21700 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

Accounting Guide for LSC Recipients. 

Subgranted funds may be separately 

disclosed and accounted for, and 

reported upon in the audited financial 

statements of a recipient; or such funds 

may be included in a separate audit 

report of the subrecipient. The 

relationship between the recipient and 

subrecipient will determine the proper 

method of financial reporting following 

generally accepted accounting 

principles. 

(e) Oversight. To ensure subrecipient 

compliance with the LSC Act, LSC’s 

appropriations statutes, Congressional 

restrictions having the force of law, and 

LSC’s regulations, guidelines, and 

instructions, agreements between a 

recipient and a subrecipient must 

provide the same oversight rights for 

LSC with respect to subrecipients as 

apply to subrecipients. 

§ 1627.5 Applicability of restrictions, 

timekeeping, and recipient priorities; 

private attorney involvement subgrants. 

(a) Applicability of restrictions. The 

prohibitions and requirements set forth 

in 45 CFR part 1610 apply both to the 

subgrant and to the subrecipient’s nonLSC funds, except as modified by 

paragraphs (b), (c), and (d) of this 

section. 

(b) Priorities. Subrecipients must 

either: 

(1) Use the subgrant consistent with 

the recipient’s priorities; or 

(2) Establish their own priorities for 

the use of the subgrant consistent with 

45 CFR part 1620; 

(c) Timekeeping. Subrecipients must 

comply with 45 CFR part 1635 regarding 

timekeeping for all LSC-funded subgrant 

activities. 

(d) PAI subgrant. (1) The prohibitions 

and requirements set forth in 45 CFR 

part 1610 apply only to the subgrant, 

when the subrecipient is a bar 

association, pro bono program, private 

attorney or law firm, or other entity that 

receives a subgrant for the sole purpose 

of funding private attorney involvement 

activities (PAI) pursuant to 45 CFR part 

1614. 

(2) Any funds used by a recipient as 

payment for a PAI subgrant are deemed 

LSC funds for purposes of this 

paragraph. 

§ 1627.6 Subgrants to other recipients. 

(a) The requirements of § 1627.4 apply 

to all subgrants from one recipient to 

another recipient. 

(b) The subrecipient must audit any 

funds provided by the recipient under a 

subgrant in its annual audit and supply 

a copy of this audit to the recipient. The 

recipient must either submit the 

relevant part of this audit with its next 

annual audit or, if an audit has been 

recently submitted, submit it as an 

addendum to that recently submitted 

audit. 

(c) In addition to the provisions of 

§ 1627.4(c)(3), LSC may hold the 

recipient responsible for any disallowed 

expenditures of subgrant funds. Thus, 

LSC may recover all of the disallowed 

costs from either the recipient or the 

subrecipient or may divide the recovery 

between the two. LSC’s total recovery 

may not exceed the amount of 

expenditures disallowed. 

(d) Funds received by a recipient from 

other recipients in the form of fees and 

dues shall be accounted for and 

included in the annual audit of the 

recipient receiving these funds as LSC 

funds. 

§ 1627.7 Recipient policies, procedures 

and recordkeeping. 

Each recipient must adopt written 

policies and procedures to guide its staff 

in complying with this part and must 

maintain records sufficient to document 

the recipient’s compliance with this 

part. 

PART 1630—COST STANDARDS AND 

PROCEDURES 

■ 10. In newly transferred and 

redesignated § 1630.14, revise the 

section heading to read as follows: 

§ 1630.14 Membership fees or dues. 

■ 11. In newly transferred and 

redesignated § 1630.15, revise the 

section heading to read as follows: 

§ 1630.15 Contributions. 

■ 12. In newly transferred and 

redesignated § 1630.16, revise the 

section heading to read as follows: 

§ 1630.16 Tax sheltered annuities, 

retirement accounts, and pensions. 

Dated: April 14, 2015. 

Stefanie K. Davis, 

Assistant General Counsel. 

