Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Rules and Regulations 68219

Per diem locality Maximum

lodging

amount (includes applicable

taxes) (a)

+ M&IE rate

(b) =

Maximum

per diem

rate 4 Key city (c) 1 County and/or other defined location

* * * * * * *

NEW MEXICO

* * * * * * *

Cloudcroft ................................. Otero ............................................................................ 87 30 117

* * * * * * *

NEW YORK

Albany ....................................... Albany .......................................................................... 68 38 106

* * * * * * *

SOUTH DAKOTA

* * * * * * *

Sturgis ...................................... Mead.

(June 15–August 31) ......... ...................................................................................... 86 30 116

(September 1–June 14) .... ...................................................................................... 50 30 80

* * * * * * *

TEXAS

* * * * * * *

Eagle Pass ............................... Maverick ...................................................................... 57 30 87

El Paso ..................................... El Paso ........................................................................ 56 34 90

* * * * * * *

VIRGINIA

* * * * * * *

Harrisonburg ............................. ...................................................................................... 54 30 84

* * * * * * *

WEST VIRGINIA

* * * * * * *

Harpers Ferry ........................... Jefferson ...................................................................... 66 30 96

* * * * * * *

Dated: December 23, 1997.

Peggy G. Wood,

Acting Director, Travel and Transportation

Management Policy Division.

[FR Doc. 97–33971 Filed 12–30–97; 8:45 am]

BILLING CODE 6820–34–P

LEGAL SERVICES CORPORATION

45 CFR Part 1630

Cost Standards and Procedures

AGENCY: Legal Services Corporation.

ACTION: Final rule.

SUMMARY: This final rule sets forth cost

standards and procedures applicable to

Legal Services Corporation (‘‘LSC’’ or

‘‘Corporation’’) grants and contracts.

This rule contains substantial revisions

which bring the Corporation’s cost

standards and procedures into

conformance with applicable provisions

of the Inspector General Act, the

Corporation’s appropriations action, and

relevant Office of Management and

Budget (‘‘OMB’’) Circulars.

DATES: This rule is effective January 30,

1998.

FOR FURTHER INFORMATION CONTACT:

Office of the General Counsel, (202)

336–8817.

SUPPLEMENTARY INFORMATION:

Background

On July 13, 1997, the Corporation’s

Operations and Regulations Committee

(‘‘Committee’’) held public hearings in

Los Angeles, California, on draft

revisions to the Corporation’s rule on

cost standards and procedures and

adopted a proposed rule that was

published for public notice and

comment on August 29, 1997 (62 FR

45778). The Corporation subsequently

received five written comments on the

proposed revisions.

On November 14, 1997, during public

hearings in Washington, DC, the

Committee considered comments on the

proposed revisions. After making

additional revisions to the rule, the

Committee recommended that the

Corporation’s Board of Directors

(‘‘Board’’) adopt the rule as final, which

the Board did on November 15, 1997.

Revisions were necessary to bring the

rule into conformance with Sec. 509 of

Pub. L. 104–134, 110 Stat. 1321; the

Inspector General Act (‘‘IG Act’’), 5

U.S.C. App. 3, as amended; the Audit

for LSC Recipients and Auditors

(‘‘Audit Guide’’); OMB Circular A–50,

Audit Followup (September 29, 1982);

OMB Circular A–110, Uniform

Administrative Requirements for Grants

and Agreements with Institutions of

Higher Education, Hospitals, and other

Non-Profit Organizations (November 19,

1993); OMB Circular A–122, Cost

Principles for Non-Profit Organizations

(May 8, 1997); and OMB Circular A–

133, Audits of States, Local

Governments, and Non-Profit

Organizations (June 24, 1997).
68220 Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Rules and Regulations

Because the LSC Act specifies that the

Corporation is not a Federal agency,

OMB Circulars are generally not binding

on the Corporation, unless Congress has

specified elsewhere in the law that the

Corporation must adhere to a specific

Circular, as is the case in Sec. 509(k) of

Pub. L. 104–134, which requires the

Corporation to develop audit follow-up

procedures which meet, at a minimum,

the requirements of OMB Circular A–50.

As a matter of discretion, however, the

Corporation has adopted relevant

provisions from OMB Circulars which

are applicable to Federally funded nonprofit organizations. For example, § I–2

of the Corporation’s Audit Guide

requires recipients and their auditors to

adhere to OMB Circular A–133. This

rule draws on that Circular, as well as

Circulars A–110 and A–122, which

contain cost standards and procedures

applicable to non-profit organizations

which receive Federal funds.

Scope and Effective Date

The requirements of this rule apply to

all costs charged against Corporation

grants or contracts on or after the rule’s

effective date. The requirements of this

rule also apply to certain income

derived from Corporation grants and

contracts. This rule generally does not

apply to funding obtained from sources

other than the Corporation, except as

provided by § 1630.11. The review and

appeal process of § 1630.7 applies to

questioned cost proceedings initiated by

the Corporation on or after the effective

date of this rule.

A section-by-section analysis of the

rule follows.

Section-by-Section Analysis

Section 1630.2—Definitions

Paragraph (a) defines an allowed cost

as a questioned cost which the

Corporation has determined to be

eligible for payment with LSC funds.

This definition applies only to costs

which either the Corporation or an

authorized auditor has questioned

during the course of an audit or

investigation. Costs are generally

allowable provided that they meet the

nine criteria of $1630.3(a).

Paragraph (b) defines corrective action

as action taken by a recipient that: (1)

Corrects identified deficiencies; (2)

produces recommended improvements;

or (3) demonstrates that audit or other

findings are invalid or do not warrant

further action. This definition comes

from § 105 of OMB Circular A–133,

which is applicable to LSC recipients

through § I–2 of the LSC Audit Guide.

One comment noted that the third

part of the rule’s definition was

inconsistent with the customary usage

of the term by Corporation recipients,

which have not traditionally thought of

corrective action as encompassing

expression of disagreement with an

auditor’s finding. The third part of the

definition comes from §§ 105 and 315(c)

of OMB Circular A–133, which specify

that a corrective action plan is the place

to express disagreement with an audit

finding. Thus, within OMB parlance,

the expression of disagreement is

‘‘corrective action.’’ To maintain

consistency with the OMB definition,

the Board decided to retain the third

part of the rule’s definition of corrective

action.

One comment noted a significant

difference between the OMB definition

and the definition in this rule: while the

rule’s definition refers to ‘‘audit or

other’’ findings, the OMB definition

refers only to ‘‘audit’’ findings. The

Corporation included ‘‘other’’ findings

in its definition of corrective action in

order to extend the scope of the

definition to non-audit findings, such as

findings from complaint investigations

by Corporation management. For this

reason, the Board has retained the

reference to ‘‘other’’ findings in the

rule’s definition of corrective action.

Paragraph (c) defines derivative

income as income resulting from certain

Corporation-funded activities. This

definition is adapted from the definition

of ‘‘program income’’ which appears in

§ 2(x) of OMB Circular A–110. The term

‘‘derivative income’’ does not include

income from publication activities,

because these activities are subject to an

exception under § 24(h) of OMB

Circular A–110, which provides that

recipients have no obligation to the

Federal Government with respect to

income earned from license fees and

royalties from copyrighted materials.

One comment suggested that the

Corporation should clarify whether

funding obtained from other sources as

a result of fundraising efforts conducted

with LSC funds is LSC derivative

income. It is not. The rule’s definition

of derivative income does not reach

grants, contracts, or contributions from

non-LSC sources.

