[Federal Register Volume 89, Number 35 (Wednesday, February 21, 2024)]
[Proposed Rules]
[Pages 13150-13229]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-02108]



[[Page 13149]]

Vol. 89

Wednesday,

No. 35

February 21, 2024

Part II





Department of Agriculture





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Food and Nutrition Service





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





Serious Deficiency Process in the Child and Adult Care Food Program and 
Summer Food Service Program; Proposed Rule

Federal Register / Vol. 89 , No. 35 / Wednesday, February 21, 2024 / 
Proposed Rules

[[Page 13150]]


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DEPARTMENT OF AGRICULTURE

Food and Nutrition Service

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

[FNS-2024-0005]
RIN 0584-AE83


Serious Deficiency Process in the Child and Adult Care Food 
Program and Summer Food Service Program

AGENCY: Food and Nutrition Service (FNS), USDA.

ACTION: Proposed rule.

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SUMMARY: This rulemaking proposes important modifications to make the 
application of serious deficiency procedures in the Child and Adult 
Care Food Program and Summer Food Service Program consistent, 
effective, and in line with current requirements under the Richard B. 
Russell National School Lunch Act. The serious deficiency process 
provides a systematic way for State agencies and sponsoring 
organizations to correct serious management problems, and when that 
effort fails, protect Child Nutrition Program integrity through due 
process. In response to public comments received on a prior rulemaking, 
the Food and Nutrition Service (FNS) proposes improvements to ensure 
that application of the serious deficiency process is fair and fully 
implemented. FNS proposes to add clarity to the serious deficiency 
process by defining key terms, establishing a timeline for full 
correction, and establishing criteria for determining when the serious 
deficiency process must be implemented. This rulemaking will also 
address termination for cause and disqualification, implementation of 
legal requirements for records maintained on individuals on the 
National Disqualified List, and participation of multi-State sponsoring 
organizations.

DATES: Written comments must be received on or before May 21, 2024 to 
be assured of consideration.

ADDRESSES: 
    Federal eRulemaking Portal: Go to https://www.regulations.gov. 
Follow the online instructions for submitting comments.
    Mail: Send comments to: Navneet Kaur Sandhu, Program Integrity and 
Innovation Division, USDA Food and Nutrition Service, 1320 Braddock 
Place, Alexandria, VA 22314.
    All written comments submitted in response to the provisions of 
this proposed rule will be included in the record and will be made 
available to the public. Please be advised that the substance of the 
comments and the identity of the individuals or entities submitting the 
comments will be subject to public disclosure. USDA will make the 
written comments publicly available on the internet via https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Navneet Kaur Sandhu, Program Integrity 
and Innovation Division, USDA Food and Nutrition Service, 703-305-2728, 
<a href="/cdn-cgi/l/email-protection#345a55425a5151401a47555a505c4174414750551a535b42"><span class="__cf_email__" data-cfemail="95fbf4e3fbf0f0e1bbe6f4fbf1fde0d5e0e6f1f4bbf2fae3">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: 

I. Background
II. Section-By-Section Discussion of the Regulatory Provisions
    A. Child and Adult Care Food Program (CACFP)
    1. The CACFP Serious Deficiency Process
    2. Oversight and Implementation of the Serious Deficiency 
Process in Institutions
    3. Oversight and Implementation of the Serious Deficiency 
Process in Day Care Homes and Unaffiliated Sponsored Centers
    B. Summer Food Service Program (SFSP)
    1. Applying the Serious Deficiency Process to SFSP
    2. Oversight and Implementation of the Serious Deficiency 
Process in SFSP
    C. Suspension
    D. Disqualification and the National Disqualified List
    1. Termination for Cause and Disqualification
    2. Reciprocal Disqualification in Child Nutrition Programs
    3. Legal Requirements for Records Maintained on Disqualified 
Individuals
    E. Multi-State Sponsoring Organizations
    F. Summary of Regulatory Provision Proposals
III. Procedural Matters
    A. Executive Orders 12866, 13563 and 14094
    B. Regulatory Flexibility Act
    C. Unfunded Mandates Reform Act
    D. Executive Order 12372
    E. Federalism Summary Impact Statement
    F. Executive Order 12988, Civil Justice Reform
    G. Civil Rights Impact Analysis
    H. Executive Order 13175
    I. Paperwork Reduction Act
    J. E-Government Act Compliance

I. Background

    Integrity is essential to meeting the mission of all Child 
Nutrition Programs. To improve program operations, the Food and 
Nutrition Service (FNS) works in close collaboration with State and 
local partners. In the Child and Adult Care Food Program (CACFP), State 
agencies are responsible for approving and monitoring institutions--
independent child and adult care centers and sponsoring organizations 
of family day care homes and centers--to maintain program integrity and 
ensure compliance with program requirements. State agencies have a 
similar responsibility for oversight of sponsors in the Summer Food 
Service Program (SFSP).
    More than 20 years ago, FNS established a system for protecting 
CACFP against the incidence of mismanagement, abuse, and fraud by 
institutions and facilities participating in the program. The serious 
deficiency process was implemented in response to Federal reviews that 
revealed critical weaknesses in State agency and institution management 
controls over program operations. The reviews uncovered examples of 
regulatory noncompliance by institutions and facilities, including 
improper use of program funds, inadequate financial and administrative 
controls, and documented instances of mismanagement and, in some cases, 
fraud, by program participants.
    These findings raised questions regarding Federal and State 
administration of CACFP that led to increased focus on program 
management and integrity in CACFP. The Agricultural Risk Protection Act 
of 2000, Public Law 106-224, established statutory requirements under 
section 17 of the Richard B. Russell National School Lunch Act (NSLA), 
at 42 U.S.C. 1766(d)(5), for terminating or suspending participating 
institutions and day care home providers. The Grains Standards and 
Warehouse Improvement Act of 2000 and Healthy Hunger-Free Kids Act of 
2010, Public Laws 106-472 and 111-296, respectively, further amended 
those provisions.
    In response to the Federal reviews, FNS published guidance to help 
State agencies implement the statutory requirements relating to a 
serious deficiency determination, corrective action, suspension, 
termination, and disqualification of institutions and responsible 
principals and responsible individuals in CACFP. FNS implemented these 
as requirements through publication of the Child and Adult Care Food 
Program; Implementing Legislative Reforms to Strengthen Program 
Integrity interim rule, 67 FR 43447, June 27, 2002; and Child and Adult 
Care Food Program Improving Management and Integrity final rule, 76 FR 
34542, June 13, 2011. These rulemakings established a serious 
deficiency process at 7 CFR 226.6 and 226.16 that requires a process 
for addressing severe and pervasive problems, with a structured series 
of steps that give CACFP institutions and day care homes the 
opportunity for corrective action and due process.

[[Page 13151]]

    To protect program integrity, these rulemakings implemented 
procedures that would correct problems in a timely manner. That is why 
there are corrective action timeframes for completion of corrective 
action and milestones for monitoring progress towards meeting the 
deadline. The serious deficiency process for CACFP starts when the 
State agency identifies a serious problem and concludes when that 
serious problem is resolved, either through corrective action or by 
termination and disqualification. The regulations identify lists of 
serious deficiencies and describe corrective action, termination, and 
disqualification procedures.
    The current CACFP serious deficiency process at 7 CFR 226.6(c) 
includes procedures to help the State agency document the case to 
terminate and disqualify non-performing CACFP institutions that are 
unwilling to or incapable of resolving their serious deficiencies. The 
process also includes procedures to provide seriously deficient 
institutions the opportunity to appeal the State agency's adverse 
actions and to continue to receive payments of valid claims while they 
receive a fair hearing. CACFP sponsoring organizations implement a 
similar process to correct serious problems of noncompliance in day 
care homes, as described in 7 CFR 226.16(l).
    Until enactment of the Healthy, Hunger-Free Kids Act of 2010 
(HHFKA), there were no corresponding statutory requirements for 
implementing a serious deficiency process for SFSP. However, through 
HHFKA, Congress established requirements relating to the termination of 
participation of service institutions which included maintaining a list 
of disqualified service institutions and individuals. The regulations 
under 7 CFR 225.6(h) specify criteria State agencies must consider when 
approving sites for participation; provide authority for the State 
agency to terminate sponsor participation at 7 CFR 225.11(c); and 
establish procedures for sponsors to appeal adverse actions, including 
termination of a sponsor or site and denial of an application for 
participation, at 7 CFR 225.13. However, SFSP regulations do not 
currently reflect the statutory requirement to disqualify service 
institutions and individuals that are seriously deficient from 
participating in SFSP, or any other Child Nutrition Program, the 
provision for a fair hearing and prompt determination, or placement on 
a list of disqualified institutions and individuals.
    In developing the proposed rule, Child Nutrition Program Integrity, 
81 FR 17563, March 29, 2016, FNS applied existing serious deficiency 
requirements to establish a serious deficiency process for service 
institutions and individuals, i.e., sponsors and sites in SFSP and 
unaffiliated child care centers and unaffiliated adult day care centers 
in CACFP. To strengthen management practices and eliminate gaps that 
put program integrity at risk, FNS proposed amendments that would:
    <bullet> Extend the serious deficiency process to unaffiliated 
centers in CACFP;
    <bullet> Implement a serious deficiency process in SFSP;
    <bullet> Require each SFSP State agency to provide appeal 
procedures to sponsors, annually and upon request;
    <bullet> Specify the types of adverse actions that cannot be 
appealed in SFSP;
    <bullet> Establish a list of disqualified institutions and 
individuals 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;
    <bullet> Require the State agency to deny the application of any 
applicant that has been terminated for cause from any Child Nutrition 
Program or placed on a CACFP or SFSP list of disqualified institutions 
and individuals;
    <bullet> Require the State agency to terminate an agreement 
whenever a program operator's participation ends; and
    <bullet> Require action by the State agency to terminate an 
agreement for cause, through the serious deficiency process or 
placement on list of disqualified institutions and individuals.
    FNS also published a notice, Request for Information: The Serious 
Deficiency Process in the Child and Adult Care Food Program, 84 FR 
22431, May 17, 2019, to gather information to help FNS understand 
firsthand the experiences of State agencies and program operators. An 
analysis of the comments on the proposed rule and responses to the 
notice convinced FNS that important modifications were needed to make 
the application of the serious deficiency process consistent and 
effective, and to ensure it is in line with current statutory 
requirements.
    On August 23rd, 2023, FNS published the Child Nutrition Program 
Integrity final rule, 88 FR 57792, which codifies changes required 
under HHFKA to strengthen administration of Child Nutrition Programs, 
at all levels, through enhanced oversight and enforcement tools. As 
proposed, the Child Nutrition Program Integrity final rule included 
amendments related to serious deficiency and termination procedures in 
SFSP, serious deficiency and termination procedures for unaffiliated 
sponsored centers in CACFP, and reciprocal disqualification of 
applicants terminated for cause and placed on the National Disqualified 
List. However, FNS received comments expressing concern about using the 
CACFP serious deficiency process as a model for establishing procedures 
in other Child Nutrition Programs. The comments suggested that FNS 
further investigate and attempt to address potential inconsistencies in 
implementation of the serious deficiency process among States. 
Ultimately, FNS agreed that further changes from what was proposed in 
the Child Nutrition Program Integrity rule are needed to improve the 
serious deficiency process and ensure its application is fair and fully 
implemented. Instead of finalizing the proposed rule as it related to 
the serious deficiency process, FNS decided to pursue a separate 
rulemaking in order to consider improvements to the serious deficiency 
process before extending serious deficiency, termination, and 
disqualification procedures to SFSP.
    To better serve administering agencies and program operators, this 
proposed rule is intended to make the application of the serious 
deficiency process for CACFP and SFSP consistent, effective and in line 
with current statutory requirements. FNS proposes improvements to 
ensure that the serious deficiency process is fair, equitable, and 
effective. This new rulemaking proposes amendments to CACFP and SFSP 
regulations that are designed to increase program operators' 
accountability and operational efficiency, while improving the ability 
of administering agencies to address severe or repeated violations of 
Federal requirements.
    While minimizing changes to procedures, FNS proposes to add clarity 
to the serious deficiency process by defining key terms, establishing a 
timeline for full correction, and establishing criteria for determining 
when the serious deficiency process must be implemented. This proposed 
rule also addresses agreements that are terminated for cause, 
disqualification from participation in CACFP or SFSP, reciprocal 
disqualification from any Child Nutrition Program, legal requirements 
for records maintained on individuals on the National Disqualified 
List, and participation of multi-State sponsoring organizations.
    This rulemaking also re-examines the concept of good standing in 
light of recent rulemaking. The final rule, Streamlining Program 
Requirements and Improving Integrity in the Summer

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Food Service Program (SFSP), 87 FR 57304, September 19, 2022, 
established that a program operator would be considered in ``good 
standing'' if it were reviewed by the State agency with no major 
program findings or it had completed and implemented all corrective 
actions from the last compliance review. Good standing reflects a 
program operator's status and is considered by State agencies as a 
factor when making decisions around frequency of reviews. Therefore, 
FNS recognized that providing further clarification to determine what 
good standing means across all Child Nutrition Programs would benefit 
State agencies and program operators. This proposed rule would define 
the status of good standing as a program operator that meets its 
program responsibilities, is current with its financial obligations, 
and, if applicable, has fully implemented all corrective actions within 
the required period of time. This would serve as a general definition 
that would apply to all program operators across Child Nutrition 
Programs and would be added to 7 CFR 210.2, 215.2, 220.2, 225.2, and 
226.2.
    FNS also proposes to reorganize the CACFP and SFSP regulations to 
improve readability and reduce duplication of information in the 
serious deficiency process. For CACFP, references to program operations 
that are seriously deficient and corresponding requirements pertaining 
to appeals, suspension of participation, termination of agreements, and 
disqualification are found in multiple sections of existing 
regulations. This proposed rule would move these requirements into a 
new single subchapter under 7 CFR 226.25. The other provisions 
described under 7 CFR part 226, subpart G would be renumbered to 
correspond with this proposed change. FNS also proposes to reorganize 
SFSP regulations by collecting all provisions of the serious deficiency 
process under a single subchapter at 7 CFR 225.18 and renumbering the 
other sections of 7 CFR part 225, subpart D.
    This proposed rule gives the public the opportunity to provide 
comments that will inform the development of a final rule on the 
oversight and implementation of the serious deficiency process in CACFP 
and SFSP. FNS will consider all relevant comments submitted during the 
60-day comment period for this rulemaking. FNS invites the public to 
submit comments on all aspects of this proposed rule, including 
comments in response to specific program changes that are found 
throughout this preamble and alternatives that are suggested for 
certain provisions. FNS also invites comments from administering 
agencies and program operators on the administrative cost of compliance 
and the potential impact on program access of any of the provisions in 
this rulemaking.
    Please select those issues that most concern and affect you, or 
that you best understand, and include examples of how the proposed rule 
would impact you, positively or negatively. Consider what could be done 
to foster incentives for flexibility, consistency, eliminating 
duplication, ensuring compliance, and protecting program integrity. 
Your written comments should be specific to the issues raised in this 
proposed rule and explain the reasons for any changes you recommend or 
proposals you oppose. Where possible, please reference the specific 
section or paragraph of the proposal you are addressing and whether the 
concern is related to either CACFP or SFSP, or both.

II. Section-By-Section Discussion of the Regulatory Provisions

A. Child and Adult Care Food Program (CACFP)

1. The CACFP Serious Deficiency Process
Defining Serious Deficiency
    Underlying the concerns of the serious deficiency process is the 
broader, systemic issue of what constitutes a serious deficiency and 
how State agencies and sponsoring organizations should utilize the 
serious deficiency process as an effective tool in managing program 
operations. Public comments that FNS has received in response to 
previous rulemakings and informal feedback from CACFP professionals and 
advocates consistently point out that the lack of defined terminology 
confuses program administrators and contributes to errors in responding 
to serious management problems. Before extending the serious deficiency 
process to unaffiliated centers or establishing a process for SFSP, 
these stakeholders asked FNS to define terms in 7 CFR 226.2 that align 
with the statutory structure and are consistent across CACFP and SFSP.
    As explained in the Child and Adult Care Food Program; Implementing 
Legislative Reforms to Strengthen Program Integrity interim rule, prior 
to 2002, the term ``serious deficiency'' was used to describe program 
performance at two very different stages of an oversight process. In 
the first instance, an institution failing to perform under the terms 
of its agreement was notified by its State agency that it was seriously 
deficient in its operation of CACFP and was given an opportunity to 
take corrective action. Later, if the institution failed to take 
corrective action during the specified time, its agreement was 
terminated by the State agency and the institution was placed on a list 
of seriously deficient institutions. The use of the same term in both 
instances, as stakeholders pointed out, caused confusion for State 
agencies and institutions.
    The concept of serious deficiency changed when the first interim 
rule addressing management improvement and oversight, Child and Adult 
Care Food Program; Implementing Legislative Reforms to Strengthen 
Program Integrity, 67 FR 43447, June 27, 2002, was published. This 
interim rule amended 7 CFR 226.2 to define seriously deficient as ``the 
status of an institution or a day care home that has been determined to 
be non-compliant in one or more aspects of its operation of the 
program.'' Serious deficiency is a larger concept in that it reflects 
the situation before the opportunity for corrective action or the right 
to appeal is exercised by an institution. In the interim rule preamble, 
FNS attempted to explain this concept, emphasizing that the serious 
deficiency process should refer to every action that happens after a 
serious deficiency is declared, beginning with the determination of the 
finding, and ending with full and permanent resolution or 
disqualification.
    Although current CACFP regulations define ``seriously deficient,'' 
other terms that affect implementation of the current serious 
deficiency process are not clearly defined. For example, there is no 
corresponding definition of ``serious deficiency'' under 7 CFR 226.2. 
The regulations do not clearly define standards for determining the 
severity of a problem identified as a finding and when that finding 
rises to the level of a serious deficiency. The regulations are also 
ambiguous with regard to differentiating between occasional 
administrative errors and systemic management problems. Some terms have 
multiple connotations--for example, administrative review may mean a 
fair hearing or it may mean an evaluation of program operations--while 
other terms, such as good standing, are vague or subjective. As public 
comments and stakeholder feedback have revealed, these gaps have long 
been of concern to the CACFP community.
    Under this proposed rule, the findings that trigger the serious 
deficiency

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process would be defined as serious management problems, which are 
currently known as serious deficiencies. This term appears in section 
17 of the NSLA, at 42 U.S.C. 1766(d), which requires State agencies to 
conduct more frequent reviews of any institution that has serious 
management problems or is at risk of having serious management 
problems. The proposed definition characterizes a serious management 
problem as the type of administrative weakness that affects an 
institution's ability to meet CACFP performance standards--financial 
viability, administrative capability, and program accountability--or 
that affects the quality of meals served or the integrity of a claim 
for reimbursement in a day care home or center. For example, a 
sponsoring organization that operates a variety of community programs 
may be at risk of serious management problems if it has limited 
staffing to support program operations or is devoting too small of a 
share of administrative resources to CACFP. More frequent monitoring by 
the State agency and sponsoring organization would help improve CACFP 
operations by identifying and addressing these weaknesses. However, if 
these measures are not effective, the State agency would have to apply 
the serious deficiency process to require the sponsoring organization 
to take specific corrective actions to protect program integrity.
    FNS proposes that the serious deficiency process provide program 
operators with the opportunity to correct serious management problems 
through a corrective action plan. Institutions would develop corrective 
action plans to identify the steps they will take to correct serious 
management problems, or serious deficiencies as they are known under 
the current process.
    Prior to 2011, serious deficiencies were ``rescinded'' when an 
institution's corrective action plan was approved. Unfortunately, 
rescinding the serious deficiency that early in the process often 
resulted in later reviews that demonstrated the serious deficiency had 
not been corrected, or that the corrective action left institutions 
vulnerable to other serious deficiencies. As a result, FNS changed the 
process to temporarily defer a finding of serious deficiency. In 
current regulations at 7 CFR 226.6(c)(1)(iii)(B), (c)(2)(iii)(B), and 
(c)(3)(iii)(B), the State agency is required to temporarily defer the 
institution's serious deficiency. However, under this process, 
institutions were never able to have their serious deficiency status 
removed, even after years of reviews with no additional findings. 
Through this rulemaking, changing the serious deficiency determination 
to occur at the point of termination aligns the regulations with 
statute at section 17 of the NSLA, at 42 U.S.C. 1766(a), which asserts 
that an institution that has been seriously deficient in operating any 
Child Nutrition Program cannot be eligible to participate in CACFP.
    Terms under the current serious deficiency process have led to 
confusion. The term ``fully and permanently corrected'' lacks clarity, 
particularly in cases where the same findings reoccur and the program 
operator's agreement is proposed to be terminated. The term 
``permanent'' is contradictory as it assumes that the same findings 
cannot arise again, regardless of the amount of time that has passed 
since the initial findings. The term ``temporarily deferred'' is 
confusing and the existing process does not establish limits on the 
duration of the deferment after corrective actions have taken place. 
Instead, this proposed rule would create a path to full correction 
within a defined period of time. When achieved, the serious management 
problem would be vacated, not deferred. If the same finding occurs 
after full correction is achieved, it will not lead directly to 
proposed termination.
    FNS recognizes that clearly defined terminology is essential to 
fully understand and correctly implement the serious deficiency 
process. FNS proposes to amend 7 CFR 226.2 to clarify existing terms, 
remove terms that are confusing, and add definitions to terms that had 
not previously been defined in the regulations. This proposed rule 
includes the following list of terms that relate to proposed 
modifications to the serious deficiency process described in this 
rulemaking:
    <bullet<ls-thn-eq> Contingency plan means the State agency's 
written process for the transfer of sponsored centers and day care 
homes that will help ensure that program meals for children and adult 
participants will continue to be available without interruption if a 
sponsoring organization's agreement is terminated.
    <bullet<ls-thn-eq> Corrective action means implementation of a 
solution, written in a corrective action plan, to address the root 
cause and prevent the recurrence of a serious management problem.
    <bullet<ls-thn-eq> Disqualified means the status of an institution, 
facility, responsible principal, or responsible individual who is 
ineligible for participation in the program.
    <bullet<ls-thn-eq> Fair hearing means due process provided upon 
request to:
    [cir] An institution that has been given notice by the State agency 
of an action that will affect participation or reimbursement under the 
program;
    [cir] A principal or individual responsible for an institution's 
serious management problem and issued a notice of proposed termination 
and proposed disqualification from program participation; or
    [cir] An individual responsible for a day care home or unaffiliated 
center's serious management problem and issued a notice of proposed 
disqualification from program participation.
    <bullet<ls-thn-eq> Finding means a violation of a regulatory 
requirement identified during a review.
    <bullet<ls-thn-eq> Fiscal action means the recovery of an 
overpayment or claim for reimbursement that is not properly payable 
through direct assessment of future claims, offset of future claims, 
disallowance of overclaims, submission of a revised claim for 
reimbursement, or disallowance of funds for failure to take corrective 
action to meet program requirements.
    <bullet<ls-thn-eq> Full correction means the status achieved after 
a corrective action plan is accepted and approved, all corrective 
actions are fully implemented, and no new or repeat serious management 
problem is identified in subsequent reviews, as described in proposed 
Sec.  226.25(c).
    <bullet<ls-thn-eq> Good standing means the status of a program 
operator that meets its program responsibilities, is current with its 
financial obligations, and if applicable, has fully implemented all 
corrective actions within the required period of time.
    <bullet<ls-thn-eq> Hearing official means an individual who is 
responsible for conducting an impartial and fair hearing--as requested 
by an institution, responsible principal, or responsible individual 
responding to a proposal for termination--and rendering a decision.
    <bullet<ls-thn-eq> Lack of business integrity means the conviction 
or concealment of a conviction for fraud, antitrust violations, 
embezzlement, theft, forgery, bribery, falsification or destruction of 
records, making false statements, receiving stolen property, making 
false claims, or obstruction of justice.
    <bullet<ls-thn-eq> Legal basis means the lawful authority 
established in statute or regulation.
    <bullet<ls-thn-eq> National Disqualified List (NDL) means a system 
of records, maintained by the Department, of institutions, responsible 
principals, and responsible individuals disqualified from participation 
in the program.
    <bullet<ls-thn-eq> Notice means a letter sent by certified mail, 
return receipt (or the equivalent private delivery service), by

[[Page 13154]]

facsimile, or by email, that describes an action proposed or taken by a 
State agency or FNS with regard to an institution's program 
reimbursement or participation. Notice also means a letter sent by 
certified mail, return receipt (or the equivalent private delivery 
service), by facsimile, or by email, that describes an action proposed 
or taken by a sponsoring organization with regard to a day care home or 
unaffiliated center's participation.
    <bullet<ls-thn-eq> Program operator means any entity that 
participates in one or more Child Nutrition Programs.
    <bullet<ls-thn-eq> Responsible individual means any individual 
employed by, or under contract with an institution or facility, or any 
other individual, including uncompensated individuals, who the State 
agency or FNS determines to be responsible for an institution or 
facility's serious management problem.
    <bullet<ls-thn-eq> Responsible principal means any principal, as 
described in this section, who the State agency or FNS determined to be 
responsible for an institution's serious management problem.
    <bullet<ls-thn-eq> Review cycle means the frequency and number of 
required reviews of institutions and facilities.
    <bullet<ls-thn-eq> Serious management problem means the finding(s) 
that relates to an institution's inability to meet the program's 
performance standards or that affects the integrity of a claim for 
reimbursement or the quality of meals served in a day care home or 
center.
    <bullet<ls-thn-eq> Seriously deficient means the status of an 
institution or facility after it is determined that full corrective 
action will not be achieved and termination for cause is the only 
appropriate course of action.
    <bullet<ls-thn-eq> State agency list means an actual paper or 
electronic list, or the retrievable paper records, maintained by the 
State agency, that includes information on institutions and day care 
home providers or unaffiliated centers through the serious deficiency 
process in that State. The list must be made available to FNS upon 
request and must include information specified in proposed Sec.  
226.25(b).
    <bullet<ls-thn-eq> Termination for cause means the termination of a 
program agreement due to considerations related to an institution or a 
facility's performance of program responsibilities under the agreement 
between:
    [cir] A State agency and the independent center,
    [cir] A State agency and the sponsoring organization,
    [cir] A sponsoring organization and the unaffiliated center, or
    [cir] A sponsoring organization and the day care home.
    Accordingly, this proposed rule would define additional terms under 
7 CFR 226.2 by defining contingency plan, corrective action, fair 
hearing, finding, fiscal action, full correction, good standing, 
hearing official, lack of business integrity, legal basis, responsible 
individual, responsible principal, review cycle, and serious management 
problem. Definitions of disqualified, National Disqualified List, 
notice, seriously deficient, State agency list, and termination for 
cause that are currently listed under 7 CFR 226.2 would be amended. 
Definitions of administrative review, administrative review official, 
and the combined term, ``responsible principal or responsible 
individual'' would be removed from 7 CFR 226.2.
Current Requirements of the CACFP Serious Deficiency Process
    Historically, the CACFP serious deficiency process established a 
systematic way for an administering agency--a State agency or 
sponsoring organization--to correct problems and protect program 
integrity. Serious deficiency, termination, and disqualification 
procedures already exist for institutions, day care homes, responsible 
principals, and responsible individuals in CACFP under section 17 of 
the NSLA, 42 U.S.C. 1766(d)(5), and codified in regulations at 7 CFR 
226.6(c), 226.6(k), 226.6(l), and 226.16(l).
    These procedures give institutions and day care homes the 
opportunity for corrective action and due process. They are also 
designed to help administering agencies (State agencies and sponsoring 
organizations) document the case to terminate and remove from CACFP any 
program operator that is unwilling or incapable of resolving serious 
deficiencies that place program integrity at risk. Current CACFP 
regulations allow only two possible outcomes of the serious deficiency 
process, either the correction of the serious deficiency to the 
administering agency's satisfaction within stated timeframes, or the 
administering agency's proposed termination of the agreement and 
disqualification of the program operator and its responsible principals 
and responsible individuals. However, even when the serious deficiency 
is corrected, it is still only temporarily deferred.
    Current Sec. Sec.  226.6(c) and 226.16(l) describe steps that start 
when the administering agency identifies a serious deficiency and end 
when that finding of serious deficiency has been resolved, either 
through corrective action or termination and disqualification. FNS has 
provided guidance for administering agencies on the serious deficiency 
process, including steps in the Serious Deficiency, Suspension, and 
Appeals for State Agencies and Sponsoring Organizations handbook. These 
steps include that the administering agency:
    1. Identify a finding that rises to the level of serious 
deficiency. There are several factors to consider in deciding that a 
program finding is a serious deficiency, including the severity of the 
problem, the degree of responsibility attributable to the program 
operator, the program operator's past performance and training, the 
nature of the requirements that relate to the problem, and the degree 
to which the problem impacts program integrity.
    2. Issue a notice of a serious deficiency. A formal notice must 
provide information to the program operator, responsible principals, 
and responsible individuals that explains all of the cited findings, 
describes the actions required to fully and permanently correct the 
serious deficiencies, and provide a definite and appropriate time limit 
for the corrective action to be implemented.
    3. Receive and assess a written corrective action plan. The program 
operator must submit a corrective action plan that describes what 
actions and management controls have been implemented to address each 
serious deficiency. The administering agency must evaluate the plan to 
determine that actions taken to correct each serious deficiency are 
adequate and that management controls are in place to ensure that the 
serious deficiencies are fully and permanently corrected.
    4. Issue a notice of temporary deferral of the serious deficiency 
or a notice of proposed termination and disqualification. If the 
program operator submits a corrective action plan that satisfactorily 
corrects the serious deficiencies within the allotted period of time, 
the serious deficiency determination is temporarily deferred. The 
administering agency issues a notice to advise the responsible 
principals and or responsible individuals that the corrective action is 
successful and the serious deficiency determination is temporarily 
deferred. If it is later, at any time, determined that the serious 
deficiency has recurred, the administering agency must immediately 
issue a new notice of proposed termination and disqualification. If no 
corrective action plan is submitted or if the corrective action is not 
permanent or not adequate, the administering agency

[[Page 13155]]

issues a notice of proposed termination for cause and disqualification 
with appeal rights and procedures.
    5. Provide an appeal of the proposed termination and 
disqualification if requested by the program operator. An institution 
and its responsible principals and responsible individuals may request 
an in person hearing or an administrative review of documents to 
determine whether the State agency's actions comply with program 
requirements. A day care home also has the right to appeal a proposed 
termination through an administrative review of documents. The day care 
home may review the record on which the termination decision was based 
and refute the action in writing. The administrative review official is 
not required to hold a hearing.
    6. Issue a notice of final termination and disqualification or a 
notice of temporary deferral. On the date when the time for requesting 
an appeal expires or the administrative review official upholds the 
proposed termination and disqualification, the administering agency 
immediately terminates the program operator's agreement, disqualifies 
the program operator and its responsible principals and responsible 
individuals, and adds their names to the National Disqualified List. If 
the administrative review official vacates the proposed termination, 
the administering agency issues a notice to withdraw the serious 
deficiency determination and temporarily defer the proposed 
termination.
    Once on the National Disqualified List, an institution, day care 
home, responsible principal, or responsible individual is ineligible to 
participate in CACFP in any State as an institution, a facility under a 
sponsoring organization, or as part of a different institution or 
facility. FNS believes it is critical to the effectiveness of the 
serious deficiency process that these procedures are consistently 
applied when an institution or provider is declared seriously 
deficient. For example, if the serious deficiency process is not 
completed, an individual who was found responsible for the serious 
deficiency in one institution might simply re-incorporate under a new 
name and be admitted to participate in CACFP in another State.
    Public comments on prior rulemaking have disclosed that 
implementation may vary widely. Respondents described weaknesses in 
existing regulations that created a process that they perceived to be 
unreasonable, ineffective, and punitive. This perception undermines the 
goal of the serious deficiency process to strengthen program compliance 
and integrity. FNS agrees that improvements to the serious deficiency 
process are needed to ensure its application is fair and fully 
implemented. To better serve State agencies and program operators, FNS 
is proposing modifications that will make the application of the 
serious deficiency process more consistent and more effective.
Proposed Changes to the CACFP Serious Deficiency Process
    As noted earlier, FNS has carefully examined the serious deficiency 
process and the lessons learned through policy development and 
operational experience, to understand how to address and correct 
serious management problems in the CACFP. FNS's understanding is that 
the steps described above have been useful for administering agencies 
dealing with serious failure to perform, and not just for the worst 
examples of potential fraud. This proposed rule would maintain the 
steps that have been proven effective--basic procedures guiding 
administering agencies in identifying serious management problems, 
requiring corrective action, providing appeals, continuing payments of 
valid claims until the appeals are resolved, and taking actions on 
termination and disqualification. However, based on that examination, 
several key changes are proposed in this rule.
    Currently, the administering agency identifies a serious deficiency 
violation, which is defined in regulation. For new institutions, 
current Sec.  226.6(c)(1)(ii) provide that serious deficiencies include 
the submission of false information and concealment of a conviction 
during the past 7 years that indicates a lack of business integrity. 
Examples are provided in current regulation for offenses that indicate 
a lack of business integrity, with discretion allowed for the State to 
determine other offenses that may indicate a lack of business integrity 
or any other action affecting the institution's ability to administer 
the program in accordance with program requirements.
    Under this proposed rule, a program finding identified during a 
review will no longer be considered a serious deficiency, but a serious 
management problem, if certain standards are met. This is a change in 
the terminology used to describe the process of identifying problems 
that needs correction. While FNS issued a CACFP handbook, Serious 
Deficiency, Suspension, and Appeals for State Agencies and Sponsoring 
Organizations, in February 2015, which recommends a framework to guide 
decision making, the current regulations are unclear about what 
standards apply to distinguish between errors and more serious 
findings.
    Under this proposed rule, FNS is proposing to codify the criteria 
found in the CACFP handbook, Serious Deficiency, Suspension, and 
Appeals for State Agencies and Sponsoring Organizations, that the State 
agency must consider when determining whether a program violation is a 
serious management problem. This rulemaking also proposes several 
questions to assist the administering agency. In addition to inviting 
comments on this proposed rule in general, FNS specifically welcomes 
public comments on the following five criteria:
    1. The severity of the problem. Is the noncompliance on a minor or 
substantial scale? Are the findings indicative of a systemic problem, 
or is the problem truly an isolated event? There is a point at which 
continued problems indicate serious mismanagement. Problems that 
initially appear manageable may become serious if not corrected within 
a reasonable period of time. Even minor problems may be serious if 
systemic. Some problems are serious even though they have occurred only 
once. For example, missing the recording of meal counts at the point of 
service for one day out of a month could be resolved with technical 
assistance. However, a second review with the same problem or an 
initial review with multiple days of incomplete point-of-service meal 
counts could rise to the level of a serious management problem.
    2. The degree of responsibility attributable to the program 
operator. To the extent that evidence is available, can the 
administering agency determine whether the findings were inadvertent 
errors of an otherwise responsible institution or facility? Is there 
evidence of negligence or a conscious indifference to regulatory 
requirements or is there evidence of deception?
    3. The program operator's history of participation and training in 
CACFP. Is this the first time the institution, day care home or 
unaffiliated center is having problems or has noncompliance occurred 
frequently at the same institution or facility?
    4. The nature of the requirements that relate to the problem. Are 
the program operator's actions a clear violation of CACFP requirements? 
Has the program operator implemented new policies correctly?
    5. The degree to which the problem impacts program integrity. Is 
the finding undermining the intent or purpose of the CACFP, such as 
misuse of program

[[Page 13156]]

funds, or is it simply an administrative error?
    Current Sec. Sec.  226.6(c)(3)(iii)(A) and 226.16(l)(3)(i) require 
the administering agency to issue a notice of the serious deficiency 
identified. The program operator must submit a corrective action plan 
to resolve the serious deficiency. Under this proposed rule, the 
administering agency would declare the program operator to be seriously 
deficient at the point of termination. A notice of proposed serious 
deficiency and proposed termination would be issued after the program 
operator has been provided an opportunity to correct serious management 
problems through a corrective action plan. If corrective action is not 
submitted, not approved, or not implemented, the administering agency 
would move to propose termination, with the opportunity to request a 
fair hearing. If the termination is upheld, the agreement is terminated 
for cause and the program operator is declared seriously deficient.
    Current Sec. Sec.  226.6(c)(3)(iii)(B) and 226.16(l)(3)(i)(B) 
require the corrective action plan to detail the program operator's 
response to the notice of serious deficiency. The program operator must 
submit a written plan that describes the internal controls that are 
being implemented to ensure that the serious deficiency is fully and 
permanently corrected. Under this proposed rule, the corrective action 
plan must address the root causes, i.e., the underlying, true causes, 
of the serious management problem. By doing so, the corrective action 
plan should support elimination of the underlying challenges 
experienced by the program operator for long term program improvement. 
The program operator would be required to submit a written plan that 
describes the actions to be taken to correct the root causes of the 
identified problem, expected period of time for the corrective action 
to be put into place, and interim milestones for reaching 
implementation that would lead to full correction.
    Under current Sec.  226.6(c)(3)(iii)(C), a notice of proposed 
termination and disqualification specifies the same set of outcomes for 
all types of institutions--the institution is terminated for cause, 
disqualified, and placed on the National Disqualified List. FNS is 
considering alternatives for institutions that are school food 
authorities, including an option that would require termination of the 
program agreement allowing participation in CACFP, but would not 
subject the school food authority to disqualification and placement on 
the National Disqualified List. In the discussion of reciprocal 
disqualification in Child Nutrition Programs, under section II-D-3 of 
this preamble, FNS requests specific input on this proposal to 
implement an alternative to disqualification for program operators that 
are school food authorities. Public comments on this alternative will 
be critical as FNS develops the final rule.
    Under current Sec.  226.6(c)(1), if an applying institution does 
not meet all of the application requirements, the State agency must 
deny the application and initiate action through the serious deficiency 
process, which could lead to the disqualification of the new 
institution, the person who signs the application, and any other 
responsible principal or responsible individual. However, FNS 
recognizes that the intent of the serious deficiency process is to 
address program performance under a legally binding agreement. Under 
this rulemaking, at proposed Sec.  226.6(c), a separate process--not 
the serious deficiency process--would provide applicants the 
opportunity to correct the application and request due process if the 
application is denied.
    While current Sec.  226.2 includes a combined term of ``responsible 
principal or responsible individual,'' this proposed rule would set out 
separate definitions. Each State agency determines which people are 
responsible for a program operator's serious management problem. In 
most cases, State agencies designate the executive director, director, 
and board chair as the positions that would represent the institution 
or sponsor and be held responsible for any serious management problem. 
For a for-profit organization, it would include the owner. For a public 
agency, a responsible principal might also include a supervisor or 
department head. FNS proposes to require any principals who fill 
positions that the State agency designates as responsible to certify 
their role as a responsible principal, as described in the definition.
    Under current Sec. Sec.  226.6(c)(3)(iii)(B)(1)(i) and 
226.16(l)(3)(ii), if a corrective action plan is approved and 
implemented, the program operator's serious deficiency is temporarily 
deferred and the serious deficiency is considered fully and permanently 
corrected. If the same finding reoccurs at any time in the future, the 
serious deficiency process resumes and may lead to termination. Under 
this proposed rule, if the corrective action plan is approved and 
implemented within a defined period of time, the administering agency 
will provide increased oversight and conduct more frequent reviews, as 
described in proposed Sec. Sec.  226.6(k)(2) and 226.16(d)(4)(iv) and 
(v). Corrective action would no longer be described as permanent. 
Instead, FNS proposes that the serious deficiency process provide 
program operators with the opportunity to correct serious management 
problems through a corrective action plan, which would occur within a 
defined period of time and result in full correction. When achieved, 
the serious management problem would be vacated, not deferred.
    Temporary deferment would no longer be applicable, because this 
rulemaking proposes a path to full correction and changes the point at 
which a program operator is declared seriously deficient to occur at 
the point of termination. If the same serious management problem occurs 
after the time period under which full correction is achieved, it would 
not lead directly to proposed termination. ``Full correction'' would 
describe the status achieved after a corrective action plan is accepted 
and approved, all corrective actions are fully implemented, and no new 
or repeat serious management problems are identified in at least two 
full reviews occurring once every 2 years. Additionally, institutions 
would only achieve ``full correction'' if the first and last full 
review is at least 24 months apart and all review, including follow up 
reviews, in between the first and last full review reveal no new or 
repeat serious management problems.
    Under proposed Sec.  226.25(c)(3)(i), institutions may achieve full 
correction after at least two full reviews occurring in separate review 
cycles--with the first and last full review at least 24 months apart 
reveal no new or repeat serious management problems. A ``review cycle'' 
refers to the frequency and number of required reviews of institutions 
and facilities. The Child Nutrition Program Integrity Final Rule 
amended current Sec.  226.6(m) to require State agencies to review 
program operators with serious management problems at least once every 
2 years. FNS analyzed a large sample of serious deficiency notices and 
determined that most repeat serious deficiencies occurred within a 2-
year period, with many repeat serious deficiencies reoccurring within 
just a matter of months. As a result, this rulemaking proposes a 
standard of ``two full reviews, occurring once every 2 years and at 
least 24 months apart'' for an institution to achieve full correction. 
FNS welcomes public comments on this standard.
    To understand how the defined period of time for full correction of 
serious management problems would be determined, consider an example: a 
State agency cites a sponsoring

[[Page 13157]]

organization for a serious management problem in June 2020. The 
sponsoring organization is now subject to reviews at least once every 2 
years. Subsequent full reviews took place in May 2021 and May 2023. 
Neither reviews revealed new or repeat serious management problems. The 
sponsoring organization achieved full correction in May 2023. The 
serious management problems are ``fully corrected'' if subsequent 
reviews result in no new or repeat serious management problems over a 
minimum of two full reviews occurring at least once every 2 years and 
with the first and last full review taking place at least 24 months 
apart. The State agency has discretion to conduct reviews more 
frequently and, in these cases, all reviews must result in no new or 
repeat serious management findings in order for the sponsoring 
organization to achieve full correction.
    A second example: A State agency reviews a sponsoring organization 
in June 2020 and identifies a serious management problem. The 
sponsoring organization submits a corrective action plan that is 
approved by the State agency and the sponsoring organization enters a 
2-year review cycle. The State agency does a follow up review in August 
2020 to ensure the corrective action plan has been implemented. The 
State agency determines that the corrective action plan has been fully 
implemented. The State agency conducts the first full review in July 
2021 and no new or repeat serious management problems are identified. 
The sponsoring organization is reviewed again in April 2022 and again, 
no new or repeat serious management problems are identified. Because 24 
months have not passed (July 2021 and August 2022) between the first 
and last full review, the serious management problems are not 
considered fully corrected. The sponsoring organization receives a full 
review again in December 2023 and again, no new or repeat serious 
management problems are identified. At that point, full correction is 
achieved, i.e., all the reviews revealed no new or repeat serious 
management problems and at least 24 months passed between the first and 
last full reviews.
    Current Sec. Sec.  226.6(c)(3)(iii)(B)(3) and 226.16(l)(3)(ii) 
establish that repeat serious deficiencies may lead directly to 
proposed termination. If it were discovered that the program operator's 
corrective action was not adhered to and the serious deficiency was 
repeated, the administering agency could resume the serious deficiency 
process by immediately issuing a notice of proposed termination and 
disqualification. Under this proposed rule, a serious management 
problem that occurs again, after full correction is achieved, would not 
be considered a repeat serious management problem and would not 
directly result in proposed termination. However, the recurrence of a 
serious management problem during the time before full correction is 
achieved would lead directly to proposed termination. If new serious 
management problems occur before an institution achieves full 
correction of its initial serious management problem, the institution 
would continue to be reviewed once every 2 years until at least two 
full reviews occurring at least 24 months apart reveal no new or repeat 
serious management problems.
    For another example, consider that a State agency reviews an 
independent center in April 2021 and identifies a serious management 
problem. The independent center submits a corrective action plan that 
is approved by the State agency and the State agency does a follow up 
review in July 2021 to ensure the corrective action plan has been 
implemented. The State agency returns to conduct a full review in 
January 2023 and no new or repeat serious management problems are 
identified. The State agency conducts a second full review of the 
independent center in February 2025, the same serious management 
problem reoccurs. Because full correction was not achieved, this 
serious management problem is considered repeat. The State agency would 
propose to terminate the independent center. At this point, the 
independent center would have a right to a fair hearing.
    Current regulations do not define good standing. Under the 
definition of ``good standing'' in this proposed rule, the proposed 
serious deficiency process in CACFP would impact an institution's good 
standing status. In the proposed serious deficiency process, 
identification of a serious management problem would move an 
institution out of good standing. An institution would need to fully 
implement all corrective actions and fully pay any debts owed to the 
program to return to good standing. Until these criteria are met, the 
institution would remain out of good standing. This proposed standard 
ensures that the institution is complying with requirements of the 
serious deficiency process and is working towards achieving full 
correction of its serious management problem. FNS welcomes public 
comments on this proposed standard of good standing in the serious 
deficiency process.
    For example, let's say, a review in May 2022 of a sponsoring 
organization reveals a serious management problem that results in an 
overclaim. At this point, the sponsoring organization would not be in 
good standing. In June 2022, the State agency conducts a follow up 
review and determines that the corrective actions are fully implemented 
and the unearned reimbursement is fully repaid. At this point, at the 
State agency's discretion, the sponsoring organization returns to good 
standing. However, the serious management problem is not yet considered 
fully corrected.
2. Oversight and Implementation of the Serious Deficiency Process in 
Institutions
    State agencies are responsible for oversight of institutions--i.e., 
sponsoring organizations, independent child care centers, and 
independent adult day care centers that enter into agreements with the 
State agency to participate in CACFP. FNS is proposing to modify the 
serious deficiency process to improve State agency oversight efforts. 
FNS proposes to codify standards to help State agencies distinguish 
occasional administrative errors from systemic management problems, 
determine that corrective action plans are adequate, put in place a 
fair hearing process that is accessible and fair, and prepare well-
written notices of actions throughout the course of the serious 
deficiency process.
    Current program regulations describe serious deficiency 
notification procedures for participating institutions, responsible 
principals, and responsible individuals at 7 CFR 226.6(c)(3)(iii). This 
section includes requirements for the notice of serious deficiency at 7 
CFR 226.6(c)(3)(iii)(A). Corrective action is described in 7 CFR 
226.6(c)(3)(iii)(B) and (c)(4). Administrative review procedures for 
the provision of a fair hearing are found at 7 CFR 226.6(k). 
Termination is at 7 CFR 226.6(c)(3)(iii)(C) and (E) and (c)(4). 
Disqualification and placement on the National Disqualified List are at 
7 CFR 226.6(c)(iii)(E) and (c)(7). FNS proposes to move these 
requirements from subpart C, State Agency Provisions, to a new 
subchapter addressing administrative actions under subpart G at 7 CFR 
226.25.
    This rulemaking proposes to codify standards, under proposed Sec.  
226.25(a)(3), to help State agencies distinguish occasional 
administrative errors from systemic management problems. These 
standards would guide the State agency's efforts in identifying 
systemic errors that reflect an institution's inability to effectively 
manage the program as required under

