This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

55776 

Vol. 70, No. 184 

Friday, September 23, 2005 

DEPARTMENT OF AGRICULTURE 

Food and Nutrition Service 

7 CFR Parts 271, 273, 275, and 277 

RIN 0584–AD37 

Food Stamp Program: Discretionary 

Quality Control Provisions of Title IV of 

Public Law 107–171 

AGENCY: Food and Nutrition Service, 

USDA. 

ACTION: Proposed rule. 

SUMMARY: On May 13, 2002, the 

President signed the Farm Security and 

Rural Investment Act of 2002. Title IV 

of that law, the Food Stamp 

Reauthorization Act of 2002, contains 

provisions substantively revising the 

Quality Control system. This rule 

proposes to amend the Food Stamp 

Program regulations to implement 

certain discretionary provisions 

concerning the Quality Control system 

in Sections 4118 and 4119 of the Food 

Stamp Reauthorization Act of 2002. 

This rule would establish new 

timeframes for completing individual 

Quality Control reviews and establish 

procedures for resolving liabilities 

following appeal decisions. This rule 

proposes to revise the negative case 

review procedures and provides 

procedures for households that break up 

while subject to the penalty for refusal 

to cooperate with a Quality Control 

review. This rule also proposes several 

additional policy changes and technical 

corrections, including deletion of 

material pertaining to enhanced 

administrative funding for low error 

rates, which was ended beginning in 

Fiscal Year 2003 by the statute. An 

interim rule published October 16, 

2003, addressed certain nondiscretionary provisions concerning the 

Quality Control system in Sections 4118 

and 4119 of the Food Stamp 

Reauthorization Act. The high 

performance bonuses that replace the 

administrative enhanced funding are 

addressed in a separate rule published 

February 7, 2005. This rule would affect 

State agencies’ quality control review 

operations, and it would alter the 

impact on State agencies of assessment 

and resolution of potential liabilities for 

excessive payment error rates and 

awarding of bonuses for superior 

performance. Households sampled for 

quality control review of their cases 

would be minimally affected by this 

rule. 

DATES: Comments on this rulemaking 

must be received on or before December 

22, 2005. 

ADDRESSES: The Food and Nutrition 

Service, Department of Agriculture 

invites interested persons to submit 

comments on this proposed rule. 

Comments may be submitted by any of 

the following methods: 

• E-mail: Send comments to 

daniel.wilusz@fns.usda.gov. 

• Fax: Submit comments by facsimile 

transmission to: (703) 305–0928. 

• Mail: Send comments to Daniel 

Wilusz, Quality Control Branch, 

Program Accountability Division, Food 

and Nutrition Service, USDA, 3101 Park 

Center Drive, Alexandria, Virginia 

22302. 

• Hand Delivery or Courier: You may 

also hand-deliver comments to us on the 

8th floor at the above address. 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

online instructions for submitting 

comments. 

FOR FURTHER INFORMATION CONTACT: 

Questions regarding this rulemaking 

should be addressed to Margaret Werts 

Batko at the above address, by telephone 

at (703) 305–2516, or via the Internet at 

margaret.batko@fns.usda.gov. 

SUPPLEMENTARY INFORMATION: 

I. Additional Information on Comment 

Filing/Electronic Access 

Electronic Access and Filing Address 

You may view and download an 

electronic version of this proposed rule 

at http://www.fns.usda.gov/fsp/. You 

may also comment via the Internet at 

the same address. Please include 

‘‘Attention: RIN 0584–AD37’’ and your 

name and return address in your 

Internet message. If you do not receive 

a confirmation from the system that we 

have received your message, contact us 

directly at 703–305–2516. 

Written Comments 

Written comments on the proposed 

rule should be specific, should be 

confined to issues pertinent to the 

proposed rule, and should explain the 

reason for any change you recommend. 

Where possible, you should reference 

the specific section or paragraph of the 

proposed rule you are addressing. We 

may not consider or include in the 

Administrative Record for the final rule 

comments that we receive after the close 

of the comment period or comments 

delivered to an address other than those 

listed above. 

We will make all comments, 

including names, street addresses, and 

other contact information of 

respondents, available for public 

inspection on the 8th floor, 3101 Park 

Center Drive, Alexandria, Virginia 

22302 between 8:30 a.m. and 5 p.m. 

Eastern time, Monday through Friday, 

excluding Federal holidays. 

II. Procedural Matters 

Executive Order 12866 

This rule has been determined to be 

significant under E.O. 12866 and has, 

therefore, been reviewed by the Office of 

Management and Budget. 

Executive Order 12372 

The Food Stamp Program is listed in 

the Catalog of Federal Domestic 

Assistance under No. 10.551. For the 

reasons set forth in the final rule in 7 

CFR Part 3015, Subpart V and related 

Notice (48 FR 29115, June 24, 1983), 

this Program is excluded from the scope 

of Executive Order 12372 that requires 

intergovernmental consultation with 

State and local officials. 

Regulatory Flexibility Act 

This rule has been reviewed with 

regard to the requirements of the 

Regulatory Flexibility Act (5 U.S.C. 

601–612). Eric M. Bost, Under Secretary 

for Food, Nutrition, and Consumer 

Services, has certified that this rule will 

not have a significant economic impact 

on a substantial number of small 

entities. State and local welfare agencies 

will be the most affected to the extent 

that they administer the Program. 

Public Law 104–4 

Title II of the Unfunded Mandate 

Reform Act of 1995 (UMRA) establishes 

requirements for Federal agencies to 

assess the effects of their regulatory 

Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 55777 

actions on State, local, and tribal 

governments and the private sector. 

Under Section 202 of the 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 the 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 rule contains no 

Federal mandates (under the regulatory 

provisions of Title II of the UMRA) for 

State, local, and tribal governments or 

the private sector of $100 million or 

more in any one year. This rule is, 

therefore, not subject to the 

requirements of sections 202 and 205 of 

the UMRA. 

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. 

The Food and Nutrition Service has 

considered this rule’s impact on State 

and local agencies and has determined 

that it does not have Federalism 

implications under E.O. 13132. 

Civil Rights Impact Analysis 

FNS has reviewed this proposed rule 

in accordance with the Department 

Regulation 4300–4, ‘‘Civil Rights Impact 

Analysis,’’ to identify and address any 

major civil rights impacts the rule might 

have on minorities, women, and persons 

with disabilities. After a careful review 

of the rule’s intent and provisions, FNS 

has determined that this rule has no 

impact on any of the protected classes. 

These changes primarily affect the 

quality control (QC) review system and 

not individual recipients’ eligibility for 

or participation in the Food Stamp 

Program. The only provision that has 

any direct impact on recipients is the 

conforming change made in 

§ 273.2(d)(2). This section provides that 

a recipient who refuses to cooperate 

with a QC review of his or her case will 

be terminated from further participation 

in the Program; that if the household 

reapplies during the annual review 

period, it cannot be determined eligible 

until it cooperates with the QC review; 

and if it reapplies following the end of 

the quality control review period, the 

household is required to provide full 

verification of its eligibility factors 

before it can be certified. The purpose 

of the requirement is to encourage 

household cooperation with the QC 

review of its case. In this rule we are 

proposing a conforming amendment to 

extend the timeframe of the penalty 

consistent with the revised timeframe 

for completing the QC review process 

established in Section 4119 of the Food 

Stamp Reauthorization Act of 2002 and 

addressed in this proposed regulation at 

§ 275.23. Significant protection exists 

within the regulations to ensure that a 

household is terminated solely for 

refusal, and not inability, to cooperate. 

A household so terminated also has the 

right to request a fair hearing. Further, 

the household has the ability to reverse 

its termination by cooperating with the 

QC review during the QC review period. 

There were 56,954 active case 

households subject to a QC review, and 

2,101 households who refused to 

cooperate with a QC review during 

Fiscal Year 2002, the last year 

information on non-cooperating 

households was collected. Information 

on protected class is not available for 

these households. 

All data available to FNS indicate that 

protected individuals have the same 

opportunity to participate in the Food 

Stamp Program as non-protected 

individuals. FNS specifically prohibits 

the State and local government agencies 

that administer the Program from 

engaging in actions that discriminate 

against any applicant or participant in 

any aspect of program administration, 

including, but not limited to, the 

certification of households, the issuance 

of coupons, the conduct of fair hearings, 

or the conduct of any other program 

service for reasons of age, race, color, 

sex, handicap, religious creed, national 

origin, or political beliefs (Food Stamp 

Program nondiscrimination policy can 

be found at § 272.6). Discrimination in 

any aspect of program administration is 

prohibited by these regulations, the 

Food Stamp Act, the Age Discrimination 

Act of 1975 (Pub. L. 94–135), the 

Rehabilitation Act of 1973 (Pub. L. 93–

112, section 504), and title VI of the 

Civil Rights Act of 1964 (42 U.S.C. 

2000d). Enforcement action may be 

brought under any applicable Federal 

law. Title VI complaints shall be 

processed in accord with 7 CFR part 

15.’’

Paperwork Reduction Act 

This proposed rule contains reporting 

or recordkeeping requirements that have 

been approved by the Office of 

Management and Budget (OMB) under 

several separate information collections 

under the Paperwork Reduction Act of 

1995. The collections are: 

0584–0034, Negative Quality Control 

Review Schedule; Status of Sample 

Selection and Completion, Form FNS–

245, and FNS–248: This rule does not 

affect the negative review schedule, 

Form FNS–245. In the most recent 

approval of OMB Number 0584–0034, 

the form FNS–247 (Statistical Summary 

of Sample Distribution) was eliminated. 

FNS has stopped requesting that this 

form be completed and the information 

be submitted. This rule removes the 

requirement to submit the report from 

the regulations. The elimination does 

not affect the burden, as the burden has 

already been adjusted for removal of 

this form. In this rule we are proposing 

to eliminate the Form FNS–248. 

However, the information required to be 

submitted on that form is still required. 

The regulations currently permit that 

this information be submitted in another 

format. Accordingly, elimination of this 

form will not affect the approved 

burden for OMB Number 0584–0034. 

0584–0074 (Form FNS–380, 

Worksheet for Food Stamp Program 

Quality Control Reviews); 0584–0299 

(Form FNS–380–1, Quality Control 

Review Schedule); and 0584–0303 

(Sampling Plan, Arbitration, and Good 

Cause): This rule does not affect these 

information collections. This rule does 

not change the requirements for 

development and submittal of the 

States’ sampling plans. This rule does 

not change the requirements for 

submitting cases for arbitration nor will 

it impact the number of cases 

anticipated to be submitted. This rule 

does include the provisions for good 

cause; however, those provisions are 

unchanged except for redesignation. 

Therefore, this rule will not impact the 

burden currently approved for good 

cause either. 

OMB Number 0584–0010, 

Performance Reporting System, 

Management Evaluation, Data Analysis 

and Corrective Action: Corrective action 

planning is included under this 

information collection package. 

Regulations prior to passage of the Food 

Stamp Reauthorization Act of 2002 

required corrective action planning 

whenever a State agency failed to reach 

the yearly target, whenever a State 

agency was not entitled to enhanced 

funding, and when its negative case 

error rate exceeded one percent. In an 

55778 Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 

interim rule entitled ‘‘Non-Discretionary 

Quality Control Provisions of Title IV of 

Public Law 107–171’’ published on 

October 16, 2003 at 68 FR 59519, the 

regulations were changed to reflect the 

provision in Section 4118 of the Food 

Stamp Reauthorization Act of 2002 that 

requires corrective action planning 

whenever a State agency’s payment 

error rate equals or exceeds six percent. 

This requirement replaced the 

requirement for corrective action 

planning whenever a State agency failed 

to reach the yearly target. In the 

regulations as modified by the interim 

rule, State agencies continued to be 

required to do corrective action 

whenever they were not entitled to 

enhanced funding or when the negative 

case error rate exceeded one percent. A 

State agency was entitled to enhanced 

funding when its payment error rate was 

less than or equal to 5.90 percent and 

its negative case error rate was less than 

the national weighted mean negative 

case error rate for the prior fiscal year. 

This rule proposes to eliminate the 

requirement that State agencies conduct 

corrective action planning whenever a 

State agency is not entitled to enhanced 

funding because enhanced funding has 

been eliminated by Section 4118 of the 

Food Stamp Reauthorization Act of 

2002. Elimination of this requirement 

will not have a significant impact on 

States’ requirements to do corrective 

action planning because of the 

requirement in the regulation to do 

corrective action planning whenever the 

State’s error rate exceeds six percent. 

The change from 5.9 percent to six is 

minimal. In Fiscal Year 2002, no State 

below six percent did not get enhanced 

funding. Further, in this rule we are 

proposing to continue to require that 

State agencies do corrective action 

planning whenever a State’s negative 

case error rate exceeds one percent. 

Therefore, there is essentially no impact 

resulting from removing the 

requirement to do corrective action 

planning whenever a State agency is not 

entitled to enhanced funding. 

Government Paperwork Elimination Act 

In compliance with the Government 

Paperwork Elimination Act, the Food 

and Nutrition Service is committed to 

providing electronic submission as an 

alternative for information collections 

associated with this rule. The Food and 

Nutrition Service has made every effort 

to streamline and automate these 

processes. However, we are not able to 

make the entire process electronic at 

this time. 

Part of the process allows electronic 

submission. The Quality Control review 

schedule (approved under OMB #0584–

0299) serves as both the data summary 

entry form that the reviewer completes 

during each review, and subsequently, 

as the data input document for direct 

data entry into the automated national 

Food Stamp Quality Control System 

(FSQCS) at the Kansas City Computer 

Center. While the data are manually 

collected on a paper form from 

information extracted from a case file, it 

is electronically submitted to the FSQCS 

for tabulation and analysis. Some States 

have developed and begun to use 

computerized versions of the worksheet 

(OMB number 0584–0074), which 

provides information collected on the 

review schedule. In addition, FNS has 

developed a computerized version of 

the worksheet. States are being given the 

option to continue to use their own 

systems, the new computerized version 

provided by FNS or the paper version. 

When FNS computerized versions of the 

worksheet are used, the information is 

linked to and creates the review 

schedule. 

Under OMB number 0584–0034, the 

burden for collecting and reporting 

information related to the review of 

negative cases and the status of sample 

selection and completion is approved. 

The FNS–245 serves as both the data 

summary entry form that the reviewer 

completes during each negative case 

review, and subsequently as the data 

input document for direct data entry 

into the FSQCS. Therefore, while data is 

manually collected, it is electronically 

submitted to the FSQCS for tabulation 

and analysis. The FNS–248 (Status of 

Sample Selection and Completion) 

collects information on the status of 

State reviews. The FNS–248 contains 

necessary information not produced by 

the automated system. However, much 

of the form contains information that 

can be obtained in other ways. The 

regulations already provide that the 

information can be submitted in another 

format than the Form FNS–248. In this 

rule, we are proposing to eliminate the 

form and to require the States to submit 

the necessary information as requested 

by the appropriate regional offices. 

States may submit this data 

electronically. 

The burden under OMB number 

0584–0303 encompasses the sampling 

plan, arbitration, and good cause. At 

this time, these areas are not 

substantively electronic submittals. To 

the extent possible, States may submit 

documents or portions of documents 

electronically. 

Executive Order 12988 

This rule has been reviewed under 

Executive Order 12988, Civil Justice 

Reform. This rule is intended to have 

preemptive effect with respect to any 

State or local laws, regulations, or 

policies that conflict with its provisions 

or that would otherwise impede its full 

implementation. This rule is not 

intended to have retroactive effect 

unless so specified in the ‘‘Effective 

Date’’ paragraph of the final rule. Prior 

to any judicial challenge to the 

provisions of this rule or the application 

of its provisions, all applicable 

administrative procedures must be 

exhausted. In the Food Stamp Program 

the administrative procedures are as 

follows: (1) For Program benefit 

recipients—State administrative 

procedures issued pursuant to 7 U.S.C. 

2020(e)(10) and § 273.15; (2) for State 

agencies—administrative procedures 

issued pursuant to 7 U.S.C. 2023 set out 

at § 276.7 (for rules related to nonquality control (QC) liabilities) or Part 

283 (for rules related to QC liabilities); 

(3) for retailers and wholesalers—

administrative procedures issued 

pursuant to 7 U.S.C. 2023 set out at 7 

CFR Part 279. 