Paragraph (d) defines disallowed cost

as a questioned cost that the

Corporation has determined may not be

charged to LSC funds. This definition

comes from Sec. 5(f)(3) of the IG Act.

Paragraph (e) defines final action as

the completion of all corrective actions

which the Corporation, in a

management decision, has concluded

are necessary to address findings and

recommendations in an audit or other

report. This definition comes from Sec.

5(f)(6) of the IG Act. The second

sentence of the definition states that, if

the Corporation determines that no

corrective action is necessary, final

action occurs when the Corporation

issues its management decision. One

comment recommended deletion of this

second sentence because the rule did

not apply that portion of the definition.

In order to maintain consistency with

the definition in the IG Act, the Board

chose not to revise the rule’s definition

of final action. Instead, the Board

revised § 1630.7(d) to add clarification

that, in the event that corrective action

is unnecessary, final action occurs with

the issuance of a management decision.

Paragraph (f) defines management

decision as the evaluation by

Corporation management of the findings

and recommendations in an audit or

other report, and the issuance of a final,

written decision by Corporation

management, including a description of

the corrective action which Corporation

management considers necessary to

respond to the findings and

recommendations. This definition

comes from Sec. 5(f)(5) of the IG Act. A

similar definition appears in § 105 of

OMB Circular A–133.

Two comments sought clarification

about the scope of the rule’s definitions

of final action and management

decision. While the IG Act’s definitions

of management decision and final action

refer only to ‘‘audit’’ reports, the

definitions in the rule refer to ‘‘audit

and other’’ reports. As explained above

in the discussion of the definition of

corrective action, the Corporation has

included ‘‘other’’ findings in the rule’s

definitions in order to extend the scope

of the definitions to non-audit findings,

such as those resulting from complaint

investigations by Corporation

management.

Paragraph (g) defines questioned cost

as a cost charged to Corporation funds

which the Corporation or an authorized

auditor has questioned because of: (1) A

violation of applicable law; (2) a lack of

adequate supporting documentation; or

(3) an appearance that the cost is

unnecessary or unreasonable. This

definition comes from Sec. 5(f)(1) of the

IG Act. A similar definition appears in

§ 105 of OMB Circular A–133.

The definition of questioned cost

recognizes that other persons and

entities, in addition to Corporation

management, such as the Office of

Inspector General (‘‘OIG’’), the General

Accounting Office (‘‘GAO’’),

independent public accountants, and

other duly authorized auditors and

audit organizations have authority to

question costs incurred by Corporation

recipients. However, this definition

does not extend such authority to
Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Rules and Regulations 68221

persons or entities which are not duly

authorized by applicable law to audit or

investigate Corporation recipients.

Paragraph (h) defines recipient for the

purposes of this part only. This

definition reaches grantees receiving

Corporation funds pursuant to either

Sec. 1006(a)(1) or Sec. 1006(a)(3) of the

LSC Act, in contrast to the definition of

recipient appearing at 45 CFR § 1600.1,

which defines recipients only as those

entities receiving Corporation funds

pursuant to Sec. 1006(a)(1)(A) of the

Act.

Section 1630.3—Standards Governing

Allowability of Costs Under Corporation

Grants or Contracts

Paragraph (a)—Criteria for Allowability

Paragraph (a) of this section sets out

nine criteria which determine whether

costs are allowable under Corporation

grants or contracts. These criteria

generally conform to section A,

paragraph 2, of Attachment A to OMB

Circular A–122. Section 1630.5(b)

contains a tenth, prior approval

criterion which applies to a small

number of specific costs. These two

sections apply only to Corporation

funds and income derived from

Corporation-funded activities.

Subparagraph (a)(1) requires that costs

be actually incurred in the performance

of the grant or contract. This

requirement is consistent with the

accrual method of accounting, which is

required by generally accepted

accounting principles. Costs incurred

just prior to the onset of a Corporation

grant or contract, or just after the

cessation of Corporation funding, are

allowable with the prior approval of the

Corporation as required by

§ 1630.5(b)(1). This is a change from the

prior rule, which did not allow costs

incurred prior to, or after the cessation

of, Corporation funding.

Subparagraph (a)(2) requires that costs

be reasonable and necessary to the

performance of a Corporation grant or

contract. The concept of reasonableness

applies both to the amount of the cost

and to the nature of the activity that the

cost represents. Paragraph (b) of the rule

describes in greater detail four

considerations which enter into a

determination of whether a cost is

reasonable and necessary.

Subparagraph (a)(3) requires that costs

be allocable to a Corporation grant or

contract. Paragraph (c) describes in

detail the considerations which govern

the allocability of costs.

Subparagraph (a)(4) requires that costs

be in compliance with the LSC Act,

applicable appropriations law,

Corporation rules, regulations,

guidelines, and instructions, the

Accounting Guide for LSC Recipients,

the terms and conditions of the grant or

contract, and other applicable law. The

cost of an activity prohibited or

restricted by such law is not allowable

under this rule and may result in a

questioned or disallowed cost.

Subparagraph (a)(5) requires that

recipients account for costs through the

consistent application of established

accounting policies and procedures. The

Accounting Guide for LSC Recipients

sets forth applicable principles,

guidelines, and criteria for recipients’

accounting systems.

Subparagraph (a)(6) requires that

recipients account for costs consistently

over time. This provision does not

prevent recipients from modifying their

cost allocation methods. However,

recipients doing so should document

the reasons for modification, especially

if such modification results in the

shifting of a particular type of cost from

one funding source to another.

Subparagraph (a)(7) requires that

recipients allocate costs in accordance

with generally accepted accounting

principles. The Accounting Guide for

LSC Recipients contains guidance on

accounting principles applicable to

Corporation recipients.

Subparagraph (a)(8) requires that

recipients not use Corporation funds to

meet the cost matching requirements of

other Federal funding sources, unless

another Federal funding source has

indicated in writing that recipients may

do so. In at least one instance, another

Federal funding source has done so. In

1980, the Department of Health and

Human Services issued a Policy

Announcement stating that recipients

could use Corporation funds to meet the

matching requirement of Title III

funding for legal services.

Subparagraph (a)(9) requires that

recipients document costs charged to

Corporation funds in business records

which are available during normal

business hours to the Corporation and

other persons or entities, such as the

GAO, which are duly authorized by

applicable law to conduct audits or

investigations of Corporation recipients.

Paragraph (b)—Reasonableness

Paragraph (b) applies a four-part

prudent person test to the determination

of whether a cost is reasonable. The

language of this provision comes from

section A, paragraph 3, of Attachment A

to OMB Circular A–122.

One comment noted that, because the

language of subparagraph (b)(3) of the

proposed rule referred to ‘‘persons

concerned,’’ the prudent person test

could be read to hold recipients liable

for the actions of employees acting

outside of their agency, even where

recipients may have taken all reasonable

steps to prevent the actions from

occurring. Because this is not the

Corporation’s intent, the Board modified

subparagraph (b)(3) to refer to ‘‘the

recipient’’ instead of ‘‘persons

concerned.’’

In general, when applying the prudent

person test to determine whether a cost

is reasonable, the Corporation will look

at both the cost itself and the process by

which the recipient decided to incur the

cost. Generally, a cost is reasonable in

nature and amount if it is comparable to

similar costs incurred by other legal

services programs in similar

circumstances. Indicia of a prudent

process include, but are not limited to,

the solicitation of quotes from

prospective vendors, documentation of

the acquisition process, and board

approval of unusually large costs.