[FR Doc. 2015–08951 Filed 4–17–15; 8:45 am] 

BILLING CODE 7050–01–P 

LEGAL SERVICES CORPORATION 

45 CFR Part 1628 

Recipient Fund Balances 

AGENCY: Legal Services Corporation. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This proposed rule would 

revise the Legal Services Corporation 

(LSC or Corporation) regulation on 

recipient fund balances to provide the 

Corporation with more discretion to 

grant a recipient’s request for a waiver 

to retain a fund balance in excess of 

25% of its annual LSC support. This 

proposed rule would also provide that 

recipients that face extraordinary and 

compelling circumstances may submit a 

waiver request to retain a fund balance 

in excess of 25% of their annual LSC 

support prior to the submission of their 

annual audited financial statements. 

DATE: Comments must be submitted by 

May 20, 2015. 

ADDRESSES: You may submit comments 

by any of the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Email: 1628rulemaking@lsc.gov. 

Include ‘‘Comments on Revisions to Part 

1628’’ in the subject line of the message. 

• Fax: (202) 337–6519, ATTN: Part 

1628 Rulemaking. 

• Mail: Stefanie K. Davis, Assistant 

General Counsel, Legal Services 

Corporation, 3333 K Street NW., 

Washington, DC 20007, ATTN: Part 

1628 Rulemaking. 

• Hand Delivery/Courier: Stefanie K. 

Davis, Assistant General Counsel, Legal 

Services Corporation, 3333 K Street 

NW., Washington, DC 20007, ATTN: 

Part 1628 Rulemaking. 

Instructions: Electronic submissions 

are preferred via email with attachments 

in Acrobat PDF format. Written 

comments sent to any other address or 

received after the end of the comment 

period may not be considered by LSC. 

FOR FURTHER INFORMATION CONTACT: 

Stefanie K. Davis, Assistant General 

Counsel, Legal Services Corporation, 

3333 K Street NW., Washington, DC 

20007; (202) 295–1563 (phone), (202) 

337–6519 (fax), or sdavis@lsc.gov. 

SUPPLEMENTARY INFORMATION: 

I. Regulatory Background 

LSC issued its first instruction on 

recipient fund balances in 1983 to 

implement what is now the 

Corporation’s longstanding objective of 

ensuring the timely expenditure of LSC 

funds for the effective and economical 

provision of high quality legal 

assistance to eligible clients. 48 FR 560, 

561, Jan. 5, 1983. Later that year, LSC 

published a redrafted version titled 

Instruction 83–4, Recipient Fund 

Balances (‘‘Instruction’’). 48 FR 49710, 

49711, Oct. 27, 1983. The Instruction 

limited the ability of recipients to carry 

over LSC funds that remained unused at 

the end of the fiscal year. Id. 

Specifically, the Instruction provided 

that, in the absence of a waiver granted 

by the Corporation, a recipient’s end-ofyear fund balance in excess of 10% of 

its total annual LSC support must be 

repaid to LSC. Id. The Instruction also 

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prohibited a recipient from ever 

retaining a fund balance in excess of 

25% of its annual support, thereby 

limiting the Corporation’s waiver 

granting authority to fund balance 

amounts of 25% or less of a recipient’s 

annual support. Id. 

In 1984, LSC substantially adopted 

the Instruction in a regulation published 

at 45 CFR part 1628. 49 FR 21331, May 

21, 1984. Part 1628 remained 

unchanged until 2000, when LSC 

promulgated revisions in response to 

public comments and staff advice 

indicating that the rule was ‘‘more 

strict’’ than the fund balance 

requirements of most federal agencies. 