[[Page 13158]]

the regulations. The State agency would have to consider:
    <bullet> The severity of the problem;
    <bullet> The degree of responsibility attributable to the 
institution;
    <bullet> The institution's history of CACFP participation and 
training;
    <bullet> The nature of the requirements that relate to the problem; 
and
    <bullet> The degree to which the problem impacts program integrity.
    An institution would no longer be in good standing if the State 
agency determines that a finding rises to the level of a serious 
management problem. Information about the institution and its 
responsible principals and responsible individuals would be added to 
the State agency list, which State agencies are required to maintain 
and update through each step of the serious deficiency process. 
Requirements for the State agency list in current Sec.  226.6(c)(8) 
would move to proposed Sec.  226.25(b). Maintenance of this list allows 
the State agency to track the institution's progress towards resolving 
each serious management problem.
    If the State agency determines that a program finding rises to the 
level of a serious management problem, the State agency would issue a 
written notice that is easy to understand, documenting each finding 
that must be addressed and corrected. The notice requirements in 
current Sec.  226.6(c)(3)(iii)(A) would move to proposed Sec.  
226.25(a)(6)(i). The State agency would send the notice to the 
institution, the management officials who bear responsibility for the 
poor performance, and other responsible individuals, including 
nonsupervisory employees, contractors, and unpaid staff who have been 
directly involved in causing the serious management problem. A well-
written notice will: provide a detailed explanation of each serious 
management problem; list appropriate regulatory citations to support 
the notice; identify the responsible principals and responsible 
individuals; provide a clear description of the actions required in 
order to correct the serious management problem; and provide a definite 
and appropriate time limit for the corrective action.
    The assessment of corrective action in current Sec.  
226.6(c)(3)(iii)(B) would move to proposed Sec.  226.25(c). This 
proposed rule would require the institution to take corrective action 
to address the root cause of each finding. At proposed Sec.  
226.25(c)(1), this rulemaking outlines the information that would guide 
the institution's development of a corrective action plan that 
demonstrates that the noncompliance is resolved. The State agency's 
approval of the corrective action plan would include a review of the 
institution's responses to these questions:
    <bullet> What is the serious management problem and the action 
taken to address it?
    <bullet> Who addressed the serious management problem?
    <bullet> When was the action taken to address the serious 
management problem?
    <bullet> Where is documentation of the corrective action plan 
filed?
    <bullet> How were staff and providers informed of the new policies 
and procedures?
    The timelines for corrective action, at proposed Sec.  
226.25(c)(2), with an emphasis on correcting problems quickly, remain 
unchanged from the requirements at current Sec.  226.6(c)(4). 
Corrective action must be taken within reasonable timeframes 
established in the current regulations that ensure that each serious 
management problem is quickly addressed and corrected. The timeframe 
must fit the type of serious management problem found. The allotted 
time begins on the date the institution receives the notice--up to 30 
days for a false claim or unlawful practice, up to 90 days for 
correction of other problems, and more than 90 days for management 
system or process changes, if the State agency determines that a longer 
time frame is needed. Although the institution may take corrective 
action at any point in the serious deficiency process, the State agency 
would issue a notice of proposed termination if any of the deadlines 
described in proposed Sec.  226.25(c)(2)(ii) through (iv) are not met.
    State agencies would have to prioritize monitoring resources to 
conduct more frequent reviews of institutions with serious management 
problems. FNS has recently published a final rule, Child Nutrition 
Program Integrity, 88 FR 57792, August 23, 2023, that requires State 
agencies to schedule reviews at least once every 2 years of 
institutions that have had serious management problems in previous 
reviews or are at risk of having serious management problems. This 
rulemaking would move this requirement from current Sec.  226.6(m) to 
proposed Sec.  226.6(k).
    Current Sec.  226.6(c)(3)(iii)(B)(1) requires the State agency to 
establish that corrective action is permanent. Proposed Sec.  
226.25(c)(3)(i) would take a different approach to the determination of 
full correction. This proposed rule would create a path to full 
correction for institutions with serious management problems if at 
least two full reviews, occurring once every 2 years and the first and 
last full review occurring at least 24 months apart demonstrate that 
the institution has the ability to operate CACFP with no new or repeat 
serious management problems. Once the State agency approves a 
corrective action plan, the institution must receive full reviews at 
least two times and at least once every 2 years before full correction 
is achieved.
    If corrective actions are fully implemented, the State agency would 
issue a notice to advise the institution, responsible principals, and 
responsible individuals of successful corrective action. The notice 
requirements in current Sec.  226.6(c)(3)(iii)(B) would move to 
proposed Sec.  226.25(a)(6)(ii). The State agency would continue to 
provide oversight to ensure that the corrective actions to correct the 
serious management problem remain in place. If corrective action is 
complete for the institution but not for all the responsible principals 
and responsible individuals or vice versa, proposed Sec.  
226.25(a)(6)(ii)(A)(2) addresses partial achievement of corrective 
action.
    If corrective action is not submitted, approved or implemented, the 
State agency proposes to terminate the institution. Current Sec.  
226.6(k) describes administrative review procedures for the provision 
of a fair hearing. Termination is described in current Sec.  
226.6(c)(3)(iii)(C) and (E) and (c)(4) and disqualification and 
placement on the National Disqualified List are described in current 
sections 7 CFR 226.6(c)(3)(iii)(E) and (c)(6). This rulemaking 
describes procedures the State agency should follow for fair hearings 
at proposed Sec.  226.25(g), termination for cause at proposed Sec.  
226.25(d)(1), notice of serious deficiency status at proposed Sec.  
226.25(a)(6)(iii)(B), and placement on the National Disqualified List 
at proposed Sec.  226.25(e)(2)(i).
    Current Sec.  226.6(k) addresses due process. In this rulemaking, 
proposed Sec.  226.25(g) describes the institution's right to a fair 
hearing, parameters for conducting a fair hearing, and guidance on the 
role of the hearing official and the decision-making. The purpose of 
the fair hearing is limited to a determination by the hearing official 
that the State agency has complied with CACFP requirements in taking 
the actions that are under appeal. It is not to determine whether to 
uphold duly promulgated Federal and State program requirements.
    State agencies must provide a fair hearing to institutions when 
they take actions affecting an institution's participation or its claim 
for reimbursement, such as application denial, claim denial, 
overpayment

[[Page 13159]]

demands. During the serious deficiency process, the State agency's 
issuance of a notice of proposed termination is the only action that is 
subject to administrative review. Although FNS proposes to replace the 
term ``administrative review'' with the term ``fair hearing,'' and move 
the requirements from current Sec.  226.6(k)(5) to proposed Sec.  
226.25(g)(2), the provision of due process remains unchanged, which is:
    <bullet> The State agency must give notice of the proposed 
termination and procedures for requesting a fair hearing to the 
institution, its executive director, board chair, owner, any other 
responsible principals and responsible individuals.
    <bullet> The State agency's notice must specify the basis for 
proposing termination and the procedures under which the institution, 
responsible principals, or responsible individuals may request a fair 
hearing.
    <bullet> The appellant must submit a written request for a fair 
hearing within 15 calendar days of receipt of State agency's notice of 
proposed termination. If the State agency's fair hearing procedures 
direct the appellant to send the request to the hearing official, then 
the procedures must identify which office will be responsible for 
acknowledging the appellant's request.
    <bullet> The State agency must acknowledge receipt of the fair 
hearing request within 10 calendar days of receiving it.
    <bullet> If a fair hearing is requested, the State agency must 
continue to pay any valid claims for reimbursement of eligible meals 
served and allowable administrative expenses incurred until the hearing 
official issues a decision.
    <bullet> Any information upon which the State agency based the 
proposed termination must be available to the appellants for inspection 
from the date of receipt of the hearing request.
    <bullet> Appellants may contest the proposed termination in person 
or by submitting written documentation to the hearing official.
    <bullet> Appellants may represent themselves, retain legal counsel, 
or be represented by another person.
    <bullet> All documentation must be submitted prior to the beginning 
of the hearing. All parties, including the State agency, must submit 
written documentation to the hearing official within 30 calendar days 
of receipt of the notice of proposed termination.
    <bullet> Hearing officials must be independent and impartial. Even 
if they are employees of the State agency, hearing officials cannot be 
involved in the action that is the subject of the fair hearing, cannot 
occupy any position which would potentially subject to them to undue 
influence from other State employees who are responsible for the State 
agency's action, or have any direct personal or financial interest in 
the outcome of the fair hearing.
    <bullet> Hearing officials must issue decisions within 60 calendar 
days of the State agency's receipt of the appellants' hearing request, 
based solely on the information provided by the parties. 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 fair hearing process.
    <bullet> The hearing official's decision is the final 
administrative decision. Appellants may not administratively contest 
the hearing official's decision.
    If the appellant prevails, the State agency would issue a notice 
that confirms that the proposed termination of the institution, 
responsible principals, and responsible individuals is vacated, as 
described in proposed Sec.  226.25(a)(6)(iii)(A). However, the 
institution would still have to implement procedures and policies to 
fully correct the serious management problem.
    If the hearing official upholds the State agency's proposed 
termination action, the State agency would immediately notify the 
institution, executive director, owner, board chair, and any other 
responsible principals and responsible individuals that the 
institution's agreement is terminated, as described in proposed Sec.  
226.25(a)(6)(iii)(B). It is at this point in the process that this 
rulemaking proposes to declare the institution seriously deficient. The 
State agency would issue a serious deficiency notice that informs the 
institution, responsible principals, and responsible individuals of 
their disqualification from CACFP participation. Termination of the 
agreement and disqualification described in current Sec.  
226.6(c)(3)(iii)(E) would move to proposed Sec.  226.25(d) and proposed 
Sec.  226.25(e), respectively. The State agency would provide a copy of 
the serious deficiency notice to FNS, with the mailing address and date 
of birth for each responsible principal and responsible individual, and 
the full amount of any determined debt associated with the institution, 
responsible principals, and responsible individuals, for inclusion on 
the National Disqualified List. Requirements at current Sec.  
226.6(c)(6) describing placement on the National Disqualified List 
would move to proposed Sec.  226.25(e)(2).
    Proposed Sec.  226.25(h) addresses the State agency's 
responsibilities for the payment of valid claims found in current Sec.  
226.6(c)(5)(i)(D); collection of unearned payments found in current 
Sec.  226.14(a); suspension of payments found in current Sec.  
226.6(c)(5)(ii)(E); and State liability for payments found in current 
Sec.  226.6(h)(11). Requirements from current Sec.  226.6(c)(iii)(6) 
for State agency action in response to the independent determination of 
a serious management problem by FNS would move to proposed Sec.  
226.25(i).
    Accordingly, this proposed rule would amend CACFP regulations by 
removing the requirements describing termination of a participating 
institution's agreement, including serious deficiency notification 
procedures, successful corrective action, agreement termination, 
corrective action timeframes, administrative review, and State agency 
list, under 7 CFR 226.6(c) and (k). This rulemaking proposes to address 
all requirements for State agency oversight and implementation of the 
serious deficiency process in institutions under 7 CFR 226.25. 
Corresponding amendments are proposed at 7 CFR 226.2, 226.6(b)(1) and 
(2), 226.6(c), (k), and (m)(3), and 226.16(l).
3. Oversight and Implementation of the Serious Deficiency Process in 
Day Care Homes and Unaffiliated Sponsored Centers
    Sponsoring organizations enter into agreements with day care homes, 
unaffiliated child care centers, and unaffiliated adult day care 
centers to oversee their participation and meal service operations. The 
sponsoring organization is financially responsible for any meals served 
incorrectly or served to ineligible children and adults, making it even 
more important that serious management problems are properly identified 
and corrected.
    The serious deficiency process offers a clear way for sponsoring 
organizations to take actions guiding day care homes and unaffiliated 
centers to correct problems that affect the integrity of their meal 
service operations. It gives day care homes and centers the opportunity 
for improvement, technical assistance, and due process. For sponsoring 
organizations, it is a critical tool for resolving performance issues 
and correcting serious management problems at the operational level.
    Current program regulations describe serious deficiency 
notification procedures for participating day care homes at 7 CFR 
226.16(l)(3). This section includes requirements for the notice of 
serious deficiency at 7 CFR

[[Page 13160]]

226.16(l)(3)(i). Corrective action is described in 7 CFR 
226.16(l)(3)(ii). Administrative review procedures for the provision of 
a fair hearing are found at 7 CFR 226.6(l). Termination and 
disqualification are described at 7 CFR 226.16(l)(3)(iii) and (v). FNS 
proposes to move these requirements of the serious deficiency process 
for day care homes to a new subchapter addressing administrative 
actions under subpart G at 7 CFR 226.25. This proposed rule would also 
require sponsoring organizations to follow these procedures to 
implement the serious deficiency process for unaffiliated centers.
    Under this proposed rule, many of the sponsoring organization 
responsibilities and actions would be identical to the provisions 
outlined for State agencies. However, FNS is proposing key changes to 
not only recognize CACFP requirements that are simplified for day care 
homes, but also to distinguish between the center that participates 
directly under the State agency and the center that elects to 
participate through a sponsoring organization.
    Part of a strong and sustained effort to ensure program integrity 
is the enhanced oversight that sponsoring organizations provide day 
care homes and unaffiliated centers. For example, while the State 
agency is generally required to conduct onsite reviews at least once 
every 2 or 3 years, depending on the size and circumstances of the 
institution being reviewed, a sponsoring organization will have 
conducted a minimum of six to nine reviews of each of its day care 
homes and unaffiliated centers during the same time period. The serious 
deficiency process that FNS proposes for day care homes and 
unaffiliated centers takes into account the additional monitoring, 
training, and technical assistance that sponsoring organizations must 
provide.
    This rulemaking proposes to codify standards, under proposed Sec.  
226.25(a)(3), to help sponsoring organizations distinguish occasional 
administrative errors from systemic management problems. The sponsoring 
organization would have to consider:
    <bullet> The severity of the problem;
    <bullet> The degree of responsibility attributable to the day care 
home or unaffiliated center;
    <bullet> The day care home or unaffiliated center's history of 
CACFP participation and training;
    <bullet> The nature of the requirements that relate to the problem; 
and
    <bullet> The degree to which the problem impacts program integrity.
    Whenever a sponsoring organization identifies a serious management 
problem, the day care home or unaffiliated center can no longer be 
considered to be in good standing. The sponsoring organization must 
provide information to the State agency to keep the State agency list 
updated through each step of the serious deficiency process. Current 
Sec.  226.6(c)(7) requires the State agency list to include information 
about institutions and day care homes that are seriously deficient. 
This proposed rule would expand the list to include information on any 
unaffiliated center that has a serious management problem, as described 
in proposed Sec.  226.25(b).
    Current Sec.  226.16(l)(3)(i) addressing the notice of serious 
deficiency would move to proposed Sec.  226.25(a)(7)(i). If the 
sponsoring organization determines that a program finding rises to the 
level of a serious management problem, the sponsoring organization 
would issue a notice documenting, in plain language, each serious 
management problem that must be corrected. The sponsoring organization 
would issue the notice to the day care home provider, center director, 
and any other responsible principals or responsible individuals who 
have been directly involved in causing the serious management problem. 
A well-written notice will: provide a detailed explanation of each 
serious management problem; list appropriate regulatory citations to 
support the notice; identify the responsible principals and responsible 
individuals; provide a clear description of the actions required in 
order to correct the serious management problem; and provide a definite 
time limit for the corrective action.
    Corrective action described in current Sec.  226.16(l)(3)(ii) would 
move to proposed Sec.  226.25(c). Day care homes and unaffiliated 
centers would be required to take corrective action to address each 
serious management problem. The day care home or unaffiliated center 
would submit a written corrective action plan for the sponsoring 
organization to approve. The corrective action plan would have to 
address the root cause of each finding, with enough detail explaining 
the implementation--i.e., what, how, when, and by whom--for the 
sponsoring organization to make an assessment regarding its 
effectiveness in fully correcting the serious management problem. It 
would also describe where the documentation of changes will be filed.
    The emphasis of the timeline for corrective action is on correcting 
problems quickly, as described in current Sec.  226.16(l)(3)(i)(C). 
Under proposed Sec.  226.25(c)(2)(i), day care homes and unaffiliated 
centers would have up to 30 days to take corrective action that, in the 
sponsoring organization's judgment, will correct the serious management 
problem. Although corrective action may occur at any point in the 
serious deficiency process, the sponsoring organization would issue a 
notice of serious deficiency if the 30-day deadline is not met.
    If the corrective action plan is accepted, the sponsoring 
organization would confirm that the corrective actions are fully 
implemented. Current Sec.  226.16(l)(3)(ii) temporarily defers a 
determination of serious deficiency if the sponsoring organization 
establishes that corrective action is successful. This proposed rule 
would create a path to full correction if follow-up reviews, as 
described in current Sec.  226.16(d)(4)(v), demonstrate that the day 
care home or unaffiliated center has the ability to operate CACFP with 
no new or repeat serious management problems. The day care home or 
unaffiliated center would be reviewed at the same frequency as existing 
regulations require, as described in current Sec.  226.16(d)(4)(iii). 
Full correction is achieved when, after three consecutive reviews are 
complete, the day care home or unaffiliated center demonstrates that it 
has no new or repeat serious management problems, as described in 
proposed Sec.  226.25(c)(3)(ii) and (iii). After full correction is 
achieved, any recurrence of the same serious management problem would 
require the sponsoring organization to issue a new notice to restart 
the serious deficiency process. Serious management problems that occur 
after full correction is achieved would not lead to an immediate 
proposal of termination. However, as described in proposed Sec.  
226.25(c)(3)(iv), the recurrence of a serious management problem before 
full correction is achieved would lead directly to proposed 
termination.
    Successful corrective action is described in current Sec.  
226.16(l)(3)(ii). If corrective actions are fully implemented, the 
sponsoring organization would issue a notice of successful corrective 
action to the day care home, unaffiliated center, responsible 
principals, and responsible individuals of, as described in proposed 
Sec.  226.25(a)(7)(ii)(A). The sponsoring organization would continue 
to provide oversight to ensure that the procedures and policies to 
fully correct the serious management problem are implemented.
    Current Sec.  226.16(l)(3)(iii) and (v) address the sponsoring 
organization's actions when full and permanent correction is not 
achieved. If the corrective action plan is not accepted or a repeat 
serious management problem occurs before full correction is achieved,

[[Page 13161]]

this proposed rule describes the procedures the sponsoring organization 
would follow for fair hearings at proposed Sec.  226.25(g)(1)(ii) and 
(g)(2), termination for cause and notification of serious deficiency 
status at proposed Sec.  226.25(a)(7)(iii), and placement on the 
National Disqualified List at proposed Sec.  226.25(e)(2).
    The sponsoring organization would issue a proposed termination 
notice, and a fair hearing would be offered. If a fair hearing is 
requested and the fair hearing upholds the proposal to terminate or the 
time frame for requesting a fair hearing has passed, the sponsoring 
organization would issue a notice of serious deficiency and 
termination. If the fair hearing vacates the proposed termination, the 
sponsoring organization would issue a notice to vacate the proposed 
termination as described in proposed Sec.  226.26(c)(7)(iii)(A). 
However, the day care home or unaffiliated center must still implement 
procedures and policies to fully correct the serious management 
problem.
    As described in current Sec.  226.6(l)(1), the State agency will 
continue to have authority to decide whether a fair hearing will be 
heard by the state or by the sponsoring organization. As described in 
proposed Sec.  226.25(g)(3), hearing officials, whether retained by the 
state or the sponsoring organization, must be independent, impartial, 
and have no involvement in the action that is the subject of the fair 
hearing. Their decisions must be based on a review of written 
submissions by all parties. They are not required to hold an in-person 
hearing for day care homes or unaffiliated centers.
    If the hearing official upholds the proposed termination, the 
sponsoring organization would immediately notify the day care home 
provider, center director, owner, board chair, and any other 
responsible principals and responsible individuals that the agreement 
is terminated, as described in proposed Sec.  226.25(c)(7)(iii)(B). 
This would also be the point in the process when the day care home or 
unaffiliated center would be declared seriously deficient. The 
sponsoring organization would issue a serious deficiency notice that 
informs the day care home, unaffiliated center, responsible principals, 
and responsible individuals of their disqualification from CACFP 
participation.
    The sponsoring organization would provide a copy of the serious 
deficiency notice to the State agency, with the mailing address and 
date of birth for each responsible principal and responsible 
individual, and the full amount of any determined debt associated with 
the day care home or unaffiliated center. The State agency would 
continue to update the State agency list and provide this information 
to FNS for inclusion on the National Disqualified List.
    Accordingly, this proposed rule would amend CACFP regulations by 
removing the requirements describing the termination of agreements for 
cause, including serious deficiency notification procedures, under 7 
CFR 226.16(l). This rulemaking would address all requirements for 
sponsoring organization oversight and implementation of the serious 
deficiency process in day care homes and unaffiliated centers under 7 
CFR 226.25.

B. Summer Food Service Program (SFSP)

1. Applying the Serious Deficiency Process to SFSP
    Section 13 of the NSLA, at 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 must also maintain a disqualification list 
for State agencies to use in approving or renewing sponsor 
applications.
    Prior to enactment of the Healthy Hunger-Free Kids Act of 2010, 
SFSP regulations included provisions addressing corrective action, 
termination, and appeals. Current SFSP regulations specify:
    <bullet> Criteria State agencies must consider when approving sites 
for participation; provide authority for the State agency to terminate 
sponsor participation, as described in 7 CFR 225.6(h);
    <bullet> List the types of program findings that would be grounds 
for application denial or termination, as described in 7 CFR 225.11(c);
    <bullet> Require State agencies to terminate participation of sites 
or sponsors for failure to correct program findings within timeframes 
specified in a corrective action plan as described in 7 CFR 225.11(f); 
and
    <bullet> Set out procedures for sponsors to appeal adverse actions, 
including termination of a sponsor or site and denial of an application 
for participation, as described in 7 CFR 225.13.
    However, the regulations do not provide explicit authority to FNS 
or State agencies to disqualify sponsors or any of the people who are 
responsible for the types of findings that weaken program management 
and integrity. Under the Healthy Hunger-Free Kids Act of 2010, Congress 
established requirements related to service institutions that were 
terminated, including maintaining a list of disqualified service 
institutions and individuals. To implement those requirements, in this 
proposed rule, specific steps are provided to establish a serious 
deficiency process in SFSP, building on the proposals outlined in the 
previous sections of this preamble. This rulemaking also proposes 
expansion of the National Disqualified List, establishment of State 
agency lists, and changes to termination and appeal procedures that 
would hold sponsors, responsible principals, and responsible 
individuals accountable for serious management problems in SFSP. These 
modifications are set out in the regulatory text section of this 
rulemaking in proposed Sec.  225.18.
    In applying the serious deficiency process to SFSP, this rulemaking 
would expand the list of defined terms under 7 CFR 225.2. This 
rulemaking proposes definitions of the following terms that relate to 
important aspects of program management and the serious deficiency 
process:
    <bullet<ls-thn-eq> Contingency plan means the State agency's 
written process for the transfer of sponsored site service area that 
will help ensure that Program meals for children will continue to be 
available without interruption if a sponsor's agreement is terminated.
    <bullet<ls-thn-eq> Corrective action means implementation of a 
solution, written in a corrective action plan, to address the root 
cause and prevent the recurrence of a serious management problem.
    <bullet<ls-thn-eq> Disqualified means the status of a sponsor, 
responsible principal, or responsible individual who is ineligible for 
participation in the program.
    <bullet<ls-thn-eq> Fair hearing means due process provided upon 
request to:
    [cir] A sponsor that has been given notice by the State agency of 
an action that will affect participation or reimbursement under the 
program;
    [cir] A principal or individual responsible for a sponsor's serious 
management problems and issued a notice of proposed termination and 
proposed disqualification from Program participation; or
    [cir] A sponsor that has been given notice of proposed termination.
    <bullet<ls-thn-eq> Finding means a violation of a regulatory 
requirement identified during a review.

[[Page 13162]]

    <bullet<ls-thn-eq> Fiscal action means the recovery of an 
overpayment or claim for reimbursement that is not properly payable 
through direct assessment of future claims, offset of future claims, 
disallowance of overclaims, submission of a revised claim for 
reimbursement, disallowance of funds for failure to take corrective 
action to meet program requirements.
    <bullet<ls-thn-eq> Full correction means the status achieved after 
a corrective action plan is accepted and approved, all corrective 
actions are fully implemented, and no new or repeat serious management 
problems are identified in subsequent reviews, as described in proposed 
Sec.  225.18(c)(3).
    <bullet<ls-thn-eq> Good standing means the status of a program 
operator that meets its program responsibilities, is current with its 
financial obligations, and, if applicable, has fully implemented all 
corrective actions within the required period of time.
    <bullet<ls-thn-eq> Hearing official means an individual who is 
responsible for conducting an impartial and fair hearing--as requested 
by a sponsor, responsible principal, or responsible individual 
responding to a proposal for termination--and rendering a decision.
    <bullet<ls-thn-eq> Lack of business integrity means the conviction 
or concealment of a conviction for fraud, antitrust violations, 
embezzlement, theft, forgery, bribery, falsification or destruction of 
records, making false statements, receiving stolen property, making 
false claims, obstruction of justice.
    <bullet<ls-thn-eq> Legal basis means the lawful authority 
established in statute or regulation.
    <bullet<ls-thn-eq> National Disqualified List (NDL) means a system 
of records, maintained by the Department, of sponsors, responsible 
principals, and responsible individuals disqualified from participation 
in the program.
    <bullet<ls-thn-eq> Notice means a letter sent by certified mail, 
return receipt (or the equivalent private delivery service), by 
facsimile, or by email, that describes an action proposed or taken by a 
State agency or FNS with regard to a sponsor's program reimbursement or 
participation.
    <bullet<ls-thn-eq> Principal means any individual who holds a 
management position within, or is an officer of, a sponsor or a 
sponsored site, including all members of the sponsor's board of 
directors or the sponsored site's board of directors.
    <bullet<ls-thn-eq> Program operator means any entity that 
participates in one or more child nutrition programs.
    <bullet<ls-thn-eq> Responsible individual means any individual 
employed by, or under contract with a sponsor or an individual, 
including uncompensated individuals, who the State agency or FNS 
determines to be responsible for a sponsor's serious management 
problems.
    <bullet<ls-thn-eq> Responsible principal means any principal, as 
described in this section, who the State agency or FNS determines to be 
responsible for a sponsor's serious management problems.
    <bullet<ls-thn-eq> Review cycle means the frequency and number of 
required reviews of sponsors and sites.
    <bullet<ls-thn-eq> Serious management problem means the finding(s) 
that relate to a sponsor's inability to meet the program's performance 
standards or that affect the integrity of a claim for reimbursement or 
the quality of meals served at a site.
    <bullet<ls-thn-eq> Seriously deficient means the status of a 
sponsor after it is determined that full correction has not been 
achieved and termination for cause is the only appropriate course of 
action.
    <bullet<ls-thn-eq> State agency list means an actual paper or 
electronic list, or the retrievable paper records, maintained by the 
State agency, that includes information on sponsors through the serious 
deficiency process in that State. The list must be made available to 
FNS upon request and must include information specified in proposed 
Sec.  225.18(b).
    <bullet<ls-thn-eq> Termination for cause means the termination of a 
Program agreement due to considerations related to a sponsor's 
performance of Program responsibilities under the agreement between the 
State agency and sponsor.
    Accordingly, this proposed rule would amend 7 CFR 226.2 by adding 
definitions for contingency plan, corrective action, disqualified, fair 
hearing, finding, fiscal action, full correction, good standing, 
hearing official, lack of business integrity, legal basis, National 
Disqualified List, notice, principal, program operator, responsible 
individual, responsible principal, review cycle, serious management 
problem, seriously deficient, State agency list, and termination for 
cause.
2. Oversight and Implementation of the Serious Deficiency Process in 
SFSP
    Sponsors that enter into agreements with the State agency to 
operate SFSP must be able to assume responsibility for the entire 
administration of the program at all their meal service sites. They are 
required to demonstrate that they have the necessary financial and 
administrative capability to comply with SFSP requirements. If a 
sponsor is unable to properly manage the program, the serious 
deficiency process provides a clear way for the State agency to 
identify and correct serious management problems and improve integrity 
of meal service operations at the local level.
    Although SFSP and CACFP are autonomous programs with unique 
operational requirements, they are often administered by the same State 
agency. To facilitate consistent and equitable application of the 
serious deficiency process, within and across States, FNS proposes a 
set of procedures for SFSP that is similar to the modifications this 
rulemaking proposes to make in CACFP.
    As in CACFP, the intent of the serious deficiency process for SFSP 
is to offer a systematic way for an administering agency to correct 
problems and protect program integrity. The process would include 
procedures to identify serious management problems--what 7 CFR part 225 
refers to as significant operational problems--and provide 
opportunities for corrective action and due process. The steps of the 
serious deficiency process would also be designed to help the State 
agency document the case to terminate and remove any sponsor that is 
unwilling to or incapable of resolving serious management problems that 
place program integrity at risk.
    This proposed rule would reorganize existing regulations into a new 
subchapter at 7 CFR 225.18, amend termination procedures, and establish 
a disqualification process similar to the process employed in CACFP, 
with modifications reflecting the shorter duration of meal service 
operations in SFSP. For example, the proposed maximum timeframe for 
which the corrective action plan may be implemented in SFSP would be up 
to 10 calendar days, whereas in CACFP the maximum timeframe could be up 
to 90 calendar days for institutions.
    To examine how State agencies can minimize risk to SFSP integrity, 
this rulemaking proposes to codify standards under proposed Sec.  
225.18(a) to help State agencies distinguish occasional administrative 
errors from systemic management problems. These standards would guide 
the State agency's efforts in identifying systemic errors that reflect 
sponsor's inability to effectively manage the program as required under 
the regulations. The State agency would have to consider the following 
criteria, which FNS welcomes public comments on:
    1. The severity of the problem. Is the noncompliance on a minor or 
substantial scale? Are the findings indicative of a systemic problem or 
is the problem truly an isolated event? There is a point at which 
continued problems indicate serious

[[Page 13163]]

mismanagement. Problems that initially appear manageable may become 
serious if not corrected within a reasonable period of time. Even minor 
problems may be serious if systemic. Some problems are serious even 
though they have occurred only once. For example, missing the recording 
of meal counts at the point of service for one day out of a month could 
be resolved with technical assistance. However, a second review with 
the same problem or an initial review with multiple days of incomplete 
point-of-service meal counts could rise to the level of a serious 
management problem.
    2. The degree of responsibility attributable to the sponsor. To the 
extent that evidence is available, can the State agency determine 
whether the findings were inadvertent errors? Is there evidence of 
negligence or a conscious indifference to regulatory requirements, or 
even worse, is there evidence of deception?
    3. The sponsor's history of participation and training in SFSP. Is 
this the first time the sponsor is having problems or has noncompliance 
occurred frequently?
    4. The nature of the requirements that relate to the problem. Are 
the sponsor's actions a clear violation of SFSP requirements? Has the 
sponsor implemented new policies correctly?
    5. The degree to which the problem impacts program integrity. Is 
the finding undermining program intent or purpose, such as misuse of 
program funds, or is it simply an administrative error?
    When the State agency identifies a serious management problem, the 
sponsor can no longer be in good standing. At proposed Sec.  225.18(b), 
this proposed rule would require the State agency to maintain a State 
agency list to track each sponsor's progress towards resolving each 
serious management problem. The State agency would add information 
about the sponsor and its responsible principals and responsible 
individuals to the list and keep the list updated through each step of 
the serious deficiency process.
    If the State agency determines that a finding rises to the level of 
a serious management problem, the State agency would issue a notice 
documenting in plain language each problem that must be addressed and 
corrected, as described under proposed Sec.  225.18(a)(6)(i). The State 
agency would send the notice to the sponsor, the management officials 
who bear responsibility for the poor performance, and other responsible 
principals and individuals, including nonsupervisory employees, 
contractors, and unpaid staff who have been directly involved in 
causing the serious management problem. A well-written notice will: 
provide a detailed explanation of each serious management problem; list 
appropriate regulatory citations to support the notice; identify the 
responsible principals and responsible individuals; provide a clear 
description of the actions required in order to fully correct the 
serious management problem; and provide a definite and appropriate time 
limit for the corrective action.
    At proposed Sec.  225.18(c)(1), this proposed rule outlines the 
information that would guide the sponsor's development of a corrective 
action plan that would address the root cause of each finding, while 
also demonstrating that the noncompliance is resolved. The State 
agency's approval of the corrective action plan would include a review 
of the sponsor's responses to these questions:
    <bullet> What is the serious management problem and the action 
taken to address it?
    <bullet> Who addressed the serious management problem?
    <bullet> When was the action taken to address the serious 
management problem?
    <bullet> Where is documentation of the corrective action plan 
filed?
    <bullet> How were the sponsor's staff informed of the new policies 
and procedures?
    The section on assessing corrective action at proposed Sec.  
225.18(c)(2), requires a short timeline to ensure that problems are 
corrected quickly, particularly given SFSP's brief period of operation. 
If corrective action cannot be achieved, the regulations describe 
procedures the State agency should follow for fair hearings, 
termination for cause, notices of serious deficiency status, and 
placement on the National Disqualified List. Although corrective action 
may occur at any point in the serious deficiency process, the State 
agency would issue a notice of proposed termination if the deadline 
described in proposed paragraph (c)(2) is not met.
    If corrective action is fully implemented, the State agency would 
issue a notice to advise the sponsor, responsible principals, and 
responsible individuals of successful corrective action, as described 
in proposed Sec.  225.18(a)(6)(ii)(A). The State agency would continue 
to provide oversight to ensure that the procedures and policies the 
sponsor implemented to fully correct the serious management problem are 
still in place. If corrective action is complete for some but not all 
of the serious management problems, proposed Sec.  
225.18(a)(6)(ii)(A)(2) addresses partial achievement of corrective 
action. If corrective actions are not implemented, this rulemaking 
describes procedures the State agency should follow for fair hearings 
in proposed Sec.  225.18(f), notice of serious deficiency status in 
proposed Sec.  225.18(a)(6)(iii)(B), termination for cause in proposed 
Sec.  225.18(d), and placement on the National Disqualified List in 
proposed Sec.  225.18(e)(2).
    This proposed rule would create a path to full correction if at 
least two full reviews, occurring once every year--with the first and 
last full review occurring at least 12 months apart--demonstrate that 
the sponsor has the ability to operate SFSP with no new or repeat 
serious management problems. Additionally, all reviews in between the 
first and last full review, including follow up reviews, would need to 
demonstrate that the sponsor has no new or repeat serious management 
problems. As described under proposed Sec.  225.18(c)(3), once the 
State agency approves a corrective action plan, the sponsor must be 
reviewed at least two times, at least once every year, before full 
correction is achieved. Current Sec.  225.7(e)(4)(ii) requires the 
State agency to annually review every sponsor that has experienced 
significant operational problems in the prior year. This proposed rule 
would make a corresponding change to replace the term ``significant 
operational problem'' with the term ``serious management problem.'' 
Serious management problems would be considered fully corrected if two 
consecutive reviews--one full review each year for 2 years and at least 
12 months apart--indicate no new serious management problems or no 
repeat of a serious management problem. FNS welcomes public comments on 
this standard.
    For example, let's say a State agency reviews a sponsor in June 
2022 and identifies a serious management problem. The sponsor submits a 
corrective action plan that is approved by the State agency and sponsor 
enters a once every year review cycle. The State agency does a follow 
up review in August of 2022 to ensure that actions are fully 
implemented. The State agency determines that the corrective action 
plan has been fully implemented and all debts owed to the program are 
fully repaid. At this point the sponsor returns to good standing. The 
State agency conducts a full review in June of 2023 and again in June 
of 2024. All reviews reveal no new or repeat serious management 
problems and the first and last full review are at least 12 months 
apart. At this point, the sponsor's serious management problem is

[[Page 13164]]

considered fully corrected and the sponsor has achieved full 
correction.
    Under proposed Sec.  225.18(c)(3)(iv), a serious management problem 
that occurs again, after full correction is achieved, would not be 
considered a repeat serious management problem and would not directly 
result in proposed termination. However, the recurrence of a serious 
management problem before full correction is achieved would be 
considered repeat and would lead directly to proposed termination. If 
new serious management problems occur before a sponsor achieves full 
correction of its serious management problems, the sponsor would 
continue to be reviewed at least once every year until at least two 
full reviews--with the first and last review occurring at least 12 
months apart--reveal no new or repeat serious management problems.
    State agencies must provide appeal rights when they take actions 
affecting a sponsor or site's participation, claim for reimbursement, 
request for advance payments, or registration of a food service 
management company, as described in current Sec.  225.13(a). Appeal 
procedures, which are described in current Sec.  225.13(b), would be 
replaced by the fair hearing procedures of the serious deficiency 
process, at proposed Sec.  225.18(f). This section describes the 
sponsor's right to a fair hearing, parameters for conducting a fair 
hearing, and guidance on the role of the hearing official and the 
decision-making.
    The purpose of the fair hearing is limited to a determination by 
the hearing official that the State agency has complied with SFSP 
requirements in taking the actions that are under appeal. As with 
CACFP, it is not to determine whether to uphold duly promulgated 
Federal and State program requirements. FNS welcomes comments on the 
following points at issue. As described in proposed Sec.  225.18(f), 
this rulemaking proposes the following set of actions:
    <bullet> The State agency must give notice of the proposed 
termination and procedures for requesting a fair hearing to the 
sponsor, its executive director, board chair, and any other responsible 
principals and responsible individuals.
    <bullet> The State agency's notice must specify the basis for 
proposing termination and the procedures under which the sponsor, 
responsible principals, or responsible individuals may request a fair 
hearing.
    <bullet> The appellant must submit a written request for a fair 
hearing within 10 calendar days after receipt of the State agency's 
notice of proposed termination. If the State agency's fair hearing 
procedures direct the appellant to send the request to the hearing 
official, then the procedures must identify which office will be 
responsible for acknowledging the appellant's request.
    <bullet> The State agency must acknowledge receipt of the fair 
hearing request within 5 calendar days of receiving it.
    <bullet> If a fair hearing is requested, the State agency must 
continue to pay any valid claims for reimbursement of eligible meals 
served until the hearing official issues a decision.
    <bullet> Any information upon which the State agency based the 
proposed termination must be available to the appellants for inspection 
from the date of receipt of the hearing request.
    <bullet> Appellants may contest the proposed termination in person 
or by submitting written documentation to the hearing official.
    <bullet> Appellants may represent themselves, retain legal counsel, 
or be represented by another person.
    <bullet> All documentation must be submitted prior to the beginning 
of the hearing. All parties, including the State agency, must submit 
written documentation to the hearing official within 20 calendar days 
after sponsor's receipt of the notice of proposed termination.
    <bullet> Hearing officials must be independent and impartial. Even 
if they are employees of the State agency, hearing officials cannot be 
involved in the action that is the subject of the fair hearing, cannot 
occupy any position which would potentially subject to them to undue 
influence from other State employees who are responsible for the State 
agency's action, or have any direct personal or financial interest in 
the outcome of the fair hearing.
    <bullet> Hearing officials must issue decisions within 30 calendar 
days of the State agency's receipt of the appellants' hearing request, 
based solely on the information provided by the parties. 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 fair hearing process.
    <bullet> The hearing official's administrative decision is final. 
Appellants may not administratively contest the hearing official's 
decision.
    If the appellant prevails, the State agency would issue a notice 
that confirms the proposed termination of the sponsor, responsible 
principals, and responsible individuals is vacated, as described in 
proposed Sec.  225.18(a)(6)(iii)(A). However, the sponsor would still 
have to implement procedures and policies to fully correct the serious 
management problem.
    If the hearing official upholds the State agency's proposed 
termination action, the State agency would immediately notify the 
sponsor, executive director, board chair, and any other responsible 
principals and responsible individuals that the sponsor's agreement is 
terminated, as described in proposed Sec.  225.18(a)(6)(iii)(B). As 
with CACFP, it is at this point in the process that this rulemaking 
proposes to declare the sponsor seriously deficient. The State agency 
would issue a serious deficiency notice that informs the sponsor, 
responsible principals, and responsible individuals of their 
disqualification from SFSP participation. This proposed rule describes 
termination of the agreement at proposed Sec.  225.18(d) and 
disqualification at proposed Sec.  225.18(e).
    The State agency would provide a copy of the serious deficiency 
notice to FNS, with the mailing address and date of birth for each 
responsible principal and responsible individual, and the full amount 
of any determined debt associated with the sponsor, responsible 
principals, and responsible individuals, for inclusion on the National 
Disqualified List. Requirements at proposed Sec.  226.25(e)(2) describe 
placement on the National Disqualified List. Extension of the National 
Disqualified List to SFSP would make a list of disqualified sponsors 
and individuals available to State agencies to use in approving or 
renewing sponsor applications.
    Proposed Sec.  225.18(g) addresses the State agency's 
responsibilities for the payment of valid claims and the collection of 
unearned payments. Requirements for State agency action in response to 
the independent determination of a serious management problem by FNS is 
described in proposed Sec.  225.18(h).
    Accordingly, this proposed rule would establish a serious 
deficiency process to address serious management problems in SFSP. This 
rulemaking would address State agency oversight and implementation of 
the serious deficiency process under 7 CFR 225.18. Corresponding 
amendments are proposed at 7 CFR 225.2, 225.6(b)(9), 225.11(c), and 
225.13.

C. Suspension

    Section 17 of the NSLA, at 42 U.S.C. 1766(d)(5), recognizes that 
there are circumstances that may require the immediate suspension of 
program operations, where continued participation in CACFP is 
inappropriate because health, safety, or program

[[Page 13165]]

integrity are at risk. Current Sec. Sec.  226.6(c)(5)(i) and 
226.16(l)(4) describe a set of actions that an administering agency 
must implement if a program operator's participation poses an imminent 
threat to the health or safety of children, adult participants, or the 
public. Under current Sec.  226.6(c)(5)(ii), the regulations outline 
administrative procedures when a State agency determines a false or 
fraudulent claim is submitted. There is no corresponding statute or 
regulations for suspension of participation in SFSP.
     Suspension requirements would move to proposed Sec.  226.25(f). 
FNS does not propose any procedural changes for administering agencies 
when there is an imminent threat to health and safety through the 
suspension process. However, FNS is proposing to strengthen 
requirements for State agency action when a program operator knowingly 
submits a false or fraudulent claim. Proposed Sec.  226.25(f)(2) would 
require State agencies to exercise their authority to suspend CACFP 
participation when it is determined that a claim for reimbursement is 
fraudulent or cannot be verified with required documentation.
    This rulemaking also includes technical amendments to correspond 
with the proposed changes in terminology and reorganization of the 
serious deficiency process regulations. Under proposed Sec.  226.25(f), 
a suspension would remain in effect until the serious management 
problem is corrected, as in the case of a suspension based on a false 
or fraudulent claim, or a fair hearing of the proposed termination is 
completed. Although the agreement is not formally terminated, a program 
operator cannot participate in CACFP during the period of suspension.
Suspension for Health or Safety Threat
    CACFP participation must be suspended if an imminent threat is 
identified that places the health or safety of children, adult 
participants, or the public at risk. The suspension is immediate and 
cannot be appealed. The administering agency must notify the program 
operator, responsible principals, and responsible individuals that 
participation and payments are suspended and termination and 
disqualification are proposed. The notice must identify the serious 
management problem and include procedures for requesting a fair hearing 
of the proposed termination and disqualification, as described in 
current Sec. Sec.  226.6(c)(5)(i)(B) and 226.16(l)(4)(ii). Proposed 
Sec.  226.25(f)(1)(i)(A) would address the notice of suspension of an 
institution and proposed Sec.  226.25(f)(1)(ii)(A) would address the 
notice of suspension of a day care home or an unaffiliated center.
    The administering agency is prohibited from offering an appeal 
prior to the commencement of the suspension and payments will remain 
suspended until the fair hearing is concluded. If the hearing official 
overturns the suspension, the program operator may claim reimbursement 
for eligible meals served during the suspension. Current Sec.  
226.6(c)(5)(i)(C), which addresses termination of the agreement by the 
program operator and placement on the National Disqualified List, would 
move to proposed Sec.  226.25(f)(1)(i)(B) and (f)(1)(ii)(B). If a 
program operator voluntarily terminates its agreement after receiving 
the notice of proposed termination, the program operator will still be 
terminated for cause and disqualified.
Proposed Suspension for Fraud or Fraudulent Claim
    Submission of a false claim for reimbursement in facilities is a 
serious management problem that must be addressed through the serious 
deficiency process. However, an institution is subject to suspension 
for the submission of a false claim for reimbursement. Current Sec.  
226.6(c)(5)(ii), authorizes State agencies to suspend participation, at 
their discretion, if the State agency determines that a claim for 
reimbursement is fraudulent or cannot be verified with required 
documentation. Under proposed Sec.  226.25(f)(2) of this rulemaking, 
FNS would require State agencies to suspend participation of 
institutions in all cases of false or fraudulent claims. Suspension 
stops the flow of payments to those institutions and provides 
protection against misuse of program funds.
    Suspension for false or fraudulent claims is not immediate. At the 
time suspension is proposed, the State agency must initiate action to 
terminate the agreement to disqualify the institution, responsible 
principals, and responsible individuals. Suspension for false or 
fraudulent claims becomes effective if the institution does not appeal 
the proposed termination and disqualification or, if a suspension 
review is requested, the hearing official upholds the State agency's 
proposed action. If a suspension for submission of a false or 
fraudulent claim is overturned, the serious deficiency process to 
address the institution's serious management problems would still 
continue.
    All of the requirements for suspending an institution for 
submitting a fraud or fraudulent claim that are found in current Sec.  
226.6(c)(5)(ii) would move to proposed Sec.  226.25(f)(2). Suspension 
of payments would move from current Sec. Sec.  226.6(c)(5)(i)(D), 
226.6(c)(5)(ii)(E), and 226.16(l)(4)(iv) to proposed Sec.  
226.25(h)(2). When the State agency proposes to suspend an 
institution's participation, including program payments for the 
submission of a false or fraudulent claim, the State agency must issue 
a combined notice of serious management problems and proposed 
suspension, which would include a description of the serious management 
problem and the State agency's fair hearing procedures for suspension 
and termination. The institution has the right to request a suspension 
review as well as a fair hearing of the proposed termination and 
disqualification action.
    The suspension is implemented if the institution does not appeal 
the action or, if an appeal is filed, the hearing official upholds the 
action proposed by the State agency. If the suspension review official 
overturns the proposed suspension, the institution may claim 
reimbursement for eligible meals served during the proposed suspension. 
A State agency must not reimburse an institution for that portion of a 
claim that the State agency knows to be invalid. Voluntary termination 
of the institution's agreement with the State agency after having 
received the notice would still result in termination for cause and 
placement on the National Disqualified List.
    Suspension of participation and suspension of payments add strong 
integrity protections against the submission of false and fraudulent 
claims in CACFP. FNS is concerned that there are similar circumstances 
in SFSP where continuing program operations is inappropriate, yet there 
are no corresponding requirements authorizing the State agency to 
suspend participation and payments. FNS recognizes that additional 
public input is needed to consider the use of suspension to protect 
against the submission of false or fraudulent claims in SFSP. Public 
comments on the following proposed options will be critical as FNS 
develops the final rule:
    1. Option 1 of this proposed rule would require the State agency to 
apply the serious deficiency process when it determines that a sponsor 
in SFSP has submitted a false or fraudulent claim. The serious 
deficiency process would provide the sponsor the opportunity for 
corrective action and a fair hearing, with no suspension of 
participation. The sponsor would be eligible to continue to participate 
in SFSP and receive

[[Page 13166]]

payments for all valid claims that are submitted to the State agency 
for reimbursement.
    2. Option 2 would require the State agency to propose suspension 
based on a sponsor's submission of a false or fraudulent claim, at the 
same time that the serious deficiency process is implemented. The 
suspension would remain in effect until the false or fraudulent claim 
is corrected or a fair hearing of the suspension completed. Although 
there would be no formal termination of the agreement, the sponsor 
would not be eligible to participate in SFSP during the period of 
suspension. All payments of claims for reimbursement would be 
suspended. If a fair hearing overturns the suspension, the sponsor 
would be eligible for retroactive reimbursement.
    Accordingly, this rulemaking proposes to make corresponding changes 
to 7 CFR 226.2 and 226.25 to align the proposed amendments to the 
serious deficiency process. This proposed rule would move State agency 
actions to suspend participation if health or licensing officials cite 
an institution for serious health or safety violations from 7 CFR 
226.6(c)(5)(i) through 226.25(f)(1). Requirements for the State agency 
to exercise its authority to suspend participation if it determines 
that an institution knowingly submitted a claim for reimbursement that 
is fraudulent or that cannot be verified with required documentation 
would move from 7 CFR 226.6(c)(5)(ii) to 226.25(f)(2). Fair hearing 
procedures at 7 CFR 226.6(k) and (l) would move to Sec.  226.25(g). 
Sponsoring organization actions to suspend participation of day care 
homes that are currently found at 7 CFR 226.16(l)(4) would move to 
Sec.  226.25(f). Requirements for the suspension of payments would move 
from 7 CFR 226.6(c)(5)(i)(D), 226.6(c)(5)(ii)(E), and 226.16(l)(4)(iv) 
to 226.25(h)(2).

