
State revenue funds in excess of the 30 percent required match for 
NSLP, other State appropriated funds, and local contributions to 
support the programs. All fines, and any interest charged, must be 
remitted to FNS and then transmitted to the United States Treasury. 
These funds cannot be used by FNS.
    This final rule clarifies FNS expectations regarding the 
calculation and timeframe for the payment of fines. As required by 
section 22(e)(1)(A) of the NSLA, 42 U.S.C. 1769c(e), this rulemaking 
adds new paragraphs to identify maximum thresholds for first, second, 
and subsequent fines at 7 CFR 210.26(b)(3), 215.15(b)(3), 220.18(b)(3), 
225.18(k)(3), 226.25(j)(3), and 235.11(c)(2). For State agency fines, 
FNS will calculate the maximum thresholds using all SAE allocations 
made available to the State agency in the most recent fiscal year for 
which full year data is available. For SFA fines, the State agency will 
calculate the maximum thresholds using program meal reimbursements from 
the most recent fiscal year for which full year data (i.e., closeout 
data) is available.
    FNS and State agencies may calculate a fine below the maximum 
thresholds. For example, a State agency may target a fine only to 
certain school sites, or only to meal reimbursements earned by an SFA 
during a certain timeframe. Consistent with the proposed rule, State 
agencies must notify FNS at least 30 days prior to fining an SFA. FNS 
approval of the State agency's action is not required. States agencies 
have discretion to determine the due date for a fine, and may consult 
with FNS to determine an appropriate due date. FNS strongly recommends 
State agencies also consult with their legal counsel prior to fining an 
SFA.
    FNS is mindful of respondents' concerns about the potential for 
fines to be established against State agencies for local program 
violations. This final rule clarifies that State agencies may only be 
fined for severe or repeated program violations at the State level, 
including lack of proper oversight, but not for singular, specific 
program violations that occur at the local level. This final rule 
maintains FNS authority to direct the State agency to establish a fine 
against an SFA.
    In most cases, Child Nutrition Program operators work together to 
build a culture of compliance. State agencies and SFAs that follow 
fundamental program requirements, and those that work to resolve 
compliance issues, will not be impacted by this provision, as fines 
will only be levied in cases of severe or repeated program violations. 
FNS expects fines to be imposed only after State agencies and SFAs have 
been informed of program violations--and provided opportunity to 
correct them--through existing processes, such as direct technical 
assistance, corrective action, or fiscal action.
    For less severe violations, for single violations, and for 
unintentional violations, technical assistance, corrective action, and, 
if necessary, fiscal action will remain appropriate courses of action. 
However, when existing processes do not adequately address program 
violations, the assessment of a fine will support efforts to ensure 
State agencies and SFAs comply with program regulations and use Federal 
funds for their intended purposes. FNS recognizes the importance of 
preserving public trust in the Child Nutrition Programs by holding 
State agencies and SFAs accountable for severe or repeated violations. 
In those exceptional circumstances, fines will be an important tool to 
bring State agencies and SFAs into compliance with Federal regulations 
and protect the integrity of the Child Nutrition Programs.
    Accordingly, this final rule amends 7 CFR 210.18(p) and 235.11(c) 
and adds new paragraphs to 210.26(b), 215.15(b), 220.18(b), 225.18(k), 
and 226.25(j) to provide authority to FNS and to State agencies to 
establish fines in cases of severe or repeated program violations. The 
compliance date is August 23, 2024.
2. Reciprocal Disqualification in All Child Nutrition Programs
    Section 12(r) of the NSLA, 42 U.S.C. 1760(r), states that any 
school, institution, service institution, facility, or individual that 
is terminated from any Child Nutrition Program and that is on a list of 
institutions and individuals disqualified from participation in SFSP or 
CACFP may not be approved to participate in or administer any Child 
Nutrition Program. Current CACFP regulations include procedures for 
disqualification of institutions and day care homes. An institution or 
individual remains on the National disqualified list (NDL) until each 
serious deficiency is corrected, or until 7 years have passed.
    In all cases, all debts owed must be repaid prior to removal from 
the NDL. State agencies are required to consult the NDL when reviewing 
any program application, and must deny the application if the 
institution, or any of its responsible principals, is on the NDL. 
Although the statute authorizes an NDL for SFSP, currently, CACFP is 
the only Child Nutrition Program with an NDL.

[[Page 57795]]

    FNS proposed requiring State agencies to deny the application for 
any Child Nutrition Program if the applicant has been terminated for 
cause from any Child Nutrition Program or the applicant is on the NDL 
for CACFP or SFSP. This process is called ``reciprocal 
disqualification.'' The proposed rule:
    <bullet> Applies reciprocal disqualification to all applicants in 
any Child Nutrition Program;
    <bullet> Specifies that either termination for cause or placement 
on an NDL would be the basis for reciprocal disqualification;
    <bullet> Identifies an entity as any school, SFA, institution, 
service institution, facility, sponsoring organization, site, child 
care institution, day care center, day care home, responsible 
principal, or responsible individual;
    <bullet> Applies suspension or termination procedures when it is 
determined that an entity currently participating in a Child Nutrition 
Program is terminated for cause from another Child Nutrition Program;
    <bullet> Requires each State agency to develop a process to share 
information about disqualified entities within the State with other 
agencies administering Child Nutrition Programs or the Special 
Supplemental Nutrition Program for Women, Infants, and Children (WIC), 
which must be approved by FNS;
    <bullet> Maintains disqualification until deficiencies are 
corrected, or until 7 years have passed, so that an entity will remain 
ineligible until all debts owed under the program are repaid;
    <bullet> Establishes that the decision to deny an application is 
final and not subject to further administrative or judicial review; and
    <bullet> Requires implementation 90 days after the publication of 
the final rule.
Public Comments
    FNS received 127 comments about reciprocal disqualification. Of 
these, 7 were supportive, 105 were opposed, and 15 were mixed. 
Proponents stated that this provision promotes integrity across all 
Child Nutrition Programs. They agreed that if an entity is disqualified 
from one Child Nutrition Program, it should not be permitted to 
participate in another. Some responses supported the proposal but 
requested more guidance for successful implementation. Opponents were 
primarily concerned about the impact this provision could have on SFSP 
and CACFP participation. They asserted that SFAs may be reluctant to 
sponsor SFSP or CACFP if it puts their NSLP participation at risk and 
suggested limiting this provision to entities that are terminated for 
cause and placed on an NDL.
FNS Response
    This provision supports integrity when it is determined that an 
entity currently participating in a Child Nutrition Program is 
terminated for cause from another Child Nutrition Program and placed on 
an NDL, as required by statute. It aligns with FNS' efforts to preserve 
public trust in the programs by preventing further abuse and severe 
mismanagement. However, before the reciprocal disqualification process 
may be applied to program regulations, FNS recognizes that additional 
attention needs to be given to the NDL before it is expanded to SFSP.
    FNS intends to publish a separate rulemaking to propose 
improvements to the serious deficiency process that will also address 
the legal requirements for records maintained on individuals in the 
NDL, including independent verification and the opportunity to contest 
matches on the list. This separate rulemaking will allow FNS to address 
additional requirements, further consider respondents' concerns about 
termination for cause and disqualification and provide an opportunity 
for the public to comment on the changes. FNS is committed to 
publishing new regulations. Accordingly, this final rule will not 
codify any regulatory amendments related to the reciprocal 
disqualification process at this time.
3. Serious Deficiency Process and Disqualification in SFSP and CACFP
    Section 13(q) of the NSLA, 42 U.S.C. 1761(q), requires the 
Secretary to establish procedures for the termination of SFSP sponsors 
for each State agency to follow. The procedures must include a fair 
hearing and prompt determination for any sponsor aggrieved by any 
action of the State agency that affects its participation or claim for 
reimbursement. The Secretary is also required to maintain a list of 
disqualified sponsors and individuals that will be available to State 
agencies to use in approving or renewing sponsor applications.
    In order to implement section 13(q), along with the reciprocal 
disqualification requirement under section 12(r) of the NSLA, 42 U.S.C. 
1760(r), the proposed rule included amendments expanding the serious 
deficiency process in CACFP and extending it to SFSP. This integrity-
focused process has provided a systematic way for CACFP State agencies 
and sponsoring organizations to correct serious management problems, 
and when that effort fails, protect the program through due process.
    Current SFSP regulations include provisions addressing corrective 
action, termination, and appeals. The regulations under 7 CFR part 225:
    <bullet> Specify criteria State agencies must consider when 
approving sites for participation;
    <bullet> Provide authority for the State agency to terminate 
sponsor participation;
    <bullet> List the types of program violations that would be grounds 
for application denial or termination;
    <bullet> Require State agencies to terminate participation of sites 
or sponsors for failure to correct program violations within timeframes 
specified in a corrective action plan; and
    <bullet> Establish procedures for sponsors to appeal adverse 
actions, including termination of a sponsor or site and denial of an 
application for participation.
    However, SFSP current regulations do not provide authority to FNS 
or State agencies to disqualify sponsors.
    Serious deficiency, termination, and disqualification procedures 
already exist for institutions, day care homes, responsible principals, 
and responsible individuals in CACFP under section 17(d)(5) of the 
NSLA, 42 U.S.C. 1766(d)(5), and codified in regulations at 7 CFR 
226.6(c) and 226.16(l). These procedures provide seriously deficient 
institutions and facilities with the opportunity to correct the serious 
deficiency. They are intended to ensure that institutions and day care 
homes that had failed to take satisfactory corrective action, within 
the allotted period of time, have had their program agreement 
terminated, been disqualified, and placed on the NDL. FNS proposed 
applying these existing requirements to establish a serious deficiency 
process for sponsors and sites in SFSP and unaffiliated centers in 
CACFP, which is essential to fulfilling the intent of section 12(r) of 
the NSLA. The proposed rule includes amendments to:
    <bullet> Establish a serious deficiency process for unaffiliated 
child care centers and unaffiliated adult day care centers in CACFP;
    <bullet> Modify termination procedures and establish a serious 
deficiency process in SFSP;
    <bullet> Establish an NDL for SFSP that FNS would maintain and make 
available to all State agencies;
    <bullet> Require each SFSP State agency to establish a list of 
sponsors, responsible principals, and responsible individuals declared 
seriously deficient;

[[Page 57796]]

    <bullet> Require each SFSP State agency to provide appeal 
procedures to sponsors, annually and upon request; and
    <bullet> Specify the types of adverse actions that cannot be 
appealed in SFSP.
Public Comments
    FNS received 236 comments addressing application of the serious 
deficiency process in SFSP--104 (including a form letter campaign) were 
supportive, 8 were opposed, and 124 were mixed. Several respondents 
requested additional definitions and clarification of the terms that 
are used to describe the serious deficiency process. Multiple 
respondents suggested alternatives that would extend the timeframe for 
corrective action, adapt the amount of time for corrective action to 
specific types of serious deficiencies, and allow State agencies to 
approve long-term corrective action plans. They also asked FNS to 
consider delaying implementation to allow time for updating automated 
systems.
    Out of 532 comments regarding amendments to the serious deficiency 
process in CACFP, 11 were supportive, 47 (including 38 form letters) 
were in opposition, and 474 (including 462 form letters) were mixed. 
Many of the respondents voiced general concern about using the current 
CACFP serious deficiency process as a model for establishing procedures 
in other Child Nutrition Programs. They suggested that FNS further 
investigate and attempt to address potential inconsistencies in 
implementation among States.
FNS Response
    FNS agrees that modifications are needed to improve the serious 
deficiency process to ensure its application is fair and fully 
implemented. Consequently, FNS published a notice, Request for 
Information: The Serious Deficiency Process in the Child and Adult Care 
Food Program, in the Federal Register, at 84 FR 22431, on May 17, 2019, 
https://www.fns.usda.gov/cacfp/fr-051719, to gather information to help 
FNS understand the firsthand experiences of State agencies and program 
operators. FNS received 580 comments in response to this request for 
information. An analysis of the responses has convinced FNS to delay 
the expansion of the serious deficiency process and related changes. To 
better serve State agencies and program operators, important 
modifications are needed to make the application of the serious 
deficiency process consistent and effective, in line with current 
statutory requirements.
    To allow FNS to respond to the concerns and challenges that 
resonated in the public comments, FNS intends to publish a separate 
rulemaking to propose improvements to the serious deficiency process 
and provide an opportunity for the public to comment on the changes. 
FNS is committed to publishing new regulations to address a serious 
deficiency determination, corrective action, termination for cause, and 
disqualification, prior to extending these requirements to unaffiliated 
centers in CACFP and SFSP sponsors. This separate rulemaking will 
establish a serious deficiency process for SFSP, with provisions for 
disqualification and placement on the NDL. It will also address the 
legal requirements for records maintained on individuals on the NDL.
    State agencies will continue to have discretion to apply their own 
processes for addressing seriously deficient performance by 
unaffiliated centers in CACFP and sponsors in SFSP, during this period 
of rulemaking development. Implementation of State agency processes 
does not require a State agency request for FNS approval of additional 
requirements. FNS will continue to provide technical assistance as 
needed to support such implementation.
    To eliminate ambiguity, this rulemaking also includes a definition 
of ``Termination for convenience'' to clarify that an agreement may be 
terminated for convenience when a sponsor, institution, facility, or 
State agency chooses to permanently end program participation, due to 
considerations unrelated to its performance of program 
responsibilities. If an entity decides to apply to participate in SFSP 
or CACFP, at a future date, a new agreement is required. However, if 
the service of meals is temporarily interrupted, due to considerations 
unrelated to program performance, the State agency or sponsoring 
organization, as applicable, must be notified in writing that meals 
will not be claimed for that period of time. The agreement remains in 
effect.
    Termination for convenience, particularly by the State agency, may 
be an infrequent occurrence. The regulations maintain that the State 
agency, sponsor, institution, or facility cannot terminate for 
convenience to avoid implementing the serious deficiency process. Any 
entity that voluntarily terminates its agreement after receiving a 
notice of intent to terminate will be terminated for cause and 
disqualified.
    Accordingly, this final rule amends 7 CFR 225.2, 225.6(i), 226.2, 
and 226.6(b)(4) to define ``Termination for convenience'' and address 
the cessation of program activities in SFSP and CACFP for reasons that 
are unrelated to performance. The compliance date is August 23, 2024. 
FNS will propose additional State agency provisions for establishing a 
serious deficiency process to address termination for cause, 
disqualification, and other administrative actions for program 
violations in a separate rulemaking.
4. State Agency Review Requirements in CACFP
    Monitoring is an essential tool for ensuring integrity and reducing 
program abuse. Section 17(d)(2)(C) of the NSLA, 42 U.S.C. 
1766(d)(2)(C), directs the Secretary to develop policies under which 
each State agency must conduct at least one scheduled site visit, at 
not less than 3-year intervals, to identify and prevent management 
deficiencies, fraud, and abuse, and to improve CACFP operations. The 
statute mandates more frequent reviews of any institution that:
    <bullet> Sponsors a significant share of the facilities 
participating in CACFP;
    <bullet> Conducts activities other than those expressly related to 
the administration and delivery of CACFP;
    <bullet> Has had prior reviews that detected serious management 
problems;
    <bullet> Is at risk of serious management problems; or
    <bullet> Meets other criteria as defined by the Secretary.
    Current regulations require State agencies to annually review at 
least a third (33.3 percent) of all institutions participating in the 
CACFP in each State. Independent centers must be reviewed at least once 
every 3 years. Sponsoring organizations with up to 100 facilities must 
also be reviewed at least once every 3 years. Sponsoring organizations 
with more than 100 facilities must be reviewed at least once every 2 
years. New sponsoring organizations with five or more facilities must 
be reviewed within the first 90 days of operation.
    As part of each required review of a sponsoring organization, the 
State agency must select a sample of facilities. For sponsoring 
organizations of less than 100 facilities, the State agency must review 
10 percent of the facilities. For sponsoring organizations of more than 
100 facilities, the State agency must review 5 percent of the first 
1,000 facilities, and 2.5 percent of the facilities in excess of 1,000.
    Consistent with the statutory mandate under section 17(d)(2)(C) of 
the NSLA, FNS proposed criteria for State agencies to use in selecting 
institutions for more

[[Page 57797]]

frequent reviews. Under the proposed rule, selected institutions must 
be reviewed at least once every 2 years. FNS did not propose any 
changes to the requirements for reviews of sponsored facilities.
Public Comments
    FNS received 137 comments, of which 4 responses were supportive, 10 
were opposed, and 123 were mixed. A large form letter campaign 
requested FNS to provide additional criteria to describe institutions 
that are at risk of having serious management problems. Multiple State 
agencies did not agree that conducting activities other than those 
related to CACFP would increase the risk of abuse, citing the 
participation of numerous types of child care, social service, tribal, 
and other multi-purpose organizations that engage in activities outside 
of CACFP. They observed that virtually all sponsoring organizations 
conduct activities other than those related to CACFP and that there is 
greater risk for abuse by institutions that have little outside funding 
and rely almost exclusively on CACFP funds. They also asked FNS to 
clarify how State agencies should incorporate additional reviews into 
the current 3-year review cycle.
    Respondents expressed concern that compliance with the proposed 
rule would require additional State agency funding and staffing to 
address the substantial increase in burden. They recommended 
alternatives, such as requiring in depth financial reviews of all 
institutions; applying this requirement only to sponsoring 
organizations that do not provide child or adult care services, beyond 
CACFP; or excluding institutions that receive monitoring through their 
participation in other Federal programs, such as SFAs in NSLP.
    FNS requested specific comments addressing the frequency and number 
of reviews State agencies would be required to perform under the 
provisions of the proposed rule. Four State agencies responded. They 
projected that 26 to 64 percent of sponsoring organizations would 
require additional reviews. They voiced concern that the additional 
audit funds now available to State agencies would not sufficiently 
cover the increased costs of monitoring.
FNS Response
    This final rule establishes additional priorities and criteria for 
State agencies to use in selecting institutions for review. As required 
by statute, it requires State agencies to conduct at least one review 
every 2 years of institutions that:
    <bullet> Sponsor more than 100 facilities, as currently required;
    <bullet> Engage in any activities other than those related to 
CACFP;
    <bullet> Have received findings from a recent review that detected 
serious management problems; or
    <bullet> Are at risk of having serious management problems.
    In developing this rulemaking, FNS recognizes that a more frequent 
schedule of reviews will require State agencies to also prioritize 
funding and staffing resources. Comments from State agencies and other 
respondents stress this point. However, FNS has found that some States 
are not making full use of SAE and CACFP audit funds that are available 
to support the performance of reviews, audits, and other oversight 
activities. That is why FNS continues to encourage all State agencies 
to make wider use of these funds. Full use of these funds will help 
ease any potential burden.
    SAE and CACFP audit funds are available to State agencies for 
specific purposes. SAE supports allowable expenses associated with the 
administration of the Child Nutrition Programs and related Food 
Distribution Programs; the employment of additional personnel to 
supervise, improve management, and give technical assistance to 
institutions; and other allowable uses described under 7 CFR 235.6. 
When some State agencies cannot fully use their allotment of SAE funds, 
FNS reallocates them to other States that can ensure they are used.
    CACFP audit funds may be used to pay for the CACFP portion of 
institution audits and for conducting program-specific audits of 
institutions. The State agency may use these funds to support CACFP-
related audits and subsequent audit resolution activities. The funds 
may also be used for reviews of CACFP institutions, provided that all 
required program-specific audits have been performed. The State agency 
may choose to retain all of its allocation, provide some of its audit 
funds to institutions, or use any remaining audit funds for other 
monitoring activities purposes. Section I-C-6 of this preamble provides 
additional information about the allocation and usage of audit funds 
for State agencies.
    The comments also point out concerns about the criteria State 
agencies must use in selecting institutions for review. As required by 
statute, institutions must receive more frequent monitoring if they 
sponsor more than 100 facilities, engage in any activities other than 
those related to CACFP, have had serious management problems, or are at 
risk of having serious management problems. These criteria are 
specified under section 17(d)(2)(C) of the NSLA. They underscore the 
importance of prioritizing State monitoring resources to achieve the 
most effective program oversight.
    FNS characterizes serious management problems as the types of 
administrative weaknesses that affect an institution's ability to meet 
CACFP performance standards--financial viability, administrative 
capability, and accountability. A sponsoring organization that operates 
a variety of community programs may be prone to serious management 
problems if it has inadequate staffing to support CACFP operations or 
may be devoting too small of a share of administrative resources to 
CACFP. Routine allocation of a disproportional amount of a sponsoring 
organization's budget to its other activities should raise a red flag 
about its ability to properly manage CACFP. More frequent monitoring by 
the State agency would help improve CACFP operations by identifying and 
addressing these weaknesses. Excluding Head Start centers, SFAs, and 
other types of institutions that receive monitoring through their 
participation in other Federal programs from this requirement would be 
inconsistent with the statutory requirement and would not support 
efforts to identify and correct serious management problems in CACFP.
    FNS expects State agencies to prioritize reviews to ensure that 
institutions do not divert CACFP resources to other activities. 
However, FNS is open to considering alternative approaches for 
determining review priorities, identifying institutions with a high 
number of risk factors, and ensuring effective monitoring on a case-by-
case basis. State agencies should work with FNS to determine how they 
can design their monitoring policies to comply with statutory 
requirements. A State agency with a proposed alternative approach 
should consult with FNS.
    The proposed rule cites examples of factors that may expose an 
institution's risk, including changes in ownership, significant staff 
turnover, new licensing status, complaints about a sponsoring 
organization, sizable differences in the number of claims or the amount 
of claims submitted by an institution, or large increases in the number 
of sponsored centers or day care homes. The State agency should also 
consider its ongoing evaluation of the performance standards that 
demonstrate the institution's ability to effectively operate the 
program. For example,

[[Page 57798]]

institutions that have lost other sources of funding are at risk, as 
they may be incapable of meeting their financial obligations if there 
were an interruption in CACFP payments.
    Accordingly, as required by statute, this final rule amends 7 CFR 
226.6(m)(6) to require the State agency to schedule reviews at least 
once every 2 years of institutions that sponsor more than 100 
facilities, engage in activities other than CACFP, have had serious 
management problems in previous reviews, or are at risk of having 
serious management problems. The compliance date is August 23, 2024.
5. State Liability for Payments to Aggrieved Child Care Institutions
    Section 17(e) of the NSLA, 42 U.S.C. 1766(e), directs the Secretary 
to promulgate CACFP regulations to ensure that State agencies use a 
fair and timely hearing process to reduce the amount of time between a 
State agency's action and the child care institution's hearing. This 
provision only applies to payments to child care institutions. It 
shifts the responsibility for payments from aggrieved child care 
institutions to State agencies and works as a deterrent to prevent 
State agencies from failing to issue administrative review decisions 
within the required timeframe. It requires State agencies to pay, from 
non-Federal sources, all valid claims for reimbursement, from the end 
of the regulatory deadline for providing the hearing to the date a 
decision is made.
    Under current regulations at 7 CFR 226.6(k), the State agency must 
acknowledge an institution's request for an administrative review 
within 10 days of its receipt of the request. Within 60 days of the 
State agency's receipt of the request, the administrative review 
official must inform the State agency, the institution's executive 
director, chair of the board of directors, responsible principals, and 
responsible individuals of the administrative review's outcome. During 
this period, all valid claims for reimbursement must be paid to the 
institution and the facilities of the institution, unless there is an 
allegation of fraud or a serious health or safety violation against the 
institution. The claims are paid from Federal funds.
    FNS proposed amending the regulations to establish the State 
agency's liability to pay all valid claims if the State agency fails to 
meet the required timeframe for providing a fair hearing and a prompt 
decision. A State agency that fails to issue administrative review 
decisions within 60 days must pay, from non-Federal sources, all valid 
claims for reimbursement to the aggrieved institution, beginning on the 
61st day and ending on the date on which the decision is made.
Public Comments
    FNS asked respondents to the proposed rule to address the financial 
implications of this provision, and suggest appropriate milestones that 
FNS could require of State agencies during implementation. FNS 
specifically requested comments to consider alternatives to the 60-day 
timeframe and any modifications which would meet State needs, without 
compromising integrity or the demand for a timely decision for the 
aggrieved institution. Out of 132 comments, 10 responses were 
supportive, 10 responses (including 2 form letters) were opposed, and 
112 responses (including 99 form letters) were mixed.
    Although the comments did not highlight any financial impacts, 
multiple respondents offered alternatives or improvements to the 60-day 
timeframe. They cited numerous factors outside of the State agency's 
control that may delay the State agency's ability to issue 
administrative review decisions within a 60-day deadline, including:
    <bullet> Delays caused by the hearing official's schedule;
    <bullet> Voluminous stacks of paperwork requiring the hearing 
official to take additional time for review;
    <bullet> Additional time needed by the hearing official to render 
and fully document the legal basis for the decision;
    <bullet> Continuances requested by the State agency to gather 
evidence; and
    <bullet> The aggrieved institutions' needs for additional time to 
secure counsel, build their cases, or schedule hearings.
    Thirteen of the comments were from State agencies administering 
CACFP that are directly responsible for adhering to the timeframe for 
issuing an administrative review decision under 7 CFR 226.6(k)(5)(ix). 
One State agency proposed changing the deadline for completion of the 
administrative review to 90 days, citing the results of Targeted 
Management Evaluations. During Fiscal Years 2010 and 2011, FNS 
conducted in-depth reviews of compliance with serious deficiency 
requirements and found that more than half of State agencies in the 
Targeted Management Evaluation sample needed up to 90 days to complete 
the administrative review process. Another State agency proposed 
changing the deadline to 120 days, which would conform with NSLP appeal 
procedures for SFAs under 7 CFR 210.18(p).
    A form letter campaign proposed extending the appeals timeline from 
60 to 90 days and extending the timeframe from 60 to 120 days before 
the State agency is responsible for paying valid claims from non-
Federal sources. The respondents asked FNS not to hold the State agency 
accountable for delays due to an institution's actions or, 
alternatively, they asked FNS to allow an exemption from liability when 
the delays are outside the State agency's control. They also requested 
that FNS include a step in the process that would elevate appeals of 
State agency review findings for FNS mediation, as recommended in the 
August 2015 Report to Congress, Reducing Paperwork in the Child and 
Adult Care Food Program, https://fns.usda.gov/sites/default/files/cacfp/CACFP_Paperwork_Report.pdf.
FNS Response
    Consistent with statute, this final rule requires State agencies to 
provide fair and timely hearings through the serious deficiency 
process. It also requires a State agency to pay all valid claims for 
reimbursement, from non-Federal sources, if the 60-day timeframe for 
the fair hearing is not met. Historically, some CACFP operators have 
come under scrutiny for a lack of program integrity in affording due 
process and ensuring payment accuracy, resulting in the need for the 
current regulatory framework featuring tighter regulations and 
deadlines. In order to minimize the exposure of program funds to waste 
or abuse, State agencies must be able to resolve problems quickly and 
train hearing officials to meet the FNS deadline to promptly complete 
the appeals process.
    In developing this rulemaking, FNS recognizes the concerns of State 
agencies and other respondents about exceptional circumstances that may 
require additional time and flexibility. They argued that, despite all 
reasonable efforts to keep administrative processes moving quickly and 
to overcome administrative law procedures that challenge the CACFP 
timelines, delays may arise from any number of exceptional 
circumstances. In response to these comments, this final rule allows 
FNS to approve, on a case-by case basis, a written request for an 
exception to the 60-day deadline.
    FNS is committed to working with individual State agencies to 
establish milestones to implement this provision and minimize potential 
financial burdens. Suppose a State agency is unable to meet the 
deadline due to an isolated administrative issue at the State level. 
The State agency may seek a

[[Page 57799]]

reduction in its liability, a reconsideration of its liability, or an 
exception to the 60-day deadline in this specific case by submitting a 
request to FNS that includes information regarding any mitigating 
circumstances. In this example, the State agency would explain the 
specific administrative issue it is facing, why the issue prevents the 
State agency from meeting the deadline, and how the issue will be 
remedied to ensure that it does not continue in the future. To 
determine if the request should be approved, FNS would review the State 
agency's information and consider the mitigating circumstances. For 
approval, FNS would also have to weigh factors, such as how many times 
the State agency has failed to meet the deadline, or how much of a risk 
to the integrity of Federal funds would the delay or inaction by the 
State agency cause.
    Accordingly, as required by statute, this final rule amends 7 CFR 
226.6(k) to establish State liability for payments to aggrieved child 
care institutions. It requires the State agency to pay all valid claims 
with non-Federal funds if the State agency fails to meet the required 
timeframe for providing a fair hearing and a prompt determination, 
unless FNS grants an exception. To further support the State agency's 
ability to ensure timely resolution of administrative reviews, FNS 
intends to provide technical assistance materials on developing 
processes for tracking and notifying State agencies when they would 
become liable for payments and best practices for working with hearing 
officials to emphasize the importance of adhering to a timeline in 
rendering their decisions. The compliance date is August 23, 2024.
6. CACFP Audit Funding
    Program audits are an integral component of CACFP, allowing State 
agencies to monitor funding and operations to ensure that sponsoring 
organizations and centers operate CACFP as required by law. Section 
17(i)(2)(B) of the NSLA, 42 U.S.C. 1766(i)(2)(B), allows additional 
funding to State agencies to conduct audits. The Secretary may increase 
the amount of funds to any State agency that demonstrates that it can 
effectively use the funds to improve program management, under criteria 
established by the Secretary.
    In previous fiscal years, each State agency has received up to 1.5 
percent of the program funds used by the State during the second 
preceding fiscal year for the purpose of conducting CACFP audits. 
Beginning in Fiscal Year 2016, and each fiscal year thereafter, FNS 
began accepting requests from State agencies to increase their audit 
funding from 1.5 percent to a maximum of 2 percent of the CACFP funds 
used by each State.
Public Comments
    Out of 381 comments, 10 were supportive and 371 (including 354 from 
2 form letter campaigns) were mixed. The majority of responses 
supported increasing the amounts of audit funds available to State 
agencies, just not the need to have to apply for them. Multiple 
respondents requested greater flexibility to use audit funds to support 
integrity-related expenses, such as purchases of improved technology or 
travel for training purposes. They also recommended that FNS:
    <bullet> Make it easier for State agencies to use additional audit 
funds to support the permanent or ongoing costs that are necessary for 
completing audits and maintaining program integrity;
    <bullet> Ensure that State agencies can still pass through audit 
funds to institutions if they have audit funds available to do so; and
    <bullet> Allow unspent audits funds to be used to improve CACFP, 
instead of returning them to the United States Treasury.
FNS Response
    This final rule allows FNS to increase the amount of State audit 
funds if a State agency demonstrates that it can effectively use the 
funds to improve program management. This rulemaking codifies into 
CACFP regulations the procedures FNS has established for State agencies 
to apply for a higher allocation of audit funds. It also provides 
criteria for FNS to approve these requests.
    Additional CACFP audit funds are available to State agencies that 
demonstrate the need for an increase in resources to meet audit 
requirements under 7 CFR 226.8, fulfill monitoring requirements under 7 
CFR 226.6(m), or effectively improve program management, under criteria 
established by the Secretary. FNS recognizes that the additional funds 
will be an incentive for State agencies to improve the effectiveness of 
their oversight activities and strengthen program integrity. FNS has 
established an equitable process, outlined below, to authorize these 
funds to those State agencies that submit a written request justifying 
the need for an increase in CACFP audit funds.
    Prior to the beginning of each new fiscal year, FNS announces the 
opportunity to increase CACFP audit funding levels from 1.5 to 2 
percent. The announcement includes a spreadsheet calculating the State 
agency-by-State agency funding levels at the 1.5 and 2 percent levels 
to illustrate the maximum amounts available. Each State agency may 
request any amount within the 1.5 to 2 percent range of funds. Funding 
above 1.5 percent will be available only if the State agency can 
demonstrate it will effectively use the funds to improve program 
management.
    This action does not change the formula used to calculate CACFP 
audit funds. It only changes the maximum amount of assistance available 
for some State agencies. The amount of assistance provided to a State 
agency for this purpose, in any fiscal year, may not exceed the State's 
expenditures for conducting audits as permitted under 7 CFR 226.4 and 
226.8. CACFP audit funds are not reallocated and may not be carried 
over into another fiscal year. The funds must be used for:
    <bullet> Funding of the CACFP portion of organization-wide audits 
and the resulting audit resolution activities;
    <bullet> Conducting, handling, and processing CACFP-related audits 
and performing the resulting audit resolution activities; and
    <bullet> Conducting monitoring of CACFP institutions, provided that 
all required program-specific audits have been performed.
    FNS approval of requests for additional CACFP audit funds is based 
on the State agency's demonstrated need for additional funds to meet 
audit or monitoring requirements or effectively improve program 
management. To be funded, costs must be incurred strictly to meet the 
audit requirements under 7 CFR 226.8 and the monitoring requirements 
under 7 CFR 226.6(m). Allowable costs include, but are not limited to, 
salaries of auditors and monitors and travel expenses incurred to 
conduct audits and monitoring.
    State agencies may use their allocation of CACFP audit funds to pay 
for the CACFP portion of institution audits or conduct program-specific 
audits of institutions, as specified under 7 CFR 226.8(b) and (c), 
respectively. The State agency may choose to retain all of its 
allocation, provide some of its audit funds to institutions, or use any 
remaining audit funds for other monitoring activities. For example, 
after the completion of program-specific audits, the State agency may 
use the remaining funds to cover costs incurred in evaluating financial 
viability, administrative capability, and accountability at the time of 
application. The review of budgets to ensure that costs are allowable 
and the purchase of mapping software for determining the

[[Page 57800]]

accuracy of area eligibility determinations for day care homes are also 
examples of allowable uses of remaining funds.
    Accordingly, this final rule amends 7 CFR 226.4(j) to allow 
additional CACFP audit funds for State agencies. FNS now considers 
requests to increase audit funding from 1.5 percent to a cumulative 
maximum of 2 percent of CACFP funds used by the State agency during the 
second preceding fiscal year for the purpose of conducting program 
audits. The additional funds must be used to meet program oversight and 
audit requirements under 7 CFR 226.6(m) and 226.8, respectively, or to 
improve program management under criteria established by the Secretary. 
The compliance date is September 22, 2023.
7. Financial Review of Sponsoring Organizations in CACFP
    The proposed rule includes modifications in program policy 
resulting from the reports of findings from OIG's audit, Review of 
Management Controls for the Child and Adult Care Food Program, issued 
in November 2011, and FNS management evaluations of State agency 
administration of CACFP. These inquiries found that the misuse of funds 
was often an indicator of a sponsoring organization's systemic program 
abuse that State agency financial reviews were unable to detect. The 
reports recommended improvements that would be effective at uncovering 
and preventing the misuse of funds, including the following 
requirements for State agencies to review:
    <bullet> CACFP bank account activity to verify that sponsoring 
organization transactions meet program requirements; and
    <bullet> Program expenditures and the amount of meal reimbursement 
funds sponsoring organizations retain from unaffiliated centers for 
administrative costs.
    Current regulations require State agencies to review and approve 
budgets for sponsoring organizations of centers to ensure that CACFP 
funds are used only for allowable expenses. The portion of the 
administrative costs to be charged to CACFP must not exceed 15 percent 
of the meal reimbursements estimated to be earned during the budget 
year unless a waiver is granted. All administrative costs, whether 
incurred by the sponsoring organization or by its sponsored centers, 
must be taken into account.
    If a sponsoring organization intends to use any non-program 
resources to meet CACFP requirements, its budget must identify a source 
of non-program funds that could be used to pay overclaims or other 
unallowable costs. To determine if CACFP funds are solely used for the 
operation or improvement of the nonprofit food service, an evaluation 
of the financial trail of source documents, ledgers, bank account 
statements, canceled checks, electronic deductions and transfers, and 
other financial records is required.
    A thorough review of the sponsoring organization's financial 
records is vital in ensuring program integrity. The sponsoring 
organization must produce accurate, current, and complete disclosure of 
the financial results of each Federal award or program. Additionally, 
the records must identify the source and application of funds for 
federally-funded activities. However, the State agency's ability to 
monitor a sponsoring organization's use of CACFP funds is limited. 
While sponsoring organizations must submit annual budgets, which detail 
expenditures by cost category, they are not currently required to 
report actual expenses or fully account for their disbursement of CACFP 
funds.
    To rectify these weaknesses, FNS proposed requiring State agencies 
to establish processes to verify that sponsoring organizations' 
financial transactions comply with CACFP regulations by requiring 
sponsoring organizations to report program expenditures. The proposed 
rule would require the State agency to annually review and compare at 
least 1 month of a sponsoring organization's bank account activity with 
documents to demonstrate that the transactions meet program 
requirements. The State agency must reconcile reported expenditures 
with CACFP payments to ensure that funds are accounted for fully.
    The proposed rule would also require the State agency to annually 
review sponsoring organization reports of actual expenditures of 
program funds and the amount of meal reimbursement funds retained from 
their unaffiliated centers for administrative costs. If the State 
agency identifies any expenditures that have the appearance of 
violating program requirements, the State agency must refer the 
sponsoring organization's bank account activity to an auditor or other 
appropriate State authority for verification.
Public Comments
    Out of 589 comments, 4 were supportive, 67 (including 53 form 
letters) were opposed, and 518 (including 486 from 3 form letter 
campaigns) were mixed. Many respondents argued that completing annual 
financial reviews, particularly annual bank account reviews, would 
create an administrative burden for State agencies. Respondents were 
concerned that a review of a single month of bank account activity 
would not be an effective use of program resources. They asserted that 
bank account statements would not provide useful information because 
there is no requirement for sponsoring organizations to have separate 
bank accounts for Federal funds.
    Multiple responses suggested that State agencies change review 
priorities to tie invoices to bank account statements in a targeted 
edit check of bank, invoice, and accounting records during the review 
process. The responses also included recommendations for adopting a 
risk-based approach to ensure that organizations at risk of misusing 
Federal funds are reviewed annually; coordinating the financial review 
with the review cycle; or adding a requirement that sponsoring 
organizations maintain timely financial reports onsite so that these 
reports would be available for review at any time.
FNS Response
    This final rule requires State agencies to annually verify bank 
account activity and actual expenditures by sponsoring organizations in 
CACFP. The State agency must select and compare 1 month of a sponsoring 
organization's CACFP bank account activity with other documents that 
are adequate to support that the financial transactions meet program 
requirements. This rulemaking also requires State agencies to annually 
review CACFP expenditures reported by sponsoring organizations of 
unaffiliated centers. Sponsoring organizations must annually report the 
amount of program expenditures of program funds and the amount of meal 
reimbursement funds retained from their unaffiliated centers for 
administrative costs.
    While comments to the proposed rule included a number of 
alternatives that may offer a small reduction in burden, FNS believes 
that an annual review of bank account activity will more effectively 
uncover and prevent the misuse of funds than a less frequent review 
cycle. The review of bank account activity provides the most reliable 
and effective means to verify and document costs. Unlike receipts that 
show the reviewer who is owed the payments, statements of bank account 
activity inform the reviewer of who actually received the payments.
    Bank account statements and supporting documents are utilized as

[[Page 57801]]

tools to conduct edit checks on compliance requirements associated with 
the receipt and use of CACFP reimbursement. Edit checks can be 
conducted electronically and remotely, once the necessary supporting 
financial documentation is received by the State agency reviewer.
    For example, to confirm that a sponsoring organization's invoices 
for CACFP expenses are legitimate and correctly paid, the State agency 
reviewer would compare the invoices to the actual bank statement. If 
discrepancies were found, the sponsoring organization would have the 
opportunity to present documentation to resolve them. The State agency 
reviewer would expand the review to examine additional months of bank 
statements, as warranted, to determine if the discrepancies are part of 
a systemic problem. If any expenditures have the appearance of 
violating program requirements, the State agency reviewer must attempt 
to verify the bank account activity. If the discrepancies cannot be 
verified, or if they are significant, the State agency reviewer must 
refer the sponsoring organization's bank account activity to 
appropriate State authorities, such as the State auditing division or 
the State Bureau of Investigation.
    The State agency has discretion to obtain statements of bank 
account activity with the annual budget submission, as part of the 
application renewal, or through a monitoring review. No changes were 
made to the review content, application procedures, or budget approval 
requirements at 7 CFR 226.6. The review of bank account activity is 
easier if funds are not comingled. Although FNS does not require it in 
CACFP, maintaining a separate bank account for Child Nutrition Program 
funds is a recommended practice. Personal or non-Child Nutrition 
Program funds should be held in a separate bank account.
    Accordingly, this final rule amends 7 CFR 226.7(b) to require the 
State agency to have procedures in place for annually reviewing at 
least 1 month of the sponsoring organization's bank account activity 
against other associated records to verify that the financial 
transactions meet program requirements. The State agency must also have 
procedures for annually reviewing a sponsoring organization's actual 
expenditures of CACFP funds and the amount of meal reimbursement funds 
retained from unaffiliated centers to support the sponsoring 
organization's administrative costs. The State agency must reconcile 
reported expenditures with program payments to ensure that funds are 
accounted for fully. This final rule makes a corresponding change to 7 
CFR 226.10(c) to require sponsoring organizations of unaffiliated 
centers to annually make available to the State agency the amount of 
program expenditures of program funds and the amount of meal 
reimbursement funds retained from their centers for administrative 
costs. FNS will work closely with State agencies to develop resources 
and provide technical assistance to sponsoring organizations to ensure 
successful implementation of these requirements. The compliance date is 
August 23, 2024.
8. Informal Purchase Methods for CACFP
    Informal purchase methods (i.e., micro-purchases and small 
purchases) for procurements under Federal awards are covered in the 
Uniform Administrative Requirements, Cost Principles, and Audit 
Requirements for Federal Awards, published by the Office of Management 
and Budget at 2 CFR part 200 and adopted by USDA at 2 CFR part 400. 
This guidance sets the dollar threshold and degree of informality that 
characterizes micro-purchases and small purchases.
    Current practices allow CACFP institutions to use the micro-
purchase method for transactions in which the aggregate cost of the 
items purchased does not exceed $10,000, the current Federal threshold. 
Institutions may use the small purchase method for purchases below the 
Federal simplified acquisition threshold, currently set at $250,000. 
States and local agencies may specify lower micro-purchase and 
simplified acquisition thresholds, and local agencies may set a higher 
micro-purchase thresholds in line with 2 CFR part 200.320(a)(1)(iv-v). 
FNS would like to note that when the Child Nutrition Program Integrity 
rule was initially proposed and open to public comment, the dollar 
amounts quoted for the micro-purchase threshold and the small purchase 
threshold aligned with the 2016-time frame. Due to the passage of time 
and inflationary adjustments the above-mentioned micro-purchase and 
small purchase thresholds align with the current federal thresholds.
    CACFP regulations set out procedures that are intended to prevent 
fraud, waste, and program abuse in contracts and purchasing. However, 
operational provisions addressing food service management companies 
(FSMC) and procurement standards under 7 CFR 226.21 and 226.22, 
respectively, do not align with existing practices. Current regulations 
set the Federal threshold for small purchases at $10,000. There is no 
mention of micro-purchases. FNS proposed amending the regulations to 
expand the availability of informal purchase methods and align the 
applicable Federal dollar thresholds with future adjustments that may 
be made for inflation.
Public Comments and FNS Response
    Of the comments addressing changes to informal purchase methods, 
three were supportive and one was mixed. One respondent requested that 
FNS define a range for informal purchases.
    This final rule updates procurement standards and guidelines and 
makes the values of the Federal micro-purchase threshold and Federal 
simplified acquisition threshold consistent with current guidance on 
informal purchase methods under 2 CFR part 200. This modification 
eliminates the need to revise CACFP regulations each time the 
thresholds are adjusted for inflation.
    This rulemaking also streamlines CACFP procurement standards and 
provides clarity by removing outdated or duplicative provisions of the 
regulations that have been replaced by 2 CFR part 200. For example, 
institutions must comply with procurement procedures for micro-
purchases, small purchases, sealed bids, competitive proposals, and 
non-competitive proposals. The text at 7 CFR 226.22(i) is replaced with 
cross-references to the procedures at 2 CFR part 200 and USDA 
regulations under 2 CFR parts 400 and 415. This modification ensures 
that CACFP requirements are consistent with the streamlined 
regulations, Uniform Administrative Requirements, Cost Principles, and 
Audit Requirements for Federal Awards, that the Office of Management 
and Budget first published at 78 FR 78589, on December 26, 2013, 
https://www.federalregister.gov/documents/2013/12/26/2013-30465/uniform-administrative-requirements-cost-principles-and-audit-requirements-for-federal-awards, and USDA-specific requirements 
published at 79 FR 75871, on December 19, 2014, https://www.federalregister.gov/documents/2014/12/19/2014-28697/federal-awarding-agency-regulatory-implementation-of-office-of-management-and-budgets-uniform.
    Micro-purchase and small purchase procedures are relatively simple 
and informal methods that are appropriate for the procurement of goods 
and services for which the cost is below Federal, State, and local 
thresholds. Micro-purchase procedures are used when the transaction is 
below the current Federal threshold of $10,000 and prices are 
reasonable. Similarly, although State and local agencies may