Regulatory Impact Analysis 

Need for Action 

This action is needed to implement 

certain provisions of Sections 4118 and 

4119 of Title IV, the Food Stamp 

Reauthorization Act of 2002, Public Law 

107–171, which was enacted on May 13, 

2002. This rule proposes to amend the 

Food Stamp Program regulations 

concerning the Quality Control (QC) 

system to eliminate enhanced funding, 

to address the impact of appeals 

decisions on the resolution of QC 

liabilities for high payment error rates, 

to revise the timeframes for completing 

individual case reviews and the 

timeframes for penalties for households 

that refuse to cooperate with a QC 

review, and to make a number of 

technical policy changes and 

corrections. This analysis addresses the 

elimination of enhanced funding, the 

impact of appeals decisions on the 

resolution of QC liabilities for high 

payment error rates, the revised 

timeframes for completing individual 

case reviews, the timeframes for 

penalties for households that refuse to 

cooperate with a QC review, validation 

of the negative case error rate, and 

corrective action planning. An interim 

rule, published October 16, 2003, at 68 

FR 59519, addressed the new liability 

system established by Section 4118 of 

the Food Stamp Reauthorization Act of 

2002. The impact of the new liability 

system was addressed in the impact 

analysis for that rule. For greater 

understanding of the impact of the 

Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 55779 

changes to the liability system, the 

reader is referred to the interim rule. 

Cost Impact 

This action does not directly impact 

benefit levels or eligibility, so we do not 

anticipate any impact on food stamp 

benefit costs. The provision extending 

the timeframes for verification of 

households reapplying for benefits is 

not expected to have a measurable 

impact on benefit costs. Elimination of 

enhanced funding will result in a 

savings of administrative matching 

funds. In 2002, the Agency paid $77.3 

million in enhanced funding incentives 

to 13 States. Over the five years between 

1998 and 2002, the Agency paid $250 

million in enhanced funding, for an 

annual average of $50 million during 

this period. 

If State payment error rates remained 

at their 1998–2002 levels, the annual 

savings to the Food Stamp Program 

would be $50 million and the five-year 

savings would be $250 million. 

However, this savings will be largely 

offset by the establishment of the high 

performance bonuses (addressed in the 

final rule ‘‘High Performance Bonuses’’

published February 7, 2005, at 70 FR 

6313). See Table below. 

Benefit Impact 

Elimination of enhanced funding 

based on payment accuracy would not 

have a benefit impact on State 

administrating agencies or on program 

operations if considered in isolation. 

However, when this provision is 

combined with the new performance 

bonus system in another rulemaking 

that proposes to change performance 

criteria from a narrow focus on payment 

accuracy to a broader measure that 

incorporates client service criteria in 

addition to payment accuracy, the new 

performance bonus system is expected 

to encourage States to assess and 

improve overall performance. Since the 

new bonus system is capped at $48 

million annually the impact of the two 

rules will offset each other. 

COST IMPACT OF CERTAIN QUALITY CONTROL PROVISIONS OF THE FOOD STAMP REAUTHORIZATION ACT OF 2002 

(FEDERAL OUTLAYS) 

[In millions of dollars] 

2005 2006 2007 2008 2009 5-year 

Elimination of Enhanced Funding .................................................................................... ¥50 ¥50 ¥50 ¥50 ¥50 ¥250 

The provisions affecting the 

timeframes for completing individual 

case reviews, procedures for appeals for 

the resolution of QC liabilities, and the 

procedures for treating households that 

refuse to cooperate with QC reviews are 

not expected to have any measurable 

impact on program costs. 

III. Background 

On May 13, 2002, the President 

signed Public Law 107–171, the Farm 

Security and Rural Investment Act of 

2002. Title IV of Public Law 107–171, 

the Food Stamp Reauthorization Act of 

2002 (FSRA), significantly revised the 

sanction, liability, and enhanced 

funding provisions of the Quality 

Control (QC) system. An interim rule 

entitled ‘‘Non-Discretionary Quality 

Control Provisions of Title IV of Public 

Law 107–171’’ was published October 

16, 2003, at 68 FR 59519 that addressed 

certain provisions of Sections 4118 and 

4119. A final rule entitled ‘‘High 

Performance Bonuses’’ was published 

February 7, 2005, at 70 FR 6313 that 

implemented Section 4120 of the Food 

Stamp Reauthorization Act. This 

rulemaking addresses the remaining 

provisions of Sections 4118 and 4119 of 

the Food Stamp Reauthorization Act. In 

addition, it includes several 

discretionary policy changes and 

numerous technical corrections. 

A. Enhanced Funding 

The current regulations at § 275.1(b) 

provide that the Department shall pay a 

State agency enhanced administrative 

funding if its payment error rate is less 

than or equal to 5.90 percent and the 

negative case error rate is less than the 

national weighted mean negative case 

error rate for the prior fiscal year. 

Section 4118 of FSRA removed the 

provision in the Food Stamp Act of 

1977 for giving enhanced funding to 

State agencies with low payment and 

negative case error rates, effective fiscal 

year (FY) 2003, effectively ending 

enhanced payments. As a technical 

detail, we are proposing to eliminate 

§ 275.1(b)(1) and (b)(2) and to revise 

§ 275.1(a) into a general introductory 

paragraph, removing the ‘‘(a)’’ paragraph 

designation. Section 4120 of the FSRA 

replaces these enhanced funding 

provisions with high performance 

bonuses. Regulations addressing high 

performance bonuses have been 

published separately (proposed rule 

published December 17, 2003, at 68 FR 

70193; final rule published February 7, 

2005, at 70 FR 6313). 

Section 275.23(d) establishes 

procedures for providing enhanced 

funding. In accordance with the 

elimination of enhanced funding, this 

section is no longer necessary. 

Therefore, we are proposing to remove 

§ 275.23(d). 

Section 275.3(c) requires that FNS 

validate the negative case error rate 

when a State agency’s payment error 

rate for an annual review period appears 

to entitle it to an increased share of 

Federal administrative funding and its 

reported negative case error rate for that 

period is less than two percentage 

points above the national weighted 

mean negative case error rate for the 

prior fiscal year. That section also 

provides that FNS may review any 

negative case for other reasons. 

Validation of the negative case error rate 

is no longer necessary for purposes of 

establishing eligibility for enhanced 

funding. However, we are proposing in 

§ 275.3(c) to require that all States’

negative case error rates be validated by 

FNS. We are proposing to require 

universal validation of negatives for two 

reasons. First, we believe that fair and 

equitable treatment in terms of denying 

households needs to be ensured. 

Second, the negative error rate is one of 

the measurements of high performance. 

We believe that it is necessary to ensure 

the accuracy of those error rates if 

awards will be driven by these rates. 

In addition, we are proposing to make 

technical changes throughout Part 275 

to remove references to enhanced 

funding. These deletions are not 

discussed in this preamble. 

Part 277, Payments of Certain 

Administrative Costs of State Agencies, 

establishes the rules for paying State 

agency administrative costs for 

operating the Food Stamp Program. In 

§ 277.4, paragraphs (b)(1), (b)(4), (b)(5), 

and (b)(6) describe the procedures for 

increasing State administrative funding 

when State agency quality control error 

rates meet certain standards. Each 

paragraph provides the authority for 

different fiscal year periods beginning 

with Fiscal Year 1980. Sections 

277.4(b)(1)(i), (b)(4), (b)(5), and (b)(6) 

cover fiscal year periods beginning 

October 1, 1980, through September 30, 

1988. Section 277.4(b)(1)(ii) provides 

55780 Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 

the authority for the period beginning 

October 1988 and forward. The 

authority in the Food Stamp Act for 

§ 277.4(b)(1)(i) was removed by the 

Hunger Prevention Act of 1988 (Public 

Law 100–435). The authority for 

§ 277.4(b)(4), (b)(5), and (b)(6) was 

removed by the Omnibus Budget 

Reconciliation Act of 1982 (Public Law 

97–253). Section 4118 of the FSRA 

eliminated enhanced funding based on 

quality control error rates for fiscal years 

beginning October 2002 and beyond, 

thus making § 277.4(b)(1)(ii) obsolete for 

FY2003 and beyond. All enhanced 

funding for Fiscal Years 1980 through 

2002 paid under any of these authorities 

has already been made. Therefore, these 

paragraphs are no longer necessary. 

Accordingly, we are proposing to 

remove § 277.4(b)(1), (b)(4), (b)(5), and 

(b)(6). Sections 277.4(b)(2), (b)(3), (b)(7), 

and (b)(8) are proposed to be 

redesignated as § 277.4(b)(1), (b)(2), 

(b)(3), and (b)(4), respectively. In 

addition, we are proposing to correct the 

references in redesignated § 277.4(b)(3) 

to reflect these changes. 

B. Disposition of Cases Where the 

Household Refuses To Cooperate 

Section 275.12(g) establishes 

procedures for disposition of active 

quality control cases. Section 

275.12(g)(1)(ii) provides procedures for 

handling cases when the household 

refuses to cooperate in the review. 

Under these procedures, the State 

agency is required to notify the 

household of the penalties for refusing 

to cooperate with the review. In 

§ 275.12(g)(1)(ii), regulations currently 

provide that a reviewer may attempt to 

complete the case if this notice has been 

sent. This policy was revised by 

memorandum on September 1, 1998, in 

‘‘Change 1 to the September 1997 

version of FNS Handbook 310,’’ to 

require the State agency reviewer to 

attempt to complete the review. The 

change was effective October 1, 1998. 

The revised policy has been retained in 

subsequent revisions of FNS Handbook 

310. The Department requires such 

completion because incomplete reviews 

introduce bias into the system. 

Consistent with this change in policy, 

we are proposing to revise 

§ 275.12(g)(1)(ii) to say that the reviewer 

must attempt to complete the case. As 

provided for in the FNS Handbook 310, 

the reviewer will attempt to determine 

all of the necessary information to the 

point where either ineligibility or the 

appropriate benefit allotment is 

determined, verified, and documented. 

C. Negative Case Reviews 

In order to understand the parameters 

of the changes being proposed in this 

rulemaking for the review of negative 

cases, the readers need to understand 

the basic framework of the negative case 

review process. A negative case is a case 

where a household’s application for 

food stamp benefits was denied or 

where a household’s food stamp 

benefits were suspended or terminated. 

The negative universe includes all 

negative actions that occur during the 

review period. Under current rules, 

State agencies may randomly select 

negative cases for review by either 

‘‘action’’ or by ‘‘effective date.’’

‘‘Action’’ is a specific decision to deny, 

suspend, or terminate a case. Each 

action results in a notice to the 

household advising the household of 

the action. ‘‘Effective date’’ measures 

the result of a negative action, that is, 

that following the negative action, the 

household does not receive benefits. It 

measures the non-receipt of benefits 

against the prior receipt of benefits. In 

order for a case to be subject to review 

as a negative case under the current 

rules, there has to be a break in 

participation, that is, a household 

cannot receive uninterrupted benefits 

for two full consecutive months. 

Between the negative action and the 

next date of participation, there must be 

at least one day for which no benefits 

are received. A negative case review 

consists of a case file review. An 

expanded review of items addressed in 

the case is permitted if the case file does 

not support the negative action under 

review. Contact with the household 

and/or collateral contacts should occur 

only to clarify information in the case 

record if the case record does not 

support the negative action under 

review. Contact with the household 

and/or collateral contacts should occur 

only to clarify information in the case 

record if the case record does not 

support the negative action under 

review. This proposal would 

significantly modify the process 

described above in order to make the 

process uniform among the States and to 

eliminate inappropriate, excessive, and 

unnecessary household contacts. 

Although not currently required, the 

Department has validated all State 

agencies’ negative case error rates for 

the past several years. As discussed 

elsewhere in this rule, we are proposing 

that the Department will validate all 

State agencies’ negative case error rates 

annually. In the process of performing 

these validations, it has become 

apparent that various State agencies 

have interpreted the regulatory 

provisions and Handbook review 

provisions differently. Further, it has 

become apparent that allowing the use 

of two different measuring points, by 

‘‘action’’ or by ‘‘effective’’ date, has 

contributed to the differences among 

State agencies. Secondarily, use of 

‘‘effective date’’ has resulted in 

confusion when multiple negative 

actions have occurred within the sample 

month. This is particularly important in 

determining the awarding of the high 

performance bonus awards for low 

negative case error rates. Finally, the 

Department has become concerned that 

some State QC workers, when they find 

that the basis of a negative case action 

is invalid, in an effort to find any reason 

that the negative action might have been 

valid, continue to review a household’s 

case until any reason can be found to 

support the negative action result. This 

can result in multiple household and/or 

collateral contacts. The Department 

considers such contacts potentially 

intimidating and believes it is necessary 

to curtail their use. The Department 

believes that it is important that all 

States conduct negative reviews 

interpreting the regulatory and 

Handbook provisions the same way to 

ensure that review results are 

comparable. 

First, the Department is proposing 

that the negative universe be based on 

‘‘action,’’ eliminating the option to use 

‘‘effective date.’’ Use of the two different 

selection criteria, ‘‘action’’ and 

‘‘effective date,’’ has resulted in 

differences in the sampling universes 

among the States and inconsistent 

reviews. These sampling differences are 

of statistical concern in calculating a 

national negative case error rate. 

Further, because multiple actions can 

occur within a sampling period, but 

only resulting in one denial, 

suspension, or termination, States using 

‘‘effective date’’ have to decide which of 

the several actions to review. This 

selection process can introduce bias into 

the system. Focusing on ‘‘action’’ means 

that each negative action would have an 

equal opportunity to be sampled and 

reviewed. Finally, negative reviews are 

not measuring program losses, but 

service to clients. Using ‘‘action’’ means 

the review is based on the reason given 

the household for the negative action. 

We are proposing to revise 

§ 275.11(e)(2)(i) and (e)(2)(ii) 

accordingly. 

Further, we are proposing to delete 

the requirement that there be a break in 

participation in order for a case to be 

subject to review. Section 

275.11(f)(2)(vi) provides that a negative 

action would not be subject to review if 

there were no break in participation. 

Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 55781 

Changing the focus to the action 

eliminates a need for measuring 

whether there was a break in 

participation. The break in participation 

measures the effectiveness of the 

negative action, the denial or end of a 

households receipt of benefits. 

Elimination of ‘‘break in participation’’

is consistent with the change in focus to 

‘‘action’’ only reviews. A conforming 

change is also being made to the 

definition ‘‘Negative case’’ in § 271.2. 

Finally, the Department is proposing 

to eliminate the expanded review in 

§ 275.13(b). As described above, the 

expanded review allows the QC 

reviewer to look beyond the reason 

given for action taken by the EW to 

deny, terminate, or suspend a 

household. The QC reviewer may 

examine the case file for additional 

reasons to support the denial, 

suspension, or termination. It also 

permits contacting the household or a 

collateral contact to clarify a reason for 

the denial, suspension, or termination. 

During the validation process, it has 

become apparent that the expanded 

review has become an opportunity to 

search for information to eliminate an 

invalid negative decision, making the 

decision correct, rather than 

determining the validity of the action 

the EW took. The Department considers 

this an inappropriate use of the review 

process that needs to be curtailed. 

Elimination of the expanded review is 

also consistent with a review of 

‘‘action.’’ The QC review would be 

focused solely on the action taken, not 

on other possible negative actions that 

could have been taken. Under this 

proposal, an action could only be 

determined ‘‘valid’’ if the case record 

supported the negative action, as it was 

presented to the household. If 

documentation is missing in the case 

file to support and verify the reason for 

the specific denial action, the 

Department is proposing to continue to 

allow the QC reviewer to contact the 

household or a collateral contact to 

verify the validity of the specific 

negative action. The Department 

believes that this is necessary to curtail 

reviews that are focused on eliminating 

the error, rather than on determining the 

validity of the action, and result in 

excessive collateral contacts, negatively 

impacting customer service. A 

conforming change is also being made to 

§ 275.13(c)(1). 

We recognize that by evolving State 

interpretations of the regulatory and 

Handbook provisions to be the same, 

these proposed revisions may change 

the proportion of valid determinations. 

However, the Department believes that 

the consistent interpretations among the 

States will yield information that more 

accurately reflects actual negative 

actions, and represents a better balance 

between accuracy and customer service. 

D. Corrective Action Planning 

Section 4118 of the FSRA requires a 

State agency to do corrective action 

planning whenever its payment error 

rate is six percent or greater. In the 

interim rule published October 16, 2003 

at 68 FR 59519, § 275.16(b)(1) was 

revised to require corrective action 

planning whenever a State agencys error 

rate equals or exceeds six percent. 

Current regulations provide that 

corrective action planning shall also be 

done by a State agency when the State 

agency is not entitled to enhanced 

funding (§ 275.16(b)(2)) or when the 

State agencys negative case error rate 

exceeds one percent (§ 275.16(b)(3)). We 

are proposing to remove § 275.16(b)(2) 

as no longer necessary because 

enhanced funding has been eliminated. 