If, for any reason, uncertainty exists as

to the reasonableness of a cost,

recipients may seek an advance

understanding from the Corporation

pursuant to § 1630.5(a). A request for an

advance understanding should describe

in reasonable detail the nature and

amount of the cost. Provided that the

actual costs does not vary significantly

in nature or amount for the description

in the request, an advance

understanding ensures that the

Corporation will not disallow the cost

later on the grounds that it was

unreasonable.

Paragraph (c)—Allocability

Paragraph (c) sets forth considerations

which govern the allocability of costs

charged to Corporation grants and

contracts. In short, a cost is allocable to

a grant or contract to the extent that it

‘‘benefits’’ the grant or contract. The

language of this section comes from

section A, paragraph 4, of Attachment A

to OMB Circular A–122.

Some costs benefit a single grant, such

as the salary cost of a Title III attorney

who exclusively represents elder

clients. Other costs benefit several

different grants, such as the rental cost

of an office which serves clients under

LSC, IOLTA, and Title III grants. In the

former instance, a recipient should

allocate all of the Title III attorney’s

salary cost to the Title III grant. In the

latter instance, a recipient should

allocate a share of the office’s rental

costs to the LSC, IOLTA, and Title III

grants, provided that each of those

funding sources permit this type of cost.

This paragraph no longer contains a

provision from the prior rule which

prohibited the shifting of costs to avoid

funding deficiencies or restrictions on
68222 Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Rules and Regulations

the uses of funds. The Board specifically

sought comment on the deletion of this

provision in the preamble to the

proposed rule. The Corporation received

no comments opposing the deletion.

The Board approved deletion of this

provision, because § 1630.3(a)(4) already

prevents recipients from charging the

costs of restricted activities to LSC

funds. Although the result of deleting

this provision is to permit the shifting

of otherwise allowable costs to

Corporation funds, the Corporation

encourages recipients to budget and

allocate costs carefully so as to avoid

accumulating deficits in their non-LSC

funds which would necessitate year-end

transfers of LSC funds to eliminate the

deficits.

Paragraphs (d) and (e)—Direct and

Indirect Costs

The salary of a Title III attorney who

exclusively serves elder clients is a

typical example of a direct cost as

described by paragraph (d). Generally,

recipients should treat the salaries and

wages of attorneys and paralegals as

direct costs. The rental cost of office

space which is used to serve clients

under two or more different grants is a

typical example of an indirect cost as

described by paragraph (e). The

language of these two sections comes

from sections B and C of Attachment A

to OMB Circular A–122.

Paragraph (d)—Keeping of Personnel

Activity Reports

Several comments observed that a

reference to ‘‘time records’’ in paragraph

(d) of the proposed rule could be read

to require recipients to base their

allocations of staff salaries and wages on

timekeeping records kept pursuant to 45

CFR part 1635, the Corporation’s

timekeeping rule. This would require a

significant number of recipients to

modify their timekeeping systems,

because many recipients do not include

funding source information in the

timekeeping records which they keep

pursuant to 45 CFR part 1635.

The Corporation does not intend to

impose such a requirement. The

preamble to 45 CFR part 1635 clearly

states that, while timekeeping records

are one possible basis for cost

allocations, the Corporation did not

intend to require recipients to calculate

cost allocations directly from

timekeeping records kept pursuant to 45

CFR part 1635. (61 FR 14263, Apr. 1,

1996.) For this reason, the Board revised

paragraph (d) to refer to ‘‘personnel

activity reports’’ instead of ‘‘time

records.’’

Accordingly, paragraph (d) requires

that recipients keep personnel activity

reports to support salaries and wages

which are allocated as direct costs.

Paragraph 6(1)(2) of Attachment B to

OMB Circular A–122 provides detailed

guidance about the keeping of such

reports. These reports should: (1) Be

prepared at least monthly; (2) contain a

reasonable, after-the-fact estimate of the

distribution of activity of each

compensated employee whose time is

charged directly to a grant; and (3) be

signed by either the employee or a

supervisor having first-hand knowledge

of the employee activity. The keeping of

these records also satisfies the ‘‘labordistribution’’ recordkeeping

requirement of § 3–5.5(a) of the

Accounting Guide for LSG Recipients.

Paragraph (f)—Allocation of Indirect

Costs

Pursuant to paragraph (f) of this

section, the allocation of indirect costs

should be accomplished through an

established cost allocation method.

Because nearly all current recipients

perform the single function of delivering

legal services to low-income clients,

paragraph (f) sets forth a simplified

allocation method for allocating indirect

costs among funding sources. The

language of this paragraph comes from

section D of Attachment A to OMB

Circular A–122.

Generally, recipients should use an

indirect cost allocation method which

distributes costs equitably among all

funding sources. Possible bases for

allocating indirect costs include, but are

not limited to, total direct costs, direct

salaries and wages, attorney hours,

numbers of cases, and numbers of

employees.

Paragraph (g)—Exception for Certain

Indirect Costs

Two comments noted that some

funding sources do not permit the

charging of certain indirect costs.

Paragraph (g) creates an exception to

accommodate this situation. If a

recipient cannot allocate an indirect

cost to one or more funding sources, the

recipient should distribute the cost

equitably among the funding sources

which do permit the charging of the

cost.

In the case of audit costs under Sec.

509(c) of Public Law 104–134, for

example, recipients should distribute

their audit costs on a pro rata basis

among funding sources which do permit

the charging of such costs. This

allocation method satisfies the

requirements of Sec. 509(c).

Paragraph (h)—Applicable Credits

Paragraph (h) defines and explains

how to allocate applicable credits.

Applicable credits are receipts or

reductions of expenditures which

operate to offset or reduce expenses.

Paragraph (i)—Guidance

Because the LSC Act specifies that the

Corporation is not a Federal agency,

OMB Circulars are generally not binding

on the Corporation or on recipients of

its funds. However, the Corporation has

relied on three relevant OMB Circulars

in the development of these cost

standards and procedures.

In particular, OMB Circulars A–110,

A–122, and A–133 contain publicly

noticed and commented standards

which are applied throughout the

Federal government to nonprofit

organizations which receive Federal

funds. In the event that questions arise

about the allowability of costs under

this part, the Corporation will look to

these Circulars for guidance, to the

extent that they are not inconsistent

with law applicable to the Corporation

and its recipients, including the

Corporation’s rules, regulations, and

guidelines.

Section 1630.4—Burden of Proof

This section provides that the

recipient has the burden of proving that

costs charged to Corporation funds meet

the requirements of §§ 1630.3 and

1630.5 of this part. When a recipient

engages in an activity which is

permissible only with non-LSC funds,

the recipient also has the burden of

showing that such costs are properly

charged to non-LSC funds.

To meet this requirement, recipients

must maintain accounting systems

which are sufficient to demonstrate the

allocation of costs to various funding

sources, as required by this part and

§§ 2–4.1 and 3–5 of the Accounting

Guide for LSC Recipients. However,

neither this rule nor the Accounting

Guide requires recipients to maintain

separate bank accounts for the purposes

of segregating funds received from

different funding sources.

Section 1630.5—Costs Requiring

Corporation Prior Approval

Paragraph (a) of this section permits

recipients to obtain an advance

understanding from the Corporation

prior to incurring costs that are

exceptional in nature or amount. The

language of this paragraph comes from

section A, paragraph 6, of Attachment A

to OMB Circular A–122.

