33422 Federal Register / Vol. 75, No. 112 / Friday, June 11, 2010 / Rules and Regulations 

DEPARTMENT OF AGRICULTURE 

Food and Nutrition Service 

7 CFR Parts 271, 273, 275, and 277 

[FNS–2009–0045] 

RIN 0584–AD31 

Supplemental Nutrition Assistance 

Program: Quality Control Provisions of 

Title IV of Public Law 107–171 

AGENCY: Food and Nutrition Service, 

USDA. 

ACTION: Final rule. 

SUMMARY: This rule finalizes provisions 

of an interim rule entitled ‘‘Food Stamp 

Program: Non-Discretionary Quality 

Control Provisions of Title IV of Public 

Law 107–171’’ published on October 16, 

2003, and a proposed rule entitled 

‘‘Food Stamp Program: Discretionary 

Quality Control Provisions of Title IV of 

Public Law 107–171’’ published on 

September 23, 2005. The Food Stamp 

Program is now referred to as the 

Supplemental Nutrition Assistance 

Program (SNAP) pursuant to the Food 

and Nutrition Act of 2008 (Act). This 

final rule codifies the provisions 

concerning the Quality Control system 

in Sections 4118 and 4119 of the Food 

Stamp Reauthorization Act (FSRA) of 

2002. This rule finalizes the liability 

procedures and the deadlines for 

completing the quality control review 

process and announcement of error rates 

established in the interim rule. It 

eliminates enhanced administrative 

funding for low error rates, establishes 

new time frames for completing 

individual quality control reviews, 

establishes procedures for resolving 

liabilities following appeal decisions, 

revises the negative case review 

procedures, and provides procedures for 

households that separate while subject 

to the penalty for refusal to cooperate 

with a quality control review. This rule 

also adopts several policy changes and 

technical corrections included in the 

proposed rule. In addition, this rule 

affects State agencies’ quality control 

review operations and alters 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 with cases 

sampled for quality control review of 

their cases would be minimally affected 

by this rule. 

DATES: Effective Date: This rule is 

effective July 12, 2010. Implementation 

date: This rule shall be implemented as 

follows: The provisions in 7 CFR 271.2, 

7 CFR 275.11(e)(2)(i), 7 CFR 

275.11(e)(2)(ii), 7 CFR 275.13(b), and 7 

CFR 275.12(c)(1) concerning negative 

cases and 7 CFR 273.2(d)(2) concerning 

consequences to households that refuse 

to cooperate with quality control (QC) 

reviews must be implemented no later 

than October 1, 2011. State agencies 

may choose to implement these 

provisions earlier than October 1, 2011. 

A 120-day hold harmless is provided for 

implementation of 7 CFR 273.2(d)(2), 

concerning consequences to households 

who refuse to cooperate with a QC 

review. If a State agency implements the 

provision before October 1, 2011, the 

120-day hold harmless period begins on 

the date of implementation. All other 

provisions must be implemented August 

10, 2010. 

FOR FURTHER INFORMATION CONTACT: 

Margaret Werts Batko, Quality Control 

Branch, Program Accountability and 

Administration Division, Food and 

Nutrition Service, USDA, 3101 Park 

Center Drive, Alexandria, Virginia 

22302, (703) 305–2516. The e-mail 

address is margaret.batko@fns.usda.gov. 

Questions regarding this rulemaking 

should be addressed 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 Electronic 

Access 

Electronic Access 

You may view and download an 

electronic version of this final rule at 

http://www.fns.usda.gov/snap/. All 

comments, including names, street 

addresses, and other contact 

information of respondents, received in 

response to the interim and proposed 

rules are 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 Supplemental Nutrition 

Assistance 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). It has been certified that this 

rule will not have a significant 

economic impact on a substantial 

number of small entities. State welfare 

agencies will be the most affected to the 

extent that they administer the 

Supplemental Nutrition Assistance 

Program. 

Public Law 104–4 

Title II of the Unfunded Mandates 

Reform Act of 1995 (UMRA) establishes 

requirements for Federal agencies to 

assess the effects of their regulatory 

actions on State, local, and tribal 

governments and the private sector. 

Under Section 202 of the UMRA, the 

Food and Nutrition Service (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 costeffective 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 E.O. 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. 

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Federal Register / Vol. 75, No. 112 / Friday, June 11, 2010 / Rules and Regulations 33423 

Civil Rights Impact Analysis 

FNS has reviewed this rule in 

accordance with the Department 

Regulation 4300–4, ‘‘Civil Rights Impact 

Analysis,’’ to identify and address any 

major civil rights impacts that 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 intended 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 Supplemental Nutrition 

Assistance Program. The only provision 

that has any direct impact on recipients 

is the conforming change made in 7 CFR 

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 QC 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. This rule contains a conforming 

amendment to extend the time frame of 

the penalty consistent with the revised 

time frame for completing the QC 

review process established in Section 

4119 of the Food Stamp Reauthorization 

Act of 2002 and addressed in this rule 

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 classes is not available for 

these households. 

An additional change is also being 

made to 7 CFR 273.2(d)(2) that requires 

a State agency to convey the 

disqualification penalty for refusing to 

cooperate with a QC reviewer with the 

non-cooperating household member if 

the household breaks up and if the State 

agency can identify the non-cooperating 

individual. This change ameliorates the 

penalty on cooperating household 

members. It is not intended to have a 

disproportionate impact on any of the 

protected classes. 

All data available to FNS indicate that 

protected individuals have the same 

opportunity to participate in the SNAP 

as non-protected individuals. The QC 

system is a systematic method of 

measuring the validity of the SNAP 

caseload. A statistically valid sample of 

active and negative cases is reviewed to 

determine the extent to which 

households are receiving the allotments 

to which they are entitled, and to 

determine which decisions to deny, 

suspend, or terminate cases are correct. 