D. Disqualification and the National Disqualified List

1. Termination for Cause and Disqualification
    The serious deficiency process gives program operators the 
opportunity for corrective action and due process. The administering 
agency can accept corrective action at any point up until the program 
agreement is terminated. If the administering agency determines that 
the program operator, whose ability to manage the program has already 
been called into question, fails to take successful corrective action, 
the program agreement must be terminated for cause. Under this proposed 
rule, the administering agency would declare the program operator to be 
seriously deficient at the point of termination, which would be 
followed by disqualification.
Termination for Cause
    The Child Nutrition Program Integrity Final Rule amended CACFP and 
SFSP regulations to allow a program operator to terminate an agreement 
for convenience for considerations unrelated to its program 
performance, at current Sec. Sec.  225.6(i) and 226.6(b)(4)(ii). In the 
serious deficiency process, due to a program operator's inability to 
properly perform its responsibilities under its program agreement, 
termination must always be for cause, not convenience. Current Sec.  
226.16(l) also addresses a sponsoring organization's actions to 
terminate a day care home's agreement for cause. There are no 
regulations describing the termination for cause of a CACFP institution 
or unaffiliated center or an SFSP sponsor's agreement related to the 
performance of program requirements.
    To strengthen management practices and eliminate gaps that put 
program integrity at risk, FNS proposes to amend current Sec. Sec.  
225.2 and 226.2 to include definitions of ``Termination for cause'' to 
describe the administering agency's action to end an agreement with a 
sponsor, an institution, an unaffiliated center, or a day care home for 
reasons related to proper performance of program responsibilities. This 
proposed rule would also require action by the State agency to:
    <bullet> Terminate an agreement whenever a sponsor's participation 
in SFSP or an institution's participation in CACFP ends at proposed 
Sec. Sec.  225.6(i) and 226.6(b)(4)(iii), respectively;
    <bullet> Terminate an agreement for cause, as described under the 
serious deficiency process proposed Sec. Sec.  225.18(d)(1) and 
226.25(d)(1); and
    <bullet> Terminate an agreement for cause if a program operator, 
responsible principal, or responsible individual is on the National 
Disqualified List, at proposed Sec. Sec.  225.18(e)(1) and 
226.25(e)(1).
Disqualification
    The National Disqualified List was established to prevent a 
disqualified institution or day care home from being approved to 
participate in CACFP or any other Child Nutrition Program. As described 
in the next section of this preamble, FNS proposes to amend 7 CFR 
210.9(d), 215.7(g), 220.7(i), 225.6(b)(13), and 226.6(b)(1)(xiii), to 
establish a reciprocal disqualification process that would prohibit 
State agencies from approving an application for any program operator 
that is terminated for cause and placed on a National Disqualified 
List.
    In CACFP, if a new institution's application does not meet program 
requirements under 7 CFR 226.6(b), 226.15(b), or 226.16(b), the State 
agency must deny the application and disqualify the applicant 
institution, the person who signed the application, and any other 
responsible principals or responsible individuals, as described in 
proposed Sec.  226.6(c). The State agency must ensure that 
participating institutions annually certify that neither the 
institution nor its principals are on the National Disqualified List. 
The State agency must also ensure that participating sponsoring 
organizations annually certify that no sponsored facility or facility 
principal is on the National Disqualified List.
    When a new application is denied, current Sec.  226.6(c)(1) 
requires the State agency to follow the procedures for implementing the 
serious deficiency process. However, FNS recognizes that the intent of 
the serious deficiency process is to address program performance under 
a legally binding agreement. It may be more appropriate to address the 
denial of a program application through a remedial application process, 
instead of the serious deficiency process. This rulemaking would amend 
7 CFR 226.6(c)(1) to propose a separate set of procedures that would 
provide applicants the opportunity to correct the application and 
request due process if the application is denied. Similarly, the 
serious deficiency process would not apply to a denial of a sponsor's 
application for SFSP, as described in 7 CFR 225.11(c).
2. Reciprocal Disqualification in Child Nutrition Programs
    Section 12(r) of the NLSA, 42 U.S.C. 1760(r), specifies 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. FNS proposes 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 and the applicant 
is on the National Disqualified List for CACFP or SFSP. This process is 
called ``reciprocal disqualification.''
    The establishment of a reciprocal disqualification process supports

[[Page 13167]]

integrity when it is determined that a program operator currently 
participating in a Child Nutrition Program is terminated for cause from 
another Child Nutrition Program and placed on the National Disqualified 
List. Proposed Sec.  226.6(b)(1)(xiii) would prohibit State agencies 
from approving an application for participation in any Child Nutrition 
Program for any program operator that is terminated for cause and 
placed on the National Disqualified List. Current Sec.  
226.6(c)(1)(iii)(C)(3) and proposed Sec. Sec.  226.6(c)(6)(iii) and 
226.25(g)(1)(i)(A) provide the right to a fair hearing to program 
operators whose applications are denied. The right to a fair hearing of 
an application denial for program operators based on the National 
Disqualified List is solely granted to contest the accuracy of the 
information on the National Disqualified List or the match to the 
National Disqualified List. The basis for denial, termination for 
cause, and placement on the National Disqualified List, is not subject 
to an additional hearing. The right to a fair hearing already would 
have been provided prior to termination and disqualification.
    Proposed Sec.  226.25(e)(1) would apply reciprocal disqualification 
for termination and placement on a National Disqualified List for 
program operators with an existing program agreement. This rulemaking 
would also apply termination procedures, under 7 CFR 210.25, 215.16, 
220.19, 225.11, 226.6, and 226.16, when it is determined that a program 
operator currently participating in a Child Nutrition Program is 
terminated for cause from another Child Nutrition Program and placed on 
a National Disqualified List. The State agency would have to make an 
effort to ensure that eligible children and adult participants continue 
to have access to important nutrition benefits. For example, if a CACFP 
sponsoring organization is terminated and disqualified, the State 
agency should have a contingency plan for the transfer of homes or 
unaffiliated centers. A contingency plan, as defined in proposed 
Sec. Sec.  225.2 and 226.2, and further described in proposed 
Sec. Sec.  225.18(d)(2) and 226.25(d)(2), would help ensure that meal 
services continue to be available, without interruption.
    This proposed rule would require the State agency to follow the 
same procedures to address serious management problems through 
corrective action and due process for all types of program operators. 
However, at the point when a proposed termination action is upheld and 
the program operator is declared seriously deficient, as described in 
proposed Sec.  226.25(a)(6)(iii)(B) and (d)(1), FNS has determined that 
there are circumstances that may warrant an alternative to 
disqualification for institutions or sponsors that are also school food 
authorities. FNS recognizes that school food authorities are 
responsible to safeguard school meal benefits to children. Additional 
public input is needed to consider a different procedure when a school 
food authority that is also an institution or sponsor operating CACFP 
or SFSP, respectively, is declared seriously deficient. Public comments 
on the following options will be critical as FNS develops the final 
rule:
    1. Option 1 would require the State agency to terminate, 
disqualify, and place on the National Disqualified List any school food 
authority that is declared seriously deficient, just like any other 
type of institution or sponsor that is operating CACFP and SFSP. If a 
school food authority is determined to be seriously deficient, the 
school food authority's agreement to operate CACFP or SFSP would be 
terminated, and it would be disqualified and placed on the National 
Disqualified List, as described under proposed Sec. Sec.  225.18(e) and 
226.25(e). Placement on the National Disqualified List would prohibit 
the school food authority from operating the National School Lunch 
Program, School Breakfast Program, or any other Child Nutrition 
Program. The responsible principals and responsible individuals would 
also be disqualified from program participation and placed on the 
National Disqualified List.
    2. Option 2 would require the State agency to terminate the school 
food authority's agreement to operate CACFP or SFSP. In this case, the 
responsible principals and responsible individuals would be 
disqualified from program participation, placed on the National 
Disqualified List, and ineligible to participate in any Child Nutrition 
Program. However, the State agency would have discretion to disqualify 
and place the school food authority, itself, on the National 
Disqualified List. If the State agency determines that the school food 
authority should not be subject to disqualification and placement on 
the National Disqualified List, there would be no impact on the school 
food authority's ability to operate other Child Nutrition Programs, 
including the National School Lunch and School Breakfast Programs.
    This rulemaking would not affect the eligibility of a school food 
authority that only operates the National School Lunch, School 
Breakfast, or Special Milk Programs to continue to participate in those 
programs. FNS does not anticipate that it will impact most school food 
authorities that operate CACFP or SFSP. With their experience managing 
the school nutrition programs, school food authorities are well-
positioned to successfully operate CACFP and SFSP.
    There may also be circumstances when a school food authority may be 
a meal vendor for a program operator that has been placed on the 
National Disqualified List. If the school food authority is not 
otherwise connected to the management of CACFP or SFSP, the school food 
authority would continue to be eligible to participate in the Child 
Nutrition Programs, because it would not be responsible for program 
operations. School food authorities, sponsors, and institutions are 
only responsible for the schools, sites, and facilities identified in 
their State agency agreements.
    Accordingly, this proposed rule would amend 7 CFR 225.2 and 226.2 
to include definitions of termination for cause and contingency plan. 
Additional amendments to 7 CFR 210.9(d), 215.7(g), 220.7(i), 
225.6(b)(13), 225.18(d) and (e), 226.6(b)(1)(xiii) and (b)(2)(iii)(D), 
and 226.25(d) and (e) would prohibit State agencies from approving an 
application for participation in any Child Nutrition Program for a 
program operator that is terminated for cause and that is listed on a 
National Disqualified List. This rulemaking would also amend 7 CFR 
225.11(c) and 226.6(c) to ensure that the appropriate procedures are 
followed for a denial of a sponsor's or institution's application.
3. Legal Requirements for Records Maintained on Disqualified 
Individuals
    The National Disqualified List is a Federal computer matching 
program that uses a Computer Matching and Privacy Protection Act system 
of records of information on institutions and individuals who are 
disqualified from participation in CACFP. This is a mandatory 
collection under section 243(c) of Public Law 106-224, the Agricultural 
Risk Protection Act of 2000, which amended section 17 of the Richard B. 
Russell National School Lunch Act, at 42 U.S.C. 1766(d)(5)(E)(i) and 
(ii), and under 7 CFR 226.6(c)(7)(i). This proposed rule would expand 
the National Disqualified List to include the records of sponsors, 
sites, responsible principals, and responsible individuals who have 
been disqualified from SFSP, in compliance with section 13 of the NSLA, 
at 42 U.S.C. 1761(q)(3), and the Computer Matching Act, at 5 U.S.C. 
552a. The Computer Matching Act applies when a Federal agency conducts

[[Page 13168]]

a computer match of two or more personally identifiable information 
records for establishing or verifying eligibility under a Federal 
benefit program. The Computer Matching Act also applies when a non-
Federal agency compares information with a Federal system of records to 
determine eligibility for a Federal benefit program. A computer match 
takes information provided by a Federal source and compares it to a 
State record, using a computer to perform the comparison.
    The National Disqualified List supports program integrity by 
preventing institutions whose program agreements were terminated for 
cause and disqualified in one State from being approved for 
participation in another State. It prevents disqualified responsible 
principals from continuing to be involved in program administration by 
forming a new corporate entity and entering the program under a 
different organizational name. It also prevents day care home providers 
and responsible individuals who have been terminated and disqualified 
by one sponsoring organization from re-entering the program under the 
auspices of a different sponsoring organization. Once disqualified, 
program participation is prohibited for 7 years from the effective date 
of the disqualification and until any debt is paid.
    The records of institutions, responsible principals, and 
responsible individuals who have been disqualified from participation 
in CACFP are part of the National Disqualified List. As FNS described 
in the notice, Privacy Act of 1974; System of Records Revision, 86 FR 
48975, September 1, 2021, many of the steps of the serious deficiency 
process align with requirements of the Computer Matching Act. For 
example, the State agency initiating a National Disqualified List 
search must independently verify records to determine accuracy before 
taking adverse action against a program applicant or participant. FNS 
uploads every certified notice of serious deficiency into the system, 
which the State agency may use to verify that the match is correct. 
After records are verified, the State agency must notify the 
disqualified program applicant or participant of the match findings. 
However, current Sec.  226.6(c)(6) describing the National Disqualified 
List does not address procedures or protections for data disclosure and 
privacy specified for records maintained on any person in a computer 
matching program under the Computer Matching Act.
    This proposed rule would close the gap by codifying the 
responsibilities of administering agencies in implementing systems of 
records, as described in the Computer Matching Act. Under proposed 
Sec. Sec.  225.18(e)(3) and 226.25(e)(3), each State agency would enter 
into a written matching agreement with FNS to address procedures and 
protections for disclosure and privacy of personally identifiable 
information records on the National Disqualified List. Additional 
amendments would advise State agencies on the use of matching 
agreements, independent verification of matching information, use of 
disqualification data, and safeguards to protect individuals who may be 
incorrectly placed on the National Disqualified List through human 
error or technical lapses in the system. Before a CACFP or an SFSP 
application is denied, the State agency would also have to notify any 
individual whom the application identifies as being placed on the 
National Disqualified List. The State agency must provide an 
opportunity for the individual to ensure that the record is accurate.
    Current CACFP regulations at 7 CFR 226.6(b)(1)(xii) and 
(b)(2)(iii)(C) require State agencies and sponsoring organizations to 
verify that applicants are not on the National Disqualified List prior 
to approval or annual certification of participation. Similarly, before 
hiring, CACFP sponsoring organizations must check the National 
Disqualified List to verify that any new employee whose position will 
be supported by program funds or who will be working in CACFP is not on 
the National Disqualified List. Proposed Sec.  226.25(e)(3)(i)(C) would 
require the State agency initiating a computer match to verify the 
disqualification before taking adverse action against a program 
applicant, participant, or employee. The State agency could contact the 
originating administering agency or check the certified notices that 
are uploaded to the system to verify the disqualification.
    The serious deficiency process requires three types of certified 
notices that are uploaded to the system, which administering agencies 
may use to independently verify the accuracy of a computer match. This 
rulemaking would also amend the definition of ``notice'' under 7 CFR 
226.2 and address the content and delivery requirements for all of the 
notifications that are transmitted as part of the serious deficiency 
process at proposed Sec.  226.25(a)(5).
    This proposed rule would also expand the National Disqualified List 
to include the records of sponsors, sites, responsible principals, and 
responsible individuals who have been disqualified from SFSP, as 
required under section 13 of the NSLA, at 42 U.S.C. 1761(q)(3). FNS 
proposes to amend SFSP regulations to address termination for cause at 
proposed Sec.  225.18(d)(1); disqualification and placement on the 
National Disqualified List at proposed Sec.  225.18(e)(2); and the 
State agency's responsibilities under the Computer Matching Act at 
proposed Sec.  225.18(e)(3).
    Accordingly, this proposed rule would amend 7 CFR 225.18(e)(3) and 
226.25(e)(3) to address compliance with the Computer Matching Act's 
protections for data disclosure and privacy specified for records 
maintained on any person on the National Disqualified List. This 
rulemaking would also amend the definition of ``notice'' under 7 CFR 
225.2 and 226.2 and further amend 225.18(a)(5) and (e)(3)(v), and 
226.25(a)(5) and (e)(3)(v) to address the content and delivery 
requirements for serious deficiency process notifications and 
independent verification of a computer match.

E. Multi-State Sponsoring Organizations (MSSO)

    A sponsoring organization is a type of public or private nonprofit 
institution that is entirely responsible for the administration of 
CACFP in any day care home, unaffiliated public or private nonprofit 
center, or affiliated for-profit center. Day care homes are required to 
participate in CACFP through a sponsoring organization. Although 
centers may enter into an agreement directly with the State agency, 
many centers find it is easier to participate in CACFP under an 
existing sponsoring organization. As a growing number of sponsoring 
organizations expand to serve multiple types of facilities in multiple 
States, State agencies are faced with unique challenges, particularly 
when serious management problems arise. Without regulated practices, 
assignment of State agency responsibilities and protocol of 
communication, State agencies dealing with multi-state sponsoring 
organizations (MSSOs) could duplicate each other's efforts and could be 
unaware of potential serious management problems occurring in another 
State. In SFSP, FNS understands there are an increasing number of 
sponsors operating summer meal programs at sites in more than one 
State.
    FNS is taking this opportunity to propose regulations to strengthen 
State agency administration when a sponsoring organization operates the 
program in more than one State. This

[[Page 13169]]

proposed rule addresses provisions to facilitate the State agency's 
review of administrative budgets and allocation of shared costs, 
performance of monitoring and audit-related activities, and oversight 
when procurement standards vary from State to State. FNS recognizes 
that improved information sharing, collaboration, and coordination 
among administering agencies are also essential to ensure that 
participation of MSSOs is administered properly, with less duplication 
and burden.
    At 7 CFR 226.2, FNS proposes to define an MSSO as a sponsoring 
organization that operates CACFP in more than one State. This proposed 
rule would define an MSSO as a sponsor that operates SFSP in more than 
one State, under 7 CFR 225.2. An MSSO enters into a written agreement 
with the administering agency in each State where it is approved to 
provide CACFP or SFSP meal services. An independently owned or 
franchised organization operating multiple centers, day care homes, or 
sites in a single State would not be an MSSO. However, a franchise 
operating multiple centers, day care homes, or sites in more than one 
State would be an MSSO. A for-profit organization is an MSSO when the 
parent corporation operates multiple affiliated centers or affiliated 
sites in more than one State.
    The State agency must determine if program operations will be 
provided in more than one State, as part of the application process. 
Proposed Sec. Sec.  225.6(c)(5), 226.6(b)(1)(xix), and 
226.6(b)(2)(iii)(L) would require the State agency to ask all 
applicants if they are approved or intend to submit an application to 
participate in any other State. The application of a potential MSSO 
would have to provide: additional information on the number of 
affiliated and unaffiliated facilities or sites it operates; its use of 
program funds for administrative expenses; and its nonprofit or for-
profit status. The application would also have to include a 
comprehensive budget that provides the sum of all costs to be incurred, 
identifies costs that attribute directly to operations within each 
State, and sets out a cost allocation plan for costs benefiting more 
than one State.
    For program purposes, a cognizant agency is any State agency or FNS 
Regional office that is responsible for oversight of CACFP or SFSP in 
the State where the MSSO's headquarters is located. The location of the 
MSSO's headquarters is the determining factor in assigning the role of 
the cognizant agency. This rulemaking proposes to add definitions of 
Cognizant State agency and Cognizant Regional office, under 7 CFR 225.2 
and 226.2, to recognize the roles that these administering agencies 
have when an MSSO participates in CACFP or SFSP. These terms are 
currently not defined in regulation. By assigning responsibilities to 
the Cognizant State agency and Cognizant Regional office, this will 
eliminate a duplication of effort and increase program integrity by 
increasing awareness of the MSSO's performance in other States. FNS 
seeks input on how MSSO's headquarters are identified.
    Over the years, FNS has issued CACFP guidance to clarify 
responsibilities--particularly with regard to participation of 
franchises and for-profit organizations, review of administrative 
budgets, allocation of shared costs, availability of records, 
performance of monitoring and audit-related activities, and procurement 
actions--for agencies that assume cognizance. This set of guidance 
includes FNS Instruction 788-5, Approval of Administrative Budgets for 
Multi-State Sponsoring Organizations of Family Day Care Homes--Child 
Care Food Program, October 25, 1982; FNS Instruction 788-16, 
Administrative Procedures for Multi-State Sponsoring Organization--
Child Care Food Program, October 19, 1983; FNS Instruction 788-6, 
Revision 2, Availability of Institutions' Records to Administering 
Agencies, November 1, 1991; FNS Instruction 796-2, Revision 4, 
Financial Management--Child and Adult Care Food Program, December 11, 
2013; and the memorandum, Applicability of FNS Instruction 788-16 to 
Multi-State Proprietary CACFP Sponsors, June 25, 2003.
    FNS proposes to amend CACFP regulations at 7 CFR 226.6(q) to 
address the responsibilities of the administering agency in all States 
where MSSOs operate and describe the unique role of the cognizant 
agency in the State where the MSSO is headquartered. This proposed rule 
would add similar amendments to SFSP regulations under 7 CFR 225.6(n).
    This rulemaking would require all CACFP State agencies and SFSP 
State agencies to:
    <bullet> Determine if an applicant is an MSSO. As part of the 
application process, the State agency must ask all applicants if their 
organization operates in more than one State.
    <bullet> Obtain administrative and financial information from each 
MSSO. The following information must be obtained initially on the 
MSSO's application and annually certified or updated:
    [ballot] The number of affiliated facilities or sites it operates, 
by State;
    [ballot] The number of unaffiliated facilities or sites it 
operates, by State;
    [ballot] The names, addresses, and phone numbers of the 
organization's headquarters and the official who has administrative 
responsibility;
    [ballot] The names, addresses, and phone numbers of the financial 
records center and the official who has financial responsibility; and
    [ballot] The organization's decision whether or not to use program 
funds for administrative expenses.
    <bullet> Approve the administrative budgets of any MSSOs operating 
within their respective States. The State agency is responsible for 
approving budget line items that are directly attributable to 
operations within the State. The State agency must notify the cognizant 
State agency of any CACFP administrative costs that exceed the 15 
percent limit, as described in current Sec.  226.6(f)(1)(iv). In SFSP, 
the State agency must notify the cognizant State agency if it has 
determined that the ratio of administrative to operating costs is high 
or that the net cash resources of an MSSO's nonprofit food service 
exceeds the limits that are described in 7 CFR 225.7(m).
    <bullet> Enter into a permanent written agreement with each MSSO 
operating within the State. Each MSSO must enter into an agreement with 
the State agency to assume final administrative and financial 
responsibility for program management in each State in which it 
operates.
    <bullet> Track State-specific costs. The State agency is 
responsible for approving State-specific costs, which include the State 
agency's portion of budget line item costs that are shared among other 
administering agencies, as well as costs that attribute directly to 
program operations within the State.
    <bullet> Conduct oversight of MSSO operations within the State. 
State agencies must comply with SFSP and CACFP monitoring and program 
assistance requirements under proposed Sec. Sec.  225.6(n)(2) and 
226.6(q), respectively, to conduct reviews, training, and other 
oversight activities of MSSOs operating within their respective States. 
The review cycle would be based on the number of sites or facilities 
operating within the State. To reduce administrative burden, the State 
agency may use information from the cognizant State agency's monitoring 
activities to assess compliance in areas where the scope of review 
overlaps, during the same review cycle. In those circumstances, the 
State agency may choose to only review those aspects of CACFP or SFSP 
that are outside the scope of the cognizant agency's review,

[[Page 13170]]

such as implementation of additional State agency requirements or 
financial records to support State-specific administrative costs. 
Summaries of reviews conducted within each State must be provided to 
the cognizant State agency. The State agency may also choose to conduct 
a full review at the MSSO headquarters and financial records center, by 
requesting the necessary records from the cognizant State agency.
    <bullet<ls-thn-eq> Conduct audit resolution activities. State 
agencies are responsible for reviewing audit reports, addressing audit 
findings, and implementing corrective actions to resolve audits of any 
MSSOs operating within their respective States. MSSOs must make audit 
reports available to the State agencies in all of the States in which 
they have program operations.
    <bullet<ls-thn-eq> Make available copies of notices of termination 
and disqualification. The State agency conducting the oversight 
activities must notify all other administering agencies that have 
agreements with the MSSO of termination and disqualification actions. 
If a State agency holds an agreement with an MSSO that is disqualified 
by another administering agency and placed on the National Disqualified 
List, the State agency must terminate the MSSO's agreement, effective 
no later than 30 calendar days of the date of the MSSO's 
disqualification. This requirement is 45 days in CACFP regulations at 
current Sec.  226.6(c)(2)(i). In SFSP, this proposed rule would require 
the State agency to terminate the MSSO's agreement, effective no later 
than 15 calendar days of the date of the MSSO's disqualification.
    FNS also proposes requirements for the cognizant State agency 
administering CACFP or SFSP. This rulemaking would require the 
cognizant State agency to:
    <bullet> Determine if there will be shared administrative costs 
among the States in which the MSSO operates and how the costs will be 
allocated. The cognizant agency has the authority to approve cost 
levels for cost items that must be allocated. The cognizant State 
agency must approve the allocation method that the MSSO uses for shared 
costs. The method must allocate the cost based on the benefits 
received, not the source of funds available to pay for the cost. If the 
MSSO operates CACFP centers, the cognizant agency must also ensure that 
administrative costs are capped at 15 percent on an organization-wide 
basis. In SFSP, the cognizant agency must ensure that the net cash 
resources of an MSSO's nonprofit food service do not exceed the limits 
that are described in 7 CFR 225.7(m).
    <bullet> Coordinate monitoring. The cognizant State agency's 
monitoring activities must include a full review at the MSSO 
headquarters and financial records center. The cognizant State agency 
must coordinate the timing of reviews and make copies of monitoring 
reports and findings available to all other administering agencies that 
have agreements with the MSSO, as described in proposed Sec. Sec.  
225.6(n)(2)(iii) and Sec.  226.6(q)(2)(iii).
    <bullet> Ensure that organization-wide audit requirements are met. 
Each MSSO must comply with audit requirements, as described under 2 CFR 
part 200, subpart D, and USDA implementing regulations 2 CFR parts 400 
and 415. Since their operations are often large and complex, MSSOs 
should have annual audits. If an MSSO has for-profit status, the 
cognizant agency must establish audit thresholds and requirements.
    <bullet> Oversee audit funding and costs. Audit funding is a shared 
responsibility. The share of organization-wide audit costs may be based 
on a percentage of each State's expenditure of CACFP and SFSP funds and 
the MSSO's expenditure of Federal and non-Federal funds during the 
audited fiscal year. The cognizant State agency should review audit 
costs as part of the overall budget review and make audit reports 
available to the other administering agencies that have agreements with 
the MSSO.
    <bullet> Ensure compliance with procurement requirements. 
Procurement actions involving MSSOs must follow the requirements under 
2 CFR part 200, subpart D, and USDA implementing regulations 2 CFR 
parts 400 and 415. If the procurement action benefits all States in 
which the MSSO operates, the procurement standards of the State that 
are the most restrictive apply. If the procurement action only benefits 
a single State's program, the procurement standards of that State 
agency apply.
    Accordingly, this rule proposes to amend 7 CFR 226.2, 226.6(b)(1) 
and (2), and 226.6(q) to address State administrative responsibilities 
when MSSOs participate in CACFP. Amendments to 7 CFR 225.2, 
225.6(c)(5), and 225.6(n) would make similar changes to address State 
administrative responsibilities when MSSOs participate in SFSP.

F. Summary of Regulatory Provision Proposals

    This rulemaking reflects FNS' commitment to work with State 
administrators, program operators, and other stakeholders to develop 
strategies to ensure that Child Nutrition Program requirements are 
effective, practical, and fair. FNS has proposed important 
modifications to the serious deficiency process that, when codified in 
the regulations, are designed to strengthen administrative oversight, 
improve operational performance, and protect Child Nutrition Programs 
from mismanagement, abuse, and fraud. The serious deficiency process 
described in this proposed rule includes procedures for corrective 
action, termination, disqualification, and due process that emphasize 
fairness and consistency for all types of program operators in CACFP 
and SFSP. This proposed rule addresses statutory requirements and 
policy improvements that would:
    <bullet> Extend the serious deficiency process to unaffiliated 
centers in CACFP.
    <bullet> Establish a serious deficiency process in SFSP.
    <bullet> Make improvements to the serious deficiency process by:
    [cir] Defining terms that would encourage a clear understanding and 
improve implementation of the serious deficiency process;
    [cir] Including measures for identifying a serious management 
problem and determining the effectiveness of corrective action;
    [cir] Offering a path to full correction of a serious management 
problem and the removal of the determination of serious deficiency;
    [cir] Establishing timelines with an emphasis on correcting serious 
management problems quickly; and
    [cir] Consolidating all regulatory requirements for oversight and 
implementation of the serious deficiency process, including due 
process, termination, and disqualification, in a single subchapter, at 
7 CFR 225.18 and 226.25.
    <bullet> Direct each SFSP State agency to establish a list of 
sponsors, responsible principals, and responsible individuals with 
serious management problems.
    <bullet> Require action by the State agency to terminate a CACFP or 
SFSP agreement for cause through the serious deficiency process.
    <bullet> Expand the National Disqualified List to include 
disqualified SFSP sponsors, responsible principals, and responsible 
individuals on the National Disqualified List.
    <bullet> Direct the State agency to exercise its authority to 
suspend CACFP participation when a false or fraudulent claim is 
alleged.
    <bullet> Require compliance with the Computer Matching Act's 
protections for data disclosure and privacy specified

[[Page 13171]]

for records maintained on any person on the National Disqualified List.
    <bullet> Propose requirements to strengthen State agency 
administration when a program operator participates in CACFP or SFSP in 
more than one State.
    Public input and assessment, with an opportunity to examine CACFP 
and SFSP operations and consider improvements related to this proposed 
rule, are essential elements of the rulemaking process. FNS invites the 
public to submit comments to help FNS gain a better understanding of 
both the possible benefits and any negative impacts associated with the 
proposed regulatory changes. FNS requests specific input on a proposal 
to allow an alternative to disqualification for program operators that 
are school food authorities. Specific public input is also requested on 
the requirement that State agencies exercise their authority to suspend 
CACFP participation when a false or fraudulent claim is alleged and to 
extend this authority to State agencies administering SFSP. Public 
comments on these amendments will be critical as FNS develops the final 
rule.

III. Procedural Matters

A. Executive Orders 12866, 13563 and 14094

    Executive Orders 12866 and 13563 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 (E.O.) 13563 emphasizes the importance of quantifying both costs 
and benefits, reducing costs, harmonizing rules, and promoting 
flexibility. This rulemaking was determined to be not significant under 
section 3(f) of E.O. 12866, as amended by E.O. 14094, and therefore no 
Regulatory Impact Analysis is required.

B. 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 proposed 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 
and local organizations operating the Child and Adult Care Food Program 
and Summer Food Service Program, any economic effect will not be 
significant.

C. 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 rule, 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 rule. This proposed 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.

D. 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, Special Milk, and School Breakfast Programs are 
listed under Nos. 10.555, 10.556, and 10.553, respectively. All are 
subject to Executive Order 12372, which requires intergovernmental 
consultation with State and local officials. Since these 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.

E. 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 proposed rule does not have federalism 
implications. This rulemaking does not impose substantial or direct 
compliance costs on State and local governments. Therefore, under 
section 6(b) of the Executive Order, a federalism summary is not 
required.

F. Executive Order 12988, Civil Justice Reform

    This proposed 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.

G. Civil Rights Impact Analysis

    FNS has reviewed the proposed rule, in accordance with Departmental 
Regulation 4300-004, ``Civil Rights Impact Analysis,'' to identify and 
address any major civil rights impacts the proposed rule might have on 
participants based on age, race, color, national origin, sex, and 
disability. Due to the unavailability of data, FNS is unable to 
directly determine whether this proposed rule will have an adverse or 
disproportionate impact on protected classes among entities that 
administer and participate in Child Nutrition Programs.
    The proposed serious deficiency rule includes strategies to ensure 
that the serious deficiency process is implemented fairly and evenly 
across states and among institutions. By codifying the criteria for 
identifying when a finding is a serious management problem, the process 
is more standardized. The new serious deficiency process also provides 
an opportunity for institutions to correct serious management problems, 
a

[[Page 13172]]

significant departure from the current process in which a serious 
deficiency is only temporarily deferred and never fully corrected. 
Importantly, the proposed rule aligns the ``seriously deficient'' 
designation with proposed termination rather than determining an 
institution is seriously deficient at the beginning of the process and 
then deferring that status unless or until there is a repeat finding. 
This step, in particular, responds to commenters concerns about a 
seriously deficient status and its effect on an institution's 
reputation which could, in turn, encourage more participation in CN 
programs.
    FNS will also develop materials for program operators in formats 
for individuals with limited English proficiency and for individuals 
with disabilities, that describe the serious deficiency process and 
program operators' rights and responsibilities. States are also 
required to have contingency plans to ensure meals remain available in 
the event a sponsor is terminated.
    FNS Civil Rights Division finds that the current mitigation and 
outreach strategies outlined in the regulations and this Civil Rights 
Impact Analysis (CRIA) provide ample consideration to applicants' and 
participants' abilities to participate in the CACFP and SFSP. The 
promulgation of this proposed rule will affect CACFP institutions and 
facilities and SFSP sponsors. FNS expects that the proposed changes, 
e.g., defining key terms, outlining clear steps in the review process, 
and providing a path to full correction, will be an overall positive 
change for CACFP and SFSP program operators. Finally, FNS is looking 
forward to the opportunity to review public comments on the proposed 
rule.

H. Executive Order 13175

    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 a consultation on May 23, 2023, 
FNS anticipates that this rulemaking will have no significant cost and 
no major increase in regulatory burden on Tribal organizations.

I. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35; see 5 
CFR part 1320) requires that OMB approve all collections of information 
by a Federal agency from the public 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.
    In accordance with the Paperwork Reduction Act of 1995, this 
proposed rule is revising existing information collection requirements, 
which are subject to review and approval by OMB. This rulemaking 
proposes new reporting, recordkeeping, and public disclosure 
requirements for State agencies and sponsoring organizations that 
administer the Child and Adult Care Food Program (CACFP), the Summer 
Food Service Program (SFSP), and the National Disqualified List (NDL). 
The rule also proposes new regulatory citations for some of the 
existing requirements in these collections.
    FNS is submitting for public comment the information collection 
burdens that will result from adoption of the new reporting, 
recordkeeping, and public disclosure requirements and the changes in 
regulatory citations for some of the existing requirements which are 
proposed in the rulemaking. The establishment of the proposed 
collection of information requirements are contingent upon OMB 
approval. Since this rulemaking impacts three separate information 
collections: OMB Control Number 0584-0280 7 CFR part 225, Summer Food 
Service Program; OMB Control Number 0584-0055 Child and Adult Care Food 
Program (CACFP), and OMB Control Number 0584-0584 Child and Adult Care 
Food Program (CACFP) National Disqualified List. This rulemaking 
contains three separate PRA sections to capture the burden impact that 
this proposed rule is estimated to have on these existing collections.
    Comments on the information collection in this proposed rule must 
be received by May 21, 2024.
    Comments may be sent to: Program Integrity and Innovation Division, 
1320 Braddock Place, Alexandria, VA 22314. Comments will also be 
accepted through the Federal eRulemaking Portal. Go to https://www.regulations.gov and follow the online instructions for submitting 
comments electronically.
    Comments are invited on: (1) Whether the proposed collection of 
information is necessary for the proper performance of the functions of 
the agency, including whether the information will have practical 
utility; (2) 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; (3) ways to enhance the quality, 
utility and clarity of the information to be collected; and (4) 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 document will be summarized and included in 
the request for OMB approval. All comments will also become a matter of 
public record.
    Title: 7 CFR part 225, Summer Food Service Program.
    Form Number: FNS-843 and FNS-844.
    OMB Control Number: 0584-0280.
    Expiration Date: 09/30/2025.
    Type of Request: Revision.
    Abstract: This revision adds new requirements and revises existing 
requirements in the currently approved information collection for OMB 
Control Number 0584-0280. Below is a summary of the changes in the 
proposed rule and the impact that it will have on the reporting, 
recordkeeping, and public disclosure requirements for the state/local/
tribal government agencies, non-profit institutions, and camps.
    State agencies have a responsibility for the monitoring and 
oversight of institutions in the Child and Adult Care Food Program 
(CACFP). To maintain program integrity and ensure compliance with 
program requirements, FNS established the serious deficiency process to 
address mismanagement, abuse, and fraud by institutions and facilities 
participating in the program. The serious deficiency process 
establishes a structured series of steps to identify serious 
deficiencies, take corrective action, and suspend, terminate, and 
disqualify institutions and responsible principals and responsible 
individuals that undermine the integrity of the program. State agencies 
also have a similar responsibility to monitor and provide oversight of 
the Summer Food Service Program (SFSP).
    Currently, the SFSP does not have a defined process to address 
serious management problems threatening the integrity of the program. 
SFSP regulations specify that state agencies must consider specific 
criteria before approving sites for participation. Regulations also 
provide authority for State agencies to terminate sponsor

[[Page 13173]]

participation and establish procedures for sponsors to appeal adverse 
actions, but they do not provide authority for FNS or state agencies to 
disqualify an individual from participating in SFSP, or in any other 
Child Nutrition Program or being placed on the National Disqualified 
List. This proposed rule would extend the serious deficiency process to 
SFSP to address potential serious management problems threatening the 
integrity of the program.
    This proposed rule would amend 7 CFR 225.6 and 225.18 to extend the 
serious deficiency process to SFSP. State agencies would be required to 
implement a serious deficiency process; provide appeal procedures to 
sponsors, annually and upon request; specify the types of adverse 
actions that cannot be appealed in SFSP; establish a list of sponsors, 
responsible principals, and responsible individuals declared seriously 
deficient; terminate agreements whenever a program operator's 
participation ends; and take action to terminate an agreement for 
cause, through the serious deficiency or placement on the National 
Disqualified List. This will strengthen management practices and 
eliminate gaps that put program integrity at risk.
Reporting
State/Local/Tribal Government Agencies
    The changes proposed in this rule will add additional reporting 
requirements to the requirements currently approved under OMB Control 
Number 0584-0280 for State/Local/Tribal Government Agencies. It will 
also change the regulatory cite for one of the existing reporting 
requirements in the collection. All of these changes will be considered 
program changes since they are due to the proposed rule.
    The proposed rule will add additional reporting requirements in 7 
CFR 225.6 that apply the Serious Deficiency Process to MSSOs operating 
the Program.
    USDA expects that 53 state agencies will be required to fulfill the 
requirement at 7 CFR 225.6(c)(5) that a state agency must determine if 
a sponsoring organization operates in more than one state. USDA expects 
each state agency will collect and report information from 3 MSSOs and 
that it takes approximately 15 minutes (0.25 hours) to complete this 
requirement; which is estimated to add 39.75 burden hours and 159 total 
responses to the collection.
    USDA estimates that 53 State agencies will be required to fulfill 
the new requirement at 7 CFR 225.6(n) that State agencies must 
determine if a sponsoring organization is an MSSO, and assume the role 
of a Cognizant State agency (CSA) if the MSSOs center of operations is 
located within the State. USDA estimates that the 53 State agencies 
will be required to make 3 MSSO determinations each year and that it 
takes approximately 15 minutes (0.25 hours) to complete this 
requirement; which is estimated to add 39.75 annual burden hours and 
159 responses to the collection.
    USDA expects that 53 State agencies will be required to fulfill the 
new requirement at 7 CFR 225.6(n)(1)(i) that State agencies must enter 
into a permanent written agreement with the MSSO, as described in 
paragraph (b)(4). USDA expects that the 53 State agencies will be 
required to make 3 permanent agreements each year and that it takes 
approximately 15 minutes (0.25 hours) to complete this requirement; 
which is estimated to add 39.75 annual burden hours and 159 responses 
to the collection.
    USDA estimates that 53 State agencies will be required to fulfill 
the new requirement at 7 CFR 225.6(n)(1)(ii) that State agencies must 
approve the MSSOs administrative budget. USDA estimates that the 53 
State agencies will be required to approve 3 administrative budgets 
each year and that it takes approximately 15 minutes (0.25 hours) to 
complete this requirement; which is estimated to add 39.75 hours and 
159 responses to the collection.
    USDA expects that 53 State agencies will be required to fulfill the 
new requirement at 7 CFR 225.6(n)(1)(iii) that State agencies must 
conduct monitoring of MSSO Program operations within the State, as 
described in paragraph (k)(4). USDA expects that the 53 State agencies 
will be required to monitor 3 MSSOs each year and that it takes 
approximately 15 minutes (0.25 hours) to complete this requirement; 
which is estimated to add 39.75 hours and 159 responses to the 
collection.
    USDA estimates that 53 State agencies will be required to fulfill 
the new requirement at 7 CFR 225.6(n)(1)(iii)(C) that State agencies 
provide summaries of the MSSO reviews that are conducted to the CSA. 
USDA estimates that the 53 State agencies will be required to submit 3 
MSSO review summaries to the CSA annually and that it takes 
approximately 15 minutes (0.25 hours) to complete this requirement; 
which is estimated to add 39.75 annual burden hours and 159 responses 
to the collection.
    USDA estimates that 53 State agencies will be required to fulfill 
the new requirement at 7 CFR 225.6(n)(1)(iv) that State agencies must 
conduct audit resolution activities. USDA estimates that the 53 State 
agencies will be required to conduct 3 audit resolution activities each 
year and that it takes approximately 15 minutes (0.25 hours) to 
complete this requirement; which is estimated to add 39.75 annual 
burden hours and 159 responses to the collection.
    USDA expects that 53 State agencies will be required to fulfill the 
new requirement at 7 CFR 225.6(n)(1)(v) that State agencies must notify 
all other State agencies that have an agreement with an MSSO that their 
agreement has been terminated and have taken disqualification actions 
against that MSSO. USDA expects that the 53 State agencies will be 
required to make 3 notifications a year and that it takes approximately 
15 minutes (0.25 hours) to complete this requirement; which is 
estimated to add 39.75 annual burden hours and 159 responses to the 
collection.
    USDA estimates that 53 State agencies will be required to fulfill 
the new requirement at 7 CFR 225.6(n)(2) that State agencies must 
determine if an MSSOs center of operations are located within the State 
and assume the role of the CSA. USDA estimates that the 53 State 
agencies will be required to make 3 MSSO determinations each year and 
that it takes approximately 15 minutes (0.25 hours) to complete this 
requirement; which is estimated to add 39.75 annual burden hours and 
159 responses to the collection.
    USDA expects that 53 State agencies will be required to fulfill the 
new requirement at 7 CFR 225.6(n)(2)(iii) that the CSA must conduct a 
full review at the MSSO headquarters and financial records center, 
coordinate the timing of the reviews, and make copies of monitoring 
reports and findings available to all other State agencies that have 
agreements with the MSSO. USDA expects that the 53 State agencies will 
be required to conduct a full review of 3 MSSO headquarters and 
financial records centers annually and that it takes approximately 20 
hours to complete this requirement; which is estimated to add 3,180 
annual burden hours and 159 responses to the collection.
    USDA estimates that 53 State agencies will be required to fulfill 
the new requirement at 7 CFR 225.6(n)(2)(iv) that, if an MSSO has for-
profit status, the cognizant agency must establish audit thresholds and 
requirements. USDA estimates that the 53 State agencies will be 
required to establish audit thresholds and requirements for for-profit 
MSSOs annually and that it takes approximately 1 hour to complete

[[Page 13174]]

this requirement; which is estimated to add 53 annual burden hours and 
responses to the collection.
    The proposed rule will add additional requirements in 7 CFR 225.13 
to establish fair hearing procedures for the extended serious 
deficiency process in SFSP.
    USDA expects that 53 state agencies will be required to fulfill the 
new requirement at 7 CFR 225.13(a) that state agencies must establish a 
procedure to be followed by an applicant appealing for a fair hearing. 
USDA expects each state agency will need to establish a procedure for a 
fair hearing annually and that it will take approximately 1 hour to 
complete this requirement; which is estimated to add 53 burden hours 
and responses to this collection.
    The proposed rule will add additional reporting requirements in 7 
CFR 225.18 that extends the Serious Deficiency Process to SFSP.
    USDA estimates that 53 state agencies will be required to fulfill 
the new requirement at 7 CFR 225.18(a)(2)(i) and (a)(3) that state 
agencies identify serious management problems and define a set of 
standards to help measure the severity of a problem to determine what 
rises to the level of a serious management problem and how it affects 
the sponsor or facility's ability to meet Program requirements. USDA 
estimates each state agency will be required to develop a set of 
standards to identify serious management problems, taking approximately 
1 hour to complete this requirement; which is estimated to add 53 
burden hours and responses to this collection.
    USDA estimates that 53 state agencies will be required to fulfill 
the reporting requirement at 7 CFR 225.18(a)(2)(ii) and (a)(6)(i) that 
state agencies notify a sponsor's executive director, chairman of the 
board of directors, responsible principals, and responsible individuals 
that serious management problems have been identified, must be 
addressed, and must be corrected. USDA estimates each state agency will 
be required to notify 3 sponsors of the serious management problems and 
that it takes approximately 15 minutes (.25 hours) to complete this 
requirement; which is estimated to add 39.75 hours and 159 responses to 
the collection.
    USDA expects that 53 state agencies will be required to fulfill the 
new requirement at 7 CFR 225.18(a)(2)(iii) and (c)(2)(ii) that state 
agencies must receive and approve a submitted corrective action plan 
within 15 days from the date the sponsor received the notice and 
monitor the full implementation of the corrective action plan. USDA 
expects each state agency will be required to receive and approve 3 
corrective action plans and that it takes approximately 15 minutes (.25 
hours) to complete this requirement; which is estimated to add 39.75 
burden hours and 159 total responses to the collection.
    USDA expects that 53 state agencies will be required to fulfill the 
requirement at 7 CFR 225.18(a)(2)(iv) and (a)(6)(ii) that state 
agencies notify a sponsor's executive director, chairman of the board 
of directors, responsible principals, and responsible individuals that 
the serious management problem(s) have been corrected and vacated or, 
if corrective action has not been taken or fully implemented, that the 
state agency proposes to terminate the sponsor's agreement and proposes 
to disqualify the sponsor, responsible principals, and responsible 
individuals. USDA expects each state agency will be required to notify 
3 sponsors of their successful corrective action or proposes 
termination and disqualification and that it takes approximately 15 
minutes (.25 hours) to complete this requirement; which is estimated to 
add 39.75 burden hours and 159 responses to the collection.
    USDA estimates that 53 state agencies will be required to fulfill 
the requirement at 7 CFR 225.18(a)(2)(v) and (f)(1)(iii)(E) that State 
agencies must submit written documentation to the hearing official 
prior to the beginning of the hearing, within 30 days after receiving 
notice of the action. USDA estimates that each state agency will have 
to provide documentation to 3 fair hearings annually and that it takes 
approximately 2 hours to complete this requirement; which is estimated 
to add 318 annual burden hours and 159 total responses to the 
collection.
    USDA expects that 53 state agencies will be required to fulfill the 
requirement at 7 CFR 225.18(a)(2)(v) and (f)(2) that hearing official 
must hold hearing, in addition to a review of written information upon 
written request for a fair hearing by the sponsor, responsible 
principals, or responsible individuals, to determine whether the State 
agency or sponsor followed Program requirements in taking action under 
appeal. USDA expects that each state agency will be required to provide 
3 fair hearings annually and that it will take approximately 4 hours to 
complete this requirement; which is estimated to add 636 burden hours 
and 159 total responses to the collection.
    USDA estimates that 53 state agencies will be required to fulfill 
the requirement at 7 CFR 225.18(a)(2)(vi) and (a)(6)(iii) that state 
agencies notify a sponsor's executive director and chairman of the 
board of directors that serious management problems have been vacated 
and advise the institution that procedures and policies must be 
implemented to fully correct the serious management problem if the 
sponsor's appeal is upheld. If the sponsor's appeal is denied, the 
sponsor must be notified that the program agreement is terminated and 
declared seriously deficient. USDA estimates each state agency will be 
required to notify 3 sponsors of the fair hearing determination and 
that it takes approximately 15 minutes (.25 hours) to complete this 
requirement; which is estimated to add 39.75 hours and 159 responses to 
the collection.
    USDA estimates that 53 state agencies will be required to fulfill 
the requirement at 7 CFR 225.18(c)(3) that state agencies must conduct 
and prioritize follow-up reviews and more frequent full reviews of 
sponsors with serious management problems, including one full review, 
at least once every year. USDA estimates each state agency will be 
required to review 3 sponsors and that it takes approximately 20 hours 
to complete this requirement; which is estimated to add 3,180 hours and 
159 responses to the collection.
    USDA expects that 53 state agencies will be required to fulfill the 
requirement at 7 CFR 225.18(d)(2) that state agencies are required to 
develop a contingency plan to ensure that eligible participants 
continue to have access to meal service. USDA expects each state agency 
will be required to develop 3 contingency plans and that it takes 
approximately 2 hours to complete this requirement; which is estimated 
to add 318 burden hours and 159 responses to the collection.
    USDA estimates that 53 state agencies will be required to fulfill 
the requirement at 7 CFR 225.18(e)(2)(iii) that, if all serious 
management problems have been corrected and all debts have been repaid, 
state agencies may elect to remove a sponsor, responsible principals, 
and responsible individuals from the National Disqualified List, and 
must submit all requests for early removals to the appropriate Food and 
Nutrition Service Regional Office (FNSRO). USDA estimates each state 
agency will remove 3 sponsors from the National Disqualified List and 
that it takes approximately 15 minutes (0.25 hours) to complete this 
requirement; which is estimated to add 39.75 burden hours and 159 
responses to the collection.
    USDA estimates that 53 State agencies will be required to fulfill 
the requirement at 7 CFR 225.18(e)(3)(ii)

[[Page 13175]]

that State agencies enter into written agreements with FNS in order to 
participate in a matching program involving a FNS Federal system of 
records. USDA estimates that 53 State agencies will enter into a CMA 
written agreement annually and that it will take 1 hour to complete 
this requirement; which is estimated to add of 53 annual burden hours 
and responses to the collection.
    USDA expects that 53 State agencies will be required to fulfill the 
requirement at 7 CFR 225.18(e)(3)(iii)(B) that State agencies may 
request FNS to waive the two-step independent verification and notice 
requirement of the CMA. USDA expects that the 53 State agencies will 
request a waiver annually and that it will take an hour to complete 
this requirement; which is estimated to add 53 annual burden hours and 
responses to the collection.
    USDA expects that 53 state agencies will be required to fulfill the 
requirement at 7 CFR 225.18(g)(2) that state agencies must send a 
necessary demand letter for the collection of unearned payments, 
including any assessment of interest and refer the claim to the 
appropriate State authority for pursuit of the debt payment. USDA 
estimates each state agency will send 3 demand letters and that it 
takes approximately 15 minutes (0.25 hours) to complete this 
requirement; which is estimated to add 39.75 hours and 159 responses to 
the collection.
    USDA estimates that 53 state agencies will be required to fulfill 
the requirement at 7 CFR 225.18(h)(2)(i) that state agencies must 
terminate for cause the program agreement no later than 45 days after 
the date of the sponsor's disqualification by FNS. This requirement is 
listed in the currently approved collection at 7 CFR 225.18(b)(2), but 
the proposed rule is changing the regulatory citation to 7 CFR 
225.18(h)(2)(i). USDA estimates that each state agency will still be 
required to terminate 5 sponsors' agreements and that it will still 
take approximately 1 hour to complete this requirement. With the change 
in citation, USDA still expects this requirement to have 265 burden 
hours and 265 responses so no additional hours or responses will be 
added to the collection.
    USDA expects that 933.33 local government sponsors will be required 
to fulfill the requirement at 7 CFR 225.18(c)(1) that sponsors must 
describe and document the action taken to correct each serious 
management problem in a corrective action plan and submit it to the 
state agency. USDA expects 933.3 local government sponsors will be 
required to submit a corrective action plan and that it takes 
approximately 15 minutes (.25 hours) to complete this requirement; 
which is estimated to add 233.33 hours and 933 responses to the 
collection.
Non-Profit Institutions and Camps (Businesses)
    USDA expects that 133 sponsoring organizations will be required to 
fulfill the requirement at 7 CFR 225.6(c)(5) that sponsoring 
organizations that are approved to operate the Program in more than one 
State must provide information concerning the sites and the officials 
who have administrative and financial responsibility. USDA expects that 
133 sponsoring organizations will operate in more than one state and 
will collect and report information to FNS annually and that it takes 
approximately one hour and 15 minutes (1.25 hours) to complete this 
requirement; which is estimated to add 166.25 burden hours and 133 
responses to the collection.
    USDA estimates that 477 non-profit institutions and camps will be 
required to fulfill the requirement at 7 CFR 225.18(c)(1) to describe 
and document the actions taken to correct each serious management 
problem in a corrective action plan and submit it to the state agency. 
USDA estimates each non-profit institutions will be required to submit 
a corrective action plan and that it takes approximately 15 minutes 
(0.25 hours) to complete this requirement; which is estimated to add 
119.25 burden hours and 477 responses to the collection.
Recordkeeping
State/Local/Tribal Government Agencies
    USDA estimates that 53 state agencies will be required to fulfill 
the requirement at 7 CFR 225.18(b) that a state agency maintain a state 
agency list that includes information on each sponsor that are 
determined to have a serious management problem and be updated as they 
move through the serious deficiency process. As a part of the 
recordkeeping requirement, state agencies will be required to maintain 
records on the FNS-843 Report of Disqualification from Participation: 
Institution and Responsible Principals/Individuals and the FNS-844 
Report of Disqualification from Participation--Individually 
Disqualified Responsible Principal/Individual or Day Care Home Provider 
forms, which must be updated if a sponsor has been declared seriously 
deficient as a part of the seriously deficient process. USDA estimates 
each state agency will be required to maintain 145 records of sponsors 
with serious management problems and that it takes approximately 5 
minutes (0.08 hours) to complete this requirement; which is estimated 
to add 641.70 burden hours and 7,685 responses to the collection.
Public Disclosure
State Agencies
    The proposed rule will add an additional public disclosure 
requirement at 7 CFR 225.6(n)(2)(iii) as a part of the new review 
process for Multi-State Sponsoring Organizations (MSSOs).
    USDA estimates that 53 State agencies will fulfill the requirement 
at 7 CFR 225.6(n)(2)(iii) that the Cognizant State Agency (CSA) must 
conduct a full review at the MSSO headquarters and financial records 
center, must coordinate the timing of the reviews, and make copies of 
monitoring reports and findings available to all other State agencies 
that have agreements with the MSSO. USDA estimates that the 53 State 
agencies will each disclose the findings of 3 MSSO reviews to other 
State agencies annually and that it takes 15 minutes (0.25 hours) to 
complete this requirement; which is estimated to add 39.75 annual 
burden hours and 159 responses to the collection.
    As a result of the proposals outlined in this rulemaking, FNS 
estimates that the proposals resulting from this rule will have 1,463 
respondents, 13,097 total annual responses, and 9,959 total burden 
hours. The average burden per response and the annual burden hours are 
explained below and summarized in the charts which follow. Based on 
these estimates, FNS estimates that this proposed rule will increase 
the burden for OMB Control Number 0584-0280 by 12,673 responses and by 
9,694 burden hours, to an estimated 404,468 responses and 472,392 
burden hours for the entire collection.
Reporting
    Respondents (Affected Public): Businesses; and State, Local, and 
Tribal Government. The respondent groups include non-profit 
institutions and camps, and State agencies.
    Estimated Number of Respondents: 1,463.
    Estimated Number of Responses per Respondent: 3.59.
    Estimated Total Annual Responses: 5,253.
    Estimated Time per Response: 1.77.
    Estimate Total Annual Burden on Respondents: 9,277.
Recordkeeping
    Respondents (Affected Public): State, Local, and Tribal Government. 
The

[[Page 13176]]

respondent groups include State agencies.
    Estimated Number of Respondents: 53.
    Estimated Number of Responses per Respondent: 145.
    Estimated Total Annual Responses: 7,685.
    Estimated Time per Response: 0.08.
    Estimate Total Annual Burden on Respondents: 642.
Public Disclosure
    Respondents (Affected Public): State, Local, and Tribal Government.
    Estimated Number of Respondents: 53.
    Estimated Number of Responses per Respondent: 3.
    Estimated Total Annual Responses: 159.
    Estimated Time per Response: 0.25.
    Estimated Total Annual Burden on Respondents: 40.