65 FR 66637, 66638, Nov. 7, 2000. The 

revisions provided the Corporation with 

more discretion to grant a recipient’s 

request for a waiver to retain a fund 

balance of up to 25% of its annual 

support. Id. at 66637. In addition, for 

the first time, the rule authorized the 

Corporation to exercise its discretion to 

grant a recipient’s request for a waiver 

to retain a fund balance in excess of 

25% of its annual support. Id. The 

Corporation reasoned that, by allowing 

for waivers to retain that amount, ‘‘[t]he 

recipient can better plan and find the 

best use for the funds, rather than being 

forced into a hasty expenditure simply 

to avoid the limitation on the carryover 

of fund balances.’’ Id. at 66640. The 

rule, however, limited the situations 

justifying a recipient’s request to retain 

more than 25% of its annual support to 

‘‘three specific circumstances when 

extraordinary and compelling reasons 

exist for such a waiver,’’ currently listed 

in § 1628.3(c). Id. at 66638. These 

extraordinary and compelling 

circumstances were restricted to the 

following situations when a recipient 

received income derived from its use of 

LSC funds: ‘‘(1) An insurance 

reimbursement; (2) the sale of real 

property; and (3) the receipt of monies 

from a lawsuit in which the recipient 

was a party.’’ Id. at 66639. Although the 

Operations and Regulations Committee 

(Committee) ‘‘considered using a 

standard of ‘extraordinary and 

compelling’ for these waivers with the 

three specific circumstances discussed 

as examples,’’ it ultimately decided 

‘‘that more guidance was required to 

avoid erosion of the standard,’’ and the 

three circumstances became exclusive 

limitations, not mere examples. Id. at 

66640. The LSC Board of Directors 

(Board) adopted the revisions to part 

1628 on November 20, 1999, and the 

revised rule has been in effect since 

December 7, 2000. Id. at 66637–38. 

On April 12, 2015, the Committee 

voted to recommend that the Board 

publish this NPRM in the Federal 

Register for notice and comment. On 

April 14, 2015, the Board accepted the 

Committee’s recommendation and voted 

to approve publication of this NPRM. 

II. LSC Consideration of Potential 

Revisions to Part 1628 

During the nearly 15-year period since 

part 1628 was last revised, LSC grantees 

have experienced various unexpected 

occurrences outside of those listed in 

§ 1628.3(c) that caused them to accrue 

fund balances in excess of 25% of their 

annual support. These occurrences have 

included an end-of-year transfer of 

assets from a former grantee to a current 

grantee, a natural disaster that resulted 

in a significant infusion of use-or-lose 

disaster relief funds from non-LSC 

sources, and receipt of a large attorneys’ 

fees award in an LSC-funded case near 

the end of the fiscal year. In each of 

these situations, LSC determined that 

part 1628 currently prevents some 

recipients with legitimate reasons for 

having fund balances exceeding 25% of 

their annual LSC support from seeking 

and obtaining needed waivers. 

On January 22, 2015, LSC staff 

presented the Committee with a 

proposal to consider revising part 1628 

to address the difficulties faced by 

recipients that encounter these types of 

occurrences, yet are unable to justify a 

waiver request to retain a balance in 

excess of 25% of their annual support 

under the current standards. The 

Committee authorized LSC management 

to add the matter to the Committee’s 

rulemaking agenda so that it may 

address this issue. In addition, the 

Committee requested that LSC consider 

whether the rule’s 10% and 25% caps 

on fund balance carryovers are still 

appropriate in light of the most recently 

available data on recipient waiver 

requests. 

LSC first considered revising part 

1628 to allow recipients to request, and 

the Corporation to grant, waivers to 

retain fund balances in excess of 25% of 

annual support in extraordinary and 

compelling circumstances not covered 

by the current rule. Current § 1628.3(c) 

is limited to three circumstances where 

a recipient receives an infusion of 

derivative income, or income derived 

from the recipient’s use of LSC funds. 