[[Page 57802]]

impose more restrictive procurement procedures, adopting the Federal 
simplified acquisition threshold for small purchases--up to the 
threshold set by 2 CFR 200.88, Simplified acquisition threshold--would 
streamline the procurement process for CACFP institutions. The Federal 
simplified acquisition threshold is currently set at $250,000. All 
procurement transactions, regardless of the amount, must be conducted 
in a manner that ensures free and open competition.
    To the extent practicable, CACFP institutions must distribute 
micro-purchases equitably among qualified suppliers. When purchases are 
below the current Federal simplified acquisition threshold, an 
institution may use small purchase procedures, sealed bids, or 
competitive proposals, which require prices to be solicited and 
documented from an adequate number of qualified sources. Depending on 
the value of the purchase, many of the required contract provisions in 
Appendix II to 2 CFR part 200, Contract Provisions for Non-Federal 
Entity Contracts Under Federal Awards, may apply.
    Accordingly, this final rule amends 7 CFR 226.21(a) to remove 
outdated language so that the values of the Federal micro-purchase 
threshold and Federal simplified acquisition threshold are linked to 2 
CFR part 200. This final rule also makes technical changes to remove 
outdated or duplicative provisions of 7 CFR 226.22 and affirm that 
procurements by public or private non-profit institutions comply with 
the appropriate requirements under 2 CFR part 200. The compliance date 
is August 23, 2024.
9. School Food Authority Contracts With Food Service Management 
Companies
    Any school food authority (SFA) may contract with an FSMC to manage 
the food service operation at one or more of its schools. SFAs are 
required to monitor contractor performance to ensure that FSMCs comply 
with the terms, conditions, and specifications of their contracts. As 
required by 2 CFR 200.403, all costs must be reasonable, necessary, and 
allocable. SFAs are currently permitted to use ``fixed-price'' and 
``cost-reimbursable'' FSMC contracts:
    <bullet> Under a fixed-price contract, the FSMC charges the SFA a 
fixed cost per meal or a fixed cost for a certain time period; and
    <bullet> Under a cost-reimbursable contract, the FSMC charges the 
SFA for food service operating costs, and also charges fixed fees for 
other services, such as labor.
    The proposed rule included a provision to eliminate the use of 
cost-reimbursable contracts for SFAs that contract with a FSMC. FNS 
proposed limiting FSMC contracts in NSLP and SBP to fixed-price 
contracts, either with or without economic price adjustments tied to a 
standard index and eliminating cost-reimbursable FSMC contracts in NSLP 
and SBP. The proposed rule also included two technical changes to align 
FSMC requirements under 7 CFR 210.16 with existing regulations under 7 
CFR parts 210 and 250. These changes would have required State agencies 
to annually review and approve all contracts and contract amendments 
between any SFA and FSMC and require an FSMC to credit the value of 
USDA Foods to the respective SFA.
Public Comments
    FNS received 107 comments about the proposed elimination of cost-
reimbursable contracts. Of these, 15 were supportive, 80 were opposed 
(including 52 form letters), and 12 were mixed. Proponents agreed that 
the complexity of rebates, discounts, and credits in cost-reimbursable 
contracts make the contracts challenging to manage and to monitor. They 
suggested the elimination of cost-reimbursable contracts would reduce 
fraud, while creating more straightforward business dealings for SFAs. 
One food industry representative noted that in order to manage cost-
reimbursable contracts effectively, SFAs must devote significant 
resources to review, monitor, and audit costs and billings. By 
contrast, another respondent suggested fixed-price contracts allow SFAs 
to focus on manageable program areas, such as contract compliance. The 
return of rebates, discounts, and credits is not required under a 
fixed-price contract, as these factors are considered when submitting 
the bid. One State agency noted that consistent with its authority in 
current regulations, all FSMC contracts in that State are already 
required to be fixed-price.
    Opponents were concerned that fixed-price contracts may cause FSMCs 
to focus on the lowest cost per meal, rather than food quality. They 
argued that cost-reimbursable contracts offer greater transparency that 
provides SFAs better management control over the program. For example, 
a joint comment from four food industry representatives noted that 
cost-reimbursable contracts allow flexibility for SFAs to incorporate 
local produce, switch to sustainable paper products, and adjust other 
associated costs during the contract term.
FNS Response
    In this final rule, FNS is not eliminating the availability of cost 
reimbursable contracts as a type of FSMC contract SFAs may use in the 
NSLP and SBP. As noted in the proposed rule, audit findings, FNS 
management evaluations, and stakeholder feedback suggested that some 
SFAs have not been fully successful in conducting procurements or 
monitoring of cost-reimbursable contracts in the past. The ability of 
those SFAs to receive the full benefit of the contract terms and 
achieve administrative and nutritional compliance in the programs was 
negatively impacted, however given the mixed comments received on the 
proposed rule FNS has chosen not to finalize this provision as 
proposed.
    In response to the COVID-19 public health emergency and consistent 
with legislative directives, FNS, State partners, and SFAs developed 
new approaches that offered unprecedented flexibilities to school meal 
service and program management, through nationwide waivers. The 
fundamental goal for each of the waivers was to provide substantive 
support promoting access to nutritious meals to all children during the 
COVID-19 pandemic. In 2020, FNS issued guidance, Nationwide Waiver of 
Food Service Management Contract Duration in the National School Lunch 
Program and Summer Food Service Program, https://www.fns.usda.gov/cn/covid-19-child-nutrition-response-19, which waived contract duration 
requirements for all State agencies, SFAs, and SFSP sponsors. SFAs in 
States opting to use this waiver could extend contracts with FSMCs 
beyond the fourth extension year, without undertaking new competitive 
procurements. The waiver relieved SFAs and FSMCs of the burden of 
competitive procurements and enabled full focus on preparing and 
providing nutritious school meals.
    In 2021, when FSMCs and schools experienced supply chain 
disruptions that impacted food, packaging components, and 
transportation demands, FNS offered States and SFAs flexibilities, 
resources, and support to compensate for the unpredictability of the 
supply chain and the new uncertainties in accessing foods and supplies 
essential for school food service. Despite that, stakeholders provided 
compelling information indicating that even those contracts which 
included a price adjustment tied to a standard index--such as the 
Consumer Price Index--were not flexible enough to fully offset the

[[Page 57803]]

contract price to adjust during the COVID-19 pandemic supply chain-
related market volatility. In a few instances, FSMCs concluded that 
withdrawal from the SFA market was in their best interest, leaving 
affected SFAs with few options in providing school meal service.
    As a result of the lessons learned during COVID-19 and in response 
to the negative and mixed comments received during the comment period 
when this provision was proposed this final rule does not eliminate 
cost-reimbursable contracts in NSLP and SBP regulations. In responding 
to the demands of the COVID-19 pandemic, FNS gained deeper insight into 
the contractual relationships between SFAs and FSMCs, the financial 
aspects of those contracts, the impact on school food service workers, 
and the opportunities FNS may have to support and improve school food 
service. FNS has concluded that the proposed rule's elimination of cost 
reimbursable contracting would not be in the best interest of the 
programs at this time. FNS intends to assess the options and resources 
which may improve administrative and nutritional compliance, through 
stakeholder outreach, consultation, and analysis of the data reported 
as part of the COVID-19 waiver process.
    As with the proposed rule, this final rule amends NSLP regulations 
to require each State agency to annually review and approve each 
contract and contract amendment between any SFA and FSMC. This final 
rule also amends NSLP and SBP regulations to require the value of USDA 
Foods to accrue only to the benefit of the SFA's nonprofit school food 
service. The proposed rule did not extend these provisions to SBP. 
However, FNS is correcting this oversight in this final rule. FNS 
recognizes the importance of consistency and administrative 
streamlining of Child Nutrition Program and USDA Food regulations. 
Current NSLP and SBP regulations define cost-reimbursable contract. 
Finally, for clarity, this final rule adds a definition for fixed-price 
contract to NSLP and SBP regulations. Fixed-price contract means a 
contract that charges a fixed cost per meal, or a fixed cost for a 
certain time period. Fixed-price contracts may include an economic 
price adjustment tied to a standard index. Current NSLP and SBP 
regulations define cost-reimbursable contract as a contract that 
provides for payment of incurred costs to the extent prescribed in the 
contract, with or without a fixed fee.
    FNS recognizes that SFAs value flexibility in their contracts. For 
example, a contract that includes an economic price adjustment tied to 
a standard index--such as the Consumer Price Index--allows the contract 
price to adjust during market volatility. The SFA may also include a 
clause to account for changes in labor cost, such as a minimum wage 
increase. Additionally, qualitative factors--such as specifications 
relating to product appeal to students--are allowable evaluation 
factors that may be published in solicitations, as long as cost is the 
primary factor. SFAs may also include provisions that penalize an FSMC 
if meal quality is an issue. FNS recommends that SFAs consult with 
counsel during the procurement process to ensure that the contract 
terms are consistent with Federal law and any pertinent State and local 
laws.
    Accordingly, this final rule amends 7 CFR 210.2 and 220.2 to define 
fixed-price contract in NSLP and SBP. The rulemaking also amends 7 CFR 
210.19(a)(5) to require each State agency to annually review--and 
approve--each contract and contract amendment between any SFA and FSMC, 
for consistency with 7 CFR 210.16(a)(10). Finally, this rulemaking adds 
7 CFR 210.16(c)(4) and 220.7(d)(3)(iv) to require the value of USDA 
Foods to accrue only to the benefit of the SFA's nonprofit school food 
service, to align with 7 CFR 210.16(a)(6). The compliance date is 
August 23, 2024.
10. Annual NSLP Procurement Training
    Section 7(g)(2) of the Child Nutrition Act of 1966, 42 U.S.C. 
1776(g)(2), requires training for school food service personnel on 
certain administrative practices and gives USDA discretion to require 
other appropriate training topics to address critical issues, such as 
integrity concerns. Current regulations at 7 CFR 210.30(b), (c), and 
(d) outline the professional standards training requirements for school 
nutrition program directors, management, and staff, respectively. 
Current regulations at 7 CFR 235.11(g)(3) outline the training 
requirements for State directors of school nutrition programs and 
distributing agencies. The specific annual training requirements vary, 
but for each position, FNS may identify other training topics, as 
needed. There are no specific regulatory requirements related to NSLP 
procurement training.
    As discussed in the proposed rule, FNS released a guidance memo 
strongly encouraging periodic training for State Agency and SFA staff 
tasked with procurement responsibilities and has taken a number of 
steps to share information about proper procurement methods. However, 
State agencies and SFAs continue to face challenges implementing 
Federal procurement requirements. Helping State agencies and SFAs 
better understand procurement responsibilities through adequate 
training is one way to ensure Federal funds are used appropriately in 
NSLP. To improve compliance of these important requirements, the 
proposed rule requires annual procurement training for State agency and 
SFA staff tasked with procurement responsibilities, with an effective 
date 90 days after publication of the final rule. The proposed rule 
also requires State agencies and SFAs to retain records to document 
compliance with this provision.
Public Comments
    FNS received 15 comments about NSLP procurement training. Of these, 
2 were supportive, 4 were opposed, and 9 were mixed. Proponents 
described this provision as important and necessary, and stated that 
annual procurement training would ensure the school nutrition programs 
use Federal funds efficiently. Some respondents asked for clarification 
about the implementation of this requirement, including the number of 
annual training hours required. Regarding the proposal to document 
training, one respondent noted this would be an important step in 
assuring accountability. Opponents were concerned that this provision 
would increase program costs and create burden. They argued that annual 
procurement training is duplicative or excessive, unless it is 
necessary to resolve a review finding. One respondent argued that 
annual trainings in general lose value and become tedious.
FNS Response
    This final rule requires State directors of school nutrition 
programs, State directors of distributing agencies, and school 
nutrition program directors, management, and staff who work on NSLP 
procurement activities to complete procurement training annually. FNS 
modified the language in this final rule to align with the school 
nutrition professional standards. This final rule also amends 7 CFR 
210.30 and 235.11 to clarify that NSLP procurement training is subject 
to professional standards monitoring and recordkeeping requirements and 
may count towards the professional standards training requirements. 
This change from the proposed rule streamlines monitoring, 
recordkeeping, and training requirements.
    FNS is mindful of respondents' concerns that NSLP procurement

[[Page 57804]]

training will not be relevant to all program staff. FNS recognizes that 
school nutrition program personnel have a variety of job 
responsibilities, which may or may not include procurement. FNS does 
not intend to require all personnel to complete annual procurement 
training, nor to take time away from other relevant training topics. 
This requirement only applies to State directors and school nutrition 
program directors, management, and staff who work on NSLP procurement 
activities.
    FNS will not require a specific number of annual training hours. 
For personnel with minimal involvement, a brief refresher course may be 
sufficient. Personnel who are new to NSLP procurement, who are assigned 
new procurement tasks, or who use more complex procurement methods, 
such as sealed bids and competitive proposals, may require a full day 
of training. FNS encourages the training plan that best supports each 
staff member's job-specific training needs and experience.
    Consistent with the professional standards training requirements, a 
variety of training formats may be used, such as webinars, classroom 
training, and seminars. State agencies may use SAE funds to pay for the 
costs of receiving or delivering annual NSLP procurement training. 
Generally, training is an allowable use of school food service funds. 
State agencies and SFAs are encouraged to access the free or low-cost 
training resources listed online at https://professionalstandards.fns.usda.gov/.
    Annual training is an important step to ensure personnel who work 
on NSLP procurement activities have the knowledge they need to 
successfully implement Federal procurement requirements. Ensuring that 
responsible personnel annually gain knowledge of Federal procurement 
standards and contract performance monitoring through this regulatory 
change is an important step towards improving program integrity.
    Accordingly, this final rule adds new paragraphs at 7 CFR 
210.21(h), 210.30(g)(3), and 235.11(h)(3) to require State directors of 
school nutrition programs, State directors of distributing agencies, 
and school nutrition program directors, management, and staff who work 
on NSLP procurement activities to complete annual procurement training. 
The compliance date is August 23, 2024.

II. CACFP Amendments

A. Background

    FNS is also using this opportunity to codify statutory requirements 
that are designed to improve the administration and operational 
efficiency of CACFP, with less paperwork. FNS published a proposed 
rule, Child and Adult Care Food Program: Amendments Related to the 
Healthy, Hunger-Free Kids Act of 2010, 77 FR 21018, on April 9, 2012, 
https://www.fns.usda.gov/cacfp/fr-040912, that included amendments that 
would replace the renewal application with an annual certification 
process, vary the timing of reviews of day care homes and centers, 
require permanent operating agreements for sponsored centers, broaden 
procedures for the collection of meal benefit forms for children 
enrolled in day care homes, and allow carry over and simplified 
calculation of administrative payments.
    Since these changes in CACFP policy were required by the Healthy, 
Hunger-Free Kids Act of 2010 (HHFKA), and FNS released the changes in 
policy memos, they have become standard operating practices for State 
agencies and sponsoring organizations. In the intervening years since 
publication of the proposed rule, due to shifting priorities and the 
COVID-19 pandemic, FNS was unable to publish subsequent rulemaking to 
incorporate these statutory amendments into CACFP regulations under 7 
CFR part 226. Through this final rule, FNS is incorporating only the 
statutory amendments proposed in the Child and Adult Care Food Program: 
Amendments Related to the Healthy, Hunger-Free Kids Act of 2010, 77 FR 
21018, on April 9, 2012, https://www.fns.usda.gov/cacfp/fr-040912, into 
CACFP regulations.
    FNS received 27 comments in response to the proposed rule. Many of 
them pointed out technical errors, questioned potential gaps in 
implementation, and offered valuable suggestions for improvement, but 
none of the comments objected to any of the six amendments, which are 
required by statute. There were no adverse comments challenging the 
rule's underlying premise or approach or suggesting that the content of 
the rule would be inappropriate, ineffective, or unacceptable without a 
change. The comments are posted at http://www.regulations.gov under 
docket ID FNS-2012-0022, Child and Adult Care Food Program: Amendments 
Related to the Healthy, Hunger-Free Kids Act of 2010.
    The amendments included in this final rule:
    <bullet> Require institutions to submit an initial application to 
the State agency and, in subsequent years, periodically update the 
information, in lieu of submitting a new application;
    <bullet> Require sponsoring organizations to vary the timing of 
reviews of sponsored facilities;
    <bullet> Require State agencies to develop and provide for the use 
of a standard permanent agreement between sponsoring organizations and 
day care centers;
    <bullet> Allow tier II day care homes to collect household income 
information and transmit it to the sponsoring organization;
    <bullet> Modify the method of calculating administrative payments 
to sponsoring organizations of day care homes; and
    <bullet> Allow sponsoring organizations of day care homes to carry 
over up to 10 percent of their administrative funding from the previous 
Federal fiscal year into the next fiscal year.

B. Codifying the CACFP Amendments

1. Elimination of the Annual Application for Renewing Institutions
    Annual certification of an institution's eligibility to continue 
participating in CACFP has replaced the renewal application process. 
Section 17(d)(2) of the NSLA, as amended by HHFKA, directs the 
Secretary to develop a policy to address the initial application 
requirements for institutions and annual confirmation of compliance 
with licensing and all other requirements for institutions and 
facilities to continue to participate in CACFP. These amendments 
required changes to current regulations, which require institutions to 
submit an annual application to participate in the program. Renewing 
institutions must re-apply at intervals of between 12 and 36 months 
after their initial application was approved by the State agency.
    FNS issued CACFP 19-2011, Child Nutrition Reauthorization 2010: 
Child and Adult Care Food Program Applications, on April 8, 2011, 
https://www.fns.usda.gov/cacfp/applications, to provide guidance 
regarding the HHFKA requirements that renewing institutions must submit 
an annual certification of information, updated licensing information, 
and a budget. FNS included the requirements for annual certification in 
the April 9, 2012, proposed rule for the public to review and comment 
on. FNS did not receive any substantive comments on this provision.
    This final rule adopts these changes, as proposed, by amending 7 
CFR 226.6(b) to require an initial application for new institutions and 
annual confirmation for renewing institutions that they are compliant 
with program requirements. Renewing sponsoring organizations must 
submit updated

[[Page 57805]]

licensing information for its sponsored facilities, an annual budget, 
and an annual certification of compliance with all of the requirements 
under 7 CFR 226.6(b)(2) and 226.6(f)(1). The renewing sponsoring 
organization must certify that:
    <bullet> The management plan on file with the State agency is 
complete and up to date, per 7 CFR 226.6(b)(1)(iv);
    <bullet> The sponsoring organization and its principals are not 
currently on the National Disqualified List, per 7 CFR 
226.6(b)(1)(xii);
    <bullet> No sponsored facility or principal of a sponsored facility 
is currently on the CACFP National Disqualified List, per 7 CFR 
226.6(b)(1)(xii);
    <bullet> A list of any publicly funded programs that the sponsoring 
organization and its principals have participated in, in the past 7 
years, is current, per 7 CFR 226.6(b)(1)(xiii)(B);
    <bullet> The sponsoring organization and its principals have not 
been determined ineligible for any other publicly funded programs due 
to violation of that program's requirements, in the past 7 years, per 7 
CFR 226.6(b)(1)(xiii)(B);
    <bullet> No principals have been convicted of any activity that 
occurred during the past 7 years and that indicated a lack of business 
integrity, per 7 CFR 226.6(b)(1)(xiv)(B);
    <bullet> The names, mailing addresses, and dates of birth of all 
current principals have been submitted to the State agency per 7 CFR 
226.6(b)(1)(xv);
    <bullet> The outside employment policy most recently submitted to 
the State agency remains current and in effect, per 7 CFR 
226.6(b)(1)(xvi);
    <bullet> The sponsoring organization is currently compliant with 
the required performance standards of financial viability and 
management, administrative capability, and program accountability, per 
7 CFR 226.6(b)(1)(xviii);
    <bullet> Licensing or approval status of each sponsored child care 
center, adult day care center, or day care home is up-to-date;
    <bullet> The list of the sponsoring organization's facilities on 
file with the State agency is up-to-date; and
    <bullet> All facilities under the sponsoring organization's 
oversight have adhered to Program training requirements.
    Renewing independent centers must submit updated licensing 
information and an annual certification of compliance with all of the 
requirements under 7 CFR 226.6(b)(2) and 226.6(f)(1). The renewing 
independent center must certify that:
    <bullet> The center and its principals are not currently on the 
National Disqualified List, per 7 CFR 226.6(b)(1)(xii);
    <bullet> A list of any publicly funded programs that the center and 
its principals have participated in the past 7 years is current, per 7 
CFR 226.6(b)(1)(xiii)(B);
    <bullet> The center and its principals have not been determined 
ineligible for any other publicly funded programs due to violation of 
that program's requirements in the past 7 years, per 7 CFR 
226.6(b)(1)(xiii)(B);
    <bullet> No principals have been convicted of any activity that 
occurred during the past 7 years and that indicated a lack of business 
integrity, per 7 CFR 226.6(b)(1)(xiv)(B);
    <bullet> The names, mailing addresses, and dates of birth of all 
current principals have been submitted to the State agency per 7 CFR 
226.6(b)(1)(xv);
    <bullet> The center is currently compliant with the required 
performance standards of financial viability and management, 
administrative capability, and program accountability, per 7 CFR 
226.6(b)(1)(xviii); and
    <bullet> Licensing or approval status of each child care center or 
adult day care center.
    State agencies may add to this list other types of information that 
they require annually for proper administration of the program, such as 
submission of budgets by independent centers, which is not a Federal 
requirement. The miscellaneous responsibilities currently listed under 
7 CFR 226.6(f)(3)(iv) include additional reporting requirements for 
CACFP institutions. This final rule makes a corresponding change to 
remove the reapplication requirements under 7 CFR 226.6(f)(2) and move 
the responsibilities at other time intervals, listed under paragraph 
(f)(3), to paragraph (f)(2).
    Accordingly, as required by statute, this action amends 7 CFR 
226.2, and 226.6(b) to require an initial application for new 
institutions and annual updates, as needed, for renewing institutions. 
A corresponding change is made at 7 CFR 226.6(f). This provision has 
been a standard operating practice for State agencies since 2011. The 
compliance date is September 22, 2023.
2. Timing of Unannounced Reviews
    Reviews are more effective at ensuring program integrity when they 
are unannounced and unpredictable. Section 17(d)(2)(B)(ii) of the NSLA 
requires sponsoring organizations to vary the timing of unannounced 
reviews in a manner that makes the reviews unpredictable to sponsored 
facilities. Current regulations require sponsoring organizations to 
conduct three reviews per year at each facility, two of which must be 
unannounced. One of the unannounced reviews must include observation of 
a meal service. No more than 6 months may elapse between reviews. 
However, there is no current regulatory requirement that the timing of 
those reviews must be varied.
    FNS issued CACFP 16-2011, Child Nutrition Reauthorization 2010: 
Varied Timing of Unannounced Reviews in the Child and Adult Care Food 
Program, on April 7, 2011, https://www.fns.usda.gov/cacfp/varied-timing-unannounced-reviews-child-and-adult, to advise State agencies of 
the new statutory requirement under HHFKA to ensure that the timing of 
unannounced reviews is varied in a way that would ensure they are 
unpredictable to the day care home or sponsored center. FNS included 
the requirements for the timing of unannounced reviews in the CACFP 
proposed rule for the public to review and comment on. FNS did not 
receive any substantive comments on this provision.
    This final rule adopts these changes by amending 7 CFR 
226.16(d)(4)(iii) to require sponsoring organizations to vary both the 
timing of unannounced reviews and the types of meal service that are 
subject to review. This rulemaking also amends the review content at 7 
CFR 226.6(m)(3) to add a requirement that the State agency assess the 
frequency, predictability, and type of each sponsoring organization's 
facility reviews. Effective monitoring of day care homes and sponsored 
centers will require sponsoring organizations to ensure that:
    <bullet> At least two of the three annual reviews are unannounced;
    <bullet> At least one unannounced review includes observation of a 
meal service;
    <bullet> At least one review is made during each new facility's 
first 4 weeks of program operations;
    <bullet> No more than 6 months elapse between reviews;
    <bullet> The timing of unannounced reviews is varied so that they 
are unpredictable to the facility;
    <bullet> All types of meal service are reviewed; and
    <bullet> The types of meal service reviewed are varied.
    Accordingly, this final rule amends 226.16(d)(4)(iii) to require 
sponsoring organizations to vary the timing of unannounced reviews and 
vary the type of meal service subject to review. A corresponding change 
is made at 7 CFR 226.6(m)(3)(ix) to require the State agency to assess 
the timing of each sponsoring organization's reviews of day care homes 
and sponsored centers. This provision has been a standard operating 
practice for sponsoring organizations and State agencies since

[[Page 57806]]

2011. The compliance date is September 22, 2023.
3. Standard Agreements Between Sponsoring Organizations and Sponsored 
Centers
    Section 17(j) of the NSLA requires State agencies to develop and 
provide for the use of a standard form of agreement between each 
sponsoring organization and day care home or sponsored center. Current 
regulations require the sponsoring organization to enter into a written 
permanent agreement with each sponsored day care home, which specifies 
the rights and responsibilities of both parties. However, there is no 
standard form of agreement and no requirement that sponsoring 
organizations establish agreements with sponsored centers.
    FNS included the requirements for standard operating agreements in 
the CACFP proposed rule for the public to review and comment on. FNS 
did not receive any substantive comments on this provision. FNS 
proposed establishing a standard form of agreement between sponsoring 
organizations and their sponsored centers at 7 CFR 226.16(h) that would 
specify the rights and responsibilities of each party.
    This final rule adopts the proposed terms of a standard agreement 
between a sponsoring organization and a child care center at 7 CFR 
226.17, an at-risk afterschool care center at 7 CFR 226.17a, an 
outside-school-hours care center at 226.19, and an adult day care 
center at 226.19a. The standard agreement, described at 7 CFR 226.6(p), 
requires the center to:
    <bullet> Allow visits by sponsoring organizations or State agencies 
to review meal service and records;
    <bullet> Promptly inform the sponsoring organization about any 
change in its licensing or approval status;
    <bullet> Meet any State agency approved time limit for submission 
of meal records; and
    <bullet> Distribute to parents a copy of the sponsoring 
organization's notice to parents if directed to do so by the sponsoring 
organization.
    The standard agreement also establishes the right of centers to 
receive timely reimbursement from the sponsoring organizations for 
meals served. Consistent with the requirement under 7 CFR 226.16(h)(2), 
sponsoring organizations must pay program funds to child care centers, 
adult day care centers, emergency shelters, at-risk afterschool care 
centers, or outside-school-hours care centers within 5 working days of 
receipt from the State agency.
    FNS also proposed a corresponding amendment to define ``Facility'' 
under 7 CFR 226.2. In this final rule, facility means a sponsored 
center or day care home. FNS is finalizing a new definition of 
``Sponsored center'', as proposed, to mean a child care center, an at-
risk afterschool care center, an adult day care center, an emergency 
shelter, or an outside-school-hours care center that operates CACFP 
under the auspices of a sponsoring organization. A sponsored center may 
be either affiliated--as part of the same legal entity as the CACFP 
sponsoring organization--or unaffiliated, which is legally distinct 
from the sponsoring organization.
    Accordingly, this final rule amends 7 CFR 226.6(p) and 226.17a(f) 
and adds new paragraphs at 226.17(e) and (f), 226.19(d) and (e), and 
226.19a(d) and (e) to require sponsoring organizations to enter into 
permanent agreements with their unaffiliated centers. New definitions 
of ``Facility'' and ``Sponsored center'' are added under 7 CFR 226.2. 
This provision is a standard operating practice for sponsoring 
organizations. The compliance date is September 22, 2023.
4. Collection and Transmission of Household Income Information
    Section 17(f)(3)(A)(iii)(III)(dd) of the NSLA allows day care homes 
to assist in the transmission of necessary household income information 
to the sponsoring organization. Section 17(f)(3)(A)(iii)(III)(ee) 
directs the Secretary to develop policy specifying the written consent 
of parents and other conditions, which would allow day care home 
providers to assist in transmitting meal benefit forms from parents to 
the sponsoring organizations.
    Current regulations include procedures for families whose children 
are enrolled in family day care to provide household income information 
on meal benefit forms that are transmitted directly to the sponsoring 
organization. The sponsoring organization is responsible for informing 
tier II day care homes of all of their options for receiving 
reimbursement for meals served to enrolled children, including electing 
to have the sponsoring organization attempt to identify all income-
eligible children enrolled in the day care home, through collection of 
meal benefit forms. The sponsoring organization must also ensure that 
free and reduced-price eligibility information of individual households 
is not available to day care homes.
    FNS issued CACFP 17-2011, Child Nutrition Reauthorization 2010: 
Transmission of Household Income Information by Tier II Family Day Care 
Homes in the Child and Adult Care Food Program, on April 7, 2011, 
https://www.fns.usda.gov/cacfp/transmission-household-income-information-tier-ii. This guidance describes how tier II family day 
care home providers may participate in the collection and transmission 
of household information. The guidance also outlines the options and 
privacy protections available to households. FNS included these options 
in the CACFP proposed rule for the public to review and comment on. FNS 
did not receive any substantive comments on this provision.
    This final rule adopts these options by amending the sponsoring 
organization's responsibility under 7 CFR 226.18(b)(13) to allow tier 
II day care homes to assist in collecting meal benefit forms from 
households and transmitting the forms to the sponsoring organization on 
the household's behalf. It is important to emphasize that this is an 
option available to day care home providers and households. The State 
agency or sponsoring organization cannot require day care homes to 
collect and transmit this information. Households cannot be required to 
return their meal benefit forms directly to the provider.
    The sponsoring organization is also responsible for establishing 
procedures that prohibit a day care home provider who chooses this 
option from reviewing or altering the information on the meal benefit 
form. This rule finalizes a new paragraph at 7 CFR 226.23(e)(2)(vii) as 
proposed with minor clerical adjustments to further require the 
sponsoring organizations to protect the privacy of a household's income 
information. Households of children enrolled in tier II day care homes 
that elect this option must give their consent for the collection and 
transmission of their information. The household must be advised that:
    <bullet> The household is not required to complete the meal benefit 
form in order for a child to participate in CACFP;
    <bullet> The household may return the meal benefit form to either 
the sponsoring organization or the day care home provider;
    <bullet> By signing the letter and giving it to the day care home 
provider, the household has given the day care home provider written 
consent to collect and transmit the household's application to the 
sponsoring organization; and
    <bullet> The meal benefit form will not be reviewed by the day care 
home provider.
    Accordingly, this final rule adds a new paragraph at 7 CFR 
226.18(b)(13) to add the right of the tier II day care home

[[Page 57807]]

to assist in collecting and transmitting applications to the sponsoring 
organizations and prohibit the provider from reviewing applications 
from households. This final rule also adds a new paragraph at 7 CFR 
226.23(e)(1)(vii) to address household consent and actions to protect 
the privacy of a household's income information. This provision has 
been a standard operating practice for sponsoring organizations of day 
care homes since 2011. The compliance date is September 22, 2023.
5. Calculation of Administrative Funding for Sponsoring Organizations 
of Day Care Homes
    Section 17(f)(3)(B)(i) of the NSLA authorizes reimbursement for 
administrative expenses of sponsoring organizations of day care homes 
and applies a formula for calculating the amount of administrative 
reimbursement a sponsoring organization may receive. As amended by 
HHFKA, section 17(f)(3) of the NSLA by eliminating the ``lesser of'' 
cost and budget comparison for calculating administrative payments to 
sponsoring organizations of day care homes, as defined under current 
regulations at 7 CFR 226.12(a). Under current regulations, the State 
agency determines administrative reimbursement by calculating and 
paying the ``lesser of'' actual administrative costs, budgeted 
administrative costs, or an amount established by a formula.
    FNS issued CACFP 06-2011, Child Nutrition Reauthorization 2010: 
Administrative Payments to Family Day Care Home Sponsoring 
Organizations, on December 22, 2010, https://www.fns.usda.gov/cacfp/2010-administrative-payments-family-day-care-home, to advise State 
agencies that a simpler method for determining monthly administrative 
payments had been established by HHFKA. Effective October 1, 2010, the 
sponsoring organization's monthly payment would be based on the 
statutory formula that would no longer require a comparison with actual 
expenditures or budgeted administrative costs. FNS included the 
requirements for calculating administrative payments in the CACFP 
proposed rule for the public to review and comment on. FNS did not 
receive any substantive comments on this provision.
    This final rule adopts this change by amending 7 CFR 226.12(a) to 
establish that administrative costs payments are determined only by 
multiplying the appropriate administrative reimbursement rate by the 
number of day care homes submitting claims for reimbursement during the 
month. Administrative reimbursement rates are announced annually in the 
Federal Register.
    Sponsoring organizations are still required to submit annual 
budgets and remain responsible for correctly accounting for costs and 
maintaining records and sufficient supporting documentation to 
demonstrate that the claimed costs were incurred, are allocable to the 
program, and comply with Federal regulations and policies. State 
agencies must continue to recover reimbursements that are unallowable 
or that lack adequate documentation. However, the expenditures for 
administrative costs, the amount of costs approved in the 
administrative budget, and the 30 percent restriction on the total 
amount of administrative payments and food service payments for day 
care home operations no longer apply in determining the sponsoring 
organization's monthly payment.
    Accordingly, this final rule amends 7 CFR 226.12(a) to simplify the 
calculation of monthly administrative reimbursement that sponsoring 
organizations of day care homes are eligible to receive. To determine 
the amount of payment, the State agency must multiply the appropriate 
administrative reimbursement rate, which is announced annually in the 
Federal Register, by the number of day care homes submitting claims for 
reimbursement during the month. This provision has been a standard 
operating practice for State agencies since 2010. The compliance date 
is September 22, 2023.
6. Carryover of Administrative Funding for Sponsoring Organizations of 
Day Care Homes
    Section 17(f)(3)(B)(iii) of the NSLA, as amended by HHFKA, directs 
the Secretary to develop procedures under which up to 10 percent of a 
sponsoring organization's administrative funds may remain available for 
obligation or expenditure in the succeeding fiscal year. It allows 
sponsoring organizations to carry over up to 10 percent of their 
administrative payments from the previous fiscal year into the next 
fiscal year. There is no provision for carryover of administrative 
payments in current regulations.
    FNS issued a memorandum, CACFP 18-2011 Child Nutrition 
Reauthorization 2010: Carry Over of Unused Child and Adult Care Food 
Program Administrative Payments, on April 8, 2011, https://www.fns.usda.gov/cacfp/carry-over-unused. FNS advised State agencies of 
the option available to sponsoring organizations of day care homes to 
carry over up to 10 percent of unspent administrative reimbursement 
from the current Federal fiscal year to the next fiscal year.
    FNS issued additional guidance, CACFP 11-2012, Family Day Care Home 
Administrative Reimbursements: Options and Carryover Reporting 
Requirements, on March 19, 2012, https://www.fns.usda.gov/cacfp/family-day-care-home-administrative-reimbursements-options-and-carryover-reporting, and CACFP 24-2012: REVISED, Family Day Care Home 
Administrative Reimbursements: Carryover Reporting Requirements for 
Fiscal Year 2012 and All Subsequent Years, on September 5, 2012, 
https://www.fns.usda.gov/cacfp/family-day-care-home-administrative-reimbursements-carryover-reporting-requirements-fy-2012. These 
memoranda provided clarification of options regarding administrative 
reimbursements and the management of unspent funds that may be carried 
over from the current Federal fiscal year to the next fiscal year. They 
also described procedures for reporting administrative funds under a 2-
year period of performance.
    FNS included the requirements allowing sponsoring organizations of 
day care homes to carry over administrative funding in the CACFP 
proposed rule for the public to review and comment on. FNS did not 
receive any substantive comments on this provision. This final rule 
amends 7 CFR 226.12(a) to allow a sponsoring organization to carry over 
and obligate a maximum of 10 percent of administrative funds into the 
succeeding fiscal year, with State agency approval. Corresponding 
amendments at 7 CFR 226.6(f)(1)(iv), 226.7(g) and 226.7(j), require 
State agencies to ensure that:
    <bullet> The annual budget that is submitted for the State agency's 
review and approval includes an estimate of the sponsoring 
organization's requested administrative fund carryover amounts and a 
description of the proposed purpose for obligating or expending those 
funds;
    <bullet> An amended budget, which identifies the amount of 
administrative funds that the sponsoring organization actually carried 
over and describes the purpose, is submitted for the State agency's 
review and approval as soon as possible after fiscal year close-out;
    <bullet> The review of the sponsoring organization's administrative 
costs includes a review of the documentation supporting carryover 
requests, obligations, and expenditures; and

[[Page 57808]]

    <bullet> Procedures are established to recover any administrative 
funds that exceed 10 percent of that fiscal year's administrative 
payments, and any carryover amount that is not expended or obligated by 
the end of the fiscal year following the fiscal year in which the funds 
were earned.
    Administrative funds remaining at the end of the fiscal year must 
be returned to the State agency. If any remaining carryover funds are 
not obligated or expended by the sponsoring organization in the 
succeeding fiscal year, the sponsoring organization is required to 
return the remaining funds to the State agency. A sponsoring 
organization can avoid that situation by using its payments for 
administrative costs on a first-in-first-out basis.
    Sponsoring organizations are not required to carry over any unspent 
funds. They may, at their option, return them to the State agency. The 
sponsoring organization also has the option to request that the State 
agency base administrative payments on the sponsoring organization's 
actual expenses. However, sponsoring organizations receiving 
administrative payments based upon actual expenses are not permitted to 
carry over funds into the next fiscal year.
    Accordingly, this final rule amends 7 CFR 226.6(f)(1)(iv) and adds 
new paragraphs at 226.7(g)(2) and 226.12(a)(3) to allow carryover of 
administrative funds with State agency approval. This rulemaking also 
amends 7 CFR 226.7(j) and adds a new paragraph 226.12(a)(4) to require 
the State agency to establish procedures to recover administrative 
funds from sponsoring organizations of day care homes that are not 
properly payable, are in excess of the 10 percent maximum carryover 
amount, or any carryover amounts not expended or obligated by the end 
of the fiscal year following the fiscal year in which they were earned. 
This provision has been a standard operating practice for sponsoring 
organizations and State agencies since 2011. The compliance date is 
September 22, 2023.

III. Simplifying Monitoring in NSLP and SBP

A. Background

    State agencies are responsible for regularly monitoring SFA 
operations in NSLP and SBP, in addition to providing training and 
technical assistance. Since School Year 2013-2014, the unified 
administrative review process has provided State agencies with a 
comprehensive process for evaluating compliance with program 
requirements. It includes a review of an SFA's financial practices, 
compliance with nutrition standards, and a review of program operations 
to ensure compliance with Federal regulations.
    This final rule provides a means for FNS to amend the 
administrative review process. State agencies and SFAs have called on 
FNS to streamline requirements so that they could more effectively 
direct their resources to their core mission of serving nutritious 
meals to children. FNS looked for opportunities to reduce 
administrative burden addressing findings from USDA's Child Nutrition 
Reporting Burden Analysis Study, released in 2019, https://www.fns.usda.gov/child-nutrition-reporting-burden-analysis-study, in a 
responsible way, while giving consideration to local resource 
constraints. In a proposed rule, Simplifying Meal Service and 
Monitoring Requirements in the National School Lunch and School 
Breakfast Programs, 85 FR 4094, on January 23, 2020, https://www.fns.usda.gov/nslp/fr-012120, FNS suggested a number of 
discretionary changes to streamline the administrative review, without 
compromising State agency and SFA efforts to maintain accountability 
and integrity.
    Through this final rule, FNS is taking action to codify the 
proposed changes to monitoring. These amendments will give State 
agencies greater flexibility, eliminate redundancy, and target limited 
State resources to higher risk SFAs. This rulemaking includes 
amendments to:
    <bullet> Allow State agencies to return to a 5-year administrative 
review cycle and require State agencies that conduct reviews on a 
longer than 3-year cycle to identify high-risk SFAs for additional 
oversight at 7 CFR 210.18(c);
    <bullet> Give State agencies flexibility to substitute information 
from local-level audits for related parts of the administrative review, 
at 7 CFR 210.18(f)(3);
    <bullet> Reduce the performance-based reimbursement reporting 
requirement, from quarterly to annually, by removing 7 CFR 
210.5(d)(2)(ii) and 210.7(d)(1)(vii) and (d)(2), which are obsolete;
    <bullet> Allow State agencies to omit specific elements of the 
administrative review, when equivalent oversight activities are 
conducted outside of the administrative review process, at 7 CFR 
210.18(f), (g), and (h);
    <bullet> Adopt a framework that State agencies may elect to modify 
the administrative review if the State agency or SFA adopts the 
specified integrity-focused improvements, at 7 CFR 210.18(f), (g), and 
(h);
    <bullet> Give State agencies flexibility to conduct the assessment 
of an SFA's nonprofit school food service account at any point in the 
review process, at 7 CFR 210.18(h)(1);
    <bullet> Include compliance with the Buy American requirement as 
part of the general areas of the administrative review, at 7 CFR 
210.18(b) and (h)(2);
    <bullet> Removes requirement for required fiscal action against 
SFAs for repeated violations of meal pattern noncompliance, at 7 CFR 
210.18(l)(2); and
    <bullet> Allow State agencies to conduct the FSMC review on a 5-
year cycle, at 7 CFR 210.19(a)(5).
    FNS received 57,248 public comments on the proposed rule. Nearly 
all of the comments were submitted in response to proposed amendments 
related to school meal nutrition standards, which are not addressed in 
this final rule but are instead addressed in a separate rulemaking. The 
comments are posted at http://www.regulations.gov under docket ID FNS-
2019-0007, Simplifying Meal Service and Monitoring Requirements in the 
National School Lunch and School Breakfast Programs.
    Although less than 150 respondents addressed any of the proposed 
changes to monitoring under the administrative review process, the 
comments were overall supportive of proposed changes. Respondents 
agreed that the proposed monitoring amendments would free up time and 
resources for State agencies to more effectively perform reviews, 
provide technical assistance, and focus on program improvement. They 
championed the increased flexibility, reduced redundancy, and paperwork 
savings that would be achieved. Their comments expressed support for 
changes that would allow opportunities for State agencies to provide 
technical assistance, instead of what respondents perceived as 
penalizing schools. Respondents also asserted that the proposed rule 
would provide State agencies the autonomy to determine the review 
processes that make the most operational sense for their situation.
    In addition to providing training and technical assistance, State 
agencies are responsible for regularly monitoring SFA operations. Since 
School Year 2013-2014, the unified administrative review process has 
provided a more robust review of the school meal programs. It also 
includes a review of an SFA's financial practices through the Resource 
Management Module to better ensure compliance with Federal regulations.
    As was discussed in the proposed rule, program regulations under 7 
CFR

[[Page 57809]]

210.18 address various aspects of the administrative review, including 
the timing of review, use of audit findings as part of the scope of 
review, areas of critical and general review, corrective action, 
withholding of payments, fiscal action, and appeal rights. FNS examined 
the review process to identify a number of elements that could 
favorably reduce administrative burden in a responsible way.