                                                                                Estimated Annual Burden for SFSP
                                                                                           [Reporting]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                           Average              Currently
                                                                                                      Estimated    Frequency    Average     burden     Annual    approved   Program      Total
            Respondent type                  Burden activities                  Section               number of       of        annual       per       burden     burden    changes   difference
                                                                                                     respondents   response    responses   response    hours      hours                in burden
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
State/Local/Tribal Governments.........  The SA must determine if   225.6(c)(5)....................           53           3         159       0.25      39.75          0      39.75       39.75
                                          a sponsoring
                                          organization operates in
                                          more than one State.
State/Local/Tribal Governments.........  SAs must determine if a    225.6(n).......................           53           3         159       0.25      39.75          0      39.75       39.75
                                          sponsoring organization
                                          is an MSSO, as described
                                          in paragraphs (b)(1)(xv)
                                          and (b)(2)(iii)(L). SAs
                                          must assume the role of
                                          the CSA, if the MSSOs
                                          center of operations is
                                          located within the
                                          State. Each SA that
                                          approves an MSSO must
                                          follow the requirements
                                          described in paragraph
                                          (i).
State/Local/Tribal Governments.........  SAs must enter into a      225.6(n)(1)(i).................           53           3         159       0.25      39.75          0      39.75       39.75
                                          permanent written
                                          agreement with the MSSO,
                                          as described in
                                          paragraph (b)(4).
State/Local/Tribal Governments.........  SAs must approve the       225.6(n)(1)(ii)................           53           3         159       0.25      39.75          0      39.75       39.75
                                          MSSOs administrative
                                          budget.
State/Local/Tribal Governments.........  SAs must conduct           225.6(n)(1)(iii)...............           53           3         159       0.25      39.75          0      39.75       39.75
                                          monitoring of MSSO
                                          Program operations
                                          within the State, as
                                          described in paragraph
                                          (k)(4). The SA should
                                          coordinate monitoring
                                          with the CSA to
                                          streamline reviews and
                                          minimize duplication of
                                          the review content. The
                                          SA may base the review
                                          cycle on the number of
                                          facilities operating
                                          within the State.
State/Local/Tribal Governments.........  SAs must provide           225.6(n)(1)(iii)(C)............           53           3         159       0.25      39.75          0      39.75       39.75
                                          summaries of the MSSO
                                          reviews that are
                                          conducted to the CSA. If
                                          the SA chooses to
                                          conduct a full review,
                                          the SA should request
                                          the necessary records
                                          from the CSA.

[[Page 13177]]

 
State/Local/Tribal Governments.........  SAs must conduct audit     225.6(n)(1)(iv)................           53           3         159       0.25      39.75          0      39.75       39.75
                                          resolution activities.
                                          The SA must review audit
                                          reports, address audit
                                          findings, and implement
                                          corrective actions, as
                                          required under 2 CFR
                                          part 200, subpart D, and
                                          USDA implementing
                                          regulations 2 CFR parts
                                          400 and 415.
State/Local/Tribal Governments.........  SAs notify all other       225.6(n)(1)(v).................           53           3         159       0.25      39.75          0      39.75       39.75
                                          State agencies that have
                                          agreements with the MSSO
                                          of termination and
                                          disqualification
                                          actions, as described in
                                          paragraph (c)(2)(i).
State/Local/Tribal Governments.........  If it determines that an   225.6(n)(2)....................           53           3         159       0.25      39.75          0      39.75       39.75
                                          MSSOs center of
                                          operations is located
                                          within the State, the SA
                                          must assume the role of
                                          the CSA.
State/Local/Tribal Governments.........  The CSA must conduct a     225.6(n)(2)(iii)...............           53           3         159         20      3,180          0      3,180       3,180
                                          full review at the MSSO
                                          headquarters and
                                          financial records
                                          center. The CSA must
                                          coordinate the timing of
                                          the reviews and make
                                          copies of monitoring
                                          reports and findings
                                          available to all other
                                          State agencies that have
                                          agreements with the MSSO.
State/Local/Tribal Governments.........  If an MSSO has for-profit  225.6(n)(2)(iv)................           53           1          53          1         53          0         53          53
                                          status, the cognizant
                                          agency must establish
                                          audit thresholds and
                                          requirements.
State/Local/Tribal Governments.........  SAs must establish a       225.13(a)......................           53           1          53          1         53          0         53          53
                                          procedure to be followed
                                          by an applicant
                                          appealing for a fair
                                          hearing.
State/Local/Tribal Governments.........  SAs must identify serious  225.18(a)(2)(i) and                       53           1          53          1         53          0         53          53
                                          management problems and    225.18(a)(3).
                                          define a set of
                                          standards to help
                                          measure the severity of
                                          a problem to determine
                                          what rises to the level
                                          of a serious management
                                          problem and how it
                                          affects the sponsor or
                                          facility's ability to
                                          meet Program
                                          requirements.

[[Page 13178]]

 
State/Local/Tribal Governments.........  SAs must notify a          225.18(a)(2)(ii) and                      53           3         159       0.25      39.75          0      39.75       39.75
                                          sponsor's executive        225.18(a)(6)(i).
                                          director and chairman of
                                          the board of directors,
                                          and RPIs, that serious
                                          management problems have
                                          been identified, must be
                                          addressed, and
                                          corrected. The notice
                                          must identify all
                                          aspects of the serious
                                          management problem;
                                          reference specific
                                          regulatory citations,
                                          instructions, or
                                          policies; name all of
                                          the RPIs; describe the
                                          action needed to correct
                                          the serious management
                                          problem; and set a
                                          deadline for completing
                                          the corrective action.
                                          At the same time, the SA
                                          must add the sponsor and
                                          RPIs to the SA list and
                                          provide a copy of the
                                          notice to the
                                          appropriate FNSRO.
State/Local/Tribal Governments.........  SAs must receive and       225.18(a)(2)(iii) and                     53           3         159       0.25      39.75          0      39.75       39.75
                                          approve the corrective     225.18(c)(2)(ii).
                                          action plan within 15
                                          days from the date the
                                          sponsor received the
                                          notice and monitor the
                                          full implementation of
                                          the corrective action
                                          plan.
State/Local/Tribal Governments.........  If corrective action has   225.18(a)(2)(iv) and                      53           3         159       0.25      39.75          0      39.75       39.75
                                          been taken to fully        225.18(a)(6)(ii).
                                          correct each serious
                                          management problem, SAs
                                          must notify a sponsor's
                                          executive director and
                                          chairman of the board of
                                          directors, and RPIs,
                                          that the serious
                                          management problem has
                                          been vacated. If
                                          corrective action has
                                          not been taken or fully
                                          implemented, the SA must
                                          notify the sponsor of
                                          its proposed termination
                                          and disqualification.
                                          The notice must inform
                                          the sponsor, responsible
                                          principals, and
                                          responsible individuals
                                          of the right and
                                          procedures for seeking a
                                          fair hearing.
State/Local/Tribal Governments.........  SAs must submit written    225.18(a)(2)(v) and                       53           3         159          2        318          0        318         318
                                          documentation to the       225.18(f)(1)(iii)(E).
                                          hearing official prior
                                          to the beginning of the
                                          hearing, within 30 days
                                          after receiving the
                                          notice of action.

[[Page 13179]]

 
State/Local/Tribal Governments.........  Hearing official must      225.18(a)(2)(v) and                       53           3         159          4        636          0        636         636
                                          hold hearing, in           225.18(f)(2).
                                          addition to a review of
                                          written information upon
                                          written request for a
                                          fair hearing by the
                                          sponsor, responsible
                                          principals, or
                                          responsible individuals,
                                          to determine that the SA
                                          or sponsor followed
                                          Program requirements in
                                          taking action under
                                          appeal. State agencies
                                          must be allowed to
                                          attend, respond to
                                          testimony, and answer
                                          questions posed by the
                                          hearing official.
State/Local/Tribal Governments.........  SAs must notify a          225.18(a)(2)(vi) and                      53           3         159       0.25      39.75          0      39.75       39.75
                                          sponsor's executive        225.18(a)(6)(iii).
                                          director and chairman of
                                          the board that serious
                                          management problems have
                                          been vacated and advise
                                          the institution that
                                          procedures and policies
                                          must be fully
                                          implemented to correct
                                          the serious management
                                          problem if the sponsor's
                                          appeal is upheld. If the
                                          sponsor's appeal is
                                          denied, the sponsor must
                                          be notified that the
                                          program agreement is
                                          terminated and declared
                                          seriously deficient.
State/Local/Tribal Governments.........  SAs must conduct and       225.18(c)(3)...................           53           3         159         20       3180          0       3180        3180
                                          prioritize follow-up
                                          reviews and more
                                          frequent full reviews of
                                          sponsors with serious
                                          management problems,
                                          including one full
                                          review occurring at
                                          least once every year.
State/Local/Tribal Governments.........  SAs must develop a         225.18(d)(2)...................           53           3         159          2        318          0        318         318
                                          contingency plan in
                                          place to ensure that
                                          eligible participants
                                          continue to have access
                                          to meal service.
State/Local/Tribal Governments.........  If all serious management  225.18(e)(2)(iii)..............           53           3         159       0.25      39.75          0      39.75       39.75
                                          problems have been
                                          corrected and all debts
                                          have been repaid, SAs
                                          may elect to remove a
                                          sponsor and RPIs from
                                          the National
                                          Disqualified List, and
                                          must submit all requests
                                          for early removals to
                                          the appropriate FNSRO.

[[Page 13180]]

 
State/Local/Tribal Governments.........  SAs must enter into        225.18(e)(3)(ii)...............           53           1          53          1         53          0         53          53
                                          written agreements with
                                          FNS, consistent with 5
                                          U.S.C. 552a(o) of the
                                          CMA, in order to
                                          participate in a
                                          matching program
                                          involving a FNS Federal
                                          system of records.
State/Local/Tribal Governments.........  SAs may request FNS to     225.18(e)(3)(iii)(B)...........           53           1          53          1         53          0         53          53
                                          waive the two-step
                                          independent verification
                                          and notice requirement
                                          of the CMA.
State/Local/Tribal Governments.........  SAs must send a necessary  225.18(g)(2)...................           53           3         159       0.25      39.75          0      39.75       39.75
                                          demand letter for the
                                          collection of unearned
                                          payments, including any
                                          assessment of interest,
                                          as described in Sec.
                                          225.12(b), and refer the
                                          claim to the appropriate
                                          State authority for
                                          pursuit of the debt
                                          payment. SAs must assess
                                          interest on sponsors'
                                          debts established on or
                                          after July 29, 2002,
                                          based on the Current
                                          Value of Funds Rate,
                                          which is published
                                          annually by Treasury in
                                          the Federal Reserve and
                                          is available from the
                                          FNSRO, and notify the
                                          sponsor that interest
                                          will be charged on debts
                                          not paid in full within
                                          30 days of the initial
                                          demand for remittance up
                                          to the date of payment.
State/Local/Tribal Governments.........  SAs must terminate for     225.18(h)(2)(i)................           53           5         265          1        265        265          0           0
                                          cause the Program
                                          agreement upon no later
                                          than 45 days after the
                                          date of the sponsor's
                                          disqualification by FNS.
State/Local/Tribal Governments.........  Sponsors must describe     225.18(c)(1)...................        933.3           1       933.3       0.25     233.33          0     233.33      233.33
                                          and document the action
                                          taken to correct each
                                          serious management
                                          problem in a corrective
                                          action plan and submit
                                          it to the SA.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total State/Local/Tribal Government Reporting..................................................          986        4.71       4,643       1.94   8,991.58        265   8,726.58    8,726.58
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 13181]]

 
Businesses (Non-profit Institutions and  Sponsoring organizations   225.6(c)(5)....................          133           1         133       1.25     166.25          0     166.25      166.25
 Camps).                                  that are approved to
                                          operate the Program in
                                          more than one State must
                                          provide: The number of
                                          affiliated sites it
                                          operates, by State; The
                                          number of unaffiliated
                                          sites it operates; the
                                          names, addresses, and
                                          phone numbers of the
                                          organization's
                                          headquarters and the
                                          officials who have
                                          administrative
                                          responsibility; and the
                                          names, addresses, and
                                          phone numbers of the
                                          financial records center
                                          and the officials who
                                          have financial
                                          responsibility.
Businesses (Non-profit Institutions and  Sponsors must describe     225.18(c)(1)...................          477           1         477       0.25     119.25          0     119.25      119.25
 Camps).                                  and document the actions
                                          taken to correct each
                                          serious management
                                          problem in a corrective
                                          action plan and submit
                                          it to the SA.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Businesses (Non-profit Institutions and Camps)...........................................          477        1.28         610       0.47      285.5          0      285.5       285.5
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Reporting................................................................................        1,463        3.59       5,253       1.77   9,277.08        265   9,012.08    9,012.08
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
State/Local/Tribal Governments.........  SAs must maintain a SA     225.18(b)......................           53         145       7,685       0.08     641.70          0     641.70      641.70
                                          list and must include
                                          the following
                                          information: (1) Names
                                          and mailing addresses of
                                          each sponsor that is
                                          determined to have a
                                          serious management
                                          problem; (2) Names,
                                          mailing addresses, and
                                          dates of birth of each
                                          responsible principals
                                          and responsible
                                          individuals (RPIs); and
                                          (3) The status of the
                                          sponsor as it progresses
                                          through the stages of
                                          corrective action,
                                          termination, suspension,
                                          and disqualification, as
                                          applicable. (Forms FNS-
                                          843 and FNS-844.).
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total State/Local/Tribal Government Recordkeeping..............................................           53         145       7,685       0.08     641.70          0     641.70      641.70
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Recordkeeping............................................................................           53         145       7,685       0.08     641.70          0     641.70      641.70
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 13182]]

 
State/Local/Tribal Governments.........  The CSA must conduct a     225.6(n)(2)(iii)...............           53           3         159       0.25      39.75          0      39.75       39.75
                                          full review at the MSSO
                                          headquarters and
                                          financial records
                                          center. The CSA must
                                          coordinate the timing of
                                          reviews and make copies
                                          of monitoring reports
                                          and findings available
                                          to all other State
                                          agencies that have
                                          agreements with the MSSO.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total State/Local/Tribal Government Public Disclosure..........................................           53           3         159       0.25      39.75          0      39.75       39.75
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Public Disclosure........................................................................           53           3         159       0.25      39.75          0      39.75       39.75
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Burden...................................................................................     1,463.30        8.95    13,097.3       0.76   9,958.52        265   9,963.52    9,963.52
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                            Summary of Burden
                            [OMB #0584-0280]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total No. Respondents......................................       63,942
Average No. Responses per Respondent.......................         6.33
Total Annual Responses.....................................   404,468.31
Average Hours per Response.................................         1.17
Total Burden Hours.........................................   472,392.25
Current OMB Approved Burden Hours..........................      462,699
Adjustments................................................            0
Program Changes............................................     9,693.52
Total Difference in Burden.................................     9,693.52
------------------------------------------------------------------------

    Title: Child and Adult Care Food Program (CACFP).
    Form Number: FNS-843 and FNS-844.
    OMB Control Number: 0584-0055.
    Expiration Date: 08/31/2025.
    Type of Request: Revision.
    Abstract: This is a revision of requirements in the information 
collection under OMB Control Number 0584-0055 that are being impacted 
by this rulemaking. USDA proposes to improve the serious deficiency 
process in the CACFP. This proposed rule impacts information reporting 
at the state/local/tribal government level, reporting at the business 
level (sponsoring organizations and facilities), and monitoring 
requirements for State agencies. Under this rule, USDA is proposing to 
codify into regulations provisions from the Final Rule: Child Nutrition 
Program Integrity to clarify provisions of the serious deficiency 
process, and to extend the process to unaffiliated centers 
participating in the CACFP. Furthermore, FNS published a notice, 
Request for Information: The Serious Deficiency Process in the Child 
and Adult Care Food Program, 84 FR 22431, May 17, 2019, to gather 
information to help FNS understand firsthand the experiences of State 
agencies and program operators.
    This rulemaking intends to revise the serious deficiency process to 
codify provisions from the Final Rule: Child Nutrition Program 
Integrity and to respond to comments from State agencies and 
participating institutions. The revisions will replace the term 
``serious deficiencies'' that apply to program violations with the term 
``serious management problems'', as found in the National School Lunch 
Act (NSLA). They will also change the point at which a serious 
deficiency determination is made. Previously, the discovery of program 
violations would immediately lead to a serious deficiency declaration. 
The new process will move the serious determination near the end of the 
process, where the State agency will propose termination for failing to 
correct an institution's serious management problems. Finally, the 
rulemaking will create a path to full correction defined by a timeframe 
and number of reviews. By incorporating all these program changes, FNS 
intends to reduce ambiguity navigating the serious deficiency process, 
remove stigma associated with the ``serious deficiency'' term, and 
improve program integrity by implementing a simpler process. The burden 
related to these proposals is reflected in the burden estimates for OMB 
Control Number 0584-0055. All of these changes are program changes.
Reporting
State Agencies
    The changes proposed in this rule will impact the existing 
reporting requirements currently approved under OMB Control Number 
0584-0055 for State agencies.
    USDA estimates that 56 State agencies will develop a process to 
share information on any institution, facility, responsible principals, 
or responsible individuals not approved to administer or participate in 
the Program to fulfill the requirement at 7 CFR 226.6(b)(2)(iii)(D)(2). 
USDA estimates that 56 State agencies would be required to develop an 
information-sharing process and that it takes approximately 1 hour to 
complete this requirement; which is estimated to add 56 annual burden 
hours and responses to the collection.
    USDA expects that 56 State agencies will be required to fulfill the 
requirement at 7 CFR 226.6(b)(2)(iii)(L) that State agencies report up-
to-date information on multi-state sponsoring organizations (MSSOs) 
operations. USDA expects that 56 state agencies would be required to 
update 23 MSSO records per year and that it takes approximately 15 
minutes (0.25 hours) to complete this requirement; which is estimated 
to add 322 annual burden hours and 1,288 responses to the collection.
    The proposed rule will change the citations in 7 CFR part 226 that 
will change the Serious Deficiency Process from 7 CFR 226.6 to 226.25. 
As a part of these changes, the rule will create separate citations for 
applying institutions and for participating institutions. The currently 
approved collection combines the burden of applying institutions and 
participating institutions into a single citation per burden item. The 
following reporting requirements will remove reporting burden 
associated with participating

[[Page 13183]]

institutions from the preexisting citations, which will be added back 
into the collection with new citations at 7 CFR 226.25. Overall, no new 
burden will be added to the collection as a result of these citation 
changes.
    The proposed rule will change the requirement at 7 CFR 
226.6(c)(1)(iii)(A) to 7 CFR 226.6(c)(4). USDA estimates that 56 State 
agencies will be required to fulfill the existing requirement that SAs 
notify an institution's executive director and chairman of the board of 
directors that the institution's application has been determined 
seriously deficient. When the notice is issued, the State agency must 
add the institution to the State agency list, with the reason for the 
serious deficiency determination, and provide a copy of the notice to 
the appropriate FNSRO. USDA estimates that 56 State agencies will be 
required to submit 5 notices each year and that it takes approximately 
15 minutes (0.25 hours) to complete this requirement. The existing 
requirement at 7 CFR 226.6(c)(1)(iii)(A) is currently approved with 560 
responses and 140 burden hours. USDA estimates that 70 burden hours and 
280 responses of these estimates are associated with the participating 
institutions, with the rest of the estimates associated with the 
applying institutions. USDA estimates that 70 annual burden hours and 
280 responses will be subtracted from this existing requirement.
    The proposed rule will change the requirement at 7 CFR 
226.6(c)(1)(iii)(B) to 7 CFR 226.6(c)(5)(i)(A). USDA expects that 56 
State agencies will be required to fulfill the existing requirement 
that State Agencies submit a copy of a notice that an institution's 
corrective action has been successful to the appropriate FNSRO for new, 
renewing, and participating institutions. USDA expects that 56 State 
agencies will be required to submit 3.5 notices each year and that it 
takes approximately 15 minutes (0.25 hours) to complete this 
requirement. The existing requirement at 7 CFR 226.6(c)(1)(iii)(B) is 
currently approved with 392 responses and 98 burden hours. USDA 
estimates that 49 burden hours and 196 responses of these estimates are 
associated with participating institutions, with the rest associated 
with the applying institutions. USDA estimates that 49 burden hours and 
196 responses will be subtracted from this existing requirement.
    The proposed rule will change the requirement at 7 CFR 
226.6(c)(1)(iii)(C) to 7 CFR 226.6(c)(6). USDA estimates that 56 State 
agencies will be required to fulfill the existing requirement that 
State agencies submit a copy of the application denial and proposed 
disqualification notice to FNSRO. USDA estimates that 56 State agencies 
will be required to submit 1.5 notices each year and that it takes 
approximately 15 minutes (0.25 hours) to complete this requirement. The 
existing requirement at 7 CFR 226.6(c)(1)(iii)(C) is currently approved 
with 168 responses and 42 burden hours. USDA estimates that 84 
responses and 21 burden hours of these estimates are associated with 
the participating institutions, with the rest associated with the 
applying institutions. USDA estimates that 21 burden hours and 84 
responses will be subtracted from this existing requirement.
    The proposed rule will change the requirement at 7 CFR 
226.6(c)(1)(iii)(E) to 7 CFR 226.6(c)(8). USDA expects that 56 State 
agencies will be required to fulfill the existing requirement that SAs 
submit copies of disqualification notices to the FNSRO for new, 
renewing, and participating institutions. USDA expects that 56 State 
agencies will be required to submit 1.5 notices each year and that it 
takes approximately 15 minutes (0.25 hours) to complete this 
requirement. The existing requirement at 7 CFR 226.6(c)(1)(iii)(E) is 
currently approved with 168 responses and 42 burden hours. USDA 
estimates that 84 responses and 21 burden hours of these estimates are 
associated with participating institutions, with the remaining 
estimates associated with the applying institutions. USDA estimates 
that 21 burden hours and 84 responses will be subtracted from this 
existing requirement.
    The proposed rule will change the requirement at 7 CFR 226.6(p) for 
State agencies to develop and provide the use of a standard form of a 
written permanent agreement (which must specify the rights and 
responsibilities of both parties) between sponsoring organizations and 
day care homes, unaffiliated centers, outside-school-hours-care 
centers, at-risk afterschool care centers, emergency shelters, or adult 
day care centers for which the State agency has responsibility for 
Program operations to 7 CFR 226.6(n)(1). USDA expects that 15 State 
agencies will be required to develop and provide a standard form a year 
and that it takes approximately 6 hours per response to complete this 
requirement. The existing requirement at 7 CFR 226.6(p) has a total of 
90 annual burden hours and 15 responses. The proposed rule is changing 
the regulatory citation for this requirement but otherwise has no 
further impact on the requirement or its burden so no additional burden 
hours or responses will be added to this requirement.
    The proposed rule will add additional reporting requirements that 
apply the Serious Deficiency Process to MSSOs operating the Program.
    USDA estimates that 56 State agencies will be required to fulfill 
the new requirement at 7 CFR 226.6(q) that State agencies must 
determine if a sponsoring organization is an MSSO and assume the role 
of a Cognizant State agency (CSA) if the MSSOs center of operations is 
located within the State. USDA estimates that the 56 State agencies 
will be required to make 23 MSSO determinations each year and that it 
takes approximately 15 minutes (0.25 hours) to complete this 
requirement; which is estimated to add 322 annual burden hours and 
1,288 responses to the collection.
    USDA expects that 56 State agencies will be required to fulfill the 
new requirement at 7 CFR 226.6(q)(1)(i) that State agencies must enter 
into a permanent written agreement with the MSSO. USDA expects that the 
56 State agencies will be required to make 23 permanent agreements each 
year and that it takes approximately 15 minutes (0.25 hours) to 
complete this requirement; which is estimated to add 322 annual burden 
hours and 1,288 responses to the collection.
    USDA estimates that 56 State agencies will be required to fulfill 
the new requirement at 7 CFR 226.6(q)(1)(ii) that State agencies must 
approve the MSSOs administrative budget. USDA estimates that the 56 
State agencies will be required to approve 23 administrative budgets 
each year and that it takes approximately 15 minutes (0.25 hours) to 
complete this requirement; which is estimated to add 322 annual burden 
hours and 1,288 responses to the collection.
    USDA expects that 56 State agencies will be required to fulfill the 
new requirement at 7 CFR 226.6(q)(1)(iii) that State agencies must 
conduct monitoring of MSSO Program operations within the State. USDA 
expects that the 56 State agencies will be required to monitor 23 MSSOs 
each year and that it takes approximately 15 minutes (0.25 hours) to 
complete this requirement; which is estimated to add 322 annual burden 
hours and 1,288 responses to the collection.
    USDA estimates that 56 State agencies will be required to fulfill 
the new requirement at 7 CFR 226.6(q)(1)(iii)(C) that State agencies 
provide summaries of the MSSO reviews that are conducted to the CSA and 
if the State agency conducts a full review, the State agency

[[Page 13184]]

should request the necessary records from the CSA. USDA estimates that 
the 56 State agencies will be required to submit 23 MSSO review 
summaries to the CSA annually and that it takes approximately 15 
minutes (0.25 hours) to complete this requirement; which is estimated 
to add 322 annual burden hours and 1,288 responses to the collection.
    USDA estimates that 56 State agencies will be required to fulfill 
the new requirement at 7 CFR 226.6(q)(1)(iv) that State agencies must 
conduct audit resolution activities. USDA estimates that the 56 State 
agencies will be required to conduct 5 audit resolution activities each 
year and that it takes approximately 15 minutes (0.25 hours) to 
complete this requirement; which is estimated to add 70 annual burden 
hours and 280 responses to the collection.
    USDA expects that 56 State agencies will be required to fulfill the 
new requirement at 7 CFR 226.6(q)(1)(v) that State agencies must notify 
all other State agencies that have an agreement with an MSSO that their 
agreement has been terminated and disqualification actions taken 
against that MSSO. USDA expects that the 56 State agencies will be 
required to make 23 notifications a year and that it takes 
approximately 15 minutes (0.25 hours) to complete this requirement; 
which is estimated to add 322 annual burden hours and 1,288 responses 
to the collection.
    USDA estimates that 56 State agencies will be required to fulfill 
the new requirement at 7 CFR 226.6(q)(2) that State agencies must 
determine if an MSSOs center of operations are located within the State 
and assume the role of the CSA. USDA estimates that the 56 State 
agencies will be required to make 23 MSSO determinations each year and 
that it takes approximately 15 minutes (0.25 hours) to complete this 
requirement; which is estimated to add 322 annual burden hours and 
1,288 responses to the collection.
    USDA expects that 56 State agencies will be required to fulfill the 
new requirement at 7 CFR 226.6(q)(2)(iii) that the CSA must conduct a 
full review of the MSSOs headquarters and financial records center, 
must coordinate the timing of the reviews, and make copies of the 
monitoring reports and findings available to all other State agencies 
that have agreements with the MSSO. USDA expects that the 56 State 
agencies will be required to conduct full reviews of 23 MSSO 
headquarters and financial records centers annually and that it takes 
approximately 20 hours to complete this requirement; which is estimated 
to add 25,760 annual burden hours and 1,288 responses to the 
collection.
    UDSA estimates that 56 State agencies will be required to fulfill 
the new requirement at 7 CFR 226.6(q)(2)(iv) that, if an MSSO has for-
profit status, the cognizant agency must establish audit thresholds and 
requirements. USDA estimates that the 56 State agencies will be 
required to establish audit thresholds and requirements for 6 for-
profit MSSOs annually and that it takes approximately 1 hour to 
complete this requirement; which is estimated to add 336 annual burden 
hours and responses to the collection.
    The proposed rule will change the requirement at 7 CFR 226.6(r) to 
7 CFR 226.6(p), which requires State agencies to provide information on 
the importance and benefits of the Special Supplemental Nutrition 
Program for Women, Infants, and Children (WIC) and WIC income 
eligibility guidelines to participating institutions. USDA estimates 
that 56 State agencies will be required to fulfill the requirements 
each year and that it takes approximately 15 minutes (0.25 hours) to 
complete this requirement. The existing requirement at 7 CFR 226.6(r) 
has a total of 14 annual burden hours and 56 responses. The proposed 
rule is changing the regulatory citation for this requirement, but 
otherwise has no further impact on the requirement or its burden so no 
additional burden hours or responses will be added to the collection.
    As a part of the Serious Deficiency Process, the proposed rule will 
be adding a requirement at 7 CFR 226.25(a)(2)(i) and (a)(3) that State 
agencies must identify serious management problems and define a set of 
standards to help measure the severity of a problem to determine what 
rises to the level of a serious management problem. USDA expects that 
56 State agencies will be required to define a set of standards to 
identify serious management problems a year and that it takes 
approximately 1 hour to complete this requirement; which is estimated 
to add 56 burden hours and responses to the collection.
    As a part of the changes to 7 CFR 226.6, the proposed rule 
subtracts burden from currently approved requirements to create 
separate citations for applying institutions and participating 
institutions. The burden associated with applying institutions remain 
in 7 CFR 226.6 while the burden associated with participating 
institutions is subtracted from the old citations and added to new 
citations in 7 CFR 226.25. Overall, no new burden will be added to the 
collection as a result of the following changes.
    USDA estimates that 56 State agencies will be required to fulfill 
the changed requirement at 7 CFR 226.25(a)(2)(ii), (a)(5), and 
(a)(6)(i) that State agencies notify a participating institution's 
executive director and chairman of the board of directors, responsible 
principals, and responsible individuals that serious problems have been 
identified, must be addressed, and corrected. USDA estimates that 56 
State agencies will notify 5 institutions a year and that it takes 
approximately 15 minutes (0.25 hours) to complete this requirement. The 
proposed requirement at the regulatory citations noted above adds back 
a total of 70 burden hours and 280 responses for the participating 
institutions which was subtracted from the old citation of 7 CFR 
226.6(c)(1)(iii)(A) (originally approved with 560 responses and 140 
burden hours for both the applying and participating institutions; it 
is now estimated that the applying institutions now have 70 burden 
hours and 280 responses). Therefore, USDA estimates that 70 hours and 
280 responses will be added back to the collection.
    USDA expects that 56 State agencies will be required to fulfill the 
changed requirement at 7 CFR 226.25(a)(2)(ii), (a)(5), and 
(a)(6)(ii)(A) that State agencies notify a participating institution's 
executive director and chairman of the board of directors, responsible 
principals, and responsible individuals that the serious management 
problem has been vacated, update the State agency list, and provide a 
copy of the notice to the appropriate FNSRO. USDA expects that 56 State 
agencies will notify 3.5 institutions a year and that it takes 
approximately 15 minutes (0.25 hours) to complete this requirement. The 
proposed requirement at the regulatory citations noted above adds back 
a total of 49 burden hours and 196 responses for the participating 
institutions, which was subtracted from the old citation of 7 CFR 
226.6(c)(1)(iii)(B) (originally approved with 98 burden hours and 392 
responses for both the applying and participating institutions; it is 
now estimated that the applying institutions will have 49 burden hours 
and 196 responses). Therefore, USDA estimates that 49 hours and 196 
responses will be added back to the collection.
    USDA estimates that 56 State agencies will be required to fulfill 
the changed requirement at 7 CFR 226.25(a)(2)(ii), (a)(5), and 
(a)(6)(ii)(B) that State agencies notify a participating institution's 
executive director and chairman of the board of directors,

[[Page 13185]]

responsible principals, and responsible individuals that the State 
agency proposes to terminate the institution's agreement and disqualify 
the institution, the responsible principals and responsible 
individuals. USDA estimates that 56 State agencies will notify 1.5 
institutions a year and that it takes approximately 15 minutes (0.25 
hours) to complete this requirement. The proposed requirement at the 
regulatory citations noted above adds back a total of 21 burden hours 
and 84 responses for the participating institutions, which was 
subtracted from the old citation of 7 CFR 226.6(c)(1)(iii)(C) 
(originally approved with 42 burden hours and 168 responses for both 
the applying and participating institutions; it is now estimated that 
the applying institutions will have 21 burden hours and 84 responses). 
Therefore, USDA estimates that 21 hours and 84 responses will be added 
back to the collection.
    USDA expects that 56 State agencies will be required to fulfill the 
changed requirement at 7 CFR 226.25(a)(2)(ii), (a)(5), and 
(a)(6)(iii)(A) and (B) that State agencies notify a participating 
institution's executive director and chairman of the board of 
directors, responsible principals, and responsible individuals of the 
appeal determination, and whether the institution's agreement is 
terminated, issue a notice of serious deficiency if the institution's 
agreement is terminated, update the State agency list, and provide a 
copy to the appropriate FNSRO. USDA expects that 56 State agencies will 
notify 1.5 institutions a year and that it takes approximately 15 
minutes (0.25 hours) to complete this requirement. The proposed 
requirement at the regulatory citations noted above adds back a total 
of 21 burden hours and 84 responses for the participating institutions, 
which was subtracted from the old citation of 7 CFR 226.6(c)(1)(iii)(E) 
(originally approved with 42 burden hours and 168 responses for both 
the applying and participating institutions; it is now estimated that 
the applying institutions will have 21 burden hours and 84 responses). 
Therefore, USDA estimates that 21 hours and 84 responses will be added 
back to the collection.
    The proposed rule will add additional requirements to 7 CFR 226.25 
regarding the placement of institutions, day care homes, and 
unaffiliated centers that have been determined to have serious 
management problems.
    USDA estimates that 56 State agencies will be required to fulfill 
the requirement at 7 CFR 226.25(b) that State agencies maintain a State 
agency list, made available to FNS upon request. USDA estimates that 
the 56 State agencies will each make 10,570 updates annually ((6,843 
Independent Child Care Centers + 89,853 Family Day Care Homes + 21,692 
Unaffiliated Centers)/56 State Agencies) x 5 Steps in the Serious 
Deficiency Process = 10,570) and that it takes approximately 15 minutes 
(0.25 hours) to complete this requirement; which is estimated to add 
147,973.75 annual burden hours and 591,895 responses to this 
collection.
    The proposed rule will add additional requirements to 7 CFR 226.25 
regarding corrective action plans and monitoring requirements of State 
agencies.
    USDA estimates that 56 State agencies will be required to fulfill 
the requirement at 7 CFR 226.25(c)(2)(iv)(C) that State agencies 
receive and approve submitted corrective action plans within 90 days 
from the date the institution received the notice and that the State 
agency monitor the full implementation of the corrective action plan. 
USDA estimates that the 56 State agencies will review 3 corrective 
action plans a year and that it takes approximately 15 minutes (0.25 
hours) to complete this requirement; which is estimated to add 42 
annual burden hours and 168 responses to the collection.
    USDA expects that 56 State agencies will be required to fulfill the 
requirement at 7 CFR 226.25(c)(3)(i) and 226.6(k)(2) that State 
agencies conduct and prioritize follow-up reviews and more frequent 
full reviews of institutions with serious management problems. USDA 
expects that the 56 State agencies will have to conduct reviews of 39 
participating institutions a year and that it takes approximately 20 
hours to complete this requirement; which is estimated to add 43,680 
annual burden hours and 2,184 responses to the collection.
    The proposed rule will change the currently approved requirement at 
7 CFR 226.6(c)(6)(ii)(G) to 7 CFR 226.25(d)(1). Under this requirement, 
State agencies are required to terminate for cause the Program 
agreement with a participating institution upon declaration of the 
facility or institution of being seriously deficient. USDA estimates 
that 56 State agencies will terminate 3 participating institutions each 
year and that it takes approximately 15 minutes (0.25 hours) to 
complete this requirement. The existing requirement at 7 CFR 
226.6(c)(6)(ii)(G) has a total of 42 annual burden hours and 168 
responses. The proposed rule is changing the regulatory citation for 
this requirement, but otherwise has no further impact on the 
requirement or its burden so no additional hours or responses will be 
added to the collection as a result of this proposed rule.
    The proposed rule will add additional requirements for State 
agencies to follow after terminating an agreement with a participating 
institution.
    USDA estimates that 56 State agencies will be required to fulfill 
the new requirement at 7 CFR 226.25(d)(2) that State agencies develop a 
contingency plan for the transfer of facilities if a sponsoring 
organization is terminated or disqualified to ensure that eligible 
participants continue to have access to meals. USDA estimates that the 
56 State agencies will develop 3 contingency plans each year and that 
it takes approximately 2 hours to complete this requirement; which is 
estimated to add 336 annual burden hours and 168 responses to the 
collection.
    USDA expects that 56 State agencies will be required to fulfill the 
new requirement at 7 CFR 226.25(e)(2)(iii) that, if all serious 
management problems have been corrected and all debts have been repaid, 
State agencies may elect to remove an institution, responsible 
principals, and responsible individuals from the National Disqualified 
List, and must submit all requests for early removals to the 
appropriate FNSRO. USDA expects that the 56 State agencies will remove 
up to 3 institutions from the National Disqualified List each year and 
that it takes approximately 15 minutes (0.25 hours) to complete this 
requirement; which is estimated to add 42 annual burden hours and 168 
responses to the collection.
    USDA estimates that 56 State agencies will be required to fulfill 
the new requirements at 7 CFR 226.25(e)(3)(ii) that State agencies must 
enter into written agreements with FNS, in order to participate in a 
matching program involving a FNS Federal system of records. USDA 
estimates that the 56 State agencies will enter into a CMA written 
agreement annually and that it takes approximately 1 hour to complete 
this requirement; which is estimated to add 56 annual burden hours and 
responses to the collection.
    USDA expects that 56 State agencies will be required to fulfill the 
new requirements at 7 CFR 226.25(e)(3)(iii)(B) that State agencies may 
request FNS to waive the two-step independent verification and notice 
requirement of the CMA. USDA expects that the 56 State agencies will 
submit a waiver request annually and that it takes approximately 1 hour 
to complete this requirement; which is estimated to add 56 annual 
burden hours and responses to the collection.
    The proposed rule will change the remaining citations belonging to 
the

[[Page 13186]]

Serious Deficiency Process in 7 CFR 226.6 to 7 CFR 226.25. As these are 
changes only to citations, no new burden will be added to the 
collection.
    USDA estimates that 56 State agencies will be required to fulfill 
the changed requirement at 7 CFR 226.25(f)(1)(i)(A) and (f)(2)(i)(A) 
that State agencies initiate action for termination and 
disqualification upon determination of an imminent threat to the health 
and safety of participants or that the institution knowingly submitted 
a false or fraudulent claim, submit a combined notice of suspension, 
proposed termination, and proposed disqualification to the institution, 
and notify the appropriate FNSRO. USDA estimates that the 56 State 
agencies will take action for termination and disqualification against 
these participating institutions once a year and that it takes 
approximately 15 minutes (0.25 hours) to complete this requirement. The 
number of annual burden hours and responses for this requirement 
remains unchanged from its older citation at 7 CFR 226.6(c)(5)(i)(A) 
and (B), (c)(5)(ii)(A) and (B), (c)(5)(ii)(D) and (c)(6)(ii)(B), so 
this requirement still has a total of 14 annual burden hours and 56 
responses.
    USDA expects that 56 State agencies will be required to fulfill the 
changed requirement at 7 CFR 226.25(g) that State agencies annually 
submit administrative review (appeals) procedures to all institutions. 
USDA expects that the 56 State agencies will submit annual 
administrative procedures to 21,840 institutions a year and that it 
takes approximately 1 minute (0.02 hours) to complete this reporting 
requirement for each record. The number of annual burden hours and 
responses from this requirement remains unchanged from its older 
citation at 7 CFR 226.6(k)(4)(i), so this requirement still has a total 
of 364.73 annual burden hours and 21,840 responses.
    USDA estimates that 56 State agencies will be required to fulfill 
the changed requirement at 7 CFR 226.25(g)(1) that State agencies must 
submit administrative review (appeal) procedures when applicable action 
is taken. USDA estimates that the 56 State agencies will submit 
procedures 5 times a year and that it takes approximately 15 minutes 
(0.25 hours) to complete this requirement. The number of annual burden 
hours and responses for this requirement remains unchanged from its 
older citation at 7 CFR 226.6(k)(4)(ii), so it still has a total of 70 
annual burden hours and 280 responses.
    USDA estimates that 56 State agencies will be required to fulfill 
the changed requirement at 7 CFR 226.25(g)(1)(iii) that State agencies 
notify the institution's executive director and chairman of the board 
of directors, responsible principals, and responsible individuals that 
action is being taken against them, the basis for the action, and the 
procedures to be followed to request an administrative review (appeal) 
of the action. USDA estimates that the 56 State agencies will notify 3 
participating institutions a year and that it takes approximately 15 
minutes (0.25 hours) to complete this requirement. The number of annual 
burden hours and responses for this requirement remains unchanged from 
its older citation at 7 CFR 226.6(k)(5)(i), so this requirement still 
has a total of 42 annual burden hours and 168 responses.
    USDA expects that 56 State agencies will be required to fulfill the 
changed requirement at 7 CFR 226.25(g)(1)(iv)(E) that State agencies 
submit written documentation to a hearing official prior to the 
beginning of an administrative hearing, within 30 days after receiving 
the notice of action. USDA expects that the 56 State agencies will 
submit written documentation to a hearing official 3 times a year and 
that it takes approximately 2 hours to complete this requirement. The 
number of annual burden hours and responses for this requirement 
remains unchanged from its older citation at 7 CFR 226.6(k)(5)(v), so 
this requirement still has a total of 336 annual burden hours and 168 
responses.
    USDA estimates that 56 State agencies will be required to fulfill 
the changed requirement at 7 CFR 226.25(g)(2) that State agencies 
provide participating institutions advanced notification at least 5 
days in advance of the time and place of the hearing. USDA estimates 
that the 56 State agencies will notify 3 participating institutions a 
year and that it takes approximately 5 minutes (0.08 hours) to complete 
this requirement. The number of annual burden hours and responses for 
this requirement remains unchanged from its older citation at 7 CFR 
226.6(k)(5)(ii), so this requirement still has a total of 14.03 annual 
burden hours and 168 responses.
    USDA expects that 56 State agencies will be required to fulfill the 
changed requirement at 7 CFR 226.25(g)(2) that State agencies 
participate in a hearing to determine that the State agency followed 
Program requirements in taking action under appeal. USDA estimates that 
the 56 State agencies will participate in 3 hearings a year and that it 
takes approximately 4 hours to complete this requirement. The number of 
annual burden hours and responses for this requirement remains 
unchanged from its older citation at 7 CFR 226.6(k)(5)(vi), so this 
requirement still has a total of 672 annual burden hours and 168 
responses.
    USDA estimates that 56 State agencies will be required to fulfill 
the changed requirement at 7 CFR 226.25(g)(5)(i) and (ii) that 
participating institutions, responsible principals, and responsible 
individuals are informed of the decision made by the hearing official 
within 60 days of the date the State agency received the appeal 
request. USDA estimates that the 56 State agencies will notify 3 
participating institutions a year and that it takes approximately 30 
minutes (0.5 hours) to complete this requirement. The number of annual 
burden hours and responses for this requirement remains unchanged from 
its older citation at 7 CFR 226.6(k)(5)(ix) and (k)(9), so it still has 
a total of 84 annual burden hours and 168 responses.
    USDA expects that 56 State agencies will be required to fulfill the 
changed requirement at 7 CFR 226.25(h)(3)(i) that State agencies send a 
necessary demand letter for the collection of unearned payments, 
including any assessment of interest, and refer the claim to the 
appropriate State authority for the pursuit of the debt payment. USDA 
estimates that the 56 State agencies will send 39 necessary demand 
letters a year and that it takes approximately 1minute (0.02 hours) to 
complete this requirement. The number of annual burden hours and 
responses for this requirement remains unchanged from its older 
citation at 7 CFR 226.14(a), so it still has a total of 36.47 annual 
burden hours and 2,184 responses.
Local Government Agencies
    The changes proposed in this rule will impact the existing 
requirements currently approved under OMB Control Number 0584-0055 for 
local government agencies.
    USDA estimates that 3 local government agencies will be required to 
fulfill the requirement at 7 CFR 226.6(b)(1)(xix) that sponsoring 
organizations approved to participate in the Program that operate in 
more than one state must provide the State with additional information 
about their operations. USDA estimates that 3 local government agencies 
will need to report on their operations once a year and that it takes 
approximately 15 minutes (0.25 hours) to complete this requirement; 
which is estimated to add 45 annual burden minutes (0.75 hours) and 3 
responses to the collection.
    USDA expects that 3,257 local government agencies will be required 
to fulfill the requirement at 226.25(a)(2)(i) and 226.25(a)(3) that 
sponsoring