In practical terms, this change will have 

little impact on the number of State 

agencies required to do corrective action 

planning. In FY 2002, the last year of 

enhanced funding, no State that had a 

payment error rate of less than six 

percent failed to qualify for enhanced 

funding. We are proposing to continue 

to require State agencies to conduct 

corrective action planning whenever the 

negative case error rate exceeds one 

percent (§ 275.16(b)(3)), but are 

proposing to redesignate § 275.16(b)(3) 

as § 275.16(b)(2) to reflect the deletion 

of § 275.16(b)(2). We believe that 

retaining the requirement to do 

corrective action planning when the 

negative error rate exceeds one percent 

is necessary to ensure that households 

are not being inappropriately denied or 

terminated in an effort to reduce 

payment error rates. Also, this is 

consistent with the High Performance 

Bonuses final rule that provides criteria 

for rewarding States with very low 

negative case error rates. Finally, we are 

proposing to redesignate § 275.16(b)(4), 

(b)(5), and (b)(6) as § 275.16(b)(3), (b)(4), 

and (b)(5), respectively, to reflect the 

deletion of § 275.16(b)(2) and 

redesignation of § 275.16(b)(3) as 

§ 275.16(b)(2). 

Section 275.13 requires State agencies 

to review suspended cases as part of the 

negative case sample. Suspended cases 

were added to the negative universe in 

a rule published July 16, 1999, at 64 FR 

38287. That rule did not add suspended 

cases to those deficiencies requiring 

corrective action at § 275.16(b)(6) 

(redesignated in this rule as 

§ 275.16(b)(5)). To correct this oversight, 

we are proposing to revise redesignated 

§ 275.16(b)(5) to include deficiencies 

which result in improper suspensions. 

E. Timeframes for Announcing the 

National Performance Measure and for 

Completing Quality Control Reviews 

and Resolving State/Federal Differences 

The interim rule published October 

16, 2003, at 68 FR 59519 revised the 

regulations at § 275.23(e)(7) to establish 

the following timeframes for completing 

quality control reviews and resolving 

State/Federal differences and for 

announcing the national performance 

measure. The deadline for completing 

quality control reviews and resolving 

State/Federal differences is May 31 of 

the following year. The deadline for 

announcing the national performance 

measure is June 30 following the end of 

the fiscal year review period. These new 

timeframes provide approximately two 

additional months to complete the case 

review and arbitration process and to 

develop and announce the national 

performance measure. In this rule, we 

are proposing to use this additional time 

in the following way. 

Currently, as provided for in 

§ 275.21(b)(2), State agencies are 

required to complete and transmit to 

FNS 90 percent of all cases selected for 

a sample month within 75 days of the 

end of that sample month. State 

agencies are required to complete and 

transmit to FNS 100 percent of all cases 

selected for a sample month within 95 

days of the end of the month. Section 

273.21(d) requires that all cases sampled 

for the annual review period be 

completed or otherwise accounted for 

and reported to FNS no later than 105 

days from the end of the review period. 

In order to fully understand this 

proposal, it is helpful to understand the 

background of the current timeframes. 

Section 13951 of the Mickey Leland 

Childhood Hunger Relief Act of 1993, 

Public Law 103–66, required that all 

case reviews and arbitration be 

completed within 180 days of the end 

of the review period. On June 23, 1995, 

the Department proposed changes to the 

regulations to implement the 180-day 

requirement to complete all case 

reviews and arbitration (60 FR 32615). 

In that rule, we proposed to reduce the 

amount of time to complete each 

monthly sample by requiring that 100 

percent of the cases selected for review 

be completed within 90 days of the end 

of the sample month. However, in the 

final rule published June 2, 1997 (62 FR 

29652), we left the timeframes as they 

were originally, i.e., that 90 percent of 

all cases be completed within 75 days 

and all cases be disposed of within 95 

days of the end of the sample month. In 

that final rule, we reduced the amount 

55782 Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 

of time FNS regional offices had to 

complete validation from 95 days to 43 

days and modified the arbitration 

system in order to reduce the amount of 

time necessary to complete the case 

review and arbitration process within 

the allotted 180 days. Thus FNS 

absorbed all the reduction in time for 

completing the annual QC review 

process. 

We believe that the best uses of the 

additional two months of time between 

the end of March and May 30 are to 

provide States with more time to 

complete the individual case review 

process, to provide the FNS regional 

offices with more time to complete their 

reviews of the subsample cases, and to 

provide some additional time at the end 

of the review process for the Department 

to ensure the accuracy of the error rates, 

liabilities, and any adjustments to the 

liabilities. 

Accordingly, in § 275.21(b)(2), we are 

proposing to provide State agencies at 

least 100 days from the end of the 

sample month to complete and transmit 

to FNS 90 percent of all cases and that 

State agencies shall have at least 113 

days from the end of the sample month 

to complete and transmit to FNS 100 

percent of all cases selected for the 

sample month. We are proposing that 

State agencies have at least 123 days 

from the end of the annual review 

period to complete or otherwise account 

for all cases selected for review during 

the annual review period and to report 

to FNS the results of all the reviews. 

This gives the State agency an 

additional 25 days to act on 90 percent 

of the cases selected each sample month 

and an additional 18 days to complete 

all the cases selected each sample 

month. We are proposing that State 

agencies have at least until January 21 

after the end of the review year to 

complete and dispose of all cases. We 

are also proposing that FNS may grant 

additional time as warranted upon 

request by a State agency for cause 

shown beyond these dates to complete 

and dispose of all cases. We are also 

proposing to revise § 275.21(b)(4) by 

replacing ‘‘95’’ with ‘‘113’’; to revise 

§ 275.21(c) by replacing ‘‘105’’ with 

‘‘123’’; and to add a sentence to each of 

these paragraphs stating that if FNS 

extends the timeframes in § 275.21(b)(2), 

that the timeframes in these paragraphs 

will be extended accordingly. 

On January 22, 2003, we waived the 

deadlines for State agencies to complete 

processing cases in § 273.21(b) for FY 

2003 and provided States with 113 days 

to complete each sample month’s cases. 

This waiver was extended on March 4, 

2004. In providing comments on this 

proposal, we would be interested in 

hearing whether this amount of 

additional time was useful and/or 

sufficient. In addition to the extended 

timeframes for completion of individual 

cases, that waiver provides State 

agencies an additional 10 days at the 

end of the review period, i.e., January 22 

through January 31, to perform checks 

on the individual data transmitted by 

State agencies (c-trails). That additional 

10 days is an expansion of current 

policy allowing additional time to check 

the c-trails during the review period. In 

this rulemaking, we are not proposing to 

allow this additional 10 days at the end 

of the review year for checking the ctrails. We are not proposing to allow the 

additional 10 days in this rulemaking 

because we feel that States have already 

received a significant additional amount 

of time to perform and complete all 

work related to the individual case 

reviews. Delaying completion of the 

State work until January 31 delays the 

completion of the Federal rereview 

process which in turn impacts FNS?s 

ability to timely and accurately prepare 

the payment error rates. However, we 

are interested in receiving comments on 

this issue. 

Under the timeframes as provided in 

the January 23, 2003, memorandum, 

FNS regional offices were given until 

March 31 to complete their subsample 

review process in order for all 

arbitration to be completed timely and 

to provide some additional time to 

ensure the accuracy of the error rates, 

liabilities, and adjustments to the 

liabilities. If FNS opts to extend the 

State agencies? timeframes, FNS will 

adjust the amount of time provided to 

the regions for validation and/or adjust 

the time provided to the Department to 

ensure the accuracy of the error rates, 

liabilities, and adjustments to the 

liabilities. 

Section 275.21(c) provides that State 

agencies report the monthly progress of 

sample selection and completion on the 

Form FNS–248, Status of Sample 

Selection and Completion or other 

format specified by FNS. In response to 

a notice published at 68 FR 10437 on 

March 5, 2003, the Department received 

two comments suggesting elimination of 

the form. Federal statisticians use the 

information on the FNS–248 to track the 

status of case completions and identify 

when timely generation of an error rate 

is jeopardized. Most of the information 

on the FNS–248 is available elsewhere. 

Further, the form itself is not necessary 

for State agencies to provide the 

necessary information, and the 

regulation currently provides that States 

may submit this information other than 

on the form. Therefore, we are 

proposing to revise § 275.21(c) to 

eliminate the form. State agencies will 

still be required to submit the 

information on a monthly basis as 

directed by the appropriate regional 

office. 

Section 275.21(d) requires State 

agencies to submit an FNS–247, 

Statistical Summary of Sample 

Distribution, annually. Although the 

requirement is still in the regulations, 

FNS no longer requires State agencies to 

submit this form. Accordingly, we are 

proposing to remove § 275.21(d). 

Currently, there is one level of 

arbitration. Quality control arbitration is 

the resolution of disagreements between 

the FNS regional office and the State 

agency concerning individual QC case 

findings and the appropriateness of 

actions taken to dispose of an individual 

case. The timeframes for conducting 

arbitration are in § 275.3(c)(4). Under 

these rules, a State agency is required to 

submit its request for arbitration within 

20 calendar days of the date of receipt 

by the State agency of the regional office 

case findings. The FNS arbitrator has 20 

calendar days from receipt of the State 

agency request to review and make a 

decision on the case. The arbitration 

timeframes as currently established 

appear to be adequate from our 

perspective. We believe that 20 days is 

an adequate amount of time for a State 

agency to prepare its case for arbitration. 

This time period is intended primarily 

for the State agency to prepare its letter 

addressing what issue or issues it is 

appealing, assemble the case file, and 

transmit the request. This time period is 

not intended for State agencies to 

conduct additional review activities. 

Our recent experience with the 

arbitration process indicates that, except 

for a small number of cases where the 

State submitted an incomplete case, 20 

days has been sufficient to review and 

reach a decision. Accordingly, we are 

not proposing to make any changes in 

the timeframes for requesting and 

conducting arbitration. We are seeking 

comments, however, about whether 

affected parties and the public agree that 

the timeframes are adequate. If 

additional time is required for 

arbitration, the amount of time given to 

State agencies for completing individual 

case reviews may need to be reduced 

from that proposed in this rule. 

F. Consequences To Households Who 

Refuse To Cooperate With Quality 

Control Reviews 

Section 273.2(d)(2) provides 

procedures for handling the cases of 

food stamp participants who refuse to 

cooperate with a quality control review 

of their case. Currently, a household is 

determined ineligible if it refuses to 

Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 55783 

cooperate with a QC review. Questions 

have arisen about what happens when 

one or more household members leave 

a household subject to this penalty. 

Because the regulations do not provide 

an answer to the question, it has been 

left to State agencies to determine which 

household members continue to be 

subject to the penalty. We are proposing 

to amend this provision to provide that 

the ineligibility penalty will follow the 

household member(s) who refused to 

cooperate. 

In this rule, we are also proposing to 

make a conforming change to 

§ 273.2(d)(2). Current procedures in 

§ 273.2(d)(2) require that a household be 

terminated for refusal to cooperate with 

a State or Federal quality control 

reviewer. If a household terminated for 

refusal to cooperate with a State QC 

reviewer reapplies within 95 days of the 

end of the annual review period, the 

household cannot be determined 

eligible until it cooperates with the State 

QC reviewer. If the household 

terminated for refusal to cooperate with 

a State QC reviewer reapplies more than 

95 days after the end of the review 

period, the household is required to 

provide verification of all eligibility 

factors before it can be certified. If a 

household terminated for refusal to 

cooperate with a Federal QC reviewer 

reapplies within 7 months of the end of 

the annual review period, the household 

cannot be determined eligible until it 

cooperates with the Federal QC 

reviewer. If the household terminated 

for refusal to cooperate with a Federal 

reviewer reapplies more than seven 

months after the end of the review 

period, the household is required to 

provide verification of all eligibility 

factors before it can be certified. We are 

proposing to change the dates in 

§ 273.2(d)(2) to 123 days and nine 

months to conform the dates in 

§ 273.2(d)(2) to the proposed changes in 

the dates for completion of the State 

review process in § 275.21(b) and the 

end of the Federal QC review process in 

§ 275.23(e)(7) (renumbered in this 

proposed rule as § 275.23(c)). 

We are also proposing additional 

conforming changes to other sections of 

the regulations that identify these 

timeframes. These conforming 

amendments are not discussed in this 

preamble. 

G. Section 275.23—Determination of 

State Agency Program Performance 

Section 275.23 establishes the 

procedures to be used to evaluate a State 

agency’s performance through the 

quality control review system. This 

section includes the error rates to be 

established, the methodology used to 

establish those error rates (including 

regression), the thresholds for 

establishing potential liabilities for 

excessive error rates, the relationship of 

the sanction system to the warning 

process and negligence, the timeframes 

for announcing error rates, the 

procedures for resolving liabilities, the 

procedures for reducing liabilities based 

on good cause on appeal, the policy on 

charging interest on liabilities, and the 

procedures for new investment 

activities to reduce liabilities. 

Over time, as the authority for 

determining the error rates and the 

sanction system has been changed by 

legislation, changes have been made 

throughout § 275.23. Those changes 

were made within the existing structure 

of the section. The changes to the 

sanction system made by the FSRA 

impact much of § 275.23. Because 

several sections require substantive 

revision and many paragraphs require 

minor changes or reference changes, we 

have decided to take the opportunity to 

reorganize the section at the same time 

as making the necessary changes 

resulting from the legislation. 

Accordingly, we are proposing to revise 

and reorganize § 275.23 in its entirety. 

Under this proposed reorganization, 

§ 275.23(a) will address the basic 

components of FNS determination of a 

State agency’s efficiency and 

effectiveness (currently § 275.23(a) and 

(b)). A new § 275.23(b) will address 

error rates. The existing methodology 

for regression in § 275.23(e)(6) is 

proposed to be incorporated into the 

new § 275.23(b). Section 273.23(c) will 

address the timeframes for completing 

case reviews, conducting arbitration, 

and issuing error rates. Section 

273.23(d) will address State agency 

liability. Included in this paragraph will 

be the procedure for establishing the 

national performance measure, the 

liability methodology, appeal rights, and 

the relationship to the warning process 

and negligence. Section 275.23(e) will 

address liability resolution plans; 

§ 275.23(f) will address good cause; 

§ 275.23(g) will address results of 

appeals on liability resolution; 

§ 275.23(h) will address new investment 

(the rules currently refer to such 

investment as ‘‘reinvestment’’; in this 

rule, we are proposing to change the 

term to ‘‘new investment,’’ consistent 

with the language used in the FSRA); 

§ 275.23(i) will address payment of the 

at-risk money; and § 275.23(j) will 

address interest charges. 

Current § 275.23(e)(4) (Relationship to 

warning process and negligence), 

§ 275.23(e)(5) (Good cause), and 

§ 275.23(e)(6) (Determination of 

payment error rates) are unchanged 

except for minor editing, renumbering, 

or reference changes. Sections 

275.23(e)(4), (e)(5), and (e)(6) are 

proposed to be redesignated as 

§ 275.23(d)(4), (f), and (b)(2), 

respectively. These changes are part of 

the restructuring for purposes of clarity. 

Necessary reference changes and 

language changes resulting from the 

elimination of enhanced funding have 

also been made. Such changes are 

technical in nature and do not impact 

the procedures themselves. These 

sections include the regression 

methodology and the criteria for good 

cause. Although these sections have 

been included in their entirety, their 

substantive content has not been 

changed, and comments are not being 

sought on these procedures. Because 

comments are not being sought on the 

substantive content of these sections, 

any comments received on the 

substantive content will not be taken 

into consideration in developing the 

final rule. 

H. Elimination of Pre-Fiscal Year 2003 

Liability Establishment Procedures 

The interim rule, published October 

16, 2003, at 68 FR 59515, revised 

§ 275.23(e) to eliminate procedures for 

establishing liabilities for Fiscal Years 

1983 through 1991. Section 275.23(e)(2) 

now provides procedures for 

establishing liability for excessive 

payment error rates for FY 2002. Section 

275.23(e)(3) provides procedures for 

establishing liability amounts for FY 

2003 and beyond, putting in place the 

provisions of Section 4118 of the FSRA. 

The provisions of Section 4118 give the 

Department the authority to waive any 

portion of the established liability 

amount, to require a State agency to 

invest up to 50 percent of any 

established liability amount in program 

administration activities, to establish up 

to 50 percent of the established liability 

amount as being ‘‘at-risk’’ for repayment 

if a liability amount is established for 

the subsequent fiscal year, or any 

combination of the three. Readers 

should refer to the interim rule for more 

information concerning the new liability 

system. Comments received in response 

to the interim rule and to this proposed 

rule will be considered in developing 

the final rule on liability resolution. The 

final rule will merge the interim rule 

and this proposed rule. 