Protected classes should appear in any 

given sample to the extent that they are 

represented in the overall SNAP 

population. There is no way to 

determine the percentage of each of the 

protected classes terminated for refusal 

to cooperate with a QC review as that 

data is not collected. 

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 (SNAP 

nondiscrimination policy can be found 

at 7 CFR 272.6). Discrimination in any 

aspect of program administration is 

prohibited by these regulations, the 

Food and Nutrition Act of 2008, 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 accordance with 7 CFR 

Part 15. 

Paperwork Reduction Act 

This 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 (expiration date 

November 30, 2009): 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 that is 

still found in the regulation. Eliminating 

from the regulations the requirement to 

complete the form does not affect the 

burden as the burden was already 

adjusted in the burden approval process 

when the actual use of the form was 

discontinued. We proposed to eliminate 

the Form FNS–248. Over time, we have 

discontinued requiring that the form 

itself be submitted. However, some of 

information on that form is still 

required. State agencies provide the 

information on the interval and the 

number of cases selected each month by 

phone or e-mail. With the elimination of 

the Form FNS 248, the regulations will 

permit that this information be 

submitted in another format. The 

burden difference from eliminating most 

of the data collection found on the form 

has already been accounted for through 

the burden approval process. 

Accordingly, elimination of this form 

will not increase or decrease the 

approved burden for OMB Number 

0584–0034. We received no comments 

on this proposal; we are adopting it as 

proposed. 

0584–0074 (Form FNS–380, 

Worksheet for Supplemental Nutrition 

Assistance Program Quality Control 

Reviews) (expiration date February 28, 

2010) ; 0584–0299 (Form FNS–380–1, 

Quality Control Review 

Schedule)(expiration January 31, 2010); 

and 0584–0303 (Food Stamp Program 

Regulations, Part 275—Quality 

Control)(expiration date November 30, 

2010) (Note the name of 0584–0303 will 

be changed to Supplemental Nutrition 

Assistance Program Regulations, Part 

275—Quality Control when it is next 

renewed or a change justification is 

done.): 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 (expiration date 

April 30, 2010): Corrective action 

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33424 Federal Register / Vol. 75, No. 112 / Friday, June 11, 2010 / Rules and Regulations 

planning is included under this 

information collection package. 

Regulations prior to passage of the Food 

Stamp Reauthorization Act of 2002 

required corrective action planning 

when a State agency failed to reach the 

yearly target, when a State agency was 

not entitled to enhanced funding, and 

when its negative case error rate 

exceeded one percent. In an interim rule 

entitled ‘‘Food Stamp Program: NonDiscretionary 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. This rule 

finalizes this requirement to conduct 

corrective action whenever a State’s 

payment error rate equals or exceeds six 

percent. 

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 eliminates 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, the last 

year enhanced funding was provided to 

States, there was no State whose error 

rate was below six percent that did not 

get enhanced funding. This rule 

finalizes the proposal 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 

from removing the requirement to do 

corrective action planning whenever a 

State agency is not entitled to enhanced 

funding. 

E-Government Act Compliance 

The Food and Nutrition Service is 

committed to complying with the EGovernment Act of 2002, to promote the 

use of the Internet and other 

information technologies to provide 

increased opportunities for citizen 

access to Government information and 

services, and for other purposes. 

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 to the 

application of its provisions, all 

applicable administrative procedures 

must be exhausted. In the Supplemental 

Nutrition Assistance 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 7 CFR 273.15; (2) for 

State agencies—administrative 

procedures issued pursuant to 7 U.S.C. 

2023 set out at 7 CFR 276.7 (for rules 

related to non-quality 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. 

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 finalizes provisions of 

the interim rule ‘‘Food Stamp Program: 

Non-Discretionary Quality Control 

Provisions of Title IV of Public Law 

107–171’’ published on October 16, 

2003, and a proposed rule entitled 

‘‘Food Stamp Program: Discretionary 

Quality Control Provisions of Title IV of 

Public Law 107–171’’ on September 23, 

2005. 

The interim rule revised the liability 

procedures and established new 

deadlines for completing the quality 

control (QC) review process and 

announcement of payment error rates. 

This final rule would amend the 

Supplemental Nutrition Assistance 

Program regulations concerning the 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 time frames for completing 

individual case reviews and the time 

frames for penalties for households that 

refuse to cooperate with a QC review, to 

revise the negative review procedures, 

and to make a number of technical 

policy changes and corrections. This 

analysis addresses the liability 

procedures, elimination of enhanced 

funding, the impact of appeals decisions 

on the resolution of QC liabilities for 

high payment error rates, the revised 

time frames for completing individual 

case reviews and the entire review 

process and announcement of the error 

rates, the time frames for penalties for 

households that refuse to cooperate with 

a QC review, negative review 

procedures, and corrective action 

planning. 

Cost Impact 

Since this action does not directly 

impact benefit levels or eligibility, we 

do not anticipate any impact on SNAP 

benefit costs. The provision extending 

the time frames for verification of 

households reapplying for benefits is 

not expected to have a measurable 

impact on benefit costs. Fewer States 

will be identified as having any 

potential liability, and most such 

liabilities will be significantly lower 

than those under the previous system. 

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 had 

remained at their 1998–2002 levels, the 

annual savings to the Supplemental 

Nutrition Assistance Program would 

have been $50 million and the five-year 

savings would have been $250 million. 

These savings would have been offset by 

the establishment of high performance 

bonuses (addressed in the final rule 

‘‘Food Stamp Program: High 

Performance Bonuses’’ published 

February 7, 2005, at 70 FR 6313). 