B. Streamlining the Administrative Review Process

1. Return to a 5-Year Review Cycle
    The unified administrative review process provides a robust review 
of the school meal programs, supporting integrity and administrative 
responsibility. Current regulations at 7 CFR 210.18(c) require State 
agencies to conduct a comprehensive administrative review of each SFA 
participating in NSLP and SBP at least once during a 3-year cycle.
    FNS proposed modifying the review cycle to ease the burden for 
State agencies and SFAs, by allowing State agencies to return to a 5-
year administrative review cycle. An SFA that has any findings on the 
previous administrative review or noncompliance with Federal 
procurement regulations would be designated high risk. The proposed 
rule would require State agencies to designate and, within 2 years, 
perform follow-up reviews of high-risk SFAs. The proposed rule would 
also allow State agencies to conduct more frequent reviews.
    FNS received 147 comments on the proposed 5-year review cycle--97 
were supportive, 38 were opposed, and 12 were mixed. Proponents 
recognized that the high number of waivers granted to State agencies 
under the current waiver process--which allows State agencies to 
request to extend the 3-year review cycle--underscores the need for 
relief. State agencies currently using waivers to extend their review 
cycles have reported that it allows them to better balance resources 
between technical assistance and formal reviews, and better support 
schools in their operations. Many respondents supported requiring 
targeted follow-up reviews for high-risk SFAs, maintaining that 
additional oversight could improve their performance. Many also agreed 
that a risk-based approach would target limited State agency oversight 
resources where they are most needed.
    Opponents suggested that a 5-year gap between reviews would be too 
long and could weaken program integrity. Instead of making this change, 
they suggested that FNS retain the 3-year cycle and work to streamline 
the administrative review process or ensure that SFAs selected for 
follow-up reviews receive technical assistance. FNS is committed to 
robust oversight, integrity, and quality in the school meal programs. 
However, FNS recognizes that the 3-year review cycle is taxing for 
State agencies and SFAs and diverts resources from technical assistance 
and program improvement.
    This final rule amends 7 CFR 210.18(c), to allow State agencies to 
implement a 5-year administrative review cycle, while targeting 
additional oversight to those SFAs most in need of assistance. State 
agencies may continue with a shorter review cycle if they wish to do 
so. This rule also requires State agencies that review SFAs on a longer 
than 3-year cycle to identify high-risk SFAs for additional oversight. 
SFAs in need of more frequent monitoring--those that present program 
integrity concerns--will receive it through the required targeted 
follow-up review. Each State agency that reviews SFAs on a longer than 
3-year cycle must develop a plan for FNS approval describing the 
criteria that will be used to identify high-risk SFAs for targeted 
follow-up reviews.
    In this final rule, minimum high-risk criteria that must be 
included in State plans will be outlined at 7 CFR 210.18(c)(2). These 
core elements are consistent with recommendations from State agencies 
to focus on compliance with the performance standards and the 
appropriate use of Federal funds. State agencies may add other criteria 
and use other information to designate an SFA as high-risk on a case-
by-case basis.
    State agencies must also conduct a targeted follow-up review of any 
SFA designated as high-risk within 2 years of the initial review. The 
targeted follow-up review must, at a minimum, include the areas 
identified in the most recent review that caused the SFA to be 
designated high-risk.
    FNS also proposed a corresponding change at 7 CFR 210.19(a)(5) to 
align the food service management company (FSMC) review with the 5-year 
administrative review cycle. FNS received 19 comments on this 
proposal--13 were supportive, 3 were opposed, and 3 were mixed. Most 
respondents cited the same reasons for supporting or opposing a return 
to a 5-year administrative review cycle. One respondent argued that 
there should be no change in cycle because the review of FSMCs is 
primarily a procurement review, which would be completed annually off-
site. Another suggested that more frequent reviews of invoices should 
be conducted instead.
    Accordingly, this final rule amends 7 CFR 210.18(c), and allow 
State agencies to implement a 5-year administrative review cycle, while 
targeting additional oversight to those SFAs most high risk. This final 
rule also amends 7 CFR 210.19(a)(5) to allow State agencies to conduct 
the FSMC review on a 5-year cycle to align with the administrative 
review cycle. This final rule does not make any changes to the 
oversight of FSMCs, including the requirement for State agencies to 
review each contract between an SFA and FSMC annually. State agencies 
may continue with a shorter FSMC review cycle if they wish to do so. 
The compliance date is July 1, 2024.
2. Substitution of Local-Level Audits
    Current regulations at 7 CFR 210.18(f)(3) allow State agencies to 
use applicable findings from federally-required audit activity or 
State-imposed audit requirements in lieu of reviewing the same 
information on an administrative review, provided the audit activity 
complies with the same standards and principles that govern the Federal 
single audit. FNS proposed building on this flexibility by expanding 
the allowable use of local-level audits. The proposed rule would allow 
State agencies to use recent and applicable findings from local-level 
audits initiated by SFAs or other entities including tribes, 
supplementary audit activities, or requirements added to Federal or 
State audits by local operators, as long as the audit activity complies 
with the same standards.
    FNS received 47 comments that addressed this proposed amendment--38 
were supportive, 3 were opposed, and 6 were mixed. One respondent 
argued that external audits would only add confusion because they do 
not necessarily align with the same standards used in the 
administrative review process. However, FNS agrees with most 
respondents that the use of local-level audits will simplify 
monitoring--limiting unnecessary duplication of efforts and minimizing 
burden on State agency staff--without compromising program integrity.
    Accordingly, this final rule amends 7 CFR 210.18(f)(3) to allow 
State agencies, with FNS approval, to use information from local-level 
audits to substitute for related parts of the administrative review. 
Requiring FNS approval will ensure that the local-level audit aligns 
with Federal audit standards. The compliance date is July 1, 2024.

[[Page 57810]]

3. Completion of Review Requirements Outside of the Administrative 
Review
    State agencies conduct a variety of oversight activities outside of 
the formal administrative review process. FNS proposed adding a new 
amendment under 7 CFR 210.18(f), (g), and (h), to allow State agencies 
to satisfy sections of the administrative review through equivalent 
State oversight activities that take place outside of the formal 
administrative review process, if the State agency or SFA has 
implemented FNS-specified error reduction strategies or monitoring 
efficiencies. In other words, State agencies would be able to omit 
specific, redundant areas of the administrative review, when sufficient 
oversight is conducted elsewhere.
    FNS received 22 comments on this proposal--21 were supportive and 1 
was opposed. Respondents described a number of equivalent State 
oversight activities that would satisfy sections of the administrative 
review, including health inspections, validation of Community 
Eligibility Provision source data at the time of election, school 
reports of financial revenues and expenses, information collected 
during annual agreement renewals, on-site and comprehensive technical 
assistance visits, and review of financial and other types of reports. 
FNS agrees with respondents that this proposed amendment will increase 
flexibility and reduce redundancy by allowing State agencies to satisfy 
parts of the administrative review through activities they have already 
performed.
    Accordingly, this final rule amends 7 CFR 210.18(f), (g), and (h) 
to allow State agencies, with FNS approval, to omit specific, redundant 
areas of the administrative review, when sufficient oversight is 
conducted outside of the administrative review. Each of these State 
agencies must submit a plan, for FNS approval, that describes the State 
agency's specific oversight activities and the critical or general 
areas of review that would be replaced. State agencies must submit 
updates or additions to their plan for FNS approval. The compliance 
date is July 1, 2024.
4. Framework for Integrity-Focused Process Improvements
    To address the improper payment challenges facing the NSLP and SBP, 
where much of the underlying program error cannot be identified or 
addressed through monitoring alone, additional efforts must be directed 
to process reform. FNS proposed further amending 7 CFR 210.18(f), (g), 
and (h) to allow State agencies to elect to modify, reduce, or 
eliminate a specified administrative review requirement, if the State 
agency or the SFA has adopted a given set of process improvements. The 
goal would be to redirect some of the costs of the administrative 
review into State agency or SFA investment in designated systems or 
process improvements to reduce or eliminate program errors. The 
streamlined review would be the incentive to make the necessary 
investments in systems or process improvements that can reduce or 
eliminate program errors.
    FNS received 26 comments on this proposal--12 were supportive, 3 
were opposed, and 11 were mixed. Many of the comments identified 
potential challenges or asked for clarification. For example, 
respondents requested more specific information on what the integrity-
focused processes entail, expressed concerns about potential impacts of 
the proposal on State agencies or SFAs, and posed questions about the 
effect of proposed integrity features. FNS believes that providing 
States and SFAs the option of adopting integrity focused process 
reforms could increase outcomes and decrease errors.
    FNS intends to develop guidance and a series of FNS-approved 
optional process reforms that respond to the latest findings from USDA 
research, independent audits, and FNS analysis of administrative data 
that State agencies and SFAs may adopt. FNS understands there will be 
costs associated with some of these process reforms, but that these 
will be offset, in whole or in part, through savings from the 
streamlined administrative review.
    FNS will test potential reforms, in cooperation with State and 
local program administrators, to assess their feasibility and 
effectiveness. States or SFAs may then adopt these FNS-approved process 
reforms, at their option, in exchange for elimination, modification, or 
reduction of existing administrative review requirements. FNS 
anticipates that this package of optional reforms will grow over time 
in response to new research and changes in the nature of the integrity 
challenges facing the programs.
    Accordingly, this final rule amends 7 CFR 210.18(f), (g), and (h) 
to allow State agencies to omit designated areas of review, in part or 
entirely, where a State agency or SFA has implemented FNS-specified 
error reduction strategies or utilized FNS-specified monitoring 
efficiencies. The effective date is September 22, 2023.
5. Assessment of Resource Management Risk
    Current regulations at 7 CFR 210.18(h)(1) direct State agencies to 
perform an off-site assessment of an SFA's nonprofit school food 
service account to evaluate the risk of noncompliance with resource 
management requirements. If risk indicators show that the SFA is at 
high risk for noncompliance with resource management requirements, the 
State agency must conduct a comprehensive review. FNS proposed giving 
State agencies discretion to conduct this assessment at any point in 
the review process rather than requiring it to take place off-site.
    FNS received 19 comments on this proposal--16 were supportive and 3 
were opposed. While proponents supported greater flexibility for State 
agencies to determine when and how they conduct the resource management 
module, opponents were concerned that reviews would become less 
efficient and more disruptive to SFAs under this proposal. For example, 
one respondent argued that SFAs need a firm timeline to prepare for the 
administrative review. FNS recognizes that allowing State agencies to 
set up the review process to meet their needs will increase the 
usefulness of the resource management assessment, while reducing 
unnecessary burden.
    Accordingly, this final rule amends 7 CFR 210.18(h)(1) to allow 
State agencies to conduct the assessment of an SFA's nonprofit school 
food service account at any point in the review process. Similar to the 
on-site portion of the review, FNS will no longer require that this 
assessment take place off-site before the administrative review. 
Although the State agency should make this assessment in the school 
year that the review began, completion of the resource management 
module may occur before, during, or after the on-site portion of the 
administrative review. The compliance date is September 22, 2023.
6. Buy American Area of Review
    Program regulations under 7 CFR 210.21(d) and 7 CFR 220.16(d) 
describe requirements SFAs must follow to purchase, to the maximum 
extent practicable, domestic commodities or products and State agencies 
already review this provision as a part of the administrative review. 
However, Buy American is not currently included in regulation as part 
of the general areas of the administrative review. FNS proposed 
including compliance with the Buy American requirements as a general 
area of review, under 7 CFR 210.18(h)(2), that State agencies must 
monitor when they conduct administrative reviews.

[[Page 57811]]

    FNS received 20 comments--9 were supportive, 4 were opposed, and 7 
were mixed. While many of the comments went beyond the scope of the 
proposed rule, one respondent argued that a Buy American review should 
be included in either the oversight of procurement practices required 
under governmentwide regulations at 2 CFR 200 or the administrative 
review, but not both. State agencies review Buy American on-site 
through the administrative review, which then allows the State agency 
to conduct the oversight of procurement practices entirely off-site. To 
the extent practicable, these review teams should coordinate reviews 
and communicate findings in order to provide comprehensive monitoring 
of the Buy American requirements.
    Accordingly, this final rule amends 7 CFR 210.18(h)(2) to add a new 
paragraph (xi) to require State agencies to ensure compliance with the 
Buy American requirements to purchase domestic commodities or products. 
This final rule also makes a corresponding technical change to the 
definition of ``General areas'' under 7 CFR 210.18(b). This small 
change provides consistency by aligning the lists of general areas of 
review that appear in paragraphs (b) and (h)(2). The compliance date is 
September 22, 2023.
7. Discretion in Taking Fiscal Action for Meal Pattern Violations
    Current regulations at 7 CFR 210.18(l)(2) require State agencies to 
take fiscal action to recover Federal funds from SFAs for repeated 
violations of milk type and vegetable subgroup requirements. FNS 
proposed to instead give the State agency discretion to take fiscal 
action against SFAs for repeated violations of milk type and vegetable 
subgroup requirements. This would align with current State discretion 
to take fiscal action to address repeated violations of food quantity, 
whole grain-rich, and dietary specifications requirements.
    FNS received 54 comments on this proposal--23 were supportive, 28 
were opposed, and 3 were mixed. Proponents suggested that this 
amendment would allow State agencies to provide technical assistance, 
instead of penalizing schools for unintentional errors. Opponents 
argued that continued violations of program requirements should be 
addressed uniformly, with consequences that will prevent integrity 
concerns. FNS continues to believe that implementing this amendment 
will increase efficiency and reduce burden, without compromising 
integrity.
    While most SFAs strive to make a good faith effort to comply with 
meal pattern requirements, FNS recognizes that some SFAs may need 
additional support from the State agency to fully and correctly 
implement the meal pattern. Rather than require State agencies to 
fiscally penalize SFAs, this rule allows States to consider each unique 
situation and determine whether technical assistance, fiscal action, or 
a combination of both, is the appropriate response. FNS encourages 
State agencies to communicate with their SFAs about situations that 
would warrant fiscal action, to ensure a uniform and fair approach.
    Accordingly, this final rule amends 7 CFR 210.18(l)(2) to give 
State agencies the discretion to take fiscal action against SFAs for 
repeated violations of milk type and vegetable subgroup requirements. 
This amendment aligns with State's existing discretion to take fiscal 
action for repeated violations concerning food quantities, whole grain-
rich foods, and the dietary specifications. This final rule retains the 
requirement that State agencies must take fiscal action for missing 
food components. The compliance date is September 22, 2023.

C. Reducing Performance-Based Reimbursement Reporting

    Program regulations at 7 CFR 210.5(d)(2)(ii) require State agencies 
to submit to FNS a quarterly report detailing the total number of SFAs 
in the State and the names of SFAs that are certified to receive the 
statutorily-established 8-cents performance-based reimbursement. The 
regulations further affirm that State agencies will no longer be 
required to submit the quarterly report once all SFAs in the State have 
been certified. In the Simplifying Meal Service and Monitoring 
Requirements in the National School Lunch and School Breakfast 
Programs, 85 FR 4094, https://www.fns.usda.gov/nslp/fr-012120, FNS 
proposed reducing the frequency of this reporting requirement from 
quarterly to annually, as almost all SFAs are already certified to 
receive the performance-based reimbursement.
    FNS received 21 comments on this proposal--20 were supportive and 1 
was mixed. The mixed comment generally supported the provision but 
suggested a change to the rate structure which is statutorily driven. 
FNS agrees with respondents that eliminating or reducing non-essential 
administrative requirements and simplifying program regulations will 
allow more time for State agencies to focus on improving program 
operations.
    Accordingly, this final rule amends 7 CFR 210.5(d) to reduce the 
performance-based reimbursement reporting requirement from quarterly to 
annually. This rulemaking moves the performance-based reimbursement 
report from the quarterly report under paragraph (d)(2) to the end-of-
the-year report under paragraph (d)(3). Corresponding changes remove 
references to the performance-based reimbursement report at 7 CFR 
210.7(d)(1)(vii) and (d)(2) that are now obsolete. This rulemaking 
amends 7 CFR 210.5(d)(2) and (d)(3) and 210.7(d). The compliance date 
is September 22, 2023.

IV. Miscellaneous Amendments

A. State Administrative Expense (SAE) Funds

    SAE regulations require State agencies to return to FNS any 
unexpended SAE funds at the end of the fiscal year following the fiscal 
year for which the funds are awarded. FNS proposed an amendment that 
would require State agencies to return any unobligated SAE funds--
instead of unexpended--to give State agencies more flexibility to spend 
their funds. FNS received 40 comments on this proposal--38 were 
supportive, 1 was opposed, and 1 was mixed. FNS agrees with respondents 
that making this change will help ensure that State agencies are not 
missing opportunities to use their funds. This change also gives State 
agencies a longer period of time to expend SAE funds to complete 
critical work. Accordingly, this final rule amends 7 CFR 235.5(d) and 
(e)(2) to require State agencies to return any unobligated SAE funds to 
FNS. The compliance date is September 22, 2023.

B. FNS Contact Information

    A realignment of FNS Regional Offices took effect on September 29, 
2019. These organizational changes achieve operational efficiencies, 
increased accountability, and improved communications to support 
program integrity, and ensure continued executive supervisory oversight 
for mission critical functions such as human resources, contracting, 
and logistics. This final rule makes a technical change to advise the 
public to contact the appropriate State agency or FNS Regional Office 
to obtain program information. Accordingly, this final rule amends 7 
CFR 210.32, 215.17, 220.21, 225.19, and 226.26 to direct the public to 
the FNS website to obtain contact information. The effective date is 
September 22, 2023.

[[Page 57812]]

C. Program Application Requirements

    CACFP institutions must submit a certification, under 7 CFR 
226.6(b)(1)(xv), that all information on the application is true and 
correct, along with the name, mailing address, and date of birth of the 
institution's executive director and board of directors chair or, in 
the case of a for-profit center, the owner of the for-profit center. 
Similar information about the executive director, board of directors 
chair, and other responsible principals must be included in each SFSP 
application. SFSP sponsors and CACFP institutions must also provide 
Federal Employer Identification Numbers (FEIN) or the Unique Entity 
Identifier (UEI). This final rule codifies these amendments under 7 CFR 
225.6(c)(1), 226.6(b)(1)(xv), and 226.6(b)(2)(iii)(F). The effective 
date is September 22, 2023.

V. Procedural Matters

Executive Orders 12866 and 13563

    Executive Orders 12866, 13563, and 14094 direct agencies to assess 
all costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits, including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity. Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, reducing costs, harmonizing rules, and promoting flexibility. 
This final rule was reviewed by the Office of Management and Budget 
(OMB) and determined to be significant. As required, an economic 
summary was developed for this final rule.

Economic Summary

    Need for Action: This action implements statutory requirements and 
policy improvements to strengthen administrative oversight and 
operational performance of the Child Nutrition Programs. Strong 
integrity safeguards for taxpayer investments in nutrition are 
fundamental to earning and keeping the public confidence that make 
these programs possible. As FNS continues to work towards improving 
integrity in these programs, this final rule establishes criteria and 
procedures through a number of provisions that are designed to increase 
accountability, maximize operational efficiency, and ensure that the 
National School Lunch Program, School Breakfast Program, Special Milk 
Program, Summer Food Service Program, and Child and Adult Care Food 
Program deliver important nutritional benefits and protect scarce 
Federal resources with the highest level of integrity.
    Affected Parties: The programs affected by this rule are the 
National School Lunch Program (NSLP), School Breakfast Program (SBP), 
Special Milk Program (SMP), Child and Adult Care Food Program (CACFP), 
and the Summer Food Service Program (SFSP). The parties affected by 
this regulation are the USDA's Food and Nutrition Service, State 
agencies administering Child Nutrition programs, local school food 
authorities, schools, institutions, sponsoring organizations, sponsor 
sites, and day care centers.
    Summary: A regulatory impact analysis (RIA) must be prepared for 
major rules with effects of $200 million or more in any one year. USDA 
does not anticipate that this final rule is likely to have an economic 
impact of $200 million or more in any one year, and therefore, does not 
meet the definition of ``significant effects'' under 3(f)(1) under 
Executive Order 12866, as amended.
    USDA estimates the cost of this rule to State and local government 
agencies to be approximately $0.7 million over 5 years, and for the 
cost to businesses (i.e., CN program sponsors) to be $6 million over 5 
years, for a total 5-year nominal cost of $6.7 million. At least some 
of those costs will be offset by new federal CACFP audit funding made 
available under this rule; USDA estimates the lower bound of these 
transfers from the federal government to the States to be $27.2 million 
over 5 years and the upper bound to be $108.9 million over 5 years. Due 
to these transfers, USDA anticipates that the net costs to the State 
and local parties will be lower than $6.7 million over 5 years. All 
estimates in this economic summary are given in 2023 dollars.
    Baseline for analysis: The baseline for this particular analysis is 
the administrative costs prior to the provisions' implementation on 
State agencies, SFAs, and CACFP sponsors for administering programs in 
compliance with Federal CN rules and statute, including reporting and 
recordkeeping costs. The cost estimates presented are the additional 
costs and transfer impacts above this baseline attributable to the 
provisions of this rule. Some of the rule's provisions have already 
been implemented and are simply codified through this rule. The cost 
impacts of provisions being codified are included with the total cost 
impacts of all provisions in this economic summary for transparency; 
those provisions are explicitly identified in the discussion below. The 
estimates and tables in this analysis assume that all provisions will 
be in effect by 2025, so 2025 is used as the starting year for 
simplification and consistency in this economic summary.
    Summary of provisions from Child Nutrition Program Integrity 
Proposed rule factored into economic analysis: This section states and 
summarizes the provisions considered in the Final Integrity rule 
carried over from the Child Nutrition Program Integrity Proposed rule, 
with a particular focus on the components with administrative cost 
implications.
    <bullet<ls-thn-eq> Fines for Violating Program Requirements: The 
CNI final rule authorizes the imposition of fines by the USDA and State 
agencies against school food authorities (SFAs) that have an agreement 
with a State agency to administer any of USDA's child nutrition 
programs. USDA and State agencies may impose fines against these 
institutions for failure to correct severe mismanagement of one of the 
CN programs, disregard of program requirements, and failure to correct 
repeated violations of program requirements. It also provides for the 
imposition of fines by the USDA against State agencies for failure to 
correct State or local mismanagement of a CN program, disregard of 
program requirements, or failure to correct repeated violations of 
program requirements. The rule sets limits on these fines and provides 
for the right to appeal fines imposed under this section.
    <bullet<ls-thn-eq> State Agency Review Requirements in CACFP: The 
final rule increases the minimum frequency of review, from once every 
three years to once every two, for certain CACFP institutions--
independent centers or sponsoring organizations that have been 
identified as having or are at risk of having serious management 
problems, and sponsors of up to 100 facilities that conduct activities 
in addition to the CACFP (known as multi-purpose sponsors).
    <bullet<ls-thn-eq> State Liability for Payments to Aggrieved Child 
Care Institutions: The final rule sets reporting requirements for the 
administrative review process for CACFP sponsors or providers that face 
State agency administrative or fiscal actions and requires that State 
agencies issue administrative review decisions within 60 days, and 
permits USDA to make the State agency liable to pay all valid claims 
for reimbursement (meals and administrative) to the institution from 
non-Federal sources starting on the 61st day. This provision amends 
current regulations at 7 CFR 226.6(k).
    <bullet<ls-thn-eq> CACFP Audit Funding: Beginning in FY 2016, if a 
State agency demonstrated that it can effectively use additional funds 
to improve program

[[Page 57813]]

management in accordance with USDA criteria, USDA increased the funds 
made available to the State from 1.5 percent to 2 percent of the CACFP 
funds used by that State in the second preceding fiscal year. This 
provision is already in effect, and the final rule codifies this change 
in regulation.
    <bullet<ls-thn-eq> Financial Review of Sponsoring Organizations in 
CACFP: The final rule requires sponsoring organizations to report 
actual program expenditures, and it requires State agencies to annually 
review at least one month of all sponsoring organization's CACFP bank 
account activity against supporting documents to validate that all 
transactions meet program requirements. This provision amends current 
regulations at 7 CFR 226.7(b) and 7 CFR 226.10(c).
    <bullet<ls-thn-eq> Informal Purchase Methods for CACFP: This final 
rule amends 7 CFR 226.21(a) and 226.22(i)(1) to link the values of the 
Federal micro-purchase threshold and Federal simplified acquisition 
threshold to 2 CFR 200 (currently $10,000 for micro-purchases and 
$250,000 for the simplified acquisition threshold).
    <bullet<ls-thn-eq> SFA Contracts with Food Service Management 
Companies: This final rule amends NSLP regulations to require each 
State agency to annually review and approve each contract and contract 
amendment between any SFA and FSMC. (Currently, State agencies are 
required to review procurement contracts, but not to approve them 
formally.) It also amends NSLP and SBP regulations to require the value 
of USDA Foods to accrue only to the benefit of the SFA's nonprofit 
school food service. The proposed rule did not extend this second 
provision to SBP. However, FNS is correcting this oversight in this 
final rule by adding the USDA Foods provision to both NSLP and SBP 
regulations. Finally, the final rule adds a definition for fixed-price 
contract to NSLP and SBP regulations for clarity. Current NSLP and SBP 
regulations define cost-reimbursable contract. This provision amends 
current regulations at 7 CFR 210.19(a)(5).
    <bullet<ls-thn-eq> Annual NSLP Procurement Training: This provision 
requires that State directors of school nutrition programs, State 
directors of distributing agencies, and school nutrition program 
directors, management, and staff who work on NSLP procurement 
activities successfully complete annual training in procurement 
standards. It also requires State agencies and SFAs to retain records 
to document compliance with professional standards training 
requirements.
    <bullet<ls-thn-eq> FNS Contact Information: A realignment of FNS 
Regional Offices took effect on September 29, 2019. These 
organizational changes achieve operational efficiencies, increased 
accountability, and improved communications to support program 
integrity, and ensure continued executive supervisory oversight for 
mission critical functions such as human resources, contracting, and 
logistics. This final rule makes a technical change to advise the 
public to contact the appropriate State agency or FNS Regional Office 
to obtain program information.
    <bullet<ls-thn-eq> Program Applications: CACFP institutions must 
submit a certification, under 7 CFR 226.6(b)(1)(xv), that all 
information on the application is true and correct, along with the 
name, mailing address, and date of birth of the institution's executive 
director and board of directors chair or, in the case of a for-profit 
center, the owner of the for-profit center. Similar information about 
the executive director, board of directors chair, and other responsible 
principals must be included in each SFSP application. SFSP sponsors and 
CACFP institutions must also provide Federal Employer Identification 
Numbers (FEIN) or the Unique Entity Identifier (UEI).
    Summary of provisions from CACFP amendments factored into economic 
analysis: This section states and summarizes the provisions in the 
Final Integrity rule carried over from the CACFP amendments Proposed 
rule.
    <bullet<ls-thn-eq> Elimination of the Annual Application for 
Institutions: This provision eliminates renewal applications and 
modifies the frequency with which initial and follow-up applications 
must be submitted by sponsoring organizations to state agencies. It 
also adds new definitions of New Institution, Participating 
Institution, Renewing Institution, and Lapse in Participation. Finally, 
the rule reorganizes applications submission and renewal requirements. 
This provision is already in effect.
    <bullet<ls-thn-eq> Timing of Unannounced Reviews: The timing of 
reviews conducted by sponsoring organizations will be required to vary 
and be unannounced, so they are unpredictable to sponsored facilities. 
The unannounced reviews from this provision are intended to uncover 
program integrity issues more effectively. This provision is already in 
effect.
    <bullet<ls-thn-eq> Standard Agreements Between Sponsoring 
Organizations and Sponsored Child Care Centers: This final rule 
requires State agencies to develop and provide for the use of permanent 
operating agreements between sponsoring organizations of sponsored 
centers and day care homes. A standard agreement can be developed by 
State agencies to be used between sponsoring organizations and 
unaffiliated childcare centers. State agencies are also allowed to 
approve an agreement developed by the sponsoring organization. This 
provision is already in effect.
    <bullet<ls-thn-eq> Collection and Transmission of Household Income 
Information: The provision requires sponsoring organizations to allow 
providers of tier II day care homes to assist in the collection and 
transmission of household income information with the written consent 
of the parents or guardians of children in their care. It provides 
specific steps a day care home must take when assisting with this 
process. It also strongly encourages sponsoring organizations to 
establish procedures to protect the confidentiality of a household's 
income information and prohibits the provider from reviewing 
applications from households. This provision is already in effect.
    <bullet<ls-thn-eq> Calculation of Administrative Funding for 
Sponsoring Organizations of Day Care Homes: A modification was made to 
the method of calculating administrative payments to sponsoring 
organizations of day care homes by eliminating the ``lesser of'' cost 
and budget comparisons. FNS proposed calculating administrative 
reimbursement by multiplying the number of day care homes under the 
sponsoring organization's oversight by the appropriate annually 
adjusted administrative payment rate. This provision is already in 
effect.
    <bullet<ls-thn-eq> Carryover of Administrative Funding for 
Sponsoring Organizations of Day Care Homes: Under this provision, 
sponsoring organizations of day care homes can carry over and obligate 
up to 10 percent of administrative payments into the following year 
with State agency approval. The State agency is required to establish 
procedures to recover the funds from sponsoring organizations that are 
not properly payable, are in excess of the 10 percent maximum carryover 
amount, or any carryover amounts not expended or obligated by the end 
of the fiscal year following the year they were earned. This provision 
is already in effect.
    Summary of provisions from the Simplifying Monitoring in NSLP and 
SBP proposed rule: The provisions listed below were carried over from 
the Simplifying Monitoring in NSLP and

[[Page 57814]]

SBP proposed rule into the Final Integrity Rule.
    <bullet<ls-thn-eq> Discretion in Taking Fiscal Action for Meal 
Pattern Violations: The final rule provision removes the requirement 
that State agencies must take fiscal action against SFAs for repeated 
violations of milk type and vegetable subgroup requirements. State 
agencies will instead have the discretion to take fiscal action, 
consistent with the guidance for food quantities, whole grain-rich 
foods, and dietary specifications. Waivers have been in place during 
the COVID-19 public health emergency to allow for State agency 
discretion for meal pattern violations.
    <bullet<ls-thn-eq> Return to a 5-Year Review Cycle: The final rule 
allows State agencies to return to a 5-year administrative review cycle 
and allows review of SFAs more frequently. The State agencies that 
review on a 3-year cycle are not required to designate high-risk or 
targeted reviews; however, high-risk designations and targeted reviews 
are required for State agencies that review SFAs on a longer than 3-
year cycle. Each State agency that reviews SFAs on a longer than 3-year 
cycle must develop a plan for FNS approval describing the criteria that 
will be used to identify high-risk SFAs for targeted follow-up reviews. 
State Agencies must conduct targeted follow-up reviews of high-risk 
SFAs within two years of the review findings. This provision also 
changes the food service management company review from a 3-year to 5-
year cycle, to align with the amendments to the administrative review 
cycle. This allows State agencies to review SFAs contracting with food 
service management companies more frequently, if they choose. Thirty-
six State agencies had a waiver in place allowing reviews to be 
conducted on a 5-year review cycle prior to publication of the rule 
proposing this provision.
    <bullet<ls-thn-eq> Framework for Integrity-focused Process 
Improvements: The final rule proposes a framework for waiving or 
bypassing certain review requirements for State agencies or SFAs as an 
incentive to invest in one or more USDA-designated systems or process 
improvements that can reduce or eliminate Program errors. The series of 
optional process reforms will be published separately from the final 
rule.
    <bullet<ls-thn-eq> Substitution of Third-Party Audits: The final 
rule allows State agencies to use recent and applicable findings from 
the following audits in lieu of reviewing the same information on an 
administrative review, provided the audit activity complies with the 
same standard and principals that govern the Federal single audit:
    [cir] Supplementary audit activities,
    [cir] Requirements added to federal or State audits by local 
operators,
    [cir] Other third-party audits initiated by SFAs, or
    [cir] Other third-party audits initiated by other local entities.
    <bullet<ls-thn-eq> Completion of Review Requirements Outside of the 
Administrative Review: State agencies may satisfy sections of the 
administrative review through equivalent State oversight activities 
that take place outside of the formal administrative review process, 
with required regional office approval.
    <bullet<ls-thn-eq> Assessment of Resource Management Risk: Under 
this provision, State agencies may conduct the assessment of an SFA's 
nonprofit school food service account at whichever point in the review 
process makes the most operational sense to the State agency. State 
agencies may also set up a review process and staff work units in the 
manner that they see fit.
    <bullet<ls-thn-eq> Buy American Area of Review: The requirement to 
review Buy American as part of the general areas of the administrative 
review are codified in the final rule and added to the regulatory 
definition of ``general areas.'' Guidance on Buy American is provided 
currently.
    <bullet<ls-thn-eq> Performance-based Reimbursement Quarterly 
Report: The final rule changes the frequency of the reporting from 
quarterly to annual as most SFAs are already certified to receive the 
6-cents performance-based reimbursement.
    <bullet<ls-thn-eq> State Administrative Expense Funds: This 
provision updates regulatory language to state that State agencies must 
return any State Administrative Expense funds which are unobligated. 
This is a change from the current requirement that unexpended funds 
must be returned.
    Addressing Public Comments on the Proposed 2016 CN Integrity 
Program Rule RIA: The following list summarizes the comments on the 
proposed rule's Regulatory Impact Analysis:
    <bullet> Five commenters discussed costs related to the Regulatory 
Impact Analysis (RIA) for the proposed CN Integrity Proposed Rule. A 
general advocacy group opposed many of the provisions in the proposed 
rule and expressed dissatisfaction that the original Congressional 
Budget Office analysis of Public Law 111-296 did not provide an 
estimate of the imposition of fines against entities other than State 
Agencies and SFAs. Although the dissatisfaction was not directed at the 
regulatory impact analysis of the proposed rule, USDA notes that the 
final rule removes the provision authorizing fines against entities 
other than State Agencies and SFAs, so there will be no fines against 
entities other than State Agencies and SFAs. This is a change from the 
proposed rule, which would have extended fines to SFSP sponsors and 
CACFP institutions.
    <bullet> An individual commenter also expressed concern about the 
additional administrative costs to the States of monitoring CACFP 
providers, which USDA estimated at $4.3 million in FY2017 and $22.7 
million from FY2017-FY2021 in the RIA for the proposed rule. USDA 
presents updated estimates for FY2025-FY2029 for the final rule below, 
which results in a net decrease in cost and burden on State and local 
government agencies. Similarly, a State agency argued that State 
agencies would need more State funds (i.e., non-federal funds) in order 
to comply with the ``more frequent investigations and reporting'' in 
the proposed rule. The State agency also recommended the creation of a 
national list of seriously deficient sponsors, rather than requiring 
each State to devise their own database reporting methodology and 
requiring each State to maintain the database itself. USDA also notes 
that the final rule makes available additional audit funding to State 
agencies that can justify a need for that funding.
    <bullet> Finally, a State agency expressed concern about the 
ability of a State agency to pay any potential fines, as they do not 
have general funds available for this kind of liability, and any final 
ability to pay ``will be severely hampered by the State's budgeting 
process.''
    <bullet> FNS was required by statute to codify the criteria and 
procedures under which FNS may establish fines against State agencies. 
In general, FNS expects fines to be established in exceptional 
circumstances, when existing processes (technical assistance, 
corrective action, and routine fiscal action) do not bring State 
agencies into compliance. FNS is not required to establish fines 
against State agencies, and fines would be limited to severe or 
repeated program violations that FNS, in consultation with its legal 
counsel, determines warrant a fine. Additionally, if an exceptional 
circumstance does warrant a fine, FNS may establish a fine below the 
maximum threshold established in regulation.
    <bullet> There were no comments received on the RIA for the CACFP 
Amendments or the Simplifying Monitoring in NSLP and SBP proposed 
rules.
    Cost/Benefit Assessment Summary: The analysis that follows 
quantifies the

[[Page 57815]]

impact of the four provisions of the above-listed provisions that we 
estimate have non-negligible cost implications for the Federal 
government, State agencies, SFAs, and/or businesses (including CACFP 
sponsors and centers), as well as the new reporting and recordkeeping 
requirements of the final rule.
    The analysis does not quantitatively estimate the value of the CNI 
final rule's benefits or the magnitude of most of its potential 
transfer impacts (such as the recovery of improper program payments) 
due to a lack of data, but we expect the overall economic effect to be 
relatively small. The provisions codified in this final rule are 
designed to increase program operators' accountability and operational 
efficiency, while improving the ability of FNS and State agencies to 
address severe or repeated violations of program requirements.

                   Table 1--Summary of Estimable Administrative Cost Differences and Resources
----------------------------------------------------------------------------------------------------------------
                                                               Fiscal year (millions)
                                   -----------------------------------------------------------------------------
                                        2025         2026         2027         2028         2029        Total
----------------------------------------------------------------------------------------------------------------
                                 State agency programmatic administrative costs
----------------------------------------------------------------------------------------------------------------
State Agency MIS Upgrade and               $2.9         $0.1         $0.1         $0.1         $0.1         $3.1
 Maintenance Costs................
----------------------------------------------------------------------------------------------------------------
                          State and Local Government Reporting and Recordkeeping Costs
----------------------------------------------------------------------------------------------------------------
State and Local Government                 -0.4         -0.5         -0.5         -0.5         -0.5         -2.3
 Information collection burden
 (reporting and recordkeeping)....
----------------------------------------------------------------------------------------------------------------
                                  Institutions (Business) administrative costs
----------------------------------------------------------------------------------------------------------------
Businesses--Reporting Requirements          1.1          1.2          1.2          1.2          1.3          6.0
----------------------------------------------------------------------------------------------------------------
                          Increase in Federal audit funding for State agencies (CACFP)
----------------------------------------------------------------------------------------------------------------
low estimate......................          5.1          5.2          5.4          5.6          5.9         27.2
upper bound estimate..............         20.3         20.9         21.7         22.6         23.4        108.9
----------------------------------------------------------------------------------------------------------------
Note: Numbers may not sum to totals due to rounding.

    Administrative Impact: This section begins with cost estimates for 
the four provisions expected to have the most significant effect on 
State agencies', local governments', and CACFP and SFSP providers' 
administrative responsibilities. We follow that with a qualitative 
discussion of the potential administrative impact of the rule's 
remaining provisions.
    State Agency Review Requirements in CACFP: This provision is 
expected to be implemented by 2025. The CNI final rule increases the 
minimum frequency of review, from once every three years to once every 
two, for certain CACFP institutions--independent centers or sponsoring 
organizations that have been identified as having or are at risk of 
having serious management problems, and sponsors of up to 100 
facilities that conduct activities in addition to the CACFP (known as 
multi-purpose sponsors). (Sponsoring organizations with more than 100 
facilities already must be reviewed at least once every two years.)
    The cost of this provision is included in the burden estimate under 
the Paperwork Reduction Act, so it is included in our estimate of the 
total reporting and recordkeeping costs for State and local government 
and for businesses. It accounts for 6,728 of the increased burden 
hours, or 12.5% of the total increase in burden hours attributed to the 
rule as estimated in Table 10. At a rate of $67.97, based on 2022 BLS 
State and Government Management and Professional compensation rates, 
this is an estimated annual cost of approximately $457,302.
    The administrative costs of this provision may vary across States 
with the relative concentration of small multi-purpose and other high-
risk sponsors. In FY2022, FNS administrative data shows that there were 
19,460 sponsors and independent centers, and a total of 140,434 centers 
and homes participating in CACFP. About 53 percent of CACFP providers 
are day care homes, and childcare centers account for about 46 percent 
of CACFP providers. At least for family day care homes, there is 
considerable variation in the distribution of homes per sponsor across 
the States (Table 2). For example, in November 2022, all sponsors of 
day care homes in New Hampshire oversaw 1 to 50 homes. Conversely, in 
Oregon, 67 percent of sponsoring organizations of day care homes 
oversaw 200 to 1,000 homes. Table 2 shows that 18 States report that 
more than half of their family day care home sponsors administer 
between 1 and 50 homes.
    Independent childcare centers made up 10.6% of all childcare 
providers in 2015 and are more likely to operate fewer than 10 sites. 
Among family day care home sponsors, 14.7 percent have 10 or fewer 
sites compared to 94.6 percent of childcare center and 75.4 percent of 
Head Start center sponsors. Conversely, 38.3 percent of family day care 
home sponsors have more than 100 sites compared to less than 0.2 
percent of childcare centers and 0.1 percent of Head Start center 
sponsors. FNS data cannot distinguish multi-purpose sponsors from other 
sponsors that oversee no more than 100 daycare homes. FNS 
administrative data offer some indication that the administrative 
burden associated with this provision may vary across States. States 
with the highest percentage of small family day care home sponsors 
(those responsible for no more than 100 homes) may have a 
disproportionate number of small multi-purpose sponsors and may 
therefore be disproportionately impacted by this provision.\1\
---------------------------------------------------------------------------

    \1\ Source: FNS Administrative Data.

[[Page 57816]]



                                                                                       Table 2--Profile Sponsoring Organizations of Day Care Homes
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                Percent of sponsoring organizations             Percent of sponsoring organizations             Percent of sponsoring organizations             Percent of sponsoring organizations
                                                 administering 1-50 day care homes              administering 51-200 day care homes            administering 201-1000 day care homes            administering 1000 + day care homes
                States *                 -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                           1% to 25%  26% to 50%  51% to 75%     >75%      1% to 25%  26% to 50%  51% to 75%     >75%      1% to 25%  26% to 50%  51% to 75%     >75%      1% to 25%  26% to 50%  51% to 75%     >75%
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              November 2022
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 10          16           8          10           9          22           9           5          16           9           2           1           3           0           0           0
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* 52 States including DC and Puerto Rico.
Source: FNS Administrative Data.