We are proposing to remove 

§ 275.23(e)(2) (as part of the overall 

revision of § 275.23) as it no longer 

necessary. All liabilities for FY 2002 

have already been determined. 

55784 Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 

I. Appeals of Liability Determinations 

Section 16(c)(7) of the Food Stamp 

Act, as amended, provides that a State 

agency is entitled to appeal the amount 

of a liability only for a fiscal year in 

which a liability amount is established. 

That means that excessive payment 

error rates in the first year of the new 

2-year liability system are not subject to 

appeal. Nor is the national performance 

measure subject to appeal, in 

accordance with Section 16(c)(6)(D) of 

the Food Stamp Act, as amended. Thus, 

only a State agency’s second year error 

rate and related liability determination 

are appealable. The Department 

recognizes that good cause may exist for 

an excessive error rate in year 2 that 

could be the result of events in year 1. 

The Department has proposed at 

§ 275.23(d)(3) to limit appeals to the 

determination of a State’s payment error 

rate, or a determination of whether the 

payment error rate exceeds 105 percent 

of the national performance measure 

and the liability amount for any year for 

which a liability is established. To 

address the limitations on the 

appealability of year 1 and the 

possibility of causes extending back into 

that year, we are also proposing to allow 

a State agency to address areas of good 

cause in the prior fiscal year that may 

have impacted the fiscal year 2 for 

which a liability amount has been 

established. 

The recent significant drop in the 

national performance measure and 

individual State error rates has raised 

questions about the effect on this new 

liability system if the error rates 

continue to fall lower. Specifically 

questions have arisen about what 

happens if a State agency’s error rate is 

below six percent but there is a 95 

percent statistical probability that the 

State’s payment error rate exceeds 105 

percent of the national performance 

measure. There are two significant 

points to be addressed. First, since six 

percent is the potential liability 

threshold provided in the FSRA no 

liability amount would be established. 

However, the year would be a year of 

poor performance under the new 

liability system and would be 

considered a year 1 in determining 

whether a State agency had two 

consecutive years of error rates 

exceeding 105 percent of the national 

performance measure. The law 

mandates that a year be considered a 

year of poor performance whenever 

there is a 95 percent statistical 

probability that a State agency’s 

payment error rate exceeds 105 percent 

of the national performance measure. 

The six percent threshold for a liability 

amount determination is not relevant to 

the determination of poor performance. 

Second, questions have also arisen 

about whether the determination of 

whether a year for which no liability 

was established because the State’s error 

rate was above the national performance 

measure but was below six percent was 

a year 1 is appealable. Under FSRA, this 

determination is not appealable. 

However, in the event a State agency 

incurs a potential liability in a 

subsequent year, a State agency would 

be able to address areas of good cause 

in prior fiscal year 1 that may have 

impacted the fiscal year 2 for which a 

liability amount has been established. 

Section 4118 of the FSRA provides 

that when a State agency appeals its 

liability amount determination, if the 

State agency began required new 

investment activities prior to an appeal 

determination, and if the liability 

amount is reduced to $0 through the 

appeal, the Secretary shall pay to the 

State agency an amount equal to 50 

percent of the new investment amount 

that was included in the liability 

amount subject to appeal. If the 

Secretary wholly prevails on a State 

agency’s appeal, Section 4118 provides 

that the Secretary will require the State 

agency to invest all or a portion of the 

amount designated for new investment 

to be invested or paid to the Federal 

government. Section 4118 further 

specifies that the Department will issue 

regulations addressing how the 

remaining new investment amount will 

be treated if neither party wholly 

prevails. The interim rule published 

October 16, 2003 at 68 FR 59519 

established in § 275.23(e)(10) the 

provisions concerning either the 

Secretary or the State agency wholly 

prevailing. In accordance with Section 

4118 of the FSRA, we are proposing 

procedures in this rule for use when 

neither party wholly prevails on appeal. 

Under the FSRA, liability is 

established based on two consecutive 

fiscal years of poor performance. 

Whenever there is a 95 percent 

statistical probability that a State’s 

payment error rate exceeds 105 percent 

of the national performance measure in 

each of two consecutive review years, 

the Department will issue, for the 

second consecutive fiscal year, a 

statement of potential liability amount 

to the State agency at the same time that 

the Department issues the State agency’s 

official regressed payment error rate. 

The Department will also advise the 

State agency of the Department’s 

determination of the portions of the 

liability amount (expressed as 

percentages) designated as waived, for 

new investment, and at-risk. If the State 

agency wishes to appeal the liability 

amount through the process in Part 283 

of the regulations, the State agency may 

do so. 

As specified in the interim rule, if the 

State agency appeals the liability 

amount and wholly prevails and 

consequently its liability amount is 

reduced to $0 through the appeal, and 

the State agency began new investment 

activities prior to the appeal 

determination, FNS shall pay to the 

State agency an amount equal to 50 

percent of the new investment amount 

expended that was included in the 

liability amount subject to the appeal. 

This provision has been moved to 

§ 275.23(g)(1). The interim rule also 

provided that if FNS wholly prevails on 

a State agency’s appeal, FNS will 

require the State agency to invest all or 

a portion of the amount designated for 

new investment to be invested or paid 

to the Federal government. 

The interim rule, however, did not 

address either the money designated as 

waived or as at-risk in the original 

determination with respect to either 

party wholly prevailing on appeal. As 

indicated above, the Department intends 

to identify the portions of the liability 

amount to be waived, newly invested, or 

at-risk as percentages of the liability 

amount. If the State agency wholly 

prevails on appeal, the amounts 

originally designated was waived or atrisk would be reduced to $0 (percentage 

designated multiplied by $0 liability 

amount). If FNS wholly prevails on 

appeal, the original liability amount 

determinations (expressed as 

percentages) and designated as waived, 

newly invested, or at-risk, would remain 

unchanged. 

If the State agency appeals the 

liability amount and the appeal decision 

results in neither FNS nor the State 

agency wholly prevailing, a decision 

needs to be made as to how the newly 

established liability amount will be 

treated. The Department believes that 

the only way to accomplish this and 

implement the statutory intent is to 

apply the initial determination 

percentages to the newly established 

liability amount. For example, if the 

original liability was $750,000 and the 

Department determined to waive 25% 

($187,500) of it, require that 25% 

($187,500) be newly invested, and 

require 50% ($375,000) remain at-risk 

and if the appeal resulted in reducing 

the liability amount to $600,000, the 

determination under this option would 

be 25% ($150,000) waived, 25% 

($150,000) required to be newly 

invested, and 50% ($300,000) placed atrisk. Using the original percentages, 

immediate action can be taken by both 

Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 55785 

parties to process the results of the 

appeal decision. 

J. New Investment 

The State agency may choose to begin 

new investment of any amount of the 

liability so designated while the appeal 

is proceeding, based on an approvable 

new investment plan. The interim rule 

established procedures for adjusting 

reimbursement and collection 

procedures if a State began new 

investment during the appeal process 

and subsequently wholly prevailed in 

its appeal or if the Department wholly 

prevailed on appeal. 

In this rule we are proposing 

procedures for addressing the 

Department’s responsibility if a State 

agency began investment prior to 

completion of an appeal and neither 

agency wholly prevailed. 

If a State begins new investment prior 

to an appeal decision, and the amount 

already invested is less than the 

originally designated percentage 

multiplied by the new liability amount, 

the Department will require that the 

State agency continue to invest up to the 

newly calculated investment 

requirement. In the instances where a 

State agency has expended more than 

the originally designated percentage 

multiplied by the new liability amount, 

we are proposing that the Department 

will match the amount of funds 

expended in excess of that amount. This 

is consistent with the requirement in 

Section 4118 for when the State agency 

wholly prevails on appeal. 

The regulations currently detail the 

requirements for reinvestment. We are 

proposing that these procedures remain 

essentially the same but for the above 

mentioned change of wording to new 

investment. Under the proposed 

reorganization, the procedures on new 

investment would be in new paragraph 

(h) in § 275.23. In the event that a State 

agency fails to comply with its new 

investment plan, we are proposing in 

redesignated § 275.23(h) that the State 

agency shall be required to remit to the 

Department the amount of funds that 

the State agency failed to invest. Those 

funds shall be remitted to the 

Department within 30 days of the date 

the State agency is notified of its failure 

to comply with its new investment plan. 

Further, we are proposing that interest 

shall be charged beginning with the date 

the State agency received the notice of 

failure to newly invest as required. 

K. Payment of At-Risk Money 

We are proposing at § 275.23(i) the 

procedures concerning a State agency’s 

payment of the at-risk money. At-risk 

money becomes due if, in the year 

subsequent to the establishment of the 

money being at-risk, the State agency is 

again potentially liable for a sanction. 

Payment shall be made before the end 

of the fiscal year following the reporting 

period in which the at-risk money 

became due (that is September 30 of the 

year that the subsequent liability 

notification is issued), unless an 

administrative appeal relating to 

liability is pending. For example, if, in 

FY 2003, a State agency’s error rate 

exceeds the performance goal, and again 

its error rate is excessive in FY 2004 

based on its announced error rate, FNS 

would send the notification of the FY 

2004 liability amount by June 30, 2005. 

If the State agency’s error rate in FY 

2005 is excessive, any money 

designated as at-risk for the FY 2004 

liability would be due by September 30, 

2006, unless an appeal for the FY 2004 

liability is still pending. If the State 

agency has appealed the liability 

determination, the State agency will not 

be required to remit to FNS any at-risk 

money until any administrative and 

judicial appeals concerning the liability 

determination that the at-risk money 

was based upon have been completed. 

Appeal of a subsequent liability amount 

does not eliminate the State’s 

requirement to pay the at-risk money 

when it becomes due. The appeal of the 

subsequent year’s liability amount will 

determine whether the liability that year 

will be reduced and would affect the 

establishment of a possible additional 

designation of at-risk money. 

We are proposing that interest begin 

accruing beginning October 1 following 

the September 30 due date for payment 

of any at-risk money, unless an appeal 

is pending. Section 4118 of the FSRA 

provides that interest shall not accrue 

on the at-risk amount during a 

reasonable period following the 

resolution of any administrative or 

judicial appeals. Therefore, if an appeal 

is pending on September 30, we are 

proposing that interest will begin to 

accrue beginning 30 calendar days after 

the completion of the appeals process 

and notification to the State agency of 

the final amount of the at-risk money 

determined to be required to be repaid. 

This is consistent with the requirement 

currently in the regulations at 

§ 275.23(e)(8) (redesignated as 

§ 275.23(j)) for payment of interest on 

quality control liability claims. We are 

also proposing that FNS will continue to 

have the authority to recover a State’s 

liability for at-risk money through 

offsets to the letter of credit, billing a 

State directly, or using other authorized 

claims collection mechanisms, in 

accordance with redesignated 

§ 275.23(j). The reference to the Federal 

Claims Collection Act (Pub. L. 89–508, 

80 Stat. 308) has been updated to refer 

to the Debt Collection Improvement Act 

of 1996, Pub. L. 104–134, and the 

Federal Claims Collection Standards, 31 

CFR Parts 900–904. 

L. Demonstration Projects/SSA 

Processing 

Demonstration project and SSA jointprocessed cases (cases processed in 

accordance with § 273.2(k) of the 

regulations) are subject to special 

consideration in terms of the QC review 

process. Demonstration project cases 

and SSA joint-processed cases are 

included in the sampling universe, 

sampled, reviewed, and in the 

calculation of completion rates. 

Demonstration project cases that 

significantly modify food stamp 

eligibility and benefit calculations and 

SSA joint-processed are excluded from 

the error rate calculations. The 

determination of whether the 

modification is significant enough to 

exclude the demonstration project cases 

is made on a project-by-project basis. 

SSA joint-processed cases are excluded 

under the current regulations in all 

instances. Because of recent 

demonstration project cases processed 

by SSA separately from the procedures 

in § 273.2(k), questions have arisen 

about how to handle these cases for QC 

purposes. These cases would under 

normal procedures have been excluded 

from the error rate calculations. 

However, as demonstration projects, 

they have been determined to be more 

appropriately included in the error rate 

calculations. State agencies have 

initiated demonstration projects for 

many reasons, including program 

simplification and error reduction. In 

some instances State agencies want such 

cases included in the error rates because 

they perceive that the inclusion would 

result in improved error rates. Section 

275.11(g), § 275.12(h), § 275.13(f), and 

§ 275.23(c)(5) (redesignated in this rule 

as § 275.23(b)(1)) provide the 

procedures for sampling, reviewing, and 

reporting the results of demonstration 

project cases that significantly modify 

the rules for determining households’

eligibility or allotment level and Social 

Security Administration (SSA) 

processed cases. The language in these 

sections has been interpreted variously 

by different parties and has been 

determined to be unclear. In order to 

clarify the procedures and make it clear 

that SSA processed demonstration 

projects may be included in the error 

rates, we are proposing to revise 

§ 275.11(g) and redesignated 

§ 275.23(b)(1) to provide that 

55786 Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 

demonstration project cases and SSA 

processed demonstration project cases 

may be included in error rate 

calculations, as determined on a projectby-project basis by the Department. 

M. 120-Day Variance Exclusion 

(§ 275.12(d)(2)(vii)) 

A variance is the incorrect application 

of policy and/or deviation between the 

information that was used to authorize 

the sample month issuance and the 

verified information that should have 

been used to calculate the sample 

month issuance. Section 

275.12(d)(2)(vii) provides for exclusion 

of variances resulting from application 

of new regulations or implementing 

memoranda of Federal law changes. 

Originally the provision applied only to 

mandatory implementation of legislative 

and regulatory provisions and only 

during the 120 days of the exclusion. 

Over time, the extent of the variance 

exclusion has been expanded to reflect 

a change in viewpoint of the intent of 

this hold harmless period. The variance 

exclusion was expanded to provide that 

the variance exclusion covered errors 

made during the 120-day period until 

the case was next acted upon. Further, 

in response to passage of the FSRA, the 

Department applied this variance 

exclusion to optional provisions of the 

law. Throughout this expansion, 

numerous questions have been raised 

about what the variance exclusion 

actually means. We are proposing in 

this rule to clarify the language in 

§ 275.12(d)(2)(vii) to provide that all 

variances that occur during the variance 

exclusion period that stem directly from 

the provision being implemented are 

excluded until the household’s case is 

next recertified or otherwise acted upon. 

Further, we are proposing to modify the 

provision to indicate that the variance 

exclusion may be authorized on a caseby-case basis in the instance of optional 

legislative or regulatory changes, not 

just mandatory changes. However, we 

are not proposing to provide the 

exclusion for waivers. The legislative 

provision authorizing the variance 

exclusion is specific in applying it to 

regulatory implementation. The 

Department’s extension of that to 

implementation of legislative provisions 

is driven by the fact that many 

legislative provisions are effective 

immediately, prior to any regulation 

being published. 

N. FIX Errors (§ 275.12(f)(3)) 

As discussed above, a variance is the 

incorrect application of policy and/or 

deviation between the information that 

was used to authorize the sample month 

issuance and the verified information 

that should have been used to calculate 

the sample month issuance. Section 

275.12(f)(3) requires that all variances 

resulting from use by the State agency 

of information received from automated 

Federal information exchange systems 

(FIX errors) be coded and reported as 

variances, although they are excluded in 

determining a State agency’s error rates. 

Data subject to the FIX exclusion are 

limited to Federal sources that verify 

income provided by the Federal source 

providing the data, Federal sources that 

provide the deduction for which the 

Federal source directly bills the 

household, and the Federal source that 

defines the disability. Information 

provided by Federal sources that are 

comprised of data provided to the 

Federal source by other entities is not 

information subject to the FIX variance 

exclusion. This requirement was 

established in an interim rule published 

November 2, 1988, at 53 FR 44171 and 

again addressed in the final rule 

published November 23, 1990, at 55 FR 

48831. The requirement was established 

for program management purposes. 

After fifteen years of having the 

requirement in place to report such 

variance, the Department has not found 

the information to serve any program 

management purpose. While State 

agencies would still be required to 

correct any identified variances in 

individual cases, as they are for any 

other identified variance, we feel there 

is no reason to continue to require 

States to report this information to FNS. 

There have been few reported variances. 

Further, there has been no identified 

corrective action necessary at a national 

level during the period this requirement 

has been in place. Therefore, we are 

proposing to remove § 275.12(f)(3) in 

this rule. 