However, between 2002 and 2008, 

payment error rates fell from 8.26 

percent to 5.01 percent. The number of 

States that would have qualified for 

enhanced funding would have risen to 

28 by 2008 and the amount of incentive 

funding received by these States would 

have totaled nearly $188 million. The 

amount of incentive funding for the five 

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Federal Register / Vol. 75, No. 112 / Friday, June 11, 2010 / Rules and Regulations 33425 

years from 2003–2007 would have 

totaled $720 million, of which only 

$240 million would have been offset by 

the new performance bonus, yielding a 

net savings of $480 million. 

See Table below. 

Benefit Impact 

Elimination of enhanced funding 

based on payment accuracy did not 

have a benefit impact on State 

administrating agencies or on program 

operations if considered in isolation. 

However, when this provision was 

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 was 

expected to encourage States to assess 

and improve overall performance. 

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

(FEDERAL OUTLAYS) 

[In millions of dollars] 

2003 2004 2005 2006 2007 5-Year 

Elimination of Enhanced funding ..................................... ¥$95 ¥$133 ¥$158 ¥$160 ¥$174 ¥$720 

High Performance Bonus ................................................. 48 48 48 48 48 240 

Net Savings .............................................................. ¥47 ¥85 ¥110 ¥112 ¥126 ¥480 

The provisions affecting the time 

frames for completing individual case 

reviews, negative 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 QC system. 

An interim rule entitled ‘‘Food Stamp 

Program: 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 ‘‘Food Stamp 

Program: High Performance Bonuses’’ 

was published February 7, 2005, at 70 

FR 6313 that implemented Section 4120 

of the FSRA. A proposed rulemaking, 

published September 23, 2005, at 70 FR 

55776 addressed the remaining 

provisions of Sections 4118 and 4119 of 

the FSRA, negative case review 

procedures, and several discretionary 

policy changes, and numerous technical 

corrections. This rule finalizes both the 

interim and the proposed rules. 

A. Enhanced Funding 

The current regulations at 7 CFR 

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 (now the Food and 

Nutrition Act of 2008) for giving 

enhanced funding to State agencies with 

low payment and negative case error 

rates, effective fiscal year (FY) 2003, 

effectively ending enhanced payments. 

Section 4120 of the FSRA replaced 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, these 

sections are no longer necessary. We 

proposed to eliminate paragraphs (b)(1) 

and (b)(2) of 7 CFR 275.1, to change 

paragraph (a) of 7 CFR 275.1 into a 

general introductory paragraph, and to 

remove 7 CFR 275.23(d). We received 

two comments on the proposed 

elimination of enhanced funding. Both 

commenters supported the proposal. 

Accordingly, we are adopting as 

proposed the revisions to 7 CFR 275.1, 

eliminating paragraphs (b)(1) and (2), 

changing paragraph (a) into a general 

introductory paragraph, and removing 7 

CFR 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 proposed in 7 

CFR 275.3(c) to require that all States’ 

negative error rates be validated by FNS. 

First, we believe that fair and equitable 

treatment needs to be ensured when it 

comes to denying households benefits. 

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. We 

received two comments supporting this 

proposal. We are adopting the provision 

mandating FNS validation of all States’ 

negative error rates in 7 CFR 275.3(c). 

In addition, we are adopting as 

proposed the technical changes 

throughout Part 275 that 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 SNAP. In 7 CFR 277.4, 

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

(b)(6) describe the procedures for 

increasing State administrative funding 

when State agency QC 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 the authority for 

the period beginning October 1988 and 

forward. The authority in the Food 

Stamp Act (now the Food and Nutrition 

Act of 2008) for 7 CFR 277.4(b)(1)(i) was 

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33426 Federal Register / Vol. 75, No. 112 / Friday, June 11, 2010 / Rules and Regulations 

removed by the Hunger Prevention Act 

of 1988 (Public Law 100–435). The 

authority for 7 CFR 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 QC error rates for fiscal years 

beginning October 2002 and beyond, 

thus making 7 CFR 277.4(b)(1)(ii) 

obsolete for FY 2003 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. No comments were 

received on these proposed changes. 

Accordingly, we are removing 7 CFR 

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

Sections 277.4(b)(2), (b)(3), (b)(7), and 

(b)(8) are redesignated as 7 CFR 

277.4(b)(1), (b)(2), (b)(3), and (b)(4), 

respectively. In addition, we are also 

revising the references in redesignated 7 

CFR 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 QC 

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 7 CFR 

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 FNS 

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 proposed to revise 7 CFR 

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. 

We received six comments addressing 

this proposed revision, all supporting 

the revision to the regulations. This 

policy has been in effect since October 

1998 and benefits State agencies. 

Accordingly, we are adopting as 

proposed the revision to 7 CFR 

275.12(g)(1)(ii) that requires QC 

reviewers to attempt to complete cases 

where a household refuses to cooperate. 

C. Negative Case Reviews 

The Department proposed significant 

changes to the negative review 

procedures. In order to fully understand 

the changes made in this rulemaking to 

the procedures for reviewing negative 

cases, readers are referred to the 

proposed rule located at 70 FR 55776. 

The proposed rule has a detailed 

description of the existing requirements 

and the proposed changes. 

First, the Department proposed that 

the negative universe be selected based 

only on ‘‘action,’’ eliminating the option 

to use ‘‘effective date.’’ Second, the 

Department proposed to delete the 

requirement that there be a break in 

participation in order for a negative 

action to be subject to review. Finally, 

the Department proposed to limit the 

use of the expanded review process. 

We received 22 comments on one or 

more aspects of the proposals to revise 

the negative review procedures. Most 

commenters opposed all the proposed 

changes; a few supported all the 

changes; some addressed only one or 

two of the proposed changes; and some 

commenters supported one or more of 

the proposals while opposing one or 

more of them. The opposing 

commenters also believed that these 

proposed changes reflected a change 

from ‘‘outcome’’ based reviews to 

‘‘procedural’’ reviews. 