An advance understanding as to the

reasonableness or allocability of an

exceptional cost guards against the

possibility that the cost might come into

question during a subsequent audit. The

Corporation encourages recipients to
Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Rules and Regulations 68223

seek advance understandings prior to

incurring costs which might be

perceived later by an auditor as being

other than ordinary and necessary to the

operation of a legal services program.

Paragraph (b) of this section lists

specific costs which recipients may not

charge to Corporation funds without the

Corporation’s written prior approval.

Because this paragraph applies to costs

charged to LSC funds only, recipients

charging the entire amount of such costs

to non-LSC funds do not need to seek

the Corporation’s prior approval. Where

recipients charge part of the cost to LSC

funds and part of the cost to non-LSC

funds, Corporation prior approval is

necessary when the amount charged to

LSC funds exceeds one of the threshold

amounts in this paragraph. In the case

of purchases of real property,

Corporation prior approval is necessary

when a recipient expends any amount

of LSC funds to acquire real property.

Subparagraph (b)(1) requires

recipients to obtain prior approval

before charging certain pre-award and

post-cessation-of-funding costs to

Corporation funds. Two comments

noted that the wording of this

subparagraph, as it appeared in the

proposed rule, could be read to apply to

expenditures of LSC fund balances

carried over by continuing recipients

pursuant to 45 CFR part 1628. Because

this was not the Corporation’s intent,

the Board approved a revision to this

subparagraph, so that it now refers to

‘‘pre-award costs and costs incurred

after the cessation of funding.’’

Pursuant to paragraph 34 of

Attachment B to OMB Circular A–122,

and with the Corporation’s prior

approval, pre-award costs may be

charged to a Corporation grant if they

are: (1) Incurred pursuant to the

negotiation of and in anticipation of, the

grant; (2) necessary to the performance

of the grant; and (3) otherwise allowable

during the actual term of the grant. Such

costs include, but are not limited to, the

hiring of staff and the acquisition of

office space and equipment necessary to

the performance of the grant.

With the prior approval of the

Corporation, recipients may use some or

all of their LSC funds remaining at the

time of cessation of funding to fulfill

their professional responsibilities to

clients by closing out cases or by

transferring them to other providers. In

the rare event that termination of

funding occurs during the term of a

grant, paragraph 48 of Attachment B to

OMB Circular A–122 provides detailed

guidance on the allowability of costs

incurred during the termination process.

The $10,000 threshold of

subparagraph (b)(2) applies to

individual items of personal property

only. Corporation prior approval is no

longer necessary for purchases and

leases of individual items costing less

than this amount, even if a purchase or

lease of several related items with

individual costs below $10,000 has a

combined cost which exceeds the

threshold amount. However, the costs of

acquiring such items must still meet the

criteria of § 1630.3 of this part,

including the requirement that such

costs be reasonable and necessary to the

performance of the grant or contract.

The use of Corporation funds to

purchase real property, whether to pay

part or all of an initial down payment

or to pay part or all of the principal or

interest payments on debt secured to

finance the purchase, requires

Corporation prior approval. Capital

expenditures to improve real property

also require Corporation prior approval,

if the amount of LSC funds going toward

such an expenditure exceeds $10,000.

Leases of real property do not require

Corporation prior approval.

Paragraph (b) no longer requires prior

approval of consultant contracts.

However, recipients should be prepared

to justify the costs of such contracts

should they come into question during

a subsequent audit or investigation.

Subparagraph 35(b) of Attachment B to

OMB Circular A–122 list several factors

which govern the allowability of the

costs of retaining consultants. These

include: (1) The nature and scope of the

service; (2) the necessity of contracting

for the service; (3) the recipient’s ability

to perform the service itself; (4) the

qualifications of the consultants; (5) and

the adequacy of the contract agreement.

In the event that there is likely to be any

question about the reasonableness or

allocability of a consultant contract,

recipients may seek an advance

understanding from the Corporation as

provided by § 1630.5(a).

The elimination of the prior approval

requirement for consultant contracts

does not affect or supersedes 45 CFR

part 1627, which governs subgrants of

LSC funds. As provided by part 1627,

contracts using LSC funds to perform

programmatic activities are subgrants

which require Corporation prior

approval, except that contracts for

private attorney involvement in

amounts not greater than $25,000 do not

require prior approval.

Section 1630.6—Timetable and Basis for

Granting Prior Approval

Paragraph (a) requires the Corporation

to grant prior approval of a cost when

a recipient provides sufficient written

information to demonstrate that the cost

would be allowable under the

provisions of this part. When denying a

request for prior approval, the

Corporation must explain in writing

why the cost would not be allowable.

Paragraph (b) provides a timetable for

obtaining prior approval. If the

Corporation fails to act within the

timetable in this paragraph, it may not

assert the absence of prior approval as

a basis for disallowing a cost. However,

to be allowable, the cost must

nonetheless meet the nine criteria of

§ 1630.3(a).

Section 1630.7—Review of Questioned

Costs and Appeal of Disallowed Costs

Paragraph (a) recognizes the statutory

authority of the Corporation’s OIG, the

GAO, and authorizes independent

auditors to question costs incurred by

recipients. Section 509(k) of Public Law

104–134 requires Corporation

management to develop procedures for,

and to follow up on, significant audit

findings reported to the Corporation.

This section of the rule addresses that

requirement, as it applies to findings of

questioned costs.

If, after reviewing a questioned cost,

the Corporation determines that there is

a reasonable basis for disallowing the

cost, paragraph (b) requires the

Corporation to provide the recipient

with written notice of its intent to

disallow the cost. Paragraph (b) also

establishes a five-year time limitation on

the Corporation’s ability to disallow

costs.

When approving the proposed rule for

public notice and comment, the Board

adopted a three-year limitation on the

Corporation’s ability to disallow costs.

One comment supported this shorter

time period, on the grounds that it was

long enough to permit the Corporation

to review costs questioned during

routine annual audits of recipients.

Both Corporation management and

the OIG recommended that the Board

adopt a five-year time period, on the

grounds that a three-year time period

might be too short to enable the

Corporation to fulfill its statutory

responsibility to follow up on

questioned costs which might arise

during the course of a GAO or OIG

audit, or during a complaint

investigation by Corporation

management. Such an audit or

investigation might occur at the end of

the three-year period, and the time

limitation in the proposed rule would

prevent the Corporation from following

up on a questioned cost finding. The

Board agreed and revised paragraph (b)

to provide for a five-year time

limitation.

Paragraph (c) provides a 30-day time

period during which recipients may
68224 Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Rules and Regulations

provide a written response to the

Corporation with evidence and

argument as to why the Corporation

should not disallow part or all of a

questioned cost. This paragraph

guarantees that recipients will have at

least one full opportunity to respond to

a finding of a questioned cost which the

Corporation has sought to disallow.

Paragraph (d) requires the Corporation

to issue a management decision, as

defined by § 1630.2(f), within 60 days of

receiving a recipient’s response to a

notice of intent to disallow a questioned

cost. If the Corporation’s management

decision disallows the cost, the

recipient may appeal the disallowance

as provided by paragraph (e), provided

that the amount of the disallowed cost

exceeds $2,500.

One comment urged the Board to

eliminate the $2,500 appeal threshold,

so that recipients could appeal all

disallowed costs, no matter what the

amount. In contrast, the Corporation’s

OIG recommended that the Board

institute a higher threshold. Among

other reasons, the OIG cited as a basis

for this recommendation the likelihood

that the cost of an appeal, in many

instances, would exceed the amount of

the disallowed cost itself.