O. Technical Changes 

In addition, we are proposing in Part 

271 Definitions to remove definitions no 

longer used in the quality control 

system and to add the definition 

‘‘National performance measure’’ to 

reflect current quality control policy, 

and we are proposing to make technical 

changes throughout Part 275 to remove 

references to other Federally mandated 

quality control samples, the Worksheet 

for Integrated AFDC, Food Stamps, and 

Medicaid Quality Control Reviews, and 

the Integrated Review Schedule. With 

the passage of the Personal 

Responsibility and Work Opportunity 

Reconciliation Act of 1996, Pub. L. 104–

193, the Aid to Families with 

Dependent Children was eliminated and 

consequently, the integrated quality 

control review system was eliminated. 

Therefore, we are proposing to change 

throughout Part 275 the titles of the 

Work Sheet and Review Schedule to 

reflect that quality control reviews are 

now food stamp only reviews. We are 

also proposing to remove throughout 

Part 275 references to integrated quality 

control samples, reviews, and other 

Federally mandated quality control 

systems. 

Throughout the rule, we are 

proposing to remove references to the 

‘‘underissuance error rate’’ wherever 

payment error rate and underissuance 

error rate are used. The definition of 

payment error rate includes both the 

overissuance error rate and the 

underissuance error rate, making the 

separate reference to the underissuance 

error rate redundant. This does not 

mean that FNS will not calculate the 

underissuance error rate. 

With full implementation of 

electronic benefit transfer systems of 

issuance, food stamp benefits are no 

longer being issued as coupons. 

Accordingly we are proposing to remove 

references to coupons in § 275.12(c)(2) 

and § 275.13(d). 

In addition, we are proposing 

technical changes throughout Part 275 

to correct references based on changes 

proposed to be made in this rule. Due 

to the restructuring of § 275.23, many 

sections required renumbering and 

reference changes throughout § 275. 

These reference changes are not 

discussed in this preamble. Any 

substantive changes are discussed in the 

preamble. 

DISTRIBUTION TABLE

Old section New section 

275.23(a) .................................................................................................. 275.23(a) 

275.23(b) .................................................................................................. 275.23(a) 

275.23(c) ................................................................................................... 275.23(c) 

275.23(c)(1) .............................................................................................. Removed 

275.23(c)(2) .............................................................................................. Removed 

Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 55787 

DISTRIBUTION TABLE—Continued 

Old section New section 

275.23(c)(3) .............................................................................................. Removed 

275.23(c)(4) .............................................................................................. Removed 

275.23(c)(5) .............................................................................................. 275.23(b)(1) 

275.23(d) .................................................................................................. Removed 

275.23(e)(1) .............................................................................................. 275.23(d) introductory text 

275.23(e)(2) .............................................................................................. Removed 

275.23(e)(3) [1st and 3rd sentences] ....................................................... 275.23(d)(1) 

275.23(e)(3) [2nd sentence] ..................................................................... 271.2 Definition of ‘‘National Performance Measure’’ 

275.23(e)(3) [4th sentence] ...................................................................... 275.23(d)(3) 

275.23(e)(3) [last sentence and (i), (ii), and (iii)] ..................................... 275.23(d)(2) 

275.23(e)(4) .............................................................................................. 275.23(d)(4) 

275.23(e)(5) .............................................................................................. 275.23(f) 

275.23(e)(6) .............................................................................................. 275.23(b)(2) 

275.23(e)(7) .............................................................................................. 275.23(c) 

275.23(e)(8) .............................................................................................. 275.23(j) 

275.23(e)(9)(i) ........................................................................................... 275.23(h)(1) 

275.23(e)(9)(ii) .......................................................................................... 275.23(h)(2) 

275.23(e)(9)(iii) ......................................................................................... 275.23(h)(3) 

275.23(e)(10) ............................................................................................ 275.23(e) 

DERIVATION TABLE

New section Old section 

271.2 Definition of National Performance Measure ................................. 275.23(e)(3) second sentence 

275.23(a) .................................................................................................. 275.23(a), 275.23(b)

275.23(b) .................................................................................................. 275.23(c) [1st sentence] 

275.23(c)(1) [end of sentence beginning with word ‘‘based’’] 

275.23(c)(4) [end of sentence beginning with word ‘‘based’’] 

273.23(b)(1) .............................................................................................. 275.23(c)(5) revised 

273.23(b)(2) .............................................................................................. 275.23(e)(6) 

275.23(c) ................................................................................................... 275.23(e)(7) 

275.23(d)(1) .............................................................................................. 275.23(e)(3) [1st three sentences] 

275.23(d)(2) .............................................................................................. 275.23(e)(3) [sentences 5 & 6] and paragraphs (i), (ii), and (iii) 

275.23(d)(3) .............................................................................................. 275.23(e)(3) [fourth sentence] 

275.23(d)(4) .............................................................................................. 275.23(e)(4) 

275.23(e)(1) .............................................................................................. 275.23(e)(10) [first sentence] 

275.23(e)(2) .............................................................................................. 275.23(e)(10) [second and third sentences] 

275.23(e)(9)(iii) [1st sentence] 

275.23(f) ................................................................................................... 275.23(e)(5) [introductory text revised] 

275.23(g)(1) .............................................................................................. 275.23(e)(10) [fourth sentence] 

275.23(g)(2) .............................................................................................. 275.23(e)(10) [last sentence] 

275.23(h)(1) .............................................................................................. 275.23(e)(9)(i) 

275.23(h)(2) .............................................................................................. 275.23(e)(9)(ii) 

275.23(h)(3) .............................................................................................. 275.23(e)(9)(iv) [first sentence] 

275.23(h)(4) .............................................................................................. 275.23(e)(9)(v) 

275.23(h)(5) .............................................................................................. 275.23(e)(9)(vi) 

275.23(j) .................................................................................................... 275.23(e)(8) 

IV. Implementation 

The Department is proposing that the 

changes in this rule be effective and be 

implemented 60 days following 

publication of the final rule in the 

Federal Register. Section 4118 of the 

FSRA eliminated enhanced funding, 

effective October 1, 2002, for FY 2003. 

This rule would codify that elimination. 

List of Subjects 

7 CFR Part 271 

Administrative practice and 

procedure, Food stamps, Grant 

programs—social programs. 

7 CFR Part 273 

Administrative practice and 

procedures, Aliens, Claims, Food 

stamps, Fraud, Grant programs—social 

programs, Penalties, Reporting and 

recordkeeping requirements, Social 

Security, Students. 

7 CFR Part 275 

Administrative practice and 

procedure, Food stamps, Reporting, and 

recordkeeping requirements. 

7 CFR Part 277 

Food stamps, Government procedure, 

Grant programs—Social programs, 

Investigations, Records, Reporting and 

recordkeeping requirements. 

Accordingly, 7 CFR Parts 271, 273, 

275, and 277 are proposed to be 

amended as follows: 

1. The authority citation for Parts 271, 

273, 275, and 277 continues to read as 

follows: 

Authority: 7 U.S.C. 2011–2036. 

PART 271—GENERAL INFORMATION 

AND DEFINITIONS 

2. In § 271.2: 

a. Remove the definition ‘‘Base 

period’’. 

b. Remove the definition ‘‘National 

standard payment error rate’’. 

55788 Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 

c. Add the definition ‘‘National 

performance measure’’ in alphabetical 

order. 

d. Revise the definition ‘‘Negative 

case’’. 

The addition and revision read as 

follows: 

§ 271.2 Definitions. 

* * * * * 

National performance measure means 

the sum of the products of each State 

agency’s payment error rate times that 

State agency’s proportion of the total 

value of the national allotments issued 

for the fiscal year using the most recent 

issuance data available at the time the 

State agency is notified of its 

performance error rate. 

Negative case means any action taken 

to deny, suspend, or terminate a case in 

the sample month. 

* * * * * 

PART 273—CERTIFICATION OF 

ELIGIBLE HOUSEHOLDS 

3. In § 273.2, paragraph (d)(2) is 

amended by: 

a. Removing the reference 

‘‘§ 275.3(c)(5) or § 275.12(g)(1)(ii),’’ and 

adding in its place the reference 

‘‘§§ 275.3(c)(5) and 275.12(g)(1)(ii) of 

this chapter,’’; 

b. Removing the number ‘‘95’’ in the 

third sentence and adding in its place 

the number ‘‘123’’; 

c. Removing the reference 

‘‘§ 273.2(f)(1)(ix)’’ at the end of the third 

sentence and adding in its place the 

reference ‘‘paragraph (f)(1)(ix) of this 

section’’; 

d. Removing the word ‘‘seven’’ in the 

last sentence and adding in its place the 

word ‘‘nine’’; 

e. Removing the reference 

‘‘§ 273.2(f)(1)(ix)’’ at the end of the last 

sentence and adding in its place the 

reference ‘‘paragraph (f)(1)(ix) of this 

section.’’; 

f. Adding a new sentence at the end 

of the paragraph to read as follows: 

§ 273.2 Office operations and application 

processing. 

* * * * * 

(d) * * * 

(2) * * * In the event that one or 

more household members leave a 

household terminated for refusal to 

cooperate, the penalty for refusal to 

cooperate will attach to the person(s) 

who refused to cooperate. 

* * * * * 

PART 275—PERFORMANCE 

REPORTING SYSTEM 

§ 275.1 [Amended] 

4. In § 275.1: 

a. Paragraph (a) is amended by 

removing the paragraph designation; 

and 

b. Paragraph (b) is removed. 

5. In § 275.3: 

a. The introductory text of § 275.3 is 

amended by removing the word 

‘‘conduct’’ in the second sentence and 

adding in its place the word 

‘‘conduction’’. 

b. The introductory text of paragraph 

(c) is amended by removing the words 

‘‘and underissuance error rate’’ in the 

first sentence, by removing the third and 

fourth sentences and adding a new 

sentence in their place, and by removing 

the reference to ‘‘§ 275.23(e)(6)’’ in the 

last sentence and adding in its place a 

reference to ‘‘§ 275.23(d)(4)’’. 

The addition reads as follows: 

§ 275.3 Federal monitoring. 

* * * * * 

(c) * * * FNS shall validate each 

State agency’s reported negative case 

error rate. * * * 

* * * * * 

§ 275.4 [Amended] 

6. In § 275.4, paragraph (c) is 

amended by removing the words 

‘‘Integrated TANF, Food Stamps and 

Medicaid’’ and by adding in their place 

the words ‘‘Food Stamp Program’’, by 

removing the words ‘‘Integrated Review 

Schedule’’ and by adding in their place 

the words ‘‘Quality Control Review 

Schedule’’, and by removing the words 

‘‘, and Form FNS–248, Status of Sample 

Selection and Completion’’. 

§ 275.10 [Amended] 

7. In § 275.10: 

a. Paragraph (a) is amended by 

removing the words ‘‘and eligibility for 

enhanced funding’’ and the words ‘‘that 

is not entitled to enhanced funding’’ in 

the last sentence. 

b. Paragraph (b)(4) is amended by 

removing the word ‘‘standard’’ and 

adding in its place the words 

‘‘performance measure’’ and by 

removing the words ‘‘and State agency 

eligibility for enhanced funding’’. 

8. In § 275.11: 

a. Paragraph (a)(1) is amended by 

removing the last sentence. 

b. Paragraph (a)(2) introductory text is 

amended by removing the words 

‘‘integrated sampling,’’. 

c. Paragraph (b)(1)(i) is amended by 

removing the words ‘‘and underissuance 

error rates’’ and adding in their place 

the word ‘‘rate’’. 

d. Paragraph (e)(2)(i) is revised. 

e. Paragraph (e)(2)(ii) is revised. 

f. Paragraph (f)(2) introductory text is 

revised. 

g. Paragraph (f)(2)(v) and (f)(2)(vi) are 

removed and paragraphs (f)(2)(vii), 

(f)(2)(viii), and (f)(2)(ix) are redesignated 

as (f)(2)(v), (f)(2)(vi), and (f)(2)(vii), 

respectively. 

h. Paragraph (g) is amended by 

removing the reference ‘‘§ 275.23(e)(6)’’

in the third sentence and by adding in 

its place the reference ‘‘§ 275.23(b)(2)’’; 

by removing the fourth sentence; and by 

adding three new sentences at the end 

of the paragraph. 

The revisions and addition read as 

follows: 

§ 275.11 Sampling. 

* * * * * 

(e) * * * 

(2) * * * 

(i) All actions to deny an application 

in the sample month except those 

excluded from the universe in 

paragraph (f)(2) of this section. If a 

household is subject to more than one 

denial action in a single sample month, 

each action shall be listed separately in 

the sample frame; and 

(ii) All actions to suspend or 

terminate a household in the sample 

month except those excluded from the 

universe in paragraph (f)(2) of this 

section. Each action to suspend or 

terminate a household in the sample 

month shall be listed separately in the 

sample frame. 

* * * * * 

(f) * * * 

(2) Negative cases. The universe for 

negative cases shall include all actions 

taken to deny, suspend or terminate a 

household in the sample month except 

the following: 

* * * * * 

(g) * * * FNS shall establish on an 

individual demonstration project basis 

whether the results of the reviews of 

active and negative demonstration 

project cases shall be included or 

excluded from the determination of 

State agencies’ error rates as described 

in § 275.23(b). Cases processed by SSA 

in accordance with § 273.2(k) of this 

chapter, except for demonstration 

project cases, shall be excluded from the 

determination of State agencies’ error 

rates. FNS shall establish on an 

individual project basis whether 

demonstration project cases processed 

by SSA shall be included or excluded 

from the determination of State 

agencies’ error rates. 

9. In § 275.12: 

a. Paragraph (a) is amended by adding 

the words ‘‘of this chapter’’ after the 

reference ‘‘273.9’’ at the end of the 

fourth sentence and by adding the 

words ‘‘of this chapter’’ after the 

reference ‘‘273.21’’ in the sixth 

sentence. 

Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 55789 

b. Paragraph (b) is amended by 

removing the words ‘‘Integrated 

Worksheet,’’ in the last sentence. 

c. The introductory text of paragraph 

(c) is amended by adding the words ‘‘of 

this chapter’’ after the reference 

‘‘§ 272.8’’ at the end of the second 

sentence and by removing the words 

‘‘Integrated Worksheet,’’ in the last 

sentence. 

d. Paragraph (c)(2) is amended by 

removing the word ‘‘coupon’’ in the 

second sentence. 

e. The introductory text of paragraph 

(d) is amended by removing the words 

‘‘column (5) of the Integrated 

Worksheet,’’ in the last sentence, and by 

adding in their place the words 

‘‘column (4) of the’’. 

f. Paragraph (d)(1) is amended by 

adding the words ‘‘of this chapter’’ after 

the references ‘‘§ 273.6(c)’’ and 

‘‘§ 273.7(f)’’ in the last sentence. 

g. Paragraph (d)(2)(i) is amended by 

adding the words ‘‘of this chapter’’ after 

the reference ‘‘§ 273.2(f)(1)(i)’’ in the last 

sentence. 

h. Paragraph (d)(2)(ii) is amended by 

adding the words ‘‘of this chapter’’ after 

the reference ‘‘§ 273.2(i)(4)(i)’’ in the 

first sentence. 

i. Paragraph (d)(2)(iii) is amended by 

adding the words ‘‘of this chapter’’ after 

the reference ‘‘§§ 273.12(a) and 

273.21(h) and (i)’’ in the second 

sentence and after the reference 

‘‘§§ 273.12(c) and 273.21(j)’’ in the last 

sentence. 

j. Paragraph (d)(2)(iv) is amended by 

adding the words ‘‘of this chapter’’ after 

the reference ‘‘§ 273.2(f)(3)(i)(B)’’ in the 

first sentence and after the reference 

‘‘§ 273.12(c)’’ in the last sentence. 

k. The introductory text of paragraph 

(d)(2)(vii) is revised. 

l. Paragraph (d)(3) is amended by 

adding the words ‘‘of this chapter’’ after 

the words ‘‘part 273’’ in the second 

sentence. 

m. Paragraph (e) is amended by 

removing the words ‘‘Integrated 

Worksheet,’’ in the last sentence. 

n. The introductory text of paragraph 

(f) is amended by removing the words 

‘‘Integrated Review Schedule,’’ in the 

last sentence. 

o. Paragraph (f)(3) is removed. 

p. The introductory text of paragraph 

(g) is amended by removing the words 

‘‘Integrated Review Schedule,’’ in the 

last sentence. 

q. Paragraph (g)(1)(ii) introductory 

text is amended by removing the word 

‘‘may’’ in the second sentence and 

adding in its place the word ‘‘must’’. 

r. Paragraph (g)(2)(iv) is amended by 

adding the words ‘‘of this chapter’’ after 

the reference ‘‘§ 273.17’’. 

s. Paragraph (h) is amended by adding 

the words ‘‘of this chapter’’ after the 

reference ‘‘§ 273.2(k)(2)(ii)’’ in the last 

sentence. 