Specific comments will be addressed 

during the discussion of each proposed 

change to the negative review 

procedures. 

Currently, the regulations allow either 

‘‘action’’ or ‘‘effective date’’ as the 

selection criteria for the sampling 

universe. 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 both the States’ 

and the national negative error rate. 

Because multiple actions can occur 

within a sampling period, States using 

‘‘effective date’’ have had to decide 

which of the several actions to review. 

This decision process introduces bias 

into the system. Focusing on the 

‘‘action’’ means that each negative action 

has an equal opportunity to be sampled 

and reviewed. We proposed to revise 7 

CFR 275.11(e)(2)(i) and (e)(2)(ii) 

accordingly. Sixteen commenters 

addressed the proposal to eliminate 

‘‘effective date’’ for constructing the 

sample. Ten commenters opposed the 

proposal; 4 commenters supported the 

proposal; and two commenters 

supported the proposal but said they 

used ‘‘effective date’’. We have not 

categorized these last two commenters 

as either supporting or opposing the 

proposals because we believe that, 

based on how they worded their 

comments, that these commenters 

misunderstood the proposal. However, 

it is possible that they supported the 

proposal even though these States 

would be required to change their 

methods of sample selection. 

Commenters did not address the 

statistical issues that resulted in the 

decision to propose requiring the use of 

‘‘action date’’ and eliminate the use of 

‘‘effective date.’’ States did, however, 

discuss how this has been the process 

for many years and has apparently 

worked. It has worked largely because 

the Department was unaware that not all 

actions were being included in the 

universe. The problem only came to our 

attention when we began universal 

validation of negatives. The increased 

attention to negatives has resulted in an 

awareness of many of the problem 

addressed. State agencies started asking 

many questions about how to review 

negatives, questions that were not raised 

before validation was universal. The 

Department became aware of problems 

surrounding sample construction in two 

major ways. First, statistical reviews 

revealed that not all negative actions 

were being captured in some States that 

were relying on ‘‘effective date’’ to 

capture terminations. Further, the 

Department has been receiving 

questions about what action should be 

reviewed when multiple actions 

occurred during a sample month and 

the reviewer has not been able to 

determine what action was sampled. 

Commenters were concerned that the 

proposed change would necessitate 

major computer changes to change the 

sample selection process. Such 

computer changes are costly and timeconsuming, according to the 

commenters. While we understand the 

commenters’ concerns about computer 

changes that will be required, we 

believe that it is necessary that the 

sampling universe include all possible 

negative actions. Therefore, the best way 

to obtain all possible negative actions 

and to eliminate possible bias in the 

selection process is to select based on 

‘‘action’’ rather than ‘‘effective date.’’ 

Accordingly, we are adopting as 

proposed the changes to 7 CFR 

275.11(e)(2)(i) and (e)(2)(ii). 

We have revised the definition of a 

‘‘Negative case’’ in 7 CFR 271.2 to say 

that a ‘‘Negative case means any action 

to deny, suspend, or terminate a case’’. 

One commenter believed the proposed 

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definition was not consistent with the 

proposal to sample based on action 

taken. We disagree with that 

commenter. The current definition in 7 

CFR 271.2 is not consistent with the 

proposed change; however, the new 

definition is. We are adopting the 

revised definition in 7 CFR 271.2 as 

proposed. 

One commenter requested additional 

time for implementation if the proposal 

were to be adopted. We have considered 

this suggestion and have decided to 

make the modifications to the negative 

review procedures effective beginning 

with the first day of FY 2012, October 

1, 2011. 

Section 275.11(f)(2)(vi) currently 

provides that a negative action would 

only be subject to review if there was a 

break in participation. The Department 

proposed to eliminate the requirement 

in 275.11(f)(2)(vi) that there be a break 

in participation for a negative action to 

be subject to review because limiting the 

focus only to the ‘‘action’’ eliminates a 

need for determining whether there was 

a break in participation. A conforming 

change was also proposed to be made to 

the definition ‘‘Negative case’’ in 7 CFR 

271.2. Twelve commenters opposed this 

proposal; three commenters supported 

the proposal. As stated in the preamble 

to the proposed rule, this proposed 

change to eliminate the ‘‘break in 

participation’’ is consistent with the 

change in focus to review each 

individual action taken. We are 

adopting the change to 7 CFR 

275.11(f)(2)(iv) as proposed. 

Finally, the Department proposed to 

limit the expanded review in 7 CFR 

275.13(b). The expanded review allows 

the QC reviewer to look beyond the 

reason given for action taken by the 

eligibility worker (EW) to deny, 

terminate, or suspend a household. 

Under current procedures as provided 

for in 7 CFR 275.13(b) and expanded in 

FNS Handbook 310, the QC reviewer 

may examine the case file for additional 

reasons to support the denial, 

suspension, or termination. Section 

275.13(b) permits contacting the 

household or a collateral contact to 

clarify whether a reason exists that 

supports a denial, suspension, or 

termination. The FNS Handbook 310 

also permits a field investigation. 

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. 

Limiting the expanded review is also 

consistent with a review of ‘‘action.’’ 

Under the review procedures as 

proposed, 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 under 

review, 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 proposed 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 received 20 

comments on this proposal. Eighteen 

commenters opposed the proposal; two 

supported it. The commenters opposing 

the change felt that this change, 

especially in combination with the other 

two changes, emphasized procedure 

rather than outcome. These commenters 

believed that the purpose of the negative 

review should be to determine if a 

household was ineligible for benefits, 

regardless of what a household may 

have been told about its eligibility. One 

commenter even stated that its notices 

to households were not always as 

accurate as one might wish them to be. 