[[Page 57817]]

    Financial Review of Sponsoring Organizations in CACFP: This 
provision amends current regulations at 7 CFR 226.7(b) and 7 CFR 
226.10(c) and is expected to be implemented by 2025. The cost of this 
provision is included in the burden estimate as published in the ICR 
that accompanies this rule, so it is included in our estimate of the 
total reporting and recordkeeping costs for State and local government 
and for businesses in Table 10. The estimated burden associated with 
this provision is 6,638 hours annually, making up 12.4% of total 
increase in burden. At a rate of $67.97, based on 2022 BLS State and 
Government Management and Professional compensation rates, this is an 
estimated annual cost of approximately $451,185.
    CACFP Audit Funding: Section 17(i) of the NSLA (42 U.S.C. 1766(i)) 
was amended by Section 335 of the Healthy, Hunger-Free Kids Act of 2010 
(P.L. 111-296) to provide additional CACFP audit funding. This 
provision will codify the already-implemented increase of the maximum 
amount of CACFP audit funding from 1.5 percent to 2 percent of CACFP 
expenditures. The provision took effect in FY 2016. Consistent with 
current program rules, audit funds are computed as a percent of CACFP 
spending in the second preceding year. Table 3 contains the 
Department's actual value of CACFP audit distributions to the States in 
FY 2020, FY 2021, and FY 2022 for illustrative purposes.\2\
---------------------------------------------------------------------------

    \2\ Figures used in these actuals and in the FY2025-FY2029 
projections were prepared for the FY 2024 President's Budget.
    \3\ The years most affected by the COVID-19 pandemic (2019-2021) 
resulted in a lower percent of available 0.5% funds used compared to 
other years.

                      Table 3--Federal Transfers to State Agencies for CACFP Audit Funding
----------------------------------------------------------------------------------------------------------------
                                                                              Fiscal year (millions)
                        CACFP projections                        -----------------------------------------------
                                                                       2020            2021            2022
----------------------------------------------------------------------------------------------------------------
Maximum Available Audit Funding Projections from 2020                      $70.1           $71.8           $58.4
 President's Budget (1.5% + 0.5%)...............................
1.5% Share Max Available........................................           $52.6           $53.9           $43.8
0.5% Share Max Available........................................           $17.5           $18.0           $14.6
Actual 1.5% funds used..........................................           $52.0           $53.6           $43.4
Actual 0.5% funds used..........................................            $4.3            $4.9            $6.2
Percent of available 0.5% funds used \3\........................           24.4%           27.5%           42.4%
----------------------------------------------------------------------------------------------------------------

    If all State agencies request and demonstrate the need for 
additional funds under this provision, then projected extra FY 2025 
CACFP funds would be calculated by multiplying CACFP expenditures by 
the full \1/2\ percent, giving an increase in FY 2025 audit funding of 
$20.3 million. We use the same methodology to estimate the upper bound 
estimate in Tables 1 and 4. Our upper bound estimate assumes that all 
State agencies will request and use the full \1/2\ percent increase in 
audit funds.
    In practice, additional audit funds are only made available to 
States that are able to justify a need for the funds. States are 
required to detail their plans for the use of additional funds in 
written requests to USDA. In FY 2018, 47.3% of these available funds 
were actually spent; in FY 2022, 42.4% of the available funds were 
actually spent.\4\ Therefore, we may assume that, in most years, fewer 
than 100% of States Agencies will request 100% of the available 0.5% in 
additional audit funding. USDA estimates an additional four burden 
hours per State that chooses to submit a plan and request for 
additional funding, as outlined in the ICR and our estimate of the 
administrative burden below.
---------------------------------------------------------------------------

    \4\ USDA administrative data.
---------------------------------------------------------------------------

    To account for the additional reviews required by this final rule, 
we estimate the costs of increasing CACP audit funding in Table 4. We 
establish our lower bound estimate at 25% of the maximum additional 
audit funding available.

                            Table 4--Cost of Increase in State Audit funding in CACFP
----------------------------------------------------------------------------------------------------------------
                                                               Fiscal year (millions)
                                   -----------------------------------------------------------------------------
                                        2025         2026         2027         2028         2029        Total
----------------------------------------------------------------------------------------------------------------
                                    Increase in Federal audit funding (CACFP)
----------------------------------------------------------------------------------------------------------------
Lower estimate (25% of available           $5.1         $5.2         $5.4         $5.6         $5.9        $27.2
 funding).........................
Upper bound (100% of available             20.3         20.9         21.7         22.6         23.4        108.9
 funding).........................
----------------------------------------------------------------------------------------------------------------

    Administrative Review Cycle: The transition from a 5-year cycle to 
a 3-year cycle for the administrative review process resulted in some 
State agencies and SFAs struggling to complete reviews and oversight 
activities. This provision is expected to be implemented in all States 
agencies by 2025. Thirty-six State agencies had a waiver in place 
allowing reviews to be conducted on a 5-year review cycle prior to 
publication of the rule proposing this provision. USDA has received 
feedback through several avenues regarding the difficulties faced by 
State agencies. The Child Nutrition Burden Study was conducted in SY 
2017-2018 in response to a Congressional mandate in House Report 114-
531 to identify areas to reduce burden in the Child Nutrition Programs. 
This study collected data through workgroups with State and local 
Program operators, as well as a survey from a census of all State 
agencies and a nationally representative sample of SFAs. One 
reoccurring theme in this study, from both the State agency and SFA 
perspectives, was the burden associated with the 3-year administrative 
review cycle. To comply with the 3-year administrative review 
requirements, some State agencies and

[[Page 57818]]

SFAs were sacrificing staff resources needed for program 
administration, including providing technical assistance. State 
agencies face a number of time and resource constraints, and Program 
operators struggled to adopt the new procedures and timeframes.
    It is important to assess the impact of returning to a 5-year 
cycle. Fewer SFAs would be reviewed each year, resulting in the 
potential for program error to continue for longer. Table 5 shows the 
projected number of annual reviews that would be conducted using a 5-
year cycle and the number of annual reviews that would be conducted 
using a 3-year cycle. It also provides the number of actual reviews 
conducted in SY 2018- 2019.

                                   Table 5--Number of Annual Reviews Conducted
----------------------------------------------------------------------------------------------------------------
                                                                Number of SFAS   Number of SFAs   Number of SFAs
              Total number of SFAs in SY 2018-19               reviewed during  reviewed during    reviewed SY
                                                                 5-year cycle     3-year cycle       2018-19
----------------------------------------------------------------------------------------------------------------
18,925.......................................................           3,785            6,308            5,972
----------------------------------------------------------------------------------------------------------------

    To better understand the impact of the proposed follow-up review 
for the designated high-risk SFAs, the data from the SY 2018-2019 
review year was analyzed to estimate the potential number of follow-up 
reviews that may have been conducted, if the proposed follow-up reviews 
were implemented. The criteria used in this simulation only focuses on 
the results of the administrative reviews and does not account for 
other important criteria that the State agency may identify or items 
that may be identified through public comments. To estimate the 
potential number of follow-up reviews, FNS forms 640A and 640B were 
analyzed to group reviewed SFAs by the number of error flags triggered 
during administrative reviews in SY 2018-2019. The methodology of this 
flag count analysis has been updated since the 2020 proposed rule to 
reduce the margin of error in the flag counts for SY 2018-19 data.
    Forms 640A and 640B document administrative review findings, 
including types of errors found during the review. For this analysis, a 
flag was assigned to unique SFAs per type of error, not for every error 
found (Table 6). SFAs with any application errors (for example missing 
child or household name or income information) were assigned an error 
flag for applications, the same process was done for SFAs with 
certification benefit issuance errors (for example, during a review, a 
sampled student was approved for free meals but was not eligible). SFAs 
with a fiscal action amount that was not disregarded were assigned a 
fiscal action error flag. SFAs were also assigned an error flag if they 
triggered the risk flag for the resource management errors (nonprofit 
school food service account, Paid Lunch Equity, revenue from nonprogram 
foods, and indirect costs) or served meals missing components.

                                                          Table 6--Number of SFAs by Error Flag
                                                                  [SY 2018-19 Reviews]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       Certification
                Total SFAs reviewed                  No error flags    Application     benefit error    Fiscal action       Resource     Incomplete meal
                                                                       error flags          flag          taken flag    management flag     error flag
--------------------------------------------------------------------------------------------------------------------------------------------------------
5,972.............................................           1,289              869              874              411            3,845              663
--------------------------------------------------------------------------------------------------------------------------------------------------------


         Table 7--Number of SFAs by Error FlagSY 2018-19 Reviews
------------------------------------------------------------------------
                                                       Percent of SFAs
    Number of error flags         Count of SFAs      reviewed by number
                                                     of flags (percent)
------------------------------------------------------------------------
0...........................                 1,289                  21.6
1...........................                 3,241                  54.3
2...........................                 1,002                  16.8
3...........................                   354                   5.9
4...........................                    76                   1.3
5...........................                    10                   0.2
------------------------------------------------------------------------

    The number of SFAs by type of error flag is presented in Table 6. 
Similarly, the number of SFAs reviewed by total number of error flags 
is in Table 7. It is important to note this analysis does not consider 
the magnitude of a particular error, just the presence of an error 
found during an administrative review.

[[Page 57819]]



       Table 8--Annual and 5-Year Cost Difference of Optional 5-Year Administrative Review Cycle & Targeted, Follow-Up Reviews for High-Risk SFAs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Fiscal year (millions)
---------------------------------------------------------------------------------------------------------------------------------------------------------
                                2025                                       2026             2027             2028             2029            Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
-$3.3..............................................................           -$3.4            -$3.5            -$3.6            -$3.7           -$17.4
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Based on the projected number of reviews in a 5-year cycle compared 
to a 3-year cycle (Table 5), there would be about 2,244 fewer annual 
reviews conducted under this proposed change assuming about 7 percent 
of SFAs with 3 or more flags require follow-up review (Table 7). This 
reduction in reviews leaves the potential for issues to continue for 
additional years. However, the targeted nature of the follow-up review, 
in both selection and scope, would aim to redirect resources to fixing 
program issues and providing the necessary technical assistance that is 
currently difficult to do for some resource-strapped States under the 
current 3-year cycle.
    This final rule also amends NSLP regulations to change frequency of 
food service management company review from 3-year to 5-year cycle, in 
alignment with the changes to the administrative review cycle. State 
agencies would still be allowed to review SFAs contracting with food 
service management companies more frequently if they choose.
    An overall decrease in burden hours (-42,760 hours) is expected for 
moving from a 3-year to a 5-year review cycle. The targeted nature of 
the follow-up reviews are intended to be more directly focused on 
noncompliance and high-risk areas and therefore be less burdensome than 
the initial review. This aids in streamlining the review procedures 
while balancing the need to quickly resolve program errors and the 
importance of addressing noncompliance in high-risk SFAs. This is 
intended to help State and local operators focus resources on technical 
assistance and technology to improve Program operations.
    These changes are anticipated to save $17.4 million over 5 years, 
calculated by multiplying the total burden hour reduction over 5 years 
by projected 2025-2029 management and professional wages according to 
BLS.\5\ The savings shown in Table 8 isolates the cost impact specific 
to this provision and are factored into total reporting and 
recordkeeping cost impacts in Table 10. The change in estimate from the 
2020 proposed rule is largely due to the change in reporting and 
recordkeeping burden estimates (from -171,330 hours) according to the 
NSLP ICR, along with state and local government occupation wage 
increases over recent years.
---------------------------------------------------------------------------

    \5\ Based on reported wage rate for State and local government 
sector management, professional, and related workers from the Bureau 
of Labor Statistics' ``Table 3. State and local government workers 
by occupational and industry group'' database (https://www.bls.gov/news.release/ecec.t03.htm). For FY 2022 (September), the total 
compensation per hour for these positions averaged $67.96 per hour. 
We inflate this figure through FY 2029 with projected growth in the 
State and Local Expenditure Index prepared by OMB for use in the FY 
2024 President's Budget.
---------------------------------------------------------------------------

    Fines for Violating CN Program Requirements: This provision is 
expected to be in effect by 2025. FNS stresses that the statutory 
authority conferred on State administering agencies to impose fines on 
SFAs will be used rarely and only against egregious and repeat 
violators of program rules. For example, fines may be warranted to 
address a serious violation, such as the deliberate destruction of 
records or the deliberate misappropriation of program funds. Fines 
would not be warranted for routine problems, such as a menu planning or 
meal pattern violation or a recordkeeping or resource management error, 
which can be corrected with State agency oversight and technical 
assistance.
    A fine would never replace established technical assistance, 
corrective action, or fiscal action measures to solve commonplace or 
unintentional problems. Rather, the assessment of fines provides a new 
accountability tool for FNS and State agencies to use when there are 
severe or repeated non-criminal violations--the types of programs 
abuses that seriously threaten the integrity of Federal funds or 
significantly impair the delivery of service to eligible students. Each 
situation is different, and FNS and State agencies, in consultation 
with their legal counsel, will carefully consider whether a fine is the 
appropriate response. USDA expects that the risk of more substantial 
financial penalties will further reduce the already low incidence of 
severe or repeated violations, making the need to exercise the 
authority under the rule unnecessary, except in extreme circumstances.
    Similarly, we do not expect this statutory authority to result in 
substantial fines by USDA against State agencies. The authority to 
impose fines against State agencies places additional pressure on those 
agencies to reduce the incidence of severe mismanagement and repeat 
violations of program rules at the provider and sponsor levels. The 
expected effect of this authority is increased vigilance by State 
administrators against exceptional mismanagement at the provider and 
sponsor levels.
    State Liability for Payments to Aggrieved Child Care Institutions: 
This provision is expected to be in effect by 2025. The data collected 
in the 2010 and the 2011 Targeted Management Evaluations (TMEs), an 
instrument used by USDA to monitor State agency compliance with CACFP 
regulation, provides some of the measures used in estimating the impact 
of this provision. Twenty-one States \6\ reported the average number of 
days elapsed between the State agency's receipt of an institution's 
request for a hearing and the date of the hearing official's decision 
on their 2010 and 2011 TMEs. Ten percent of those States reported no 
requests for hearings; 33 percent reported averages of 60 days or less; 
19 percent reported averages between 61 and 90 days; and 38 percent 
reported averages over 91 days. This data show that in the absence of a 
financial penalty, 43 percent of the States reporting information 
either had no appeals or provided a determination within the 60-day 
timeframe.
---------------------------------------------------------------------------

    \6\ Twenty-one States reported information about ten of their 
appeals of a Notice of Proposed Termination during the 2010 and the 
2011 Targeted Management Evaluations (TMEs). More recent data on 
delay times are not available.
---------------------------------------------------------------------------

    We expect that increased monitoring by FNS and a shift in the 
responsibility for program payments to the States will encourage the 
States to resolve administrative reviews within the established 
regulatory timeframe of 60 days. Although the provision is intended to 
speed the processing of administrative reviews, it is not intended or 
expected to add significantly to the States' cost of

[[Page 57820]]

handling those reviews. Procurement Training Requirement for State 
Agency and SFA Staff: The CNI final rule requires State directors of 
school nutrition programs, State directors of distributing agencies, 
and school nutrition program directors, management, and staff who work 
on NSLP procurement activities to successfully complete procurement 
training annually. The required training would cover the procurement 
topics specified in subsection 210.21(h).
    FNS expects that State Agencies and SFAs will integrate this 
training requirement into their current training curriculums required 
under the Professional Standards Rule,\7\ with no additional annual 
training hours required on average. Furthermore, the final rule 
preamble notes that State agencies may use SAE funds to pay for the 
costs of receiving or delivering annual NSLP procurement training. This 
is expected to be implemented by 2025.
---------------------------------------------------------------------------

    \7\ ``Professional Standards for State and Local School 
Nutrition Programs Personnel as Required by the Healthy, Hunger-Free 
Kids Act of 2010,'' Federal Register Vol 80, No. 40 (March 2, 2015), 
p. 11077-11096.
---------------------------------------------------------------------------

    Performance-based Reimbursement Quarterly Report: This proposed 
change would reduce, from quarterly to annually, the frequency of a 
State Agency report on the status of SFAs certified for the 
performance-based reimbursement. As of February 2019, 99 percent of 
SFAs are certified to receive the performance-based reimbursement. This 
change responds to feedback from the Child Nutrition Program Reducing 
Burden Study; State agencies requested USDA to review the reporting 
requirements and determine areas to streamline reporting. USDA 
currently receives a count of the monthly number of lunches receiving 
the performance-based reimbursement on the Report of School Meal 
Operations (form FNS-10) from States.
    The reduced frequency of the quarterly certification report aims to 
enable State and local Program operators to direct resources to 
maintain effective and efficient program operations while still 
providing USDA the necessary information on SFA certification. Along 
with the monthly FNS-10 reporting, the annual update will be sufficient 
for USDA to track the status of SFA certification. This change slightly 
decreases the burden hours associated with moving the frequency of 
reporting from quarterly to annually. This is a small reduction of 42 
annual burden hours, which is about $3,000 annually. This is expected 
to be implemented by 2025.
    Standard Agreements Between Sponsoring Organizations and Sponsored 
Centers: This provision is already in effect. The State Agency must 
develop/revise and provide a sponsoring organization agreement between 
sponsor and facilities, which must have standard provisions. Sponsoring 
organizations must enter into permanent agreements with their 
unaffiliated centers and annually provide State agencies with bank 
account activity against other associated records to verify that the 
transactions meet program requirements. FNS estimates that there are 
18,601 sponsoring organizations that are businesses, each of which will 
submit 1 month's bank statement to their State agency.
    The terms of the standard agreement adds requirements of centers to 
allow visits by sponsoring organizations or State Agencies to review 
meal service and records, promptly inform sponsors about any change in 
licensing or approval status, meet any State agency approved time limit 
for submissions of meal records, and distribute to parents a copy of 
the sponsoring organization's notice to parents if directed by the 
sponsor. This provision contributes 5,646 additional burden hours that 
are accounted for in the projected reporting and recordkeeping costs 
(Table 10).
    Elimination of the Annual Application for Institutions: This 
provision has already been implemented. This final rule codified 
elimination of the requirement for renewing institutions to submit an 
annual application for renewal; however, these institutions must 
demonstrate that they are capable of operating the Program in 
accordance with this part as set forth in Sec.  226.6b(b) by reviewing 
annual certification of an institution's eligibility to continue 
participating in CACFP (replaces the renewal application process). 
Therefore, a total of 3,005 burden hours associated with the renewing 
institutions to submit an annual application has been removed because 
of this rule. This difference is included in Table 10.
    Collection and Transmission of Household Income Information: This 
provision is already in effect. This final rule codifies the right of 
tier II day care homes to assist in collecting meal benefit forms from 
households and transmitting the forms to the sponsoring organization on 
the household's behalf. If a tier II day care home elects to assist in 
collecting and transmitting the applications to the sponsoring 
organization, sponsoring organizations must establish procedures to 
ensure the provider does not review or alter the application. The 
burden associated with this is 5,199 hours, which are accounted for in 
the projected reporting and recordkeeping costs in Table 10. This 
provision has been a standard operating practice for sponsoring 
organizations of day care homes since 2011.
    Carryover of Administrative Funding for Sponsoring Organizations of 
Day Care Homes: This provision is already in effect. The final rule 
codifies allowing sponsoring organizations of day care homes to carry 
over up to 10 percent of unspent administrative reimbursement from the 
current federal fiscal year to the next fiscal year. The sponsoring 
organizations of day care homes seeking to carry over administrative 
funds must submit an amended budget, to include an estimate of 
requested administrative fund carryover amounts and a description of 
proposed purpose for which those funds would be obligated or expended.
    The State agency must review the budget and supporting 
documentation prior to approval, for sponsoring organizations of day 
care homes seeking to carry over administrative funds. The State agency 
must establish procedures to recover administrative funds from 
sponsoring organizations of day care homes that are not properly 
payable under FNS Instruction 796-2, administrative funds that are in 
excess of the 10 percent maximum carryover amount, and carryover 
amounts that are not expended or obligated by the end of the fiscal 
year following the fiscal year in which they were received. This 
provision is codifying standard operating practice. The burden 
associated with this is 1,462 hours, which are accounted for in the 
projected reporting and recordkeeping costs in Table 10.
    Remaining Provisions: The CNI final rule's remaining provisions are 
expected to have only modest impacts on State agency or sponsor 
administrative costs. State agency and sponsor responsibilities under 
these provisions are limited largely but not entirely to improved 
documentation.
    The following provisions will likely have no costs or negligible 
cost impacts:
    1. Varied Timing of Reviews Conducted by CACFP Sponsoring 
Organizations
    (a) Program impact: Reviews are more effective at ensuring program 
integrity when they are unannounced and unpredictable. Sponsoring 
organization are already required to conduct two unannounced reviews 
out of 3 reviews per year in a manner that makes the reviews 
unpredictable to sponsored facilities. One of the unannounced reviews 
must include observation of a

[[Page 57821]]

meal service. This provision requires the timing of the mandatory 
unannounced reviews and type of meal serviced reviewed to vary and is 
already in effect.
    (b) Cost Impact: We estimate no change in cost associated with this 
provision. This change merely requires sponsors to vary the timing of 
unannounced reviews but does not impact the frequency. This provision 
has also been a standard operating practice for sponsoring 
organizations and State agencies since 2011.
    2. Fiscal Action for Meal Pattern Violations
    (a) Program impact: This provision gives State agencies the 
discretion to take fiscal action against SFAs for repeated violations 
of milk type and vegetable subgroup requirements, instead of requiring 
fiscal action. This amendment aligns with State's existing discretion 
to take fiscal action for repeated violations concerning food 
quantities, whole grain-rich foods, and the dietary specifications.
    (b) Cost Impact: We estimate no change in cost associated with this 
provision. Fiscal action will be at the discretion of the State 
agencies, instead of required. Waivers have been in place during the 
COVID-19 public health emergency to allow for State agency discretion 
for meal pattern violations, and we expect this provision to be fully 
implemented by 2025.
    3. NSLP Resource Management Module
    (a) Program impact: Flexibility and discretion is allowed to State 
agencies in this provision. FNS will no longer require that this 
assessment take place off-site before the administrative review. 
Although the State agency should make this assessment in the school 
year that the review began, completion of the resource management 
module may occur before, during, or after the on-site portion of the 
administrative review.
    (b) Cost Impact: We estimate no change in cost associated with this 
provision. This does not change frequency or burden of conducting 
assessment of SFA's nonprofit school food service account. This 
provision merely allows State agencies to complete the assessment of an 
SFA's nonprofit school food service account and to conduct the resource 
management module at any point in the review process.
    4. Buy American Review
    (a) Program impact: Program regulations under 7 CFR 210.21(d) and 7 
CFR 220.16(d) describe requirements SFAs to purchase, to the maximum 
extent practicable, domestic commodities or products, and State 
agencies already review this provision as a part of the administrative 
review. However, Buy American is not currently included in regulation 
as part of the general areas of the administrative review. FNS proposed 
including compliance with the Buy American requirements as a general 
area of review, under 7 CFR 210.18(h)(2), that State agencies must 
monitor when they conduct administrative reviews.
    (b) Cost Impact: We estimate no change in cost associated with this 
provision. Existing Guidance is codified and modifies the technical 
definition of ``General Areas'' in this provision with no practical 
change in current program operations.
    5. State Administrative Expense Funds
    (a) Program impact: This amendment updated regulatory language that 
would require State agencies to return any unobligated SAE funds--
instead of unexpended--to give State agencies more flexibility to spend 
their funds.
    (b) Cost Impact: We estimate a negligible change in cost associated 
with this provision by 2025. The regulatory language increases 
flexibility of State agencies to utilize their SAE funds but is not 
expected to have measurable impacts on the amount of funds returned. 
Between 2018 and 2021 unobligated SAE funds ranged from approximately 1 
to 3 percent.
    6. Administrative Payment Rates to Sponsoring Organizations for Day 
Care Homes
    (a) Program impact: This rule amends 7 CFR 226.12(a) to simplify 
the calculation of monthly administrative reimbursement that sponsoring 
organizations of day care homes are eligible to receive. To determine 
the amount of payment, the State agency must multiply the appropriate 
administrative reimbursement rate, which is announced annually in the 
Federal Register, by the number of day care homes submitting claims for 
reimbursement during the month. This provision has been a standard 
operating practice for State agencies since 2010.
    (b) Cost Impact: Existing practice is codified. We estimate a 
negligible cost (104 hours) of this provision that is accounted for in 
projected reporting and recordkeeping costs (Table 10).
    The following are provisions that may have minor, non-quantifiable 
administrative impacts:
    (1) NSLP Integrity-focused Process improvements
    (a) Program impact: The administrative review process is an 
integral part of program integrity but is burdensome to State agency 
staff and resources. Impacts of this rule include FNS seeking out input 
to develop a series of optional process reforms. The process 
improvements would give State agencies more flexibility to satisfy 
parts of the administrative review and reduce or eliminate human 
errors. State agencies will require FNS approval of process reforms.
    (b) Cost Impact: This provision may incur minor potential future 
costs that are not quantifiable at the time of this rule, but USDA does 
not expect these costs to be material.
    (2) NSLP Third-party Audits
    (a) Program impact: With FNS approval, third party audits may be 
used in lieu of reviewing the same information on an administrative 
review. This will give State agencies more flexibility to satisfy parts 
of the administrative review and limit needless duplication through 
activities they already perform if the audit activity complies with the 
same standard that govern the federal single audit.
    (b) Cost Impact: The variation in what is used to satisfy parts of 
an administrative review is too wide to be able to quantify.
    (3) Completion of Review Requirements Outside of the Administrative 
Review
    (a) Program impact: With FNS and regional office approval, State 
agencies are allowed to satisfy sections of the administrative review 
through equivalent State oversight activities that take place outside 
of the formal administrative review process. This gives State agencies 
more flexibility and limits redundancies to satisfy parts of the 
administrative review through activities they already perform.
    (b) Cost Impact: This provision will have minimal administrative 
savings that are not quantified.
    Management Information System (MIS) Upgrade Costs: FNS expects that 
SAs, SFAs, SFSP and CACFP program operators will be able to implement 
the vast majority of the provisions of the rule with no changes to 
their current management information systems (MIS) or information 
technology (IT) infrastructure.
    However, FNS acknowledges that this will not be universally true, 
and that some SAs, SFAs, SFSP, and/or CACFP program operators may incur 
some one-time and/or ongoing IT costs to be able to implement the 
required provisions of the rule. In most cases, FNS expects these 
additional IT costs to be marginal or minimal, and that most or all of 
the additional costs to SAs, SFAs, SFSP, and CACFP program operators 
will be administrative, as estimated elsewhere in this document.

[[Page 57822]]

    Two of the finals rule's requirements--that CACFP administering SAs 
must annually review at least one month's bank account activity of all 
sponsoring organizations against documents adequate to support that the 
financial transactions meet Program requirements, and that CACFP 
administering SA's must annually review actual expenditures reported of 
Program funds and the amount of meal reimbursement funds retained from 
unaffiliated centers to support the sponsoring organization's 
administrative costs--have the potential to incur larger costs to the 
respective SAs, as these provisions may require those SAs to integrate 
new functions into their MIS.
    FNS does not have information specifically on the cost to SAs to 
make changes to their CACFP MIS, but an internal FNS data collection 
from all NSLP/SBP SAs on the 2016-2017 school year provides some 
information on MIS costs to SAs running NSLP/SBP, and this is the best 
proxy we have available for potential costs for a CACFP MIS. This data 
collection found that only a couple of complex modules (menu planning 
and direct certification/matching) tend to cost more than $500,000 to 
develop, while less complex modules (e.g., federal reporting, nutrient 
analysis, financial management for SFAs, and professional standards 
training) tend to cost less than $100,000. We assume that the 
requirements of this rule are of the less complex nature.
    Similarly, upgrade costs for NSLP/SBP SA modules tended to be 
greater for more complex modules, and less for less complex modules. 
However, between 20% and 50% of SAs reported no direct costs to the SA 
when upgrading modules, so some SAs may be able to absorb these 
functions into their existing MIS maintenance with no additional costs 
beyond costs already budgeted for planned maintenance.
    Given this wide variation in MIS development and maintenance costs, 
FNS is providing both a point estimate and range for possible costs for 
MIS upgrades required to implement the provisions of the CNI final 
rule. The lower-bound estimate of MIS costs is $0 per SA, if SAs are 
able to absorb these functions into their MIS as part of their existing 
MIS modules and/or maintenance schedule.
    At the upper-bound, it is possible that a SA may have to develop a 
new module for reviewing bank account activity and may have to upgrade 
their existing module for reviewing sponsors' expenditures. If we 
assume that the new module costs $100,000, and upgrading an existing 
module costs $50,000, then our initial upper-bound estimate would be 
$150,000 per SA for initial development/upgrade costs. Average annual 
maintenance fees for NSLP/SBP SA MIS are approximately $225,000 per 
year; if we assign 5% of these costs to the new rule, then we have an 
average annual maintenance cost of $11,250 per SA that we assign to 
this final rule.
    For an intermediate point estimate (which we present as our primary 
estimate), FNS expects that SAs will be able to implement the 
requirements of this rule with a single upgrade to an existing module. 
FNS assumes the cost of this upgrade will be $50,000 per SA, and the 
annual maintenance cost of this upgrade will be an additional $1,000 
per SA above SAs' baseline MIS maintenance costs. Table 9 presents 5-
year estimates of the cost ranges (including inflation).

                              Table 9--MIS Upgrade Costs to CACFP Administering SAs
----------------------------------------------------------------------------------------------------------------
                                                               Fiscal year (millions)
                                   -----------------------------------------------------------------------------
                                        2025         2026         2027         2028         2029        Total
----------------------------------------------------------------------------------------------------------------
Primary Estimate..................         $2.9         $0.1         $0.1         $0.1         $0.1         $3.1
Lower-Bound Estimate..............          0.0          0.0          0.0          0.0          0.0          0.0
Upper-Bound Estimate..............          9.1          0.7          0.7          0.7          0.6         11.6
----------------------------------------------------------------------------------------------------------------

    However, establishing and maintaining information systems required 
for the management of Child Nutrition Programs is an allowable cost 
covered by SAE funds. In addition, once all CACFP audits are funded, 
CACFP audit funds may be used for systems improvements reasonably 
connected to monitoring, oversight, and maintaining the operational 
integrity for the CACFP. Therefore, SAs may use these funds to cover 
costs to update their State systems as a result of changes in Program 
requirements due to this final rule. If SAs apply for and receive 
additional audit funding to make the MIS upgrades and maintenance 
necessary for these provisions, the net MIS cost to SAs because of this 
final rule could be $0, depending on the cost of the upgrades and the 
availability of additional audit funding. Furthermore, USDA regularly 
makes available a variety of competitive grants that could further 
defray these potential cost increases for SAs (e.g., Administrative 
Review and Training Grants and Technology Innovation Grants).
    Access Impacts--General: Several of the CNI final rule's provisions 
restrict participation by service providers, sponsoring organizations, 
or administering officials in USDA's child nutrition programs who 
violate program rules or have otherwise been determined to be risks to 
program integrity.
    State Agency Reporting and Recordkeeping: As noted above, several 
of the provisions in the CNI final rule increase the information 
collection burden on State and local government agencies and on 
businesses (i.e., CACFP sponsors and providers). In total, the 
Department estimates that State and local government agencies will 
spend an additional 3,869 hours complying with the rule's reporting 
requirements each year, and an additional 4,297 hours on recordkeeping. 
Businesses will spend about an additional 13,399 hours complying with 
the rule's reporting requirements. The total increase in burden hours 
is estimated to be 7,536 hours per year. These estimates, prepared in 
satisfaction of the requirements of the Paperwork Reduction Act of 
1995, are summarized in the preamble to the rule.
    We estimate the State agency cost of complying with the CNI final 
rule's information collection requirements by applying an average wage 
for State and local government professional employees to these 
additional reporting and recordkeeping hours.\8\ These costs are 
summarized by program in Table 10.
---------------------------------------------------------------------------

    \8\ Based on reported wage rate for State and local government 
sector management, professional, and related workers from the Bureau 
of Labor Statistics' ``Table 3. State and local government workers 
by occupational and industry group'' database (https://www.bls.gov/news.release/ecec.t03.htm). For FY 2022 (September), the total 
compensation per hour for these positions averaged $67.96 per hour. 
We inflate this figure through FY 2029 with projected growth in the 
State and Local Expenditure Index prepared by OMB for use in the FY 
2024 President's Budget.

[[Page 57823]]



                        Table 10--Projected Reporting and Recordkeeping Cost Differences
----------------------------------------------------------------------------------------------------------------
                                                               Fiscal year (millions)
                                   -----------------------------------------------------------------------------
                                        2025         2026         2027         2028         2029        Total
----------------------------------------------------------------------------------------------------------------
NSLP:
    State and Local Government--          $0.17        $0.18        $0.18        $0.19        $0.20        $0.92
     Recordkeeping *..............
    State and Local Government--         -$1.36       -$1.40       -$1.44       -$1.49       -$1.54       -$7.23
     Reporting *..................
                                   -----------------------------------------------------------------------------
        Total.....................        -1.18        -1.22        -1.26        -1.30        -1.34        -6.31
----------------------------------------------------------------------------------------------------------------
CACFP:
    State and Local Government--           0.19         0.19         0.20         0.21         0.21         1.00
     Recordkeeping *..............
    State and Local Government--           0.55         0.57         0.59         0.60         0.62         2.93
     Reporting *..................
    Businesses--Reporting *.......         1.12         1.16         1.20         1.24         1.28         6.00
                                   -----------------------------------------------------------------------------
        Total.....................         1.86         1.92         1.98         2.05         2.11         9.93
----------------------------------------------------------------------------------------------------------------
SFSP:
    State and Local Government--            (*)          (*)          (*)          (*)          (*)          (*)
     Recordkeeping *..............
    State and Local Government--            (*)          (*)          (*)          (*)          (*)         0.04
     Reporting *..................
                                   -----------------------------------------------------------------------------
        Total.....................          (*)          (*)          (*)          (*)          (*)         0.04
----------------------------------------------------------------------------------------------------------------
            Total Difference for           0.69         0.71         0.73         0.75         0.78         3.65
             Final Rule...........
----------------------------------------------------------------------------------------------------------------
* Estimated at less than $10,000.
Note: Sums may not match due to rounding or to the addition of sums below $10,000 to totals.

    Benefits: The provisions codified in the CNI final rule are 
designed to increase program operators' accountability and operational 
efficiency, while improving the ability of FNS and State agencies to 
address severe or repeated violations of program requirements. The 
final rule's provisions add new requirements to existing reviews of 
child nutrition program sponsors, subject additional sponsors to 
periodic review, and increase USDA and State agency authority to fine 
seriously deficient sponsors and prohibit their participation in CN 
programs.
    We note the following specific benefits of particular provisions of 
the final rule:
    <bullet<ls-thn-eq> Extending the administrative review cycle: This 
maximizes operational efficiency by relieving time and resources for 
State Agency staff to focus reviews on SFAs at risk of integrity issues 
instead of on SFAs without management issues. State agency and SFA 
cooperation with one another to administer school meal programs is 
central to ensure the delivery of nutritional food to school children. 
The Federal funding that supports school meal programs (NSLP and SBP) 
is to be used and protected with the highest level of integrity by 
State agencies and SFAs. While the administrative review enforces 
accountability of these Federal resources, extending to a 5-year review 
allows State agencies to perform reviews more effectively, allocate 
more time and resources towards school meal program administration, 
technical assistance, and program improvement.
    <bullet<ls-thn-eq> Implementation of fines, referred to as 
assessments in the proposed rule: This provision provides a new 
accountability tool for FNS and State agencies to use when there are 
severe or repeated non-criminal violations--the types of programs 
abuses that seriously threaten the integrity of Federal funds or 
significantly impair the delivery of service to eligible students.
    <bullet<ls-thn-eq> More frequent reviews of childcare institutions 
and adult care institutions that are at risk of having serious 
management problems: This will focus additional resources on those 
providers who are at greatest risk of intentionally or unintentionally 
violating program requirements. State agencies are invited to propose 
alternative approaches for determining review priorities in 
consultation with the FNS Regional Offices.
    <bullet<ls-thn-eq> Additional State agency funding for audits of 
childcare institutions and adult care institutions: This provision 
provides States with additional resources to audit CACFP providers to 
ensure program integrity and remedy potential wrongdoing. FNS continues 
to encourage all State agencies to make wider use of SAE along with the 
additional CACFP audit funds to help ease any burden.
    <bullet<ls-thn-eq> Increased financial oversight of sponsoring 
organizations' bank account activity and reporting requirements: An OIG 
audit \9\ found that reviewing bank activity (in addition to reviewing 
budgets) would be effective at uncovering and preventing misuse of 
funds in a cost-effective manner.
---------------------------------------------------------------------------

    \9\ Review of Management Controls for the Child and Adult Care 
Food Program, available online at https://www.usda.gov/oig/webdocs/27601-0012-SF.pdf.
---------------------------------------------------------------------------

    <bullet<ls-thn-eq> Option to carry over unspent federal 
reimbursement into the new fiscal year: This provides State agencies 
the flexibility to rollover up to 10 percent of unspent reimbursement 
from the previous fiscal year into the following fiscal year.
    <bullet<ls-thn-eq> Fiscal action discretion: This provision 
provides State agencies with more discretion on when to apply fiscal 
action for meal pattern violations during an administrative review in 
the School Meals programs. The requirement that State agencies must 
take fiscal action against SFAs for repeated violations of milk type 
and vegetable subgroup violations is removed, allowing states to 
provide assistance and support instead. Removing the fiscal action 
requirement increases operational efficiency for State agency staff. 
States are now only required to take fiscal action for a missing 
component violation, which is in alignment with the DGA rule.
    We are not able to quantify potential nutritional benefits stemming 
from increased accountability and operational efficiency, nor can we 
quantify the dollar effects of the actions and transfers listed above, 
as we do not know the rates or magnitudes of error in the population. 
Many of the changes are already in effect and the variation in 
implementation makes it difficult to know the percentage of errors that 
will

[[Page 57824]]

be avoided or rectified due to the implementation of these provisions.
    Accounting Statement: As required by OMB Circular A-4, available at 
https://www.whitehouse.gov/wp-content/uploads/legacy_drupal_files/omb/circulars/A4/a-4.pdf, we have prepared an accounting statement 
summarizing the annualized estimates of benefits, costs and transfers 
associated with the provisions of this rule.
    The benefits of the CNI final rule include increasing program 
operators' accountability and operational efficiency, while improving 
the ability of FNS and State agencies to address severe or repeated 
violations of program requirements. Monetary benefits are not 
quantified in this analysis.
    The costs associated with provisions of the final rule are incurred 
primarily by State agencies, program sponsors, and SFAs. These include 
the following, only some of which are quantified in Table 11 below:
    <bullet> The costs of conducting additional CACFP sponsor reviews 
and
    <bullet> The cost of reviewing CACFP sponsor bank account 
statements and expenditure reports of unaffiliated sponsored centers.
    Transfers include distribution of new CACFP audit funds from the 
USDA to State agencies (which has been quantified), and the return of 
(or reduction in) misappropriated program funds and improper payments 
(which has not been quantified).

                        Table 11--Undiscounted Stream of Quantifiable Costs and Transfers
----------------------------------------------------------------------------------------------------------------
                                                               Fiscal year (millions)
                                   -----------------------------------------------------------------------------
                                        2025         2026         2027         2028         2029        Total
----------------------------------------------------------------------------------------------------------------
Nominal cost stream to States.....         $2.4        -$0.4        -$0.4        -$0.4        -$0.4         $0.7
Nominal cost stream to Businesses.          1.1          1.2          1.2          1.2          1.3          6.0
----------------------------------------------------------------------------------------------------------------
Nominal transfer stream:
    low estimate..................          5.1          5.2          5.4          5.6          5.9         27.2
    high estimate.................         20.3         20.9         21.7         22.6         23.4        108.9
----------------------------------------------------------------------------------------------------------------

    Applying 3 percent and 7 percent real discount rates to these 
nominal streams gives present values (in 2023 dollars): \10\
---------------------------------------------------------------------------

    \10\ Note that the discounted transfer streams include two 
components--3 and 7 percent discount rates plus the 3.2% inflation 
rate used to inflate future nominal costs. Therefore, the discount 
rates applied to the nominal streams to generate these estimates are 
approximately 6 percent and 10 percent, respectively.

                                    Table 12--Discounted Costs and Transfers
----------------------------------------------------------------------------------------------------------------
                                                               Fiscal year (millions)
                                   -----------------------------------------------------------------------------
                                        2025         2026         2027         2028         2029        Total
----------------------------------------------------------------------------------------------------------------
Discounted cost stream to States:
    3 percent.....................         $2.1        -$0.3        -$0.3        -$0.3        -$0.3         $0.9
    7 percent.....................          2.0         -0.3         -0.3         -0.3         -0.2          0.9
Discounted cost stream to
 Businesses:
    3 percent.....................          1.0          1.0          0.9          0.9          0.9          4.7
    7 percent.....................          0.9          0.9          0.8          0.8          0.7          4.1
Discounted transfer stream:
 low estimate:
        3 percent.................          4.5          4.4          4.3          4.2          4.1         21.4
        7 percent.................          4.2          3.9          3.7          3.5          3.3         18.5
 high estimate:
        3 percent.................         18.0         17.5         17.1         16.7         16.3         85.5
        7 percent.................         16.7         15.6         14.7         13.9         13.1         74.0
----------------------------------------------------------------------------------------------------------------

    Table 13 takes the discounted streams from Table 12 and computes 
annualized values in FY 2023 dollars.

                                         Table 13--Accounting Statement
----------------------------------------------------------------------------------------------------------------
                                                                          Discount
                                     Range      Estimate   Year dollar    rate (%)          Period covered
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Qualitative: Increased program integrity and accountability.
----------------------------------------------------------------------------------------------------------------
Program participants:
    Annualized Monetized               n.a.          n.a.         n.a.         n.a.  FY 2025-2029.
     ($millions/year).
----------------------------------------------------------------------------------------------------------------

[[Page 57825]]

 
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Quantitative: Cost of a subset of administrative expenses related to additional reviews, documentation,
 reporting, training, recordkeeping, and MIS upgrades. (Only a portion of these costs have been estimated.)
----------------------------------------------------------------------------------------------------------------
State agencies, SFAs, and
 Institutions (Businesses):
    Annualized Monetized                n.a          $1.0         2023           10  FY 2025-2029.
     ($millions/year).
                                                      1.1         2023            6
----------------------------------------------------------------------------------------------------------------
                                                    Transfers
----------------------------------------------------------------------------------------------------------------
Quantitative: Distribution of CACFP audit funds to State agencies.
Non-quantified: The return of (or reduction in) misappropriated program funds and improper payments.
----------------------------------------------------------------------------------------------------------------
From USDA to State Agencies:
    Annualized Monetized                low           3.7         2023           10  FY 2025-2029.
     ($millions/year).
                                                      4.3         2023            6
                                 ---------------------------------------------------
                                       high          14.8         2023           10
                                                     17.1         2023            6
----------------------------------------------------------------------------------------------------------------

Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601-612, requires agencies 
to analyze the impact of rulemaking on small entities and consider 
alternatives that would minimize any significant impacts on a 
substantial number of small entities. The FNS Administrator has 
certified that this final rule will not have a significant economic 
impact on a substantial number of small entities. This rulemaking 
codifies provisions designed to increase program operators' 
accountability and operational efficiency, while improving the ability 
of FNS and State agencies to address severe or repeated violations of 
program requirements. While this rulemaking will affect State agencies, 
sponsoring organizations, school food authorities, and day care homes 
and centers, any economic effect will not be significant.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and tribal 
governments, and the private sector. Under section 202 of UMRA, FNS 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local, or tribal governments in 
the aggregate, or to the private sector, of $100 million or more in any 
one year. When such a statement is needed for a rulemaking, section 205 
of UMRA generally requires FNS to identify and consider a reasonable 
number of regulatory alternatives and adopt the least costly, more 
cost-effective or least burdensome alternative that achieves the 
objectives of the rulemaking. This final rule contains no Federal 
mandates, under the regulatory provisions of title II of UMRA, for 
State, local, and tribal governments, or the private sector, of $100 
million or more in any one year. Therefore, this rulemaking is not 
subject to the requirements of sections 202 and 205 of UMRA.