After considering the Corporation’s

recent experience, which has involved

an average of one appeal per year, the

Board decided to retain the $2,500

threshold as an appropriate balancing of

the Corporation’s and recipients’

interests in the equitable and efficient

resolution of disagreements about

disallowed costs.

Section 1630.8—Recovery of Disallowed

Costs and Other Corrective Action

Paragraphs (a) and (b) require the

Corporation to recover disallowed costs

and ensure that recipients take

necessary corrective action to prevent

the recurrence of circumstances giving

rise to questioned costs. Final action

with respect to a disallowed costs

occurs when the Corporation has

recovered the disallowed cost and the

recipient has concluded all necessary

corrective action specified in the

Corporation’s management decision.

The proposed rule included a

provision which allowed the

Corporation to recover, in connection

with a disallowed cost, income which a

recipient may have derived from the

activity which resulted in the

disallowed cost. One comment urged

the deletion of this provision on the

grounds that it was unnecessary and

without legal basis.

Because the Corporation’s experience

shows that disallowed costs rarely result

in derivative income, and because

relevant OMB Circulars and other

applicable law do not provide for its

recovery, the Board agreed to delete

language providing for the recovery of

derivative income from this section. The

Board also deleted corresponding

references to derivative income from

§§ 1630.7(b) and 1630.11(b).

Section 1630.9—Other Remedies; Effect

on Other Parts

Paragraph (a) requires Corporation

management to refer instances of serious

financial mismanagement, fraud, and

defalcation of funds to the Corporation’s

OIG. In such instances, the Corporation

may also initiate proceedings to

suspend or terminate a recipient’s

funding. Paragraph (b) clarifies that the

disallowance of a cost does not

constitute a permanent reduction in a

recipient’s funding level.

Section 1630.10—Applicability to

Subgrants

This section provides that recipients

and subrecipients shall each be

responsible for questioned costs

incurred by subrecipients. In the event

that a cost incurred by a subrecipient

comes into question, both the recipient

and the subrecipient will have access to

the review and appeal procedures of

§ 1630.7.

Section 16530.11—Applicability to NonLSC Funds

Paragraphs (a) and (b) provide that, in

the event that a recipient expends nonLSC funds to pay for an activity for

which non-LSC funds may not be

expended pursuant to either Sec.

1010(c) of the LSC Act or Sec. 504 of

Public Law 104–134, the Corporation

may recover from the recipient’s LSC

funds an amount not to exceed the

amount of non-LSC funds which the

recipient expended on the prohibited

activity. The activities for which

recipients may not expend non-LSC

funds are defined at 45 CFR §§ 1610.2

(a) and (b).

The provisions of this section do not

apply to non-LSC funds spent on

activities which are not subject to LSC

restrictions on non-LSC funds. Thus,

this section does not enable the

Corporation to recover the costs of

activities which are prohibited by or

inconsistent with restrictions imposed

by other funding sources. For example,

if a recipient uses Title III funds to

represent a client who does not meet

Title III eligibility requirements, this

section does not enable the Corporation

to seek to recover the costs of

representing that client.

Section 1630.12—Applicability to

Derivative Income

Paragraph (a) requires proportional

allocation of income derived from LSCfunded activities. Thus, for example, if

a recipient has charged one-half of the

cost of purchasing a photocopier to LSC

funds and one-half of the cost to nonLSC funds, and the recipient uses the

photocopier to provide photocopying

services to another non-profit

organization for a fee, then one-half of

the income from the fee is LSC

derivative income which should be

allocated to the LSC fund. The

remainder of the income is non-LSC

derivative income which should be

allocated to non-LSC funds. This

allocation method is similar to that

required by 45 CFR § 1642.5(a), which

provides for the allocation of attorney

fee awards.

Paragraph (b) specifies that LSC

derivative income is subject to the

requirements of this part, including the

requirement that expenditures of such

funds be in compliance with the

restrictions of the LSC Act, regulations,

and other applicable law. One comment

sought a revision to this section

clarifying that only that proportion of

derivative income which is allocable to

the LSC fund is subject to this

subparagraph. The Board adopted the

suggested revision, and the final rule

reflects this clarification.

List of Subjects in 45 CFR Part 1630

Accounting, Government contracts,

Grant programs-law, Hearing and appeal

procedures, Legal services, Questioned

costs.

For the reasons set forth in the

preamble, the Corporation revises 45

CFR part 1630 to read as follows:

PART 1630—COST STANDARDS AND

PROCEDURES

Sec.

1630.1 Purpose.

1630.2 Definitions.

1630.3 Standards governing allowability of

costs under Corporation grants or

contracts.

1630.4 Burden of proof.

1630.5 Costs requiring Corporation prior

approval.

1530.6 Timetable and basis for granting

prior approval.

1630.7 Review of questioned costs and

appeal of disallowed costs.

1630.8 Recovery of disallowed costs and

other corrective action.

1630.9 Other remedies; effect on other

parts.

1630.10 Applicability to subgrants.

1630.11 Applicability to non-LSC funds.

1630.12 Applicability to derivative income.

1630.13 Time.
Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Rules and Regulations 68225

Authority: 5 U.S.C. App. 3, 42 U.S.C.

2996e, 2996f, 2996g, 2996h(c)(1), and

2996i(c); Pub. L. 105–11, 111 Stat. 2440; Pub.

L. 104–134, 110 Stat. 3009.

§ 1630.1 Purpose.

This part is intended to provide

uniform standards for allowability of

costs and to provide a comprehensive,

fair, timely, and flexible process for the

resolution of questioned costs.

§ 1630.2 Definitions.

(a) Allowed costs means a questioned

cost that the Corporation, in a

management decision, has determined

to be eligible for payment from a

recipient’s Corporation funds.

(b) Corrective action means action

taken by a recipient that:

(1) Corrects identified deficiencies;

(2) Produces recommended

improvements; or

(3) Demonstrates that audit or other

findings are either invalid or do not

warrant recipient action.

(c) Derivative income means income

earned by a recipient from Corporationsupported activities during the term of

a Corporation grant or contract, and

includes, but is not limited to, income

from fees for services (including

attorney fee awards and reimbursed

costs), sales and rentals of real or

personal property, and interest earned

on Corporation grant or contract

advances.

(d) Disallowed cost means a

questioned cost that the Corporation, in

a management decision, has determined

should not be charged to a recipient’s

Corporation funds.

(e) Final action means the completion

of all actions that Corporation

management, in a management decision,

has concluded are necessary with

respect to the findings and

recommendations in a an audit or other

report. In the event that Corporation

management concludes no corrective

action is necessary, final action occurs

when a management decision has been

made.

(f) Management decisions means the

evaluation by Corporation management

of findings and recommendations in an

audit or other report and the recipient’s

response to the report, and the issuance

of a final, written decision by

management concerning its response to

such findings and recommendations,

including any corrective actions which

Corporation management has concluded

are necessary to address the findings

and recommendations.

(g) Questioned cost means a cost that

a recipient has charged to Corporation

funds which Corporation management,

the Office of Inspector General, the

General Accounting Office, or an

independent auditor or other audit

organization authorized to conduct an

audit of a recipient has questioned

because of an audit or other finding that:

(1) There may have been a violation

of a provision of a law, regulation,

contract, grant, or other agreement or

document governing the use of

Corporation funds;

(2) The cost is not supported by

adequate documentation; or

(3) The cost incurred appears

unnecessary or unreasonable and does

not reflect the actions a prudent person

would take in the circumstances.