[[Page 13187]]

organizations must identify serious management problems and define a 
set of standards to help measure the severity of a problem to determine 
what rises to the level of a serious management problem and how it 
affects the institution or facility's ability to meet Program 
requirements. USDA expects that 3,257 local government agencies will 
develop a set of standards annually and that it takes approximately 1 
hour to complete this requirement; which is estimated to add 3,257 
annual burden hours and responses to the collection.
    The proposed rule will change the following citation belonging to 
the Serious Deficiency Process in 7 CFR 226.16(l)(3)(i) to 
226.25(a)(2)(ii), (a)(5) and (a)(7)(i). As these are changes only to 
citations, no new burden will be added to the collection.
    USDA estimates that 83 local government agencies will be required 
to fulfill the requirement at 7 CFR 226.25(a)(2)(ii), (a)(5) and 
(a)(7)(i) that sponsoring organizations notify day care homes or 
unaffiliated centers that serious management problems have been 
identified, must be addressed, and corrected. USDA estimates that 83 
local government agencies will send a notice each year and that it 
takes approximately 15 minutes (0.25 hours) to complete this 
requirement. The proposed requirement remains unchanged from its 
currently approved citation at 7 CFR 226.16(l)(3)(i), with a total of 
20.75 annual burden hours and 83 responses.
    The proposed rule requirements for the Serious Deficiency Process 
in 7 CFR 226.25 that affect local government agencies extend the 
Serious Deficiency Process to day care homes and unaffiliated centers 
and reflect the added requirements for local government agencies.
    USDA expects that 3,257 local education agencies will be required 
to fulfill the requirement at 7 CFR 226.25(a)(2)(ii), (a)(5), and 
(a)(7)(ii)(A) that sponsoring organizations notify an institution's 
executive director, chairman of the board of directors, responsible 
principals, and responsible individuals that the serious management 
problems have been vacated. USDA expects that the 3,257 local 
government agencies will send a notification annually and that it takes 
approximately 15 minutes (0.25 hours) to complete this requirement. 
Therefore, USDA estimates that a total of 814.25 annual burden hours 
and 3,257 responses will be added to the collection.
    USDA estimates that 3,257 local education agencies will be required 
to fulfill the requirement at 7 CFR (a)(2)(ii), (a)(5), and 
(a)(7)(ii)(B) that sponsoring organizations notify an institution's 
executive director, chairman of the board of directors, responsible 
principals, and responsible individuals that corrective action has not 
fully corrected each serious management problem and that the sponsoring 
organization proposes to terminate the institution's agreement and 
disqualify the institution, responsible principals, and responsible 
individuals. USDA estimates that the 3,257 local government agencies 
will send a notification annually and that it takes approximately 15 
minutes (0.25 hours) to complete this requirement; which is estimated 
to add 814.25 annual burden hours and 3,257 responses to the 
collection.
    USDA expects that 3,257 local education agencies will be required 
to fulfill the requirement at 7 CFR 226.25(a)(2)(ii), (a)(5), and 
(a)(7)(iii)(A) and (B) that sponsoring organizations notify an 
institution's executive director, chairman of the board of directors, 
responsible principals, and responsible individuals of the appeal 
determination, and, if the appeal is denied, notify them that the 
institution's agreement is terminated and declare the institution or 
facility seriously deficient. USDA expects that the 3,257 local 
government agencies will send a notification annually and that it takes 
approximately 15 minutes (0.25 hours) to complete this requirement; 
which is estimated to add 814.25 annual burden hours and 3,257 
responses to the collection.
    USDA estimates that 3,257 local education agencies will be required 
to fulfill the requirement at 7 CFR 226.25(c)(1) that the institution, 
unaffiliated center, or day care home must submit, in writing, what 
corrective actions have been taken to correct each serious management 
problem. USDA estimates that the 3,257 local government agencies will 
submit a written record of corrective actions taken and that it takes 
approximately 15 minutes (0.25 hours) to complete this requirement; 
which is estimated to add 814.25 annual burden hours and 3,257 
responses to the collection.
    USDA expects that 3,257 local education agencies will be required 
to fulfill the at 7 CFR 226.25(c)(3)(ii) that sponsoring organizations 
conduct follow-up reviews and more frequent full reviews to confirm 
that serious management problems are corrected. USDA expects that the 
3,257 local government agencies will conduct a follow-up review and 
that it takes approximately 20 hours to complete this requirement; 
which is estimated to add 65,140 annual burden hours and 3,257 
responses to the collection.
    USDA estimates that 3,257 local education agencies will be required 
to fulfill the requirement at 7 CFR 226.25(d)(1) that sponsoring 
organizations terminate for cause the Program agreement upon 
declaration of the institution or facility to be seriously deficient. 
USDA estimates that the 3,257 local government agencies will terminate 
an agreement annually and that it takes approximately 15 minutes (0.25 
hours) to complete this requirement; which is estimated to add 814.25 
annual burden hours and 3,257 responses to the collection.
    The proposed rule will change the following citation belonging to 
the Serious Deficiency Process in 7 CFR 226.16(d)(4)(viii) to 7 CFR 
226.25(f)(1)(ii)(A) and 7 226.25(f)(2)(ii)(A). As these are changes 
only to citations, no new burden will be added to the collection.
    USDA estimates that 814 local government agencies will be required 
to fulfill the changed requirement at 7 CFR 226.25(f)(1)(ii)(A) and 
(f)(2)(ii)(A) that sponsoring organizations initiate action for 
termination and disqualification upon determination of an imminent 
threat to the health and safety of participants or that the institution 
knowingly submitted a false or fraudulent claim and submit a combined 
notice of suspension, proposed termination, and proposed 
disqualification to the day care home provider or unaffiliated center. 
USDA estimates that the 814 local government agencies will take action 
for termination and disqualification against these participating 
institutions once a year and that it takes approximately 15 minutes 
(0.25 hours) to complete this requirement. The number of annual burden 
hours and responses from this requirement remains unchanged from its 
older citation at 7 CFR 226.16(d)(4)(viii), with a total of 203.5 
annual burden hours and 814 responses. As a part of the revised serious 
deficiency process, the proposed rule will require State agencies to 
develop a contingency plan in place for the transfer of facilities if a 
sponsoring organization is terminated or disqualified. The added 
requirement, at Sec.  226.25(d)(2), is necessary to ensure that 
eligible participants in the program do not lose meal access as a 
result of a State agency action against an institution with serious 
management problems. The burden for the 56 State agencies is estimated 
at 42 (for 0.25 hours and for 168 total annual responses), an increase 
of 42 annual

[[Page 13188]]

burden hours from the current collection. The new requirement to 
develop a contingency plan is included as a line item in the ICR 
associated with the rulemaking.
    The proposed rule will also relocate the requirements for 
suspension in the event of an imminent threat to health and safety or 
the presence of false or fraudulent claims from Sec.  226.25(c)(5) and 
(6) to a new home in Sec.  226.25(f)(1)(i)(A) and 226.25(f)(2)(i)(A). 
The burden for the 56 State agencies is estimated to remain unchanged 
from the previous collection at 14 (for 0.25 hours and for 56 total 
annual responses). The burden for institutions, however, is expected to 
change due to adjustments accounting for FY2020 CACFP participation 
data. The burden for an estimated 728 local government agencies is 
expected to increase to 182 (for 0.25 hours and for 728 total annual 
responses), an increase of 161.25 hours from the current collection. 
Meanwhile, the burden for an estimated 4,154 business-level 
institutions is expected to decrease to 1,039 (for 0.25 hours and for 
4,154 total annual responses), a decrease of 124 annual burden hours 
from the current collection. The moved suspension requirements have 
been included as line items in the ICR associated with this rulemaking.
    As a part of the proposed rule, requirements regarding the appeals 
process will be relocated to Sec.  226.25(g). State agencies will still 
need to acknowledge the receipt of a request for a fair hearing, submit 
written documentation to the hearing official, provide a fair hearing, 
and inform the sponsor, responsible principals, and responsible 
individuals of the hearing official's final decision. The burden for 
the 56 State agencies will still be 1,106.028 (for 6.5835 hours and for 
168 total annual responses). As such, the burden is expected to remain 
unchanged from the previous collection. The fair hearing requirements 
are listed as line items in the ICR associated with this rulemaking.
    Along with the reporting requirements of the serious deficiency 
rule, State agencies will be required to maintain a State agency list 
that collects information on each institution and facility determined 
to have serious management problems; the names, mailing addresses, and 
dates of birth for each responsible principal and responsible 
individual, as well as the institution or facility's status as it 
progresses through the serious deficiency process. The recordkeeping 
requirements already existed in the previous collection, but the 
proposed rule will be moving the State agency list requirements to 
Sec.  226.25(b) to group the requirement with the other provisions of 
the serious deficiency process for participating institutions. The 
burden for the 56 State agencies is estimated at 1,400 (for 5 hours and 
for 280 total annual responses), resulting in no change from the 
current collection.
    The proposed rule will be offering an opportunity for institutions, 
responsible principals, and responsible individuals to be removed from 
the National Disqualified List earlier than the seven-year timetable, 
at State agency discretion. The disqualified institutions, responsible 
principals, and responsible individuals must correct all serious 
management problems and repay any outstanding debts due to unearned 
payments. Offering this new opportunity will incentivize institutions 
and the responsible individuals and principals to correct their serious 
management problems after they have been disqualified by allowing them 
to exit the National Disqualified List and reapply for participation in 
the Program. Under the proposed rule, FNS will be amending the 
regulations at Sec.  226.25(e)(2)(iv), to give State agencies the 
ability to remove an institution and the responsible principals and 
individuals from the National Disqualified List and require the State 
agency to submit all early removals to the appropriate FNSRO.
    The burden associated with requests for early removals for the 56 
State agencies is estimated at 42 (0.25 hours and for 168 total annual 
respondents). Overall, the burden is expected to increase the burden to 
42 annual burden hours, an increase of 42 hours from the current 
collection. The requirement to submit all requests for early removal 
from the National Disqualified List is included as a line item in the 
ICR associated with this collection.
    Similarly, the burden associated with sending a necessary demand 
letter for the collection of unearned payments remains the same as the 
prior collection. The only difference is that the citation has moved 
from Sec.  226.14(a) to Sec.  226.25(h)(3)(i). The burden for the 56 
State agencies is estimated 42 (for 0.25 hours and for 168 total annual 
responses). Overall, FNS expects that the burden associated with 
sending the necessary demand letter remains unchanged from the current 
collection. The burden associated with this requirement will be 
included as a line item in the ICR associated with this rulemaking.
    At the conclusion of the serious deficiency process, the proposed 
rule requires that the State agency terminate an institution's 
agreement no later than 45 days after the date of the institution's 
disqualification by FNS. The termination requirement has moved from 
Sec.  226.6 to Sec.  226.25(i)(2)(A). By consolidating this requirement 
with other serious deficiency requirements for participating 
institutions should improve the readability of the CACFP regulations 
for State agencies. FNS estimates that the burden for the 56 State 
agencies will remain at 42 (for 0.25 hours and for 168 total annual 
responses), unchanged from the current collection.
    Other requirements that have changed their citations, such as the 
development of a standard form of written permanent agreement and 
provide information on Special Supplemental Nutrition Program for 
Women, Infants and Children (WIC) to participants, from their previous 
citations in the current collection. The development of a standard form 
of written permanent agreement has moved from Sec.  226.6(p) to Sec.  
226.6(n)(1). The burden for the 56 State agencies is estimated as 90 
(for 6 hours and for 15 total annual responses), unchanged from the 
current collection. Meanwhile, the requirement to provide WIC 
information moved from Sec.  226.5(r) to Sec.  226.6(p) and is 
estimated to have a burden of 14 (for 0.25 hours and for 56 total 
annual respondents. The estimated burden for the WIC information 
requirements is expected to remain unchanged from the current 
collection as well. The burden associated with this requirement will be 
included as a line item in the ICR associated with this rulemaking. To 
address comments from State agencies, the proposed rule will be 
amending Sec.  226.6(b)(1)(xix), (b)(2)(iii)(D)(2), (b)(2)(iii)(L), and 
(q) to add specific requirements regarding Multi-State Sponsoring 
Organizations (MSSOs). Prior to the proposed rule, the application 
process for MSSOs was extremely complicated. State agencies asked for 
guidance on how to approach MSSOs during the application process, but 
the existing FNS guidance was outdated and conflicted with the 
regulations in 2 CFR part 200. The new requirements provide a clear 
process as to how State agencies will approach MSSOs applying to 
participate in the CACFP.
    Under the new requirements, sponsoring organizations approved to 
operate in more than one state will be required to submit more 
information than is required in the application process, State agencies 
will be required to develop a process to share that information with 
other Child Nutrition Program State agencies, and ensure that

[[Page 13189]]

the information on MSSO operations are up to date. Furthermore, State 
agencies will be required to determine if a sponsoring organization 
qualifies as an MSSO during their application, enter permanent written 
agreements with the MSSO, approve the MSSO administrative budget, 
conduct monitoring of the MSSOs program operations, conduct audit 
resolution activities, notify other State agencies that have an 
agreement with the MSSO after termination and disqualification actions, 
and assume the role of a Cognizant State Agency (CSA) if the MSSOs 
center of operations is located within the State. Adding the additional 
process should provide a clear process for State agencies to follow and 
eliminate any ambiguity under the current collection regarding MSSOs.
    The burden for the 56 State agencies determining whether an 
applying institution operates in more than one state is estimated at 
294 (for 0.25 hours and for 1,176 total annual responses. Developing 
the required process to share MSSO information is estimated at 56 (for 
1 hour and for 56 total annual responses) while ensuring that MSSO 
operations are up to date is estimated at 294 (for 0.25 hours and for 
1,176 total annual responses). The burden for the 56 State agencies to 
review participating MSSOs is estimated at 1,834 (for 1.75 hours and 
7,336 total annual responses). FNS expects the overall burden regarding 
the new MSSO requirements to increase burden to 2,478 annual burden 
hours, an increase of 2,478 hours.
    Meanwhile, the burden hours for institutions is expected to 
increase to comply with the submission of additional information to the 
appropriate State agency. The burden for the estimated 3 local 
government agencies is expected at 0.75 (for 0.25 hours and 3 total 
annual responses), increasing the burden to 0.75 annual burden hours, 
an increase of 0.75 hours. Business-level institutions must also comply 
with the new requirement. An estimated 997 business-level institutions 
are expected to have an estimated burden at 249 (for 0.25 hours and for 
997 total annual responses), increasing the burden to 249 annual burden 
hours. The new MSSO requirements have been included as line items in 
the ICR associated with this rulemaking.
    The proposed rule will be extending the serious deficiency process 
to unaffiliated centers. While family day care homes and independent 
centers were included in the serious deficiency process, the current 
regulations exclude unaffiliated centers from the serious deficiency 
process. Excluding unaffiliated centers from the serious deficiency 
process created ambiguity between State agencies and unaffiliated 
centers as there was no defined process on how to treat unaffiliated 
centers in the CACFP. By extending the process to unaffiliated centers, 
the proposed rule formalizes the relationship between State agencies 
and unaffiliated centers and establishes a process for accountability 
for complying with program requirements, protecting the program 
integrity of the CACFP. The proposed rule amends regulations at Sec.  
226.17(e) and (f), 226.17a(f)(2)(i) and (ii), 226.19(d), and 226.19a(d) 
to separate out unaffiliated centers from independent centers and 
extend the serious deficiency process to unaffiliated centers.
    The burden for an estimated 28,175 business-level institutions is 
estimated at 5,423.124 (for 0.25 hours and for 21,692) for unaffiliated 
child care centers; 1,710.8665 (for 0.25 hours and for 6,843 total 
annual responses) for independent child care centers; 5,423.124 (for 
0.25 hours and for 21,692) for unaffiliated afterschool child care 
centers; 1,710.8665 (for 0.25 hours and for 6,843 total annual 
responses) for independent afterschool child care centers; 5,423.124 
(for 0.25 hours and for 21,692) for unaffiliated outside-school-hours 
child care centers; and 1,710.8665 (for 0.25 hours and for 6,843 total 
annual responses) for independent outside-school-hours child care 
centers. FNS expects the burden to increase overall to 21,401.9715 
annual burden hours, an increase of 21,401.9715, for these 
requirements.
    The burden for an estimated 28,535 business-level facilities is 
estimated at 5,423.12 (for 0.25 hours and for 21,692 total annual 
responses) for unaffiliated child care centers; 1,710.87 (for 0.25 
hours and for 6,843 total annual responses) for independent child care 
centers; 5,423.12 (for 0.25 hours and for 21,692 total annual 
responses) for unaffiliated afterschool child care centers; 1,710.87 
(for 0.25 hours and for 6,843 total annual responses) for independent 
afterschool child care centers; 5,423.12 (for 0.25 hours and for 21,692 
total annual responses) for unaffiliated outside-school-hours child 
care centers; and 1,710.87 (for 0.25 hours and for 6,843 total annual 
responses) for independent outside-school-hours child care centers. FNS 
expects the burden to increase overall to 28,535 annual burden hours, 
an increase of 28,535, for these requirements. The requirements for 
unaffiliated centers will be included as line items in the ICR 
associated with this rulemaking. The current approved burden for OMB 
Control # 0584-0055 is 4,213,210.887 hours. This rulemaking is expected 
to increase burden by 523,837.943 hours to account for the new 
requirements. In addition, the burden is expected to decrease by 
446,677 hours due to adjustments accounting for CACFP participation 
data collected from FY2022. Taking account of decreases in the number 
of sponsoring organizations, facilities, and participating households 
in the SFSP, the burden is expected to increase by 77,170.390 hours, 
resulting in a revised total burden of 4,290,381.277 hours.
    This rulemaking will add clarity to the serious deficiency process 
by defining key terms, establish a timeline for full correction, and 
establish criteria for determining when the serious deficiency process 
must be implemented. In addition, this rulemaking would also define 
procedures for termination for cause and disqualification, implement 
legal requirements for records maintained on individuals on the 
National Disqualified List, and incorporate additional procedures to 
account for the participation of multi-State sponsoring organizations. 
The proposed rule is intended to improve the integrity of the CACFP.
Institutions
    The changes proposed in this rule will introduce new reporting 
requirements to the existing requirements currently approved under OMB 
Control Number 0584-0055 for business level institutions.
    USDA estimates that 1,116 institutions will be required to fulfill 
the requirement at 7 CFR 226.6(b)(1)(xix) that institutions approved to 
participate in the Program that operate in more than one state must 
provide the State with additional information about their operations. 
USDA estimates that 1,116 institutions will need to report on their 
operations once a year and that it takes approximately 15 minutes (0.25 
hours) to complete this requirement; which is estimated to add 279 
annual burden hours and 1,116 responses to the collection.
    USDA expects that 21,692 institutions will be required to fulfill 
the requirement at 7 CFR 226.17(e) that sponsoring organizations must 
enter into a permanent written agreement, which specifies the rights 
and responsibilities of both parties, with an unaffiliated sponsored 
child care center participating in the Program. USDA expects that 
21,692 institutions will have to enter into an agreement annually and 
that it takes approximately

[[Page 13190]]

15 minutes (0.25 hours) to complete this requirement; which is 
estimated to add 5,423.12 hours and 21,692 responses to the collection.
    USDA estimates that 6,843 institutions will be required to fulfill 
the requirement at 7 CFR 226.17(f) that independent child care centers 
must enter into a permanent written agreement, which specifies the 
rights and responsibilities of both parties, with the State agency. 
USDA estimates that 6,843 institutions will have to enter into an 
agreement annually and that it takes approximately 15 minutes (0.25 
hours) to complete this requirement; which is estimated to add 1,710.87 
annual burden hours and 6,843 responses to the collection.
    USDA expects that 21,692 institutions will be required to fulfill 
the requirement at 7 CFR 226.17a(f)(2)(i) that sponsoring organizations 
must enter into a permanent written agreement, specifying the rights 
and responsibilities of both parties, with an unaffiliated sponsored 
afterschool child care center participating in the Program. USDA 
expects that 21,692 institutions will have to enter into an agreement 
annually and that it takes approximately 15 minutes (0.25 hours) to 
complete this requirement; which is estimated to add 5,423.12 annual 
burden hours and 21,692 responses to the collection.
    USDA estimates that 6,843 institutions will be required to fulfill 
the requirement at 7 CFR 226.17a(f)(2)(ii) that independent afterschool 
child care centers must enter into a permanent written agreement, 
specifying the rights and responsibilities of both parties, with the 
State agency. USDA estimates that 6,843 institutions will have to enter 
into an agreement annually and that it takes approximately 15 minutes 
(0.25 hours) to complete this requirement; which is estimated to add 
1,710.87 annual burden hours and 6,843 responses to the collection.
    USDA expects that 21,692 institutions will be required to fulfill 
the requirement at 7 CFR 226.19(d) that sponsoring organizations must 
enter into a permanent written agreement, specifying the rights and 
responsibilities of both parties, with an unaffiliated sponsored 
outside-school-hours child care centers participating in the Program. 
USDA expects that 21,692 institutions will have to enter into an 
agreement annually and that it takes approximately 15 minutes (0.25 
hours) to complete this requirement; which is estimated to add 5,423.12 
hours and 21,692 responses to the collection.
    USDA estimates that 6,843 institutions will be required to fulfill 
the requirement at 7 CFR 226.19a(d) that sponsoring organizations must 
enter into a permanent written agreement, specifying the rights and 
responsibilities of both parties, with an unaffiliated sponsored adult 
day care centers participating in the Program. USDA estimates that 
6,843 institutions will have to enter into an agreement annually and 
that it takes approximately 15 minutes (0.25 hours) to complete this 
requirement; which is estimated to add 1,710.87 annual burden hours and 
6,843 responses to the collection.
    USDA expects that 18,601 institutions will be required to fulfill 
the requirement at 226.25(a)(2)(i) and 226.25(a)(3) that sponsoring 
organizations must identify serious management problems and define a 
set of standards to help measure the severity of a problem to determine 
what rises to the level of a serious management problem and how it 
affects the institution or facility's ability to meet Program 
requirements. USDA expects that 18,601 institutions will develop a set 
of standards annually and that it takes approximately 1 hour to 
complete this requirement; which is estimated to add 18,601 annual 
burden hours and responses to the collection.
    The proposed rule will change the following citation belonging to 
the Serious Deficiency Process in 7 CFR 226.16(l)(3)(i) to 7 CFR 
226.25(a)(2)(ii), (a)(5) and (a)(7)(i). As these are changes only to 
citations, no new burden will be added to the collection.
    USDA estimates that 540 institutions will be required to fulfill 
the requirement at 7 CFR 226.25(a)(2)(ii), (a)(5) and (a)(7)(i) that 
sponsoring organizations notify day care homes or unaffiliated centers 
that serious management problems have been identified, must be 
addressed, and corrected. USDA estimates that 540 institutions will 
send a notice each year and that it takes approximately 15 minutes 
(0.25 hours) to complete this requirement. The proposed requirement 
remains unchanged from its currently approved citation at 7 CFR 
226.16(l)(3)(i), with a total of 135 annual burden hours and 540 
responses.
    The proposed rule requirements for the Serious Deficiency Process 
in 7 CFR 226.25 that affect institutions extend the Serious Deficiency 
Process to day care homes and unaffiliated centers, and reflect the 
added requirements for institutions.
    USDA expects that 18,601 institutions will be required to fulfill 
the reporting requirement at 7 CFR 226.25(a)(2)(ii), (a)(5), and 
(a)(7)(ii)(A) that sponsoring organizations notify an institution's 
executive director, chairman of the board of directors, responsible 
principals, and responsible individuals that the serious management 
problems have been vacated. USDA expects that the 18,601 institutions 
will send a notification annually and that it takes approximately 15 
minutes (0.25 hours) to complete this requirement; which is estimated 
to add 4,650.25 annual burden hours and 18,601 responses to the 
collection.
    USDA estimates that 18,601 institutions will be required to fulfill 
the requirement at 7 CFR 226.25(a)(2)(ii), (a)(5), and (a)(7)(ii)(B) 
that sponsoring organizations notify an institution's executive 
director, chairman of the board of directors, responsible principals, 
and responsible individuals that the sponsoring organization proposes 
to terminate the institution's agreement and disqualify the 
institution, responsible principals, and responsible individuals. USDA 
estimates that the 18,601 institutions will send a notification 
annually and that it takes approximately 15 minutes (0.25 hours) to 
complete this requirement; which is estimated to add 4,650.25 annual 
burden hours and 18,601 responses to the collection.
    USDA estimates that 18,601 institutions will be required to fulfill 
the requirements at 7 CFR 226.25(a)(2)(ii), (a)(5), and (a)(7)(iii)(A) 
that sponsoring organizations notify an institution's executive 
director, chairman of the board of directors, responsible principals, 
and responsible individuals of the appeal determination. USDA estimates 
that 18,601 institutions will send a notification annually and that it 
takes approximately 15 minutes (0.25 hours) to complete this 
requirement; which is estimated to add 4,650.25 annual burden hours and 
18,601 responses to the collection.
    USDA expects that 18,601 institutions will be required to fulfill 
the requirement at 7 CFR 226.25(a)(2)(ii), (a)(5), and (a)(7)(iii)(B) 
that sponsoring organizations must notify the day care home or 
unaffiliated center's executive director, chairman of the board of 
directors, responsible principals, and responsible individuals that the 
agreement is terminated and declare that the institution or facility is 
seriously deficient. USDA expects that the 18,601 institutions will 
send a notification annually and that it takes approximately 15 minutes 
(0.25 hours) to complete this requirement; which is estimated to add 
4,650.25 annual burden hours and 18,601 responses to the collection.
    USDA estimates that 18,601 institutions will be required to fulfill 
the requirement at 7 CFR 226.25(c)(1) that the institution, 
unaffiliated center, or

[[Page 13191]]

day care home must submit, in writing, what corrective actions have 
been taken to correct each serious management problem. USDA estimates 
that the 18,601 institutions will submit a written record of corrective 
actions taken and that it takes approximately 15 minutes (0.25 hours) 
to complete this requirement; which is estimated to add 4,650.25 annual 
burden hours and 18,601 responses to the collection.
    USDA expects that 18,601 institutions will be required to fulfill 
the requirement at 7 CFR 226.25(c)(3)(ii) that sponsoring organizations 
must conduct reviews to confirm that the serious management problems 
are corrected. USDA expects that the 18,601 institutions will conduct a 
follow-up review and that it takes approximately 20 hours to complete 
this requirement; which is estimated to add 372,020 annual burden hours 
and 18,601 to the collection.
    USDA estimates that 18,601 institutions will be required to fulfill 
the requirement at 7 CFR 226.25(d)(1) that sponsoring organizations 
terminate for cause the Program agreement upon declaration of the 
institution or facility to be seriously deficient. USDA estimates that 
the 18,601 institutions will terminate an agreement annually and that 
it takes approximately 15 minutes (0.25 hours) to complete this 
requirement; which is estimated to add 4,650.25 annual burden hours and 
18,601 responses to the collection.
    The proposed rule will change the following citation belonging to 
the Serious Deficiency Process in 7 CFR 226.16(d)(4)(viii) to 7 CFR 
226.25(f)(1)(ii)(A) and (f)(2)(ii)(A). As these are changes only to 
citations, no new burden will be added to the collection.
    USDA estimates that 4,650 local government agencies will be 
required to fulfill the changed requirement at 7 CFR 
226.25(f)(1)(ii)(A) and 226.25(f)(2)(ii)(A) that sponsoring 
organizations initiate action for termination and disqualification upon 
determination of an imminent threat to the health and safety of 
participants or that the institution knowingly submitted a false or 
fraudulent claim. USDA estimates that the 4,650 local government 
agencies will take action for termination and disqualification against 
these participating institutions once a year and that it takes 
approximately 15 minutes (0.25 hours) to complete this requirement. The 
number of annual burden hours and responses for this requirement 
remains unchanged from its older citation at 7 CFR 226.16(d)(4)(viii), 
with a total of 1,162.50 annual burden hours and 4,650 responses.
Facilities
    The changes proposed in this rule will introduce new reporting 
requirements to the existing requirements that are currently approved 
under OMB Control Number 0584-0055 for business level facilities.
    USDA expects that 21,692 facilities will be required to fulfill the 
requirement at 7 CFR 226.17(e) that sponsoring organizations must enter 
into a permanent written agreement, specifying the rights and 
responsibilities of both parties, with an unaffiliated sponsored child 
care center participating in the Program. USDA expects that 21,692 
facilities will have to enter into an agreement annually and that it 
takes approximately 15 minutes (0.25 hours) to complete this 
requirement' which is estimated to add 5,423.12 hours and 21,692 
responses to the collection.
    USDA estimates that 6,843 facilities will be required to fulfill 
the requirement at 7 CFR 226.17(f) that independent child care centers 
must enter into a permanent written agreement, specifying the rights 
and responsibilities of both parties, with the State agency. USDA 
estimates that 6,843 facilities will have to enter into an agreement 
annually and that it takes approximately 15 minutes (0.25 hours) to 
complete this requirement; which is estimated to add 1,710.87 annual 
burden hours and 6,843 responses to the collection.
    USDA expects that 21,692 facilities will be required to fulfill the 
requirement at 7 CFR 226.17a(f)(2)(i) that sponsoring organizations 
must enter into a permanent written agreement, specifying the rights 
and responsibilities of both parties, with an unaffiliated sponsored 
afterschool child care center participating in the Program. USDA 
expects that 21,692 facilities will have to enter into an agreement 
annually and that it takes approximately 15 minutes (0.25 hours) to 
complete this requirement; which is estimated to add 5,423.12 annual 
burden hours and 21,692 responses to the collection.
    USDA estimates that 6,843 facilities will be required to fulfill 
the requirement at 7 CFR 226.17a(f)(2)(ii) that independent afterschool 
child care centers must enter into a permanent written agreement, 
specifying the rights and responsibilities of both parties, with the 
State agency. USDA estimates that 6,843 facilities will have to enter 
into an agreement annually and that it takes approximately 15 minutes 
(0.25 hours) to complete this requirement; which is estimated to add 
1,710.87 annual burden hours and 6,843 responses to the collection.
    USDA expects that 21,692 facilities will be required to fulfill the 
requirement at 7 CFR 226.19(d) that sponsoring organizations must enter 
into a permanent written agreement, specifying the rights and 
responsibilities of both parties, with an unaffiliated sponsored 
outside-school-hours child care center participating in the Program. 
USDA expects that 21,692 facilities will have to enter into an 
agreement annually and that it takes approximately 15 minutes (0.25 
hours) to complete this requirement; which is estimated to add 5,423.12 
hours and 21,692 responses to the collection.
    USDA estimates that 6,843 facilities will be required to fulfill 
the requirement at 7 CFR 226.19a(d) that sponsoring organizations must 
enter into a permanent written agreement, specifying the rights and 
responsibilities of both parties, with an unaffiliated sponsored adult 
day care center participating in the Program. USDA estimates that 6,843 
facilities will have to enter into an agreement annually and that it 
takes approximately 15 minutes (0.25 hours) to complete this 
requirement; which is estimated to add 1,710.87 annual burden hours and 
6,843 responses to the collection.
Recordkeeping
State Agencies
    The proposed rule will change the recordkeeping requirement at 7 
CFR 226.6 to 7 CFR 226.25(b), which requires State agencies to collect 
and maintain on file CACFP agreements (Federal/State and State/
Institutions), records received from applicant and participating 
institutions, National Disqualified Lists/State Agency Lists, and 
documentation of any administrative review (appeals), Program 
assistance, activities, results, and corrective actions.
    USDA estimates that 56 State agencies will fulfill the requirement 
at 7 CFR 226.25(b). As a part of the requirement, USDA estimates that 
the 56 State agencies will maintain 5 sets of records and that it takes 
approximately 5 hours to complete this recordkeeping requirement for 
each record. The FNS-843 Report of Disqualification from Participation: 
Institution and Responsible Principals/Individuals and the FNS-844 
Report of Disqualification from Participation--Individually 
Disqualified Responsible Principal/Individual or Day Care Home Provider 
forms are included among the records associated with this requirement. 
The

[[Page 13192]]

proposed requirement does not change from the existing requirement at 7 
CFR 226.6 in the currently approved collection, so this requirement 
still has a total of 1,400 annual burden hours and 280 responses.
    USDA expects that 56 State agencies will fulfill the requirement at 
7 CFR 226.25(c) that State agencies must collect and maintain on file 
corrective action plans submitted by institutions, unaffiliated 
centers, or day care homes, in writing, which must discuss what 
corrective actions have been taken to correct each serious management 
problem. USDA expects that the 56 State agencies will each keep 3 
records for submitted corrective action plans annually and that it 
takes 1 hour and 30 minutes (1.5 hours) to complete this requirement; 
which is estimated to add 252 annual burden hours and 168 responses to 
the collection.
Public Disclosure
State Agencies
    The proposed rule will add an additional public disclosure 
requirement at 7 CFR 226.6(q)(2)(iii) as a part of the new review 
process for Multi-State Sponsoring Organizations (MSSOs).
    USDA estimates that 56 State agencies will fulfill the requirement 
at 7 CFR 226.6(q)(2)(iii) that the Cognizant State Agency (CSA) must 
conduct a full review at the MSSO headquarters and financial records 
center, must coordinate the timing of the reviews and make copies of 
monitoring reports and findings available to all other State agencies 
that have agreements with the MSSO. USDA estimates that the 56 State 
agencies will each disclose the findings of 23 MSSO reviews to other 
State agencies annually and that it takes 15 minutes (0.25 hours) to 
complete this requirement; which is estimated to add 322 annual burden 
hours and 1,288 responses to the collection.
    FNS estimates that the burden estimates for the proposals outlined 
in this rulemaking, will have 79,040 respondents, 985,507 total annual 
responses, and 760,711 total burden hours. Therefore, FNS estimates 
that as a result of this proposed rulemaking, OMB Control Number 0584-
0055 will have 3,852,077 respondents, 17,165,505 responses and 
4,968,899 burden hours, an increase of approximately 57,128 
respondents, 952,412 responses, and 755,688 burden hours. The average 
burden per response and the annual burden hours are explained below and 
summarized in the charts which follow.
Reporting
    Respondents (Affected Public): Businesses; and State, Local, and 
Tribal Government. The respondent groups identified includes 
institutions, facilities, State agencies, and Local government 
agencies.
    Estimated Number of Respondents: 78,984.
    Estimated Number of Responses per Respondent: 12.455.
    Estimated Total Annual Responses: 983,771.
    Estimated Time per Response: 0.77.
    Estimate Total Annual Burden on Respondents: 758,737.
Recordkeeping
    Respondents (Affected Public): State, Local, and Tribal Government. 
The respondent groups identified include State agencies.
    Estimated Number of Respondents: 56.
    Estimated Number of Responses per Respondent: 8.
    Estimated Total Annual Responses: 448.
    Estimated Time per Response: 3.69.
    Estimate Total Annual Burden on Respondents: 1,652.
Public Disclosure
    Respondents (Affected Public): State, Local, and Tribal Government. 
The respondent groups identified include State agencies.
    Estimated Number of Respondents: 56.
    Estimated Number of Responses per Respondent: 23.
    Estimated Total Annual Responses: 1,288.
    Estimated Time per Response: 0.250.
    Estimated Total Annual Burden on Respondents: 322.

[[Page 13193]]



                                                                                Estimated Annual Burden for CACFP
                                                                                           [Reporting]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                            Annual
                                                                                                                                                            burden
                                                                                           Estimated    Frequency     Average     Average                    hours                      Total
       Respondent type             Burden activities                  Section              number of       of         annual       burden      Annual       current      Program     difference
                                                                                          respondents   response     responses      per     burden hours   approved      changes      in burden
                                                                                                                                  response                  burden
                                                                                                                                                             hours
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
State Agencies...............  SAs must develop a         226.6(b)(2)(iii)(D)(2)........           56       1.000        56.000      1.000        56.000       0.000        56.000        56.000
                                process to share
                                information on any
                                institution, facility,
                                or RPIs not approved to
                                administer or
                                participate in the
                                programs as described
                                under paragraph
                                (b)(2)(iii)(A)(1) of
                                this section. The SA
                                must work closely with
                                any other Child
                                Nutrition Program SA
                                within the State to
                                ensure information is
                                shared for program
                                purposes and on a timely
                                basis. The process must
                                be approved by FNS.
State Agencies...............  SA must ensure that the    226.6(b)(2)(iii)(L)...........           56      23.000     1,288.000      0.250       322.000       0.000       322.000       322.000
                                MSSOs operations, as
                                described in paragraph
                                (b)(1)(xviii), are up-to-
                                date. If the MSSO has
                                facilities not
                                previously reported to
                                the SA, as described in
                                paragraph (b)(1)(xviii),
                                the MSSO must update the
                                information.
State Agencies...............  SAs must notify an         226.6(c)(4)...................           56       5.000       280.000      0.250        70.000     140.000       -70.000       -70.000
                                institution's executive
                                director and chairman of
                                the board of directors
                                that the institution has
                                been determined to be
                                seriously deficient. At
                                the same time the notice
                                is issued, the SAs must
                                add the institution to
                                the SA list, along with
                                the basis for the
                                serious deficiency
                                determination, and
                                provide a copy of the
                                notice to the
                                appropriate FNS Regional
                                Office (FNSRO).
State Agencies...............  SAs must submit a copy of  226.6(c)(5)(i)(A).............           56       3.500       196.000      0.250        49.000      98.000       -49.000       -49.000
                                successful corrective
                                action (temporary
                                deferment or serious
                                deficiency
                                determination) notices
                                to FNSRO for new,
                                renewing, and
                                participating
                                institutions.
State Agencies...............  SAs must submit a copy of  226.6(c)(6)...................           56       1.500        84.000      0.250        21.000      42.000       -21.000       -21.000
                                application denial and
                                proposed
                                disqualification notice
                                to FNSRO.
State Agencies...............  SAs must submit copies of  226.6(c)(8)...................           56       1.500        84.000      0.250        21.000      42.000       -21.000       -21.000
                                disqualification notices
                                to the FNSRO for new,
                                renewing, and
                                participating
                                institutions.
State Agencies...............  SAs must develop and       226.6(n)(1)...................           15       1.000        15.000      6.000        90.000      90.000         0.000         0.000
                                provide for the use of a
                                standard form of written
                                permanent agreement
                                between each sponsoring
                                organization and day
                                care home or
                                unaffiliated centers,
                                outside-school-hours-
                                care centers, at-risk
                                afterschool care
                                centers, emergency
                                shelters, or adult day
                                care centers for which
                                it has the
                                responsibility for
                                Program operations. The
                                agreement must specify
                                the rights and
                                responsibilities of both
                                parties.
State Agencies...............  SAs must determine if a    226.6(q)......................           56      23.000     1,288.000      0.250       322.000       0.000       322.000       322.000
                                sponsoring organization
                                is an MSSO, as described
                                in paragraphs (b)(1)(xv)
                                and (b)(2)(iii)(L). SAs
                                must assume the role of
                                the CSA, if the MSSOs
                                center of operations is
                                located within the
                                State. Each SA that
                                approves an MSSO must
                                follow the requirements
                                described in paragraph
                                (i).
State Agencies...............  SAs must enter into a      226.6(q)(1)(i)................           56      23.000     1,288.000      0.250       322.000       0.000       322.000       322.000
                                permanent written
                                agreement with the MSSO,
                                as described in
                                paragraph (b)(4).
State Agencies...............  SAs must approve the       226.6(q)(1)(ii)...............           56      23.000     1,288.000      0.250       322.000       0.000       322.000       322.000
                                MSSOs administrative
                                budget.

[[Page 13194]]

 
State Agencies...............  SAs must conduct           226.6(q)(1)(iii)..............           56      23.000     1,288.000      0.250       322.000       0.000       322.000       322.000
                                monitoring of MSSO
                                Program operations
                                within the State, as
                                described in paragraph
                                (k)(4). The SA should
                                coordinate monitoring
                                with the CSA to
                                streamline reviews and
                                minimize duplication of
                                the review content. The
                                SA may base the review
                                cycle on the number of
                                facilities operating
                                within the State.
State Agencies...............  SAs must provide           226.6(q)(1)(iii)(C)...........           56      23.000     1,288.000      0.250       322.000       0.000       322.000       322.000
                                summaries of the MSSO
                                reviews that are
                                conducted to the CSA. If
                                the SA chooses to
                                conduct a full review,
                                the SA should request
                                the necessary records
                                from the CSA.
State Agencies...............  SAs must conduct audit     226.6(q)(1)(iv)...............           56       5.000       280.000      0.250        70.000       0.000        70.000        70.000
                                resolution activities.
                                The SA must review audit
                                reports, address audit
                                findings, and implement
                                corrective actions, as
                                required under 2 CFR
                                part 200, subpart D, and
                                USDA implementing
                                regulations 2 CFR parts
                                400 and 415.
State Agencies...............  SAs must notify all other  226.6(q)(1)(v)................           56      23.000     1,288.000      0.250       322.000       0.000       322.000       322.000
                                State agencies that have
                                agreements with the MSSO
                                of termination and
                                disqualification
                                actions, as described in
                                paragraph (c)(2)(i).
State Agencies...............  If it determines that an   226.6(q)(2)...................           56      23.000     1,288.000      0.250       322.000       0.000       322.000       322.000
                                MSSOs center of
                                operations is located
                                within the State, the SA
                                must assume the role of
                                the CSA.
State Agencies...............  The CSA must conduct a     226.6(q)(2)(iii)..............           56      23.000     1,288.000     20.000    25,760.000       0.000    25,760.000    25,760.000
                                full review at the MSSO
                                headquarters and
                                financial records
                                center. The CSA must
                                coordinate the timing of
                                the reviews and make
                                copies of monitoring
                                reports and findings
                                available to all other
                                State agencies that have
                                agreements with the
                                MSSO.
State Agencies...............  If an MSSO has for-profit  226.6(q)(2)(iv)...............           56       6.000       336.000      1.000       336.000       0.000       336.000       336.000
                                status, the cognizant
                                agency must establish
                                audit thresholds and
                                requirements.
State Agencies...............  SAs must provide           226.6(p)......................           56       1.000        56.000      0.250        14.000      14.000         0.000         0.000
                                information on the
                                importance and benefits
                                of the Special
                                Supplemental Nutrition
                                Program for Women,
                                Infants, and Children
                                (WIC) and WIC income
                                eligibility guidelines
                                to participating
                                institutions.
State Agencies...............  SAs must identify serious  226.25(a)(2)(i) and                      56       1.000        56.000      1.000        56.000       0.000        56.000        56.000
                                management problems and    226.25(a)(3).
                                define a set of
                                standards to help
                                measure the severity of
                                a problem to determine
                                what rises to the level
                                of a serious management
                                problem and how it
                                affects the institution
                                or facility's ability to
                                meet Program
                                requirements.

[[Page 13195]]

 
State Agencies...............  SAs must notify an         226.25(a)(2)(ii),                        56       5.000       280.000      0.250        70.000       0.000        70.000        70.000
                                institution's executive    226.25(a)(5), and
                                director and chairman of   226.25(a)(6)(i).
                                the board of directors,
                                and RPIs, that serious
                                management problems have
                                been identified, must be
                                addressed, and
                                corrected. The notice
                                must identify all
                                aspects of the serious
                                management problem;
                                reference specific
                                regulatory citations,
                                instruction, or
                                policies; name all of
                                the RPIs; describe the
                                action needed to correct
                                the serious management
                                problem; and set a
                                deadline for completing
                                the corrective action.
                                At the same time, the SA
                                must add the institution
                                and RPIs to the SA list
                                and provide a copy of
                                the notice to the
                                appropriate FNSRO.
State Agencies...............  If corrective action has   226.25(a)(2)(ii),                        56       3.500       196.000      0.250        49.000       0.000        49.000        49.000
                                been taken to fully        226.25(a)(5), and
                                correct each serious       226.25(a)(6)(ii)(A).
                                management problem, SAs
                                must notify an
                                institution's executive
                                director and chairman of
                                the board of directors,
                                and RPIs, that the
                                serious management
                                problem has been
                                vacated. At the same
                                time, the SA must update
                                the SA list and provide
                                a copy of the notice to
                                the appropriate FNSRO.
State Agencies...............  If corrective action has   226.25(a)(2)(ii),                        56       1.500        84.000      0.250        21.000       0.000        21.000        21.000
                                not fully corrected each   226.25(a)(5), and
                                serious management         226.25(a)(6)(ii)(B).
                                problem, SAs must notify
                                an institution's
                                executive director and
                                chairman of the board of
                                directors, and RPIs,
                                that the SA proposes to
                                terminate the
                                institution's agreement
                                and disqualify the
                                institution and RPIs. SA
                                must notify the
                                institution of the
                                procedures for seeking a
                                fair hearing in
                                accordance with
                                paragraph f of the
                                proposed termination and
                                proposed
                                disqualifications. At
                                the same time, the SA
                                must update the SA list
                                and provide a copy of
                                the notice to the
                                appropriate FNSRO.
State Agencies...............  If appeal is upheld, SAs   226.25(a)(2)(ii),                        56       1.500        84.000      0.250        21.000       0.000        21.000        21.000
                                must notify the            226.25(a)(5), and
                                institution and facility   226.25(a)(6)(iii)(A) and (B).
                                that confirms the
                                serious management
                                problem is vacated and
                                advise the institution
                                and facility that
                                procedures and policies
                                must be implemented to
                                fully correct the
                                serious management
                                problem. If the fair
                                hearing is denied, SAs
                                must notify the
                                institution's executive
                                director and chairman of
                                the board of directors,
                                and RPIs, that the
                                agreement is terminated
                                and declare the
                                institution or facility
                                seriously deficient. SAs
                                must issue a serious
                                deficiency notice that
                                informs the institution,
                                facility, and RPIs of
                                their disqualification
                                from Program
                                participation. At the
                                same time, the SA must
                                update the SA list and
                                provide a copy of the
                                notice to the
                                appropriate FNSRO.
State Agencies...............  The State agency must      226.25(b).....................           56      10,570   591,895.000      0.250   147,973.750       0.000   147,973.750   147,973.750
                                maintain a State agency
                                list, made available to
                                FNS upon request, and
                                must include the
                                following information:
                                Names and mailing
                                addresses of each
                                institution, day care
                                home or unaffiliated
                                center that is
                                determined to have a
                                serious management
                                problem; Names, mailing
                                addresses, and dates of
                                birth of each
                                responsible principal
                                and responsible
                                individual; The status
                                of the institution, day
                                care home or
                                unaffiliated center, as
                                it progresses through
                                the stages of corrective
                                action, termination,
                                suspension, and
                                disqualification, full
                                correction, as
                                applicable. Within 10
                                days of receiving a
                                notice of termination
                                and disqualification
                                from a sponsoring
                                organization, the State
                                agency must provide FNS
                                with the information as
                                described in paragraph
                                (b)(1)(A) and (B) of
                                this section.

[[Page 13196]]

 
State Agencies...............  SAs must receive and       226.25(c)(2)(iv)(C)...........           56       3.000       168.000      0.250        42.000       0.000        42.000        42.000
                                approve the corrective
                                action plan within 90
                                days from the date the
                                institution received the
                                notice and monitor the
                                full implementation of
                                the corrective action
                                plan.
State Agencies...............  SAs must conduct and       226.25(c)(3)(i) and                      56      39.000     2,184.000     20.000    43,680.000       0.000    43,680.000    43,680.000
                                prioritize follow-up       226.6(k)(2).
                                reviews and more
                                frequent full reviews of
                                institutions with
                                serious management
                                problems, as described
                                in 7 CFR
                                226.6(k)(6)(ii). An
                                institution must have at
                                least two full reviews
                                occurring once every 2
                                years and at least 24
                                months apart that reveal
                                no new or repeat serious
                                management problems to
                                achieve full correction.
State Agencies...............  SAs must terminate for     226.25(d)(1)..................           56       3.000       168.000      0.250        42.000      42.000         0.000         0.000
                                cause the Program
                                agreement upon
                                declaration of the
                                institution or facility
                                to be seriously
                                deficient.
State Agencies...............  SAs must develop a         226.25(d)(2)..................           56       3.000       168.000      2.000       336.000       0.000       336.000       336.000
                                contingency plan in
                                place for the transfer
                                of facilities if a
                                sponsoring organization
                                is terminated or
                                disqualified to ensure
                                that eligible
                                participants continue to
                                have access to meal
                                service.
State Agencies...............  If all serious management  226.25(e)(2)(iii).............           56       3.000       168.000      0.250        42.000       0.000        42.000        42.000
                                problems have been
                                corrected and all debts
                                have been repaid, SAs
                                may elect to remove an
                                institution and RPIs
                                from the National
                                Disqualified List, and
                                must submit all requests
                                for early removals to
                                the appropriate FNSRO.
State Agencies...............  SAs must enter into        226.25(e)(3)(ii)..............           56       1.000        56.000      1.000        56.000       0.000        56.000        56.000
                                written agreements with
                                FNS, consistent with 5
                                U.S.C. 552a(o) of the
                                CMA, in order to
                                participate in a
                                matching program
                                involving a FNS Federal
                                system of records.
State Agencies...............  SAs may request FNS to     226.25(e)(3)(iii)(B)..........           56           1            56          1            56           0            56            56
                                waive the two-step
                                independent verification
                                and notice requirement
                                of the CMA.