Executive Order 12372

    The Child and Adult Care Food Program is listed in the Assistance 
Listings under the Catalog of Federal Domestic Assistance Number 
10.558. The Summer Food Service Program is listed under No. 10.559. The 
National School Lunch Program and School Breakfast Program are listed 
under No. 20.555 and 10.553, respectively. They are subject to 
Executive Order 12372, which requires intergovernmental consultation 
with State and local officials. Since the Child Nutrition Programs are 
State-administered, FNS has formal and informal discussions with State 
and local officials, including representatives of Indian tribal 
organizations, on an ongoing basis regarding program requirements and 
operations. This provides FNS with the opportunity to receive regular 
input from State administrators and local program operators, which 
contributes to the development of feasible requirements.

Federalism Summary Impact Statement

    Executive Order 13132 requires Federal agencies to consider the 
impact of their regulatory actions on State and local governments. 
Where such actions have federalism implications, agencies are directed 
to provide a statement for inclusion in the preamble to the regulations 
describing the agency's considerations in terms of the three categories 
called for under section 6(b)(2)(B) of Executive Order 13132. FNS has 
determined that this final rule has federalism implications.
    1. Prior Consultation with State and Local Agencies:
    FNS has been gathering input from National, State, and local 
community partners through a variety of public engagement activities. 
Webinars, listening sessions, and town hall meetings have helped FNS 
monitor program operations, identify best practices, and take into 
consideration requests from States and local program operators. Since 
Child Nutrition Programs are State administered, federally-funded 
programs, FNS Regional offices have informal and formal discussions 
with State and local officials on an ongoing basis regarding program 
implementation and performance. Additionally, FNS published rulemaking 
actions to obtain formal public comment.
    2. Nature of Concerns and the Need to Issue this Rulemaking:
    State agencies and local program operators have provided wide 
support for implementing robust integrity practices and valuable 
suggestions for improvement. Most of their concerns relate to the 
current serious deficiency process as a model for establishing 
procedures in other Child Nutrition Programs, fiscal consequences of 
the provisions addressing fines and State liability, and the overall 
impact of provisions that may increase administrative burden. This 
rulemaking allows FNS to address these concerns while meeting statutory 
obligations.
    3. Extent to Which We Meet These Concerns:

[[Page 57826]]

    FNS has made every effort to address these concerns, balancing the 
goal of strengthening program integrity against the need to minimize 
administrative burden, within the constraints of statutory authority. 
This final rule is responsive to public input requesting that FNS make 
improvements to the serious deficiency process, limit the assessment of 
fines, and allow exceptions in cases involving State liability. There 
will be a 1-year delay to provide the additional time stakeholders have 
requested to implement many of the provisions. FNS will provide 
guidance and technical assistance to State agencies and local program 
operators to ensure the provisions of this final rule are implemented 
efficiently and in a manner that is least burdensome.

Executive Order 12988, Civil Justice Reform

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. This rulemaking is intended to have preemptive 
effect with respect to any State or local laws, regulations, or 
policies which conflict with its provisions or which would otherwise 
impede its full implementation. This rulemaking is not intended to have 
retroactive effect. Prior to any judicial challenge to the application 
of the provisions of this rulemaking, all applicable administrative 
procedures must be exhausted.

Civil Rights Impact Analysis

    FNS has reviewed the final rule, in accordance with the Department 
Regulation 4300-004, ``Civil Rights Impact Analysis'' to identify and 
address any major civil rights impacts the final rule may have on 
participants on the basis of age, race, color, national origin, sex, 
and disability. Due to the unavailability of data, FNS is unable to 
determine whether this rule will have an adverse or disproportionate 
impact on protected classes among entities that administer and 
participate in the Child Nutrition programs. The promulgation of this 
final rule will impact State agencies that administer FNS Child 
Nutrition programs and program operators by increasing accountability 
and operational efficiency while improving the ability of State 
agencies to address severe or repeated violations of program 
requirements. Children and adults participating in NSLP, SMP, SBP, 
SFSP, and CACFP may be impacted by the final rule if an operating 
agreement in the CACFP or SFSP is terminated. However, the FNS Civil 
Rights Division finds that the current mitigation strategies outlined 
in this CRIA provide ample consideration to participants' ability to 
participate in Child Nutrition programs. Additionally, the FNS Civil 
Rights Division finds that mitigation strategies, such as delaying 
implementation of several provisions to allow FNS to evaluate 
regulatory improvements, developing resources, and providing technical 
assistance, may lessen the impacts on State agencies and program 
operators. If deemed necessary, the FNS Civil Rights Division will 
propose further mitigation to alleviate impacts that may result from 
the implementation of the final rule.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    Executive Order 13175 requires Federal agencies to consult and 
coordinate with Tribes on a government-to-government basis on policies 
that have Tribal implications, including regulations, legislative 
comments or proposed legislation, and other policy statements or 
actions that have substantial direct effects on one or more Indian 
Tribes, on the relationship between the Federal Government and Indian 
Tribes, or on the distribution of power and responsibilities between 
the Federal Government and Indian Tribes. Tribal representatives were 
informed about this rulemaking during the FNS listening session at the 
meeting of the National Congress of American Indians in February 2020 
and at the tribal consultation that took place on May 23, 2023. FNS 
anticipates that this rulemaking will have no significant cost and no 
major increase in regulatory burden on tribal organizations.

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35; see 5 
CFR part 1320) requires that the Office of Management and Budget (OMB) 
approve all collection of information requirements by a Federal agency 
before they can be implemented. Respondents are not required to respond 
to any collection of information unless it displays a current valid OMB 
control number. This final rule will implement statutory requirements 
and policy improvements to strengthen administrative oversight and 
operational performance of the Child Nutrition Programs. As FNS 
continues to work towards improving integrity in these programs, this 
final rule establishes criteria and procedures required under the 
Healthy, Hunger-Free Kids Act of 2010 to help FNS and State 
administering agencies reduce program errors of all types, resulting in 
more effective operations and improved compliance with program 
requirements. FNS is also using this opportunity to codify statutory 
requirements that are designed to improve the administration and 
operational efficiency of the Child and Adult Care Food Program, with 
less paperwork. This rulemaking also simplifies monitoring requirements 
in the National School Lunch and School Breakfast Programs to reduce 
administrative burden by providing targeted flexibilities designed to 
allow States to tailor oversight to meet program circumstances.
    In accordance with the Paperwork Reduction Act of 1995, this final 
rule revises existing information collection requirements and contains 
new information collection requirements, which are subject to review 
and approval by the Office of Management and Budget. These existing 
requirements are currently approved under OMB Control Number 0584-0055, 
``7 CFR part 226 Child and Adult Care Food Program,'' expiration date 
March 31, 2025, OMB Control Number 0584-0280, ``7 CFR Summer Food 
Service Program,'' expiration date September 30, 2025, and OMB Control 
Number 0584-0006, ``7 CFR part 210 National School Lunch Program,'' 
expiration date July 31, 2023.
    In connection with the proposed rule, ``Child Nutrition Program 
Integrity,'' published in the Federal Register on March 29, 2016 (Vol. 
81, No. 60, page 17564), USDA submitted an Information Collection 
Request (ICR) discussing the information requirements impacted by the 
rule to OMB for review. The final rule codifies into regulations many 
of the provisions incorporated under the proposed rule, as well as 
modifies some to ensure compliance by State agencies and program 
operators. It also adds additional integrity safeguards, including 
incorporating provisions from the proposed rules, ``Simplifying Meal 
Service and Monitoring Requirements in the National School Lunch and 
School Breakfast Programs'' and ``Child and Adult Care Food Program: 
Amendments Related to the Healthy, Hunger-Free Kids Act of 2010.''
    The majority of the information collection requirements and 
associated burdens will remain the same as previously proposed. 
However, there are a few changes in the requirements and burden. The 
revisions to the existing information collection requirements and the 
introduction of new information collection requirements will result in 
an overall increase in burden hours and responses on the State 
agencies, local government, and business respondents to this final 
rule.

[[Page 57827]]

    Therefore, FNS is submitting for public comment the changes in the 
information collection burden that would result from adoption of the 
proposals in this final rule. These burden estimates are contingent 
upon OMB approval under the Paperwork Reduction Act of 1995. When the 
final rulemaking information collection request is approved, the 
Department will publish a separate notice in the Federal Register 
announcing OMB's approval.
    This is a new information collection, assigned OMB Control Number 
0584-0610 by OMB in August 2016 at the proposed rule stage, which is 
being submitted in support of the final rule, ``Child Nutrition Program 
Integrity (RIN 0584-AE08).'' In connection with the proposed rule, 
``Child Nutrition Program Integrity, published in the Federal Register 
on March 29, 2016 (81 FR 17564),'' FNS submitted an ICR discussing the 
information requirements impacted by the rule to the Office of 
Management and Budget (OMB) for review.
    The final rule codifies many of the changes proposed by FNS based 
on amendments to the Richard B. Russell National School Lunch Act 
(NSLA), enacted under the Healthy, Hunger-Free Kids Act of 2010 
(HHFKA), Public Law 111-296. The final rule incorporates provisions 
from the Child and Adult Care Food Program: Amendments Related to the 
Healthy, Hunger-Free Kids Act of 2010 Proposed Rule and the Simplifying 
Meal Service and Monitoring Requirements in the National School Lunch 
and School Breakfast Programs Proposed Rule. The information collection 
associated with this rule is necessary to ensure compliance with 
legislative and regulatory requirements amended to the NSLA and 
contained in HHFKA.
    Since FNS had requested a new information collection at the 
proposed rule stage, due to the information collection inventories 
affected by this rulemaking undergoing renewal, the proposals outlined 
in this final rule will be captured in a new information collection 
under OMB Control Number 0584-0610 as an increase to the information 
collection inventory. After OMB has approved the information collection 
requirements submitted in conjunction with the final rule and the 
current renewals of the impacted information collections are completed, 
FNS will merge these requirements and their burden into OMB Control 
Number 0584-0055, ``7 CFR part 226 Child and Adult Care Food Program,'' 
expiration date March 31, 2025, OMB Control Number 0584-0280, ``7 CFR 
Summer Food Service Program,'' expiration date September 30, 2025, and 
OMB Control Number 0584-0006, ``7 CFR part 210 National School Lunch 
Program,'' expiration date July 31, 2023. At this point, the decreases 
in burden noted throughout this section will be fully captured in the 
burden for the various collections.
    Comments on the Paperwork Reduction Act section of this final rule 
must be received by October 23, 2023. Please send comments to Program 
Monitoring and Operational Support Division 1320 Braddock Place, 
Alexandria, VA 22314. For further information, please contact Megan 
Geiger, <a href="/cdn-cgi/l/email-protection#c9a4acaea8a7e7aeaca0aeacbb89bcbaada8e7aea6bf"><span class="__cf_email__" data-cfemail="c4a9a1a3a5aaeaa3a1ada3a1b684b1b7a0a5eaa3abb2">[email protected]</span></a>.
    Comments are invited on: (a) Whether the proposed collection of 
information is necessary for the proper performance of the functions of 
the agency, including whether the information shall have practical 
utility; (b) the accuracy of the agency's estimate of the burden of the 
proposed collection of information, including the validity of the 
methodology and assumptions used; (c) ways to enhance the quality, 
utility, and clarity of the information to be collected; and (d) ways 
to minimize the burden of the collection of information on those who 
are to respond, including use of appropriate automated, electronic, 
mechanical, or other technological collection techniques or other forms 
of information technology. All responses to this notice will be 
summarized and included in the request for OMB approval. All comments 
will also become a matter of public record.
    Title: Child Nutrition Program Integrity.
    Form Number: None.
    OMB Control Number: 0584-0610.
    Expiration Date: Not Yet Determined.
    Type of Request: New Collection. While OMB assigned an OMB Control 
Number to this collection during the proposed rule stage, the 
collection is not yet part of the active information collection 
inventory.
    Abstract: This is a new information collection that contains new 
information collection requirements that will eventually be 
incorporated into OMB Control Number 0584-0055, ``7 CFR part 226 Child 
and Adult Care Food Program,'' OMB Control Number 0584-0280, ``7 CFR 
Summer Food Service Program,'' and OMB Control Number 0584-0006, ``7 
CFR part 210 National School Lunch Program.'' This new information 
collection also revises existing information collection requirements in 
the same OMB Control Numbers that are also impacted by this final rule.
    This final rule codifies provisions designed to increase program 
operators' accountability and operational efficiency, while improving 
the ability of FNS and State agencies to address severe or repeated 
violations of program requirements. This rulemaking impacts information 
reporting, recordkeeping, and public notification at the State and 
local government levels (State agencies and sponsoring organizations) 
and at the businesses level (sponsoring organizations) in the Child and 
Adult Care Food Program (CACFP); at the State and local government 
level (State agencies and School Food Authorities (SFAs)) in the Summer 
Food Service Program (SFSP); and at the State and local government 
level (State agencies and SFAs) in the National School Lunch Program 
(NSLP).
    FNS is using the publication of the Child Nutrition Program 
Integrity final rule as an opportunity to additionally merge sections 
of two previously published rules that were not finalized and codified. 
This includes the Simplifying Meal Service and Monitoring Requirements 
in the National School Lunch and School Breakfast Programs and Child 
and Adult Care Food Program: Amendments Related to the Healthy, Hunger-
Free Kids Act of 2010.
    In the proposed rule, Simplifying Meal Service and Monitoring 
Requirements in the National School Lunch and School Breakfast Programs 
(85 FR 4094, January 23, 2020), FNS included a number of discretionary 
changes to streamline the administrative review process for schools, 
without compromising State agency and school food authority efforts to 
maintain accountability and integrity. Through the Child Nutrition 
Program Integrity final rule, FNS is taking action to codify the 
proposed changes that impact monitoring. These amendments will give 
State agencies greater flexibility, eliminate redundancy, and target 
limited State resources to higher risk school food authorities. 
Provisions in Simplifying Meal Service and Monitoring Requirements in 
the National School Lunch and School Breakfast Programs unrelated to 
monitoring and oversight will not be finalized in the Child Nutrition 
Program Integrity Final Rule and will instead be incorporated in other 
rulemaking.
    The proposed rule, Child and Adult Care Food Program: Amendments 
Related to the Healthy, Hunger-Free Kids Act of 2010 (77 FR 21018, 
April 9, 2012), included amendments to codify statutory requirements 
designed to improve the administration and operational efficiency of 
CACFP, with

[[Page 57828]]

less paperwork. However, in the intervening years since publication of 
the proposed rule, FNS was unable to publish a subsequent rulemaking to 
incorporate these amendments into CACFP regulations under 7 CFR part 
226. Through the Child Nutrition Program Integrity final rule, FNS is 
taking action to codify these statutory requirements, which will 
provide clarity and consistency in their implementation. FNS will not 
codify any of the discretionary provisions included in the proposed 
rule.
    The changes proposed in the Child Nutrition Program Integrity Rule 
that will not be finalized are the requirement that SFAs contracting 
with an FSMC can no longer use cost-reimbursable contracts, reciprocal 
disqualification in CACFP and SFSP, and serious deficiency process and 
disqualification in SFSP and CACFP. FNS will pursue a separate rule 
making for the reciprocal disqualification in CACFP and SFSP, as well 
as the serious deficiency process and disqualification in SFSP and 
CACFP in response to public comments. FNS intends to seek more 
information on the fixed-price contract provision in response to 
information collected during the COVID-19 public health emergency.
    In total, FNS estimates that the changes to the Child Nutrition 
Program requirements as a result of this rule decrease the burden for 
the NSLP information collection, OMB Control Number 0584-0006, by 
14,734 hours; increase the burden for the SFSP information collection, 
OMB Control Number 0584-0280, by 80.81 hours; and increase the burden 
for the CACFP information collection, OMB Control Number 0584-0055, by 
22,190.72 hours. The provisions from the previously proposed rules that 
are included in this final rule are related to increasing program 
integrity and codifying statutory requirements into regulations.
    In the proposed Child Nutrition Integrity Rule, FNS expected 23,113 
responses and 16,060.5 burden hours. For this final rule, because of 
changes due to merging this rule with two other rules, moving some 
provisions to another rulemaking (on Serious Deficiency), and other 
changes due to public feedback, FNS has adjusted the burden for this 
final rule. FNS now expects that this final rule will increase over 
that estimated in the proposed rule, to 225,205 total responses and 
190,924 total burden hours.
    Below is a summary of the changes in the final rule and the 
accompanying reporting, recordkeeping, and public notification 
requirements that will impact the burden that these program 
requirements have on State agencies, local governments, and businesses.

Reporting: NSLP

Affected Public: State Agencies
    The changes proposed in this rule will impact the existing 
reporting requirements currently approved under OMB Control Number 
0584-0006 and found at 7 CFR part 210, National School Lunch Program. 
The below information provides details regarding the reporting changes 
associated with OMB Control Number 0584-0006 as a result of the Child 
Nutrition Program Integrity final rule OMB Control Number 0584-0610.
    The final rule adjusts a requirement at Section 210.18(i)(3) for 
the State agencies to notify the School Food Authorities (SFAs) in 
writing of review findings, corrective actions, deadlines, and 
potential fiscal action with grounds and right to appeal. FNS estimates 
that 56 State agencies will respond, for a total of 3,808 responses (56 
x 68 = 3,808). The estimated average number of burden hours per 
response is 8 hours resulting in an estimated total annual burden hours 
of 30,464 (3,808 x 8 = 30,464). FNS estimates that this information 
requirement will have 30,464 burden hours and 3,808 responses. Once the 
requirements and burden from this new collection are merged into OMB 
Control Number 0584-0006 (7 CFR PART 210 NATIONAL SCHOOL LUNCH 
PROGRAM), FNS estimates that this final rule will reduce the burden 
hours by 20,160 hours, from 50,624 to 30,464 hours. It will also reduce 
the responses by 2,520, from 6,328 to 3,808 responses. This reduction 
is due to a program change reducing the frequency of the administrative 
review cycle.
    The final rule amends the requirements found at Section 
210.5(d)(2)(ii) (now at Section 210.5(d)(3)) that SAs submit a 
quarterly report to FNS detailing the disbursement of performance-based 
reimbursement to SFAs by changing the frequency of the report to 
annually. FNS estimates that there are 56 SAs that will each file 1 
report annually for a total of 56 responses (56 x 1 = 56). The 
estimated average number of burden hours per response is 15 minutes 
(0.25 hours) resulting in an estimated total annual burden hours of 14 
(56 x 0.25 = 14). FNS estimates that this information requirement will 
have 14 burden hours and 56 responses. The previous burden (OMB#0584-
0006) was 56 hours, so with this final rule, FNS estimates that the 
burden will be reduced by 42 burden hours. The final rule will also 
reduce the responses by 168, from 224 to 56 responses. These reductions 
are due to a program change reducing the frequency of this report.
    The final rule adds a requirement at Section 210.18(c)(2) that 
State agencies with a review cycle longer than 3 years must submit a 
plan to FNS describing the criteria that it will use to identify high-
risk SFAs for targeted follow-up reviews. FNS estimates there are 56 
SAs that will each file 1 report for a total of 56 responses (56 x 1 = 
56). The estimated average number of burden hours per response is 8 
hours resulting in an estimated total annual burden hours of 488 (56 x 
8 = 448). FNS estimates that this information requirement will have 448 
burden hours and 56 responses. Once this requirement and its associated 
burden is merged into OMB Control Number 0584-0006, FNS estimates that 
this final rule will add 448 hours and 56 responses to OMB's inventory 
due to a program change.
    This final rule adds a specific requirement to Section 210.21(h), 
that State agencies complete procurement training requirements 
annually. FNS estimates that each of the 56 SAs will complete 
procurement training requirements annually, for a total of 56 responses 
annually (56 x 1 = 56). The estimated average number of burden hours 
per response is 1 hour resulting in estimated total burden hours of 56 
(56 x 1 = 56). FNS estimates that this information requirement will 
have 56 burden hours and 56 responses. Once this requirement and its 
associated burden is merged into OMB Control Number 0584-0006, FNS 
estimates that this final rule will add 56 hours and 56 responses to 
OMB's inventory due to a program change.
    Section 210.26(b)(4) requires that State agencies notify SFAs of 
fines and specific violations or actions that constituted the fine, and 
of appeal rights and procedures, and submit a copy of the notice to 
FNS. FNS estimates that each of the 56 State agencies will notify SFAs 
of fines, specific violations, actions that constituted the fine, 
appeal rights, and procedures, and submit a copy of the notice to FNS 
0.09 times, for a total of 5.04 notifications annually (56 x 0.09 = 
5.04). The estimated average number of burden hours per response is 3 
hours, resulting in estimated total burden hours of 15.12 (5.04 x 3 = 
15.12) FNS estimates that this information requirement will have 15.12 
burden hours and 5.04 responses. Once this requirement and its 
associated burden is merged into OMB Control Number 0584-0006, FNS 
estimates that this final rule will add 15.12 hours and 5.04

[[Page 57829]]

responses to OMB's inventory due to a program change.
Affected Public: SFAs/Local Education Agency Level
    Sections 210.15(a)(3) and 210.18(j)(2) require SFAs to submit to 
the SA a written response to reviews documenting corrective action 
taken for Program deficiencies. FNS estimates 3,804 SFAs will each file 
1 report annually for a total of 3,804 responses (3,804 x 1 = 3,804). 
The estimated average number of burden hours per response is 8 hours 
resulting in an estimated total annual burden hours of 30,430 (3,804 x 
8 = 30,430). FNS estimates that this information requirement will have 
30,430 burden hours and 3,804 responses. Once the requirements and 
burden from this new collection are merged into OMB Control Number 
0584-0006, FNS estimates that this final rule will reduce the burden 
hours by 20,290 hours, from 50,720 to 30,430 hours. It will also reduce 
the responses by 2,536, from 6,340 to 3,804 responses. This reduction 
is due to a program change reducing the frequency of the administrative 
review cycle.
    Section 210.21(h) requires that SFAs complete procurement training 
requirements annually. FNS estimates that 19,019 SFAs will complete 
procurement training requirements annually, for a total of 19,019 
records annually (19,019 x 1 = 19,019). The estimated average number of 
burden hours per response is 1 hour and 15 minutes (1.25 hours) 
resulting in estimated total burden hours of 23,774 (19,019 x 1.25 = 
23,774). FNS estimates that this information requirement will have 
23,774 burden hours and 19,019 responses. Once this requirement and its 
associated burden is merged into OMB Control Number 0584-0006, FNS 
estimates that this final rule will add 23,774 hours and 19,019 
responses to OMB's inventory due to a program change.
    Section 210.26(b)(5) states that SFAs may appeal State agency's 
determination of violations and fines. SFAs must submit to the Stage 
agency any pertinent information, explanation, or evidence addressing 
the Program violations identified by the SA. Any SFA seeking to appeal 
the SA determination must follow SA appeal procedures. FNS estimates 
that 5 SFAs will appeal the State agency's determination of violations 
and fines, for a total of 5 records annually (5 x 1 = 5). The estimated 
average number of burden hours per response is 8 hours resulting in 
estimated total burden hours of 40 (5 x 8 = 40). FNS estimates that 
this information requirement will have 40 hours and 5 responses. Once 
this requirement and its associated burden is merged into OMB Control 
Number 0584-0006, FNS estimates that this final rule will add 40 hours 
and 5 responses to OMB's inventory due to a program change.

Recordkeeping: NSLP

Affected Public: State Agencies
    Section 210.18(h)(2)(iv) requires each SA to ensure that the LEA 
and SFA comply with the nutrition standards for all competitive food 
and maintain records documenting compliance. FNS estimates that 56 SAs 
will each maintain 68 records annually for a total estimated number of 
records of 3,808 (56 x 68 = 3,808). The estimated average number of 
burden hours per record is 15 minutes (0.25 hours) resulting in an 
estimated total annual burden hours of 952 (3,808 x 0.25 = 952). When 
OMB approves the information collection request (ICR) for this final 
rule, FNS estimates that this information requirement will have 952 
burden hours and 3,808 responses. Once the requirements and burden from 
this new collection are merged into OMB Control Number 0584-0006, FNS 
estimates that this final rule will reduce the burden hours by 630 
hours, from 1,582 hours to 952 hours. It will also reduce the responses 
by 2,520, from 6,328 responses to 3,808 responses. This reduction is 
due to a program change from the Final Rule, reducing the number of 
compliance reviews.
    Sections 210.20(b)(6); 210.18(o)(f)(k)(l)(m); and 210.23(c) require 
the SA to maintain records of all reviews and audits (including Program 
violations, corrective action, fiscal action, and withholding of 
payments). The currently approved burden for this activity is 50,638. 
FNS estimates that there are 56 SAs that will each file 68 records 
annually for a total of 3,808 records (56 x 68 = 3,808). The estimated 
average number of burden hours per record is 8.00214 hours resulting in 
a revised estimated total annual burden hours of 30,472 hours (3,808 x 
8.00214 = 30,472). When OMB approves the information collection request 
(ICR) for this final rule, FNS estimates that this information 
requirement will have 30,472 burden hours and 3,808 responses. Once the 
requirements and burden from this new collection are merged into OMB 
Control Number 0584-0006, FNS estimates that this final rule will 
reduce the burden hours by 20,166 hours, from 50,638 hours to 30,472 
hours. It will also reduce the responses by 2,520, from 6,328 to 3,808 
responses. This reduction is due to a program change from the Final 
Rule, reducing the number of compliance reviews.
    Sections 210.20(b)(7); 210.19(c); and 210.18(o) require the SA 
document fiscal action taken to disallow improper claims submitted by 
SFAs, as determined through claims processing, reviews and USDA audits. 
FNS estimates that there are 56 SAs that will each file 68 records 
annually for a total of 3,808 records (56 x 68 = 3,808). The estimated 
average number of burden hours per record is 30 minutes (0.50 hours) 
resulting in an estimated total annual burden hours of 1,904 hours 
(3,808 x 0.5 = 1,904). When OMB approves the information collection 
request (ICR) for this final rule, FNS estimates that this information 
requirement will have 1,904 burden hours and 3,808 responses. Once the 
requirements and burden from this new collection are merged into OMB 
Control Number 0584-0006, FNS estimates that this final rule will 
reduce the burden hours by 1,260 hours, from 3,164 hours to 1,904 
hours. It will also reduce the responses by 2,520, from 6,328 to 3,808 
responses. The reduction in burden is due to a program change from the 
Final Rule, reducing the number of compliance reviews.
    Sections 210.18(c-h) require the SA to complete and maintain 
documentation used to conduct Administrative Reviews. FNS estimates 
there are 56 SAs that will each file 68 reports annually for a total of 
3,808 responses (56 x 68 = 3,808). The estimated average number of 
burden hours per response is 30 minutes (.50 hours) resulting in an 
estimated total annual burden hours of 1,904 (3,808 x .5 = 1,904). When 
OMB approves the information collection request (ICR) for this final 
rule, FNS estimates that this information requirement will have 1,904 
burden hours and 3,808 responses. Once the requirements and burden from 
this new collection are merged into OMB Control Number 0584-0006, FNS 
estimates that this final rule will reduce the burden hours by 1,269 
hours, from 3,173 hours to 1,904 hours. It will also reduce the 
responses by 2,520, from 6,328 to 3,808 responses. The reduction in 
burden is due to a program change from the Final Rule, reducing the 
number of compliance reviews.
    Section 210.18(c) requires the SA to complete and maintain 
documentation used to conduct targeted Follow Up Administrative Review. 
FNS estimates there are 56 SAs that will each file 23 reports annually 
for a total of 1,288 responses (56 x 23 = 1,288). The estimated average 
number of burden hours per response is 16 hours resulting

[[Page 57830]]

in an estimated total annual burden hours of 20,608 (1,288 x 16 = 
20,608). When OMB approves the information collection request (ICR) for 
this final rule, FNS estimates that this information requirement will 
have 20,608 burden hours and 1,288 responses. Once this requirement and 
its associated burden is merged into OMB Control Number 0584-0006, FNS 
estimates that this final rule will add 20,608 hours and 1,288 
responses to OMB's inventory due to a program change.
    Section 210.15(b)(8) requires that State agencies maintain records 
to document compliance with the procurement training requirements. FNS 
estimates that each of the 56 State agencies will maintain 1 record to 
document compliance with the procurement training requirements, for a 
total of 56 records annually (56 x 1 = 56). The estimated average 
number of burden hours per response is 15 minutes (0.25 hours) 
resulting in estimated total burden hours of 14 (56 x 0.25 = 14). When 
OMB approves the information collection request (ICR) for this final 
rule, FNS estimates that this information requirement will have 14 
burden hours and 56 responses. Once this requirement and its associated 
burden is merged into OMB Control Number 0584-0006, FNS estimates that 
this final rule will add 14 hours and 56 responses to OMB's inventory 
due to a program change.
    Section 210.26(b) requires that State agencies maintain records 
related to fines and specific violations. FNS estimates that each of 
the 56 State agencies will maintain 0.09 records to related fines and 
specific violations, for a total of 5.04 records annually (56 x 0.09 = 
5.04). The estimated average number of burden hours per response is 15 
minutes (0.25 hours) resulting in estimated total burden hours of 1.26 
hours (5.04 x 0.25 = 1.26). When OMB approves the information 
collection request (ICR) for this final rule, FNS estimates that this 
information requirement will have 1.26 burden hours and 5.04 responses. 
Once this requirement and its associated burden is merged into OMB 
Control Number 0584-0006, FNS estimates that this final rule will add 
1.26 hours and 5.04 responses to OMB's inventory due to a program 
change.
Affected Public SFAs/LEAs
    Section 210.21(h) requires that SFAs maintain document compliance 
with the procurement training requirements. FNS estimates that 19,019 
SFAs will maintain document compliance with the procurement training 
requirements, for a total of 19,019 records annually (19,019 x 1 = 
19,019). The estimated average number of burden hours per response is 
15 minutes (0.25 hours) resulting in estimated total burden hours of 
4,755 hours (19,019 x 0.25 = 4,755). When OMB approves the information 
collection request (ICR) for this final rule, FNS estimates that this 
information requirement will have 4,755 burden hours and 19,019 
responses. Once this requirement and its associated burden is merged 
into OMB Control Number 0584-0006, FNS estimates that this final rule 
will add 4,755 hours and 19,019 responses to OMB's inventory due to a 
program change.

Public Notification: NSLP

Affected Public: State Agencies
    Section 210.18(m)(1) requires SAs to make the most recent final 
administrative review results available to the public in an easily 
accessible manner (by posting a summary to the SA website and making a 
copy available upon request). FNS estimates there are 56 SAs that will 
each file 68 reports annually for a total of 3,808 responses (56 x 68 = 
3,808). The estimated average number of burden hours per response is 15 
minutes (0.25 hours) resulting in an estimated total annual burden 
hours of 952 (3,808 x 0.25 = 952). FNS estimates that this information 
requirement will have 952 burden hours and 3,808 responses. The 
previous burden (OMB# 0584-0006) was 1,582 hours and 6,328 responses. 
Once this requirement and its associated burden is merged into OMB 
Control Number 0584-0006, FNS estimates that this final rule results in 
a decrease of 630 burden hours and a decrease of 2,520 responses, from 
6,328 responses to 3,808 due to a program change reducing the frequency 
of the administrative review.

Reporting SFSP

Affected Public: State Agencies
    The changes proposed in this rule will impact the reporting burden 
currently approved under OMB Control Number 0584-0280 and found at 7 
CFR part 225, Summer Food Service Program. The below information 
provides details regarding the reporting changes associated with OMB 
Control Number 0584-0280 as a result of the Child Nutrition Program 
Integrity final rule, OMB control number 0584-0610.
    Section 225.6(i) requires that State agencies consult with FNS 
prior to taking any action to terminate for convenience. This is a new 
information requirement resulting from this final rule. FNS estimates 
that each of the 53 State agencies will consult with FNS once prior to 
taking any action to terminate for convenience, for a total of 53 
consultations (53 x 1 = 53). The estimated average number of burden 
hours per notification is 30 minutes (0.5 hours) resulting in estimated 
total burden hours of 27 (53 x 0.5 = 27). FNS estimates that this 
information requirement will have 27 burden hours and 53 responses. 
Once this requirement and its associated burden is merged into OMB 
Control Number 0584-0280 (7 CFR Summer Food Service Program), FNS 
estimates that this final rule results in an increase of 27 burden 
hours and 53 responses due to a program change.
    Section 225.18(k) requires that State agencies notify SFAs of fines 
and submit a copy of the notice to FNS.FNS estimates that each of the 
53 State agencies will notify SFAs of fines and submit a copy of the 
notice to FNS 0.09 times, for a total of 4.77 notifications annually 
(53 x 0.09 = 4.77). The estimated average number of burden hours per 
response is 3 hours, resulting in estimated total burden hours of 14.31 
(4.77 x 3 = 14.31). FNS estimates that this information requirement 
will have 14.31 hours and 4.77 responses. Once this requirement and its 
associated burden is merged into OMB Control Number 0584-0280, FNS 
estimates that this final rule results in an increase of 14.31 burden 
hours and 4.77 responses due to a program change.
    Section 225.18(k) states that SFAs may appeal State agency's 
determination of fines. SFAs must submit to the State agency any 
pertinent information, explanation, or evidence addressing the Program 
violations identified by the State agency. Any SFA seeking to appeal 
the State agency determination must follow State agency appeal 
procedures.FNS estimates that 5 SFAs will appeal the State agency's 
determination of violations and fines, for a total of 5 records 
annually (5 x 1 = 5). The estimated average number of burden hours per 
response is 8 hours resulting in estimated total burden hours of 40 (5 
x 8 = 40). FNS estimates that this information requirement will have 40 
burden hours and 5 responses. Once this requirement and its associated 
burden is merged into OMB Control Number 0584-0280, FNS estimates that 
the final rule will result in an increase of 40 burden hours and 5 
responses due to a program change.

Record Keeping: SFSP

    There is no change in burden for the record keeping requirements in 
the SFSP due to this rulemaking.

[[Page 57831]]

Reporting: CACFP

    The changes proposed in this rule will impact the existing 
reporting requirements currently approved under OMB Control Number 
0584-0055 and found at 7 CFR part 226, Child and Adult Care Food 
Program. The below information provides details regarding the reporting 
changes associated with OMB Control Number 0584-0055 as a result of the 
Child Nutrition Program Integrity final rule, OMB control number 0584-
0610.
Affected Public: State Agencies
    Section 226.4(j) requires State agencies to submit a plan to FNS 
for additional audit funding. This is a new information requirement 
resulting from this final rule. FNS estimates that on average there are 
8 State agencies that will each file 1 report annually for a total of 8 
responses (8 x 1=8). The estimated average number of burden hours per 
response is 4 hours resulting in estimated total burden hours of 32 (8 
x 4 =32). FNS estimates that this information requirement will have 32 
hours and 8 responses. Once this requirement and its associated burden 
is merged into OMB Control Number 0584-0055 (7 CFR part 226 Child and 
Adult Care Food Program), FNS estimates that this final rule will add 
32 burden hours and 8 responses to OMB's inventory due to a program 
change.
    Section 226.6(k)(11)(iii) allows the SA to submit, for FNS review, 
information supporting a request for a reduction in the State's 
liability, a reconsideration of the State's liability, or an exception 
to the 60-day deadline, for exceptional circumstances. FNS estimates 
that on average there will be 5 State agencies that will each file 1 
request annually for a total of 5 responses (5 x 1 = 5). The estimated 
average number of burden hours per response is 4 hours resulting in 
estimated total burden hours of 20 (5 x 4 = 20). FNS estimates that 
this information requirement will have 20 burden hours and 5 responses. 
Once this requirement and its associated burden is merged into OMB 
Control Number 0584-0055, FNS estimates that this final rule will add 
20 hours and 5 responses to OMB's inventory due to a program change.
    Section 226.6(b)(4)(ii) requires State agencies to consult with FNS 
prior to taking action to terminate for convenience. FNS estimates that 
each of the 56 State agencies will consult with FNS once per year prior 
to terminating a sponsoring organization for convenience, for a total 
of 56 responses annually (56 x 1 = 56). The estimated average number of 
burden hours per response is 30 minutes (0.5 hours), resulting in 
estimated total burden hours of 28 hours (56 x 0.5 = 28). FNS estimates 
that this information requirement will have 28 burden hours and 56 
responses. Once this requirement and its associated burden is merged 
into OMB Control Number 0584-0055, FNS estimates that this final rule 
results in an increase of 28 burden hours and 56 responses due to a 
program change.
    Section 226.6(m)(6) requires that State agencies conduct reviews 
every two years for sponsoring organizations with less than 100 
facilities and conduct activities other than the CACFP or are at risk 
of having serious management problems.FNS estimates that each of the 56 
State agencies will each conduct 20 reviews for sponsoring 
organizations every two years (nationwide, average 10 with less than 
100 centers and conduct activities other than CACFP and average 10 
having serious management problems), for a total of 1,120 reviews 
biennially (56 x 20 = 1,120). The estimated average number of burden 
hours per response is 4 hours resulting in estimated total burden hours 
of 4,480 (1,064 x 4 = 4,480). FNS estimates that this information 
requirement will have 4,480 burden hours and 1,120 responses. Once this 
requirement and its associated burden is merged into OMB Control Number 
0584-0055, FNS estimates that this results in an increase of 4,480 
burden hours and 1,120 responses due to a program change.
    Section 226.7(b)(1) requires that State agencies have procedures in 
place for annually reviewing at least one month of the sponsoring 
organization's bank account activity against other associated records 
to verify that the transactions meet program requirements.FNS estimates 
that each of the 56 State agencies will each have reviewing procedures 
in place to review sponsoring organization's bank account activity, for 
a total of 56 procedures annually (56 x 1 = 56). The estimated average 
number of burden hours per response is 1 hour resulting in estimated 
total burden hours of 56 (56 x 1 = 56). FNS estimates that this 
information requirement will have 56 burden hours and 56 responses. 
Once this requirement and its associated burden is merged into OMB 
Control Number 0584-0055 (7 CFR part 226 Child and Adult Care Food 
Program), FNS estimates that this results in an increase of 56 burden 
hours and 56 responses to OMB's inventory due to a program change.
    Section 226.7(b)(1)(ii) requires that State agencies have 
procedures for annually reviewing a sponsoring organization's actual 
expenditures of CACFP funds and the amount of meal reimbursement funds 
retained from unaffiliated centers. FNS estimates that there are 56 
State agencies that will each have reviewing procedures in place to 
review sponsoring organizations' CACFP funds and meal reimbursement 
funds retained from unaffiliated centers, for a total of 56 reviewing 
procedures annually (56 x 1 = 56). The estimated average number of 
burden hours per reviewing procedures is 1 hour resulting in estimated 
total burden hours of 56 (56 x 1 = 56). FNS estimates that this 
information requirement will have 56 burden hours and 56 responses. 
Once this requirement and its associated burden is merged into OMB 
Control Number 0584-0055, FNS estimates that this results in an 
increase of 56 burden hours and 56 responses to OMB's inventory due to 
a program change.
    Section 226.25(j) requires that State agencies notify SFAs of fines 
and submit a copy of the notice to FNS. FNS estimates that each of the 
56 State agencies will notify SFAs of fines and submit a copy of the 
notice to FNS 0.09 times, for a total of 5.04 notifications annually 
(56 x 0.09 = 5.04). The estimated average number of burden hours per 
response is 3 hours, resulting in estimated total burden hours of 15.12 
(5.04 x 3 = 15.12). FNS estimates that this information requirement 
will have 15.12 burden hours and 5.04 responses. Once this requirement 
and its associated burden is merged into OMB Control Number 0584-0055, 
FNS estimates that this final rule results in an increase of 15.12 
burden hours and 5.04 responses to OMB's inventory due to a program 
change.
    Section 226.6(b)(2) requires that State agencies review annual 
certification of an institution's eligibility to continue participating 
in CACFP (which replaces the renewal application process). FNS 
estimates that there are 56 State agencies that will each have to 
review 390 certifications, for a total of 21,840 reviews annually (56 x 
390 = 21,840). The estimated average number of burden hours per review 
is 20 minutes (.334 hours), resulting in estimated total burden hours 
of 7,295 (21,840 x .334 = 7,295). When OMB approves the information 
collection request (ICR) for this final rule, FNS estimates that this 
information requirement will have 7,295 burden hours and 21,840 
responses. Once the requirements and burden from this new collection 
are merged into OMB Control Number 0584-0055, FNS estimates that this 
final rule will reduce the burden hours by 3,625 hours, from 10,920 to 
7,295 hours. The number of responses will remain at 21,840