(h) Recipient as used in this part

means any grantee or contractor

receiving funds from the Corporation

under sections 1006(a)(1) or 1006(a)(3)

of the Act.

§ 1630.3 Standards governing allowability

of costs under Corporation grants or

contracts.

(a) General criteria. Expenditures by a

recipient are allowable under the

recipient’s grant or contract only if the

recipient can demonstrate that the cost

was:

(1) Actually incurred in the

performance of the grant or contract and

the recipient was liable for payment;

(2) Reasonable and necessary for the

performance of the grant or contract as

approved by the Corporation;

(3) Allocable to the grant or contract;

(4) In compliance with the Act,

applicable appropriations law,

Corporation rules, regulations,

guidelines, and instructions, the

Accounting Guide for LSC Recipients,

the terms and conditions of the grant or

contract, and other applicable law;

(5) Consistent with accounting

policies and procedures that apply

uniformly to both Corporation-financed

and other activities of the recipient;

(6) Accorded consistent treatment

over time;

(7) Determined in accordance with

generally accepted accounting

principles;

(8) Not included as a cost or used to

meet cost sharing or matching

requirements of any other federally

financed program, unless the agency

whose funds are being matched

determines in writing that Corporation

funds may be used for federal matching

purposes; and

(9) Adequately and

contemporaneously documented in

business records accessible during

normal business hours to Corporation

management, the Office of Inspector

General, the General Accounting Office,

and independent auditors or other audit

organizations authorized to conduct

audits of recipients.

(b) Reasonable costs. A cost is

reasonable if, in its nature or amount, it

does not exceed that which would be

incurred by a prudent person under the

same or similar circumstances

prevailing at the time the decision was

made to incur the cost. If a questioned

cost is disallowed solely on the ground

that it is excessive, only the amount that

is larger than reasonable shall be

disallowed. In determining the

reasonableness of a given cost,

consideration shall be given to:

(1) Whether the cost is of a type

generally recognized as ordinary and

necessary for the operation of the

recipient or the performance of the grant

or contract;

(2) The restraints or requirements

imposed by such factors as generally

accepted sound business practices,

arms-length bargaining, Federal and

State laws and regulations, and the

terms and conditions of the grant or

contract;

(3) Whether the recipient acted with

prudence under the circumstances,

considering its responsibilities to its

clients and employees, the public at

large, the Corporation, and the Federal

government; and

(4) Significant deviations from the

established practices of the recipient

which may unjustifiably increase the

grant or contract costs.

(c) Allocable costs. A cost is allocable

to a particular cost objective, such as a

grant, project, service, or other activity,

in accordance with the relative benefits

received. Costs may be allocated to

Corporation funds either as direct or

indirect costs according to the

provisions of this section. A cost is

allocable to a Corporation grant or

contract if it is treated consistently with

other costs incurred for the same

purpose in like circumstance and if it:

(1) Is incurred specifically for the

grant or contract;

(2) Benefits both the grant or contract

and other work and can be distributed

in reasonable proportion to the benefits

received; or

(3) Is necessary to the overall

operation of the recipient, although a

direct relationship to any particular cost

objective cannot be shown.

(d) Direct costs. Direct costs are those

that can be identified specifically with

a particular final cost objective, i.e., a

particular grant award, project, service,

or other direct activity of an

organization. Costs identified

specifically with grant awards are direct

costs of the awards and are to be

assigned directly thereto. Direct costs

include, but are not limited to, the

salaries and wages of recipient staff who

are working on cases or matters that are
68226 Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Rules and Regulations

identified with specific grants or

contracts. Salary and wages charged

directly to Corporation grants and

contracts must be supported by

personnel activity reports.

(e) Indirect costs. Indirect costs are

those that have been incurred for

common or joint objectives and cannot

be readily identified with a particular

final cost objective. Any direct cost of a

minor amount may be treated as an

indirect cost for reasons of practicality

where the accounting treatment for such

cost is consistently applied to all final

cost objectives. Indirect costs include,

but are not limited to, the costs of

operating and maintaining facilities, and

the costs of general program

administration, such as the salaries and

wages of program staff whose time is not

directly attributable to a particular grant

or contract. Such staff may include, but

are not limited to, executive officers and

personnel, accounting, secretarial and

clerical staff.

(f) Allocation of indirect costs. Where

a recipient has only one major function,

i.e., the delivery of legal services to lowincome clients, allocation of indirect

costs may be by a simplified allocation

method, whereby total allowable

indirect costs (net of applicable credits)

are divided by an equitable distribution

base and distributed to individual grant

awards accordingly. The distribution

base may be total direct costs, direct

salaries and wages, attorney hours,

numbers of cases, numbers of

employees, or another base which

results in an equitable distribution of

indirect costs among funding sources.

(g) Exception for certain indirect

costs. Some funding sources may refuse

to allow the allocation of certain

indirect costs to an award. In such

instances, a recipient may allocate a

proportional share of another funding

source’s share of an indirect cost to

Corporation funds, provided that the

activity associated with the indirect cost

is permissible under the LSC Act and

regulations.

(h) Applicable credits. Applicable

credits are those receipts or reductions

of expenditures which operate to offset

or reduce expense items that are

allocable to grant awards as direct or

indirect costs. Applicable credits

include, but are not limited to, purchase

discounts, rebates or allowances,

recoveries or indemnities on losses,

insurance refunds, and adjustments of

overpayments or erroneous charges. To

the extent that such credits relate to

allowable costs, they shall be credited as

a cost reduction or cash refund in the

same fund to which the related costs are

charged.

(i) Guidance. The Circulars of the

Office of Management and Budget shall

provide guidance for all allowable cost

questions arising under this part when

relevant policies or criteria therein are

not inconsistent with the provisions of

the Act, applicable appropriations law,

this part, the Accounting Guide for LSC

Recipients, Corporation rules,

regulations, guidelines, instructions,

and other applicable law.

§ 1630.4 Burden of proof.

The recipient shall have the burden of

proof under this part.

§ 1630.5 Costs requiring Corporation prior

approval.

(a) Advance understandings. Under

any given grant award, the

reasonableness and allocability of

certain cost items may be difficult to

determine. In order to avoid subsequent

disallowance or dispute based on

unreasonableness or nonallocability,

recipients may seek a written

understanding from the Corporation in

advance of incurring special or unusual

costs. If a recipient elects not to seek an

advance understanding from the

Corporation, the absence of an advance

understanding on any element of a cost

does not affect the reasonableness or

allocability of the cost.

(b) Prior approvals. Without prior

written approval of the Corporation, no

cost attributable to any of the following

may be charged to Corporation funds:

(1) Pre-award costs and costs incurred

after the cessation of funding;

(2) Purchases and leases of

equipment, furniture, or other personal,

non-expendable property, if the current

purchase price of any individual item of

property exceeds $10,000;

(3) Purchases of real property; and

(4) Capital expenditures exceeding

$10,000 to improve real property.

(c) Duration. The Corporation’s

approval or advance understanding

shall be valid for one year, or for a

greater period of time which the

Corporation may specify in its approval

or understanding.

§ 1630.6 Timetable and basis for granting

prior approval.

(a) The Corporation shall grant prior

approval of a cost if the recipient has

provided sufficient written information

to demonstrate that the cost would be

consistent with the standards and

policies of this part. If the Corporation

denies a request for approval, it shall

provide to the recipient a written

explanation of the grounds for denying

the request.