[[Page 13197]]

 
State Agencies...............  If the SA or sponsoring    226.25(f)(1)(i)(A) &                     56       1.000        56.000      0.250        14.000      14.000         0.000         0.000
                                organization determines    226.25(f)(2)(i)(A).
                                that there is an
                                imminent threat to the
                                health or safety of
                                participants, or that
                                there is a threat to
                                public health or safety,
                                the appropriate State or
                                local licensing and
                                health authorities must
                                immediately be notified
                                and take action that is
                                consistent with the
                                recommendations and
                                requirements of those
                                authorities. The SA or
                                sponsoring organization
                                must initiate action for
                                termination and
                                disqualification. The SA
                                must notify the
                                institution's executive
                                director and chairman of
                                the board of directors
                                that the institution's
                                participation has been
                                suspended and that the
                                SA proposes to terminate
                                the institution's
                                agreement and to
                                disqualify the
                                institution and the
                                RPIs. The notice must
                                identify the RPIs and
                                must be sent to those
                                persons as well. If the
                                SA determines that an
                                institution has
                                knowingly submitted a
                                false or fraudulent
                                claim, the SA must
                                initiate action to
                                suspend the
                                institution's
                                participation and must
                                initiate action to
                                terminate the
                                institution's agreement
                                and initiate action to
                                disqualify the
                                institution and the
                                RPIs. The SA must notify
                                the institution's
                                executive director and
                                chairman of the board of
                                directors that the SA
                                proposes to suspend the
                                institution's
                                participation. At the
                                same time this notice is
                                sent, the SA must add
                                the institution and the
                                RPIs to the State agency
                                list, along with the
                                basis for the suspension
                                and provide a copy of
                                the notice to the
                                appropriate FNSRO.
State Agencies...............  SAs must annually submit   226.25(g).....................           56     390.000    21,840.000      0.017       364.728     364.728         0.000         0.000
                                administrative review
                                (appeal) procedures to
                                all institutions.
State Agencies...............  Each SA must submit        226.25(g)(1)(i)...............           56       5.000       280.000      0.250        70.000      70.000         0.000         0.000
                                administrative review
                                (appeal) procedures when
                                applicable action is
                                taken.
State Agencies...............  SAs must notify the        226.25(g)(1)(iii).............           56       3.000       168.000      0.250        42.000      42.000         0.000         0.000
                                institution's executive
                                director and chairman of
                                the board of directors,
                                and the responsible
                                principals and
                                responsible individuals,
                                of the action being
                                taken or proposed, the
                                basis for the action,
                                and the procedures under
                                which the institution
                                and the responsible
                                principals or
                                responsible individuals
                                may request an
                                administrative review
                                (appeal) of the action.
State Agencies...............  SAs must submit written    226.25(g)(1)(iv)(E)...........           56       3.000       168.000      2.000       336.000     336.000         0.000         0.000
                                documentation to the
                                hearing official prior
                                to the beginning of the
                                hearing, within 30 days
                                after receiving the
                                notice of action.
State Agencies...............  If a hearing is            226.25(g)(2)..................           56       3.000       168.000      0.084         14.03      14.030         0.000         0.000
                                requested, the sponsor,
                                the responsible
                                principals, and
                                responsible individuals
                                must be provided with at
                                least 5 days advance
                                notice of the time and
                                place of the hearing.
State Agencies...............  Hearing official must      226.25(g)(2)..................           56       3.000       168.000      4.000       672.000     672.000         0.000         0.000
                                hold hearing to
                                determine that the SA
                                followed Program
                                requirements in taking
                                action under appeal.
State Agencies...............  Hearing official must      226.25(g)(5)(i) and (ii)......           56       3.000       168.000      0.500        84.000      84.000         0.000         0.000
                                inform the SA, sponsor,
                                responsible principals,
                                and responsible
                                individuals of the
                                decision within 60 days
                                of the date the SA
                                received the appeal
                                request.

[[Page 13198]]

 
State Agencies...............  SAs must send a necessary  226.25(h)(3)(i))..............           56      39.000     2,184.000      0.017        36.473      36.473         0.000         0.000
                                demand letter for the
                                collection of unearned
                                payments, including any
                                assessment of interest,
                                as described in Sec.
                                226.14(a), and refer the
                                claim to the appropriate
                                State authority for
                                pursuit of the debt
                                payment. SAs must assess
                                interest on
                                institutions' debts
                                established on or after
                                July 29, 2002, based on
                                the Current Value of
                                Funds Rate, which is
                                published annually by
                                Treasury in the Federal
                                Reserve and is available
                                from the FNSRO, and
                                notify the institution
                                that interest will be
                                charged on debts not
                                paid in full within 30
                                days of the initial
                                demand for remittance up
                                to the date of payment.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    State Agencies Total................................................................           56  11,316.821   633,742.000       0.35    223,140.98    2,101.23   221,039.750   221,039.750
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Local Government Agencies....  Sponsoring organizations   226.6(b)(1)(xix)..............            3       1.000         3.000      0.250         0.750       0.000         0.750         0.750
                                approved to participate
                                in the Program in more
                                than one State must
                                provide: the number of
                                affiliated centers it
                                sponsors, by State; the
                                number of unaffiliated
                                centers it sponsors, by
                                State; the number of day
                                care homes it sponsors,
                                by State; the names,
                                addresses, and phone
                                numbers of the
                                organization's
                                headquarters and the
                                official(s) who have
                                administrative
                                responsibility; the
                                names, addresses, and
                                phone numbers of the
                                financial records center
                                and the official(s) who
                                has financial
                                responsibility; and the
                                organization's decision
                                on whether to use
                                program funds for
                                administrative expenses.
Local Government Agencies....  Sponsoring organizations   226.25(a)(2)(i) and                   3,257       1.000     3,257.000      1.000     3,257.000       0.000     3,257.000     3,257.000
                                must identify serious      226.25(a)(3).
                                management problems and
                                define a set of
                                standards to help
                                measure the severity of
                                a problem to determine
                                what rises to the level
                                of a serious management
                                problem and how it
                                affects the institution
                                or facility's ability to
                                meet Program
                                requirements.
Local Government Agencies....  Sponsoring organizations   226.25(a)(2)(ii),                        83       1.000        83.000      0.250        20.750      20.750         0.000         0.000
                                must notify the day care   226.25(a)(5), and
                                home or unaffiliated       226.25(a)(7)(i).
                                center that serious
                                management problems have
                                been identified, must be
                                addressed, and
                                corrected. The notice
                                must identify all
                                aspects of the serious
                                management problem;
                                reference specific
                                regulatory citations,
                                instruction, or
                                policies; name all of
                                the RPIs; describe the
                                action needed to correct
                                the serious management
                                problem; and set a
                                deadline for completing
                                the corrective action.
Local Government Agencies....  If corrective action has   226.25(a)(2)(ii),                     3,257       1.000     3,257.000      0.250       814.250       0.000       814.250       814.250
                                been taken to fully        226.25(a)(5), and
                                correct each serious       226.25(a)(7)(ii)(A).
                                management problem,
                                sponsoring organizations
                                must notify an
                                institution's executive
                                director and chairman of
                                the board of directors,
                                and RPIs, that the
                                serious management
                                problem has been
                                vacated.

[[Page 13199]]

 
Local Government Agencies....  If corrective action has   226.25(a)(2)(ii),                     3,257       1.000     3,257.000      0.250       814.250       0.000       814.250       814.250
                                not fully corrected each   226.25(a)(5), and
                                serious management         226.25(a)(7)(ii)(B).
                                problem, sponsoring
                                organizations must
                                notify an institution's
                                executive director and
                                chairman of the board of
                                directors, and RPIs,
                                that the sponsoring
                                organizations proposes
                                to terminate the
                                institution's agreement
                                and disqualify the
                                institution and RPIs. SA
                                must notify the
                                institution of the
                                procedures for seeking a
                                fair hearing in
                                accordance with
                                paragraph g of the
                                proposed termination and
                                proposed
                                disqualifications.
Local Government Agencies....  If appeal is upheld,       226.25(a)(2)(ii),                     3,257       1.000     3,257.000      0.250       814.250       0.000       814.250       814.250
                                sponsoring organizations   226.25(a)(5), and
                                must notify the            226.25(a)(7)(iii)(A) and (B).
                                institution and facility
                                that confirms the
                                serious management
                                problem is vacated and
                                advise the institution
                                and facility that
                                procedures and policies
                                must be implemented to
                                fully correct the
                                serious management
                                problem. If the fair
                                hearing is denied,
                                sponsoring organizations
                                must notify the
                                institution's executive
                                director and chairman of
                                the board of directors,
                                and RPIs, that the
                                agreement is terminated
                                and declare the
                                institution or facility
                                seriously deficient.
                                Sponsoring organizations
                                must issue a serious
                                deficiency notice that
                                informs the institution,
                                facility, and RPIs of
                                their disqualification
                                from Program
                                participation.
Local Government Agencies....  In response to the notice  226.25(c)(1)..................        3,257       1.000     3,257.000      0.250       814.250       0.000       814.250       814.250
                                of serious management
                                problems, the
                                institution,
                                unaffiliated center, or
                                day care home must
                                submit, in writing, what
                                corrective actions it
                                has taken to correct
                                each serious management
                                system. The corrective
                                action plan must address
                                the root cause of each
                                serious management
                                problem, describe and
                                document the action
                                taken to correct serious
                                management problems, and
                                describe the action's
                                outcome.
Local Government Agencies....  Sponsoring organizations   226.25(c)(3)(ii)..............        3,257       1.000     3,257.000     20.000    65,140.000       0.000    65,140.000    65,140.000
                                must conduct reviews, as
                                described in Sec.
                                226.16(d)(4) to confirm
                                that the serious
                                management problem(s) is
                                corrected. A follow-up
                                review must be conducted
                                to confirm that the
                                serious management
                                problem is corrected.
                                Full reviews occurring 3
                                times a year, as
                                described in Sec.
                                226.16(d)(4). Full
                                correction is achieved
                                when three consecutive
                                reviews indicate no new
                                serious management
                                problems or no new
                                repeat serious
                                management problem(s).
Local Government Agencies....  Sponsoring organizations   226.25(d)(1)..................        3,257       1.000     3,257.000      0.250       814.250       0.000       814.250       814.250
                                must terminate for cause
                                the Program agreement
                                upon declaration of the
                                institution or facility
                                to be seriously
                                deficient.

[[Page 13200]]

 
Local Government Agencies....  If the sponsoring          226.25(f)(1)(ii)(A) &                   814       1.000       814.000      0.250       203.500     203.500         0.000         0.000
                                organization determines    226.25(f)(2)(ii)(A).
                                that there is an
                                imminent threat to the
                                health or safety of
                                participants, or that
                                there is a threat to
                                public health or safety,
                                the appropriate State or
                                local licensing and
                                health authorities must
                                immediately be notified
                                and take action that is
                                consistent with the
                                recommendations and
                                requirements of those
                                authorities. The
                                sponsoring organization
                                must initiate action for
                                termination and
                                disqualification. The
                                sponsoring organization
                                must submit a combined
                                notice of suspension,
                                proposed termination,
                                and proposed
                                disqualification to the
                                day care home provider
                                or unaffiliated center
                                and the RPIs. The notice
                                must identify the RPIs
                                and must be sent to
                                those persons as well.
                                If the sponsoring
                                organization determines
                                that a day care home or
                                unaffiliated center has
                                knowingly submitted a
                                false or fraudulent
                                claim, the sponsoring
                                organization must
                                initiate action to
                                suspend the day care
                                home or unaffiliated
                                center's participation
                                and must initiate action
                                to terminate the day
                                care home or
                                unaffiliated center's
                                agreement and initiate
                                action to disqualify the
                                institution and the
                                RPIs. The SA must submit
                                a combined notice of
                                suspension, proposed
                                termination, and
                                proposed
                                disqualification to the
                                day care home provider
                                or unaffiliated center
                                and the RPIs. At the
                                same time this notice is
                                sent, the SA must add
                                the day care home or
                                unaffiliated center and
                                the RPIs to the State
                                agency list, along with
                                the basis for the
                                suspension and provide a
                                copy of the notice to
                                the appropriate FNSRO.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Local Government Agencies Total.....................................................        3,257       7.276     23,699.00      3.067    72,693.250     224.250    72,469.000    72,469.000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    State/Local/Tribal Governments Total................................................        3,313     198.443   657,441.000      0.450    295,834.23    2,325.48   293,508.750   293,508.750
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Institutions.................  Sponsoring organizations   226.6(b)(1)(xix)..............        1,116       1.000     1,116.000      0.250       279.000       0.000       279.000       279.000
                                approved to participate
                                in the Program in more
                                than one State must
                                provide: the number of
                                affiliated centers it
                                sponsors, by State; the
                                number of unaffiliated
                                centers it sponsors, by
                                State; the number of day
                                care homes it sponsors,
                                by State; the names,
                                addresses, and phone
                                numbers of the
                                organization's
                                headquarters and the
                                official(s) who have
                                administrative
                                responsibility; the
                                names, addresses, and
                                phone numbers of the
                                financial records center
                                and the official(s) who
                                has financial
                                responsibility; and the
                                organization's decision
                                on whether to use
                                program funds for
                                administrative expenses.

[[Page 13201]]

 
Institutions.................  Unaffiliated sponsored     226.17(e).....................       21,692       1.000    21,692.496      0.250     5,423.124       0.000     5,423.124     5,423.124
                                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. The
                                sponsoring organization
                                may terminate this
                                agreement for cause as
                                described in Sec.
                                226.25(a).
Institutions.................  Independent child care     226.17(f).....................        6,843       1.000     6,843.466      0.250     1,710.867       0.000     1,710.867     1,710.867
                                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. The SA may
                                terminate this agreement
                                for cause as described
                                in Sec.   226.25(a).
Institutions.................  Unaffiliated sponsored     226.17a(f)(2)(i)..............       21,692       1.000    21,692.496      0.250     5,423.124       0.000     5,423.124     5,423.124
                                afterschool 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 applicable
                                provisions set forth in
                                this section. The
                                sponsoring organization
                                may terminate this
                                agreement for cause as
                                described in Sec.
                                226.25(a).
Institutions.................  Independent afterschool    226.17a(f)(2)(ii).............        6,843       1.000         6,843      0.250     1,710.867       0.000     1,710.867     1,710.867
                                child care centers must
                                enter into a written
                                permanent agreement with
                                the SA. 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. The SA may
                                terminate this agreement
                                for cause as described
                                in Sec.   226.25(a).
Institutions.................  Unaffiliated sponsored     226.19(d).....................       21,692       1.000        21,692      0.250     5,423.124       0.000     5,423.124     5,423.124
                                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. The
                                sponsoring organization
                                may terminate this
                                agreement for cause as
                                described in Sec.
                                226.25(a).
Institutions.................  Unaffiliated sponsored     226.19a(d)....................        6,843       1.000         6,843      0.250     1,710.867       0.000     1,710.867     1,710.867
                                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) of this section. The
                                sponsoring organization
                                may terminate this
                                agreement for cause as
                                described in Sec.
                                226.25(a).
Institutions.................  Sponsoring organizations   226.25(a)(2)(i) and                  18,601       1.000    18,601.000      1.000    18,601.000       0.000    18,601.000    18,601.000
                                must identify serious      226.25(a)(3).
                                management problems and
                                define a set of
                                standards to help
                                measure the severity of
                                a problem to determine
                                what rises to the level
                                of a serious management
                                problem and how it
                                affects the institution
                                or facility's ability to
                                meet Program
                                requirements.

[[Page 13202]]

 
Institutions.................  Sponsoring organizations   226.25(a)(2)(ii),                       540       1.000       540.000      0.250       135.000     135.000         0.000         0.000
                                must notify a day care     226.25(a)(5), and
                                home or unaffiliated       226.25(a)(7)(i).
                                center that serious
                                management problems have
                                been identified, must be
                                addressed, and
                                corrected. The notice
                                must identify all
                                aspects of the serious
                                management problem;
                                reference specific
                                regulatory citations,
                                instruction, or
                                policies; name all of
                                the RPIs; describe the
                                action needed to correct
                                the serious management
                                problem; and set a
                                deadline for completing
                                the corrective action.
Institutions.................  If corrective action has   226.25(a)(2)(ii),                    18,601       1.000    18,601.000      0.250     4,650.250       0.000     4,650.250     4,650.250
                                been taken to fully        226.25(a)(5), and
                                correct each serious       226.25(a)(7)(ii)(A).
                                management problem,
                                sponsoring organizations
                                must notify the day care
                                home or unaffiliated
                                center that the serious
                                management problem has
                                been vacated.
Institutions.................  If corrective action has   226.25(a)(2)(ii),                    18,601       1.000    18,601.000      0.250     4,650.250       0.000     4,650.250     4,650.250
                                not fully corrected each   226.25(a)(5), and
                                serious management         226.25(a)(7)(ii)(B).
                                problem, sponsoring
                                organizations must
                                notify the day care home
                                or unaffiliated center
                                that the sponsoring
                                organizations proposes
                                to terminate the
                                institution's agreement
                                and disqualify the
                                institution and RPIs. SA
                                must notify the
                                institution of the
                                procedures for seeking a
                                fair hearing in
                                accordance with
                                paragraph g of the
                                proposed termination and
                                proposed
                                disqualifications.
Institutions.................  If appeal is upheld,       226.25(a)(2)(ii),                    18,601       1.000    18,601.000      0.250     4,650.250       0.000     4,650.250     4,650.250
                                sponsoring organizations   226.25(a)(5), and
                                must notify the day care   226.25(a)(7)(iii)(A).
                                home or unaffiliated
                                center that confirms the
                                serious management
                                problem is vacated and
                                advise the institution
                                and facility that
                                procedures and policies
                                must be implemented to
                                fully correct the
                                serious management
                                problem.
Institutions.................  If the fair hearing is     226.25(a)(2)(ii),                    18,601       1.000    18,601.000      0.250     4,650.250       0.000     4,650.250     4,650.250
                                denied, sponsoring         226.25(a)(5), and
                                organizations must         226.25(a)(7)(iii)(B).
                                notify the day care home
                                or unaffiliated center
                                that the agreement is
                                terminated and declare
                                the institution or
                                facility seriously
                                deficient. Sponsoring
                                organizations must issue
                                a serious deficiency
                                notice that informs the
                                institution, facility,
                                and RPIs of their
                                disqualification from
                                Program participation.
Institutions.................  In response to the notice  226.25(c)(1)..................       18,601       1.000    18,601.000      0.250     4,650.250       0.000     4,650.250     4,650.250
                                of serious management
                                problems, the
                                institution,
                                unaffiliated center, or
                                day care home must
                                submit, in writing, what
                                corrective actions it
                                has taken to correct
                                each serious management
                                system. The corrective
                                action plan must address
                                the root cause of each
                                serious management
                                problem, describe and
                                document the action
                                taken to correct serious
                                management problems, and
                                describe the action's
                                outcome.

[[Page 13203]]

 
Institutions.................  Sponsoring organizations   226.25(c)(3)(ii)..............       18,601       1.000    18,601.000     20.000   372,020.000       0.000   372,020.000   372,020.000
                                must conduct reviews
                                that assess whether the
                                facility has corrected
                                the serious management
                                problems, as described
                                in Sec.   226.16(d)(4).
                                Follow-up reviews must
                                be conducted to confirm
                                that the serious
                                management problem is
                                corrected. A day care
                                home or unaffiliated
                                center must be reviewed
                                at the same frequency as
                                described in Sec.
                                226.16(d)(4). Full
                                correction is achieved
                                when three consecutive
                                reviews indicate no new
                                serious management
                                problems or no repeat of
                                a serious management
                                problem.
Institutions.................  Sponsoring organizations   226.25(d)(1)..................       18,601       1.000    18,601.000      0.250     4,650.250       0.000     4,650.250     4,650.250
                                must terminate for cause
                                the Program agreement
                                upon declaration of the
                                institution or facility
                                to be seriously
                                deficient.
Institutions.................  If the sponsoring          226.25(f)(1)(ii)(A) &                 4,650       1.000     4,650.000      0.250     1,162.500   1,162.500         0.000         0.000
                                organization determines    226.25(f)(2)(ii)(A).
                                that there is an
                                imminent threat to the
                                health or safety of
                                participants, or that
                                there is a threat to
                                public health or safety,
                                the appropriate State or
                                local licensing and
                                health authorities must
                                immediately be notified
                                and take action that is
                                consistent with the
                                recommendations and
                                requirements of those
                                authorities. The
                                sponsoring organization
                                must initiate action for
                                termination and
                                disqualification. The
                                sponsoring organization
                                must notify the day care
                                home provider or
                                unaffiliated center's
                                principals that the day
                                care home or
                                unaffiliated center's
                                participation has been
                                suspended and that the
                                SA proposes to terminate
                                the day care home or
                                unaffiliated center's
                                agreement and to
                                disqualify the day care
                                home or unaffiliated
                                center and the RPIs. The
                                notice must identify the
                                RPIs and must be sent to
                                those persons as well.
                                If the sponsoring
                                organization determines
                                that an day care home or
                                unaffiliated center has
                                knowingly submitted a
                                false or fraudulent
                                claim, the sponsoring
                                organization must
                                initiate action to
                                suspend the day care
                                home or unaffiliated
                                center's participation
                                and must initiate action
                                to terminate the day
                                care home or
                                unaffiliated center's
                                agreement and initiate
                                action to disqualify the
                                institution and the
                                RPIs. The SA must notify
                                the day care home
                                provider or unaffiliated
                                center's principals that
                                the sponsoring
                                organization proposes to
                                suspend the day care
                                home or unaffiliated
                                center's participation.
                                At the same time this
                                notice is sent, the SA
                                must add the day care
                                home or unaffiliated
                                center and the RPIs to
                                the State agency list,
                                along with the basis for
                                the suspension and
                                provide a copy of the
                                notice to the
                                appropriate FNSRO.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Institutions Total..................................................................       41,136       5.107   240,721.886       1.83    441,500.97   1,297.500    440,203.47    440,203.47
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Facilities...................  Unaffiliated sponsored     226.17(e).....................       21,692       1.000        21,692      0.250     5,423.124       0.000     5,423.124     5,423.124
                                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. The
                                sponsoring organization
                                may terminate this
                                agreement for cause as
                                described in Sec.
                                226.25(a).

[[Page 13204]]

 
Facilities...................  Independent child care     226.17(f).....................        6,843       1.000         6,843      0.250     1,710.867       0.000     1,710.867     1,710.867
                                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. The SA may
                                terminate this agreement
                                for cause as described
                                in Sec.   226.25(a).
Facilities...................  Unaffiliated sponsored     226.17a(f)(2)(i)..............       21,692       1.000        21,692      0.250     5,423.124       0.000     5,423.124     5,423.124
                                afterschool 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 applicable
                                provisions set forth in
                                this section. The
                                sponsoring organization
                                may terminate this
                                agreement for cause as
                                described in Sec.
                                226.25(a).
Facilities...................  Independent afterschool    226.17a(f)(2)(ii).............        6,843       1.000         6,843      0.250     1,710.867       0.000     1,710.867     1,710.867
                                child care centers must
                                enter into a written
                                permanent agreement with
                                the SA. 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. The SA may
                                terminate this agreement
                                for cause as described
                                in Sec.   226.25(a).
Facilities...................  Unaffiliated sponsored     226.19(d).....................       21,692       1.000        21,692      0.250     5,423.124       0.000     5,423.124     5,423.124
                                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. The
                                sponsoring organization
                                may terminate this
                                agreement for cause as
                                described in Sec.
                                226.25(a).
Facilities...................  Unaffiliated sponsored     226.19a(d)....................        6,843       1.000         6,843      0.250     1,710.867       0.000     1,710.867     1,710.867
                                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) of this section. The
                                sponsoring organization
                                may terminate this
                                agreement for cause as
                                described in Sec.
                                226.25(a).
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Facilities Total....................................................................       28,535       3.000    85,607.886      0.250     21,401.97       0.000     21,401.97    21,401.972
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Business Total......................................................................       75,671       4.312   326,329.772       1.42    462,902.94   1,297.500    461,605.44    461,605.44
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Reporting Total.....................................................................       78,984      12.455   983,770.772       0.77    758,737.17    3,622.98    755,114.19    755,114.19
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 13205]]

 
State Agencies...............  SAs must collect and       226.25(b)/FNS-843 & FNS-844...           56       5.000       280.000      5.000     1,400.000   1,400.000         0.000         0.000
                                maintain on file CACFP
                                agreements (Federal/
                                State and State/
                                Institutions), records
                                received from applicant
                                and participating
                                institutions, National
                                Disqualified List/State
                                Agency Lists, and
                                documentation of
                                administrative review
                                (appeals) and Program
                                assistance activities,
                                results, and corrective
                                actions.
State Agencies...............  SAs must collect and       226.25(c).....................           56       3.000       168.000      1.500       252.000       0.000       252.000       252.000
                                maintain on file
                                corrective action plans
                                submitted by
                                institutions,
                                unaffiliated centers, or
                                day care homes, in
                                writing, what corrective
                                actions have been taken
                                to correct each serious
                                management problem.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    State Agencies Total................................................................           56       8.000       448.000      3.688     1,652.000   1,400.000       252.000       252.000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    State/Local/Tribal Governments Total................................................           56       8.000       448.000      3.688     1,652.000   1,400.000       252.000       252.000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Recordkeeping Total.................................................................           56       8.000       448.000      3.688     1,652.000   1,400.000       252.000       252.000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
State Agencies...............  The CSA must conduct a     226.6(q)(2)(iii)..............           56      23.000     1,288.000      0.250       322.000       0.000       322.000       322.000
                                full review at the MSSO
                                headquarters and
                                financial records
                                center. The CSA must
                                coordinate the timing of
                                the reviews and make
                                copies of monitoring
                                reports and findings
                                available to all other
                                State agencies that have
                                agreements with the
                                MSSO.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    State Agencies Total................................................................           56      23.000     1,288.000      0.250       322.000       0.000       322.000       322.000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    State/Local/Tribal Governments Total................................................           56      23.000     1,288.000      0.250       322.000       0.000       322.000       322.000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Public Disclosure Total.............................................................           56      23.000     1,288.000      0.250       322.000       0.000       322.000       322.000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Total Burden........................................................................       79,040      12.468   985,507.772      0.772   760,711.172   5,022.981   755,688.190   755,688.190
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 13206]]


                            Summary of Burden
                            [OMB #0584-0055]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total No. Respondents......................................    3,852,077
Average No. Responses per Respondent.......................        4.456
Total Annual Responses.....................................   17,165,505
Average Hours per Response.................................        0.289
Total Burden Hours.........................................    4,968,899
Current OMB Approved Burden Hours..........................    4,213,211
Adjustments................................................            0
Program Changes............................................      755,688
Total Difference in Burden.................................      755,688
------------------------------------------------------------------------

    Title: Child and Adult Care Food Program (CACFP) National 
Disqualified List.
    Form Number: FNS-843 & FNS-844.
    OMB Control Number: 0584-0584.
    Expiration Date: 09/30/2026.
    Type of Request: Revision.
    Abstract: This is a revision of requirements in the information 
collection under OMB Control Number 0584-0584 that are being impacted 
by this rulemaking. USDA proposes to extend the serious deficiency 
process to the SFSP. As such, this proposed rule impacts reporting 
requirements for State agencies. No new recordkeeping requirements will 
be added to this collection, as the recordkeeping burden associated 
with the FNS-843 and FNS-844 forms are being captured under 
requirements in the information collections under OMB Control Numbers 
0584-0280 and 0584-0055.
    This rulemaking will protect program integrity by extending the 
serious deficiency process to the SFSP. By extending the rulemaking, 
State agencies will create, update, and maintain data that will be 
reported to the National Disqualified List, ensuring that sponsors and 
responsible principals and individuals declared seriously deficient and 
disqualified from participation are prevented from re-entering the 
program under sponsors or participating in another program.
    The burden for complying with the proposed reporting requirements 
at 225.18(e)(2)(i)), for the 53 SFSP State agencies, is estimated at 
239 hours annually (for 106 FNS-843 responses per State agency, 371 
FNS-844 responses per State agency, and 30 minutes (0.5 hours) each to 
complete the necessary forms). Overall, the burden associated with 
meeting the proposed reporting requirements are expected to increase 
burden hours, responses, and respondents, from 784 hours to an 
estimated 1,023 hours, from 1,568 responses to an estimated 2,045 
responses annually, and from 56 respondents to an estimated 109 
respondents, due to the proposed rule. The increase of 239 hours, 477 
responses, and 53 respondents is due to a program change by 
incorporating the SFSP into the National Disqualified List. The average 
burden per response and the annual burden hours for reporting are 
explained below and summarized in the charts which follow.
Reporting
    Respondents (Affected Public): State, Local, and Tribal Government. 
The respondent group identified include State agencies which handle the 
SFSP.
    Estimated Number of Respondents: 53.
    Estimated Number of Responses per Respondent: 9.
    Estimated Total Annual Responses: 477.
    Estimated Time per Response: 0.50.
    Estimate Total Annual Burden on Respondents: 239.

                                                                              National Disqualified List (NDL) ICR
                                                                                 [OMB Control Number 0584-0584]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                  Current
                                                                                                         Estimated    Frequency    Average    Average    Annual     OMB                  Total
          Respondent type               Burden activities            Section               Forms         number of       of        annual      burden    burden   approved   Program  difference
                                                                                                        respondents   response    responses     per      hours     burden    changes   in burden
                                                                                                                                              response             hours
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
State Agency.......................  The State agency        225.18(e)(2)(i).......  FNS-843 *........           53           2         106       0.50       53          0        53          53
                                      creates updates, and
                                      maintains a list of
                                      sponsoring
                                      organizations who
                                      have been terminated
                                      or otherwise
                                      disqualified from
                                      SFSP participation.
                                                                                     FNS-844 *........           53           7         371       0.50    185.5          0     185.5       185.5
State agency Level Reporting Totals  ......................  ......................  .................           53           9         477       0.50    238.5          0     238.5       238.5
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


                            Summary of Burden
                     [OMB Control Number 0584-0584]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total No. Respondents......................................          109
Average No. Responses per Respondent.......................        18.76
Total Annual Responses.....................................        2,045
Average Hours per Response.................................         0.50
Total Burden Hours.........................................        1,023
Current OMB Approved Burden Hours..........................          784
Adjustments................................................            0
Program Changes............................................          239
Total Difference in Burden.................................          239
------------------------------------------------------------------------

J. E-Government Act Compliance

    FNS is committed to complying with the E-Government Act of 2002, 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,

[[Page 13207]]

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.

    For the reasons stated in the preamble, Food and Nutrition Services 
proposes to amend 7 CFR parts 210, 215, 220, 225, and 226 as set forth 
below:

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. In Sec.  210.2, add in alphabetical order the definition for ``Good 
standing'' to read as follows:


Sec.  210.2   Definitions.

* * * * *
    Good standing means a school food authority or school that meets 
its program responsibilities, is current with its financial 
obligations, and, if applicable, has fully implemented all corrective 
actions within the required period of time.
* * * * *
0
3. In Sec.  210.9, add paragraph (d) to read as follows:


Sec.  210.9   Agreement with State agency.

* * * * *
    (d) Terminations or disqualifications. (1) The State agency is 
prohibited from approving any school food authority or school to 
administer or participate in the Program if the school food authority, 
school, responsible principals, or responsible individuals:
    (i) Have been terminated for cause from any program authorized 
under this part or parts 215, 220, 225, and 226 of this chapter; and
    (ii) Are currently included on a National Disqualified List 
described in Sec.  225.18(e)(2) and Sec.  226.25(e)(2).
    (2) State agencies must ensure that school food authorities, 
schools, responsible principals, or responsible individuals described 
in paragraph (d)(1) of this section do not administer or participate in 
the Program until the State agency, in consultation with FNS, 
determines that each deficiency has been corrected, or until 7 years 
have elapsed since disqualification. However, the school food 
authority, school, responsible principals, or responsible individuals 
will remain ineligible until all debts owed to the Program have been 
repaid.
    (3) If school food authorities or schools currently administering 
or participating in the Program meet the criteria described in 
paragraph (d)(1) of this section, the State agency must terminate the 
Program agreement in accordance with the procedures set forth in Sec.  
210.25.

PART 215--SPECIAL MILK PROGRAM FOR CHILDREN

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

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

0
5. In Sec.  215.2, add in alphabetical order the definition for ``Good 
standing'' to read as follows:


Sec.  215.2   Definitions.

* * * * *
    Good standing means a school food authority or school that meets 
its program responsibilities, is current with its financial 
obligations, and, if applicable, has fully implemented all corrective 
actions within the required period of time.
* * * * *
0
6. In Sec.  215.7, add paragraph (g) to read as follows:


Sec.  215.7   Requirements for participation.

* * * * *
    (g) Terminations or disqualifications. (1) The State agency is 
prohibited from approving any school food authority or school to 
administer or participate in the Program if the school food authority, 
school, responsible principals, or responsible individuals:
    (i) Have been terminated for cause from any program authorized 
under this part or parts 210, 220, 225, and 226 of this chapter; and
    (ii) Are currently included on a National Disqualified List 
described in Sec.  225.18(e)(2) and Sec.  226.25(e)(2).
    (2) State agencies must ensure that school food authorities, 
schools, responsible principals, or responsible individuals described 
in paragraph (g)(1) of this section do not administer or participate in 
the Program until the State agency, in consultation with FNS, 
determines that each deficiency has been corrected, or until 7 years 
have elapsed since disqualification. However, the school food 
authority, school, responsible principals, or responsible individuals 
will remain ineligible until all debts owed to the Program have been 
repaid.
    (3) If school food authorities or schools currently administering 
or participating in the Program meet the criteria described in 
paragraph (g)(1) of this section, the State agency must terminate the 
Program agreement in accordance with the procedures set forth in Sec.  
215.16.

PART 220--SCHOOL BREAKFAST PROGRAM

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

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

0
8. In Sec.  220.2, add in alphabetical order the definition for ``Good 
standing'' to read as follows:


Sec.  220.2   Definitions.

* * * * *
    Good standing means a school food authority or school that meets 
its program responsibilities, is current with its financial 
obligations, and, if applicable, has fully implemented all corrective 
actions within the required period of time.
* * * * *
0
9. In Sec.  220.7, add paragraph (i) to read as follows:


Sec.  220.7   Requirements for participation.

* * * * *
    (i) Terminations or disqualifications. (1) The State agency is 
prohibited from approving any school food authority or school to 
administer or participate in the Program if the school food authority, 
school, responsible principals, or responsible individuals:
    (i) Have been terminated for cause from any program authorized 
under this part or parts 210, 215, 225, and 226 of this chapter; and
    (ii) Are currently included on a National Disqualified List 
described in Sec.  225.18(e)(2) and Sec.  226.25(e)(2).
    (2) State agencies must ensure that school food authorities, 
schools, responsible principals, or responsible individuals described 
in paragraph (i)(1) of this section do not administer or participate in 
the Program until the State agency, in consultation with FNS, 
determines that each deficiency has

[[Page 13208]]

been corrected, or until 7 years have elapsed since disqualification. 
However, the school food authority, school, responsible principals, or 
responsible individuals will remain ineligible until all debts owed to 
the Program have been repaid.
    (3) If school food authorities or schools currently administering 
or participating in the Program meet the criteria described in 
paragraph (i)(1) of this section, the State agency must terminate the 
Program agreement in accordance with the procedures set forth in Sec.  
220.19.

PART 225--SUMMER FOOD SERVICE PROGRAM

0
10. The authority citation for 7 CFR 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
11. In Sec.  225.2, add in alphabetical order the definitions for 
``Cognizant Regional office'', ``Cognizant State agency'', 
``Contingency plan'', ``Corrective action'', ``Disqualified'', ``Fair 
hearing'', ``Finding'', ``Fiscal action'', ``Full correction'', 
``Hearing official'', ``Lack of business integrity'', ``Legal basis'', 
``Multi-State sponsoring organization (MSSO)'', ``National Disqualified 
List (NDL)'', ``Notice'', ``Principal'', ``Program operator'', 
``Responsible individual'', ``Responsible principal'', ``Review 
cycle'', ``Seriously deficient'', ``Serious management problem'', 
``State agency list'', and ``Termination for cause'' to read as 
follows:


Sec.  225.2   Definitions

* * * * *
    Cognizant Regional office means the FNSRO which acts on behalf of 
the Department in the administration of the Program and is responsible 
for determining which State agency has cognizance when a multi-State 
sponsoring organization operates the Program.
    Cognizant State agency (CSA) means the agency which is responsible 
for the administration of the Program in the State where a multi-State 
sponsoring organization's headquarters is located.
* * * * *
    Contingency plan means the State agency's written process for the 
transfer of sponsored site service area that will help ensure that 
Program meals for children will continue to be available without 
interruption if a sponsor's agreement is terminated.
* * * * *
    Corrective action means implementation of a solution, written in a 
corrective action plan, to address the root cause and prevent the 
recurrence of a serious management problem.
* * * * *
    Disqualified means the status of a sponsor, responsible principal, 
or responsible individual who is ineligible for participation in the 
Program.
* * * * *
    Fair hearing means due process provided upon request to:
    (1) A sponsor that has been given notice by the State agency of an 
action that will affect participation or reimbursement under the 
Program;
    (2) A principal or individual responsible for a sponsor's serious 
management problems and issued a notice of proposed termination and 
proposed disqualification from Program participation; or
    (3) a sponsor that has been given notice of proposed termination.
* * * * *
    Finding means a violation of a regulatory requirement identified 
during a review.
    Fiscal action means the recovery of an overpayment or claim for 
reimbursement that is not properly payable through direct assessment of 
future claims, offset of future claims, disallowance of overclaims, 
submission of a revised claim for reimbursement, disallowance of funds 
for failure to take corrective action to meet Program requirements.
* * * * *
    Full correction means the status achieved after a corrective action 
plan is accepted and approved, all corrective actions are fully 
implemented, and no new or repeat serious management problems are 
identified in subsequent reviews, as described Sec.  225.18(c)(3).
* * * * *
    Hearing official means an individual who is responsible for 
conducting an impartial and fair hearing--as requested by a sponsor, 
responsible principal, or responsible individual responding to a 
proposal for termination--and rendering a decision.
* * * * *
    Lack of business integrity means the conviction or concealment of a 
conviction for fraud, antitrust violations, embezzlement, theft, 
forgery, bribery, falsification or destruction of records, making false 
statements, receiving stolen property, making false claims, obstruction 
of justice.
    Legal basis means the lawful authority established in statute or 
regulation.
* * * * *
    Multi-State sponsoring organization (MSSO) means a sponsor that 
sponsors sites in more than one State.
    National Disqualified List (NDL) means a system of records, 
maintained by the Department, of sponsors, responsible principals, and 
responsible individuals disqualified from participation in the Program.
* * * * *
    Notice means a letter sent by certified mail, return receipt (or 
the equivalent private delivery service), by facsimile, or by email, 
that describes an action proposed or taken by a State agency or FNS 
with regard to a sponsor's Program reimbursement or participation.
* * * * *
    Principal means any individual who holds a management position 
within, or is an officer of, a sponsor or a sponsored site, including 
all members of the sponsor's board of directors or the sponsored site's 
board of directors.
* * * * *
    Program operator means any entity that participates in one or more 
child nutrition programs.
* * * * *
    Responsible individual means any individual employed by, or under 
contract with a sponsor or an individual, including uncompensated 
individuals, who the State agency or FNS determines to be responsible 
for a sponsor's serious management problems.
    Responsible principal means any principal, as described in this 
section, who the State agency or FNS determines to be responsible for a 
sponsor's serious management problems.
* * * * *
    Review cycle means the frequency and number of required reviews of 
sponsors and sites.
* * * * *
    Seriously deficient means the status of a sponsor after it is 
determined that full correction has not been achieved and termination 
for cause is the only appropriate course of action.
    Serious management problem means the finding(s) that relate to a 
sponsor's inability to meet the Program's performance standards or that 
affect the integrity of a claim for reimbursement or the quality of 
meals served at a site.
* * * * *
    State agency list means an actual paper or electronic list, or the 
retrievable paper records, maintained by the State agency, that 
includes information on sponsors through the serious deficiency process 
in that State. The list must be made available to FNS upon request, and 
must include information specified in Sec.  225.18(b).
* * * * *
    Termination for cause means the termination of a Program agreement 
due

[[Page 13209]]

to considerations related to a sponsor's performance of Program 
responsibilities under the agreement between the State agency and 
sponsor.
* * * * *
0
12. In Sec.  225.6:
0
a. Revise paragraph (b)(9);
0
b. Add paragraph (b)(13);
0
c. In paragraph (c)(2), remove the words ``significant operational'' 
and add in their place the words ``serious management'';
0
d. Add paragraph (c)(5);
0
e. In paragraph (e), remove the words ``significant operational'' and 
add in their place the words ``serious management'', wherever they 
appear; and
0
f. Add paragraph (n).
    The revisions and additions read as follows:


Sec.  225.6   State agency responsibilities.

* * * * *
    (b) * * *
    (9) The State agency must not approve the application of any 
applicant sponsor identifiable through its organization or principals 
as a sponsor which has been determined to be seriously deficient as 
described in Sec.  225.18(d). However, the State agency may approve the 
application of a sponsor, not on the NDL, which has been previously 
disapproved if the applicant demonstrates to the satisfaction of the 
State agency that it has taken appropriate corrective actions to 
prevent recurrence of serious management problems.
* * * * *
    (13) Terminations or disqualifications. (i) The State agency is 
prohibited from approving any sponsor or site to administer or 
participate in the Program if the sponsor, site, responsible 
principals, or responsible individuals:
    (A) Have been terminated for cause from any Program authorized 
under this part or parts 210, 215, 220, or 226 of this chapter; and
    (B) Are currently included on a National Disqualified List 
described in Sec.  225.18(e)(2).
    (ii) State agencies must ensure that sponsors, sites, responsible 
principals, or responsible individuals described in paragraph 
(b)(13)(i) of this section do not administer or participate in the 
Program until the State agency, in consultation with FNS, determines 
that each serious management problem has been corrected, or until 7 
years have elapsed since disqualification. However, a sponsor, site, 
responsible principals, or responsible individuals will remain 
ineligible until all debts owed to the Program have been repaid.
    (iii) If sponsors or sites currently administering or participating 
in the Program meet the criteria described in paragraph (b)(13)(i) of 
this section, the State agency must terminate the Program agreement in 
accordance with the procedures set forth in Sec.  225.18(d).
    (c) * * *
    (5) Information about MSSO operations. The State agency must also 
determine if the sponsor operates in more than one State. Each sponsor 
that is approved to operate the Program in more than one State must 
provide:
    (i) The number of affiliated sites it operates, by State;
    (ii) The number of unaffiliated sites it operates;
    (iii) The names, addresses, and phone numbers of the organization's 
headquarters and the officials who have administrative responsibility; 
and
    (iv) The names, addresses, and phone numbers of the financial 
records center and the officials who have financial responsibility.
* * * * *
    (n) Oversight of MSSOs. An MSSO may include a sponsor that 
administers the Program in more than one State, a franchise operating 
multiple facilities in more than one State, or a for-profit 
organization whose parent corporation operates multiple affiliated 
centers in more than one State. Each State agency must determine if a 
sponsoring organization is an MSSO, as described in paragraph (c)(5) in 
this section. The State agency must assume the role of the CSA, if the 
MSSO's center of operations is located within the State. Each State 
agency that approves an MSSO must follow the requirements described in 
paragraph (n)(1) of this section. The CSA must follow the requirements 
described in paragraph (n)(2) of this section.
    (1) State agency responsibilities. If a State agency determines 
that an MSSO operates the Program within the State, it must:
    (i) Enter into a permanent written agreement with the MSSO, as 
described in paragraph (n)(1) of this section.
    (ii) Approve the MSSO's administrative budget (in consultation with 
the CSA, as appropriate).
    (A) The State agency must approve budget line items that are 
directly attributable to operations within the State.
    (B) The State agency must approve its portion of costs that are 
shared among other State agencies and costs that attribute directly to 
program operations within the State.
    (C) The State agency must notify the CSA if it has determined that 
the ratio of administrative to operating costs is high or that the net 
cash resources of an MSSO's nonprofit food service exceed the limits 
that are described in Sec.  225.7(m)
    (iii) Conduct monitoring of MSSO Program operations within the 
State, as described in paragraph (k)(4) of this section. The State 
agency should coordinate monitoring with the CSA to streamline reviews 
and minimize duplication of the review content. The State agency may 
base the review cycle on the number of facilities operating within the 
State.
    (A) The State agency may use information from the CSA's technical 
assistance activities to assess compliance in areas where the scope of 
review overlaps during the same review cycle. The State agency may 
choose to conduct a review of implementation of additional State agency 
requirements, financial records to support State-specific 
administrative costs, and other areas of compliance that the CSA would 
not have reviewed.
    (B) The State agency may also choose to conduct a full review at 
the MSSO's headquarters and financial records center. If the State 
agency chooses to conduct a full review, the State agency should 
request the necessary records from the CSA.
    (C) The State agency must provide summaries of the MSSO reviews 
that are conducted to the CSA. The summaries must include the 
prescribed corrective actions and follow-up efforts.
    (iv) Conduct audit resolution activities. The State agency must 
review audit reports, address audit findings, and implement corrective 
actions, as required under 2 CFR part 200, subpart D, and USDA 
implementing regulations 2 CFR parts 400 and 415.
    (v) Notify all other State agencies that have agreements with the 
MSSO of termination and disqualification actions, as described in 
paragraph (c)(2)(i) of this section.
    (2) CSA responsibilities. If it determines that an MSSO's center of 
operations is located within the State, the State agency must assume 
the role of the CSA, which must:
    (i) Comply with the requirements for a State agency that has 
approved an MSSO to provide Program operations within the State, as 
described in this paragraph (n)(1).
    (ii) Determine if there will be shared administrative costs among 
the States in which the MSSO operates and how the costs will be 
allocated. The CSA has the authority to approve cost levels for cost 
items that must be allocated. The CSA must approve the allocation 
method that the MSSO uses for shared costs. The

[[Page 13210]]

method must allocate the cost based on the benefits received, not the 
source of funds available to pay for the cost. If the MSSO administers 
the Program in centers, the CSA must also ensure that administrative 
costs do not exceed 15 percent on an organization-wide basis.
    (iii) Coordinate monitoring. The CSA must conduct a full review at 
the MSSO headquarters and financial records center. The CSA must 
coordinate the timing of its reviews. The CSA must make copies of 
monitoring reports and findings available to all other State agencies 
that have agreements with the MSSO.
    (iv) Ensure that organization-wide audit requirements are met. Each 
MSSO must comply with audit requirements, as described under 2 CFR part 
200, subpart D, and USDA implementing regulations 2 CFR parts 400 and 
415. Since their operations are often large and complex, MSSOs should 
have annual audits. If an MSSO has for-profit status, the cognizant 
agency must establish audit thresholds and requirements.
    (v) Oversee audit funding and costs. The share of organization-wide 
audit costs may be based on a percentage of each State's expenditure of 
CACFP funds and the MSSO's expenditure of Federal and non-Federal funds 
during the audited fiscal year. The CSA should review audit costs as 
part of the overall budget review and make audit reports available to 
the other State agencies that have agreements with the MSSO.
    (vi) Ensure compliance with procurement requirements. Procurement 
actions involving MSSOs must follow the requirements under 2 CFR part 
200, subpart D, and USDA implementing regulations 2 CFR parts 400 and 
415. If the procurement action benefits all States in which the MSSO 
operates, the procurement standards of the State that are the most 
restrictive apply. If the procurement action only benefits a single 
State's Program, the procurement standards of that State agency apply.
* * * * *


Sec.  225.7   [Amended]

0
13. In Sec.  225.7:
0
a. In paragraph (e)(4)(ii), remove the words ``significant 
operational'' and add in their place the words ``serious management''; 
and
0
b. In paragraph (k), remove the citation ``Sec.  225.11'' and add in 
its place the citations ``Sec. Sec.  225.11 and 225.18''.
0
14. In Sec.  225.11, revise paragraph (c) introductory text to read as 
follows:


Sec.  225.11   Corrective action procedures.

* * * * *
    (c) Denial of applications and termination of sponsors. Except as 
specified in Sec.  225.6(b)(9), the State agency shall not enter into 
an agreement with any applicant sponsor identifiable through its 
corporate organization, officers, employees, or otherwise, as an 
institution which participated in any Federal child nutrition program 
and was seriously deficient in its operation of any such program. The 
State agency shall terminate the Program agreement with any sponsor 
which is determined to be seriously deficient. However, the State 
agency shall afford a sponsor reasonable opportunity to correct serious 
management problems before terminating the sponsor and declaring them 
seriously deficient. State agencies may approve the application of a 
sponsor in accordance with Sec.  225.6(b)(9). Uncorrected serious 
management problems which are grounds for disapproval of applications 
and for termination include, but are not limited to, any of the 
following:
* * * * *
0
15. Revise Sec.  225.13 to read as follows:


Sec.  225.13   Fair hearing procedures.

    (a) Each State agency must establish a procedure to be followed by 
an applicant appealing:
    (1) A denial of an application for participation (except if the 
applicant has failed to complete a corrective action plan from the 
previous year);
    (2) A denial of a sponsor's request for an advance payment;
    (3) A denial of a sponsor's claim for reimbursement (except for 
late submission under Sec.  225.9(d)(6));
    (4) A State agency's refusal to forward to FNS an exception request 
by the sponsor for payment of a late claim or a request for an upward 
adjustment to a claim;
    (5) A claim against a sponsor for remittance of a payment;
    (6) The termination of the sponsor or a site;
    (7) The termination of a sponsor's agreement;
    (8) A denial of a sponsor's application for a site;
    (9) A denial of a food service management company's application for 
registration, if applicable;
    (10) The revocation of a food service management company's 
registration, if applicable; or
    (11) Any other action of the State agency affecting a sponsor's 
participation or its claim for reimbursement.
    (b) If after a fair hearing, an entity or individual is denied 
participation based on the National Disqualified List, their right to 
appeal the application denial is solely granted to contest the accuracy 
of the information on the National Disqualified List or the match to 
the National Disqualified List.
    (c) Appeals must not be allowed on decisions made by FNS with 
respect to late claims or upward adjustments under Sec.  225.9(d)(6).
    (d) When a sponsor or a food service management company requests a 
fair hearing, the State agency must follow the procedures described in 
Sec.  225.18(f).


Sec. Sec.  225.18 through 225.20   [Redesignated as Sec. Sec.  225.19 
through 225.21]

0
16. Redesignate Sec. Sec.  225.18 through 225.20 as Sec. Sec.  225.19 
through 225.21, respectively.
0
17. Add new section Sec.  225.18 to read as follows:


Sec.  225.18   Administrative actions to address serious management 
problems.