[[Page 57832]]

responses. This reduction is the result of a program change due to the 
Final Rule, due to the reduced number of hours it will take State 
agencies for this review.
    Section 226.6(m)(3)(ix) requires that State agencies assess the 
timing of each sponsoring organization's reviews of day care homes and 
sponsored centers. FNS estimates that there are 56 State agencies that 
will each have to review the timing of 390 sponsors, for a total of 
21,840 reviews annually (56 x 390 = 21,840). The estimated average 
number of burden hours per review is 10 minutes (.167 hours), resulting 
in estimated total burden hours of 3,640 (21,840 x .17 = 3,640). FNS 
estimates that this information requirement will have 3,640 burden 
hours and 21,840 responses. Once this requirement and its associated 
burden is merged into OMB Control Number 0584-0055, FNS estimates that 
this final rule results in an increase of 3,640 burden hours and 21,840 
responses to OMB's inventory due to a program change.
    Section 226.6(p) requires State agencies to develop/revise and 
provide a sponsoring organization agreement between sponsor and 
facilities, which must have standard provisions. FNS estimates that 
there are 56 State agencies that will each have to develop 1 agreement, 
for a total of 56 agreements, as a one-time burden (56 x 1 = 56). The 
estimated average number of burden hours per agreement is 6 hours, 
resulting in estimated total burden hours of 336 (56 x 6 = 336). FNS 
estimates that this information requirement will have 336 burden hours 
and 56 responses. Once this requirement and its associated burden is 
merged into OMB Control Number 0584-0055, FNS estimates that this 
results in an increase of 336 burden hours and 56 responses to OMB's 
inventory due to a program change.
    Section 226.12(a) requires the State agency to multiply the 
appropriate administrative reimbursement rate by the number of day care 
homes submitting claims for reimbursement during the month, to 
determine the amount of payment that sponsoring organizations will 
receive. FNS estimates that there are 56 State agencies that will each 
determine payments for 11 sponsors, for a total of 623 sponsors paid 
annually (56 x 11 = 623). The estimated average number of burden hours 
per sponsor's calculation is ten minutes per year (.167 hours), 
resulting in estimated total burden hours of 104 (623 x .167 = 104). 
FNS estimates that this information requirement will have 104 burden 
hours and 623 responses. Once this requirement and its associated 
burden is merged into OMB Control Number 0584-0055, FNS estimates that 
this results in an increase of 104 burden hours and 623 responses to 
OMB's inventory due to a program change.
    Section 226.7(g)(2) requires the State agency to review the budget 
and supporting documentation prior to approval, for sponsoring 
organizations of day care homes seeking to carry over administrative 
funds. FNS estimates that there are 56 State agencies that will each 
review and approve 11 budgets, for a total of 623 responses (56 x 11 = 
623). The estimated average number of burden hours per State agency is 
1 hour, resulting in estimated total burden hours of 623 (1 x 623 = 
623). FNS estimates that this information requirement will have 623 
burden hours and responses. Once this requirement and its associated 
burden is merged into OMB Control Number 0584-0055, FNS estimates that 
this results in an increase of both 623 burden hours and responses to 
OMB's inventory due to a program change.
    Section 226.7(j) requires each State agency to establish procedures 
to recover administrative funds from sponsoring organizations of day 
care homes that are not properly payable under FNS Instruction 796-2, 
administrative funds that are in excess of the 10 percent maximum 
carryover amount, and carryover amounts that are not expended or 
obligated by the end of the fiscal year following the fiscal year in 
which they were received. FNS estimates that there are 56 State 
agencies that will each establish 1 procedure, for a one-time burden 
total of 56 responses (56 x 1 = 56). The estimated average number of 
burden hours per State agency is 2 hours, resulting in estimated total 
burden hours of 112 (2 x 56 = 112). FNS estimates that this information 
requirement will have 112 burden hours and 56 responses. Once this 
requirement and its associated burden is merged into OMB Control Number 
0584-0055, FNS estimates that this results in an increase of 112 burden 
hours and 56 responses to OMB's inventory due to a program change.
Affected Public: Local Governments (Sponsoring Organizations)
    Section 226.7(b)(1) requires sponsoring organizations to annually 
provide State agencies with bank account activity against other 
associated records to verify that the transactions meet program 
requirements. FNS estimates that there are 3,257 sponsoring 
organizations that are local agencies. Each sponsoring organization 
will submit 1 bank statement to their respective State agency, 
resulting in 3,257 annual records (3,257 x 1 = 3,257). FNS estimates 
that it will take an average of 15 minutes (0.25 hours) per response; 
therefore, this change will result in an estimated total burden hours 
of 814 hours annually (3,257 x 0.25 = 814). FNS estimates that this 
information requirement will have 814 burden hours and 3,257 responses. 
Once this requirement and its associated burden is merged into OMB 
Control Number 0584-0055, FNS estimates that this results in an 
increase of 814 burden hours and 3,257 responses to OMB's inventory due 
to a program change.
    Section 226.7(b)(1)(i) requires sponsoring organizations to provide 
State agency with actual expenditures of CACFP funds and the amount of 
meal reimbursement funds retained from unaffiliated centers to support 
the sponsoring organization's administrative costs. FNS estimates that 
32 sponsoring organizations will provide their State agency with 1 
actual expenditure of CACFP funds and the amount of meal reimbursement 
funds retained from unaffiliated centers, for a total of 32 
expenditures annually (32 x 1 = 32). FNS estimates that it will take an 
average of 1 hour per submission; therefore, this change will result in 
an estimated total burden hours of 32 hours annually (32 x 1 = 32). FNS 
estimates that this information requirement will have 32 burden hours 
and responses. Once this requirement and its associated burden is 
merged into OMB Control Number 0584-0055, FNS estimates that this 
results in an increase of both 32 burden hours and responses to OMB's 
inventory due to a program change.
    Section 226.6(b) requires that each participating institution 
submit annual updates to continue its participation (annual 
certification of information, updated licensing information, and a 
budget). This replaces the renewal application process in 
226.6(f)(2)(i). FNS estimates that there are 3,257 institutions that 
will each have 1 annual update, for a total of 3,257 updates annually 
(3,257 x 1 = 3,257). The estimated average number of burden hours per 
review is 20 minutes (.33 hours), resulting in estimated total burden 
hours of 1,088 (3,257 x .334 = 1,088). FNS estimates that this 
information requirement will have 1,088 burden hours and 3,257 
responses. Once this requirement and its associated burden is merged 
into OMB Control Number 0584-0055, FNS estimates that this final rule 
will reduce the burden hours by 541 hours, from 1,629 to 1,088 hours. 
The number of responses will remain at 3,257 responses. This reduction 
is due to a program change

[[Page 57833]]

from the Final Rule, due to the lower amount of time it will take 
institutions to submit updates rather than renewal applications.
    Sections 226.6(p), 226.17(e), (f), 226.17a(f), 226.19(d), and 
226.19a(d) require that each sponsoring organization must enter into 
permanent agreements with their unaffiliated centers. FNS estimates 
that there are 32 sponsoring organizations that will each enter into 10 
agreements, for a total of 320 agreements as a one-time burden (32 x 10 
= 320). The estimated average number of burden hours per review is 30 
minutes (.5 hours), resulting in estimated total burden hours of 160 
(320 x .5 = 160). FNS estimates that this information requirement will 
have 160 burden hours and 320 responses. Once this requirement and its 
associated burden is merged into OMB Control Number 0584-0055, FNS 
estimates that this results in an increase of 160 burden hours and 320 
responses to OMB's inventory due to a program change.
    Section 226.6(f)(1)(iv) requires sponsoring organizations of day 
care homes seeking to carry over administrative funds to submit an 
amended budget, to include an estimate of requested administrative fund 
carryover amounts and a description of proposed purpose for which those 
funds would be obligated or expended. FNS estimates that there are 83 
sponsoring organizations that will each file 1 report, for a total of 
83 reports (83 x 1 = 83). The estimated average number of burden hours 
per report is 1 hour, resulting in estimated total burden hours of 83 
(1 x 83 = 83). FNS estimates that this information requirement will 
have 83 burden hours and responses. Once this requirement and its 
associated burden is merged into OMB Control Number 0584-0055, FNS 
estimates that this results in an increase of both 83 burden hours and 
responses to OMB's inventory due to a program change.
    Section 226.25 states that SFAs may appeal the State agency's 
determination of fines. SFAs must submit to the State agency any 
pertinent information, explanation, or evidence addressing the Program 
violations identified by the State agency. FNS estimates that 5 SFAs 
will appeal the State agency's determination of violations and fines, 
for a total of 5 records annually (5 x 1 = 5). The estimated average 
number of burden hours per response is 8 hours resulting in estimated 
total burden hours of 40 (5 x 8 = 40). FNS estimates that this 
information requirement will have 40 burden hours and 5 responses. Once 
this requirement and its associated burden is merged into OMB Control 
Number 0584-0055, FNS estimates that the final rule will result in an 
increase of 40 burden hours and 5 responses to OMB's inventory due to a 
program change.
    Section 226.23(e)(1)(vii) states that if a tier II day care home 
elects to assist in collecting and transmitting the applications to the 
sponsoring organization, sponsoring organizations must establish 
procedures to ensure the provider does not review or alter the 
application. FNS estimates that 83 sponsoring organizations will 
establish procedures, for a total of 83 records as a one-time burden 
(83 x 1 = 83). The estimated average number of burden hours per 
response is 1 hour resulting in estimated total burden hours of 83 (83 
x 1 = 83). FNS estimates that this information requirement will have 83 
burden hours and responses. Once this requirement and its associated 
burden is merged into OMB Control Number 0584-0055, FNS estimates that 
the final rule will result in an increase of both 83 burden hours and 
responses to OMB's inventory due to a program change.
Affected Public: Businesses
    Section 226.7(b)(1)(i) requires sponsoring organizations to 
annually provide State agencies with bank account activity against 
other associated records to verify that the transactions meet program 
requirements. FNS estimates that there are 18,601 sponsoring 
organizations that are businesses, each of which will submit 1 month's 
bank statement to their State agency for a total of 18,601 annual 
records. FNS expects it will take an average of 15 minutes (0.25 hours) 
for the sponsoring organization to report their bank activity to the 
State agency, resulting in estimated total burden hours of 4,650 
(18,601 x 0.25 = 4,650). FNS estimates that this information 
requirement will have 4,650 burden hours and 18,601 responses. Once 
this requirement and its associated burden is merged into OMB Control 
Number 0584-0055, FNS estimates that the final rule will result in an 
increase of 4,650 burden hours and 18,601 responses to OMB's inventory 
due to a program change.
    Section 226.7(b) requires that sponsoring organizations provide the 
State agency with actual expenditures of CACFP funds and the amount of 
meal reimbursement funds retained from unaffiliated centers to support 
the sponsoring organization's administrative costs. FNS estimates that 
1,030 sponsoring organizations of unaffiliated centers will provide 
their State agency with actual expenditures of CACFP funds and the 
amount of meal reimbursement funds retained from 1 unaffiliated center 
to support the sponsoring organization's administrative costs for a 
total of 1,030 annual records (1,030 x 1 = 1,030). FNS expects it will 
take an average of 1 hour for the sponsoring organization to report 
CACFP funds and meal reimbursement funds to the State agency, resulting 
in an estimated total burden hours of 1,030 (1,030 x 1 = 1,030). FNS 
estimates that this information requirement will have 1,030 burden 
hours and responses. Once this requirement and its associated burden is 
merged into OMB Control Number 0584-0055, FNS estimates that this final 
rule results in an increase of both 1,030 burden hours and responses to 
OMB's inventory due to a program change.
    Section 226.6(b) requires that each participating institution 
submit annual updates to continue its participation (annual 
certification of information, updated licensing information, and a 
budget). This replaces the renewal application process in 
226.6(f)(2)(i). FNS estimates that there are 18,601 institutions that 
will each have 1 annual update, for a total of 18,601 updates annually 
(18,601 x 1 = 18,601). The estimated average number of burden hours per 
review is 20 minutes (.334 hours), resulting in estimated total burden 
hours of 6,213 (18,601 x .334 = 6,138). FNS estimates that this 
information requirement will have 6,213 burden hours and 18,601 
responses. Once this requirement and its associated burden is merged 
into OMB Control Number 0584-0055, FNS estimates that this final rule 
will reduce the burden hours by 3,088 hours, from 9,301 to 6,213 hours. 
The number of responses will remain at 18,601 responses. This reduction 
is due to a program change due to the Final Rule, due to the lower 
amount of time it will take institutions to submit updates rather than 
renewal applications.
    Sections 226.6(p), 226.17(e), (f), 226.17a(f), 226.19(d), and 
226.19a(d) require that each sponsoring organization must enter into 
permanent agreements with their unaffiliated centers. FNS estimates 
that there are 1,030 institutions that will each enter into 10 
agreements, for a total of 10,300 agreements as a one-time burden 
(1,030 x 10 = 10,300). The estimated average number of burden hours per 
review is 30 minutes (0.5 hours), resulting in estimated total burden 
hours of 5,150 (10,300 x .5 = 5,150). FNS estimates that this 
information requirement will have 5,150 burden hours and 10,300 
responses. Once this requirement and its associated burden is merged 
into OMB Control Number 0584-0055, FNS estimates that this final rule 
results in

[[Page 57834]]

an increase of 5,150 burden hours and 10,300 responses to OMB's 
inventory due to a program change.
    Section 226.23(e)(1)(vii) states that if a tier II day care home 
elects to assist in collecting and transmitting the applications to the 
sponsoring organization, sponsoring organizations must establish 
procedures to ensure the provider does not review or alter the 
application. FNS estimates that 540 sponsoring organizations will 
establish procedures, for a total of 540 records as a one-time burden 
(540 x 1 = 540). The estimated average number of burden hours per 
response is 1 hour resulting in estimated total burden hours of 540 
(540 x 1 = 540). FNS estimates that this information requirement will 
have 540 burden hours and responses. Once this requirement and its 
associated burden is merged into OMB Control Number 0584-0055, FNS 
estimates that the final rule will result in an increase of both 540 
burden hours and responses to OMB's inventory due to a program change.
    Section 226.6(f)(1)(iv) requires sponsoring organizations of day 
care homes seeking to carry over administrative funds to submit an 
amended budget, to include an estimate of requested administrative fund 
carryover amounts and a description of proposed purpose for which those 
funds would be obligated or expended. FNS estimates that there are 540 
sponsoring organizations that will each file 1 report, for a total of 
540 reports (540 x 1 = 540). The estimated average number of burden 
hours per report is 1 hour, resulting in estimated total burden hours 
of 540 (1 x 540 = 540). FNS estimates that this information requirement 
will have 540 burden hours and responses. Once this requirement and its 
associated burden is merged into OMB Control Number 0584-0055, FNS 
estimates that the final rule will result in an increase of both 540 
burden hours and responses to OMB's inventory due to a program change.
Affected Public: Business Level (Facilities)
    Section 226.18(b)(12) allows tier II day care homes to assist in 
collecting meal benefit forms from households and transmitting the 
forms to the sponsoring organization on the household's behalf. FNS 
estimates that there are 9,321 tier II day care homes that will each 
collect and transmit 5.88 forms, for a total of 54,804 forms annually 
(9,321 x 5.88 = 54,804). The estimated average number of burden hours 
per form is five minutes (.0835 hours), resulting in estimated total 
burden hours of 4,576 (54,804 x .0835 = 4,576). FNS estimates that this 
information requirement will have 4,576 burden hours and 54,804 
responses. Once this requirement and its associated burden is merged 
into OMB Control Number 0584-0055, FNS estimates that the final rule 
will result in an increase of 4,576 burden hours and 54,804 responses 
to OMB's inventory due to a program change.

Recordkeeping: CACFP

Affected Public: State Agencies
    Section 226.4(j) requires that State agencies maintain a plan for 
additional audit funds. FNS estimates that on average there are 8 State 
agencies that will each file 1 report annually for a total of 8 
responses (8 x 1 = 8). The estimated average number of burden hours per 
response is 30 minutes (0.5 hours) resulting in estimated total burden 
hours of 4 (8 x 0.5 = 4). FNS estimates that this information 
requirement will have 4 burden hours and 8 responses. Once this 
requirement and its associated burden is merged into OMB Control Number 
0584-0055, FNS estimates that the final rule will result in an increase 
of 4 burden hours and 8 responses to OMB's inventory due to a program 
change.
    Section 226.6(m)(6) requires that State agencies maintain records 
for reviewing Sponsoring organizations with less than 100 facilities 
and conduct activities other than the CACFP, or are at risk of having 
serious management problems every two years. FNS estimates that there 
are 56 State agencies that will each maintain 20 records for reviewing 
sponsoring organizations with less than 100 facilities and conducting 
activities other than the CACFP, for a total of 1,120 records annually 
(56 x 20 = 1,120). The estimated average number of burden hours per 
response is 2 hours resulting in estimated total burden hours of 2,240 
(1,120 x 2 = 2,240). FNS estimates that this information requirement 
will have 2,240 burden hours and 1,120 responses. Once this requirement 
and its associated burden is merged into OMB Control Number 0584-0055, 
FNS estimates that the final rule will result in an increase of 2,240 
burden hours and 1,120 responses due to a program change.

Annualized Costs

    For the CACFP, given the wide variation in MIS development and 
maintenance costs across State agencies, FNS estimates a cost of 
$50,000 per State agency to perform system upgrades and an additional 
cost of $1,000 per State agency for annual maintenance for respondents 
of this final rule ICR. Therefore, as a result of the proposals 
outlined in this final rule, FNS estimates that this collection is 
expected to have $2,800,000 in costs related to system upgrades and 
$56,000 in annual maintenance. As a result of the provisions in this 
final rule, FNS estimates that a total of $2,856,000 in combined system 
upgrades and annual maintenance costs will be added to the currently 
approved burden for the CACFP under OMB Control Number 0584-0055.
    As a result of the proposals outlined in this final rule, FNS 
estimates that this new information collection will have 46,997 
respondents, 225,205 responses, and 190,924 burden hours. The average 
burden per response and the annual burden hours are explained below and 
summarized in the charts that follow. Once the ICR for the final rule 
is approved, the information collection requirements and their 
associated burden will be merged into the corresponding existing 
collections. In the case of OMB Control Number 0584-0006, FNS estimates 
that this final rule will increase the burden by 21,666 responses from 
the currently approved 47,631,996 responses to 47,653,662 and will 
decrease the burden by 14,734 burden hours from the currently approved 
9,808,454 hours to 9,793,720. It will not change the burden for the 
number of respondents (it will remain at 115,935). For OMB Control 
Number 0584-0280, FNS estimates that this final rule will not change 
the burden for the number of respondents (it will remain at 63,942), 
but the rule will increase the responses by 63 from 391,795 to 391,858 
and will increase the burden by 80.81 burden hours from the currently 
approved 462,698.97 hours to 462,779.78. For OMB Control Number 0584-
0055, FNS estimates that this final rule will increase the burden by 
115,171 responses from the currently approved 16,213,093 responses to 
16,328,263.76 and will increase the burden by 22,190.724 burden hours 
from the currently approved 4,213,210.886 hours to 4,235,401.61. It 
will not change the number of respondents (it will remain at 
3,794,949).

NSLP

Reporting
    Respondents (Affected Public): State, Local, and Tribal Government. 
The identified respondent groups include 56 State agencies and 19,019 
School Food Authorities that will participate in this collection.
    Estimated Number of Respondents: 19,075.
    Estimated Number of Responses per Respondent: 1.41.

[[Page 57835]]

    Estimated Total Annual Responses: 26,809.
    Estimate Time per Response: 3.18 hours.
    Estimated Total Annual Burden: 85,241 hours.
Recordkeeping
    Respondents (Affected Public): State, Local, and Tribal Government. 
The identified respondent groups include an estimated 56 State agencies 
and 19,019 School Food Authorities that will participate in this 
collection.
    Estimated Number of Respondents: 19,075.
    Estimated Number of Responses per Respondent: 1.87.
    Estimated Total Annual Responses: 35,600.
    Estimate Time per Response: 1.70 hours.
    Estimated Total Annual Burden: 60,610 hours.
Public Notification
    Respondents (Affected Public): State, Local, and Tribal Government. 
The identified respondent groups include 56 State agencies that will 
participate in this collection.
    Estimated Number of Respondents: 56.
    Estimated Number of Responses per Respondent: 68.
    Estimated Total Annual Responses: 3,808.
    Estimate Time per Response: .25 hours.
    Estimated Total Annual Burden: 952 hours.

SFSP

Reporting
    Respondents (Affected Public): State, Local, and Tribal Government. 
The identified respondent groups include 53 State agencies and 5 local 
governments that will participate in this collection.
    Estimated Number of Respondents: 58.
    Estimated Number of Responses per Respondent: 1.08.
    Estimated Total Annual Responses: 62.77.
    Estimate Time per Response: 1.29 hours.
    Estimated Total Annual Burden: 80.81 hours.

CACFP

Reporting
    Respondents (Affected Public): State, Local, and Tribal Government, 
For Profit, and Non-Profit Businesses. The respondent groups include 56 
State agencies, 3,257 Local governments, 18,601 sponsoring 
organizations, and 9,321 facilities that will participate in this 
collection.
    Estimated Number of Respondents: 31,235.
    Estimated Number of Responses per Respondent: 5.05.
    Estimated Total Annual Responses: 157,797.04.
    Estimate Time per Response: 0.26 hours.
    Estimated Total Annual Burden: 41,795.72 hours.
Recordkeeping
    Respondents (Affected Public): State, Local, and Tribal Government. 
The respondent groups include 56 State agencies that will participate 
in this collection.
    Estimated Number of Respondents: 56.
    Estimated Number of Responses per Respondent: 20.14.
    Estimated Total Annual Responses: 1,128.
    Estimate Time per Response: 1.99 hours.
    Estimated Total Annual Burden: 2,244 hours.

OMB Control Number 0584-0006, ``7 CFR Part 210 National School Lunch 
Program''

[[Page 57836]]



                                                                                            Reporting
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Estimated
                                                                                          Estimated #   Responses      Total      avg. # of    Estimated   Current OMB     Due to       Total
             Program rule                    CFR citation                 Title           respondents      per         annual     hours per   total hours    approved     program     difference
                                                                                                       respondents    records      response                 burden hrs     change
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       State Agency Level
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                       210.18(i)(3)............  SA notifies SFAs in               56           68        3,808         8.00       30,464       50,624      -20,160      -20,160
                                                                  writing of review
                                                                  findings, corrective
                                                                  actions, deadlines,
                                                                  and potential fiscal
                                                                  action with grounds
                                                                  and right to appeal.
                                       210.5(d)(3).............  SAs submit an annual              56            1           56         0.25           14           56          -42          -42
                                                                  report to FNS
                                                                  detailing the
                                                                  disbursement of
                                                                  performance-based
                                                                  reimbursement to SFAs
                                                                  (in FPRS).
                                       210.18(c)(2)............  SAs with a review cycle           56            1           56         8.00          448            0          448          448
                                                                  longer than 3-years
                                                                  submit a plan to FNS
                                                                  describing the
                                                                  criteria that it will
                                                                  use to identify high-
                                                                  risk SFAs for targeted
                                                                  follow-up reviews.
CN Integrity.........................  210.21(h)...............  State agencies must               56            1           56         1.00           56            0           56           56
                                                                  complete procurement
                                                                  training requirements
                                                                  annually.
CN Integrity.........................  210.26(b)(4)............  SAs must notify SFAs of           56         0.09         5.04         3.00        15.12            0        15.12        15.12
                                                                  fine and specific
                                                                  violations or actions
                                                                  that constituted the
                                                                  fine, and of appeal
                                                                  rights and procedures;
                                                                  submit a copy of the
                                                                  notice to FNS.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    State Agency Level Total............................................................        56.00        71.09     3,981.04         7.79    30,997.12    50,680.00      -19,683      -19,683
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       School Food Authority/Local Education Agency Level
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                       210.15(a)(3) &            SFA submits to the SA a        3,804            1        3,804         8.00       30,430       50,720      -20,290      -20,290
                                        210.18(j)(2).             written response to
                                                                  reviews documenting
                                                                  corrective action for
                                                                  Program deficiencies.
CN Integrity.........................  210.21(h)...............  SFAs must complete            19,019            1       19,019         1.25       23,774            0       23,774       23,774
                                                                  procurement training
                                                                  requirements annually.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CN Integrity.........................  210.26(b)(5)............  SFAs may appeal SA's               5            1            5         8.00           40            0           40           40
                                                                  determination of
                                                                  violations and fines.
                                                                  SFAs must submit to
                                                                  the State agency any
                                                                  pertinent information,
                                                                  explanation, or
                                                                  evidence addressing
                                                                  the Program violations
                                                                  identified by the SA.
                                                                  Any SFA seeking to
                                                                  appeal the SA
                                                                  determination must
                                                                  follow SA appeal
                                                                  procedures.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    School Food Authority Level Total...................................................       19,019        1.200       22,828         2.38       54,244       50,720        3,525        3,525
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          School Level
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Reporting Burden..............................................................       19,075         1.41       26,809         3.18       85,241      101,400      -16,158     (16,158)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                                          Recordkeeping
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Estimated                                Due to
                                                                                         Estimated #   Records per     Total      avg. # of    Estimated   Current OMB    program       Total
             Program rule                    CFR citation                Title             record-    recordkeeper     annual     hours per   total hours    approved     change--    difference
                                                                                           keepers                    records       record                  burden hrs      rule
                                                                                                   A             B  C = (A * B)            D  E = (C * D)            F                 G = E - F
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       State Agency Level
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                       210.18(h)(2)(iv).......  SA maintains                      56            68        3,808         0.25          952        1,582         -630         -630
                                                                 documentation of LEA/
                                                                 SFA compliance with
                                                                 nutrition standards
                                                                 for competitive foods.

[[Page 57837]]

 
                                       210.20(b)(6) &           SA maintains records of           56            68        3,808         8.00       30,472       50,638      -20,166      -20,166
                                        210.18(o)(f)(k,l,m) &    all reviews and audits
                                        210.23(c).               (including Program
                                                                 violations, corrective
                                                                 action, fiscal action
                                                                 and withholding of
                                                                 payments).
                                       210.20(b)(7) &           SA maintains                      56            68        3,808         0.50        1,904        3,164       -1,260       -1,260
                                        210.19(c) & 210.18(o).   documentation of
                                                                 fiscal action taken to
                                                                 disallow improper
                                                                 claims submitted by
                                                                 SFAs, as determined
                                                                 through claims
                                                                 processing, reviews,
                                                                 and USDA audits.
                                       210.18(c-h)............  SA completes and                  56            68        3,808         0.50        1,904        3,173       -1,269       -1,269
                                                                 maintains
                                                                 documentation used to
                                                                 conduct Administrative
                                                                 Review.
                                       210.18(c)..............  SA completes and                  56            23        1,288        16.00       20,608            0       20,608       20,608
                                                                 maintains
                                                                 documentation used to
                                                                 conduct targeted
                                                                 Follow Up
                                                                 Administrative Review.
CN Integrity.........................  210.15(b)(8)...........  State agencies must               56             1           56         0.25           14            0           14           14
                                                                 maintain records to
                                                                 document compliance
                                                                 with the procurement
                                                                 training requirements.
CN Integrity.........................  210.26(b)..............  State agencies must               56          0.09         5.04         0.25         1.26            0         1.26         1.26
                                                                 maintain records to
                                                                 related fines and
                                                                 specific violations.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    State Agency Level Total...........................................................           56           296       16,581         3.37       55,855       58,557       -2,702       -2,702
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       School Food Authority/Local Education Agency Level
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
CN Integrity.........................  210.21(h)..............  School food authorities       19,019             1       19,019         0.25        4,755            0        4,755        4,755
                                                                 must maintain document
                                                                 compliance with the
                                                                 procurement training
                                                                 requirements.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    School Food Authority Level Total..................................................       19,019             1       19,019         0.25        4,755            0        4,756        4,756
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          School Level
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                 0            0            0            0            0  ...........  ...........
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    School Level Total.................................................................            0  ............  ...........  ...........  ...........  ...........            0            0
                                                                                        --------------------------------------------------------------------------------------------------------
    Total Recordkeeping Burden.........................................................       19,075          1.87       35,600         1.70       60,610       58,557        2,054        2,054
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                                                           Public Notification
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                             Current                   Due to
                                                                                                                         Responses                 Estimated                   OMB        Due to      program
              Program rule                      CFR citation                   Title              Form    Estimated #       per      Total annual  avg. # of    Estimated    approved   authorizing   change--   Due to an      Total
                                                                                                  No.     respondents   respondents     records    hours per   total hours    burden      statute      final     adjustment   difference
                                                                                                                                                    response                   hrs                      rule
                                                                                                                    A             B   C = (A * B)          D   E = (C * D)          F                                          G = E - F
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                         210.18(m)(1)..............  SA must post a summary of  .......            56            68         3,808       0.25         952.0    1,582.0  ............       -630  ...........         -630
                                                                      the most recent
                                                                      administrative review
                                                                      results of SFAs on the
                                                                      SA website and make a
                                                                      copy available upon
                                                                      request.
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    State Agency Level Total..................................................................  .......            56         68.00         3,808       0.25           952      1,582             0       -630            0         -630
                                                                                               -----------------------------------------------------------------------------------------------------------------------------------------
Local Educational Agency/School Food Authority Level Total....................................  .......             0       #DIV/0!             0    #DIV/0!             0          0             0          0            0            0
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
School Level Total............................................................................  .......  ............  ............  ............  .........  ............  .........  ............          0  ...........            0
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Public Notification Burden..........................................................  .......            56         68.00         3,808       0.25           952      1,582             0       -630            0         -630
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
        Grand Total for NSLP Due to Final Rule (as shown in OMB#0584-0610)....................  .......        19,075          3.47        66,217       2.22       146,803          0             0    146,803            0      146,803
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 57838]]

OMB Control Number 0584-0280, ``7 CFR Summer Food Service Program''

[[Page 57839]]



                                                                                            Reporting
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Estimated
                                                                                          Estimated #   Responses      Total      avg. # of    Estimated   Current OMB     Due to       Total
             Program rule                    CFR citation                 Title           respondents      per         annual     hours per   total hours    approved     program     difference
                                                                                                       respondents    records      response                 burden hrs   adjustment
                                                                                                    A            B  C = (A * B)            D  E = (C * D)            F                 G = E - F
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 State/Local/Tribal Governments
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Integrity............................  225.6(i)................  State agency must              53.00         1.00        53.00         0.50        26.50         0.00        26.50        26.50
                                                                  consult with FNS prior
                                                                  to taking any action
                                                                  to terminate for
                                                                  convenience.
Integrity............................  225.18(k)...............  State agencies must            53.00         0.09         4.77         3.00        14.31         0.00        14.31        14.31
                                                                  notify SFAs of fines
                                                                  and submit a copy of
                                                                  the notice to FNS.
Integrity............................  225.18(k)...............  SFAs may appeal State           5.00         1.00         5.00         8.00        40.00  ...........        40.00        40.00
                                                                  agency's determination
                                                                  of fines. SFAs must
                                                                  submit to the State
                                                                  agency any pertinent
                                                                  information,
                                                                  explanation, or
                                                                  evidence addressing
                                                                  the Program violations
                                                                  identified by the
                                                                  State agency. Any SFA
                                                                  seeking to appeal the
                                                                  State agency
                                                                  determination must
                                                                  follow State agency
                                                                  appeal procedures.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    State/Local/Tribal Governments Total................................................           58            1           63         1.29           81            0           81        80.81
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Businesses (Non-profit Institutions and Camps)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          ...........  ...........  ...........  ...........  ...........            0         0.00         0.00
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          ...........  ...........  ...........  ...........  ...........         0.00            0            0
                                                                                          ...........  ...........  ...........  ...........  ...........         0.00            0         0.00
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
        Total Reporting Burden..........................................................           58         1.08        62.77         1.29        80.81         0.00           81           81
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 57840]]

OMB Control Number 0584-0055, ``7 CFR Part 226 Child and Adult Care 
Food Program''

[[Page 57841]]



                                                                                            Reporting
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Estimated                                Due to
                                                                                          Estimated #   Responses      Total      avg. # of    Estimated   Current OMB    program       Total
                  CFR citation                                    Title                   respondents      per         annual     hours per   total hours    approved     change--    difference
                                                                                                       respondents    records      response                 burden hrs   rulemaking
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                State and Local Government Level
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          State Agency
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
226.4(j).......................................  SAs may submit plan to FNS for                     8            1            8            4           32            0        32.00           32
                                                  additional audit funding.
226.6(k)(11)(iii)..............................  SA to submit, for FNS review,                      5            1            5            4           20            0        20.00           20
                                                  information supporting a request for a
                                                  reduction in the State's liability, a
                                                  reconsideration of the State's
                                                  liability, or an exception to the 60-
                                                  day deadline, for exceptional
                                                  circumstances.
226.6(b)(4)(ii)................................  State agency must consult with FNS                56            1           56         0.50           28            0        28.00           28
                                                  prior to any taking action to
                                                  terminate for convenience.
226.6(m)(6)....................................  SAs to conduct reviews every two years            56           20         1120         4.00        4,480            0     4,480.00        4,480
                                                  for sponsoring organizations with less
                                                  than 100 facilities and conduct
                                                  activities other than the CACFP or are
                                                  at risk of having serious management
                                                  problems.
226.7(b)(1)....................................  Have procedures in place for annually             56            1           56         1.00           56            0        56.00           56
                                                  reviewing at least one month of the
                                                  sponsoring organization's bank account
                                                  activity against other associated
                                                  records to verify that the
                                                  transactions meet program requirements.
226.7(b)(1)(ii)................................  State agency must have procedures for             56            1           56         1.00           56            0        56.00           56
                                                  annually reviewing a sponsoring
                                                  organization's actual expenditures of
                                                  CACFP funds and the amount of meal
                                                  reimbursement funds retained from
                                                  unaffiliated centers.
226.25(j)......................................  State agencies must notify SFAs of                56         0.09         5.04         3.00        15.12            0        15.12        15.12
                                                  fines and submit a copy of the notice
                                                  to FNS.
226.6(b)(2)....................................  SAs must review annual certification of           56          390       21,840        0.334        7,295       10,920    -3,625.44       -3,625
                                                  an institution's eligibility to
                                                  continue participating in CACFP
                                                  (replaces the renewal application
                                                  process).
226.6(m)(3)(ix)................................  The State agency is required to assess            56          390       21,840        0.167        3,640            0     3,640.00        3,640
                                                  the timing of each sponsoring
                                                  organization's reviews of day care
                                                  homes and sponsored centers.
226.6(p).......................................  The SA must develop/revise and provide            56            1           56         6.00          336            0       336.00          336
                                                  a sponsoring organization agreement
                                                  between sponsor and facilities, which
                                                  must have standard provisions.
226.12(a)......................................  SAs must multiply the appropriate                 56           11          623        0.167          104            0       103.83          104
                                                  administrative reimbursement rate by
                                                  the number of day care homes
                                                  submitting claims for reimbursement
                                                  during the month, to determine the
                                                  amount of payment that sponsoring
                                                  organizations will receive.
226.7(g)(2)....................................  State agency must review the budget and           56           11          623         1.00          623            0       623.00          623
                                                  supporting documentation prior to
                                                  approval, for sponsoring organizations
                                                  of day care homes seeking to carry
                                                  over administrative funds.
226.7(j).......................................  State agency must establish procedures            56            1           56         2.00          112            0       112.00          112
                                                  to recover administrative funds from
                                                  sponsoring organizations of day care
                                                  homes that are not properly payable
                                                  under FNS Instruction 796-2,
                                                  administrative funds that are in
                                                  excess of the 10 percent maximum
                                                  carryover amount, and carryover
                                                  amounts that are not expended or
                                                  obligated by the end of the fiscal
                                                  year following the fiscal year in
                                                  which they were received.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    State agency Subtotal...............................................................           56       827.57       46,344         0.36       16,797       10,920        5,877        5,877
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Local Governments (Sponsoring Organizations)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
226.7(b)(1)....................................  Sponsoring organizations have to               3,257            1        3,257         0.25          814            0          814          814
                                                  annually provide State agencies with
                                                  bank account activity against other
                                                  associated records to verify that the
                                                  transactions meet program requirements.

[[Page 57842]]

 
226.7(b)(1)(i).................................  Sponsoring organizations must provide             32            1           32            1           32            0           32        32.00
                                                  State agency with actual expenditures
                                                  of CACFP funds and the amount of meal
                                                  reimbursement funds retained from
                                                  unaffiliated centers to support the
                                                  sponsoring organization's
                                                  administrative costs.
226.6(b).......................................  Each participating institution must            3,257            1        3,257         0.33        1,088        1,629         -541      -540.66
                                                  submit annual updates to continue its
                                                  participation (annual certification of
                                                  information, updated licensing
                                                  information, and a budget).
226.6(p), 226.17(e),(f), 226.17a(f), 226.19(d),  Sponsoring organizations must enter               32           10          320         0.50          160            0          160       160.00
 and 226.19a(d).                                  into permanent agreements with their
                                                  unaffiliated centers.
226.6(f)(1)(iv)................................  Sponsoring organizations of day care              83            1           83         1.00           83            0           83        83.00
                                                  homes seeking to carry over
                                                  administrative funds must submit an
                                                  amended budget, to include an estimate
                                                  of requested administrative fund
                                                  carryover amounts and a description of
                                                  proposed purpose for which those funds
                                                  would be obligated or expended.
226.25.........................................  SFAs may appeal the State agency's                 5            1            5         8.00           40            0           40        40.00
                                                  determination of fines. SFAs must
                                                  submit to the State agency any
                                                  pertinent information, explanation, or
                                                  evidence addressing the Program
                                                  violations identified by the State
                                                  agency.
226.23(e)(1)(vii)..............................  If a tier II day care home elects to              83            1           83         1.00           83            0           83           83
                                                  assist in collecting and transmitting
                                                  the applications to the sponsoring
                                                  organization, sponsoring organizations
                                                  must establish procedures to ensure
                                                  the provider does not review or alter
                                                  the application.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Local Govt Subtotal.................................................................        3,257         2.16        7,037         0.33     2,300.09        1,629       671.59       671.59
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
        Reporting burden for State and Local Government Level...........................        3,313        16.11       53,381         0.36    19,096.60       12,549     6,548.10     6,548.10
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Businesses Level (Institutions)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
226.7(b)(1)(i).................................  Sponsoring organizations have to              18,601         1.00       18,601         0.25        4,650            0        4,650        4,650
                                                  annually provide State agencies with
                                                  bank account activity against other
                                                  associated records to verify that the
                                                  transactions meet program requirements.
226.7(b).......................................  Sponsoring organizations must provide          1,030            1        1,030            1        1,030            0        1,030     1,030.00
                                                  State agency with actual expenditures
                                                  of CACFP funds and the amount of meal
                                                  reimbursement funds retained from
                                                  unaffiliated centers to support the
                                                  sponsoring organization's
                                                  administrative costs.
226.6(b).......................................  Each participating institution must           18,601            1       18,601         0.33        6,213         9301      (3,088)      (3,088)
                                                  submit annual updates to continue its
                                                  participation (annual certification of
                                                  information, updated licensing
                                                  information, and a budget).
226.6(p), 226.17(e),(f), 226.17a(f), 226.19(d),  Sponsoring organizations must enter            1,030           10       10,300         0.50        5,150            0        5,150        5,150
 and 226.19a(d).                                  into permanent agreements with their
                                                  unaffiliated centers.
226.23(e)(1)(vii)..............................  If a tier II day care home elects to             540            1          540         1.00          540            0          540          540
                                                  assist in collecting and transmitting
                                                  the applications to the sponsoring
                                                  organization, sponsoring organizations
                                                  must establish procedures to ensure
                                                  the provider does not review or alter
                                                  the application.
226.6(f)(1)(iv)................................  Sponsoring organizations of day care             540            1          540         1.00          540            0          540          540
                                                  homes seeking to carry over
                                                  administrative funds must submit an
                                                  amended budget, to include an estimate
                                                  of requested administrative fund
                                                  carryover amounts and a description of
                                                  proposed purpose for which those funds
                                                  would be obligated or expended.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Burden for Businesses (Sponsoring Organizations)..............................       18,601         2.67    49,612.00         0.37    18,122.98        9,301     8,822.48     8,822.48
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 57843]]

 
                                                                                   Business Level (Facilities)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
226.18(b)(12)..................................  Tier II day care homes may assist in           9,321         5.88       54,804         0.08        4,576            0        4,576        4,576
                                                  collecting meal benefit forms from
                                                  households and transmitting the forms
                                                  to the sponsoring organization on the
                                                  household's behalf.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Burden for Businesses (Facilities)............................................        9,321         5.88    54,804.00         0.08     4,576.13         0.00     4,576.13     4,576.13
                                                ------------------------------------------------------------------------------------------------------------------------------------------------
    Total for Businesses................................................................       27,922         3.74      104,416         .217    22,699.11        9,301    13,398.61    13,398.61
                                                                                         -------------------------------------------------------------------------------------------------------
        Total Reporting Burden..........................................................       31,235         5.05   157,797.04         0.26    41,795.72       21,849    19,946.72    19,946.72
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                                                                                          Recordkeeping
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                  Estimated                                Due to
                                                                                   Estimated #       Records per       Total      avg. # of    Estimated   Current OMB    program       Total
               Program rule                                Title                  recordkeepers     recordkeeper       annual     hours per   total hours    approved     change--    difference
                                                                                                                      records       record                  burden hrs   rulemaking
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                State and Local Government Level
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          State Agency
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
226.4(j)..................................  SAs to maintain a plan for                         8                 1            8         0.50            4            0            4            4
                                             additional audit funds.
226.6(m)(6)...............................  Maintain records for reviewing                    56                20        1,120            2        2,240            0        2,240        2,240
                                             Sponsoring organizations with
                                             less than 100 facilities and
                                             conduct activities other than the
                                             CACFP, or are at risk of having
                                             serious management problems every
                                             two years.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    State agency subtotal.....................................................                56             20.14        1,128         1.99        2,244            0        2,244        2,244
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Local Governments (Sponsoring Organizations)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Recordkeeping Burden................................................                56             20.14        1,128         1.99     2,244.00         0.00     2,244.00     2,244.00
                                                                               -----------------------------------------------------------------------------------------------------------------
        Grand Total for CACFP Due to Final Rule (as shown in OMB#0584-0610)...            31,235                 5   158,925.04          .28    44,039.72            0    44,039.72    44,039.72
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 57844]]


------------------------------------------------------------------------
                                      OMB #0584-0280    Once merged with
                                    due to final rule    OMB #0584-0280
------------------------------------------------------------------------
Total No. Respondents.............                 58             63,942
Average No. Responses Per                        1.08               6.13
 Respondent.......................
Total Annual Responses............                 63            391,858
Average Hours Per Response........               1.29              1.181
Total Burden Hours................              80.81         462,779.78
Current OMB Inventory.............                  0         462,698.97
Difference Due To Rulemaking......              80.81              80.81
------------------------------------------------------------------------


------------------------------------------------------------------------
                                      OMB #0584-0055    Once merged with
                                    due to final rule    OMB #0584-0055
------------------------------------------------------------------------
Total No. Respondents.............             31,235          3,794,949
Average No. Responses Per                           5                  4
 Respondent.......................
Total Annual Responses............         158,925.04      16,328,263.76
Average Hours Per Response........               0.28                .26
Total Burden Hours................          44,039.72       4,235,401.61
Current OMB Inventory.............                  0      4,213,210.886
Difference Due To Rulemaking......          44,039.72          22,190.72
------------------------------------------------------------------------

E-Government Act Compliance

    FNS is committed to complying with the E-Government Act, to promote 
the use of the internet and other information technologies to provide 
increased opportunities for citizen access to Government information 
and services, and for other purposes.

List of Subjects

7 CFR Part 210

    Grant programs--education, Grant programs--health, Infants and 
children, Nutrition, Penalties, Reporting and recordkeeping 
requirements, School breakfast and lunch programs, Surplus agricultural 
commodities.

7 CFR Part 215

    Food assistance programs, Grant programs--education, Grant 
programs--health, Infants and children, Milk, Reporting and 
recordkeeping requirements.

7 CFR Part 220

    Grant programs--education, Grant programs--health, Infants and 
children, Nutrition, Reporting and recordkeeping requirements, School 
breakfast and lunch programs.

7 CFR Part 225

    Food assistance programs, Grant programs--health, Infants and 
children, Labeling, Reporting and recordkeeping requirements.

7 CFR Part 226

    Accounting, Aged, Day care, Food assistance programs, Grant 
programs, Grant programs--health, American Indians, Individuals with 
disabilities, Infants and children, Intergovernmental relations, Loan 
programs, Reporting and recordkeeping requirements, Surplus 
agricultural commodities.