The revision reads as follows: 

§ 275.12 Review of active cases. 

* * * * * 

(d) * * * 

(2) * * * 

(vii) Subject to the limitations 

provided in paragraphs (d)(2)(vii)(A) 

through (d)(2)(vii)(F) of this section, any 

variance resulting from application of a 

new Program regulation or 

implementing memorandum of a 

mandatory change in Federal law that 

occurs during the first 120 days from the 

required implementation date. The 

variance exclusion shall apply to any 

action taken on a case directly related to 

implementation of a covered provision 

during the 120-day exclusionary period 

until the case is required to be 

recertified or acted upon for some other 

reason. FNS may choose to apply this 

variance exclusion to optional 

regulatory or legislative provisions. 

* * * * * 

10. In § 275.13: 

a. Paragraphs (a), (b), and (c)(1) are 

revised. 

b. Paragraph (d) is amended by 

removing the word ‘‘coupon’’ in the first 

sentence. 

The revisions read as follows: 

§ 275.13 Review of negative cases. 

(a) General. A sample of actions to 

deny applications, or suspend or 

terminate a household in the sample 

month shall be selected for quality 

control review. These negative actions 

shall be reviewed to determine whether 

the State agency’s decision to deny, 

suspend, or terminate the household, as 

of the review date, was correct. 

Depending on the characteristics of 

individual State systems, the review 

date for negative cases could be the date 

of the agency’s decision to deny, 

suspend, or terminate program benefits, 

the date on which the decision is 

entered into the computer system, or the 

date of the notice to the client. State 

agencies must consistently apply the 

same definition for review date to all 

sample cases of the same classification. 

The review of negative cases shall 

include a household case record review; 

an error analysis; and the reporting of 

review findings, including procedural 

problems with the action regardless of 

the validity of the decision to deny, 

suspend or terminate. In certain 

instances, contact with the household or 

a collateral contact may be permitted. 

(b) Household case record review. The 

reviewer shall examine the household 

case record and verify through 

documentation in it whether the reason 

given for the denial, suspension, or 

termination is correct. Through the 

review of the household case record, the 

reviewer shall complete the household 

case record sections and document the 

reasons for denial, suspension or 

termination on the Negative Quality 

Control Review Schedule, Form FNS–

245. 

(c) * * * 

(1) A negative case shall be 

considered correct if the reviewer is able 

to verify through documentation in the 

household case record that a household 

was correctly denied, suspended, or 

terminated from the program in 

accordance with the reason for the 

action given by the State agency in the 

notice. Whenever the reviewer is unable 

to verify the correctness of the State 

agency’s decision to deny, suspend, or 

terminate a household’s participation 

through such documentation, the QC 

reviewer may contact the household or 

a collateral contact to verify the 

correctness of the specific negative 

action under review. If the reviewer is 

unable to verify the correctness of the 

State agency’s decision to deny, 

suspend, or terminate the case for the 

specific reason given for the action, the 

negative case shall be considered 

incorrect. 

* * * * * 

§ 275.14 [Amended] 

11. In § 275.14: 

a. Paragraph (c) is amended by 

removing the words ‘‘Integrated Review 

Worksheet, Form FNS–380,’’ in the first 

sentence and by adding in their place 

the words ‘‘Form FNS–380’’. 

b. Paragraph (d) is amended by 

removing the words ‘‘Integrated Review 

Schedule,’’ in the first sentence and by 

removing the words ‘‘Integrated Review 

Worksheet,’’ in the second sentence. 

12. In § 275.16: 

a. Paragraph (b)(2) is removed and 

paragraphs (b)(3), (b)(4), (b)(5), and 

(b)(6) are redesignated as (b)(2), (b)(3), 

(b)(4), and (b)(5), respectively. 

b. Newly-redesignated paragraph 

(b)(5) is revised. 

The revision reads as follows: 

§ 275.16 Corrective action planning. 

* * * * * 

(b) * * * 

(5) Result in underissuances, 

improper denials, improper 

suspensions, improper termination, or 

improper systemic suspension of 

benefits to eligible households where 

such errors are caused by State agency 

rules, practices, or procedures. 

* * * * * 

13. In § 275.21: 

55790 Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 

a. The introductory text of paragraph 

(b) is amended by removing the words 

‘‘Integrated Review Schedule,’’ in the 

second sentence. 

b. Paragraph (b)(2) is revised. 

c. Paragraph (b)(4) is amended by 

removing the number ‘‘95’’ in the first 

sentence and adding in its place the 

number ‘‘113’’ and adding a new 

sentence after the first sentence. 

d. Paragraph (c) is revised. 

e. Paragraph (d) is removed and 

paragraph (e) is redesignated as 

paragraph (d). 

f. Newly-redesignated paragraph (d) is 

revised. 

The revisions and addition read as 

follows: 

§ 275.21 Quality control review reports. 

* * * * * 

(b) * * * 

(2) The State agency shall have at 

least 100 days from the end of the 

sample month to dispose of and report 

the findings of 90 percent of all selected 

cases in a given sample month. The 

State agency shall have at least 113 days 

from the end of the sample month to 

dispose of and report the findings of all 

cases selected in a sample month. FNS 

may grant additional time as warranted 

upon request by a State agency for cause 

shown to complete and dispose of 

individual cases. 

* * * * * 

(4) * * * If FNS extends the 

timeframes in paragraph (b)(2) of this 

section, this date will be extended 

accordingly. * * * 

(c) Monthly status. The State agency 

shall report in a manner directed by the 

regional office the monthly progress of 

sample selection and completion within 

123 days after the end of the sample 

month. Each report shall reflect 

sampling and review activity for a given 

sample month. If FNS extends the 

timeframes in paragraph (b)(2) of this 

section, this date will be extended 

accordingly. 

(d) Demonstration projects/SSA 

processing. The State agency shall 

identify the monthly status of active and 

negative demonstration project/SSA 

processed cases (i.e., those cases 

described in § 275.11(g)) in accordance 

with paragraph (c) of this section. 

14. Section 275.23 is revised to read 

as follows: 

§ 275.23 Determination of State agency 

program performance. 

(a) Determination of efficiency and 

effectiveness. FNS shall determine the 

efficiency and effectiveness of a State’s 

administration of the Food Stamp 

Program by measuring State compliance 

with the standards contained in the 

Food Stamp Act, regulations, and the 

State Plan of Operation and State efforts 

to improve program operations through 

corrective action. This determination 

shall be made based on: 

(1) Reports submitted to FNS by the 

State; 

(2) FNS reviews of State agency 

operations; 

(3) State performance reporting 

systems and corrective action efforts; 

and 

(4) Other available information such 

as Federal audits and investigations, 

civil rights reviews, administrative cost 

data, complaints, and any pending 

litigation. 

(b) State agency error rates. FNS shall 

estimate each State agency’s active case, 

payment, and negative case error rate 

based on the results of quality control 

review reports submitted in accordance 

with the requirements outlined in 

§ 275.21. The determination of the 

correctness of the case shall be based on 

certification policy as set forth in part 

273 of this chapter. 

(1) Demonstration projects/SSA 

processing. FNS shall make a project by 

project determination whether the 

reported results of reviews of active and 

negative demonstration project cases 

shall be included or excluded from the 

estimate of the active case error rate, 

payment error rate, and negative case 

error rate. The reported results of 

reviews of cases processed by SSA in 

accordance with § 273.2(k) of this 

chapter shall be excluded from the 

estimate of the active case error rate, 

payment error rate, and negative case 

error rate. FNS shall make a project by 

project determination whether the 

reported results of reviews of active and 

negative demonstration project cases 

processed by SSA shall be included or 

excluded from the estimate of the active 

case error rate, payment error rate, and 

negative case error rate. 

(2) Determination of payment error 

rates. As specified in § 275.3(c), FNS 

will validate each State agency’s 

estimated payment error rate by 

rereviewing the State agency’s active 

case sample and ensuring that its 

sampling, estimation, and data 

management procedures are correct. 

(i) Once the Federal case reviews have 

been completed and all differences with 

the State agency have been identified, 

FNS shall calculate regressed error rates 

using the following linear regression 

equations. 

(A) y1′ = y1 + b1(X1¥x1), where y1′ is 

the average value of allotments 

overissued to eligible and ineligible 

households; y1 is the average value of 

allotments overissued to eligible and 

ineligible households in the rereview 

sample according to the Federal finding, 

b1 is the estimate of the regression 

coefficient regressing the Federal 

findings of allotments overissued to 

eligible and ineligible households on 

the corresponding State agency findings, 

x1 is the average value of allotments 

overissued to eligible and ineligible 

households in the rereview sample 

according to State agency findings, and 

X1 is the average value of allotments 

overissued to eligible and ineligible 

households in the full quality control 

sample according to State agency’s 

findings. In stratified sample designs Y1, 

X1, and x1 are weighted averages and b1

is a combined regression coefficient in 

which stratum weights sum to 1.0 and 

are proportional to the estimated 

stratum caseloads subject to review. 

(B) y2′ = y2 + b2(X2¥x2), where y2′ is 

the average value of allotments 

underissued to households included in 

the active error rate, y2 is the average 

value of allotments underissued to 

participating households in the rereview 

sample according to the Federal finding, 

b2 is the estimate of the regression 

coefficient regressing the Federal 

findings of allotments underissued to 

participating households on the 

corresponding State agency findings, x2

is the average value of allotments 

underissued to participating households 

in the rereview sample according to 

State agency findings, and X2 is the 

average value of allotments underissued 

to participating households in the full 

quality control sample according to the 

State agency’s findings. In stratified 

sample designs y2, X2, and x2 are 

weighted averages and b2 is a combined 

regression coefficient in which stratum 

weights sum to 1.0 and are proportional 

to the estimated stratum caseloads 

subject to review. 

(C) The regressed error rates are given 

by r1 = y1/u, yielding the regressed 

overpayment error rate, and r2′ = y2′/u, 

yielding the regressed underpayment 

error rate, where u is the average value 

of allotments issued to participating 

households in the State agency sample. 

(D) After application of the 

adjustment provisions of paragraph 

(b)(2)(iii) of this section, the adjusted 

regressed payment error rate shall be 

calculated to yield the State agency’s 

payment error rate. The adjusted 

regressed payment error rate is given by 

r1′′ + r2′′. 

(ii) If FNS determines that a State 

agency has sampled incorrectly, 

estimated improperly, or has 

deficiencies in its QC data management 

system, FNS will correct the State 

agency’s payment and negative case 

error rates based upon a correction to 

that aspect of the State agency’s QC 

Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 55791 

system which is deficient. If FNS cannot 

accurately correct the State agency’s 

deficiency, FNS will assign the State 

agency a payment error rate or negative 

case error rate based upon the best 

information available. After 

consultation with the State agency, the 

assigned payment error rate will then be 

used in the liability determination. After 

consultation with the State agency, the 

assigned negative case error rate will be 

the official State negative case error rate 

for any purpose. State agencies shall 

have the right to appeal assessment of 

an error rate in this situation in 

accordance with the procedures of Part 

283 of this chapter. 

(iii) Should a State agency fail to 

complete 98 percent of its required 

sample size, FNS shall adjust the State 

agency’s regressed error rates using the 

following equations: 

(A) r1′′=r1′+2(1¥C)S1, where r1′′ is the 

adjusted regressed overpayment error 

rate, r1′, is the regressed overpayment 

error rate computed from the formula in 

paragraph (b)(2)(i)(C) of this section, C 

is the State agency’s rate of completion 

of its required sample size expressed as 

a decimal value, and S1 is the standard 

error of the State agency sample 

overpayment error rate. If a State agency 

completes all of its required sample 

size, then r1′′=r1′. 

(B) r2′′=r2′+2(1 ¥C)S2, where r2′′ is the 

adjusted regressed underpayment error 

rate, r2′ is the regressed underpayment 

error rate computed from the formula in 

paragraph (b)(2)(i)(C) of this section, C 

is the State agency’s rate of completion 

of its required sample size expressed as 

a decimal value, and S2 is the standard 

error of the State agency sample 

underpayment error rate. If a State 

agency completes all of its required 

sample size, then r2′′=r2′. 

(c) FNS Timeframes for completing 

case review process, arbitration, and 

issuing error rates. The case review 

process and the arbitration of all 

difference cases shall be completed by 

May 31 following the end of the fiscal 

year. FNS shall determine and 

announce the national average payment 

and negative case error rates for the 

fiscal year by June 30 following the end 

of the fiscal year. At the same time FNS 

shall notify all State agencies of their 

individual payment and negative case 

error rates and payment error rate 

liabilities, if any. FNS shall provide a 

copy of each State agency’s notice of 

potential liability to its respective chief 

executive officer and legislature. FNS 

shall initiate collection action on each 

claim for such liabilities before the end 

of the fiscal year following the reporting 

period in which the claim arose unless 

an appeal relating to the claim is 

pending. Such appeals include 

administrative and judicial appeals 

pursuant to Section 14 of the Food 

Stamp Act. While the amount of a 

State’s liability may be recovered 

through offsets to their letter of credit as 

identified in § 277.16(c) of this chapter, 

FNS shall also have the option of billing 

a State directly or using other claims 

collection mechanisms authorized 

under the Debt Collection Improvement 

Act of 1996 (Pub. L. 104–134) and the 

Federal Claims Collection Standards (31 

CFR Parts 900–904), depending upon 

the amount of the State’s liability. FNS 

is not bound by the timeframes 

referenced in paragraph (c) of this 

section in cases where a State fails to 

submit QC data expeditiously to FNS 

and FNS determines that, as a result, it 

is unable to calculate the State’s 

payment error rate and payment error 

rate liability within the prescribed 

timeframe. 

(d) State agencies’ liabilities for 

payment error rates. At the end of each 

fiscal year, each State agency’s payment 

error rate over the entire fiscal year will 

be computed and evaluated to 

determine whether the payment error 

rate goal (national performance 

measure) established in paragraph (d)(1) 

of this section has been met. Each State 

agency that fails to achieve its payment 

error rate goal during a fiscal year shall 

be liable as specified in paragraph (d)(2) 

of this section. 

(1) National performance measure. 

FNS shall announce a national 

performance measure not later than June 

30 after the end of the fiscal year. The 

national performance measure is the 

sum of the products of each State 

agency’s error rate times that State 

agency’s proportion of the total value of 

national allotments issued for the fiscal 

year using the most recent issuance data 

available at the time the State agency is 

notified of its payment error rate. Once 

announced, the national performance 

measure for a given fiscal year will not 

be subject to administrative or judicial 

appeal. 

(2) Liability. For fiscal year 2003 and 

subsequent years, liability for payment 

shall be established whenever there is a 

95 percent statistical probability that, 

for the second or subsequent 

consecutive fiscal year, a State agency’s 

payment error rate exceeds 105 percent 

of the national performance measure. 

The amount of the liability shall be 

equal to the product of the value of all 

allotments issued by the State agency in 

the second (or subsequent consecutive) 

fiscal year; multiplied by the difference 

between the State agency’s payment 

error rate and 6 percent; multiplied by 

10 percent. 

(3) Right to appeal payment error rate 

liability. Determination of a State 

agency’s payment error rate or whether 

that payment error rate exceeds 105 

percent of the national performance 

measure shall be subject to 

administrative or judicial review only if 

a liability amount is established for that 

fiscal year. Procedures for good cause 

appeals of excessive payment error rates 

are addressed in paragraph (f) of this 

section. The established national 

performance measure is not subject to 

administrative or judicial appeal, nor is 

any prior fiscal year payment error rate 

subject to appeal as part of the appeal 

of a later fiscal year’s liability amount. 

However, State agencies may address 

matters related to good cause in an 

immediately prior fiscal year that 

impacted the fiscal year for which a 

liability amount has been established. 

The State agency will need to address 

how year 2 was impacted by the event(s) 

in the prior year. 

(4) Relationship to warning process 

and negligence. 

(i) States’ liability for payment error 

rates as determined above in paragraphs 

(d)(1) through (d)(3) of this section are 

not subject to the warning process of 

§ 276.4(d) of this chapter. 

(ii) FNS shall not determine 

negligence (as described in § 276.3 of 

this chapter) based on the overall 

payment error rate for issuances to 

ineligible households and overissuances 

to eligible households in a State or 

political subdivision thereof. FNS may 

only establish a claim under § 276.3 of 

this chapter for dollar losses from 

failure to comply, due to negligence on 

the part of the State agency (as defined 

in § 276.3 of this chapter), with specific 

certification requirements. Thus, FNS 

will not use the result of States’ QC 

reviews to determine negligence. 