Ten commenters suggested that if the 

expanded review be limited, it be 

limited to other information in the case 

file that would support an alternative 

reason for a negative action, but prohibit 

contact with the household or a 

collateral contact. State agencies 

pointed out that while wrong reasons 

may be coded for a specific negative 

action, the correct reason may be in the 

case file. The commenters felt that such 

coding errors were procedural rather 

than outcome based. 

During the period following the 

publication of the proposed rule, the 

Department revised the FNS 310 

Handbook to conform the procedures in 

the Handbook to the regulations. By 

doing so, the Department eliminated the 

most far-reaching forms of the expanded 

review in use by some States, i.e., field 

investigations. The FNS 310 Handbook 

now requires the State agency to review 

the case record to determine if there is 

another reason in the case record that 

makes the negative action valid and 

allows the reviewer to contact the 

household or a collateral contact to 

verify information in the case record. 

The Department has considered the 

commenters’ concerns about the 

expanded review. However, the 

Department has decided the limitations 

on the scope of the expanded review are 

appropriate and consistent with reviews 

based on ‘‘action.’’ Further, the 

Department believes that households are 

impacted by the reasons they are given 

for their case closures and denials. 

Section 273.13(a)(2) requires that the 

notice of adverse action clearly explain 

the proposed action, the reason for the 

proposed action, and the household’s 

right to appeal. We do not believe that 

it is purely procedural when a 

household is given an incorrect reason 

for the negative action. We do not 

believe that it is purely procedural 

when the State agency fails to follow 

certification policy and provide 

households with the rights to which 

they are entitled, such as (but not 

limited to) Notices of Missed Interview 

(NOMIs), expedited service, or properlytimed denials. Therefore, we believe 

that it is in the best interests of program 

integrity and service to households to 

adopt the procedure as proposed. 

Further, with the change to ‘‘action’’ 

only reviews, we do not believe it 

necessary or appropriate to seek reasons 

other than the stated one given for the 

negative action. Accordingly, the 

Department is adopting as proposed the 

limiting of the expanded review in 7 

CFR 275.13(b), with minor wording 

changes of ‘‘correct’’ to ‘‘valid’’ and 

‘‘incorrect’’ to ‘‘invalid’’. The State 

agency will continue to be allowed to 

contact the household or a collateral 

contact to verify the validity of the 

specific negative action. A conforming 

change is also being made to 7 CFR 

275.13(c)(1). 

In summary, the Department has 

adopted the provisions revising the 

negative case review process because we 

believe that to do so is necessary to 

correct the statistical issues surrounding 

sampling, that the changes will result in 

consistent interpretations among the 

States, and represents a better balance 

between accuracy and customer service. 

One commenter requested a 120-day 

hold harmless period if the Department 

adopted the proposed changes. We have 

considered this request but have 

determined that it is not appropriate. 

Section 16(c)(3) of the Act and Section 

275.12(d)(2)(vii) of the regulations (as 

modified by this rule) provide for 

exclusion of errors resulting in the 

application of new regulations. 

However, a change in review procedures 

does not result in an error; the QC 

system is a measurement system and 

review procedures are the mechanism of 

that measurement. The errors that are 

measured are errors in the certification 

process. Changes to the review 

procedures do not change the 

certification requirements. The 

Department has not been able to 

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determine what the commenter 

expected to be excluded. 

We would like to address at this point 

the need for States to be consistent, 

thorough, and accurate in the 

construction of the sample universe. All 

actions to deny, terminate, or suspend 

households need to be included in the 

universe. While we believe that using 

the notices of adverse action would be 

the simplest way to capture the 

terminations, it may not be the only 

way. Further, the failure to send a notice 

is not in and of itself a reason for an 

action to be not subject to review. For 

example, if for some reason, the State’s 

computer fails to issue notices of 

adverse action to a category of 

households being terminated from the 

Program those terminations would still 

be subject to review. The State agency 

would be responsible for ensuring that 

that group of negative actions is subject 

to sampling. Also, if the computer sends 

notices of adverse action even if the 

‘‘action’’ is solely the expiration of the 

certification period, it should be noted 

that expired certification periods are not 

negative actions and such cases should 

be excluded from the sample. Another 

category of concern is administrative 

closures that do not result in adverse 

action notices to households, such as a 

case closure and transfer to another 

number because the worker incorrectly 

opened the case under the wrong 

number. The Department does not 

consider such administrative closures to 

be negative actions as defined by this 

rule. 

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, 7 CFR 275.16(b)(1) was 

revised to require corrective action 

planning whenever a State agency’s 

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 (7 CFR 275.16(b)(2)) or when 

the State agency’s negative case error 

rate exceeds one percent (7 CFR 

275.16(b)(3)). We proposed to remove 7 

CFR 275.16(b)(2) as no longer necessary 

because enhanced funding has been 

eliminated. We also proposed to 

continue to require State agencies to 

conduct corrective action planning 

whenever the negative case error rate 

exceeds one percent (7 CFR 

275.16(b)(3)), (redesignated as 7 CFR 

275.16(b)(2) to reflect the deletion of 7 

CFR 275.16(b)(2)). We proposed 

retaining the requirement to do 

corrective action planning when the 

negative error rate exceeds one percent 

to ensure that households are not being 

inappropriately denied or terminated. 

Further, this proposal is consistent with 

the High Performance Bonuses final rule 

that provides criteria for rewarding 

States with very low negative case error 

rates. 

Finally, we proposed to redesignate 7 

CFR 275.16(b)(4), (b)(5), and (b)(6) as 7 

CFR 275.16(b)(3), (b)(4), and (b)(5), 

respectively, to reflect the removal of 7 

CFR 275.16(b)(2) and redesignation of 7 

CFR 275.16(b)(3) as 7 CFR 275.16(b)(2). 