As discussed above, however, recent 

situations have included the sudden 

infusion of non-derivative, use-or-lose 

income under other circumstances that 

significantly disrupted grantee 

expenditure plans. As a result, LSC staff 

determined that the list of extraordinary 

and compelling circumstances in 

§ 1628.3(c) should be illustrative, rather 

than limited, so that recipients that 

encounter truly unforeseeable scenarios 

can avoid having to make the difficult 

choice between returning large portions 

of unused balances and hurriedly 

spending funds before the end of the 

fiscal year. LSC staff similarly 

determined that such circumstances 

should include situations where a 

grantee is incapable of expending its 

existing LSC funds as originally planned 

due to a natural disaster or other 

catastrophic event, as opposed to only 

situations where new income is 

received. Therefore, the Corporation 

proposes providing an illustrative list of 

extraordinary and compelling 

circumstances justifying waivers to 

retain a fund balance in excess of 25% 

of a recipient’s annual support. LSC 

believes that this proposed revision will 

allow grantees to devise more organized 

and efficient spending plans when faced 

with unexpected events that are not 

listed in current § 1628.3(c). Providing 

recipients with sufficient time to plan 

for the expenditure of unused funds in 

excess of 25% of their annual support 

would also advance the Corporation’s 

policy of ensuring effective and 

economical provision of high quality 

legal assistance to eligible clients. 

LSC next considered revising part 

1628 to provide that a recipient may 

submit a waiver request prior to 

submitting its annual audited financial 

statements. Section 1628.4(a) currently 

provides that a recipient may request a 

waiver within 30 days of the submission 

of its annual audited financial 

statements. The preamble to the 2000 

rule, however, states that ‘‘[t]his rule 

does not preclude the recipient’s request 

for a Corporation action on a waiver 

prior to the close of the fiscal year, it 

simply does not require the Corporation 

to provide for advance approval.’’ 65 FR 

66637, 66640, Nov. 7, 2000. LSC staff 

determined that incorporating the 

current preamble language on 

permitting waiver requests prior to the 

close of the fiscal year into the 

regulatory text of part 1628 would 

benefit grantees by allowing them to 

seek assurance that they will not have 

to return or spend a large portion of 

excess LSC funds by the end of the 

fiscal year, thereby enabling them to 

plan for the following fiscal year with 

greater certainty. 

LSC staff also found that limiting 

early approvals to requests for waivers 

to retain balances in excess of 25% of 

annual support would be proper in light 

of the unique and significant burdens on 

financial planning faced by recipients 

that experience extraordinary and 

compelling circumstances. In addition, 

because a recipient’s estimate of the 

fund balance it anticipates accruing by 

the end of the fiscal year may end up 

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21702 Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 

being higher or lower than the 

recipient’s actual fund balance at the 

time it submits its audited financial 

statements, LSC staff determined that 

recipients that receive approval of a 

waiver request prior to submitting their 

audited financial statements must 

submit updated information consistent 

with the requirements of § 1628.4(a) 

after the submission of their audited 

financial statements. Accordingly, an 

advance approval would be, in effect, an 

approval of the reasons for a waiver and 

of the proposed amount to be retained, 

but the recipient must later provide 

confirmation of the actual amount of 

excess funds it has accrued. LSC 

therefore proposes revising the rule to 

provide that recipients that face 

extraordinary and compelling 

circumstances may submit a waiver 

request to retain a fund balance in 

excess of 25% of their annual support 

prior to the submission of their annual 

audited financial statements, and that 

the Corporation may, in its discretion, 

grant approval of such requests pending 

confirmation of the actual amount to be 

retained once the audited financial 

statements are finalized. 

The Corporation also considered 

revising part 1628 to require LSC 

management to provide notice to the 

Board of any decision to grant a waiver 

in excess of 25% of a recipient’s annual 

support. LSC is retaining the 

‘‘extraordinary and compelling 

circumstances’’ standard for granting 

such waivers, and anticipates that 

recipients will continue to seek such 

waivers only in circumstances where 

they experience extreme events that 

prevent them from expending more than 

25% of their annual LSC support. 