(b) Except as provided in paragraphs

(c) and (d) of this section, the

Corporation may not assert the absence

of prior approval as a basis for

disallowing a questioned cost, if the

Corporation has not responded to a

written request for approval within sixty

(60) days of receiving the request.

(c) If additional information is

necessary to enable the Corporation to

respond to a request for prior approval,

the Corporation may make a written

request for additional information

within forty-five (45) days of receiving

the request for approval.

(d) If the Corporation has made a

written request for additional

information about a cost as provided by

paragraph (c) of this section, and if the

Corporation has not responded within

thirty (30) days of receiving in writing

all additional, requested information,

the Corporation may not assert the

absence of prior approval as a basis for

disallowing the cost.

§ 1630.7 Review of questioned costs and

appeal of disallowed costs.

(a) When the Office of Inspector

General, the General Accounting Office,

or an independent auditor or other audit

organization authorized to conduct an

audit of a recipient has identified and

referred a questioned cost to the

Corporation, Corporation management

shall review the findings of the Office of

Inspector General, General Accounting

Office, or independent auditor or other

authorized audit organization, as well as

the recipient’s written response to the

findings, in order to determine

accurately the amount of the questioned

cost, the factual circumstances giving

rise to the cost, and the legal basis for

disallowing the cost. Corporation

management may also identify

questioned costs in the course of its

oversight of recipients.

(b) If Corporation management

determines that there is a basis for

disallowing a questioned cost, and if not

more than five years have elapsed since

the recipient incurred the cost,

Corporation management shall provide

to the recipient written notice of its

intent to disallow the cost. The written

notice shall state the amount of the cost

and the factual and legal basis for

disallowing it.

(c) Within thirty (30) days of receiving

written notice of the Corporation’s

intent to disallow the questioned cost,

the recipient may respond with written

evidence and argument to show that the

cost was allowable, or that the

Corporation, for equitable, practical, or

other reasons, should not recover all or

part of the amount, or that the recovery

should be made in installments. If the

recipient does not respond to the

Corporation’s written notice,
Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Rules and Regulations 68227

Corporation management shall issue a

management decision on the basis of

information available to it.

(d) Within sixty (60) days of receiving

the recipient’s written response to the

notice of intent to disallow the

questioned cost, Corporation

management shall issue a management

decision stating whether or not the cost

has been disallowed, the reasons for the

decision, and the method of appeal as

provided in this section.

(1) If Corporation management has

determined that the questioned cost

should be allowed, and that no

corrective action by the recipient is

necessary, final action with respect to

the questioned cost occurs at the time

when the Corporation issues the

management decision.

(2) If Corporation management has

determined that the questioned cost

should be disallowed, the management

decision shall also describe the

expected recipient action to repay the

cost, including the method and

schedule for collection of the amount of

the cost. The management decision may

also require the recipient to make

financial adjustments or take other

corrective action to prevent a recurrence

of the circumstances giving rise to the

disallowed cost.

(e) If the amount of a disallowed cost

exceeds $2,500, the recipient may

appeal in writing to the Corporation

President within thirty (30) days of

receiving the Corporation’s management

decision to disallow the cost. The

written appeal should state in detail the

reasons why the Corporation should not

disallow part or all of the questioned

cost. If the amount of a disallowed cost

does not exceed $2,500, or if the

recipient elects not to appeal the

disallowance of a cost in excess of

$2,500, the Corporation’s management

decision shall be final.

(f) Within thirty (30) days of receipt

of the recipient’s appeal of a disallowed

cost in excess of $2,500, the President

shall either adopt, modify, or reverse the

Corporation’s management decision to

disallow the cost. If the President has

had prior involvement in the

consideration of the disallowed cost, the

President shall designate another senior

Corporation employee who has not had

prior involvement to review the

recipient’s appeal. The President shall

also have discretion, in circumstances

where the President has not had prior

involvement in the disallowed cost, to

designate another senior Corporation

employee to review the recipient’s

appeal, provided that the senior

Corporation employee has not had prior

involvement in the disallowed cost.

(g) The decision of the President or

designee shall be final and shall be

based on the written record, consisting

of the Corporation’s notice of intent to

disallow the questioned cost, the

recipient’s response, the management

decision, the recipient’s written appeal,

any additional response or analysis

provided to the President or designee by

Corporation staff, and the relevant

findings, if any, of the Office of

Inspector General, General Accounting

Office, or other authorized auditor or

audit organization. Upon request, the

Corporation shall provide a copy of the

written record to the recipient.

§ 1630.8 Recovery of disallowed costs and

other corrective action.

(a) The Corporation shall recover any

disallowed costs from the recipient

within the time limits and conditions

set forth in the Corporation’s

management decision. Recovery of the

disallowed costs may be in the form of

a reduction in the amount of future

grant checks or in the form of direct

payment from the recipient to the

Corporation.

(b) The Corporation shall ensure that

a recipient which has incurred a

disallowed cost takes any additional,

necessary corrective action within the

time limits and conditions set forth in

the Corporation’s management decision.

The recipient shall have taken final

action when the recipient has repaid all

disallowed costs and has taken all

corrective action which the Corporation

has stated in its management decision is

necessary to prevent the recurrence of

circumstances giving rise to a

questioned cost.

(c) In the event of an appeal of the

Corporation’s management decision, the

decision of the President or designee

shall supersede the Corporation’s

management decision, and the recipient

shall repay any disallowed costs and

take necessary corrective action

according to the terms and conditions of

the decision of the President or

designee.

§ 1630.9 Other remedies; effect on other

parts.

(a) In cases of serious financial

mismanagement, fraud, or defalcation of

funds, the Corporation shall refer the

matter to the Office of Inspector

General, and may take appropriate

action pursuant to parts 1606, 1623,

1625, and 1640 of this chapter.

(b) The recovery of a disallowed cost

according to the procedures of this part

does not constitute a permanent

reduction in the annualized funding

level of the recipient, nor does it

constitute a termination of financial

assistance under part 1606, a

suspension of funding under part 1623,

or a denial of refunding under part

1625.

§ 1630.10 Applicability to subgrants.

When disallowed costs arise from

expenditures incurred under a subgrant

of Corporation funds, the recipient and

the subrecipient will be jointly and

severally responsible for the actions of

the subrecipient, as provided by 45 CFR

part 1627, and will be subject to all

remedies available under this part. Both

the recipient and the subrecipient shall

have access to the review and appeal

procedures of this part.

§ 1630.11 Applicability to non-LSC funds.

(a) No costs attributable to a purpose

prohibited by the LSC Act, as defined by

45 CFR 1610.2(a), may be charged to

private funds, except for tribal funds

used for the specific purposes for which

they were provided. No cost attributable

to an activity prohibited by or

inconsistent with section 504, as

defined by 45 CFR 1610.2(b), may be

charged to non-LSC funds, except for

tribal funds used for the specific

purposes for which they were provided.

(b) According to the review and

appeal procedures of 45 CFR 1630.7, the

Corporation may recover from a

recipient’s Corporation funds an amount

not to exceed the amount improperly

charged to non-LSC funds.

§ 1630.12 Applicability to derivative

income.

(a) Derivative income resulting from

an activity supported in whole or in part

with funds provided by the Corporation

shall be allocated to the fund in which

the recipient’s LSC grant is recorded in

the same proportion that the amount of

Corporation funds expended bears to

the total amount expended by the

recipient to support the activity.