(iii) Whenever a State is assessed a 

liability amount for an excessive 

payment error rate, the State shall have 

the right to request an appeal in 

accordance with procedures set forth in 

part 283 of this chapter. While FNS may 

determine a State to be liable for dollar 

loss under the provisions of this section 

and the negligence provisions of § 276.3 

of this chapter for the same period of 

time, FNS shall not bill a State for the 

same dollar loss under both provisions. 

If FNS finds a State liable for dollar loss 

under both the QC liability system and 

the negligence provisions, FNS shall 

adjust the billings to ensure that two 

claims are not made against the State for 

the same dollar loss. 

(e) Liability Amount Determinations. 

(1) FNS shall provide each State agency 

whose payment error rate subjects it to 

a liability amount the following 

55792 Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 

determinations each expressed as a 

percentage of the total liability amount. 

FNS shall: 

(i) Waive all or a portion of the 

liability; 

(ii) Require the State agency to invest 

up to 50 percent of the liability in 

activities to improve program 

administration (new investment money 

shall not be matched by Federal funds); 

(iii) Designate up to 50 percent of the 

liability as ‘‘at-risk’’ for repayment if a 

liability is established based on the 

State agency’s payment error rate for the 

subsequent fiscal year; or 

(iv) Choose any combination of these 

options. 

(2) Once FNS determines the 

percentages in accordance with 

paragraphs (e)(1)(i) through (e)(1)(iv) of 

this section, the amount assigned as atrisk is not subject to settlement 

negotiation between FNS and the State 

agency and may not be reduced unless 

an appeal decision revises the total 

dollar liability. FNS and the State 

agency shall settle any waiver 

percentage amount or new investment 

percentage amount before the end of the 

fiscal year in which the liability amount 

is determined. The determination of 

percentages for waiver, new investment 

and/or at-risk amounts by the 

Department is not appealable. Likewise, 

a settlement of the waiver and new 

investment amounts is unappealable. 

(f) Good cause. When a State agency 

with otherwise effective administration 

exceeds the tolerance level for payment 

errors as described in this section, the 

State agency may seek relief from 

liability claims that would otherwise be 

levied under this section on the basis 

that the State agency had good cause for 

not achieving the payment error rate 

tolerance. State agencies desiring such 

relief must file an appeal with the 

Department’s Administrative Law Judge 

(ALJ) in accordance with the procedures 

established under part 283 of this 

chapter. Paragraphs (f)(1) through (f)(5) 

of this section describe the unusual 

events that are considered to have a 

potential for disrupting program 

operations and increasing error rates to 

an extent that relief from a resulting 

liability amount or increased liability 

amount is appropriate. The occurrence 

of an event(s) does not automatically 

result in a determination of good cause 

for an error rate in excess of the national 

performance measure. The State agency 

must demonstrate that the event had an 

adverse and uncontrollable impact on 

program operations during the relevant 

period, and the event caused an 

uncontrollable increase in the error rate. 

Good cause relief will only be 

considered for that portion of the error 

rate/liability amount attributable to the 

unusual event. The following are 

unusual events which State agencies 

may use as a basis for requesting good 

cause relief and specific information 

that must be submitted to justify such 

requests for relief: 

(1) Natural disasters and civil 

disorders. Natural disasters such as 

those under the authority of The 

Disaster Relief and Emergency 

Assistance Amendments of 1988 (Pub. 

L. 100–707), which amended The Robert 

T. Stafford Disaster Relief and 

Emergency Assistance Act (Pub. L. 93–

288), or civil disorders that adversely 

affect program operations. 

(i) When submitting a request for good 

cause relief based on this example, the 

State agency shall provide the following 

information: 

(A) The nature of the disaster(s) (e.g. 

a tornado, hurricane, earthquake, flood, 

etc.) or civil disorder(s) and evidence 

that the President has declared a 

disaster; 

(B) The date(s) of the occurrence; 

(C) The date(s) after the occurrence 

when program operations were affected; 

(D) The geographic extent of the 

occurrence (i.e. the county or counties 

where the disaster occurred); 

(E) The proportion of the food stamp 

caseload whose management was 

affected; 

(F) The reason(s) why the State 

agency was unable to control the effects 

of the disaster on program 

administration and errors. 

(G) The identification and explanation 

of the uncontrollable nature of errors 

caused by the event (types of errors, 

geographic location of the errors, time 

period during which the errors 

occurred, etc.). 

(H) The percentage of the payment 

error rate that resulted from the 

occurrence and how this figure was 

derived; and 

(I) The degree to which the payment 

error rate exceeded the national 

performance measure in the subject 

fiscal year. 

(ii) (A) The following criteria and 

methodology will be used to assess and 

evaluate good cause in conjunction with 

the appeals process, and to determine 

that portion of the error rate/liability 

amount attributable to the 

uncontrollable effects of a disaster or 

civil disorder: 

(1) Geographical impact of the 

disaster; 

(2) State efforts to control impact on 

program operations; 

(3) The proportion of food stamp 

caseload affected; and/or 

(4) The duration of the disaster and its 

impact on program operations. 

(B) Adjustments for these factors may 

result in a waiver of all, part, or none 

of the liability amount for the applicable 

period. As appropriate, the waiver 

amount will be adjusted to reflect 

States’ otherwise effective 

administration of the program based 

upon the degree to which the error rate 

exceeds the national performance 

measure. For example, a reduction in 

the waiver amount may be made when 

a State agency’s recent error rate history 

indicates that even absent the events 

described, the State agency would have 

exceeded the national performance 

measure in the review period. 

(iii) If a State agency has provided 

insufficient information to determine a 

waiver amount for the uncontrollable 

effects of a natural disaster or civil 

disorder using factual analysis, the 

waiver amount shall be evaluated using 

the following formula and methodology 

which measures both the duration and 

intensity of the event. Duration will be 

measured by the number of months the 

event had an adverse impact on program 

operations. Intensity will be a 

proportional measurement of the 

issuances for the counties affected to the 

State’s total issuance. This ratio will be 

determined using issuance figures for 

the first full month immediately 

preceding the disaster. This figure will 

not include issuances made to 

households participating under disaster 

certification authorized by FNS and 

already excluded from the error rate 

calculations under § 275.12(g)(2)(vi). 

The counties considered affected will 

include counties where the disaster/ 

civil disorder occurred, and any other 

county that the State agency can 

demonstrate had program operations 

adversely impacted due to the event 

(such as a county that diverted 

significant numbers of food stamp 

certification or administrative staff). The 

amount of the waiver of liability will be 

determined using the linear equation W 

= Ia/Ib × [M/12 or Mp/18] × L, where Ia 

is the issuance for the first full month 

immediately preceding the unusual 

event for the county affected; Ib is the 

State’s total issuance for the first full 

month immediately preceding the 

unusual event; M/12 is the number of 

months in the subject fiscal year that the 

unusual event had an adverse impact on 

program operations; Mp/18 is the 

number of months in the last half (April 

through September) of the prior fiscal 

year that the unusual event had an 

adverse impact on program operations; 

L is the total amount of the liability for 

the fiscal year. Mathematically this 

formula could result in a waiver of more 

than 100% of the liability amount; 

Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 55793 

however, no more than 100% of a 

State’s liability amount will be waived 

for any one fiscal year. Under this 

approach, unless the State agency can 

demonstrate a direct uncontrollable 

impact on the error rate, the effects of 

disasters or civil disorders that ended 

prior to the second half of the prior 

fiscal year will not be considered. 

(2) Strikes. Strikes by State agency 

staff necessary to determine Food Stamp 

Program eligibility and process case 

changes. 

(i) When submitting a request for good 

cause relief based on this example, the 

State agency shall provide the following 

information: 

(A) Which workers (i.e. eligibility 

workers, clerks, data input staff, etc.) 

and how many (number and percentage 

of total staff) were on strike or refused 

to cross picket lines; 

(B) The date(s) and nature of the strike 

(i.e., the issues surrounding the strike); 

(C) The date(s) after the occurrence 

when program operations were affected; 

(D) The geographic extent of the strike 

(i.e. the county or counties where the 

strike occurred); 

(E) The proportion of the food stamp 

caseload whose management was 

affected; 

(F) The reason(s) why the State 

agency was unable to control the effects 

of the strike on program administration 

and errors; 

(G) Identification and explanation of 

the uncontrollable nature of errors 

caused by the event (types of errors, 

geographic location of the errors, time 

period during which the errors 

occurred, etc.); 

(H) The percentage of the payment 

error rate that resulted from the strike 

and how this figure was derived; and 

(I) The degree to which the payment 

error rate exceeded the national 

performance measure in the subject 

fiscal year. 

(ii) (A) The following criteria shall be 

used to assess, evaluate and respond to 

claims by the State agency for a good 

cause waiver of a liability amount in 

conjunction with the appeals process, 

and to determine that portion of the 

error rate/liability amount attributable 

to the uncontrollable effects of the 

strike: 

(1) Geographical impact of the strike; 

(2) State efforts to control impact on 

program operations; 

(3) The proportion of food stamp 

caseload affected; and/or 

(4) The duration of the strike and its 

impact on program operations. 

(B) Adjustments for these factors may 

result in a waiver of all, part, or none 

of the liability amount for the applicable 

period. For example, the amount of the 

waiver might be reduced for a strike that 

was limited to a small area of the State. 

As appropriate, the waiver amount will 

be adjusted to reflect States’ otherwise 

effective administration of the program 

based upon the degree to which the 

error rate exceeded the national 

performance measure. 

(iii) If a State agency has provided 

insufficient information to determine a 

waiver amount for the uncontrollable 

effects of a strike using factual analysis, 

a waiver amount shall be evaluated by 

using the formula described in 

paragraph (f)(1) of this section. Under 

this approach, unless the State agency 

can demonstrate a direct uncontrollable 

impact on the error rate, the effects of 

strikes that ended prior to the second 

half of the prior fiscal year will not be 

considered. 

(3) Caseload growth. A significant 

growth in food stamp caseload in a State 

prior to or during a fiscal year, such as 

a 15 percent growth in caseload. 

Caseload growth which historically 

increases during certain periods of the 

year will not be considered unusual or 

beyond the State agency’s control. 

(i) When submitting a request for good 

cause relief based on this example, the 

State agency shall provide the following 

information: 

(A) The amount of growth (both actual 

and percentage); 

(B) The time the growth occurred 

(what month(s)/year); 

(C) The date(s) after the occurrence 

when program operations were affected; 

(D) The geographic extent of the 

caseload growth (i.e. Statewide or in 

which particular counties); 

(E) The impact of caseload growth; 

(F) The reason(s) why the State 

agency was unable to control the effects 

of caseload growth on program 

administration and errors; 

(G) The percentage of the payment 

error rate that resulted from the caseload 

growth and how this figure was derived; 

and 

(H) The degree to which the error rate 

exceeded the national performance 

measure in the subject fiscal year. 

(ii)(A) The following criteria and 

methodology shall be used to assess and 

evaluate good cause in conjunction with 

the appeals process, and to determine 

that portion of the error rate/liability 

amount attributable to the 

uncontrollable effects of unusual 

caseload growth: 

(1) Geographical impact of the 

caseload growth; 

(2) State efforts to control impact on 

program operations; 

(3) The proportion of food stamp 

caseload affected; and/or 

(4) The duration of the caseload 

growth and its impact on program 

operations. 

(B) Adjustments for these factors may 

result in a waiver of all, part, or none 

of the liability amount for the applicable 

period. As appropriate, the waiver 

amount will be adjusted to reflect 

States’ otherwise effective 

administration of the program based 

upon the degree to which the error rate 

exceeded the national performance 

measure. For example, a reduction in 

the waiver amount may be made when 

a State agency’s recent error rate history 

indicates that even absent the events 

described, the State agency would have 

exceeded the national performance 

measure in the review period. Under 

this approach, unless the State agency 

can demonstrate a direct uncontrollable 

impact on the error rate, the effects of 

caseload growth that ended prior to the 

second half of the prior fiscal year will 

not be considered. 

(iii) If the State agency has provided 

insufficient information to determine a 

waiver amount for the uncontrollable 

effects of caseload growth using factual 

analysis, the waiver amount shall be 

evaluated using the following five-step 

calculation: 

(A) Step 1, determine the average 

number of households certified to 

participate Statewide in the Food Stamp 

program for the base period consisting 

of twelve consecutive months ending 

with March of the prior fiscal year; 

(B) Step 2, determine the percentage 

of increase in caseload growth from the 

base period (Step 1) using the average 

number of households certified to 

participate Statewide in the Food Stamp 

Program for any twelve consecutive 

months in the period beginning with 

April of the prior fiscal year and ending 

with June of the current year; 

(C) Step 3, determine the percentage 

the error rate for the subject fiscal year, 

as calculated under paragraph (b)(2) of 

this section, exceeds the national 

performance measure determined in 

accordance with paragraph (d)(1) of this 

section; 

(D) Step 4, divide the percentage of 

caseload growth increase arrived at in 

step 2 by the percentage the error rate 

for the subject fiscal year exceeds the 

national performance measure as 

determined in step 3; and 

(E) Step 5, multiply the quotient 

arrived at in step 4 by the liability 

amount for the current fiscal year to 

determine the amount of waiver of 

liability. 

(iv) Under this methodology, caseload 

growth of less than 15% and/or 

occurring in the last three months of the 

subject fiscal year will not be 

55794 Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 

considered. Mathematically this formula 

could result in a waiver of more than 

100% of the liability amount; however, 

no more than 100% of a State’s liability 

amount will be waived for any one 

fiscal year. 

(4) Program changes. A change in the 

Food Stamp Program or other Federal or 

State program that has a substantial 

adverse impact on the management of 

the Food Stamp Program of a State. 

Requests for relief from errors caused by 

the uncontrollable effects of unusual 

program changes other than those 

variances already excluded by 

§ 275.12(d)(2)(vii) will be considered to 

the extent the program change is not 

common to all States. 

(i) When submitting a request for good 

cause relief based on unusual changes 

in the Food Stamp or other Federal or 

State programs, the State agency shall 

provide the following information: 

(A) The type of changes(s) that 

occurred; 

(B) When the change(s) occurred; 

(C) The nature of the adverse effect of 

the changes on program operations and 

the State agency’s efforts to mitigate 

these effects; 

(D) Reason(s) the State agency was 

unable to adequately handle the 

change(s); 

(E) Identification and explanation of 

the uncontrollable errors caused by the 

changes (types of errors, geographic 

location of the errors, time period 

during which the errors occurred, etc.); 

(F) The percentage of the payment 

error rate that resulted from the adverse 

impact of the change(s) and how this 

figure was derived; and 

(G) The degree to which the payment 

error rate exceeded the national 

performance measure in the subject 

fiscal year. 

(ii)(A) The following criteria will be 

used to assess and evaluate good cause 

in conjunction with the appeals process 

and to determine that portion of the 

error rate/liability amount attributable 

to the uncontrollable effects of unusual 

changes in the Food Stamp Program or 

other Federal and State programs: 

(1) State efforts to control impact on 

program operations; 

(2) The proportion of food stamp 

caseload affected; and/or 

(3) The duration of the unusual 

changes in the Food Stamp Program or 

other Federal and State programs and 

the impact on program operations. 

(B) Adjustments for these factors may 

result in a waiver of all, part, or none 

of the liability amount for the applicable 

period. As appropriate, the waiver 

amount will be adjusted to reflect 

States’ otherwise effective 

administration of the program based 

upon the degree to which the error rate 

exceeded the national performance 

measure. 

(5) Significant circumstances beyond 

the control of a State agency. Requests 

for relief from errors caused by the 

uncontrollable effect of a significant 

circumstance other than those 

specifically set forth in paragraphs (f)(1) 

through (f)(4) of this section will be 

considered to the extent that the 

circumstance is not common to all 

States, such as a fire in a certification 

office. 

(i) When submitting a request for good 

cause relief based on significant 

circumstances, the State agency shall 

provide the following information: 

(A) The significant circumstances that 

the State agency believes uncontrollably 

and adversely affected the payment 

error rate for the fiscal year in question; 

(B) Why the State agency had no 

control over the significant 

circumstances; 

(C) How the significant circumstances 

had an uncontrollable and adverse 

impact on the State agency’s error rate; 

(D) Where the significant 

circumstances existed (i.e. Statewide or 

in particular counties); 

(E) When the significant 

circumstances existed (provide specific 

dates whenever possible); 

(F) The proportion of the food stamp 

caseload whose management was 

affected; 

(G) Identification and explanation of 

the uncontrollable errors caused by the 

event (types of errors, geographic 

location of the errors, time period 

during which the errors occurred, etc.); 

(H) The percentage of the payment 

error rate that was caused by the 

significant circumstances and how this 

figure was derived; and 

(I) The degree to which the payment 

error rate exceeded the national 

performance measure in the subject 

fiscal year. 