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 received 4 comments 

concerning corrective action plans for 

negative reviews. Two commenters 

supported the proposal. Two 

commenters were concerned about the 

impact of the proposed changes to the 

negative review process on the negative 

error rate and were opposed to the 

provision as written if the changes to 

the negative review process were 

adopted. As discussed above, the 

Department has adopted the changes to 

the negative review process. We have 

considered the comments; however, we 

are adopting as final the change made in 

the interim rule to 7 CFR 275.16(b)(1) 

and the deletion of 7 CFR 275.16(b)(2) 

and the change in the proposed rule to 

7 CFR 275.16(b)(3) (redesignated as 7 

CFR 275.16(b)(2)). We believe the 

1-percent threshold is appropriate even 

though some States’ error rates may rise. 

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 final rule published July 16, 1999, at 

64 FR 38287. That rule did not add 

suspended cases to those deficiencies 

requiring corrective action at 7 CFR 

275.16(b)(6) (redesignated in this rule as 

7 CFR 275.16(b)(5)). To correct this 

oversight, we proposed to revise 

redesignated 7 CFR 275.16(b)(5) to 

include deficiencies which result in 

improper suspensions. One commenter 

addressed and supported this proposal. 

We are adopting as proposed the 

requirement to address deficiencies in 

the handling of suspended cases 

through the corrective action planning 

process. 

E. Time Frames for Announcing the 

National Performance Measure and for 

Completing QC Reviews and Resolving 

State/Federal Differences 

The interim rule published October 

16, 2003 at 68 FR 59519 revised the 

regulations at 7 CFR 275.23(e)(7) to 

establish the following time frames for 

completing QC reviews and resolving 

State/Federal differences and for 

announcing the national performance 

measure. The deadline for completing 

QC 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 time frames are 

mandated by the Act, and we did not 

receive any comments addressing these 

new time frames for completing the 

review process. Accordingly, we are 

adopting these time frames established 

in the interim rule. 

These new time frames provide 

approximately two additional months to 

complete the case review and arbitration 

process and to develop and announce 

the national performance measure. We 

proposed to use this additional time in 

the following way: (1) 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; (2) provide State 

agencies 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; (3) provide 

State agencies until January 21 after the 

end of the review year to complete and 

dispose of all cases; and (4) stipulate 

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 also proposed to revise 7 CFR 

275.21(b)(4) by replacing ‘‘95’’ with 

‘‘113’’; to revise 7 CFR 275.21(c) by 

replacing ‘‘105’’ with ‘‘123’’; and to add 

a sentence to each of these paragraphs 

stating that if FNS extends the time 

frames in 7 CFR 275.21(b)(2), that the 

time frames in these paragraphs will be 

extended accordingly. We also proposed 

to continue to allow States 20 days to 

request arbitration of individual cases; 

however, we also requested comments 

about whether this time was considered 

adequate. 

On January 22, 2003, we waived the 

deadlines for State agencies to complete 

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processing cases in 7 CFR 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 for Fiscal Years 2005 and 

2006. The waiver was again extended on 

September 12, 2006, for FY 2007 and FY 

2008. In providing comments on this 

proposal, we requested comments about 

whether this amount of additional time 

was useful and/or sufficient. In addition 

to the extended time frames 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). In the proposed 

rulemaking, we did not allow this 

additional 10 days at the end of the 

review year for checking the c-trails. We 

did not propose allowing the additional 

10 days at the end of the review year 

because we felt that States had 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 re-review 

process which in turn impacts FNS’s 

ability to timely and accurately prepare 

the payment error rates. However, we 

were interested in receiving comments 

on this issue. 

We received 16 comments addressing 

the individual case time frames, the 10- 

day period at the end of the review year 

to check the c-trails, and the time period 

to request arbitration. Concerns were 

also raised about the failure of FNS to 

establish individual case review times 

for the Federal validation process and 

delayed arbitration responses. Six 

commenters supported the individual 

case time frames as proposed; six 

commenters recommended additional 

time, up to as much as 125 days. Also, 

six commenters recommended that we 

eliminate the interim tracking and 

establish only a final deadline. We have 

considered the comments and will 

eliminate the interim tracking and 

establish only a final date for 

completion of each month’s sample; 

provide the States 115 days to complete 

each month’s sample; and allow 10 days 

at the end of the review year to check 

the c-trails. We also revised 7 CFR 

275.21(b)(4) by replacing the two-tiered 

time frame completion schedule with 

115 days; revised 7 CFR 275.21(c) by 

replacing ‘‘105’’ with ‘‘125’’; and adopted 

the proposed addition to each of these 

paragraphs stating that if FNS extends 

the time frames in 7 CFR 275.21(b)(2), 

that the time frames in these paragraphs 

will be extended accordingly. 

Although we did not provide the 

States with 125 days to complete 

individual reviews each month as some 

State agencies recommended, we did 

provide the State agencies with 2 days 

more than proposed to complete 

individual reviews, i.e., 115 days 

instead of 113 days. As discussed in the 

preamble to the proposed rule, when the 

time to complete reviews and issue error 

rates was cut back by the Mickey Leland 

Childhood Hunger Relief Act, Public 

Law 103–66, FNS absorbed the entire 

reduction. When the FSRA replaced the 

60 days lost under Public Law 103–66, 

FNS provided the States with a 

significant amount of that replaced time. 

We believe that FNS needs the 

remaining time to complete the 

individual case reviews. In addition to 

replacing some of the lost time, FNS’s 

work load has increased with the advent 

of 100 percent validation of negative 

cases. 