7 CFR Part 235

    Administrative practice and procedure, Food assistance programs, 
Grant programs--education, Grant programs--health, Infants and 
children, Reporting and recordkeeping requirements, School breakfast 
and lunch programs.

    Accordingly, 7 CFR parts 210, 215, 220, 225, 226, and 235 are 
amended as follows:

PART 210--NATIONAL SCHOOL LUNCH PROGRAM

0
1. The authority citation for part 210 continues to read as follows:

    Authority:  42 U.S.C. 1751-1760, 1779.


0
2. Amend Sec.  210.2 by adding, in alphabetical order, the definition 
of ``Fixed-price contract'' to read as follows:


Sec.  210.2  Definitions.

* * * * *
    Fixed-price contract means a contract that charges a fixed cost per 
meal, or a fixed cost for a certain time period. Fixed-price contracts 
may include an economic price adjustment tied to a standard index.
* * * * *

0
3. In Sec.  210.5, revise paragraphs (d)(2) and (3) to read as follows:


Sec.  210.5  Payment process to States.

* * * * *
    (d) * * *
    (2) Quarterly report. Each State agency administering the National 
School Lunch Program must submit to FNS a quarterly Financial Status 
Report (FNS-777) on the use of Program funds. Such reports must be 
postmarked and/or submitted no later than 30 days after the end of each 
fiscal year quarter.
    (3) End of year reports. (i) Each State agency must submit an 
annual report detailing the disbursement of performance-based cash 
assistance described in Sec.  210.4(b)(1). The report must be submitted 
no later than 30 days after the end of each fiscal year. The report 
must include the total number of school food authorities in the State 
and the names of certified school food authorities. If all school food 
authorities in the State have been certified, the State agency is no 
longer required to submit the report.
    (ii) Each State agency must submit a final Financial Status Report 
(FNS-777) for each fiscal year. This final fiscal year grant closeout 
report must be postmarked or submitted to FNS within 120 days after the 
end of each fiscal year or part thereof that the State agency 
administered the Program. Obligations must be reported only for the 
fiscal year in which they occur. FNS will not be responsible for 
reimbursing Program obligations reported later than 120 days after the 
close of the fiscal year in which they were incurred. Grant closeout 
procedures are to be carried out in accordance with 2 CFR part 200, 
subpart D and USDA implementing regulations 2 CFR part 400 and part 
415.

0
4. In Sec.  210.7, revise paragraph (d) to read as follows:


Sec.  210.7  Reimbursement for school food authorities.

* * * * *
    (d) Performance-based cash assistance. The State agency must 
provide performance-based cash

[[Page 57845]]

assistance as authorized under Sec.  210.4(b)(1) for lunches served in 
school food authorities certified by the State agency to be in 
compliance with meal pattern and nutrition requirements set forth in 
Sec.  210.10 and, if the school food authority participates in the 
School Breakfast Program (7 CFR part 220), Sec.  220.8 or Sec.  220.23 
of this chapter, as applicable. State agencies must establish 
procedures to certify school food authorities for performance-based 
cash assistance in accordance with guidance established by FNS. Such 
procedures must ensure State agencies:
    (1) Make certification procedures readily available to school food 
authorities and provide guidance necessary to facilitate the 
certification process.
    (2) Require school food authorities to submit documentation to 
demonstrate compliance with meal pattern requirements set forth in 
Sec.  210.10 and Sec.  220.8 of this chapter, as applicable. Such 
documentation must reflect meal service at or about the time of 
certification.
    (3) State agencies must review certification documentation 
submitted by the school food authority to ensure compliance with meal 
pattern requirements set forth in Sec.  210.10, or Sec.  220.8 of this 
chapter, as applicable. For certification purposes, State agencies 
should consider any school food authority compliant:
    (i) If when evaluating daily and weekly range requirements for 
grains and meat/meat alternates, the certification documentation shows 
compliance with the daily and weekly minimums for these two components, 
regardless of whether the school food authority has exceeded the 
maximums for the same components.
    (ii) If when evaluating the service of frozen fruit, the school 
food authority serves products that contain added sugar.
    (4) Certification procedures must ensure that no performance-based 
cash assistance is provided to school food authorities for meals served 
prior to October 1, 2012.
    (5) Within 60 calendar days of a certification submission or as 
otherwise authorized by FNS, review submitted materials and notify 
school food authorities of the certification determination, the date 
that performance-based cash assistance is effective, and consequences 
for non-compliance,
    (6) Disburse performance-based cash assistance for all lunches 
served beginning with the start of certification provided that 
documentation reflects meal service in the calendar month the 
certification materials are submitted or, in the month preceding the 
calendar month of submission.
* * * * *

0
5. In Sec.  210.16, add paragraph (c)(4) to read as follows:


Sec.  210.16  Food service management companies.

* * * * *
    (c) * * *
    (4) Provisions in part 250, subpart D of this chapter must be 
included to ensure the value of donated foods, i.e., USDA Foods, are 
fully used in the nonprofit food service and credited to the nonprofit 
school food service account.
* * * * *

0
6. In Sec.  210.18:
0
a. Amend paragraph (b) by revising the definitions of ``Administrative 
review'' and ``General areas'';
0
b. Revise paragraphs (c), (f), (g) introductory text, (h) introductory 
text, and (h)(1);
0
c. Add paragraph (h)(2)(xi);
0
d. Revise paragraph (l) introductory text and paragraph (l)(2); and
0
e. Revise the first sentence of paragraph (p) introductory text and 
paragraph (p)(1).
    The addition and revisions read as follows:


Sec.  210.18  Administrative Reviews.

* * * * *
    (b) * * *
    Administrative reviews means the comprehensive evaluation of all 
school food authorities participating in the programs specified in 
paragraph (a) of this section. It includes a review of both critical 
and general areas in accordance with paragraphs (g) and (h) of this 
section, as applicable for each reviewed program. With FNS approval, 
the administrative review may include other areas of program operations 
determined by the State agency.
* * * * *
    General areas means the areas of review specified in paragraph (h) 
of this section. These areas include free and reduced-price process, 
civil rights, school food authority on-site monitoring, reporting and 
recordkeeping, food safety, competitive food services, water, program 
outreach, resource management, Buy American, and other areas identified 
by FNS.
* * * * *
    (c) Review cycle. State agencies must conduct administrative 
reviews of all school food authorities participating in the National 
School Lunch Program (including Afterschool Snacks and the Seamless 
Summer Option) and the School Breakfast Program at least once during a 
5-year review cycle, provided that each school food authority is 
reviewed at least once every 6 years, depending on review cycle 
observed. At a minimum, the on-site portion of the administrative 
review must be completed during the school year in which the review 
began.
    (1) Targeted follow-up reviews. A State agency that reviews school 
food authorities on a cycle longer than 3 years must identify school 
food authorities that are high-risk to receive a targeted follow-up 
review. A State agency must develop and receive FNS approval of a plan 
to identify school food authorities that meet the high-risk criteria.
    (2) High-risk criteria for targeted follow-up reviews. At a 
minimum, a State plan should identify as high-risk those school food 
authorities that during the most recent administrative review conducted 
in accordance with this Sec.  210.18 had one or more of the following 
risk factors as determined by the State Agency: a 10 percent or greater 
certification and benefit issuance error rate; incomplete verification 
for the review year; or one or more significant or systemic errors in 
Performance Standard 1 as defined at (g)(1) of this section, 
Performance Standard 2 as defined at paragraph (g)(2) of this section, 
or allowable costs.
    (3) Timing and scope of targeted follow-up reviews. Within two 
years of the review, high-risk school food authorities must receive a 
targeted follow-up review. Targeted follow-up reviews must include the 
areas of significant or systemic error identified in the previous 
review, and may include other areas at the discretion of the State 
agency. The State agency may conduct targeted follow-up reviews in the 
same school year as the administrative review, and may conduct any 
additional reviews at its discretion.
* * * * *
    (f) Scope of review. During the course of an administrative review 
for the National School Lunch Program and the School Breakfast Program, 
the State agency must monitor compliance with the critical and general 
areas in paragraphs (g) and (h) of this section, respectively. Selected 
critical and general areas must be monitored when reviewing the 
National School Lunch Program's Afterschool Snacks and the Seamless 
Summer Option, the Special Milk Program, and the Fresh Fruit and 
Vegetable Program, as applicable and as specified in the FNS 
Administrative Review Manual. State agencies may add

[[Page 57846]]

additional review areas with FNS approval.
    (1) Review forms. State agencies must use the administrative review 
forms, tools and workbooks prescribed by FNS.
    (2) Timeframes covered by the review. (i) The timeframes covered by 
the administrative review include the review period and the day of 
review, as defined in paragraph (b) of this section.
    (ii) Subject to FNS approval, the State agency may conduct a review 
early in the school year, prior to the submission of a Claim for 
Reimbursement. In such cases, the review period must be the prior month 
of operation in the current school year, provided that such month 
includes at least 10 operating days.
    (3) Audit results. The State agency may use any recent and 
currently applicable results from Federal, State, or local audit 
activity to meet FNS monitoring requirements. Such results may be used 
only when they pertain to the reviewed school(s) or the overall 
operation of the school food authority, when they are relevant to the 
review period, and when they adhere to audit standards contained in 2 
CFR part 200, subpart F. The State agency must document the source and 
the date of the audit. The content of local level audits activity 
requires the approval of FNS to ensure that these audits align with 
Federal audit standards.
    (4) Completion of review requirements outside the administrative 
review. State agencies may, with FNS approval, omit specific, redundant 
areas of the administrative review, when sufficient oversight is 
conducted outside of the administrative review.
    (5) Error reduction strategies. State agencies may omit designated 
areas of review, in part or entirely, where a school food authority or 
State agency has implemented FNS-approved error reduction strategies or 
utilized FNS-approved monitoring efficiencies.
    (g) Critical areas of review. The performance standards listed in 
this paragraph are directly linked to meal access and reimbursement, 
and to the meal pattern and nutritional quality of the reimbursable 
meals offered. These critical areas must be monitored by the State 
agency when conducting administrative reviews of the National School 
Lunch Program and the School Breakfast Program. Selected aspects of 
these critical areas must also be monitored, as applicable, when 
conducting administrative reviews of the National School Lunch 
Program's Afterschool Snacks and the Seamless Summer Option, and of the 
Special Milk Program. State agencies may omit designated critical areas 
of review, in part or entirely, where school food authority or State 
agency has implemented FNS-specified error reduction strategies or 
utilized FNS-specified monitoring efficiencies.
* * * * *
    (h) General areas of review. The general areas listed in this 
paragraph reflect requirements that must be monitored by the State 
agency when conducting administrative reviews of the National School 
Lunch Program and the School Breakfast Program. Selected aspects of 
these general areas must also be monitored, as applicable and as 
specified in the FNS Administrative Review Manual, when conducting 
administrative reviews of the National School Lunch Program's 
Afterschool Snacks and Seamless Summer Option, the Fresh Fruit and 
Vegetable Program, and the Special Milk Program. State agencies may 
omit designated general areas of review, in part or entirely, where the 
school food authority or State agency has implemented FNS-specified 
error reduction strategies or utilized FNS-specified monitoring 
efficiencies. State agencies may omit designated general areas of 
review, in part or entirely, where the school food authority or State 
agency has implemented FNS-specified error reduction strategies or 
utilized FNS-specified monitoring efficiencies. The general areas of 
review must include, but are not limited to, the following:
    (1) Resource management. The State agency must conduct an 
assessment of the school food authority's nonprofit school food service 
account to evaluate the risk of noncompliance with resource management 
requirements. If risk indicators show that the school food authority is 
at high risk for noncompliance with resource management requirements, 
the State agency must conduct a comprehensive review including, but not 
limited to, the following areas using procedures specified in the FNS 
Administrative Review Manual.
* * * * *
    (2) * * *
    (xi) Buy American. The State agency must ensure that the school 
food authority complies with the Buy American requirements set forth in 
Sec.  210.21(d) and 7 CFR 220.16(d), as specified in the FNS 
Administrative Review Manual.
* * * * *
    (l) Fiscal action. The State agency must take fiscal action for all 
Performance Standard 1 violations and specific Performance Standard 2 
violations identified during an administrative review, including 
targeted follow-up review or other reviews, as specified in this 
section. Fiscal action must be taken in accordance with the principles 
in Sec.  210.19(c) and the procedures established in the FNS 
Administrative Review Manual. The State agency must follow the fiscal 
action formula prescribed by FNS to calculate the correct entitlement 
for a school food authority or a school. While there is no fiscal 
action required for general area violations, the State agency has the 
ability to withhold funds for repeat or egregious violations occurring 
in the majority of the general areas as described in paragraph 
(k)(1)(iv) of this section.
* * * * *
    (2) Performance Standard 2 violations. Fiscal action for 
Performance Standard 2 violations applies as follows:
    (i) For missing food components or missing production records cited 
under paragraph (g)(2) of this section, the State agency must apply 
fiscal action.
    (ii) For repeated violations involving food quantities, whole 
grain-rich foods, milk type, and vegetable subgroups cited under 
paragraph (g)(2) of this section, the State agency has discretion to 
apply fiscal action as follows:
    (A) If the meals contain insufficient quantities of the required 
food components, the deficient meals may be disallowed and reclaimed.
    (B) If no whole grain-rich foods are offered during the week of 
review, meals for up to the entire week of review may be disallowed and 
reclaimed.
    (C) If insufficient whole grain-rich foods are offered during the 
week of review, meals for up to the entire week of review may be 
disallowed and/or reclaimed.
    (D) If an unallowable milk type is offered, or no milk variety is 
offered, the deficient meals may be disallowed and reclaimed.
    (E) If one vegetable subgroup is not offered over the course of the 
week of review, meals for up to the entire week of review may be 
disallowed and reclaimed.
    (F) If a weekly vegetable subgroup is offered in insufficient 
quantity to meet the weekly vegetable subgroup requirement, meals for 
one day of the week of review may be disallowed and reclaimed.
    (G) If the amount of juice offered exceeds the weekly limitation, 
meals for up to the entire week of review may be disallowed and/or 
reclaimed.
    (iii) For repeated violations of calorie, saturated fat, sodium, 
and trans fat dietary specifications cited under paragraph (g)(2)(ii) 
of this section, the

[[Page 57847]]

State agency has discretion to apply fiscal action to the reviewed 
school as follows:
    (A) If the average meal offered over the course of the week of 
review does not meet one of the dietary specifications, meals for the 
entire week of review may be disallowed and reclaimed; and
    (B) Fiscal action is limited to the school selected for the 
targeted menu review and must be supported by a nutrient analysis of 
the meals at issue using USDA-approved software.
    (iv) The following conditions must be met prior to applying fiscal 
action as described in paragraphs (l)(2)(ii) and (iii) of this section:
    (A) Technical assistance has been given by the State agency;
    (B) Corrective action has been previously required and monitored by 
the State agency; and
    (C) The school food authority remains noncompliant with the meal 
requirements established in part 210 and part 220 of this chapter.
* * * * *
    (p) * * * Except for FNS-conducted reviews authorized under Sec.  
210.29(d)(2), each State agency must establish an appeal procedure to 
be followed by a school food authority requesting a review of a denial 
of all or a part of the Claim for Reimbursement, withholding payment 
arising from administrative or follow-up review activity conducted by 
the State agency under this Sec.  210.18, or fines established under 
Sec.  210.26, or Sec.  215.15 or Sec.  220.18 of this chapter. * * *
    (1) The written request for a review must be postmarked within 15 
calendar days of the date the appellant received the notice of the 
denial of all or a part of the Claim for Reimbursement, withholding of 
payment, or fines established under Sec.  210.26, or Sec.  215.15 or 
Sec.  220.18 of this chapter, and the State agency must acknowledge the 
receipt of the request for appeal within 10 calendar days;
* * * * *

0
7. In Sec.  210.19, revise paragraph (a)(5) to read as follows:


Sec.  210.19  Additional Responsibilities.

    (a) * * *
    (5) Food service management companies. (i) The State agency must 
annually review and approve each contract and contract amendment, 
including all supporting documentation, between any school food 
authority and food service management company before implementation of 
the contract by either party to ensure compliance with all the 
provisions and standards set forth in this part.
    (A) When the State agency develops a prototype contract for use by 
the school food authority that meets the provisions and standards set 
forth in this part, this annual review may be limited to changes made 
to that contract.
    (B) The State agency may establish due dates for submission of the 
contract or contract amendment documents.
    (ii) The State agency must perform a review of each school food 
authority that contracts with a food service management company, at 
least once during each 5-year period. The reviews must examine the 
school food authority's compliance with Sec.  210.16 of this part.
    (iii) The State agency may require all food service management 
companies to register with the State agency prior to contracting for 
food service with any school food authority in the State.
    (iv) State agencies must provide assistance to school food 
authorities upon request to assure compliance with the requirements for 
contracting with a food service management company.
* * * * *


Sec.  210.20  [Amended]

0
8. In Sec.  210.20, amend paragraph (b)(14) by removing the term 
``Sec.  235.11(g)'' and adding in its place the term ``Sec.  
235.11(h)''.

0
9. In Sec.  210.21 add paragraph (h) to read as follows:


Sec.  210.21  Procurement.

* * * * *
    (h) Procurement training. (1) State directors of school nutrition 
programs, State directors of distributing agencies, and school 
nutrition program directors, management, and staff tasked with National 
School Lunch Program procurement responsibilities must complete annual 
training on Federal procurement standards annually.
    (2) Procurement training may count towards the professional 
standards training standards at Sec.  210.30(g) of this part and Sec.  
235.11(h) of this chapter.
    (3) State agencies and school food authorities must retain records 
to document compliance with the requirement in this section.


0
10. Revise Sec.  210.26 to read as follows:


Sec.  210.26  Penalties and fines.

    (a) Penalties. Whomever embezzles, willfully misapplies, steals, or 
obtains by fraud any funds, assets, or property provided under this 
part whether received directly or indirectly from the Department will, 
if such funds, assets, or property are of a value of $100 or more, be 
fined no more than $25,000 or imprisoned not more than 5 years or both; 
or if such funds, assets, or property are of a value of less than $100, 
be fined not more than $1,000 or imprisoned not more than 1 year or 
both. Whomever receives, conceals, or retains for personal use or gain, 
funds, assets, or property provided under this part, whether received 
directly or indirectly from the Department, knowing such funds, assets, 
or property have been embezzled, willfully misapplied, stolen, or 
obtained by fraud, will be subject to the same penalties.
    (b) Fines. (1) The State agency may establish a fine against any 
school food authority when it has determined that the school food 
authority or a school under its agreement has:
    (i) Failed to correct severe mismanagement of this Program or a 
Child Nutrition Program under parts 225 or 226 of this chapter;
    (ii) Disregarded a Program requirement of which the school food 
authority or school had been informed; or
    (iii) Failed to correct repeated violations of Program requirements 
under this part or under parts 225 or 226 of this chapter.
    (2) FNS may direct the State agency to establish a fine against any 
school food authority when it has determined that the school food 
authority or school meets the criteria set forth under paragraph (b)(1) 
of this section.
    (3) Funds used to pay fines established under this paragraph must 
be derived from non-Federal sources. The State agency must calculate 
the fine based on the amount of Program reimbursement earned by the 
school food authority or school for the most recent fiscal year for 
which full year data is available, provided that the fine does not 
exceed the equivalent of:
    (i) For the first fine, 1 percent of the amount of meal 
reimbursement earned for the fiscal year;
    (ii) For the second fine, 5 percent of the amount of meal 
reimbursement earned for the fiscal year; and
    (iii) For the third or subsequent fine, 10 percent of the amount of 
meal reimbursement earned for the fiscal year.
    (4) The State agency must inform FNS at least 30 days prior to 
establishing the fine under this paragraph. The State agency must send 
the school food authority written notification of the fine established 
under this paragraph and provide a copy of the notification to FNS. The 
notification must:
    (i) Specify the violations or actions which constitute the basis 
for the fine and indicate the amount of the fine;
    (ii) Inform the school food authority that it may appeal the fine 
and advise

[[Page 57848]]

the school food authority of the appeal procedures established under 
Sec.  210.18(p);
    (iii) Indicate the effective date and payment procedures should the 
school food authority not exercise its right to appeal within the 
specified timeframe.
    (5) Any school food authority subject to a fine under paragraph 
(b)(1) of this section may appeal the State agency's determination. In 
appealing a fine, the school food authority must submit to the State 
agency any pertinent information, explanation, or evidence addressing 
the Program violations identified by the State agency. Any school food 
authority seeking to appeal the State agency determination must follow 
State agency appeal procedures.
    (6) The decision of the State agency review official is final and 
not subject to further administrative or judicial review. Failure to 
pay a fine established under this paragraph may be grounds for 
suspension or termination.
    (7) Money received by the State agency as a result of a fine 
established under this paragraph against a school food authority and 
any interest charged in the collection of these fines must be remitted 
to FNS, and then remitted to the United States Treasury.


0
11. In Sec.  210.30, add paragraph (g)(3) to read as follows:


Sec.  210.30  School nutrition program professional standards.

* * * * *
    (g) * * *
    (3) Each employee tasked with Program procurement has completed 
annual procurement training, as required under Sec.  210.21(h), by the 
end of each school year.


0
12. Revise Sec.  210.32 to read as follows:


Sec.  210.32  Program information.

    Persons seeking information about this Program should contact their 
State administering agency or the appropriate FNSRO. The FNS website 
has contact information for State agencies at https://www.fns.usda.gov/contacts and FNSROs at https://www.fns.usda.gov/fns-regional-offices.

PART 215--SPECIAL MILK PROGRAM

0
13. The authority citation for part 215 continues to read as follows:

    Authority:  42 U.S.C. 1772 and 1779.


0
14. Revise Sec.  215.15 to read as follows:


Sec.  215.15  Withholding payments and establishing fines.

    (a) Withholding payments. In accordance with Departmental 
regulations 2 CFR 200.338 through 200.342, the State agency must 
withhold Program payments, in whole or in part, from any school food 
authority which has failed to comply with the provisions of this part. 
Program payments must be withheld until the school food authority takes 
corrective action satisfactory to the State agency, or gives evidence 
that such corrective actions will be taken, or until the State agency 
terminates the grant in accordance with Sec.  215.16. Subsequent to the 
State agency's acceptance of the corrective actions, payments will be 
released for any milk served in accordance with the provisions of this 
part during the period the payments were withheld.
    (b) Fines. (1) The State agency may establish a fine against any 
school food authority when it has determined that the school food 
authority or a school under its agreement has:
    (i) Failed to correct severe mismanagement of the Program;
    (ii) Disregarded a Program requirement of which the school food 
authority or school had been informed; or
    (iii) Failed to correct repeated violations of Program 
requirements.
    (2) FNS may direct the State agency to establish a fine against any 
school food authority when it has determined that the school food 
authority or school meets the criteria set forth under paragraph (b)(1) 
of this section.
    (3) Funds used to pay a fine established under this paragraph must 
be derived from non-Federal sources. The State agency must calculate 
the fine based on the amount of Program reimbursement earned by the 
school food authority or school for the most recent fiscal year for 
which full year data is available, provided that the fine does not 
exceed the equivalent of:
    (i) For the first fine, 1 percent of the amount of reimbursement 
for milk earned for the fiscal year;
    (ii) For the second fine, 5 percent of the amount of reimbursement 
for milk earned for the fiscal year; and
    (iii) For the third or subsequent fine, 10 percent of the amount of 
reimbursement for milk earned for the fiscal year.
    (4) The State agency must inform FNS at least 30 days prior to 
establishing a fine under this paragraph. The State agency must send 
the school food authority written notification of the fine established 
under this paragraph and provide a copy of the notification to FNS. The 
notification must:
    (i) Specify the violations or actions which constitute the basis 
for the fine and indicate the amount of the fine;
    (ii) Inform the school food authority that it may appeal the fine 
and advise the school food authority of the appeal procedures 
established under Sec.  210.18(p) of this chapter;
    (iii) Indicate the effective date and payment procedures should the 
school food authority not exercise its right to appeal within the 
specified timeframe.
    (5) Any school food authority subject to a fine under paragraph 
(b)(1) of this section may appeal the State agency's determination. In 
appealing a fine, the school food authority must submit to the State 
agency any pertinent information, explanation, or evidence addressing 
the Program violations identified by the State agency. Any school food 
authority seeking to appeal the State agency determination must follow 
State agency appeal procedures.
    (6) The decision of the State agency review official is final and 
not subject to further administrative or judicial review. Failure to 
pay a fine established under this paragraph may be grounds for 
suspension or termination.
    (7) Money received by the State agency as a result of a fine 
established under this paragraph against a school food authority and 
any interest charged in the collection of these fines must be remitted 
to FNS, and then remitted to the United States Treasury.

0
15. Revise Sec.  215.17 to read as follows:


Sec.  215.17  Program information.

    Persons seeking information about this Program should contact their 
State administering agency or the appropriate FNSRO. The FNS website 
has contact information for State agencies at https://www.fns.usda.gov/contacts and FNSROs at https://www.fns.usda.gov/fns-regional-offices.

PART 220--SCHOOL BREAKFAST PROGRAM

0
16. The authority citation for part 220 continues to read as follows:

    Authority: 42 U.S.C. 1773, 1779, unless otherwise noted.


0
17. In Sec.  220.2, add in alphabetical order the definition ``Fixed-
price contract'' to read as follows:


Sec.  220.2  Definitions.

* * * * *
    Fixed-price contract means a contract that charges a fixed cost per 
meal, or a fixed cost for a certain time period. Fixed-price contracts 
may include an economic price adjustment tied to a standard index.
* * * * *

0
18. In Sec.  220.7, add paragraph (d)(3)(iv) to read as follows:


Sec.  220.7  Requirements for participation.

* * * * *

[[Page 57849]]

    (d) * * *
    (3) * * *
    (iv) Provisions in part 250, subpart D of this chapter must be 
included to ensure the value of donated foods, i.e., USDA Foods, are 
fully used in the nonprofit food service and credited to the nonprofit 
school food service account.
* * * * *

0
19. Revise Sec.  220.18 to read as follows:


Sec.  220.18  Withholding payments and establishing fines.

    (a) Withholding payments. In accordance with 2 CFR 200.338 through 
342, the State agency must withhold Program payments, in whole or in 
part, from any school food authority which has failed to comply with 
the provisions of this part. Program payments must be withheld until 
the school food authority takes corrective action that is satisfactory 
to the State agency, or gives evidence that such corrective actions 
will be taken, or until the State agency terminates the grant in 
accordance with Sec.  220.19. Subsequent to the State agency's 
acceptance of the corrective actions, payments will be released for any 
breakfasts served in accordance with the provisions of this part during 
the period the payments were withheld.
    (b) Fines. (1) The State agency may establish a fine against any 
school food authority when it has determined that the school food 
authority or a school under its agreement has:
    (i) Failed to correct severe mismanagement of the Program or a 
Child Nutrition Program under parts 225 or 226 of this chapter;
    (ii) Disregarded a Program requirement of which the school food 
authority or school had been informed; or
    (iii) Failed to correct repeated violations of Program requirements 
under this part or under parts 225 or 226 of this chapter.
    (2) FNS may direct the State agency to establish a fine against any 
school food authority when it has determined that the school food 
authority or school meets the criteria set forth under paragraph (b)(1) 
of this section.
    (3) Funds used to pay a fine established under this paragraph must 
be derived from non-Federal sources. The State agency must calculate 
the fine based on the amount of Program reimbursement earned by the 
school food authority or school for the most recent fiscal year for 
which full year data are available, provided that the fine does not 
exceed the equivalent of:
    (i) For the first fine, 1 percent of the amount of meal 
reimbursement earned for the fiscal year;
    (ii) For the second fine, 5 percent of the amount of meal 
reimbursement earned for the fiscal year; and
    (iii) For the third or subsequent fine, 10 percent of the amount of 
meal reimbursement earned for the fiscal year.
    (4) The State agency must inform FNS at least 30 days prior to 
establishing a fine under this paragraph. The State agency must send 
the school food authority written notification of the fine established 
under this paragraph and provide a copy of the notification to FNS. The 
notification must:
    (i) Specify the violations or actions which constitute the basis 
for the fine and indicate the amount of the fine;
    (ii) Inform the school food authority that it may appeal the fine, 
and advise the school food authority of the appeal procedures 
established under Sec.  210.18(p) of this chapter;
    (iii) Indicate the effective date and payment procedures should the 
school food authority not exercise its right to appeal within the 
specified timeframe.
    (5) Any school food authority subject to a fine under paragraph 
(b)(1) of this section may appeal the State agency's determination. In 
appealing a fine, the school food authority must submit to the State 
agency any pertinent information, explanation, or evidence addressing 
the Program violations identified by the State agency. Any school food 
authority seeking to appeal the State agency determination must follow 
State agency appeal procedures.
    (6) The decision of the State agency review official is final and 
not subject to further administrative or judicial review. Failure to 
pay a fine established under this paragraph may be grounds for 
suspension or termination.
    (7) Money received by the State agency as a result of a fine 
established under this paragraph against a school food authority and 
any interest charged in the collection of these fines must be remitted 
to FNS, and then remitted to the United States Treasury.

0
20. Revise Sec.  220.21 to read as follows:


Sec.  220.21  Program information.

    Persons seeking information about this Program should contact their 
State administering agency or the appropriate FNSRO. The FNS website 
has contact information for State agencies at https://www.fns.usda.gov/contacts and FNSROs at https://www.fns.usda.gov/fns-regional-offices.

PART 225--SUMMER FOOD SERVICE PROGRAM

0
21. The authority citation for part 225 continues to read as follows:

    Authority:  Secs. 9, 13, and 14, Richard B. Russell National 
School Lunch Act, as amended, 42 U.S.C. 1758, 1761 and 1762a.


0
22. In Sec.  225.2, add in alphabetical order a definition for 
``Termination for convenience'' to read as follows:


Sec.  225.2  Definitions.

* * * * *
    Termination for convenience means:
    (1) Termination of a State agency's participation in the Program in 
whole, or in part, when FNS and the State agency agree that the 
continuation of the Program would not produce beneficial results 
commensurate with the further expenditure of funds; or
    (2) Termination of a permanent operating agreement by a State 
agency or sponsor due to considerations unrelated to either party's 
performance of Program responsibilities under the agreement.
* * * * *

0
23. In Sec.  225.6, revise paragraph (c)(1)(i) and paragraph (i) 
introductory text to read as follows:


Sec.  225.6  State agency responsibilities.

* * * * *
    (c) * * *
    (1) * * *
    (i) The sponsor must submit a written application to the State 
agency for participation in the Program. The State agency may use the 
application form developed by FNS, or develop its own application form, 
provided that the form requests the full legal name, any previously 
used names, mailing address; date of birth of the sponsor's responsible 
principals, which include the executive director and board chair; and 
the sponsor's Federal Employer Identification Number (FEIN) or Unique 
Entity Identifier (UEI). Application to sponsor the Program must be 
made on a timely basis within the deadlines established under paragraph 
(b)(1) of this section.
* * * * *
    (i) State-Sponsor agreement. A sponsor approved for participation 
in the Program must enter into a permanent written agreement with the 
State agency. The existence of a valid permanent agreement does not 
limit the State agency's ability to terminate the agreement, as 
provided under Sec.  225.11(c). The State agency must terminate the 
sponsor's agreement whenever a sponsor's participation in the Program 
ends. The State agency or sponsor may terminate the agreement at its 
convenience for considerations unrelated to the sponsor's performance 
of Program responsibilities under the agreement. However, any action

[[Page 57850]]

initiated by the State agency to terminate an agreement for its 
convenience requires prior consultation with FNS. All sponsors must 
agree in writing to:
* * * * *

0
24. In Sec.  225.18, add paragraph (k) to read as follows:


Sec.  225.18  Miscellaneous administrative provisions.

* * * * *
    (k) Fines. (1) A sponsor that is a school food authority may be 
subject to fines. The State agency may establish an assessment when it 
has determined that the sponsor or its site has:
    (i) Failed to correct severe mismanagement of the Program;
    (ii) Disregarded a Program requirement of which the sponsor or its 
site had been informed; or
    (iii) Failed to correct repeated violations of Program 
requirements.
    (2) FNS may direct the State agency to establish a fine against any 
sponsor when it has determined that the sponsor or its site has 
committed one or more acts under paragraph (k)(1) of this section.
    (3) Funds used to pay a fine established under this paragraph must 
be derived from non-Federal sources. In calculating an assessment, the 
State agency must calculate the fine based on the amount of Program 
reimbursement earned by the sponsor or its site for the most recent 
fiscal year for which full year data is available, provided that the 
fine does not exceed the equivalent of:
    (i) For the first fine, 1 percent of the amount of meal 
reimbursement earned for the fiscal year;
    (ii) For the second fine, 5 percent of the amount of meal 
reimbursement earned for the fiscal year; and
    (iii) For the third or subsequent fine, 10 percent of the amount of 
meal reimbursement earned for the fiscal year.
    (4) The State agency must inform FNS at least 30 days prior to 
establishing the fine under this paragraph. The State agency must send 
the sponsor written notification of the fine established under this 
paragraph and provide a copy of the notification to FNS. The 
notification must:
    (i) Specify the violations or actions which constitute the basis 
for the fine and indicate the amount of the fine;
    (ii) Inform the institution that it may appeal the fine and advise 
the sponsor of the appeal procedures established under Sec.  225.13;
    (iii) Indicate the effective date and payment procedures should the 
sponsor not exercise its right to appeal within the specified 
timeframe.
    (5) Any sponsor subject to a fine under paragraph (k)(1) of this 
section may appeal the State agency's determination. In appealing a 
fine, the sponsor must submit to the State agency any pertinent 
information, explanation, or evidence addressing the Program violations 
identified by the State agency. Any sponsor seeking to appeal the State 
agency determination must follow State agency appeal procedures.
    (6) The decision of the State agency review official is final and 
not subject to further administrative or judicial review. Failure to 
pay a fine established under this paragraph may be grounds for 
suspension or termination.
    (7) Money received by the State agency as a result of a fine 
established under this paragraph against a sponsor and any interest 
charged in the collection of these fines must be remitted to FNS, and 
then remitted to the United States Treasury.

0
25. Revise Sec.  225.19 to read as follows:


Sec.  225.19  Program information.

    Persons seeking information about this Program should contact their 
State administering agency or the appropriate FNSRO. The FNS website 
has contact information for State agencies at https://www.fns.usda.gov/contacts and FNSRO at https://www.fns.usda.gov/fns-regional-offices.

PART 226--CHILD AND ADULT CARE FOOD PROGRAM

0
26. The authority citation for 7 CFR part 226 continues to read as 
follows:

    Authority:  Secs. 9, 11, 14, 16, and 17, Richard B. Russell 
National School Lunch Act, as amended, 42 U.S.C. 1758, 1759a, 1762a, 
1765 and 1766.


0
27. In Sec.  226.2:
0
a. Revise the definitions for ``Facility'' and ``New institution'';
0
b. Add in alphabetical order definitions for ``Participating 
institution'';
0
c. Revise the definition of ``Renewing institution'';
0
d. Add the definition of ``Sponsored center'';
0
e. Revise the definitions for ``Sponsoring organization'', ``TANF 
recipient'', and ``Termination for convenience''.
    The revisions and additions read as follows:


Sec.  226.2  Definitions.

* * * * *
    Facility means a sponsored center or a day care home.
* * * * *
    New institution means a sponsoring organization or an independent 
center making an application to participate in the Program or applying 
to participate in the Program after a lapse in participation.
* * * * *
    Participating institution means a sponsoring organization or an 
independent center, including a renewing institution, that holds a 
current agreement with the State agency to operate the Program.
* * * * *
    Renewing institution means a sponsoring organization or an 
independent center that is participating in the Program at the time it 
submits annual renewal information.
* * * * *
    Sponsored center means a child care center, an at-risk afterschool 
care center, an adult day care center, an emergency shelter, or an 
outside-school-hours care center that operates the Program under the 
auspices of a sponsoring organization. The two types of sponsored 
centers are as follows:
    (1) An affiliated center is a part of the same legal entity as the 
CACFP sponsoring organization; or
    (2) An unaffiliated center is legally distinct from the sponsoring 
organization.
    Sponsoring organization means a public or nonprofit private 
organization that is entirely responsible for the administration of the 
food program in:
    (1) One or more day care homes;
    (2) A child care center, emergency shelter, at-risk afterschool 
care center, outside-school-hours care center, or adult day care center 
which is a legally distinct entity from the sponsoring organization;
    (3) Two or more child care centers, emergency shelters, at-risk 
afterschool care centers, outside-school-hours care center, or adult 
day care centers; or
    (4) Any combination of child care centers, emergency shelters, at-
risk afterschool care centers, outside-school-hours care centers, adult 
day care centers, and day care homes.
    The term ``sponsoring organization'' also includes an organization 
that is entirely responsible for administration of the Program in any 
combination of two or more child care centers, at-risk afterschool care 
centers, adult day care centers or outside-school-hours care centers, 
which meet the definition of For-profit center in this section and are 
part of the same legal entity as the sponsoring organization.
* * * * *
    TANF recipient means an individual or household receiving 
assistance (as defined in 45 CFR 260.31) under a State-

[[Page 57851]]

administered Temporary Assistance for Needy Families program.
    Termination for convenience means termination of a Program 
agreement due to considerations unrelated to either party's performance 
of Program responsibilities under the agreement between:
    (1) A State agency and the independent center,
    (2) A State agency and the sponsoring organization,
    (3) A sponsoring organization and the unaffiliated center, or
    (4) A sponsoring organization and the day care home.
* * * * *

0
28. In Sec.  226.4, revise paragraph (j) to read as follows:


Sec.  226.4  Payments to States and use of funds.

* * * * *
    (j) Audit funds. (1) Funds are available to each State agency in an 
amount equal to 1.5 percent of the Program funds used by the State 
during the second fiscal year preceding the fiscal year for which these 
funds are to be made available. These funds are for the expense of 
conducting audits under Sec.  226.8 and Program monitoring under Sec.  
226.6(m).
    (2) State agencies may request an increase in the amount of funds 
made available under this paragraph.
    (i) FNS approval for increased funding will be based on the State 
agency's expressed need for an increase in resources to meet audit 
requirements, fulfill monitoring requirements, or effectively improve 
Program management.
    (ii) The total amount of audit funds made available to any State 
agency under this paragraph may not exceed 2 percent of Program funds 
used by the State during the second fiscal year preceding the fiscal 
year for which the funds are made available.
    (iii) The amount of assistance provided to a State agency under 
this paragraph in any fiscal year may not exceed the State's 
expenditures under Sec. Sec.  226.6(m) and 226.8 during the fiscal year 
in which the funds are made available.
* * * * *

0
29. In Sec.  226.6:
0
a. Revise paragraph (b) introductory text, paragraphs (b)(1)(xv), 
(b)(2), (3), (4), and (f)(1)(iv);
0
b. Remove paragraph (f)(2) and redesignate paragraph (f)(3) as 
paragraph (f)(2);
0
c. Add a sentence at the end of paragraph (k)(5)(ii);
0
d. Add a sentence at the end of paragraph (k)(5)(ix);
0
e. Add paragraph (k)(11); and
0
f. Revise paragraphs (m)(3), (m)(6); and (p).
    The additions and revisions read as follows:


Sec.  226.6  State agency administrative responsibilities.

* * * * *
    (b) Program applications and agreements. Each State agency must 
establish application review procedures, as described in paragraph 
(b)(1) of this section, to determine the eligibility of new 
institutions and facilities for which applications are submitted by 
sponsoring organizations. Each State agency must establish procedures 
for the review of renewal information, as described in paragraph (b)(2) 
of this section, to determine the continued eligibility of renewing 
institutions. The State agency must enter into written agreements with 
institutions, as described in paragraph (b)(4) of this section.
    (1) * * *
    (xv) Certification of truth of applications and submission of names 
and addresses. Institutions must submit a certification that all 
information on the application is true and correct, along with the 
names, mailing addresses, and dates of birth of the institution's 
executive director and chair of the board of directors or the owner, in 
the case of a for-profit center that does not have an executive 
director or is not required to have a board of directors. In addition, 
the institution's Federal Employer Identification Number (FEIN) or the 
Unique Entity Identifier (UEI) must be provided;
* * * * *
    (2) Annual information submission requirements for State agency 
review of renewing institutions. Each State agency must establish 
annual information submission procedures to confirm the continued 
eligibility of renewing institutions under this part. Renewing 
institutions must not be required to submit a free and reduced-price 
policy statement or a nondiscrimination statement unless they make 
substantive changes to either statement. In addition, the State 
agency's review procedures must ensure that institutions annually 
submit information or certify that certain information is still true 
based on the requirements of this section. For information that must be 
certified, any new changes made in the past year and not previously 
reported to the State agency must be updated in the annual renewal 
information submission. Any additional information submitted in the 
renewal must be certified by the institution to be true.
    (i) This paragraph (b)(2) contains the information that must be 
certified. The State agency must ensure that renewing independent 
centers certify the following to be true:
    (A) The institution and its principals are not currently on the 
National disqualified list, per paragraph (b)(1)(xii) of this section;
    (B) A list of any publicly funded programs that the sponsoring 
organization and its principals have participated in, in the past 7 
years, is current, per paragraph (b)(1)(xiii)(B) of this section;
    (C) The institution and its principals have not been determined 
ineligible for any other publicly funded programs due to violation of 
that program's requirements, in the past 7 years, per paragraphs 
(b)(1)(xiii)(B) and (C) of this section;
    (D) No principals have been convicted of any activity that occurred 
during the past 7 years and that indicated a lack of business 
integrity, per paragraph (b)(1)(xiv)(B) of this section;
    (E) The names, mailing addresses, and dates of birth of all current 
principals have been submitted to the State agency, per paragraph 
(b)(1)(xv) of this section;
    (F) The institution is currently compliant with the required 
performance standards of financial viability and management, 
administrative capability, and program accountability, per paragraph 
(b)(1)(xviii) of this section; and
    (G) Licensing or approval status of each child care center or adult 
day care center is up-to-date.
    (ii) The State agency must ensure that renewing sponsoring 
organizations certify the following to be true:
    (A) All of the requirements under paragraph (b)(2)(i) of this 
section are certified to be true;
    (B) The management plan on file with the State agency is complete 
and up to date, per paragraph (b)(1)(iv) of this section;
    (C) No sponsored facility or principal of a sponsored facility is 
currently on the National disqualified list, per paragraph (b)(1)(xii) 
of this section;
    (D) The outside employment policy most recently submitted to the 
State agency remains current and in effect, per paragraph (b)(1)(xvi) 
of this section;
    (E) Licensing or approval status of each sponsored child care 
center, adult day care center, or day care home is up-to-date;
    (F) The list of the sponsoring organization's facilities on file 
with the State agency is up-to-date; and
    (G) All facilities under the sponsoring organization's oversight 
have adhered to Program training requirements.