(ii)(A) The following criteria shall be 

used to assess and evaluate good cause 

in conjunction with the appeals process, 

and to determine that portion of the 

error rate/liability amount attributable 

to the uncontrollable effects of a 

significant circumstance beyond the 

control of the State agency, other than 

those set forth in paragraph (f)(5) of this 

section: 

(1) Geographical impact of the 

significant circumstances; 

(2) State efforts to control impact on 

program operations; 

(3) The proportion of food stamp 

caseload affected; and/or 

(4) The duration of the significant 

circumstances and the impact on 

program operations. 

(B) Adjustments for these factors may 

result in a waiver of all, part, or none 

of the liability amount for the applicable 

period. As appropriate, the waiver 

amount will be adjusted to reflect 

States’ otherwise effective 

administration of the program based 

upon the degree to which the error rate 

exceeded the national performance 

measure. 

(6) Adjustments. When good cause is 

found under the criteria in paragraphs 

(f)(1) through (f)(5) of this section, the 

waiver amount may be adjusted to 

reflect States’ otherwise effective 

administration of the program based 

upon the degree to which the error rate 

exceeds the national performance 

measure. 

(7) Evidence. When submitting a 

request to the ALJ for good cause relief, 

the State agency shall include such data 

and documentation as is necessary to 

support and verify the information 

submitted in accordance with the 

requirements of paragraph (f) of this 

section so as to fully explain how a 

particular significant circumstance(s) 

uncontrollably affected its payment 

error rate. 

(8) Finality. The initial decision of the 

ALJ concerning good cause shall 

constitute the final determination for 

purposes of judicial review as 

established under the provisions of 

§ 283.17 and § 283.20 of this chapter. 

(g) Results of appeals on liability 

amount determinations. 

(1) If a State agency wholly prevails 

on appeal and, consequently, its 

liability amount is reduced to $0 

through the appeal, and if the State 

agency began new investment activities 

prior to the appeal determination, FNS 

shall pay to the State agency an amount 

equal to 50 percent of the new 

investment amount that was expended 

by the State agency. 

(2) If FNS wholly prevails on a State 

agency’s appeal, FNS will require the 

State agency to invest all or a portion of 

the amount designated for new 

investment to be invested or to be paid 

to the Federal government. 

(3) If neither the State agency nor FNS 

wholly prevails on a State agency’s 

appeal, FNS shall apply the original 

waiver, new investment, and at-risk 

percentage determinations to the 

liability amount established through the 

appeal. If the State agency began new 

investment prior to the appeal decision 

and has already expended more than the 

amount produced for new investment as 

a result of the appeal decision, the 

Department will match the amount of 

funds expended in excess of the amount 

now required by the Department for 

new investment. 

Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 55795 

(h) New investment requirements. 

Once FNS has determined the 

percentage of a liability amount to be 

invested or following an appeal and 

recalculation by FNS of an amount to be 

invested, a State agency shall submit a 

plan of offsetting investments in 

program administration activities 

intended to reduce error rates. 

(1) The State agency’s investment 

plan activity or activities must meet the 

following conditions to be accepted by 

the Department: 

(i) The activity or activities must be 

directly related to error reduction in the 

ongoing program, with specific 

objectives regarding the amount of error 

reduction, and type of errors that will be 

reduced. The costs of demonstration, 

research, or evaluation projects under 

sections 17(a) through (c) of the Act will 

not be accepted. The State agency may 

direct the investment plan to a specific 

project area or implement the plan on a 

Statewide basis. In addition, the 

Department will allow an investment 

plan to be tested in a limited area, as a 

pilot project, if the Department 

determines it to be appropriate. A 

request by the State agency for a waiver 

of existing rules will not be acceptable 

as a component of the investment plan. 

The State agency must submit any 

waiver request through the normal 

channels for approval and receive 

approval of the request prior to 

including the waiver in the investment 

plan. Waivers that have been approved 

for the State agency’s use in the ongoing 

operation of the program may continue 

to be used. 

(ii) The program administration 

activity must represent a new or 

increased expenditure. The proposed 

activity must also represent an addition 

to the minimum program administration 

required by law for State agency 

administration including corrective 

action. Therefore, basic training of 

eligibility workers or a continuing 

correction action from a Corrective 

Action Plan shall not be acceptable. The 

State agency may include a previous 

initiative in its plan; however, the State 

agency would have to demonstrate that 

the initiative is entirely funded by State 

money, represents an increase in 

spending and there are no remaining 

Federal funds earmarked for the 

activity. 

(iii) Investment activities must be 

funded in full by the State agency, 

without any matching Federal funds 

until the entire amount agreed to is 

spent. Amounts spent in excess of the 

settlement amount included in the plan 

may be subject to Federal matching 

funds. 

(2) The request shall include: 

(i) A statement of the amount of 

money that is a quality control liability 

claim that is to be offset by investment 

in program improvements; 

(ii) A detailed description of the 

planned program administration 

activity; 

(iii) Planned expenditures, including 

time schedule and anticipated cost 

breakdown; 

(iv) Anticipated impact of the activity, 

identifying the types of error expected 

to be affected; 

(v) Documentation that the funds 

would not replace expenditures already 

earmarked for an ongoing effort; and 

(vi) A statement that the expenditures 

are not simply a reallocation of 

resources. 

(3) A State agency may choose to 

begin expending State funds for any 

amount of the liability designated as 

‘‘new investment’’ in the liability 

amount determination prior to any 

appeal. FNS reserves the right to 

approve whether the expenditure meets 

the requirements for new investment. 

Expenditures made prior to approval by 

the Department will be subject to 

approval before they are accepted. Once 

a new investment plan is approved, the 

State agency shall submit plan 

modifications to the Department for 

approval, prior to implementation. 

(4) Each State agency which has part 

of a liability designated for new 

investment shall submit periodic 

documented reports according to a 

schedule in its approved investment 

plan. At a minimum, these reports shall 

contain: 

(i) A detailed description of the 

expenditure of funds, including the 

source of funds and the actual goods 

and services purchased or rented with 

the funds; 

(ii) A detailed description of the 

actual activity; and 

(iii) An explanation of the activity’s 

effect on errors, including an 

explanation of any discrepancy between 

the planned effect and the actual effect. 

(5) Any funds that the State agency’s 

reports do not document as spent as 

specified in the new investment plan 

may be recovered by the Department. 

Before the funds are withdrawn, the 

State agency will be provided an 

opportunity to provide the missing 

documentation. 

(6) If the funds are recovered, the 

Department shall charge interest on the 

funds not spent according to the plan in 

accordance with paragraph (j) of this 

section. 

(i) At-risk money. If appropriate, FNS 

shall initiate collection action on each 

claim for such liabilities before the end 

of the fiscal year following the reporting 

period in which the claim arose unless 

an administrative appeal relating to the 

claim is pending. Such appeals include 

administrative and judicial appeals 

pursuant to Section 14 of the Food 

Stamp Act. If a State agency, in the 

subsequent year, is again subject to a 

liability amount based on the national 

performance measure and the error rate 

issued to the State agency, the State 

agency will be required to remit to FNS 

any money designated as at-risk for the 

prior fiscal year in accordance with 

either the original liability amount or a 

revised liability amount arising from an 

appeal, as appropriate, within 30 days 

of the date of the final billing. Appeals 

of the subsequent liability amount will 

not affect the requirement that the State 

agency pay the at-risk amount for the 

prior year. The amount of a State’s atrisk money may be recovered through 

offsets to the State agency’s letter of 

credit as identified in § 277.16(c) of this 

chapter. FNS shall also have the option 

of billing a State directly or using other 

claims collection mechanisms 

authorized under the Debt Collection 

Improvement Act of 1996 (Pub. L. 104–

134) and the Federal Claims Collection 

Standards (31 CFR Parts 900–904), 

depending upon the amount of the 

State’s liability. 

(j) Interest charges. 

(1) To the extent that a State agency 

does not pay an at-risk amount within 

30 days from the date on which the bill 

for collection is received by the State 

agency, the State agency shall be liable 

for interest on any unpaid portion of 

such claim accruing from the date on 

which the bill for collection was 

received by the State agency. If the State 

agency is notified that it failed to invest 

funds in accordance with an approved 

new investment plan, the State agency 

has 30 days from the date of receipt of 

notification of non-expenditure of new 

investment funds to pay the Department 

the amount of funds not so invested. If 

the State agency does not pay the 

Department the amount of funds not 

invested within 30 days from the date 

of receipt of the notification of nonexpenditure, the State agency shall be 

liable for interest on the non-expended 

funds from the date on which the 

notification was received by the State 

agency. If the State agency agrees to pay 

the claim through reduction in Federal 

financial participation for 

administrative costs, this agreement 

shall be considered to be paying the 

claim. If the State agency appeals such 

claim (in whole or in part), the interest 

on any unpaid portion of the claim shall 

accrue from the date of the decision on 

the administrative appeal, or from a date 

that is one year after the date the bill is 

55796 Federal Register / Vol. 70, No. 184 / Friday, September 23, 2005 / Proposed Rules 

1 16 U.S.C. 824d–824e (2000). Section 205(b) 

states that ‘‘[n]o public utility shall, with respect to 

any transmission or sale subject to the jurisdiction 

of the Commission, (1) make or grant any undue 

preference or advantage to any person or subject 

any person to any undue preference or 

disadvantage. * * * ’’ In addition, section 206(a) 

states that ‘‘[w]henever the Commission * * * shall 

find that any rate, charge, or classification 

demanded, observed, charged or collected by any 

public utility for any transmission or sale subject 

to the jurisdiction of the Commission, or that any 

rule, regulation, practice, or contract affecting such 

rate, charge, or classification is unjust, 

unreasonable, unduly discriminatory or 

preferential, the Commission shall determine the 

just and reasonable rate, charge, classification, rule, 

regulation, practice or contract to be thereafter 

observed and in force, and shall fix the same by 

order.’’

2Promoting Wholesale Competition Through 

Open Access Non-discriminatory Transmission 

Services by Public Utilities; Recovery of Stranded 

Costs by Public Utilities and Transmitting Utilities, 

Order No. 888, 61 FR 21,540 (May 10, 1996), FERC 

Stats. & Regs. ¶ 31,036 (1996), order on reh’g, Order 

No. 888–A, 62 FR 12,274 (March 14, 1997), FERC 

Stats. & Regs. ¶ 31,048 (1997), order on reh’g, Order 

No. 888–B, 81 FERC ¶ 61,248 (1997), order on reh’g, 

Order No. 888–C, 82 FERC ¶ 61,046 (1998), aff’d in 

relevant part sub nom. Transmission Access Policy 

Study Group v. FERC, 225 F.3d 667 (D.C. Cir. 2000), 

aff’d sub nom. New York v. FERC, 535 U.S. 1 

(2002). 

3Order No. 888 at 31,669. 

received, whichever is earlier, until the 

date the unpaid portion of the payment 

is received. 

(2) A State agency may choose to pay 

the amount designated as at-risk prior to 

resolution of any appeals. If the State 

agency pays such claim (in whole or in 

part) and the claim is subsequently 

overturned or adjusted through 

administrative or judicial appeal, any 

amounts paid by the State agency above 

what is actually due shall be promptly 

returned with interest, accruing from 

the date the payment was received until 

the date the payment is returned. 

(3) Any interest assessed under 

paragraph (j)(1) of this section shall be 

computed at a rate determined by the 

Secretary based on the average of the 

bond equivalent of the weekly 90-day 

Treasury bill auction rates during the 

period such interest accrues. The bond 

equivalent is the discount rate (i.e., the 

price the bond is actually sold for as 

opposed to its face value) determined by 

the weekly auction (i.e., the difference 

between the discount rate and face 

value) converted to an annualized 

figure. The Secretary shall use the 

investment rate (i.e., the rate for 365 

days) compounded in simple interest for 

the period for which the claim is not 

paid. Interest billings shall be made 

quarterly with the initial billing 

accruing from the date the interest is 

first due. Because the discount rate for 

Treasury bills is issued weekly, the 

interest rate for State agency claims 

shall be averaged for the appropriate 

weeks. 

PART 277—PAYMENTS OF CERTAIN 

ADMINISTRATIVE COSTS OF STATE 

AGENCIES 

§ 277.4 [Amended] 

15. In § 277.4: 

a. Paragraph (b) is amended by 

removing paragraphs (b)(1), (b)(4), (b)(5), 

and (b)(6) and by redesignating 

paragraphs (b)(2), (b)(3), (b)(7), and 

(b)(8) as paragraphs (b)(1), (b)(2), (b)(3), 

and (b)(4), respectively. 

b. Newly redesignated paragraph 

(b)(3) is amended by removing the 

words ‘‘Beginning October 1982,’’ and 

by removing the reference ‘‘paragraphs 

(b)(2) and (b)(3)’’ and adding in its place 

the reference ‘‘paragraphs (b)(1) and 

(b)(2)’’. 

Dated: September 12, 2005. 

Eric M. Bost, 

Under Secretary, Food, Nutrition, and 

Consumer Services. 

[FR Doc. 05–19020 Filed 9–22–05; 8:45 am] 

BILLING CODE 3410–30–P 

DEPARTMENT OF ENERGY 

Federal Energy Regulatory 

Commission 

18 CFR Chapter I 

[Docket No. RM05–25–000] 

Preventing Undue Discrimination and 

Preference in Transmission Services 

September 16, 2005. 

AGENCY: Federal Energy Regulatory 

Commission, (DOE). 

ACTION: Notice of inquiry (NOI). 

SUMMARY: The Federal Energy 

Regulatory Commission (Commission) is 

inviting comments on whether reforms 

are needed to the Order No. 888 pro 

forma open access transmission tariff 

(OATT) and the OATTs of public 

utilities to ensure that services 

thereunder are just, reasonable and not 

unduly discriminatory or preferential. 

The Commission is also inviting 

comments on the implementation of the 

newly established section 211A of the 

Federal Power Act (concerning the 

provision of open access transmission 

service by unregulated transmitting 

utilities). Finally, the Commission is 

inviting comments on section 1233 of 

the Energy Policy Act of 2005, which 

defines native load service obligation. 

DATES: Comments on this NOI are due 

on November 22, 2005. 

ADDRESSES: Comments may be filed 

electronically via the eFiling link on the 

Commission’s Web site at http:// 

www.ferc.gov. Commenters unable to 

file comments electronically must send 

an original and 14 copies of their 

comments to: Federal Energy Regulatory 

Commission, Office of the Secretary, 

888 First Street, NE., Washington, DC 

20426. Refer to the Procedure for 

Comments section of the preamble for 

additional information on how to file 

comments. 

FOR FURTHER INFORMATION CONTACT: 

Daniel Hedberg (Technical Information), 

Office of Markets, Tariffs & Rates, 

Federal Energy Regulatory Commission, 

888 First Street, NE., Washington, DC 

20426, (202) 502–6243. 

David Withnell (Legal Information), 

Office of General Counsel—Markets, 

Tariffs & Rates, Federal Energy 

Regulatory Commission, 888 First 

Street, NE., Washington, DC 20426, 

(202) 502–8421. 

SUPPLEMENTARY INFORMATION: 

Introduction 

1. The Federal Energy Regulatory 

Commission (Commission) has a 

mandate under sections 205 and 206 of 

the Federal Power Act (FPA) 1 to ensure 

that, with respect to any transmission in 

interstate commerce or any sale of 

electric energy for resale in interstate 

commerce by a public utility, no person 

is subject to any undue prejudice or 

disadvantage. Under these sections, the 

Commission must determine whether 

any rule, regulation, practice, or 

contract affecting rates for such 

transmission or sale for resale is unduly 

discriminatory or preferential, and we 

must disapprove any of the foregoing 

that do not meet this standard. Pursuant 

to that mandate, in 1996, the 

Commission issued Order No. 888 2 to 

remedy undue discrimination or 

preference in access to the monopoly 

owned transmission wires that control 

whether and to whom electricity can be 

transported in interstate commerce.3

2. The Commission is issuing this 

Notice of Inquiry to seek comments on 

whether reforms are needed to the Order 

No. 888 pro forma open access 

transmission tariff (OATT) and to the 

OATTs of public utilities to prevent 

undue discrimination and preference in 

the provision of transmission services. 

The Commission’s preliminary view is 

that the pro forma OATT and public 

utilities’ OATTs should be reformed to 

reflect lessons learned during nearly a 

decade of the electric utility industry’s 

and the Commission’s experience with 

open access transmission. In addition, 

the Commission is concerned that 

public utility transmission providers 

have come to different interpretations of