(b) Derivative income which is

allocated to the LSC fund an accordance

with paragraph (a) of this section is

subject to the requirements of this part,

including the requirement of 45 CFR

1630.3(a)(4) that expenditures of such

funds be in compliance with the Act,

applicable appropriations law,

Corporation rules, regulations,

guidelines, and instructions, the

Accounting Guide for LSC recipients,

the terms and conditions of the grant or

contract, and other applicable law.

§ 1630.13 Time.

(a) Computation. Time limits

specified in this part shall be computed

in accordance with Rules 6(a) and 6(e)

of the Federal Rules of Civil Procedure.

(b) Extensions. The Corporation may,

on a recipient’s written request for good
68228 Federal Register / Vol. 62, No. 250 / Wednesday, December 31, 1997 / Rules and Regulations

cause, grant an extension of time and

shall so notify the recipient in writing.

Dated: December 24, 1997.

Victor M. Fortuno,

General Counsel.

[FR Doc. 97–34120 Filed 12–30–97; 8:45 am]

BILLING CODE 7050–01–M

DEPARTMENT OF COMMERCE

National Oceanic and Atmospheric

Administration

50 CFR Part 679

[Docket No. 970829216–7305–02; I.D.

080597F]

RIN 0648–AK14

Fisheries of the Exclusive Economic

Zone Off Alaska; Allocation of Atka

Mackerel to Vessels Using Jig Gear

AGENCY: National Marine Fisheries

Service (NMFS), National Oceanic and

Atmospheric Administration (NOAA),

Commerce.

ACTION: Final rule.

SUMMARY: NMFS implements

Amendment 34 to the Fishery

Management Plan for the Groundfish

Fishery of the Bering Sea and Aleutian

Islands Area (FMP). The implementing

regulations of Amendment 34 require an

allocation of Atka mackerel to vessels

using jig gear. Annually, up to 2 percent

of the total allowable catch (TAC)

specified for this species in the eastern

Aleutian Islands District (AI)/Bering Sea

subarea (BS) will be allocated to the jig

gear fleet fishing in this area. This

action is necessary to provide an

opportunity to a localized, small-vessel

jig gear fleet to fish for Atka mackerel

in summer months. The large-scale

trawl fisheries typically harvest the

available TAC for this species early in

the fishing year, which does not allow

jig gear fishermen an opportunity for a

summer fishery. This action is intended

to further the goals and objectives of the

FMP.

DATES: Effective January 30, 1998.

ADDRESSES: Copies of Amendment 34

and the Environmental Assessment/

Regulatory Impact Review/Final

Regulatory Flexibility Analysis (EA/

RIR/FRFA) prepared for this action may

be obtained from NMFS, P.O. Box

21668, Juneau, AK 99802, Attn: Lori J.

Gravel.

FOR FURTHER INFORMATION CONTACT:

Susan Salveson, 907–586–7228.

SUPPLEMENTARY INFORMATION: The

domestic groundfish fisheries in the

exclusive economic zone of the Bering

Sea and Aleutian Islands management

area (BSAI) are managed by NMFS

under the FMP. The FMP was prepared

by the North Pacific Fishery

Management Council (Council) under

the Magnuson-Stevens Fishery

Conservation and Management Act

(Magnuson-Stevens Act). Regulations

governing the groundfish fisheries of the

BSAI appear at 50 CFR parts 600 and

679.

At its June 1997 meeting, the Council

adopted Amendment 34 to the FMP and

recommended that NMFS prepare a

rulemaking to implement the

amendment. A notice of availability of

Amendment 34 was published in the

Federal Register on August 15, 1997 (62

FR 43689) and invited comments on the

amendment through October 14, 1997.

A proposed rule to implement

Amendment 34 was published on

September 22, 1997 (62 FR 49464), with

comments invited through November 6,

1997. No comments were received

either on Amendment 34 or on the

proposed rule.

The rule implementing Amendment

34 requires an allocation of Atka

mackerel to vessels using jig gear.

Annually, up to 2 percent of the TAC

specified for this species in the eastern

AI/BS will be allocated to vessels using

jig gear in this area. The amount of the

allocation will be determined annually

based on the anticipated harvest

capacity of the jig gear fleet and will be

published in the Federal Register as

part of the annual groundfish

specifications process.

NMFS has determined that this action

is necessary for the conservation and

management of the Atka mackerel

fishery of the BSAI and for addressing

resource allocation issues between the

jig and trawl gear fisheries for this

species. NMFS approved Amendment

34 on November 13, 1997, under section

304(a) of the Magnuson-Stevens Act.

Additional information on this action

may be found in the preamble to the

proposed rule and in the EA/RIR/FRFA.

Classification

The Administrator, Alaska Region,

NMFS, determined that Amendment 34

is necessary for the conservation and

management of the groundfish fishery of

the BSAI and that it is consistent with

the Magnuson-Stevens Act and other

applicable laws.

This final rule has been determined to

be not significant for purposes of E.O.

12866.

NMFS prepared an FRFA consisting

of the EA/RIR, and the preamble to this

final rule. The initial regulatory

flexibility analysis (IRFA) concluded

that this action would have a significant

positive economic impact on small

entities to the extent that the jig gear

fleet realized potential gains through

increased harvests of Atka mackerel.

Any loss in gross annual revenues that

would be incurred by trawl catcher

vessels under Amendment 34 would not

be significant (i.e., would not exceed 5

percent of a vessel’s total annual

revenue) because these vessels are larger

(> 60 ft (18.29 m)) in length and

participate in other lucrative groundfish

fisheries, including the Atka mackerel

fishery in the Central and Western

Aleutians. Additional explanation of

these impacts is presented in the

preamble to the proposed rule (62 FR

49464, September 22, 1997). No

comments were received on the IRFA.

Because the significant economic

impacts on small entities are beneficial

impacts, no steps have been taken to

minimize them. Likewise, other

alternatives that were rejected would

not have benefited small entities as

greatly as the selected alternative. A

copy of the RIR/FRFA is available from

NMFS (see ADDRESSES).

List of Subjects in 50 CFR Part 679

Alaska, Fisheries, Reporting and

recordkeeping requirements.

Dated: December 22, 1997.

David L. Evans,

Deputy Assistant Administrator for Fisheries,

National Marine Fisheries Service.

For the reasons set out in the

preamble, 50 CFR part 679 is amended

as follows:

PART 679—FISHERIES OF THE

EXCLUSIVE ECONOMIC ZONE OFF

ALASKA

1. The authority citation for 50 CFR

part 679 continues to read as follows:

Authority: 16 U.S.C. 773 et seq., 1801 et

seq., and 3631 et seq.

2. In § 679.20, paragraph (a)(8) is

redesignated as paragraph (a)(9) and

new paragraphs (a)(8) and (c)(6) are

added to read as follows:

§ 679.20 General limitations.

* * * * *

(a) * * *

(8) BSAI Atka mackerel—(i) TAC by

gear. Vessels using jig gear will be

allocated up to 2 percent of the TAC of

Atka mackerel specified for the Eastern

Aleutian Islands District and Bering Sea

subarea, after subtraction of reserves,

based on the criteria specified at

paragraph (a)(8)(ii) of this section. The

remainder of the TAC, after subtraction

of reserves, will be allocated to vessels

using other authorized gear types.

(ii) Annual specification. The

percentage of the Atka mackerel TAC