[[Page 57852]]

    (iii) State agency review of institution information. The State 
agency's review of information that must be submitted, certified or 
updated annually is as follows:
    (A) Management plan. The State agency must ensure that renewing 
sponsoring organizations certify that the sponsoring organization has 
reviewed the current management plan on file with the State agency and 
that it is complete and up to date. If the management plan has changed, 
the sponsoring organization must submit updates to the management plan 
that meet the requirements of Sec.  226.16(b)(1). The State agency must 
establish factors, consistent with Sec.  226.16(b)(1), that it will 
consider in determining whether a renewing sponsoring organization has 
sufficient staff to perform required monitoring responsibilities at all 
of its sponsored facilities. As part of its management plan review, the 
State agency must determine the appropriate level of staffing for the 
sponsoring organization, consistent with the staffing range of monitors 
set forth at Sec.  226.6(b)(1) and the factors the State agency has 
established.
    (B) Administrative budget submission. The State agency must ensure 
that renewing sponsoring organizations submit an administrative budget 
for the upcoming year with sufficiently detailed information concerning 
projected CACFP administrative earnings and expenses, as well as other 
non-Program funds to be used in Program administration. The State 
agency must be able to determine the allowability, necessity, and 
reasonableness of all proposed expenditures, and to assess the 
sponsoring organization's capability to manage Program funds. The 
administrative budget must demonstrate that the sponsoring organization 
will expend and account for funds in accordance with regulatory 
requirements, FNS Instruction 796-2 (Financial Management in the Child 
and Adult Care Food Program), 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415, and applicable 
Office of Management and Budget circulars. The administrative budget 
submitted by a sponsoring organization of centers must demonstrate that 
the administrative costs to be charged to the Program do not exceed 15 
percent of the meal reimbursements estimated or actually earned during 
the budget year, unless the State agency grants a waiver, as described 
in Sec.  226.7(g). For sponsoring organizations of day care homes 
seeking to carry over administrative funds, as described in Sec.  
226.12(a)(3), the budget must include an estimate of requested 
administrative fund carryover amounts and a description of proposed 
purpose for which those funds would be obligated or expended.
    (C) Presence on the National disqualified list. The State agency 
must ensure that renewing institutions certify that neither the 
institution nor its principals are on the National disqualified list. 
The State agency must also ensure that renewing sponsoring 
organizations certify that no sponsored facility or facility principal 
is on the National disqualified list.
    (D) Ineligibility for other publicly funded programs. A State 
agency is prohibited from approving a renewing institution or 
facility's application if, during the past 7 years, the institution, 
facility, responsible principals, or responsible individuals have been 
declared ineligible for any other publicly funded program by reason of 
violating that program's requirements. However, this prohibition does 
not apply if the institution, facility, responsible principals, or 
responsible individuals have been fully reinstated in or determined 
eligible for that program, including the payment of any debts owed. The 
State agency must follow up with the entity administering the publicly 
funded program to gather sufficient evidence to determine whether the 
institution or its principals were, in fact, determined ineligible.
    (E) Information on criminal convictions. The State agency must 
ensure that renewing institutions certify that the institution's 
principals have not been convicted of any activity that occurred during 
the past 7 years and that indicates a lack of business integrity, as 
defined in paragraph (c)(1)(ii)(A) of this section.
    (F) Submission of names and addresses. The State agency must ensure 
that renewing institutions submit a certification attesting to the 
validity of the following information: full legal name and any names 
previously used, mailing address, and dates of birth of the 
institution's executive director and chair of the board of directors or 
the owner, in the case of a for-profit center that does not have an 
executive director or is not required to have a board of directors. In 
addition, the institution's Federal Employer Identification Number 
(FEIN) or the Unique Entity Identifier (UEI) must be provided.
    (G) Outside employment policy. The State agency must ensure that 
renewing sponsoring organizations certify that the outside employment 
policy most recently submitted to the State agency remains current and 
in effect or the sponsoring organization must submit an updated outside 
employment policy at the time of renewal. The policy must restrict 
other employment by employees that interferes with an employee's 
performance of Program-related duties and responsibilities, including 
outside employment that constitutes a real or apparent conflict of 
interest.
    (H) Compliance with performance standards. The State agency must 
ensure that each renewing institution certifies that it is still in 
compliance with the performance standards described in paragraph 
(b)(1)(xviii) of this section, meaning it is financially viable, is 
administratively capable of operating the Program in accordance with 
this part, and has internal controls in effect to ensure 
accountability.
    (I) Licensing. The State agency must ensure that each independent 
center certifies that its licensing or approval status is up-to-date 
and that it continues to meet the licensing requirements described in 
paragraphs (d) and (e) of this section. Sponsoring organizations must 
certify that the licensing or approval status of their facilities is 
up-to-date and that they continue to meet the licensing requirements 
described in paragraphs (d) and (e) of this section. If the independent 
center or facility has a new license not previously on file with the 
State agency, a copy must be submitted, unless the State agency has 
other means of confirming the licensing or approval status of any 
independent center or facility providing care.
    (J) Facility lists. The State agency must ensure that each 
sponsoring organization certifies that the list of all of their 
applicant day care homes, child care centers, outside-school-hours-care 
centers, at-risk afterschool care centers, emergency shelters, and 
adult day care centers on file with the State agency is up-to-date.
    (K) Facility training. The State agency must ensure that renewing 
sponsoring organizations certify that all facilities under their 
oversight have adhered to the training requirements set forth in 
Program regulations.
    (iv) Additional Information collection. Institutions must provide 
information to the State agency as specified in paragraphs (f)(3), 
(f)(4), and (f)(7) of this section.
    (3) State agency notification requirements. (i) Any new institution 
applying for participation in the Program must be notified in writing 
of approval or disapproval by the State agency, within 30 calendar days 
of the State agency's receipt of a complete application. Whenever 
possible, State agencies should provide assistance to institutions that 
have submitted an

[[Page 57853]]

incomplete application. Any disapproved applicant institution must be 
notified of the reasons for its disapproval and its right to appeal, as 
described in paragraph (k) of this section. Any disapproved applicant 
day care home or unaffiliated center must be notified of the reasons 
for its disapproval and its right to appeal, as described in paragraph 
(l) of this section.
    (ii) Any renewing institution must be provided written notification 
indicating whether it has completely and sufficiently met all renewal 
information requirements within 30 days of the submission of renewal 
information. Whenever possible, State agencies should provide 
assistance to institutions whose information is incomplete.
    (4) Program agreements. (i) The State agency must require each 
institution that has been approved for participation in the Program to 
enter into a permanent agreement governing the rights and 
responsibilities of each party. The existence of a valid permanent 
agreement, however, does not eliminate the need for an institution to 
comply with the annual information submission requirements and related 
provisions at paragraphs (b) and (f) of this section.
    (ii) The existence of a valid permanent agreement does not limit 
the State agency's ability to terminate the agreement, as provided 
under paragraph (c)(3) of this section. The State agency must terminate 
the institution's agreement whenever an institution's participation in 
the Program ends. The State agency must terminate the agreement for 
cause based on violations by the institution, facility, responsible 
principals, or responsible individuals, as described in paragraph (c) 
of this section. The State agency or institution may terminate the 
agreement at its convenience for considerations unrelated to the 
institution's performance of Program responsibilities under the 
agreement. However, any action initiated by the State agency to 
terminate an agreement for its convenience requires prior consultation 
with FNS. Termination for convenience does not result in ineligibility 
for any program authorized under this part or parts 210, 215, 220, or 
225 of this chapter.
    (iii) The Program agreement must include the following 
requirements:
    (A) The responsibility of the institution to accept final financial 
and administrative management of a proper, efficient, and effective 
food service, and comply with all requirements under this part.
    (B) The responsibility of the institution to comply with all 
requirements of title VI of the Civil Rights Act of 1964, title IX of 
the Education Amendments of 1972, section 504 of the Rehabilitation Act 
of 1973, the Age Discrimination Act of 1975, and the Department's 
regulations concerning nondiscrimination (parts 15, 15a and 15b of this 
title), including requirements for racial and ethnic participation data 
collection, public notification of the nondiscrimination policy, and 
reviews to assure compliance with the nondiscrimination policy, to the 
end that no person may, on the grounds of race, color, national origin, 
sex, age, or disability, be excluded from participation in, be denied 
the benefits of, or be otherwise subjected to discrimination under, the 
Program.
    (C) The right of the State agency, the Department, and other State 
or Federal officials to make announced or unannounced reviews of their 
operations during the institution's normal hours of child or adult care 
operations, and that anyone making such reviews must show photo 
identification that demonstrates that they are employees of one of 
these entities.
    (f) * * *
    (1) * * *
    (iv) Require each sponsoring organization to submit an 
administrative budget with sufficiently detailed information concerning 
projected CACFP administrative earnings and expenses, as well as other 
non-Program funds to be used in Program administration, for the State 
agency to determine the allowability, necessity, and reasonableness of 
all proposed expenditures, and to assess the sponsoring organization's 
capability to manage Program funds. The administrative budget must 
demonstrate that the sponsoring organization will expend and account 
for funds in accordance with regulatory requirements, FNS Instruction 
796-2 (Financial Management--Child and Adult Care Food Program), 2 CFR 
part 200, subpart D, and USDA implementing regulations 2 CFR part 400 
and part 415, and applicable Office of Management and Budget circulars. 
The administrative budget submitted by a sponsoring organization of 
centers must demonstrate that the administrative costs to be charged to 
the Program do not exceed 15 percent of the meal reimbursements 
estimated or actually earned during the budget year, unless the State 
agency grants a waiver, as described in Sec.  226.7(g). For sponsoring 
organizations of day care homes seeking to carry over administrative 
funds, as described in Sec.  226.12(a)(3), the budget must include an 
estimate of requested administrative fund carryover amounts and a 
description of proposed purpose for which those funds would be 
obligated or expended.
* * * * *
    (k) * * *
    (5) * * *
    (ii) * * * The State agency must provide a copy of the written 
request for an administrative review, including the date of receipt of 
the request to FNS within 10 days of its receipt of the request.
* * * * *
    (ix) * * * State agencies failing to meet the timeframe set forth 
in this paragraph are liable for all valid claims for reimbursement to 
aggrieved institutions, as specified in paragraph (k)(11)(i) of this 
section.
* * * * *
    (11) State liability for payments. (i) A State agency that fails to 
meet the 60-day timeframe set forth in paragraph (k)(5)(ix) of this 
section must pay, from non-Federal sources, all valid claims for 
reimbursement to the institution during the period beginning on the 
61st day and ending on the date on which the hearing determination is 
made, unless FNS determines that an exception should be granted.
    (ii) FNS will notify the State agency of its liability for 
reimbursement at least 30 days before liability is imposed. The 
timeframe for written notice from FNS is an administrative requirement 
and may not be used to dispute the State's liability for reimbursement.
    (iii) The State agency may submit, for FNS review, information 
supporting a request for a reduction in the State's liability, a 
reconsideration of the State's liability, or an exception to the 60-day 
deadline, for exceptional circumstances. After review of this 
information, FNS will recover any improperly paid Federal funds.
* * * * *
    (m) * * *
    (3) Review content. As part of its conduct of reviews, the State 
agency must assess each institution's compliance with the requirements 
of this part pertaining to:
    (i) Recordkeeping;
    (ii) Meal counts;
    (iii) Administrative costs;
    (iv) Any applicable instructions and handbooks issued by FNS and 
the Department to clarify or explain this part, and any instructions 
and handbooks issued by the State agency which are not inconsistent 
with the provisions of this part;
    (v) Facility licensing and approval;

[[Page 57854]]

    (vi) Compliance with the requirements for annual updating of 
enrollment forms;
    (vii) Compliance with the requirements for submitting and ensuring 
the accuracy of the annual renewal information;
    (viii) If an independent center, observation of a meal service;
    (ix) If a sponsoring organization, training and monitoring of 
facilities, including the timing of reviews, as described in Sec.  
226.16(d)(4)(iii);
    (x) If a sponsoring organization, implementation of the household 
contact system established by the State agency pursuant to paragraph 
(m)(5) of this section;
    (xi) If a sponsoring organization of day care homes, the 
requirements for classification of tier I and tier II day care homes; 
and
    (xii) All other Program requirements.
* * * * *
    (6) Frequency and number of required institution reviews. The State 
agency must annually review at least 33.3 percent of all institutions. 
At least 15 percent of the total number of facility reviews required 
must be unannounced. The State agency must review institutions 
according to the following schedule:
    (i) At least once every 3 years, independent centers and sponsoring 
organizations that operate 1 to 100 facilities must be reviewed. A 
sponsoring organization review must include reviews of 10 percent of 
the sponsoring organization's facilities.
    (ii) At least once every 2 years, sponsoring organizations that 
operate more than 100 facilities, that conduct activities other than 
CACFP, that have been identified during a recent review as having 
serious management problems, or that are at risk of having serious 
management problems must be reviewed. These reviews must include 
reviews of 5 percent of the sponsoring organization's first 1,000 
facilities and 2.5 percent of the sponsoring organization's facilities 
in excess of 1,000.
    (iii) At least once every 2 years, independent centers that conduct 
activities other than CACFP, that have been identified during a recent 
review as having serious management problems, or that are at risk of 
having serious management problems must be reviewed.
    (iv) New sponsoring organizations that operate five or more 
facilities must be reviewed within the first 90 days of Program 
operations.
* * * * *
    (p) Sponsoring organization agreement. (1) Each State agency must 
develop and provide for the use of a standard form of written permanent 
agreement between each sponsoring organization and the day care homes 
or unaffiliated child care centers, outside-school-hours-care centers, 
at-risk afterschool care centers, emergency shelters, or adult day care 
centers for which it has responsibility for Program operations. The 
agreement must specify the rights and responsibilities of both parties. 
The State agency may, at the request of the sponsoring organization, 
approve an agreement developed by the sponsoring organization. Nothing 
in this paragraph limits the ability of the sponsoring organization to 
suspend or terminate the permanent agreement, as described in Sec.  
226.16(l).
    (2) At a minimum, the standard agreement must require day care 
homes and centers to:
    (i) Allow visits by sponsoring organizations or State agencies to 
review meal service and records;
    (ii) Promptly inform the sponsoring organization about any change 
in its licensing or approval status;
    (iii) Meet any State agency approved time limit for submission of 
meal records; and
    (iv) Distribute to parents a copy of the sponsoring organization's 
notice to parents if directed to do so by the sponsoring organization.
    (3) The agreement must include the right of day care homes and 
centers to receive timely reimbursement. The sponsoring organization 
must pay program funds to day care homes and centers within 5 working 
days of receipt from the State agency.
    (4) The State agency must include in this agreement its policy to 
restrict transfers of day care homes among sponsoring organizations. 
The policy must restrict the transfers to no more frequently than once 
per year, except under extenuating circumstances, such as termination 
of the sponsoring organization's agreement or other circumstances 
defined by the State agency.
    (5) The State agency may, at the request of the sponsoring 
organization, approve an agreement developed by the sponsoring 
organization.
* * * * *

0
30. In Sec.  226.7:
0
a. Revise paragraphs (b), (g), and (j); and
0
b. Remove paragraph (m).
    The revisions read as follows:


Sec.  226.7  State agency responsibilities for financial management.

* * * * *
    (b) Financial management system. Each State agency must establish 
and maintain an acceptable financial management system, adhere to 
financial management standards and otherwise carry out financial 
management policies in accordance with 2 CFR parts 200, 400, 415, 416, 
417, 418, and 421, and FNS Instruction 796-2, as applicable, and 
related FNS guidance to identify allowable Program costs and establish 
standards for institutional recordkeeping and reporting. The State 
agency must provide guidance on financial management requirements to 
each institution.
    (1) State agencies must also have a system in place for:
    (i) Annually reviewing at least 1 month's bank account activity of 
all sponsoring organizations against documents adequate to support that 
the financial transactions meet Program requirements. The State agency 
may expand the review to examine additional months of bank account 
activity if discrepancies are found. If the State agency identifies and 
is unable to verify any expenditures that have the appearance of 
violating Program requirements, or if the discrepancy is significant, 
the State agency must refer the sponsoring organization's bank account 
activity to the appropriate State authorities.
    (ii) Annually reviewing actual expenditures reported of Program 
funds and the amount of meal reimbursement funds retained from centers, 
if any, for administrative costs for all sponsoring organizations of 
unaffiliated centers. State agencies must reconcile reported 
expenditures with Program payments to ensure that funds are fully 
accounted for, and use the reported actual expenditures as the basis 
for selecting a sample of expenditures for validation. If the State 
agency identifies and is unable to verify any expenditures that have 
the appearance of violating Program requirements, the State agency must 
refer the sponsoring organization's bank account activity to the 
appropriate State authorities.
    (iii) Monitoring and reviewing the institutions' documentation of 
their nonprofit status to ensure that all Program reimbursement funds 
are used solely for the conduct of the food service operation or to 
improve food service operations, principally for the benefit of 
children or adult participants.
    (2) The financial management system standards for institutional 
recordkeeping and reporting must:
    (i) Prohibit claiming reimbursement for meals provided by a child 
or an adult participant's family, except as authorized at Sec. Sec.  
226.18(e) and 226.20(b)(2), (g)(1)(ii), and (g)(2)(ii); and

[[Page 57855]]

    (ii) Allow the cost of meals served to adults who perform necessary 
food service labor under the Program, except in day care homes.
* * * * *
    (g) Budget approval. The State agency must review institution 
budgets and must limit allowable administrative claims by each 
sponsoring organization to the administrative costs approved in its 
budget, except as provided in this section. The budget must demonstrate 
the institution's ability to manage Program funds in accordance with 
this part, FNS Instruction 796-2, 2 CFR part 200, subpart D and USDA 
implementing regulations 2 CFR part 400 and part 415, and applicable 
Office of Management and Budget circulars. Sponsoring organizations 
must submit an administrative budget to the State agency annually, and 
independent centers must submit budgets as frequently as required by 
the State agency. Budget levels may be adjusted to reflect changes in 
Program activities. If the institution does not intend to use non-CACFP 
funds to support any required CACFP functions, the institution's budget 
must identify a source of non-Program funds that could be used to pay 
overclaims or other unallowable costs. If the institution intends to 
use any non-Program resources to meet CACFP requirements, these non-
Program funds should be accounted for in the institution's budget, and 
the institution's budget must identify a source of non-Program funds 
that could be used to pay overclaims or other unallowable costs.
    (1) For sponsoring organizations of centers, the State agency is 
prohibited from approving the sponsoring organization's administrative 
budget, or any amendments to the budget, if the administrative budget 
shows the Program will be charged for administrative costs in excess of 
15 percent of the meal reimbursements estimated to be earned during the 
budget year. However, the State agency may waive this limit if the 
sponsoring organization provides justification that it requires Program 
funds in excess of 15 percent to pay its administrative costs and if 
the State agency is convinced that the institution will have adequate 
funding to provide meals meeting the requirements of Sec.  226.20. The 
State agency must document all waiver approvals and denials in writing 
and provide a copy of all such letters to the appropriate FNSRO.
    (2) For sponsoring organizations of day care homes seeking to carry 
over administrative funds, as described in Sec.  226.12(a)(3), the 
State agency must require the budget to include an estimate of the 
requested administrative fund carryover amount and a description of the 
purpose for which those funds would be obligated or expended by the end 
of the fiscal year following the fiscal year in which they were 
received. In approving a carryover request, State agencies must take 
into consideration whether the sponsoring organization has a financial 
management system that meets Program requirements and is capable of 
controlling the custody, documentation, and disbursement of carryover 
funds. As soon as possible after fiscal year close-out, the State 
agency must require sponsoring organizations carrying over 
administrative funds to submit an amended budget for State agency 
review and approval. The amended budget must identify the amount of 
administrative funds actually carried over and describe the purpose for 
which the carry-over funds have been or will be used.
* * * * *
    (j) Recovery of overpayments. Each State agency must establish 
procedures to recover outstanding start-up, expansion, and advance 
payments from institutions which, in the opinion of the State agency, 
will not be able to earn these payments. In addition, each State agency 
must establish procedures to recover administrative funds from 
sponsoring organizations of day care homes that are not properly 
payable under FNS Instruction 796-2, administrative funds that are in 
excess of the 10 percent maximum carryover amount, and carryover 
amounts that are not expended or obligated by the end of the fiscal 
year following the fiscal year in which they were received.
* * * * *

0
31. In Sec.  226.10, revise paragraph (c) to read as follows:


Sec.  226.10  Program payment procedures.

* * * * *
    (c) Claims for Reimbursement must report information in accordance 
with the financial management system established by the State agency, 
and in sufficient detail to justify the reimbursement claimed and to 
enable the State agency to provide the final Report of the Child and 
Adult Care Food Program (FNS 44) required under Sec.  226.7(d). In 
submitting a Claim for Reimbursement, each institution must certify 
that the claim is correct and that records are available to support 
that claim.
    (1) Prior to submitting its consolidated monthly claim to the State 
agency, each sponsoring organization must perform edit checks on each 
facility's meal claim. At a minimum, the sponsoring organization's edit 
checks must:
    (i) Verify that each facility has been approved to serve the types 
of meals claimed; and
    (ii) Compare the number of children or eligible adult participants 
enrolled for care at each facility, multiplied by the number of days on 
which the facility is approved to serve meals, to the total number of 
meals claimed by the facility for that month. Discrepancies between the 
facility's meal claim and its enrollment must be subjected to more 
thorough review to determine if the claim is accurate.
    (2) Sponsoring organizations of unaffiliated centers must make 
available to the State agency an annual report detailing actual 
expenditures of Program funds and the amount of meal reimbursement 
funds retained from centers, if any, for administrative costs for the 
year to which the claims apply. The report must use the same cost 
categories as the approved annual budget submitted by the sponsoring 
organization.
    (3) Sponsoring organizations of for-profit child care centers or 
for-profit outside-school-hours care centers must submit the number and 
percentage of children in care--enrolled or licensed capacity, 
whichever is less--that documents that at least 25 percent are eligible 
for free or reduced-price meals or are title XX beneficiaries. 
Sponsoring organizations must not submit a claim for any for-profit 
center in which less than 25 percent of the children in care--enrolled 
or licensed capacity, whichever is less--during the claim month were 
eligible for free or reduced-price meals or were title XX 
beneficiaries.
    (4) For each month they claim reimbursement, independent for-profit 
child care centers and independent for-profit outside-school-hours care 
centers must submit the number and percentage of children in care--
enrolled or licensed capacity, whichever is less--that documents at 
least 25 percent are eligible for free or reduced-price meals or are 
title XX beneficiaries. However, children who only receive at-risk 
afterschool meals or snacks must not be considered in determining this 
eligibility.
    (5) For each month they claim reimbursement, independent for-profit 
adult day care centers must submit the percentages of enrolled adult 
participants receiving title XIX or title XX benefits for months in 
which not less than 25 percent of enrolled adult participants were 
title XIX or title XX beneficiaries. For the claim, sponsoring

[[Page 57856]]

organizations of adult day care centers must submit the percentage of 
enrolled adult participants receiving title XIX or title XX benefits 
for each center. Sponsoring organizations must not submit claims for 
adult day care centers for months in which less than 25 percent of 
enrolled adult participants were title XIX or title XX beneficiaries.
* * * * *

0
32. In Sec.  226.12, revise paragraph (a) to read as follows:


Sec.  226.12  Administrative payments to sponsoring organizations for 
day care homes.

    (a) General. Sponsoring organizations of day care homes receive 
payments for administrative costs, subject to the following conditions:
    (1) Sponsoring organizations will receive reimbursement for the 
administrative costs of the sponsoring organization in an amount that 
is not less than the product obtained each month by multiplying:
    (i) The number of day care homes of the sponsoring organization 
submitting a claim for reimbursement during the month, by
    (ii) The appropriate administrative rates announced annually in the 
Federal Register.
    (2) FNS determines administrative reimbursement by annually 
adjusting the following base administrative rates, as set forth in 
Sec.  226.4(i):
    (i) Initial 50 day care homes, 42 dollars;
    (ii) Next 150 day care homes, 32 dollars;
    (iii) Next 800 day care homes, 25 dollars;
    (iv) Additional day care homes, 22 dollars.
    (3) With State agency approval, a sponsoring organization may carry 
over a maximum of 10 percent of administrative funds received under 
paragraph (a)(1) of this section for use in the following fiscal year. 
If any carryover funds are not obligated or expended in the following 
fiscal year, they must be returned to the State agency, as described in 
Sec.  226.7(j).
    (4) State agencies must recover any administrative funds not 
properly payable, as described in FNS Instruction 796-2.
* * * * *

0
33. In Sec.  226.13, revise paragraph (a) to read as follows:


Sec.  226.13  Food service payments to sponsoring organizations for day 
care homes.

    (a) Payments will be made only to sponsoring organizations 
operating under an agreement with the State agency for the meal types 
specified in the agreement served to enrolled nonresident children and 
eligible enrolled children of day care home providers, at approved day 
care homes. Each State agency must base reimbursement to each approved 
day care home on daily meal counts recorded by the provider.
* * * * *

0
34. In Sec.  226.15, revise paragraph (b) to read as follows:


Sec.  226.15  Institution provisions.

* * * * *
    (b) New applications and renewals. Each new institution must submit 
to the State agency an application with all information required for 
its approval, as set forth in Sec. Sec.  226.6(b)(1) and 226.6(f). This 
information must demonstrate that a new institution has the 
administrative and financial capability to operate the Program, as 
described in the performance standards set forth in Sec.  
226.6(b)(1)(xviii). Renewing institutions must annually certify that 
they are capable of operating the Program, as set forth in Sec.  
226.6(b)(2).
* * * * *

0
35. Amend Sec.  226.16 as follows:
0
a. In paragraphs (b)(2) and (b)(3), remove the words ``child care and 
adult day care'';
0
b. In paragraph (b)(4), remove the words ``on or after June 20, 2000'';
0
c. Remove the word ``and'' at the end of paragraph (b)(7);
0
d. Remove the ``.'' at the end of paragraph (b)(8) and add in its place 
``; and'';
0
e. Add paragraph (b)(9);
0
f. In paragraphs (c) and (d)(1), remove the words ``child care and 
adult day care'';
0
g. Revise paragraph (d)(3);
0
h. Add paragraphs (d)(4)(iii)(E) and (F);
0
i. In paragraph (i), remove the words ``child and adult day care'';
0
j. Revise paragraph (m).
    The additions and revisions read as follows:


Sec.  226.16  Sponsoring organization provisions.

* * * * *
    (b) * * *
    (9) For sponsoring organizations of unaffiliated centers, the name 
and mailing address of each center.
* * * * *
    (d) * * *
    (3) Additional mandatory training sessions, as defined by the State 
agency, for key staff from all sponsored facilities not less frequently 
than annually. At a minimum, this training must include instruction, 
appropriate to the level of staff experience and duties, on the 
Program's meal patterns, meal counts, claims submission and review 
procedures, recordkeeping requirements, and reimbursement system.
    (4) * * *
    (iii) * * *
    (E) The timing of unannounced reviews must be varied so that they 
are unpredictable to the facility; and
    (F) All types of meal service must be subject to review and 
sponsoring organizations must vary the meal service reviewed.
* * * * *
    (m) Sponsoring organizations of day care homes or unaffiliated 
centers must not make payments to employees or contractors solely on 
the basis of the number of homes or centers recruited. However, 
employees or contractors may be paid or evaluated on the basis of 
recruitment activities accomplished.

0
36. In Sec.  226.17, add paragraphs (e) and (f) to read as follows:


Sec.  226.17  Child care center provisions.

* * * * *
    (e) Unaffiliated sponsored child care centers must enter into a 
written permanent agreement with the sponsoring organization. The 
agreement must specify the rights and responsibilities of both parties. 
At a minimum, the agreement must include the provisions set forth in 
paragraph (b) of this section.
    (f) Independent child care centers must enter into a written 
permanent agreement with the State agency. The agreement must specify 
the rights and responsibilities of both parties as required by Sec.  
226.6(b)(4). At a minimum, the agreement must include the provisions 
set forth in paragraph (b) of this section.

0
37. In Sec.  226.17a, revise paragraphs (f)(2) and (g) to read as 
follows:


Sec.  226.17a  At-risk afterschool care center provisions.

* * * * *
    (f) * * *
    (2) Agreements. The State agency must enter into a permanent 
agreement with an institution approved to operate one or more at-risk 
afterschool care centers, as described in Sec.  226.6(b)(4). The 
agreement must describe the approved afterschool care programs and list 
the approved centers. The agreement must also require the institution 
to comply with the applicable requirements of this part 226.
    (i) Unaffiliated sponsored afterschool care centers must enter into 
a written permanent agreement with the

[[Page 57857]]

sponsoring organization. The agreement must specify the rights and 
responsibilities of both parties. At a minimum, the agreement must 
include the applicable provisions set forth in this section.
    (ii) Independent afterschool care centers must enter into a written 
permanent agreement with the State agency. The agreement must specify 
the rights and responsibilities of both parties as required by Sec.  
226.6(b)(4). At a minimum, the agreement must include the applicable 
provisions set forth in this section.
    (g) Application process in subsequent years. To continue 
participating in the Program, independent at-risk afterschool care 
centers must comply with the annual information submission 
requirements, as described in Sec. Sec.  226.6(b)(2)(i) and (f)(3)(ii). 
Sponsoring organizations of at-risk afterschool care centers must 
comply with the annual information submission requirements, as 
described in in Sec.  226.6(b)(2)(ii), and provide area eligibility 
data, as described in Sec.  226.15(g).
* * * * *

0
38. In Sec.  226.18:
0
a. Revise paragraph (b)(11);
0
b. Redesignate paragraphs (b)(13) through (b)(16) as paragraphs (b)(14) 
through (b)(17), respectively; and
0
c. Add new paragraph (b)(13).
    The addition and revision read as follows:


Sec.  226.18  Day care home provisions.

* * * * *
    (b) * * *
    (11) The responsibility of the sponsoring organization to inform 
tier II day care homes of all of their options for receiving 
reimbursement for meals served to enrolled children. These options 
include:
    (i) Receiving tier I rates for the meals served to eligible 
enrolled children, by electing to have the sponsoring organization 
identify all income-eligible children through the collection of free 
and reduced-price applications and the sponsoring organization or day 
care home's possession of other proof of a child or household's 
participation in a categorically eligible program;
    (ii) Receiving tier I rates for the meals served to eligible 
enrolled children, by electing to have the sponsoring organization 
identify only those children for whom the sponsoring organization or 
day care home possess documentation of the child or household's 
participation in a categorically eligible program, under the expanded 
categorical eligibility provision, as described in Sec.  226.23(e)(1); 
or
    (iii) Receiving tier II rates of reimbursement for all meals served 
to enrolled children;
* * * * *
    (13) The right of the tier II day care home to assist in collecting 
applications from households and transmitting the applications to the 
sponsoring organization. However, a tier II day care home may not 
review the collected applications. The sponsoring organizations may 
prohibit a tier II day care home from assisting in collection and 
transmittal of applications if the day care home does not comply with 
the process, as described in Sec.  226.23(e)(2)(viii);
* * * * *

0
39. In Sec.  226.19, add paragraphs (d) and (e) to read as follows:


Sec.  226.19  Outside-school-hours care center provisions.

* * * * *
    (d) Unaffiliated sponsored outside-school-hours-care centers must 
enter into a written permanent agreement with the sponsoring 
organization. The agreement must specify the rights and 
responsibilities of both parties. At a minimum, the agreement must 
include the provisions set forth in paragraph (b) of this section.
    (e) Independent outside-school-hours care centers must enter into a 
written permanent agreement with the State agency. The agreement must 
specify the rights and responsibilities of both parties as required by 
Sec.  226.6(b)(4). At a minimum, the agreement must include the 
provisions described in paragraph (b) of this section.

0
40. In Sec.  226.19a, add paragraphs (d) and (e) to read as follows:


Sec.  226.19a  Adult day care center provisions.

* * * * *
    (d) Unaffiliated sponsored adult day care centers must enter into a 
written permanent agreement with the sponsoring organization. The 
agreement must specify the rights and responsibilities of both parties. 
At a minimum, the agreement must address the provisions set forth in 
paragraph (b) this section.
    (e) Independent adult day care centers must enter into a written 
permanent agreement with the State agency. The agreement must specify 
the rights and responsibilities of both parties as required by Sec.  
226.6(b)(4). At a minimum, the agreement must include the provisions 
described in paragraph (b) of this section.

0
41. In Sec.  226.21, revise paragraph (a) introductory text to read as 
follows:


Sec.  226.21  Food service management companies.

    (a) Any institution may contract with a food service management 
company. An institution which contracts with a food service management 
company must remain responsible for ensuring that the food service 
operation conforms to its agreement with the State agency. All 
procurements of meals from food service management companies must 
adhere to the procurement standards set forth in Sec.  226.22 and 
comply with the following procedures intended to prevent fraud, waste, 
and Program abuse:
* * * * *

0
42. Revise Sec.  226.22 to read as follows:


Sec.  226.22  Procurement standards.

    (a) General. This section establishes standards and guidelines for 
the procurement of foods, supplies, equipment, and other goods and 
services. These standards are furnished to ensure that goods and 
services are obtained efficiently and economically and in compliance 
with the provisions of applicable Federal law and Executive orders.
    (b) Compliance. Institutions may use their own procedures for 
procurement with Program funds to the extent that:
    (1) Procurements by public institutions comply with applicable 
State or local laws and standards set forth in 2 CFR part 200, subpart 
D and USDA implementing regulations 2 CFR parts 400 and 415; and
    (2) Procurements by private nonprofit institutions comply with 
standards set forth in 2 CFR part 200, subpart D and USDA implementing 
regulations 2 CFR parts 400 and 415.
    (c) Geographic preference. (1) Institutions participating in the 
Program may apply a geographic preference when procuring unprocessed 
locally grown or locally raised agricultural products. When utilizing 
the geographic preference to procure such products, the institution 
making the purchase has the discretion to determine the local area to 
which the geographic preference option will be applied;
    (2) For the purpose of applying the optional geographic preference 
in paragraph (c)(1) of this section, ``unprocessed locally grown or 
locally raised agricultural products'' means only those agricultural 
products that retain their inherent character. The effects of the 
following food handling and preservation techniques will not be 
considered as changing an agricultural product into a product of a 
different

[[Page 57858]]

kind or character: Cooling; refrigerating; freezing; size adjustment 
made by peeling, slicing, dicing, cutting, chopping, shucking, and 
grinding; forming ground products into patties without any additives or 
fillers; drying/dehydration; washing; packaging (such as placing eggs 
in cartons), vacuum packing and bagging (such as placing vegetables in 
bags or combining two or more types of vegetables or fruits in a single 
package); addition of ascorbic acid or other preservatives to prevent 
oxidation of produce; butchering livestock and poultry; cleaning fish; 
and the pasteurization of milk.

0
43. In Sec.  226.23, add paragraph (e)(1)(vii) to read as follows:


Sec.  226.23  Free and reduced-price meals.

* * * * *
    (e) * * *
    (1) * * *
    (vii) If a tier II day care home elects to assist in collecting and 
transmitting the applications to the sponsoring organization, it is the 
responsibility of the sponsoring organization to establish procedures 
to ensure the provider does not review or alter the application. The 
household consent form must explain that:
    (A) The household is not required to complete the income 
eligibility form in order for their children to participate in CACFP:
    (B) The household may return the application to either the 
sponsoring organization or the day care home provider;
    (C) By signing the letter and giving it to the day care home 
provider, the household has given the day care home provider written 
consent to collect and transmit the household's application to the 
sponsoring organization; and
    (D) The application will not be reviewed by the day care home 
provider.
* * * * *

0
44. In Sec.  226.25, add paragraph (j) to read as follows:


Sec.  226.25  Other provisions.

* * * * *
    (j) Fines. (1) An institution that is a school food authority may 
be subject to fines. The State agency may establish an assessment when 
it has determined that the institution or its facility has:
    (i) Failed to correct severe mismanagement of the Program;
    (ii) Disregarded a Program requirement of which the institution or 
its facility had been informed; or
    (iii) Failed to correct repeated violations of Program 
requirements.
    (2) FNS may direct the State agency to establish a fine against any 
institution when it has determined that the institution or its facility 
has committed one or more acts under paragraph (j)(1) of this section.
    (3) Funds used to pay a fine established under this paragraph must 
be derived from non-Federal sources. In calculating an assessment, the 
State agency must calculate the fine based on the amount of Program 
reimbursement earned by the institution or its facility for the most 
recent fiscal year for which full year data is available, provided that 
the fine does not exceed the equivalent of:
    (i) For the first fine, 1 percent of the amount of meal 
reimbursement earned for the fiscal year;
    (ii) For the second fine, 5 percent of the amount of meal 
reimbursement earned for the fiscal year; and
    (iii) For the third or subsequent fine, 10 percent of the amount of 
meal reimbursement earned for the fiscal year.
    (4) The State agency must inform FNS at least 30 days prior to 
establishing the fine under this paragraph. The State agency must send 
the institution written notification of the fine established under this 
paragraph and provide a copy of the notification to FNS. The 
notification must:
    (i) Specify the violations or actions which constitute the basis 
for the fine and indicate the amount of the fine;
    (ii) Inform the institution that it may appeal the fine and advise 
the institution of the appeal procedures established under Sec.  
226.6(k);
    (iii) Indicate the effective date and payment procedures should the 
institution not exercise its right to appeal within the specified 
timeframe.
    (5) Any institution subject to a fine under paragraph (j)(1) of 
this section may appeal the State agency's determination. In appealing 
a fine, the institution must submit to the State agency any pertinent 
information, explanation, or evidence addressing the Program violations 
identified by the State agency. Any institution seeking to appeal the 
State agency determination must follow State agency appeal procedures.
    (6) The decision of the State agency review official is final and 
not subject to further administrative or judicial review. Failure to 
pay a fine established under this paragraph may be grounds for 
suspension or termination.
    (7) Money received by the State agency as a result of a fine 
established under this paragraph against an institution and any 
interest charged in the collection of these fines must be remitted to 
FNS, and then remitted to the United States Treasury.

0
45. Revise Sec.  226.26 to read as follows:


Sec.  226.26  Program information.

    Persons seeking information about this Program should contact their 
State administering agency or the appropriate FNSRO. The FNS website 
has contact information for State agencies at https://www.fns.usda.gov/fns-contacts and FNSROs at https://www.fns.usda.gov/fns-regional-offices.

PART 235--STATE ADMINISTRATIVE EXPENSE FUNDS

0
46. The authority citation for part 235 continues to read as follows:

    Authority:  Secs. 7 and 10 of the Child Nutrition Act of 1966, 
80 Stat. 888, 889, as amended (42 U.S.C. 1776, 1779).


Sec.  235.4  [Amended]

0
47. In Sec.  235.4, amend paragraph (b)(2) by removing the term ``Sec.  
235.11(g)'' and add in its place the term ``Sec.  235.11(h)''.

0
48. In Sec.  235.5:
0
a. Revise paragraph (d); and
0
b. Amend paragraph (e)(2) by removing the word ``unexpended'' and 
adding in its place the word ``unobligated''.
    The revision reads as follows:


Sec.  235.5  Payments to States.

* * * * *
    (d) Reallocation of funds. Annually, between March 1 and May 1 on a 
date specified by FNS, of each year, each State agency shall submit to 
FNS a State Administrative Expense Funds Reallocation Report (FNS-525) 
on the use of SAE funds. At such time, a State agency may release to 
FNS any funds that have been allocated, reallocated or transferred to 
it under this part or may request additional funds in excess of its 
current grant level. Based on this information or on other available 
information, FNS shall reallocate, as it determines appropriate, any 
funds allocated to State agencies in the current fiscal year which will 
not be obligated in the following fiscal year and any funds carried 
over from the prior fiscal year which remain unobligated at the end of 
the current fiscal year. Reallocated funds shall be made available for 
payment to a State agency upon approval by FNS of the State agency's 
amendment to the base year plan which covers the reallocated funds, if 
applicable. Notwithstanding any other provision of this part, a State 
agency may, at any time, release to FNS for reallocation any funds that 
have been allocated, reallocated or transferred to it under this part 
and are not needed to

[[Page 57859]]

implement its approved plan under this section.
* * * * *


Sec.  235.6  [Amended]

0
49. In Sec.  235.6, amend paragraph (a) by:
0
a. Redesignating as paragraph (a-1) as paragraph (a)(1);
0
b. In newly redesignated paragraph (a)(1), removing the term ``Sec.  
235.11(g)(3)'' and adding in its place the term ``Sec.  235.11(h)(3)'' 
and removing the term ``Sec.  235.11(g)(1) and (2)'' and adding in its 
place the term ``Sec. Sec.  235.11(h)(1) and (2)''; and
0
c. Redesignating paragraph (a-2) as paragraph (a)(2).

0
50. In Sec.  235.11:
0
a. Redesignate paragraphs (c) through (g) as paragraphs (d) through 
(h), respectively, and add new paragraph (c);
0
b. In newly redesignated paragraph (e), remove the term ``paragraphs 
(b) or (c)'' and add in its place the term ``paragraphs (b), (c), or 
(d)'';
0
c. In redesignated paragraph (g), remove the term ``paragraph (b)'' and 
add in its place the term ``paragraphs (b) and (c)'' and add the words 
``or fine'' after the word ``sanction'' each time it appears; and
0
d. Revise redesignated paragraph (h)(3).
    The addition and revision read as follows:


Sec.  235.11  Other provisions.

* * * * *
    (c) Fines. (1) FNS may establish a fine against any State agency 
administering the programs under parts 210, 215, 220, 225, 226, and 250 
of this chapter, as it applies to the operation of the Food 
Distribution Program in schools and child and adult care institutions, 
when it has determined that the State agency has:
    (i) Failed to correct severe mismanagement of the programs;
    (ii) Disregarded a program requirement of which the State has been 
informed; or
    (iii) Failed to correct repeated violations of program 
requirements.
    (2) Funds used to pay a fine established under paragraph (c)(1) of 
this section must be derived from non-Federal sources. The amount of 
the fine will not exceed the equivalent of:
    (i) For the first fine, 1 percent of all allocations made available 
under Sec.  235.4 during the most recent fiscal year for which full 
year data are available;
    (ii) For the second fine, 5 percent of all allocations made 
available under Sec.  235.4 during the most recent fiscal year for 
which full year data are available; and
    (iii) For the third or subsequent fines, 10 percent of all 
allocations made available under Sec.  235.4 during the most recent 
fiscal year for which full year data are available.
    (3) State agencies seeking to appeal a fine established under this 
paragraph must follow the procedures set forth in this paragraph (g).
* * * * *
    (h) * * *
    (3) Continuing education and training standards for State directors 
of school nutrition programs and distributing agencies. Each school 
year, all State directors with responsibility for the National School 
Lunch Program under part 210 of this chapter and the School Breakfast 
Program under part 220 of this chapter, as well as those responsible 
for the distribution of USDA donated foods under part 250 of this 
chapter, must complete a minimum of 15 hours of training in core areas 
that may include nutrition, operations, administration, communications 
and marketing. State directors tasked with National School Lunch 
Program procurement responsibilities must complete annual procurement 
training, as required under Sec.  210.21(h) of this chapter. Additional 
hours and topics may be specified by FNS, as needed, to address program 
integrity and other critical issues.
* * * * *

Cynthia Long,
Administrator, Food and Nutrition Service.
[FR Doc. 2023-17992 Filed 8-22-23; 8:45 am]
BILLING CODE 3410-30-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>