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 time frames for conducting 

arbitration are in 7 CFR 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. Prior to Public Law 103–66, States 

had 28 days to request arbitration. As 

discussed above, originally FNS 

absorbed the total cut in review time 

and States lost 8 days to request 

arbitration. Although we considered the 

amount of time allowed for requesting 

arbitration to be adequate, we 

specifically requested comments, 

however, about whether affected parties 

and the public agree that the time 

frames are adequate. We received 7 

comments addressing the time frames 

for requesting arbitration. Five 

commenters supported additional time 

to request arbitration; two commenters 

supported the existing 20 days. One 

commenter suggested that the 

arbitration process be changed to 

include a State person. This proposal 

was outside the scope of the proposed 

rule and has not been addressed. 

Two commenters wanted both more 

time to do reviews and more time to 

request arbitration. Three other 

commenters wanted additional time to 

request arbitration. In the proposed rule, 

States were given part of the restored 

time, and in this rule have been given 

two more days to perform their reviews, 

time which has come out of the 

Department’s time to complete the 

Federal re-reviews, conduct arbitration, 

and calculate and release the error rates. 

As we indicated in the proposed rule, if 

we provided more time to request 

arbitration, time to conduct reviews by 

the States may have had to be reduced. 

States did not address this point; 

further, States were more concerned 

about the amount of time available for 

them to conduct individual reviews 

than about the time frames to request 

arbitration. In response to that concern, 

we provided them more time to conduct 

individual reviews. That time was taken 

from time for Federal re-reviews to be 

conducted. 

Three States commented that 20 days 

was not a sufficient amount of time to 

request arbitration when multiple cases 

are received at the same time. 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. 

Overall, there are very few arbitration 

cases in any one review year. In FY 

2000 there were a total of 75 cases 

nationwide; in FY 2001 there were 37; 

in FY 2002, there were 43 cases; in FY 

2004, there were 24 cases; in FY 2005, 

there were 38 cases; in FY 2006, there 

were 27 cases; in FY 2007, there were 

47 cases, and in FY 2008, there were 55 

cases. The commenters did not provide 

a compelling case stating why this work 

cannot be completed in the 20 days 

provided for that purpose. The 

arbitration time frames as currently 

established appear to be adequate from 

our perspective. Accordingly, we have 

decided to make no change to the time 

frames to request arbitration. 

Under the time frames as provided in 

the January 23, 2003; March 4, 2004; 

and September 12, 2006 memoranda 

from FNS headquarters to FNS regional 

offices, 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. Although we did not request 

comments on the establishment of 

Federal review time frames, we received 

three comments suggesting the 

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establishment of time frames for 

completion of Federal reviews. Those 

comments were outside the scope of the 

proposed rule. While we understand the 

concerns expressed by the commenters 

about delays in receiving Federal rereview results, we believe that this is an 

issue that can be addressed on a caseby-case basis. 

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. Prior to 

publication of the proposed rule 

(published on September 23, 2005, at 70 

FR 55776), 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 proposed to 

revise 7 CFR 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. We received 

no comments concerning this proposal; 

we are adopting it as proposed. 

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 

proposed to remove 7 CFR 275.21(d). 

We received no comments concerning 

this proposal; we are adopting it as 

proposed. 

F. Consequences to Households Who 

Refuse To Cooperate With QC Reviews 

Section 273.2(d)(2) provides 

procedures for handling the cases of 

SNAP participants who refuse to 

cooperate with a QC review of their 

case. Currently, a household is 

determined ineligible if it refuses to 

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 proposed to 

amend this provision to provide that the 

ineligibility penalty will follow the 

household member(s) who refused to 

cooperate. We received 13 comments 

addressing this proposal. Nine 

commenters opposed the provision; 4 

commenters supported; one commenter 

pointed out that a tracking mechanism 

would have to be developed. 

Commenters opposed to the proposal 

believed that it would be difficult to 

accomplish and were concerned about 

the need for a tracking mechanism to be 

developed that would involve computer 

expenses. We recognize these concerns; 

however, we do not believe households 

should be prohibited from participating 

in the program if the person who 

refused to cooperate with the QC review 

no longer resides with the remaining 

household members. Therefore, we are 

adopting as proposed the requirement 

that the ineligibility penalty follow the 

household member(s) who refused to 

cooperate. If the State agency is unable 

to identify a particular household 

member as the refusing person, the State 

agency may continue to decide what 

member(s) to disqualify. We recognize 

that it will take States time to adapt 

their computer systems to track the 

refusing individual. Accordingly we are 

giving the States an extended time to 

implement the provision, until October 

1, 2011. States may opt to implement 

this provision earlier. A 120-day hold 

harmless provision applies to 

implementation of this change. 

In this rule, we also proposed to make 

a conforming change to 7 CFR 

273.2(d)(2). Current procedures in 7 

CFR 273.2(d)(2) require that a 

household be terminated for refusal to 

cooperate with a State or Federal QC 

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 

proposed to change the dates in 7 CFR 

273.2(d)(2) to 123 days and nine months 

to conform the dates in 7 CFR 

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

the dates for completion of the State 

review process in 7 CFR 275.21(b) and 

the end of the Federal QC review 

process in 7 CFR 275.23(e)(7) 

(renumbered in this proposed rule as 7 

CFR 275.23(c)). As we modified the 

change in dates for completing the QC 

review process to 125, we are adopting 

this conforming change, making the 

appropriate change to 125 days. 

We also proposed additional 

conforming changes to other sections of 

the regulations that identify these time 

frames. These conforming amendments 

are not discussed in this preamble and 

are adopted with appropriate 

modifications to reflect the additional 

time provided to complete the reviews. 

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 QC 

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 

time frames 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 7 CFR 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 7 CFR 275.23. Because 

several sections require substantive 

revision and many paragraphs require 

minor changes or reference changes, we 

proposed to reorganize the section at the 

same time as making the necessary 

changes resulting from the legislation. 