Furthermore, the granting of LSC 

funding and exercising discretion with 

regard to carryover, suspension or 

termination of such funding has been 

and should remain a management, not 

a Board, function. The Corporation will 

continue to exercise its discretion with 

the same good faith and fidelity to the 

objective of ensuring the timely 

expenditure of LSC funds as it has done 

since part 1628 was last revised in 2000. 

Therefore, LSC proposes to retain its 

current policy of leaving discretion to 

grant waivers to retain excess recipient 

fund balances with LSC management. 

Finally, pursuant to the Committee’s 

request, LSC considered whether the 

rule’s 10% and 25% caps on fund 

balance carryover amounts should be 

adjusted in accordance with recent 

trends in waiver requests. LSC’s Office 

of Compliance and Enforcement (OCE) 

provided LSC staff with statistics on all 

waiver requests that have been 

submitted to the Corporation over the 

last six years. After analyzing the data, 

LSC decided as a policy matter that the 

respective percentage caps are set at the 

appropriate levels. According to the 

statistics, the average annual number of 

waiver requests to retain a fund balance 

that exceeds 10% of a recipient’s LSC 

support is easily manageable by OCE. 

Furthermore, waiver requests to retain a 

balance in excess of 25% of LSC support 

are exceedingly rare, and the 

Corporation does not expect a 

significantly greater number of such 

requests if the proposed revisions to 

part 1628 are adopted. LSC believes that 

the current percentage caps on carryover 

amounts are necessary to ensure that 

recipients are spending their grants on 

providing legal services, while offering 

an appropriate amount of flexibility to 

retain unused fund balances. The 

Corporation therefore proposes retaining 

the current percentage cap amounts, but 

requests comments on whether to 

change them. 

III. Discussion of the Proposed Changes 

§ 1628.3 Policy 

LSC proposes to revise § 1628.3(c) to 

eliminate the language limiting the 

extraordinary and compelling 

circumstances in which LSC may grant 

a recipient’s request for a waiver to 

retain a fund balance that exceeds 25% 

of its annual LSC support. Whereas 

existing § 1628.3(c) is limited to three 

circumstances where a recipient 

receives a sudden infusion of income, 

the proposed section expands the types 

of situations that the Corporation, in its 

discretion, may consider to be 

extraordinary and compelling 

circumstances. The proposed section 

adds the example of a natural disaster 

to illustrate a situation where a recipient 

would be unable to expend its current 

LSC grant for reasons other than the 

receipt of new funds. The proposed 

section also adds the example of ‘‘a 

payment from an LSC-funded lawsuit, 

regardless of whether the recipient was 

a party to the lawsuit.’’ This revision 

makes clear that a recipient may request 

a waiver to retain a fund balance in 

excess of 25% of its annual support 

when it receives an award as the result 

of a court decision in an LSC-funded 

case, even if the recipient was not 

named as a party to the action. 

LSC also proposes to make a minor 

revision to § 1628.3(d) to reflect the 

proposed redesignation of certain 

paragraphs in § 1628.4. 

§ 1628.4 Procedures 

LSC proposes to add a new 

§ 1628.4(d) to expressly allow recipients 

that face extraordinary and compelling 

circumstances to submit a waiver 

request to retain a fund balance in 

excess of 25% of their annual support 

prior to the submission of their annual 

audited financial statements. This 

addition will require existing 

§ 1628.4(d), (e), (f), and (g) to be 

redesignated to § 1628.4(e), (f), (g), and 

(h). 

The proposed new § 1628.4(d) will 

list the written requirements for a 

waiver request to retain a fund balance 

in excess of 25% of annual support. 

These requirements vary from the ones 

listed in § 1628.4(a), which apply only 

to requests made within 30 days after 

the submission of a recipient’s annual 

audited financial statements. There are 

two reasons for the variation. First, 

because the annual audited financial 

statement of a recipient requesting an 

early waiver approval would not yet be 

available to the Corporation, recipients 

can provide only an estimate of the fund 

balance they anticipate to accrue by the 

time their statements are submitted. 