    (a) Serious management problems. (1) General. State agencies must 
follow the procedures outlined in this section to address any serious 
management problems. The State agency must provide the sponsor an 
opportunity for corrective action and due process.
    (2) Six steps. The serious deficiency process includes a standard 
set of procedures that State agencies follow to address serious 
management problems in the operation of the Program. These procedures 
apply to serious management problems in new or experienced sponsors. 
The State agency must:
    (i) Identify serious management problems.
    (ii) Issue a notice of serious management problems.
    (iii) Receive and assess corrective action.
    (iv) Issue a notice of successful corrective action or a notice of 
proposed termination with appeal rights.
    (v) Provide a fair hearing, if requested.
    (vi) Issue a notice of successful appeal if the fair hearing 
vacates the proposed termination, or issue a notice of termination, 
serious deficiency, and disqualification, if the fair hearing upholds 
the proposed termination or the timeframe for requesting a fair hearing 
has passed.
    (3) Identifying serious management problems. State agencies must 
consider the type and magnitude of the finding(s) to determine whether 
it rises to the level of a serious management problem. State agencies 
should define a set of standards to identify serious management 
problems. At a minimum, to identify serious management problems, State 
agencies and must consider:

[[Page 13211]]

    (i) The severity of the problem. Is the finding minor or 
substantial? Is the finding systemic or isolated?
    (ii) The degree of responsibility. Is the finding best described as 
an inadvertent error or is there evidence of negligence or conscious 
indifference to regulatory requirements, or even deception? Is the 
finding at the site level or the sponsor level? If it is at the sponsor 
level, has the State agency taken appropriate steps to resolve it 
through monitoring, training, and technical assistance? If it is at the 
site level, has the sponsor taken the appropriate steps to resolve it 
through monitoring, training, and technical assistance?
    (iii) The history of participation in the Program. Is this the 
first instance or is there a history of frequently recurring Program 
findings or serious management problems at the same sponsor?
    (iv) The nature of requirements that relate to the finding. Is the 
action a clear finding of Program requirements or a simple mistake? Are 
new policies incorporated correctly?
    (v) The degree to which the problem impacts Program integrity. Does 
the finding undermine the intent of the Program? Is the finding 
administrative or does it impact viability, capability or 
accountability? Is the finding at the sponsor level or the site level? 
If it is at the sponsor level, has the State agency taken appropriate 
steps to resolve it through monitoring, training, and technical 
assistance? If it is at the site level, has the sponsor taken the 
appropriate steps to resolve it through monitoring, training, and 
technical assistance?
    (4) Good standing. If a State agency identifies a serious 
management problem, the institution, day care home or unaffiliated 
center is considered to be not in good standing. At a minimum, the 
following criteria need to be met to return to good standing.
    (i) Outstanding debts are paid;
    (ii) All corrective actions are fully implemented; and
    (iii) Meets its Program responsibilities.
    (5) Notifications. The State agency must provide a written notice 
of action through each step of the serious deficiency process.
    (i) Each type of notice must include a basis and an explanation of 
any action that is proposed and any action that is taken.
    (ii) The notice must be delivered via certified mail, return 
receipt, or an equivalent private delivery service, facsimile, or 
email.
    (iii) The notice is considered to be received on the date it is 
delivered, sent by facsimile, or sent by email.
    (iv) If the notice is undeliverable, it is considered to be 
received 5 days after it is sent to the addressee's last known mailing 
address, facsimile number, or email address.
    (6) Serious management problems notification procedures for 
sponsors. If the State agency determines that the sponsor has serious 
management problems, the sponsor must use the following procedures. The 
State agency must notify the sponsor of all findings, including those 
that do not rise to a serious management problem, and they must be 
corrected.
    (i) First notification--notice of serious management problems. The 
State agency must notify the sponsor's executive director, chair of the 
board of directors that the sponsor has serious management problems and 
provide an opportunity to take corrective action. The notice must also 
be sent to all other responsible principal, other responsible 
individual. At the same time the notice is issued, the State agency 
must add the sponsor to the State agency list, as described in 
paragraph (b) of this section and provide a copy of the notice to the 
FNSRO. This notice documents that a serious management problem must be 
addressed and corrected. Prompt action must be taken to minimize the 
time that elapses between the identification of a serious management 
problem and the issuance of the notice. For each serious management 
problem, the notice must:
    (A) Specify the serious management problem;
    (B) Cite the specific regulatory requirements, instructions, or 
policies as the basis for the serious management problems;
    (C) Identify the responsible principals and responsible 
individuals;
    (D) Specify the actions that must be taken to correct the serious 
management problem. The notice may specify different corrective actions 
and time periods for completing the corrective action for the 
institution and the responsible principal and the responsible 
individual;
    (E) Set time allotted for implementing the corrective action. The 
corrective action must include milestones and a definite completion 
date that will be monitored. Although paragraph (c)(2) of this section 
sets maximum timeframes, shorter timeframes for corrective action may 
be established.
    (F) Specify that failure to fully implement corrective actions for 
each serious management problem within the allotted time will result in 
the State agency's proposed termination of the sponsor's agreement and 
the proposed disqualification of the sponsor and the responsible 
principals and responsible individuals;
    (G) Clearly state that, if the sponsor voluntarily terminates its 
agreement with the State agency after having been notified of serious 
management problems it will still result in the sponsor's agreement 
being terminated for cause and the placement of the sponsor and its 
responsible principals and responsible individuals on the National 
Disqualified List;
    (H) Submission of the date of birth for any individual named as a 
responsible principal or responsible individual in the notice of 
serious management problems is a condition of corrective action for the 
sponsor and/or responsible principal or responsible individual.
    (I) The serious management problems are not subject to a fair 
hearing.
    (ii) Second notification--notice of successful corrective action or 
notice of proposed termination, proposed disqualification. (A) Notice 
of successful corrective action. If corrective action has been 
implemented to correct each serious management problem within the time 
allotted and to the State agency's satisfaction, the State agency must:
    (1) Notify the executive director, chair of the board of directors, 
owner, responsible principals, and responsible individuals, that 
corrective actions are fully implemented.
    (2) If corrective action is complete for the sponsor, but not for 
all of the responsible principals and responsible individuals (or vice 
versa), the State agency must continue with actions, in accordance with 
paragraph (a)(6)(ii)(B) of this section against the remaining parties.
    (3) At the same time the notice is issued, the State agency must 
also update the State agency list, as described in paragraph (b) of 
this section and provide a copy of the notice to the appropriate FNSRO.
    (4) Ensure the sponsor continues to implement procedures and 
policies to fully correct the serious management problems, as described 
in paragraph (c)(3) of this section.
    (B) Notice of proposed termination and proposed disqualification. 
If corrective action has not been taken or fully implemented for each 
serious management problem within the time allotted and to the State 
agency's satisfaction, or repeat serious management problems occur 
before full correction is achieved (as described in paragraph (c)(3) of 
this section), the State agency must:

[[Page 13212]]

    (1) Notify the executive director, chair of the board of directors, 
owner, responsible principals, and responsible individuals, that the 
State agency proposes to terminate the sponsor's agreement and proposes 
to disqualify the sponsor, responsible principals and responsible 
individuals and explain the sponsor's opportunity for seeking a fair 
hearing as described in paragraph (g) of this section.
    (2) At the same time the notice is issued, the State agency must 
also update the State agency list, as described in paragraph (b) of 
this section and provide a copy of the notice the appropriate FNSRO.
    (3) The notice must specify:
    (i) That the State agency is proposing to terminate the sponsor's 
agreement and proposing to disqualify the sponsor and the responsible 
principals and the responsible individuals;
    (ii) The basis for the proposal to terminate;
    (iii) That, if the sponsor voluntarily terminates its agreement 
with the State agency after receiving the notice of proposed 
termination, it will still result in the sponsor's agreement being 
terminated for cause and the placement of the institution and its 
responsible principals and responsible individuals on the National 
Disqualified List;
    (iv) The procedures for seeking a fair hearing (in accordance with 
paragraph (g) of this section) of the proposed termination and proposed 
disqualifications; and
    (v) That, unless participation has been suspended, the sponsor may 
continue to participate and receive Program reimbursement for eligible 
meals served and allowable administrative costs incurred until the fair 
hearing is complete.
    (iii) Third notification--Notice to vacate the proposed termination 
of the sponsor's agreement or notice of serious deficiency, termination 
of the agreement, and disqualifications--
    (A) Notice to vacate the proposed termination of a sponsor's 
agreement. If the fair hearing vacates the proposed termination, the 
State agency must notify the sponsor and must:
    (1) Notify the sponsor's executive director and chair of the board 
of directors that the proposed termination of the sponsor's agreement 
has been vacated.
    (2) Update the State agency list at the time the notice is issued;
    (3) Provide a copy of the notice to the appropriate FNSRO.
    (B) Notice of serious deficiency, termination of the sponsor's 
agreement and disqualifications. When the time for requesting a fair 
hearing expires or when the hearing official upholds the State agency's 
proposed termination and disqualifications, the State agency must:
    (1) Notify the institution's executive director and chair of the 
board of directors, and the responsible principals and responsible 
individuals, that the sponsor's agreement is terminated and that the 
sponsor and the responsible principals and responsible individuals are 
disqualified and placed on the National Disqualified List;
    (2) Update the State agency list at the time notice is issued; and
    (3) Provide a copy of the notice and the mailing address and date 
of birth for each responsible principal and responsible individual to 
the appropriate FNSRO.
    (b) Placement on the State agency list. (1) The State agency must 
maintain a State agency list, made available to FNS upon request, and 
must include the following information:
    (i) Names and mailing addresses of each sponsor that is determined 
to have a serious management problem;
    (ii) Names, mailing addresses, and dates of birth of each 
responsible principal and responsible individual;
    (iii) The status of the sponsor as it progresses through the stages 
of corrective action, termination, and disqualification, full 
correction, as applicable.
    (2) Within 10 days of receiving a notice of termination and 
disqualification from a sponsoring organization, the State agency must 
provide FNS with the information as described in paragraphs (b)(1)(i) 
and (ii) of this section.
    (c) Correcting serious management problems. In response to the 
notice of serious management problems, the sponsor must submit, in 
writing, what corrective actions it has taken to correct each serious 
management problem.
    (1) Corrective action plans. An acceptable corrective action plan 
must demonstrate that the serious management problem is resolved. The 
plan must address the root cause of each serious management problem, 
describe and document the action taken to correct serious management 
problems, and describe the action's outcome. The corrective action plan 
must include the following:
    (i) What is the serious management problem and the action taken to 
address it?
    (ii) Who addressed the serious management problem? List personnel 
responsible for this task.
    (iii) When was the action taken to address the serious management 
problem? Provide a timeline for implementing the action (i.e., daily, 
weekly, monthly, or annually, and when did implementation of the plan 
begin)?
    (iv) Where is documentation of the corrective action plan filed?
    (v) How were staff and providers informed of the new policies and 
procedures?
    (2) Corrective action timeframes. Corrective action must be taken 
within the allotted time to ensures that serious management problems 
are quickly addressed and fully corrected. The time allotted to correct 
the serious management problem must be appropriate for the type of 
serious management problem. The allotted time begins on the date the 
first notification is received, as described in paragraph (a)(6)(i) of 
this section. The serious management problems must be corrected as soon 
as possible and:
    (i) Up to 10 days from the date the sponsor receives the first 
notification.
    (ii) More than 10 days only if the State agency determines that 
corrective action will require the long-term revision of management 
systems or processes, such as, but not limited to, the purchase and 
implementation of new claims payment software or a major reorganization 
of Program management duties that will require action by the board of 
directors.
    (A) The State agency may permit more than 10 days to complete the 
corrective action.
    (B) The sponsor's corrective action plan must include milestones 
and a definite completion date.
    (C) The State agency must receive and approve the corrective action 
plan within 15 days from the date the sponsor received the notice.
    (D) The State agency must monitor full implementation of the 
corrective action plan.
    (iii) Up to 5 days for a sponsor that:
    (A) Engaged in an unlawful practice,
    (B) Submitted a false or fraudulent claim to the State agency,
    (C) Submitted other false or fraudulent information to the State 
agency,
    (D) Was convicted of a crime, or
    (E) Concealed a criminal background.
    (3) Achieving full correction of serious management problems. The 
path to full correction requires the sponsor to demonstrate that it has 
the ability to operate the Program with no serious management problems, 
as described in paragraph (a) of this section. The State agency must 
prioritize follow-up reviews and more frequent full reviews of sponsors 
with serious management problems, as described in Sec.  
225.7(e)(4)(ii). A follow-up review must be conducted to confirm that 
the serious management problem is corrected. Full reviews must be

[[Page 13213]]

conducted at least once every year. Full correction of a sponsor's 
serious management problems is achieved when:
    (i) At least two full reviews reveal no new or repeat serious 
management problems;
    (ii) The first and last full reviews are at least 12 months apart 
and reveal no new or repeat serious management problems; and
    (iii) All reviews, including any follow-up reviews, between the 
first and last full review reveal no new or repeat serious management 
problems.
    (iv) Once full correction is achieved, a serious management problem 
that recurs again, is not considered repeat and therefore, would not 
lead to an immediate proposal of termination. Any new or recurrence of 
a serious management problem would require the State agency to issue a 
new notice of serious management problems, as described in paragraph 
(a)(6) of this section.
    (d) Termination--(1) Termination for cause. If the State agency 
determines that the sponsor is unable to properly perform its 
responsibilities under its Program agreement and fails to take 
successful corrective action, the Program agreement must be terminated 
for cause. The State agency and sponsoring organization must declare 
the sponsor to be seriously deficient at the point of termination, 
which would be followed by disqualification. The State agency shall not 
terminate for convenience to avoid implementing the serious deficiency 
process.
    (2) Contingency plan. The State agency must have a contingency plan 
in place for the transfer of sites if a sponsor is terminated or 
disqualified to ensure that eligible children continue to have access 
to meal services.
    (e) Disqualification--(1) Reciprocal disqualification. A State 
agency may not enter into an agreement with any sponsor, if they have 
been terminated for cause from any child nutrition program and placed 
on a National Disqualified List. Any existing agreements with the 
sponsor must also be terminated and the sponsor and all responsible 
principals and responsible individuals must also be terminated and 
disqualified.
    (i) No individual on the National Disqualified List may serve as a 
principal at any sponsor.
    (ii) The State agency must not approve the application of a new or 
experienced sponsor if any of the sponsor's principals is on the 
National Disqualified List.
    (iii) A sponsor is prohibited from submitting an application on 
behalf of a site if any of the site's principals are on the National 
Disqualified List.
    (iv) A sponsor is prohibited from submitting an application on 
behalf of a site if the site is on the National Disqualified List.
    (v) The State agency must not approve an application described in 
paragraphs (e)(1)(iii) and (iv) of this section.
    (vi) Once included on the National Disqualified List, a sponsor, 
responsible principal, or responsible individual will remain on the 
list until such time as the State agency determines that either the 
serious management problem that led to its placement on the list has 
been corrected or until 7 years have elapsed since its agreement was 
terminated for cause, whichever is longer. Any debt owed under the 
Program must be repaid.
    (2) National Disqualified List. FNS will maintain the National 
Disqualified List and make it available to all State agencies and all 
sponsors. This computer matching program uses a Computer Matching Act 
system of records of information on institutions and individuals who 
are disqualified from participation in SFSP and CACFP.
    (i) Placement on the National Disqualified List. The State agency 
must provide the following information to FNS for each sponsor, 
responsible principle, and responsible individual:
    (A) Name and address of the sponsor (including city, State, and zip 
code);
    (B) Any known aliases;
    (C) Termination date;
    (D) Amount of debt owed, if any;
    (E) Reason, and if other is checked, an explanation;
    (F) Date of birth of the responsible principal and responsible 
individual; and
    (G) Position within the institution or facility of the responsible 
principal and responsible individual.
    (ii) Removal from the National Disqualified List. A sponsor, 
responsible principal and responsible individual that has been 
disqualified from the Program due to uncorrected serious management 
problems will remain on the National Disqualified List until the State 
agency and FNS have determined that the serious management problems are 
corrected, or for 7 years, whichever is longer. Any debt under the 
Program must be repaid. After a sponsor, responsible principal or 
responsible individual has been removed from the National Disqualified 
List, they will be considered to be in good standing, and eligible to 
apply for the Program.
    (iii) Early removal of sponsors, principals, and individuals from 
the list. The State agency must review and approve a sponsor or 
responsible principal and responsible individual's request for removal 
from the National Disqualified List. If the State agency approves the 
request, and ensures that any debt associated has been paid, it may 
submit the information to the FNSRO, where it will be reviewed for 
completeness. The FNSRO will also ensure that the State agency's 
request is within Program requirements and that the documentation 
supports the early removal. Once reviewed, the FNSRO will submit the 
request to the FNS National Office for removal. The effective date of 
National Disqualified List removal will be the date on which the FNS 
National Office processes the removal request. The FNSRO will be 
notified once the removal has been completed and inform the State 
agency.
    (3) Computer Matching Act (CMA). The Computer Matching and Privacy 
Protection Act addresses the use of information from computer matching 
programs that involve a Federal System of Records. Address: compliance, 
matching agreement, and independent verification.
    (i) Each State agency participating in a computer matching program 
must comply with the provisions of the Computer Matching Act if it uses 
an FNS system of records in order to:
    (A) Establish eligibility for a Federal benefit program;
    (B) Verify eligibility for a Federal benefit program;
    (C) Verify compliance with either statutory or regulatory 
requirements of a Federal benefit program; or
    (D) Recover payments or delinquent debts owed under a Federal 
benefit program.
    (ii) State agencies must enter into written agreements with USDA/
FNS, consistent with 5 U.S.C. 552a(o) of the Computer Matching Act, in 
order to participate in a matching program involving a USDA/FNS Federal 
system of records. The agreement must include the State agency's 
independent verification requirements.
    (iii) State agencies are prohibited from taking any adverse action 
to terminate, deny, suspend, or reduce benefits to an applicant or 
recipient based on information produced by a Federal computer matching 
program that is subject to the requirements of the Computer Matching 
Act, unless:
    (A) The information has been independently verified by the State 
agency; and
    (B) FNS has waived the two-step independent verification and notice 
requirement.
    (iv) A State agency that receives a request for verification from 
another State agency or from FNS must provide

[[Page 13214]]

the necessary verification. The State agency must respond within 20 
calendar days of receiving the request.
    (v) A State agency may use the record of a certified notice to 
independently verify the accuracy of a computer match.
    (f) Fair hearing--(1) Right to a fair hearing. (i) The sponsor must 
be advised in writing of the grounds upon which the State agency based 
the action and its right to a fair hearing. The State agency must offer 
a fair hearing in the notice to the sponsor for any of the actions 
described in Sec.  225.13(a). A fair hearing for any other action is 
not required.
    (ii) The notice of due process must inform the sponsor of:
    (A) The action that is taken or proposed to be taken;
    (B) The legal basis for the action;
    (C) The right to appeal the action; and
    (D) The procedures and deadlines for requesting an appeal of the 
action.
    (iii) If a fair hearing is requested:
    (A) The State agency must continue to pay any valid claims for 
reimbursement of eligible meals served and allowable administrative 
expenses incurred until the hearing official issues a decision.
    (B) Any information upon which the State agency based its action 
must be available to the appellants for inspection from the date of 
receipt of the hearing request.
    (C) Appellants may request a fair hearing in person or by 
submitting written documentation to the hearing official.
    (D) Appellants may represent themselves, retain legal counsel, or 
be represented by another person.
    (E) All parties must submit written documentation to the hearing 
official prior to the beginning of the hearing, within 30 days after 
receiving the notice of action.
    (F) Appellants must be permitted to contact the hearing official 
directly.
    (2) Fair hearing procedures. A hearing must be held by the fair 
hearing official in addition to, or in lieu of, a review of written 
information only if the sponsor or the responsible principals and 
responsible individuals request a hearing in the written request for a 
fair hearing. If the sponsor's representative or the responsible 
principals or responsible individuals or their representatives, fails 
to appear at a scheduled hearing, they waive the right to a personal 
appearance before the hearing official, unless the hearing official 
agrees to reschedule the hearing. A representative of the State agency 
must be allowed to attend the hearing to respond to the testimony of 
the sponsor and the responsible principals and responsible individuals 
and to answer questions posed by the hearing official. If a hearing is 
requested, the sponsor, the responsible principals, and responsible 
individuals, and the State agency must be provided with at least 5 days 
advance notice of the time and place of the hearing.
    (i) The purpose of the hearing is to determine that the State 
agency, sponsor, responsible principals, or responsible individuals, 
followed Program requirements.
    (ii) The hearing official's decisions should be limited to that 
purpose.
    (iii) The purpose is not to determine whether to uphold the 
legality of Federal or State Program requirements.
    (iv) The request for a fair hearing must be submitted in writing no 
later than 10 calendar days after the date the notice of action is 
received. The State agency must acknowledge the request for a fair 
hearing within 5 calendar days of its receipt of the request. The State 
agency must provide a copy of the written request for a fair hearing, 
including the date of receipt of the request to FNS within 10 calendar 
days of its receipt of the request.
    (3) Hearing officials. The individual who is appointed to conduct 
the fair hearing, including any State agency employee or contractor, 
must be independent and impartial. The sponsor, responsible principals, 
and responsible individuals must be permitted to contact the hearing 
official directly if they so desire. The State agency must ensure that 
the hearing official:
    (i) Has no involvement in the action under appeal;
    (ii) Does not occupy a position that may potentially be subject to 
undue influence from any party that is responsible for the action under 
appeal;
    (iii) Does not occupy a position that may exercise undue influence 
on any party that is responsible for the action under appeal;
    (iv) Has no personal interest in the outcome of the fair hearing;
    (v) Has no financial interest in the outcome of the fair hearing.
    (4) Basis for decision. The hearing official must render a decision 
that is based on:
    (i) The determination that the State agency, sponsor, responsible 
principals, or responsible individuals, followed Program requirements;
    (ii) The information provided by the State agency, sponsor, 
responsible principals, and responsible individuals; and
    (iii) The Program requirements established in Federal and State 
laws, regulations, policies, and procedures.
    (5) Final decision. The hearing official's decision is the final 
action in the appeal process.
    (i) Within 10 days of the State agency's receipt of the request for 
a fair hearing, the fair hearing official must inform the State agency, 
the sponsor's executive director and chairman of the board of 
directors, and the responsible principals and responsible individuals, 
of the fair hearing's outcome.
    (ii) The hearing official must render a decision within 30 days of 
the date the State agency received the appeal request.
    (iii) The hearing official must inform the State agency, sponsor, 
responsible principals, and responsible individuals of the decision 
within this 30-day period.
    (iv) This timeframe is a requirement and cannot be used to justify 
overturning the State agency action if a decision is not made within 
the 30-day period.
    (v) The hearing official's decision is final.
    (vi) The decision is not subject to appeal.
    (6) Effect of State agency action. The State agency's action must 
remain in effect during the fair hearing. The effect of this 
requirement on particular State agency actions is as follows:
    (i) Overpayment demand. During the period of the fair hearing, the 
State agency is prohibited from taking action to collect or offset the 
overpayment. However, the State agency must assess interest beginning 
with the initial demand for remittance of the overpayment and 
continuing through the period of administrative review unless the 
administrative review official overturns the State agency's action.
    (ii) Recovery of advances. During the fair hearing, the State 
agency must continue its efforts to recover advances in excess of the 
claim for reimbursement for the applicable period. The recovery may be 
through a demand for full repayment or an adjustment of subsequent 
payments.
    (g) Payments--(1) Payment of valid claims. If a fair hearing is 
requested, the State agency must continue to pay any valid claims for 
reimbursement of eligible meals served and allowable administrative 
expenses incurred un the hearing official issues a decision.
    (2) Debts owed to the Program. The State agency is responsible for 
the collection of unearned payments, including any assessment of 
interest, as described in Sec.  225.12(b).
    (i) After the State agency has sent the necessary demand letter for 
debt collection, State agency staff must refer the claim to the 
appropriate State

[[Page 13215]]

authority for pursuit of the debt payment.
    (ii) FNS defers to the State's laws and procedures to establish a 
repayment plan to recover funds as quickly as possible.
    (iii) It is the responsibility of the State agency to notify the 
sponsor that interest will be charged. Interest must be assessed on 
sponsors' debts established on or after July 29, 2002. Interest will 
continue to accrue on debts not paid in full within 30 days of the 
initial demand for remittance up to the date of payment, including 
during an extended payment plan and each month while on the National 
Disqualified List.
    (iv) State agencies are required to assess interest using one 
uniform rate. The appropriate rate to use is the Current Value of Funds 
Rate, which is published annually by Treasury in the Federal Register 
and is available from the FNSRO.
    (h) FNS determination of serious management problems--(1) General. 
FNS may determine independently that a sponsor has one or more serious 
management problems, as described in paragraph (a) of this section. FNS 
will follow procedures outlined in this section to address any finding 
that prevents a sponsor from meeting the Program's performance 
standards, affects the integrity of a claim for reimbursement, or 
affects the integrity of the meals served in a day care home or 
unaffiliated center.
    (2) Required State agency action--(i) Termination of agreements. If 
the State agency holds an agreement with a sponsor that FNS determines 
to be seriously deficient and subsequently disqualifies, the State 
agency must terminate the sponsor's agreement effective no later than 
45 days after the date of the sponsor's disqualification by FNS. As 
noted in paragraph (f) of this section, the termination of an agreement 
for this reason is not subject to a fair hearing. At the same time the 
notice of termination is issued, the State agency must add the sponsor 
to the State agency list and provide a copy of the notice to the 
appropriate FNSRO.
    (ii) Disqualified responsible principal and individuals. If the 
State agency holds an agreement with a sponsor whose principal FNS 
determines to be seriously deficient and subsequently disqualifies, the 
State agency must initiate action to terminate and disqualify the 
sponsor in accordance with the procedures in paragraph (a)(6)(ii)(B) of 
this section. The State agency must initiate these actions no later 
than 45 days after the date of the principal's disqualification by FNS.

PART 226--CHILD AND ADULT CARE FOOD PROGRAM

0
18. 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
19. In Sec.  226.2:
0
a. Remove the definitions for ``Administrative review'' and 
``Administrative review official'';
0
b. Add in alphabetical order the definitions for ``Cognizant Regional 
office'', ``Cognizant State agency'', ``Contingency plan'', and 
``Corrective action'';
0
c. Revise the definition for ``Disqualified'';
0
d. Add in alphabetical order the definitions for ``Fair hearing'', 
``Finding'', ``Fiscal action'', ``Full correction'', ``Good standing'', 
``Hearing official'', ``Lack of business integrity'', ``Legal basis'', 
and ``Multi-State sponsoring organization (MSSO)'';
0
e. Revises the definitions for ``National Disqualified List'' and 
``Notice'';
0
f. Add the definitions for ``Program operator'', ``Responsible 
individual'' and ``Responsible principal'';
0
g. Remove the definition for ``Responsible principal or responsible 
individual'';
0
h. Add the definitions for ``Review cycle'' and ``Serious management 
problem''; and
0
i. Revise the definitions for ``Seriously deficient'', ``State agency 
list'', ``Termination for cause''.
    The revisions and additions read as follows:


Sec.  226.2   Definitions

* * * * *
    Cognizant Regional office means the FNSRO which acts on behalf of 
the Department in the administration of the Program and is responsible 
for determining which State agency has cognizance when a multi-State 
sponsoring organization operates the Program.
    Cognizant State agency means the agency which is responsible for 
the administration of the Program in the State where a multi-State 
sponsoring organization's headquarters is located.
    Contingency plan means the State agency's written process for the 
transfer of sponsored centers and day care homes that will help ensure 
that Program meals for children and adult participants will continue to 
be available without interruption if a sponsoring organization's 
agreement is terminated.
    Corrective action means implementation of a solution, written in a 
corrective action plan, to address the root cause and prevent the 
recurrence of a serious management problem.
* * * * *
    Disqualified means the status of an institution, facility, 
responsible principal, or responsible individual who is ineligible for 
participation in the Program.
* * * * *
    Fair hearing means due process provided upon request to:
    (1) An institution that has been given notice by the State agency 
of an action that will affect participation or reimbursement under the 
Program;
    (2) A principal or individual responsible for an institution's 
serious management problem and issued a notice of proposed termination 
and proposed disqualification from Program participation; or
    (3) An individual responsible for a day care home or unaffiliated 
center's serious management problem and issued a notice of proposed 
disqualification from Program participation.
* * * * *
    Finding means a violation of a regulatory requirement identified 
during a review.
    Fiscal action means the recovery of an overpayment or claim for 
reimbursement that is not properly payable through direct assessment of 
future claims, offset of future claims, disallowance of overclaims, 
submission of a revised claim for reimbursement, or disallowance of 
funds for failure to take corrective action to meet Program 
requirements.
* * * * *
    Full correction means the status achieved after a corrective action 
plan is accepted and approved, all corrective actions are fully 
implemented, and no new or repeat serious management problem is 
identified in subsequent reviews, as described in Sec.  226.25(c).
* * * * *
    Good standing means the status of a program operator that meets its 
Program responsibilities, is current with its financial obligations, 
and if applicable, has fully implemented all corrective actions within 
the required period of time.
* * * * *
    Hearing official means an individual who is responsible for 
conducting an impartial and fair hearing--as requested by an 
institution, responsible principal, or responsible individual 
responding to

[[Page 13216]]

a proposal for termination--and rendering a decision.
* * * * *
    Lack of business integrity means the conviction or concealment of a 
conviction for fraud, antitrust violations, embezzlement, theft, 
forgery, bribery, falsification or destruction of records, making false 
statements, receiving stolen property, making false claims, or 
obstruction of justice.
    Legal basis means the lawful authority established in statute or 
regulation.
* * * * *
    Multi-State sponsoring organization (MSSO) means an organization 
that sponsors facilities in more than one State.
    National Disqualified List (NDL) means a system of records, 
maintained by the Department, of institutions, responsible principals, 
and responsible individuals disqualified from participation in the 
Program.
* * * * *
    Notice means a letter sent by certified mail, return receipt (or 
the equivalent private delivery service), by facsimile, or by email, 
that describes an action proposed or taken by a State agency or FNS 
with regard to an institution's Program reimbursement or participation. 
Notice also means a letter sent by certified mail, return receipt (or 
the equivalent private delivery service), by facsimile, or by email, 
that describes an action proposed or taken by a sponsoring organization 
with regard to a day care home or unaffiliated center's participation.
* * * * *
    Program operator means any entity that participates in one or more 
Child Nutrition Programs.
* * * * *
    Responsible individual means any individual employed by, or under 
contract with an institution or facility, or any other individual, 
including uncompensated individuals, who the State agency or FNS 
determines to be responsible for an institution or facility's serious 
management problem.
    Responsible principal means any principal, as described in this 
section, who the State agency or FNS determined to be responsible for 
an institution's serious management problem.
    Review cycle means the frequency and number of required reviews of 
institutions and facilities.
* * * * *
    Serious management problem means the finding(s) that relates to an 
institution's inability to meet the Program's performance standards or 
that affects the integrity of a claim for reimbursement or the quality 
of meals served in a day care home or center.
    Seriously deficient means the status of an institution or facility 
after it is determined that full corrective action will not be achieved 
and termination for cause is the only appropriate course of action.
* * * * *
    State agency list means an actual paper or electronic list, or the 
retrievable paper records, maintained by the State agency, that 
includes information on institutions and day care home providers or 
unaffiliated centers through the serious deficiency process in that 
State. The list must be made available to FNS upon request and must 
include information specified in Sec.  226.25(b).
* * * * *
    Termination for cause means the termination of a Program agreement 
due to considerations related to an institution or a facility'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
20. In Sec.  226.6:
0
a. In paragraph (b)(1), revise the second sentence;
0
b. In paragraph (b)(1)(xii), remove the word ``principals'' and adding 
in its place the words ``responsible principals or responsible 
individuals'' wherever it appears;
0
c. Revise paragraphs (b)(1)(xiii) and (b)(1)(xiv)(A) and (B);
0
d. Add paragraphs (b)(1)(xv)(A) and (b)(1)(xix) ;
0
e. In paragraph (b)(2), remove the word ``principals'' and adding in 
its place the words ``responsible principals or responsible 
individuals'' wherever it appears;
0
f. In paragraph (b)(2)(ii)(F), remove the word ``and'';
0
g. In paragraph (b)(2)(ii)(G), remove ``.'' and adding in its place ``; 
and'';
0
h. Add paragraph (b)(2)(ii)(H);
0
i. Revise paragraph (b)(2)(iii)(D);
0
j. In paragraph (b)(2)(iii)(F), add a new second sentence;
0
k. Add paragraph (b)(2)(iii)(L);
0
l. In paragraph (b)(3)(i), revise the last two sentences;
0
m. Revise paragraphs (b)(4)(ii) and (iii) and (c);
0
n. Remove paragraphs (k) and (l) and redesignate paragraphs (m) through 
(q) as paragraphs (k) through (o), respectively;
0
o. Revise newly redesignated paragraph (k)(2);
0
p. In newly redesignated paragraph (k)(3)(x), remove the words 
``paragraph (m)(5)'' and add in their place the words ``paragraph 
(k)(5)'';
0
q. In newly redesignated paragraph (k)(3)(xi) remove the word ``and'';
0
r. In newly redesignated paragraph (k)(3)(xii) remove ``.'' and add in 
its place ``; and'';
0
s. Add paragraph (k)(3)(xiii);
0
t. In newly redesignated paragraph (k)(4) remove the words ``paragraph 
(m)(6)'' and add in their place the words ``paragraph (k)(6)'';
0
u. In newly redesignated paragraph (k)(5) remove the words ``paragraph 
(m)'' and add in their place the words ``paragraph (k)'';
0
v. Revise newly redesignated paragraph (m);
0
w. In newly designated paragraph (n), remove the citation ``Sec.  
226.16(l)'' and add in its place the citation ``Sec.  226.25'';
0
x. Redesignate paragraph (r) as paragraph (p) and add new paragraph 
(q).
    The additions and revisions read as follows:


Sec.  226.6   State agency administrative responsibilities.

* * * * *
    (b) * * *
    (1) * * * The State agency must also determine if the sponsoring 
organization operates in more than one State. * * *
* * * * *
    (xiii) Ineligibility for other publicly funded programs--(A) 
General. Ineligibility for other publicly funded programs. A State 
agency is prohibited from approving an institution or facility's 
application if, the institution, facility, responsible principals, or 
responsible individuals:
    (1) Have been declared ineligible for any other publicly funded 
program by reason of violating that program's requirements, during the 
past 7 years. 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.
    (2) Were terminated for cause from any program authorized under 
this part or parts 210, 215, 220, or 225 of this chapter and are 
currently listed on a

[[Page 13217]]

National Disqualified List, per paragraph (b)(1)(xiii) of this 
section;. State agencies must develop a process to share information on 
any institution, facility, responsible principal, or responsible 
individual not approved to administer or participate in the programs as 
described under paragraph (b)(2)(iii)(A)(1) of this section. The State 
agency must work closely with any other Child Nutrition Program State 
agency within the State to ensure information is shared for program 
purposes and on a timely basis. The process must be approved by FNS.
    (B) Certification. Institutions must submit:
    (1) A statement listing the publicly funded programs in which the 
institution, and its responsible principals and responsible individuals 
have participated in the past 7 years; and
    (2) A certification that, during the past 7 years, neither the 
institution nor any of its responsible principals or responsible 
individuals have been declared ineligible to participate in any other 
publicly funded program by reason of violating that program's 
requirements; or
    (3) In lieu of the certification, documentation that the 
institution or the responsible principals or responsible individuals 
previously declared ineligible was later fully reinstated in, or 
determined eligible for, the program, including the payment of any 
debts owed.
    (C) Follow-up. If the State agency has reason to believe that the 
institution, facility, its responsible principals or responsible 
individuals were determined ineligible to participate in another 
publicly funded program by reason of violating that program's 
requirements, 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.
    (xiv) Information on criminal convictions. (A) A State agency is 
prohibited from approving an institution's application if the 
institution or any of its principals has been convicted of any activity 
that occurred during the past 7 years and that indicated a lack of 
business integrity, as described in Sec.  226.2, any other activity 
indicating a lack of business integrity as defined by the State agency; 
and
    (B) Institutions must submit a certification that neither the 
institution nor any of its principals has been convicted of any 
activity that occurred during the past seven years and that indicated a 
lack of business integrity, as described in Sec.  226.2, or any other 
activity indicating a lack of business integrity as defined by the 
State agency;
    (xv) * * *
    (A) Each principal who fills a position that the State agency 
designates as responsible must submit signed certifications 
acknowledging Program responsibility.
    (B) [Reserved] * * * * *
    (xix) Information about MSSO operations. Sponsoring organizations 
approved to participate in the Program in more than one State must 
provide:
    (A) The number of affiliated centers it sponsors, by State;
    (B) The number of unaffiliated centers it sponsors, by State;
    (C) The number of day care homes it sponsors, by State;
    (D) The names, addresses, and phone numbers of the organization's 
headquarters and the officials who have administrative responsibility;
    (E) The names, addresses, and phone numbers of the financial 
records center and the officials who have financial responsibility; and
    (F) The organization's decision on whether to use program funds for 
administrative expenses.
* * * * *
    (2) * * *
    (ii) * * *
    (H) Information about MSSO operations, as described in paragraph 
(b)(1)(xix) of this section, is up-to-date.
    (iii) * * *
    (D) Ineligibility for other publicly funded programs. A State 
agency is prohibited from approving a renewing institution or 
facility's application if, the institution, facility, responsible 
principals, or responsible individuals:
    (1) Have been declared ineligible for any other publicly funded 
program by reason of violating that program's requirements, during the 
past 7 years. 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.
    (2) Were terminated for cause from any program authorized under 
this part or parts 210, 215, 220, or 225 of this chapter and are 
currently listed on a National Disqualified List, per paragraph 
(b)(1)(xiii) of this section. State agencies must develop a process to 
share information on any institution, facility, responsible principal, 
or responsible individual not approved to administer or participate in 
the programs as described under paragraph (b)(2)(iii)(A)(1) of this 
section. The State agency must work closely with any other Child 
Nutrition Program State agency within the State to ensure information 
is shared for program purposes and on a timely basis. The process must 
be approved by FNS.
* * * * *
    (F) Submission of names and addresses. * * * The State agency must 
also ensure that the signed certifications acknowledging Program 
responsibility, as described in paragraph (b)(1)(xv)(A) of this section 
are up-to-date. * * *
* * * * *
    (L) Multi-state sponsoring organizations. The State agency must 
ensure that the MSSO's operations, as described in paragraph 
(b)(1)(xix) of this section, are up-to-date. If the MSSO has facilities 
not previously reported to the State agency, as described in paragraph 
(b)(1)(xix) of this section, the MSSO must update the information.
* * * * *
    (3) * * *
    (i) * * * Any disapproved applicant institution must be notified of 
the reasons for its disapproval and its right to appeal. 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 Sec.  226.25(g).
* * * * *
    (4) * * *
    (ii) 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

[[Page 13218]]

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.
    (iii) 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.
    (A) The State agency must terminate the agreement for cause as 
described in Sec.  226.25(d)(1).
    (B) 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.
    (C) 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.
    (D) The State agency, institution, or facility cannot terminate for 
convenience to avoid actions related to serious management problems. 
Termination procedures as a result of the serious deficiency process 
can be found in Sec.  226.25.
    (c) Denial of a new institution's application. (1) Denial of 
applications that do not meet minimum requirements. The State agency 
must deny the application, if a new institution's application does not 
meet all of the requirements in paragraph (b) of this section and in 
Sec. Sec.  226.15(b) and 226.16(b).
    (2) Denial of applications by ineligible applicants. The State 
agency must deny the application and must initiate action to disqualify 
the new institution and the responsible principals, including the 
person who signs the application, and responsible individuals if the 
State agency determines that the institution has:
    (i) Submitted false information on its application, including but 
not limited to a determination that the institution has concealed a 
conviction for any activity that occurred during the past seven years 
and that indicates a lack of business integrity; or
    (ii) Any other action affecting the institution's ability to 
administer the Program in accordance with Program requirements.
    (3) Denial and disqualification notification procedures. If the 
State agency initiates action to deny and disqualify the new 
institution, the State agency must use the procedures described in 
paragraph (c)(4) of this section to provide the institution and the 
responsible principals and responsible individuals with notice for the 
basis of denial and an opportunity to take corrective action.
    (4) Notice of proposed denial and proposed disqualification. If the 
State agency initiates action to deny the institution's application, 
the State agency must notify the institution's executive director and 
chairman of the board of directors. The notice must identify the 
responsible principals, including the person who signed the 
application, and responsible individuals and must be sent to those 
persons as well. The State agency may specify in the notice different 
corrective actions and time periods for completing the corrective 
action for the institution and the responsible principals and 
responsible individuals. At the same time the notice is issued, the 
State agency must add the institution to the State agency list, along 
with the basis for denial, and provide a copy of the notice to the 
appropriate FNSRO. The notice must also specify:
    (i) The basis of denial;
    (ii) The corrective actions required to be taken;
    (iii) The time allotted for corrective actions;
    (v) That failure to complete the corrective actions within the 
allotted time will result in denial of the institution's application 
and the disqualification of the institution and the responsible 
principals and responsible individuals;
    (vi) That the State agency will not pay any claims for 
reimbursement for eligible meals served or allowable administrative 
expenses incurred until the State agency has approved the institution's 
application and the institution has signed a Program agreement; and
    (vii) That the institution's withdrawal of its application, after 
having been notified of its proposed denial and proposed 
disqualification, will still result in the institution's application 
being denied and placement of the institution and its responsible 
principals and responsible individuals on the National Disqualified 
List by the State agency; and
    (viii) That, if the State agency does not possess the date of birth 
for any individual named as a ``responsible principal'' or 
``responsible individual'' in the notice of proposed denial and 
proposed disqualification, the submission of that person's date of 
birth is a condition of corrective action.
    (5) Successful corrective action. (i) If corrective action has been 
completed within the allotted time and to the State agency's 
satisfaction, the State agency must:
    (A) Notify the institution's executive director and chairman of the 
board of directors, and the responsible principals and responsible 
individuals, that the corrective actions are complete; and
    (B) Offer the new institution the opportunity to resubmit its 
application. If the new institution resubmits its application, the 
State agency must complete its review of the application within 30 days 
after receiving a complete and correct application.
    (ii) If corrective action is complete for the institution but not 
for all of the responsible principals and responsible individuals, the 
State agency must:
    (A) Continue with the actions, as described in paragraph (c)(4) of 
this section, against the remaining parties;
    (B) At the same time the notice is issued, the State agency must 
also update the State agency list to indicate that the corrective 
actions are complete and provide a copy of the notice to the 
appropriate FNSRO.
    (iii) If the State agency initially approves the institution's 
application and the State agency and institution have a signed 
permanent agreement, the State agency must follow procedures, as 
described in Sec.  226.25, for any serious management problems that 
occur.
    (iv) If the institution is still in the process of applying and the 
State agency initially determined that the institution's corrective 
action is complete, but later the same problem occurs, the State agency 
must move immediately to issue a notice of intent to deny the 
application and disqualify the institution, as described in paragraph 
(c)(6) of this section.
    (6) Application denial and proposed disqualification. If timely 
corrective action is not completed, the State agency must notify the 
institution's executive director and chair of the board of directors, 
and the responsible principals and responsible individuals, that the 
institution's application has been denied. At the same time the notice 
is issued, the State agency must also update the State agency list and 
provide a copy of the notice to the

[[Page 13219]]

appropriate FNSRO. The notice must also specify:
    (i) That the institution's application has been denied and the 
State agency is proposing to disqualify the institution and the 
responsible principals and responsible individuals;
    (ii) The basis for denial; and
    (iii) The procedures for seeking a fair hearing, as described in 
Sec.  226.25(g), of the application denial and proposed 
disqualifications.
    (7) Program payments. The State agency is prohibited from paying 
any claims for reimbursement from a new institution for eligible meals 
served or allowable administrative expenses incurred until the State 
agency has approved its application and the institution and State 
agency have signed a Program agreement.
    (8) Disqualification. When the time for requesting a fair hearing 
expires or when the hearing official upholds the State agency's denial 
and proposed disqualifications, the State agency must notify the 
institution's executive director and chair of the board of directors, 
and the responsible principals and responsible individuals that the 
institution and the responsible principal and responsible individuals 
have been disqualified. At the same time the notice is issued, the 
State agency must also update the State agency list and provide a copy 
of the notice and the mailing address and date of birth for each 
responsible principal and responsible individual to the appropriate 
FNSRO.
* * * * *
    (k) * * *
    (2) Review priorities. In choosing institutions for review, as 
described in paragraph (k)(6) of this section, the State agency must 
target for more frequent review of institutions whose prior review 
included serious management problems.
    (3) * * *
    (xiii) If a sponsoring organization of day care homes or 
unaffiliated centers, implementation of the serious deficiency and 
termination procedures for day care homes and unaffiliated centers and, 
if these procedures have been delegated to sponsoring organizations, as 
described in paragraph Sec.  226.25(g) of this section, the fair 
hearing procedures for day care homes or unaffiliated centers.
* * * * *
    (m) Child care standards compliance. The State agency shall, when 
conducting reviews of child care centers, and day care homes approved 
by the State agency under paragraph (d)(3) of this section, determine 
compliance with the child care standards used to establish eligibility, 
and the institution shall ensure that all findings are corrected and 
the State shall ensure that the institution has corrected all findings. 
If findings are not corrected within the specified timeframe for 
corrective action, the State agency must follow procedures for 
termination, described in Sec.  226.25(d). However, if the health or 
safety of the children is imminently threatened, the State agency or 
sponsoring organization must follow the procedures, described in Sec.  
226.25(f). The State agency may deny reimbursement for meals served to 
attending children in excess of authorized capacity.
* * * * *
    (q) Oversight of MSSOs. An MSSO may include a sponsoring 
organization that administers the Program in more than one State, a 
franchise operating multiple facilities in more than one State, or a 
for-profit organization whose parent corporation operates multiple 
affiliated centers in more than one State. Each State agency must 
determine if a sponsoring organization is an MSSO, as described in 
paragraphs (b)(1)(xix) and (b)(2)(iii)(L). The State agency must assume 
the role of the CSA, if the MSSO's center of operations is located 
within the State. Each State agency that approves an MSSO must follow 
the requirements described in paragraph (q)(1) of this section. The CSA 
must follow the requirements described in paragraph (q)(2) of this 
section.
    (1) If the State agency determines that an MSSO provides operates 
the Program within the State,
    (i) Enter into a permanent written agreement with the MSSO, as 
described in paragraph (b)(4) of this section.
    (ii) Approve the MSSO's administrative budget (in consultation with 
the CSA, as appropriate).
    (A) The State agency must approve budget line items that are 
directly attributable to operations within the State.
    (B) The State agency must approve its portion of costs that are 
shared among other State agencies and costs that attribute directly to 
program operations within the State.
    (C) The State agency must notify the CSA if any of the MSSO's 
administrative costs exceed the 15 percent limit, as described in 
paragraph (f)(1)(iv) of this section.
    (iii) Conduct monitoring of MSSO Program operations within the 
State, as described in paragraph (k)(4) of this section. The State 
agency should coordinate monitoring with the CSA to streamline reviews 
and minimize duplication of the review content. The State agency may 
base the review cycle on the number of facilities operating within the 
State.
    (A) The State agency may use information from the CSA's technical 
assistance activities to assess compliance in areas where the scope of 
review overlaps during the same review cycle. The State agency may 
choose to conduct a review of implementation of additional State agency 
requirements, financial records to support State-specific 
administrative costs, and other areas of compliance that the CSA would 
not have reviewed.
    (B) The State agency may also choose to conduct a full review at 
the MSSO's headquarters and financial records center. If the State 
agency chooses to conduct a full review, the State agency should 
request the necessary records from the CSA.
    (C) The State agency must provide summaries of the MSSO reviews 
that are conducted to the CSA. The summaries must include the 
prescribed corrective actions and follow-up efforts.
    (iv) Conduct audit resolution activities. The State agency must 
review audit reports, address audit findings, and implement corrective 
actions, as required under 2 CFR part 200, subpart D, and USDA 
implementing regulations 2 CFR parts 400 and 415.
    (v) Notify all other State agencies that have agreements with the 
MSSO of termination and disqualification actions, as described in 
paragraph (c)(2)(i) of this section.
    (2) CSA responsibilities. If it determines that an MSSO's center of 
operations is located within the State, the State agency must assume 
the role of the CSA, which must:
    (i) Comply with the requirements for a State agency that has 
approved an MSSO to provide Program operations within the State, as 
described in paragraph (q)(1).
    (ii) Determine if there will be shared administrative costs among 
the States in which the MSSO operates and how the costs will be 
allocated. The CSA has the authority to approve cost levels for cost 
items that must be allocated. The CSA must approve the allocation 
method that the MSSO uses for shared costs. The method must allocate 
the cost based on the benefits received, not the source of funds 
available to pay for the cost. If the MSSO administers the Program in 
centers, the CSA must also ensure that administrative costs do not 
exceed 15 percent on an organization-wide basis.
    (iii) Coordinate monitoring. The CSA must conduct a full review at 
the MSSO headquarters and financial records center. The CSA must 
coordinate the timing of reviews. The CSA must make

[[Page 13220]]

copies of monitoring reports and findings available to all other State 
agencies that have agreements with the MSSO.
    (iv) Ensure that organization-wide audit requirements are met. Each 
MSSO must comply with audit requirements, as described under 2 CFR part 
200, subpart D, and USDA implementing regulations 2 CFR parts 400 and 
415. Since their operations are often large and complex, MSSOs should 
have annual audits. If an MSSO has for-profit status, the cognizant 
agency must establish audit thresholds and requirements.
    (v) Oversee audit funding and costs. The share of organization-wide 
audit costs may be based on a percentage of each State's expenditure of 
CACFP funds and the MSSO's expenditure of Federal and non-Federal funds 
during the audited fiscal year. The CSA should review audit costs as 
part of the overall budget review and make audit reports available to 
the other State agencies that have agreements with the MSSO.
    (vi) Ensure compliance with procurement requirements. Procurement 
actions involving MSSOs must follow the requirements under 2 CFR part 
200, subpart D, and USDA implementing regulations 2 CFR parts 400 and 
415. If the procurement action benefits all States in which the MSSO 
operates, the procurement standards of the State that are the most 
restrictive apply. If the procurement action only benefits a single 
State's Program, the procurement standards of that State agency apply.