Second, because a recipient may submit 

a waiver request either before or after 

the close of the fiscal year, the proposed 

section will require recipients to 

provide a ‘‘plan for disposing of the 

excess fund balance,’’ as opposed to a 

plan for the ‘‘current fiscal year’’ as 

required by § 1628.4(a). Additionally, 

proposed § 1628.4(d) requires recipients 

receiving approval to later submit 

updated information consistent with the 

requirements of paragraph (a) to confirm 

the actual fund balance amount to be 

retained by the recipient, as determined 

by reference to its annual audited 

financial statements. 

Finally, LSC proposes to revise the 

introductory text of paragraph (a), as 

well as paragraphs (a)(2) and (3), for 

clarity and readability. 

List of Subjects in 45 CFR Part 1628 

Administrative practice and 

procedure, Grant programs—law, Legal 

services. 

For the reasons set forth in the 

preamble, the Legal Services 

Corporation proposes to revise 45 CFR 

part 1628 as follows: 

PART 1628—RECIPIENT FUND 

BALANCES 

■ 1. The authority citation for part 1628 

is revised to read as follows: 

Authority: 42 U.S.C. 2996g(e). 

■ 2. Revise paragraphs (c) and (d) of 

§ 1628.3 to read as follows: 

§ 1628.3 Policy 

* * * * * 

(c) Recipients may request a waiver to 

retain a fund balance in excess of 25% 

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Federal Register / Vol. 80, No. 75 / Monday, April 20, 2015 / Proposed Rules 21703 

of a recipient’s LSC support only for 

extraordinary and compelling 

circumstances, such as when a natural 

disaster or other catastrophic event 

prevents the timely expenditure of LSC 

funds, or when the recipient receives an 

insurance reimbursement, the proceeds 

from the sale of real property, a payment 

from a lawsuit in which the recipient 

was a party, or a payment from an LSCfunded lawsuit, regardless of whether 

the recipient was a party to the lawsuit. 

(d) A waiver pursuant to paragraph (b) 

or (c) of this section may be granted at 

the discretion of the Corporation 

pursuant to the criteria set out in 

§ 1628.4(e). 

* * * * * 

■ 3. Amend § 1628.4 as follows: 

■ a. Revise paragraph (a) introductory 

text and paragraphs (a)(2) and (3); 

■ b. Redesignate paragraphs (d) through 

(g) as paragraphs (e) through (h); and 

■ c. Add new paragraph (d). 

The revisions and additions read as 

follows: 

§ 1628.4 Procedures 

(a) A recipient may request a waiver 

of the 10% ceiling on LSC fund balances 

within 30 days after the submission to 

LSC of its annual audited financial 

statements. The request shall specify: 

* * * * * 

(2) The reason(s) for the excess fund 

balance; 

(3) The recipient’s plan for disposing 

of the excess fund balance during the 

current fiscal year;\ 

* * * * * 

(d) A recipient may submit a waiver 

request to retain a fund balance in 

excess of 25% of its LSC support prior 

to the submission of its audited 

financial statements. The Corporation 

may, at its discretion, provide approval 

in writing. The request shall specify the 

extraordinary and compelling 

circumstances justifying the fund 

balance in excess of 25%; the estimated 

fund balance that the recipient 

anticipates it will accrue by the time of 

the submission of its audited financial 

statements; and the recipient’s plan for 

disposing of the excess fund balance. 

Upon the submission of its annual 

audited financial statements, the 

recipient must submit updated 

information consistent with the 

requirements of paragraph (a) of this 

section to confirm the actual fund 

balance to be retained. 

* * * * * 

Dated: April 14, 2015. 

Stefanie K. Davis, 

Assistant General Counsel. 

[FR Doc. 2015–08948 Filed 4–17–15; 8:45 am] 

BILLING CODE 7050–01–P 

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