Sec.  226.7   [Amended]

0
21. In Sec.  226.7, in paragraph (c), remove the word ``deficiencies'' 
and add in its place the words ``management problems''.
0
22. In Sec.  226.10, revise paragraph (b)(2) to read as follows:


Sec.  226.10   Program payment procedures.

* * * * *
    (b) * * *
    (2) If the State agency has audit or monitoring evidence of 
extensive serious management problems or other reasons to believe that 
an institution will not be able to submit a valid claim for 
reimbursement, advance payments must be withheld until the claim is 
received or the corrective actions are complete.
* * * * *


Sec.  226.12   [Amended]

0
23. In Sec.  226.12, in paragraph (b)(3) remove the citation ``Sec.  
226.6(k)'' and add in its place the citation ``Sec.  226.25(g)''.


Sec.  226.14   [Amended]

0
24. In Sec.  226.14, in paragraph (a), remove the words ``an 
administrative review'' and ``the administrative review'' and add in 
their place the words ``fair hearing'' and remove the words ``Sec.  
226.6(k). Minimum'' and add in their place the words ``Sec.  226.25(g). 
Minimum''.


Sec.  226.15   [Amended]

0
25. In Sec.  226.15, in paragraph (b), remove the citation ``Sec.  
226.6(b)(1)(viii)'' and add in its place the citation ``Sec.  
226.6(b)(1)(xvi)''.
0
26. In Sec.  226.16:
0
a. Revise paragraphs (b)(3) and (6), the first sentence of (d)(4)(iv), 
and (d)(4)(v);
0
b. Remove paragraph (l) and redesignate paragraph (m) as paragraph (l).
    The revisions read as follows:


Sec.  226.16   Sponsoring organization provisions.

    (b) * * *
    (3) Timely information concerning the eligibility status of each 
facility, such as licensing or approval actions;
* * * * *
    (6) A copy of the sponsoring organization's procedures, if the 
State agency has made the sponsoring organization responsible for the 
fair hearing of a proposed termination of a day care home or an 
unaffiliated center, as described in Sec.  226.25(g);
* * * * *
    (d) * * *
    (4) * * *
    (iv) Averaging of required reviews. If a sponsoring organization 
conducts one unannounced review of a day care home or an unaffiliated 
center in a year and finds no serious management problems, as described 
in Sec.  226.25, the sponsoring organization may choose not to conduct 
a third review of the facility that year, and may make its second 
review announced, provided that the sponsoring organization conducts an 
average of three reviews of all of its facilities that year, and that 
it conducts an average of two unannounced reviews of all of its 
facilities that year. * * *
    (v) Follow-up reviews. If, in conducting a review of a day care 
home or an unaffiliated center, a sponsoring organization detects a 
serious management problem, the next review of that day care home or 
unaffiliated center must be unannounced. Serious management problems 
are those described in Sec.  226.25(a)(3) regardless of the type of 
facility.
* * * * *
0
27. In Sec.  226.17, add a new sentence at the end of paragraphs (e) 
and (f) to read as follows:


Sec.  226.17   Child care center provisions.

* * * * *
    (e) * * * The sponsoring organization may terminate this agreement 
for cause as described in Sec.  226.25(a).
    (f) * * * The State agency may terminate this agreement for cause 
as described in Sec.  226.25(a).
0
28. In Sec.  226.17a, add a new sentence at the end of paragraphs 
(f)(2)(i) and (ii) to read as follows:


Sec.  226.17a   At-risk afterschool center provisions.

* * * * *
    (f) * * *
    (2) * * *
    (i) * * * The sponsoring organization may terminate this agreement 
for cause as described in Sec.  226.25(a).
    (ii) * * * The State agency may terminate this agreement for cause 
as described in Sec.  226.25(a).
* * * * *


Sec.  226.18   [Amended]

0
29. In Sec.  226.18:
0
a. In paragraph (b) introductory text, remove the citation ``Sec.  
226.16(l)'' and add in its place the citation ``Sec.  226.25''; and
0
b. In paragraph (b)(16):
0
i. Remove the words ``an administrative review'' and add in their place 
the words ``a fair hearing''; and
0
ii. Remove the citation ``Sec.  226.16(l)(2)'' and add in its place the 
citation ``Sec.  226.25''.
0
30. In Sec.  226.19, add a new sentence at the end of paragraph (d) to 
read as follows:


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

    (d) * * * The sponsoring organization may terminate this agreement 
for cause as described in Sec.  226.25(a).
* * * * *
0
31. In Sec.  226.19a, add a new sentence at the end of paragraph (d) to 
read as follows:


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

    (d) * * * The sponsoring organization may terminate this agreement 
for cause as described in Sec.  226.25(a).
* * * * *


Sec. Sec.  226.25 through 226.27   [Redesignated as Sec. Sec.  226.26 
through 226.28]

0
32. Sec. Sec.  226.25 through 226.27 are redesignated as Sec. Sec.  
226.26 through 226.28, respectively.
0
33. Add new Sec.  226.25 to read as follows:

[[Page 13221]]

Sec.  226.25   Administrative actions to address serious management 
problems

    (a) Serious management problems--(1) General. State agencies and 
sponsoring organizations must follow the procedures outlined in this 
section to address any serious management problems. The State agency 
must provide the institution an opportunity for corrective action and 
due process. The sponsoring organization must provide the day care home 
or unaffiliated center an opportunity for corrective action and due 
process.
    (2) Six steps. The serious deficiency process includes a standard 
set of procedures that State agencies and sponsoring organizations 
follow to address serious management problems in the operation of the 
Program. These procedures apply to serious management problems in new 
institutions with a signed permanent agreement, participating 
institutions, day care homes, and unaffiliated centers. The State 
agency or sponsoring organization must:
    (i) Identify serious management problems.
    (ii) Issue a notice of serious management problems.
    (iii) Receive and assess corrective action(s).
    (iv) Issue a notice of successful corrective action or a notice of 
proposed termination with appeal rights.
    (v) Provide a fair hearing, if requested.
    (vi) Issue a notice of successful appeal if the fair hearing 
vacates the proposed termination, or issue a notice of termination, 
serious deficiency, and disqualification, if the fair hearing upholds 
the proposed termination or the timeframe for requesting a fair hearing 
has passed.
    (3) Identifying serious management problems. State agencies must 
consider the type and magnitude of the finding(s) to determine whether 
it rises to the level of a serious management problem. State agencies 
should define a set of standards to identify serious management 
problems. At a minimum, to identify serious management problems, State 
agencies and must consider:
    (i) The severity of the problem. Is the finding minor or 
substantial? Is the finding systemic or isolated?
    (ii) The degree of responsibility. Is the finding best described as 
an inadvertent error or is there evidence of negligence or conscious 
indifference to regulatory requirements, or even deception? Is the 
finding at the facility level or the institution level? If it is at the 
institution level, has the State agency taken appropriate steps to 
resolve it through monitoring, training, and technical assistance? If 
it is at the facility level, has the sponsoring organization taken the 
appropriate steps to resolve it through monitoring, training, and 
technical assistance?
    (iii) The history of participation in the Program. Is this the 
first instance or is there a history of frequently recurring Program 
findings or serious management problems at the same institution, day 
care home or unaffiliated center?
    (iv) The nature of requirements that relate to the finding. Is the 
action a clear finding of Program requirements or a simple mistake? Are 
new policies incorporated correctly?
    (v) The degree to which the problem impacts Program integrity. Does 
the finding undermine the intent of the Program? Is the finding 
administrative or does it impact viability, capability or 
accountability? Is the finding at the facility level or the institution 
level? If it is at the institution level, has the State agency taken 
appropriate steps to resolve it through monitoring, training, and 
technical assistance? If it is at the facility level, has the 
sponsoring organization taken the appropriate steps to resolve it 
through monitoring, training, and technical assistance?
    (4) Good standing. If a State agency identifies a serious 
management problem, the institution, day care home or unaffiliated 
center is considered to be not in good standing. At a minimum, the 
following criteria need to be met to return to good standing.
    (i) Outstanding debts are paid;
    (ii) All corrective actions are fully implemented; and
    (iii) Meets its Program responsibilities.
    (5) Notifications. The State agency and sponsoring organization 
must provide written notice of action through each step of the serious 
deficiency process.
    (i) Each type of notice must include a basis and an explanation of 
any action that is proposed and any action that is taken.
    (ii) The notice must be delivered via certified mail, return 
receipt, or an equivalent private delivery service, facsimile, or 
email.
    (iii) The notice is considered to be received on the date it is 
delivered, sent by facsimile, or sent by email.
    (iv) If the notice is undeliverable, it is considered to be 
received 5 days after it is sent to the addressee's last known mailing 
address, facsimile number, or email address.
    (6) Serious management problems notification procedures for 
institutions. If the State agency determines that institution has 
serious management problems, the sponsoring organization must use the 
following procedures. The State agency must notify the institution of 
all findings, even those that do not rise to a serious management 
problem, and they must be corrected.
    (i) First notification--notice of serious management problem. The 
State agency must notify the institution's executive director, chair of 
the board of directors that the institution has serious management 
problems and provide an opportunity to take corrective action. The 
notice must also be sent to all other responsible principal and other 
responsible individual. At the same time the notice is issued, the 
State agency must add the institution to the State agency list, as 
described in paragraph (b) of this section and provide a copy of the 
notice to the FNSRO. This notice documents that a serious management 
problem must be addressed and corrected. Prompt action must be taken to 
minimize the time that elapses between the identification of a serious 
management problem and the issuance of the notice. For each serious 
management problem, the notice must:
    (A) Specify each serious management problem;
    (B) Cite the specific regulatory requirements, instructions, or 
policies as the basis for the serious management problems;
    (C) Identify the responsible principals and responsible 
individuals;
    (D) Specify the actions that must be taken to correct each serious 
management problem. The notice may specify different corrective actions 
and time periods for completing the corrective actions for the 
institution and the responsible principal and the responsible 
individual;
    (E) Set time allotted for implementing the corrective action. The 
corrective action must include milestones and a definite completion 
date that will be monitored. Although paragraph (c)(2) of this section 
sets maximum timeframes, shorter timeframes for corrective action may 
be established.
    (F) Specify that failure to fully implement corrective actions for 
each serious management problem within the allotted time will result in 
the State agency's proposed termination of the institution's agreement 
and the proposed disqualification of the institution and the 
responsible principals and responsible individuals;
    (G) Clearly state that, if the institution voluntarily terminates 
its agreement with the State agency after having been notified of 
serious management problems it will still result in the institution's 
agreement being terminated for cause and the placement of the

[[Page 13222]]

institution and its responsible principals and responsible individuals 
on the National Disqualified List;
    (H) Clearly state that submission of the date of birth for any 
individual named as a responsible principal or responsible individual 
in the notice of serious management problems is a condition of 
corrective action for the institution and/or responsible principal or 
responsible individual.
    (I) Clearly state that the serious management problems are not 
subject to a fair hearing.
    (ii) Second notification--notice of successful corrective action or 
notice of proposed termination, proposed disqualification--(A) Notice 
of successful corrective action. If corrective action has been 
implemented to correct each serious management problem within the time 
allotted and to the State agency's satisfaction, the State agency must:
    (1) Notify the executive director, chair of the board of directors, 
owner, responsible principals, and responsible individuals, that the 
corrective actions are fully implemented;
    (2) If corrective action is complete for the institution, but not 
for all of the responsible principals and responsible individuals, the 
State agency must continue with actions, as described in paragraph 
(a)(6)(ii)(B) of this section, against the remaining parties.
    (3) At the same time the notice is issued, the State agency must 
also update the State agency list, as described in paragraph (b) of 
this section and provide a copy of the notice the appropriate FNSRO.
    (4) Ensure the institution continues to implement procedures and 
policies to fully correct the serious management problems and achieve 
full correction, as described in paragraph (c)(3) of this section.
    (B) Notice of proposed termination and proposed disqualification. 
If corrective action has not been taken or fully implemented for each 
serious management problem within the time allotted and to the State 
agency's satisfaction, or repeat serious management problems occur 
before full correction is achieved, the State agency must:
    (1) Notify the executive director, chair of the board of directors, 
owner, responsible principals, and responsible individuals, that the 
State agency proposes to terminate the institution's agreement and 
proposes to disqualify the institution, responsible principals and 
responsible individuals and explain the institution's opportunity for 
seeking a fair hearing;
    (2) At the same time the notice is issued, the State agency must 
also update the State agency list, and provide a copy of the notice the 
appropriate FNSRO.
    (3) The notice must specify:
    (i) That the State agency is proposing to terminate the 
institution's agreement and proposing to disqualify the institution and 
the responsible principals and the responsible individuals;
    (ii) The basis for the proposal to terminate;
    (iii) That, if the institution voluntarily terminates its agreement 
with the State agency after receiving the notice of proposed 
termination, it will still result in the institution's agreement being 
terminated for cause and the placement of the institution and its 
responsible principals and responsible individuals on the National 
Disqualified List;
    (iv) The procedures for seeking a fair hearing (in accordance with 
paragraph (g) of this section) of the proposed termination and proposed 
disqualifications; and
    (v) That, unless participation has been suspended, the institution 
may continue to participate and receive Program reimbursement for 
eligible meals served and allowable administrative costs incurred until 
the fair hearing is complete.
    (iii) Third notification--Notice to vacate the proposed termination 
of the institution's agreement or notice of serious deficiency, 
termination of the agreement, and disqualifications--(A) Notice to 
vacate the proposed termination of an institution's agreement. If the 
fair hearing vacates the proposed termination, the State agency must 
notify the institution and must:
    (1) Notify the institution's executive director and chairman of the 
board of directors that the proposed termination of the institution's 
agreement has been vacated.
    (2) Update the State agency list at the time the notice is issued;
    (3) Provide a copy of the notice to the appropriate FNSRO.
    (B) Notice of serious deficiency, termination of the institution's 
agreement and disqualifications. When the time for requesting a fair 
hearing expires or when the hearing official upholds the State agency's 
proposed termination and disqualifications, the State agency must:
    (1) Notify the institution's executive director and chairman of the 
board of directors, and the responsible principals and responsible 
individuals, that the institution's agreement is terminated and that 
the institution and the responsible principals and responsible 
individuals are disqualified and placed on the National Disqualified 
List;
    (2) Update the State agency list at the time notice is issued; and
    (3) Provide a copy of the notice and the mailing address and date 
of birth for each responsible principal and responsible individual to 
the appropriate FNSRO.
    (7) Serious management problem(s) notification procedures for day 
care homes and unaffiliated centers. If the sponsoring organization 
determines that a day care home or unaffiliated center has serious 
management problems, the sponsoring organization must use the following 
procedures. The sponsoring organization must notify the day care home 
and unaffiliated centers of all findings, even those that do not rise 
to a serious management problem and they must be corrected.
    (i) First notification--notice of serious management problem. The 
sponsoring organization must notify the day care home or unaffiliated 
center that it has serious management problems and offer it an 
opportunity to take corrective action. At the same time the notice is 
issued, the sponsoring organization must provide a copy of the notice 
to the State agency. Prompt action must be taken to minimize the time 
that elapses between the identification of serious management 
problem(s) and the issuance of the notice. For each serious management 
problem, the notice must:
    (A) Specify the serious management problem;
    (B) Cite the specific regulatory requirements, instructions, or 
policies as the basis for each serious management problem.
    (C) Specify the actions that must be taken to correct the serious 
management problem(s). The notice may specify different corrective 
actions and time periods for completing the corrective action(s) for 
the day care home or unaffiliated center;
    (D) Set time allotted for implementing the corrective action. The 
corrective action must include milestones and a definite completion 
date that will be monitored. Although paragraph (c)(2) of this section 
sets maximum timeframes, shorter timeframes for corrective action may 
be established.
    (E) Specify that failure to fully implement corrective actions for 
each serious management problem within the allotted time will result in 
the sponsoring organization's proposed termination of the Program 
agreement and the proposed disqualification of the day care home and 
provider or unaffiliated center and its principals;
    (F) Clearly state that, if the day care home or unaffiliated center 
voluntarily

[[Page 13223]]

terminates its agreement with the State agency after having been 
notified of serious management problems, it will still result in the 
day care home or unaffiliated center's agreement being terminated for 
cause and the placement of the day care home and provider or 
unaffiliated center and its principals on the National Disqualified 
List;
    (G) Clearly state that the serious management problems are not 
subject to a fair hearing.
    (ii) Second notification--notice of successful corrective action or 
notice of proposed termination, proposed disqualification. (A) Notice 
of successful corrective action. If corrective action has been 
implemented to correct each serious management problem within the time 
allotted and to the sponsoring organization's satisfaction, the 
sponsoring organization must:
    (1) Notify the day care home or unaffiliated center, that the 
corrective actions are fully implemented;
    (2) At the same time the notice is issued, the sponsoring 
organization must provide a copy of the notice to the State agency.
    (3) Ensure the day care home and unaffiliated center continues to 
implement procedures and policies to fully correct the serious 
management problems, as described in paragraph (c)(3) of this section.
    (B) Notice of proposed termination and proposed disqualification. 
If corrective action has not been taken or fully implemented for each 
serious management problem within the time allotted and to the 
sponsoring organization's satisfaction, or repeat serious management 
problems occur before full correction is achieved, the State agency 
must:
    (1) Notify the day care home or unaffiliated center, that the 
sponsoring organization proposes to terminate the agreement and 
proposes to disqualify the day care home or unaffiliated center and 
explain the day care home or unaffiliated center's opportunity for 
seeking a fair hearing.
    (2) At the same time the notice is issued, the sponsoring 
organization must also provide a copy of the notice to the State 
agency.
    (3) The notice must also specify:
    (i) The basis for the proposal to terminate;
    (ii) That, if the day care home or unaffiliated center voluntarily 
terminates its agreement with the sponsoring organization after 
receiving the notice of proposed termination, it will still result in 
the day care home or unaffiliated center's agreement being terminated 
for cause and the placement of the day care home provider or 
unaffiliated center and its principals on the National Disqualified 
List;
    (iii) The procedures for seeking a fair hearing of the proposed 
termination and proposed disqualifications; and
    (iv) That, unless participation has been suspended, the day care 
home or unaffiliated center may continue to participate and receive 
Program reimbursement for eligible meals served until the fair hearing 
is complete.
    (iii) Third notification--Notice to vacate the proposed termination 
of the facility's agreement, or notice of serious deficiency, 
termination of the agreement, and disqualifications--(A) Notice to 
vacate the proposed termination of a day care home or unaffiliated 
center's agreement. If the fair hearing vacates the proposed 
termination, the State agency must notify the institution and must:
    (1) Notify the institution's executive director and chairman of the 
board of directors that the proposed termination of the institution's 
agreement has been vacated.
    (2) Provide a copy of the notice to the State agency.
    (B) Notice of serious deficiency, termination of the day care home 
or unaffiliated center's agreement and disqualifications. When the time 
for requesting a fair hearing expires or when the hearing official 
upholds the sponsoring organization's proposed termination and proposed 
disqualifications, the sponsoring organization must immediately 
terminate the day care home or unaffiliated center's agreement and 
disqualify the day care home or unaffiliated center and its principals:
    (1) Notify the day care home or unaffiliated center that its 
agreement is terminated and that the day care home or unaffiliated 
center and its principals are placed on the National Disqualified List; 
and
    (2) Provide a copy of the notice to the State agency.
    (b) Placement on the State agency list. (1) The State agency must 
maintain a State agency list, made available to FNS upon request, and 
must include the following information:
    (i) Names and mailing addresses of each institution, day care home 
or unaffiliated center that is determined to have a serious management 
problem;
    (ii) Names, mailing addresses, and dates of birth of each 
responsible principal and responsible individual;
    (iii) The status of the institution, day care home or unaffiliated 
center, as it progresses through the stages of corrective action, 
termination, suspension, and disqualification, full correction, as 
applicable.
    (2) Within 10 days of receiving a notice of termination and 
disqualification from a sponsoring organization, the State agency must 
provide FNS with the information as described in paragraphs (b)(1)(i) 
and (ii) of this section.
    (c) Correcting serious management problems. In response to the 
notice of serious management problems, the institution, unaffiliated 
center or day care home must submit, in writing, what corrective 
actions it has taken to correct each serious management problem.
    (1) Corrective action plans. An acceptable corrective action plan 
must demonstrate that the serious management problem is resolved. The 
plan must address the root cause of each serious management problem, 
describe and document the action taken to correct serious management 
problems, and describe the action's outcome. The corrective action plan 
must include the following:
    (i) What is the serious management problem and the action taken to 
address it?
    (ii) Who addressed the serious management problem?
    (iii) When was the action taken to address the serious management 
problem? Provide a timeline for implementing the action (i.e., daily, 
weekly, monthly, or annually, and when did implementation of the plan 
begin)?
    (iv) Where is documentation of the corrective action plan filed?
    (v) How were staff and providers informed of the new policies and 
procedures?
    (2) Corrective action timeframes. Corrective action must be taken 
within the allotted time that ensures that serious management problems 
are quickly addressed and fully corrected. The time allotted to correct 
the serious management problem must be appropriate for the type of 
serious management problem and the type of institution or facility 
where the serious management problem is found. The allotted time begins 
on the date the first notification is received, as described in 
paragraphs (a)(7)(i) and (a)(8)(i) of this section.
    (i) For day care homes and unaffiliated centers, the serious 
management problems must be corrected as soon as possible or up to 30 
days from the date a day care home or unaffiliated center receives the 
notice.
    (ii) For institutions, the serious management problems must be 
corrected as soon as possible or up to 90 days from the date a day care 
home or unaffiliated center receives the first notification.

[[Page 13224]]

    (iii) More than 90 days only if the State agency determines that 
corrective action will require the long-term revision of management 
systems or processes, such as, but not limited to, the purchase and 
implementation of new claims payment software or a major reorganization 
of Program management duties that will require action by the board of 
directors.
    (A) The State agency may permit more than 90 days to complete the 
corrective action.
    (B) The institution's corrective action plan must include 
milestones and a definite completion date.
    (C) The State agency must receive and approve the corrective action 
plan within 90 days from the date the institution received the notice.
    (D) The State agency must monitor full implementation of the 
corrective action plan.
    (iv) Up to 30 days for a false claim or unlawful practice. The 
State agency is prohibited from allowing more than 30 days for 
corrective action if it determines that an institution:
    (A) Engaged in an unlawful practice,
    (B) Submitted a false or fraudulent claim to the State agency,
    (C) Submitted other false or fraudulent information to the State 
agency,
    (D) Was convicted of a crime, or
    (E) Concealed a criminal background.
    (3) Achieving full correction of serious management problems. The 
path to full correction requires demonstrating the ability to operate 
the Program with no serious management problems, as described in 
paragraph (a) of this section.
    (i) Full correction of an institution's serious management 
problems. The State agency must prioritize follow-up reviews and more 
frequent full reviews of institutions with serious management problems, 
as described in Sec.  226.6(k)(6)(ii). A follow-up review must be 
conducted to confirm that the serious management problem is corrected. 
Full reviews must be conducted at least once every 2 years. Full 
correction of an institution's serious management problems is achieved 
when:
    (A) At least two full reviews reveal no new or repeat serious 
management problems;
    (B) The first and last full reviews are at least 24 months apart 
and reveal no new or repeat serious management problems; and
    (C) All reviews, including any follow-up reviews, between the first 
and last full review reveal no new or repeat serious management 
problems.
    (ii) Full correction of a day care home or unaffiliated center's 
serious management problems. Sponsoring organization's must conduct 
reviews, as described in Sec.  226.16(d)(4) to confirm that the serious 
management problem is corrected. A follow-up review must be conducted 
to confirm that the serious management problem is corrected. Full 
correction of a day care home or unaffiliated center's serious 
management problems is achieved when:
    (A) At least three full reviews, reveal no new or repeat serious 
management problems.
    (B) All reviews, including any follow-up reviews, between the first 
and last full review reveal no new or repeat serious management 
problems.
    (iii) Once full correction is achieved, a serious management 
problem that recurs again, is not considered repeat and therefore, 
would not lead to immediate proposal to terminate. Any new or 
recurrence of a serious management problem after the initial full 
correction is achieved would require the State agency or sponsoring 
organization to issue a new notice of serious management problem, as 
described in paragraph (a) of this section.
    (iv) The recurrence of a serious management problem before full 
correction is achieved would lead directly to proposed termination.
    (d) Termination--(1) Termination for cause. If the State agency or 
sponsoring organization determines that the institution or facility is 
unable to properly perform its responsibilities under its Program 
agreement and fails to take successful corrective action, the Program 
agreement must be terminated for cause. The State agency and sponsoring 
organization would declare the institution or facility to be seriously 
deficient at the point of termination, which would be followed by 
disqualification. The State agency, institution, or facility shall not 
terminate for convenience to avoid implementing the serious deficiency 
process. Termination not related to performance can be found in Sec.  
226.6(b)(4).
    (2) Contingency plan. A State agency must have a contingency plan 
in place for the transfer of facilities if a sponsoring organization is 
terminated or disqualified to ensure that eligible participants 
continue to have access to meal services.
    (e) Disqualification--(1) Reciprocal disqualification. A State 
agency may not enter into an agreement with any institution, 
responsible principal, or responsible individual, if they have been 
terminated for cause from any Child Nutrition Program and placed on a 
National Disqualified List, as described in Sec.  226.6(b)(1)(xiii). 
Any existing agreements with an institution, responsible individual, or 
responsible principal must also be terminated and disqualified.
    (i) No individual on the National Disqualified List may serve as a 
principal in any institution or facility or as a day care home 
provider.
    (ii) The State agency must not approve the application of a new or 
renewing institution if any of the institution's principals is on the 
National Disqualified List.
    (iii) A sponsoring organization is prohibited from submitting an 
application on behalf of a sponsored facility if any of the facility's 
principals are on the National Disqualified List.
    (iv) A sponsoring organization is prohibited from submitting an 
application on behalf of a sponsored facility if the facility is on the 
National Disqualified List.
    (v) The State agency must not approve an application described in 
paragraphs (e)(1)(iii) and (iv) of this section.
    (vi) Once included on the National Disqualified List, an 
institution, unaffiliated center, or day care home, responsible 
principal, or responsible individual will remain on the list until the 
State agency determines that either the serious management problem that 
led to placement on the National Disqualified List has been corrected 
or 7 years have elapsed since disqualification from the Program, 
whichever is longer. Any debt owed under the Program must be repaid.
    (2) National Disqualified List. FNS will maintain the National 
Disqualified List and make it available to all State agencies and all 
sponsoring organizations. This computer matching program uses a 
Computer Matching Act system of records of information on institutions 
and individuals who are disqualified from participation in CACFP.
    (i) Placement on the National Disqualified List. The State agency 
must provide the following information to FNS for each institution, 
facility, responsible principal, and responsible individual:
    (A) Name and address of the institution, including city, State, and 
zip code;
    (B) Any known aliases;
    (C) Termination date;
    (D) Amount of debt owed, if any;
    (E) Reason, and if other is checked, an explanation, for the;
    (F) Date of birth of the responsible principal and responsible 
individual; and

[[Page 13225]]

    (G) Position within the institution or facility of the responsible 
principal and responsible individual.
    (ii) Removal from the National Disqualified List. An institution, 
responsible principal and responsible individual disqualified from the 
Program due to uncorrected serious management problems will remain on 
the National Disqualified List until the State agency and FNS have 
determined that the serious management problems are corrected, or for 7 
years, whichever is longer. Any debts owed under the Program must be 
repaid. After an institution, responsible principal or responsible 
individual has been removed from the National Disqualified List, they 
will be considered to be in good standing, and eligible to apply for 
the Program.
    (iii) Early removal of institutions, principals, and individuals 
from the list. The State agency must review and approve a request for 
removal from the National Disqualified List. If the State agency 
approves the request, and ensures that any debt associated has been 
paid, it may submit the information to the FNSRO, where it will be 
reviewed for completeness. The FNSRO will also ensure that the State 
agency's request is within Program requirements and that the 
documentation supports the early removal. Once reviewed, the FNSRO will 
submit the request to the FNSRO for removal. The effective date of 
removal will be the date on which the FNS National Office processes the 
removal request. The FNSRO will be notified once the removal has been 
completed and inform the State agency.
    (3) Computer Matching Act (CMA). The Computer Matching and Privacy 
Protection Act addresses the use of information from computer matching 
programs that involve a Federal System of Records. Address: compliance, 
matching agreement, and independent verification
    (i) Each State agency participating in a computer matching program 
must comply with the provisions of the Computer Matching Act if it uses 
an FNS system of records in order to:
    (A) Establish eligibility for a Federal benefit program;
    (B) Verify eligibility for a Federal benefit program;
    (C) Verify compliance with either statutory or regulatory 
requirements of a Federal benefit program; or
    (D) Recover payments or delinquent debts owed under a Federal 
benefit program.
    (ii) State agencies must enter into written agreements with FNS, 
consistent with 5 U.S.C. 552a(o) of the Computer Matching Act, in order 
to participate in a matching program involving a FNS Federal system of 
records. The agreement must include the State agency's independent 
verification requirements.
    (iii) State agencies are prohibited from taking any adverse action 
to terminate, deny, suspend, or reduce benefits to an applicant or 
recipient based on information produced by a Federal computer matching 
program that is subject to the requirements of the Computer Matching 
Act, unless:
    (A) The information has been independently verified by the State 
agency; and
    (B) FNS has waived the two-step independent verification and notice 
requirement.
    (iv) A State agency that receives a request for verification from 
another State agency or from FNS must provide the necessary 
verification. The State agency must respond within 20 calendar days of 
receiving the request.
    (v) A State agency may use the record of a certified notice to 
independently verify the accuracy of a computer match.
    (f) Suspension--(1) Public health or safety. If State or local 
health or licensing officials have cited an institution, day care home 
or unaffiliated center for serious health or safety violations, Program 
participation must be immediately suspended prior to any formal action 
to revoke the institution, day care home or unaffiliated center's 
licensure or approval. If the State agency or sponsoring organization 
determines that there is an imminent threat to the health or safety of 
participants, or that there is a threat to public health or safety, the 
appropriate State or local licensing and health authorities must 
immediately be notified and take action that is consistent with the 
recommendations and requirements of those authorities. The State agency 
or sponsoring organization must initiate action for termination and 
disqualification.
    (i) Notification procedures for institutions engaging in activities 
that threaten public health or safety or pose an imminent threat to the 
health or safety of participants:
    (A) Notice of suspension, proposed termination, and proposed 
disqualification. The State agency must notify the institution's 
executive director and chairman of the board of directors that the 
institution's participation (including Program payments) has been 
suspended and that the State agency proposes to terminate the 
institution's agreement and to disqualify the institution and the 
responsible principals and responsible individuals. The notice must 
also identify the responsible principals and responsible individuals 
and must be sent to those persons as well. At the same time this notice 
is sent, the State agency must add the institution and the responsible 
principals and responsible individuals to the State agency list, along 
with the basis for the suspension and provide a copy of the notice to 
the appropriate FNSRO. The notice must also specify:
    (1) That the State agency is suspending the institution's 
participation (including Program payments), proposing to terminate the 
institution's agreement, and proposing to disqualify the institution 
and the responsible principals and responsible individuals;
    (2) The basis for the suspension;
    (3) That, if the institution voluntary terminates its agreement 
with the State agency after having been notified of the proposed 
termination, the institution and the responsible principals and 
responsible individuals will be disqualified;
    (4) The procedures for seeking a fair hearing (consistent with 
paragraph (g) of this section) of the suspension, proposed termination, 
and proposed disqualifications; and
    (5) That, if the suspension review official overturns the 
suspension, the institution may claim reimbursement for eligible meals 
served and allowable administrative costs incurred during the 
suspension period.
    (B) Notice of agreement termination, serious deficiency and 
disqualifications. When time for requesting a fair hearing expires or 
when the hearing official upholds the State agency's proposed 
termination and disqualifications, the State agency must:
    (1) Notify the institution's executive director and chairman of the 
board of directors, and the responsible principals and responsible 
individuals, that the institution's agreement has been terminated and 
that the institution and the responsible principals and responsible 
individuals have been disqualified;
    (2) Update the State agency list at the time such notice is issued; 
and
    (3) Provide a copy of the notice and the mailing address and date 
of birth for each responsible principal and responsible individual to 
the appropriate FNSRO.
    (ii) Notification procedures for day care homes and unaffiliated 
centers engaging in activities that threaten public health or safety or 
pose an imminent threat to the health or safety of participants:

[[Page 13226]]

    (A) Notice of suspension, proposed termination, and proposed 
disqualification. The sponsoring organization must notify the day care 
home provider or the unaffiliated center's principals that the day care 
home or unaffiliated center's participation (including Program 
payments) has been suspended and that the sponsoring organization 
proposes to terminate the day care home or unaffiliated center's 
agreement and to disqualify the day care home or unaffiliated and its 
principals. The notice must also identify the principals. At the same 
time this notice is sent, the sponsoring organization must also provide 
a copy of the notice to the State agency. The notice must also specify:
    (1) That the sponsoring organization is suspending the day care 
home or unaffiliated center's participation (including Program 
payments), proposing to terminate the institution's agreement, and 
proposing to disqualify the day care home or unaffiliated center and 
its principals;
    (2) The basis for the suspension;
    (3) That, if the day care home or unaffiliated center voluntary 
terminates its agreement with the State agency after having been 
notified of the proposed termination, the day care home or unaffiliated 
center and its principals will be disqualified;
    (4) The procedures for seeking a fair hearing (consistent with 
paragraph (g) of this section) of the suspension, proposed termination, 
and proposed disqualifications; and
    (5) That, if the suspension review official overturns the 
suspension, the day care home or unaffiliated center may claim 
reimbursement for eligible meals served and allowable administrative 
costs incurred during the suspension period.
    (B) Notice of agreement termination, serious deficiency and 
disqualifications. When time for requesting a fair hearing expires or 
when the hearing official upholds the sponsoring organization's 
proposed termination and disqualifications, the sponsoring organization 
must:
    (1) Notify the day care home provider or unaffiliated center and 
its principals, that the day care home or unaffiliated center's 
agreement has been terminated and that the day care home or 
unaffiliated center and its principals have been disqualified; and
    (2) Provide a copy of the notice to the State agency.
    (2) Submission of a false or fraudulent claim for reimbursement. If 
the State agency determines that an institution has knowingly submitted 
a false or fraudulent claim, the State agency must initiate action to 
suspend the institution's participation and must initiate action to 
terminate the institution's agreement and initiate action to disqualify 
the institution and the responsible principals and responsible 
individuals. The following procedures must be used to issue a notice of 
proposed suspension of participation at the same time it issues a 
notice of proposed termination, which must include the following 
information:
    (i) Notice of proposed suspension of participation. The State 
agency must notify the institution's executive director and chairman of 
the board of directors that the State agency proposes to suspend the 
institution's participation, including Program payments. At the same 
time this notice is sent, the State agency must add the institution and 
the responsible principals and responsible individuals to the State 
agency list, along with the basis for the suspension and provide a copy 
of the notice to the appropriate FNSRO. The notice must also specify:
    (A) That the State agency is proposing to suspend the institution's 
participation;
    (B) The basis for the suspension;
    (C) That, if the institution voluntarily terminates its agreement 
with the State agency after having been notified of the proposed 
termination, the institution and the responsible principals and 
responsible individuals will be disqualified;
    (D) The procedures for seeking a fair hearing (consistent with 
paragraph (g) of this section) of the suspension, proposed termination, 
and proposed disqualifications;
    (E) The effective date of the suspension (which may be no earlier 
than 10 days after the institution receives the suspension notice);
    (F) The name, address and telephone number of the suspension review 
official who will conduct the suspension review; and
    (G) That if the institution intends to request a suspension review, 
it must submit the request a written documentation opposing the 
proposed suspension to the suspension review official within 10 days of 
the institution's receipt of the notice.
    (ii) Maximum time for suspension. Under no circumstances may the 
suspension of participation remain in effect for more than 120 days 
following the suspension review decision.
    (iii) Notice of suspension, proposed termination, and proposed 
disqualification. The State agency must notify the institution's 
executive director and chairman of the board of directors that the 
institution's participation (including Program payments) has been 
suspended and that the State agency proposes to terminate the 
institution's agreement and to disqualify the institution and the 
responsible principals and responsible individuals. The notice must 
also identify the responsible principals and responsible individuals 
and must be sent to those persons as well. At the same time this notice 
is sent, the State agency must add the institution and the responsible 
principals and responsible individuals to the State agency list, along 
with the basis for the suspension and provide a copy of the notice to 
the appropriate FNSRO. The notice must also specify:
    (A) That the State agency is suspending the institution's 
participation (including Program payments), proposing to terminate the 
institution's agreement, and proposing to disqualify the institution 
and the responsible principals and responsible individuals;
    (B) The basis for the suspension;
    (C) That, if the institution voluntary terminates its agreement 
with the State agency after having been notified of the proposed 
termination, the institution and the responsible principals and 
responsible individuals will be disqualified;
    (D) The procedures for seeking a fair hearing of the suspension, 
proposed termination, and proposed disqualifications as described in 
paragraph (g) of this section; and
    (E) That, if the suspension review official overturns the 
suspension, the institution may claim reimbursement for eligible meals 
served and allowable administrative costs incurred during the 
suspension period.
    (iv) Notice of agreement termination, serious deficiency and 
disqualifications. When time for requesting a fair hearing expires or 
when the hearing official upholds the State agency's proposed 
termination and disqualifications, the State agency must:
    (A) Notify the institution's executive director and chairman of the 
board of directors, and the responsible principals and responsible 
individuals, that the institution's agreement has been terminated and 
that the institution and the responsible principals and responsible 
individuals have been disqualified;
    (B) Update the State agency list at the time such notice is issued; 
and
    (C) Provide a copy of the notice and the mailing address and date 
of birth for each responsible principal and responsible individual to 
the appropriate FNSRO.

[[Page 13227]]

    (g) Fair hearing--(1) Right to a fair hearing. (i) The institution 
must be advised in writing of the grounds upon which the State agency 
based the action and its right to a fair hearing. The State agency must 
offer a fair hearing in the notice to the institution of any of the 
following actions:
    (A) Denial of a new institution's application for participation 
(see Sec.  226.6(b)(1) on the State agency review of a new 
institution's application; and Sec.  226.6(c)(1), on the State agency's 
denial of new institution's application);
    (B) Denial of an application submitted by a sponsoring organization 
on behalf of a facility;
    (C) Proposed termination of an institution's agreement (see 
paragraph (a)(6)(ii)(B) of this section, dealing with proposed 
termination of agreements and paragraph (f) of this section dealing 
with proposed termination of agreements for suspended institutions);
    (D) Suspension of an institution's participation (see paragraph (f) 
of this section, dealing with suspension for health or safety reasons 
or submission of a false or fraudulent claim);
    (E) Denial of an institution's application for start-up or 
expansion payments (Sec.  226.7(h));
    (F) Denial of a request for an advance payment (see Sec.  
226.10(b));
    (G) Recovery of all or part of an advance in excess of the claim 
for application period. The recovery may be through a demand for full 
repayment or an adjustment of subsequent payments (see Sec.  
226.10(b)(3)); or
    (H) Denial of all or part of an institution's claim for 
reimbursement (except for denial based on a late submission under Sec.  
226.10(e)) (see Sec. Sec.  226.10(f) and 226.14(a));
    (I) Decision by the State agency to not forward to FNS an exception 
request by an institution for payment of a late claim, or a request for 
an upward adjustment to a claim (Sec.  226.10(e));
    (J) Demand for the remittance of an overpayment (see Sec.  
226.14(a)); and
    (K) Any other action of the State agency affecting an institution's 
participation of its claim for reimbursement.
    (ii) The facility must be advised in writing of the grounds upon 
which the sponsoring organization based the action and its right to a 
fair hearing. The State agency or sponsoring organization must offer a 
fair hearing for proposed termination or suspension. A fair hearing for 
any other action is not required.
    (iii) The notice of due process must inform the institution or 
facility of:
    (A) The action that is taken or proposed to be taken;
    (B) The legal basis for the action;
    (C) The right to appeal the action; and
    (D) The procedures and deadlines for requesting an appeal of the 
action.
    (iv) If a fair hearing is requested:
    (A) The State agency must continue to pay any valid claims for 
reimbursement of eligible meals served and allowable administrative 
expenses incurred until the hearing official issues a decision.
    (B) Any information upon which the State agency or sponsoring 
organization based its action must be available to the appellants for 
inspection from the date of receipt of the hearing request.
    (C) Appellants may request a fair hearing in person or by 
submitting written documentation to the hearing official.
    (D) Appellants may represent themselves, retain legal counsel, or 
be represented by another person.
    (E) All parties must submit written documentation to the hearing 
official prior to the beginning of the hearing, within 30 days after 
receiving the notice of action.
    (F) Appellants must be permitted to contact the hearing official 
directly.
    (2) Fair hearing procedures. A hearing must be held by the fair 
hearing official in addition to, or in lieu of, a review of written 
information only if the institution, facility or the responsible 
principals and responsible individuals request a hearing in the written 
request for a fair hearing. If the institution's representative, 
facility's representative, or the responsible principals or responsible 
individuals or their representative, fail to appear at a scheduled 
hearing, they waive the right to a personal appearance before the 
hearing official, unless the hearing official agrees to reschedule the 
hearing. A representative of the State agency must be allowed to attend 
the hearing to respond to the testimony of the institution and the 
responsible principals and responsible individuals and to answer 
questions posed by the hearing official. If a hearing is requested, the 
institution, the responsible principals, and responsible individuals, 
and the State agency must be provided with at least 10 calendar days 
advance notice of the time and place of the hearing.
    (i) The purpose of the hearing is to determine that the State 
agency or sponsoring organization followed Program requirements.
    (ii) The hearing official's decisions should be limited to that 
purpose.
    (iii) The purpose is not to determine whether to uphold the 
legality of Federal or State Program requirements.
    (iv) The request for a fair hearing must be submitted in writing no 
later than 15 calendar days after the date the notice of action is 
received. The State agency or sponsoring organization must acknowledge 
the request for a fair hearing within 10 calendar days of its receipt 
of the request. The State agency must provide a copy of the written 
request for a fair hearing, including the date of receipt of the 
request to FNS within 10 calendar days of its receipt of the request.
    (3) Hearing officials. The individual who is appointed to conduct 
the fair hearing, including any State agency or sponsoring organization 
employee or contractor, must be independent and impartial. The 
institution, facility, responsible principals and responsible 
individuals must be permitted to contact the hearing official directly 
if they so desire. The State agency or sponsoring organization must 
ensure that the hearing official:
    (i) Has no involvement in the action under appeal;
    (ii) Does not occupy a position that may potentially be subject to 
undue influence from any party that is responsible for the action under 
appeal;
    (iii) Does not occupy a position that may exercise undue influence 
on any party that is responsible for the action under appeal;
    (iv) Has no personal interest in the outcome of the fair hearing;
    (v) Has no financial interest in the outcome of the fair hearing.
    (4) Basis for decision. The hearing official must render a decision 
that is based on:
    (i) The determination that the State agency or sponsoring 
organization followed Program requirements;
    (ii) The information provided by the State agency, institution, 
responsible principals, and responsible individual; and
    (iii) The Program requirements established in Federal and State 
laws, regulations, policies, and procedures.
    (5) Final decision. The hearing official's decision is the final 
action in the appeal process.
    (i) Within 60 calendar days of the State agency's receipt of the 
request for a fair hearing, the fair hearing official must inform the 
State agency, the institution's executive director and chair of the 
board of directors, and the responsible principals and responsible 
individuals, of the fair hearing's outcome.
    (ii) The hearing official must inform the sponsoring organization 
and the facility of the outcome within the period of time specified in 
the State agency or sponsoring organization's fair hearing procedures. 
This timeframe is an administrative requirement for the State

[[Page 13228]]

agency or sponsoring organization, and may not be used as a basis for 
overturning a termination if a decision is not made within the 
specified timeframe.
    (iii) The hearing official must render a decision within 60 
calendar days of the date the State agency received the appeal request.
    (iv) The hearing official must inform the State agency, 
institution, responsible principals, and responsible individuals of the 
decision within this 60-day period.
    (v) This timeframe is a requirement and cannot be used to justify 
overturning the State agency or sponsoring organization's action if a 
decision is not made within the 60-day period.
    (vi) 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 (h)(4) of this 
section.
    (vii) The hearing official's decision is final.
    (viii) The decision is not subject to appeal.
    (6) Provision of fair hearing procedures. The State agency or 
sponsoring organization's fairing hearing procedures must be provided:
    (i) Annually to all institutions, day care homes and unaffiliated 
centers;
    (ii) To an institution, to each responsible principal and 
responsible individual, to a day care home or unaffiliated center when 
the State agency or sponsoring organization takes any action subject to 
a fair hearing; and
    (iii) Any other time upon request.
    (7) Effect of State agency action. The State agency's action must 
remain in effect during the fair hearing. The effect of this 
requirement on particular State agency actions is as follows:
    (i) Overpayment demand. During the period of the fair hearing, the 
State agency is prohibited from taking action to collect or offset the 
overpayment. However, the State agency must assess interest beginning 
with the initial demand for remittance of the overpayment and 
continuing through the period of administrative review unless the 
administrative review official overturns the State agency's action.
    (ii) Recovery of advances. During the fair hearing, the State 
agency must continue its efforts to recover advances in excess of the 
claim for reimbursement for the applicable period. The recovery may be 
through a demand for full repayment or an adjustment of subsequent 
payments.
    (h) Payments--(1) Payment of valid claims. If the State agency 
holds an agreement with an institution that is proposed to be 
terminated, the State agency must continue to pay any valid unpaid 
claims for reimbursement for eligible meals served and allowable 
administrative expenses incurred until the agreement is terminated, as 
described in paragraphs (a)(6)(ii) and (iii) of this section, including 
the period of any fair hearing, unless participation has been 
suspended.
    (2) Suspension of payments. The State agency is prohibited from 
paying any claims for reimbursement submitted by a suspended 
institution.
    (i) If the suspended institution prevails in the fair hearing of 
the proposed termination, the State agency must pay any claims for 
reimbursement for eligible meals served and allowable administrative 
costs incurred during the suspension period.
    (ii) If the institution suspended for the submission of false or 
fraudulent claims is a sponsoring organization, the State agency must 
ensure that sponsored facilities continue to receive reimbursement for 
eligible meals served during the suspension period. If the suspended 
institution prevails in the fair hearing of the proposed termination, 
the State agency must pay any valid unpaid claims for reimbursement for 
eligible meals served and allowable administrative costs incurred 
during the suspension period.
    (3) Debts owed to the Program. The State agency is responsible for 
the collection of unearned payments, including any assessment of 
interest, as described in Sec.  226.14(a).
    (i) After the State agency has sent the necessary demand letter for 
debt collection, State agency staff must refer the claim to the 
appropriate State authority for pursuit of the debt payment.
    (ii) FNS defers to the State's laws and procedures to establish a 
repayment plan to recover funds as quickly as possible.
    (iii) It is the responsibility of the State agency to notify the 
institution that interest will be charged. Interest must be assessed on 
institutions' debts established on or after July 29, 2002. Interest 
will continue to accrue on debts not paid in full within 30 days of the 
initial demand for remittance up to the date of payment, including 
during an extended payment plan and each month while on the National 
Disqualified List.
    (iv) State agencies are required to assess interest using one 
uniform rate. The appropriate rate to use is the Current Value of Funds 
Rate, which is published annually by Treasury in the Federal Register 
and is available from the FNSRO.
    (4) State liability for payment. (i) A State agency that fails to 
meet the 60-day timeframe set forth in paragraph (g)(5)(i) 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.
    (i) FNS determination of serious management problems. (1) General. 
FNS may determine independently that an institution has one or more 
serious management problems, as described in paragraph (a) of this 
section. FNS will follow procedures outlined in this section to address 
any finding that prevents an institution from meeting the Program's 
performance standards, affects the integrity of a claim for 
reimbursement, or affects the integrity of the meals served in a day 
care home or unaffiliated center.
    (2) Required State agency action--(i) Termination of agreements. If 
the State agency holds an agreement with an institution that FNS 
determines to be seriously deficient and subsequently disqualifies, the 
State agency must terminate the institution's agreement effective no 
later than 45 days after the date of the institution's disqualification 
by FNS. As noted in paragraph (g) of this section, the termination of 
an agreement for this reason is not subject to a fair hearing. At the 
same time the notice of termination is issued, the State agency must 
add the institution to the State agency list and provide a copy of the 
notice to the appropriate FNSRO.
    (ii) Disqualified responsible principal and individuals. If the 
State agency holds an agreement with an institution whose principal FNS 
determines to be seriously deficient and subsequently disqualifies, the 
State agency must initiate action to terminate and disqualify the 
institution in accordance with the procedures in paragraph 
(a)(6)(ii)(B) of this section. The State agency must initiate these 
actions no

[[Page 13229]]

later than 45 days after the date of the principal's disqualification 
by FNS.
* * * * *

Cynthia Long,
Administrator, Food and Nutrition Service.
[FR Doc. 2024-02108 Filed 2-20-24; 8:45 am]
BILLING CODE 3410-30-P


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