We have adopted the reorganization to 

7 CFR 275.23 in its entirety. 

Under this reorganization, 7 CFR 

275.23(a) addresses the basic 

components of FNS determination of a 

State agency’s efficiency and 

effectiveness (currently 7 CFR 275.23(a) 

and (b)). A new 7 CFR 275.23(b) 

addresses the error rates. The existing 

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methodology for regression in 7 CFR 

275.23(e)(6) is incorporated into the 

new 7 CFR 275.23(b). Section 273.23(c) 

addresses the time frames for 

completing case reviews, conducting 

arbitration, and issuing error rates. 

Section 273.23(d) addresses State 

agency liability. Included in this section 

is the procedure for establishing the 

national performance measure, the 

liability amount methodology, appeal 

rights, and the relationship to the 

warning process and negligence. Section 

275.23(e) addresses liability resolution 

plans; 7 CFR 275.23(f) addresses good 

cause; 7 CFR 275.23(g) addresses results 

of appeals on liability resolution; 7 CFR 

275.23(h) addresses new investment 

(the term ‘‘reinvestment’’ has been 

changed in this rule to the term ‘‘new 

investment,’’ consistent with the 

language used in the FSRA); 7 CFR 

275.23(i) addresses payment of the atrisk money; and 7 CFR 275.23(j) 

addresses interest charges. 

Current 7 CFR 275.23(e)(4) 

(Relationship to warning process and 

negligence), 7 CFR 275.23(e)(5) (Good 

cause), and 7 CFR 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 redesignated as 7 CFR 275.23(d)(4), 

(f), and (b)(2), respectively. These 

changes are being made as 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. As indicated in the preamble of 

the proposed rule, comments were not 

being sought on the substantive content 

of these sections nor was any 

consideration going to be given to any 

comments submitted pertinent to these 

sections in developing the final rule. 

The inclusion of these sections in the 

proposed rule was done solely for 

purposes of structuring. The 

restructuring and redesignations 

described in this paragraph have been 

adopted as proposed. 

H. Elimination of Pre-Fiscal Year 2003 

Liability Establishment Procedures 

The interim rule, published October 

16, 2003, at 68 FR 59515, revised 7 CFR 

275.23(e) to eliminate procedures for 

establishing liabilities for Fiscal Years 

1983 through 1991. We are adopting as 

final the revisions to 7 CFR 275.23(e) 

that eliminated procedures for 

establishing liabilities for Fiscal Years 

1983 through 1991. 

Section 275.23(e)(2) provides 

procedures for establishing liability for 

excessive payment error rates for FY 

2002. We proposed removing 7 CFR 

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

revision of 7 CFR 275.23) as it no longer 

is necessary. All liabilities for FY 2002 

have already been determined. We are 

adopting this deletion as proposed. 

I. Determination of Payment Error Rates 

and Potential Liability Amounts 

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. 

One commenter recommended that the 

regulations incorporate the formula for 

calculating that there is a 95 percent 

confidence that error rate is greater than 

105 percent of the national average error 

rate. We have determined that this is 

unnecessary. This calculation is basic 

statistical methodology. 

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 new 

program administration activities, to 

establish up to 50 percent of the 

established liability amount as being ‘‘atrisk’’ 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. 

As discussed in the preamble of the 

proposed rule, at the same time as the 

Department advises the State agency of 

its error rates, 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. 

We received two comments on the 

interim rule provision establishing 

procedures for addressing the 

Secretary’s authority to resolve the 

liability amounts for FY 2003 and 

beyond. 

One commenter recommended that 

liabilities be resolved only through the 

use of new investment. This would 

require the Department to waive 50 

percent of any potential liability amount 

that is established. The Department does 

not believe that this was the intent of 

the law and is not adopting this 

proposal. 

In the proposed rule, 7 CFR 275.23(c) 

specified that the Department would 

issue the potential liability amount 

settlement proposal at the same time it 

issues the State’s official regressed 

payment error rate. One comment to the 

interim rule recommended that the 

Department delay sending the 

determination about the disposition of 

the liability amount until September 

30th, and use the time between the 

issuance of the error rates and the 

potential liability amount and 

September 30th to negotiate a proposed 

liability settlement plan. Under this 

proposal, the Department would retain 

the ability to determine amounts to be 

designated as ‘‘at-risk.’’ The Department 

has considered the commenter’s 

proposal. However, assuming that the 

statute allows for the delay, the time 

constraints built into the process do not 

allow us to proceed as proposed. If the 

error rates are issued on June 30, there 

are only 92 days available to negotiate 

settlements. The Department’s 

experience has been that it takes all of 

that time just to address the issues 

surrounding approval of the settlement 

agreement for new investment. 

Therefore, we have not adopted the 

proposal submitted in response to the 

interim rule to delay release of the 

proposed potential liability amount 

settlement plan until after negotiation 

with the affected States. 

J. Appeals of Liability Determinations 

One commenter, in response to the 

interim rule, recommended that the 

regulations should provide that the 

notification letter sent to the State 

agency, Governor, and legislature 

include a notification of the State 

agency’s appeal rights pursuant to 

Section 16(c)(8)(D). As a general 

practice, the letters sent by the 

Department already include this 

information. We do not believe that it is 

necessary to incorporate a requirement 

in the regulations that the Department 

include this information in the letters. 

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

Nutrition Act, as amended, provides 

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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 and Nutrition Act, as 

amended. Thus, only a State agency’s 

second year error rate and related 

potential 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 proposed at 7 CFR 

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, the Department also proposed 

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. 

We received two comments on the 

proposal 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. One commenter 

supported the provision as proposed. 

The second commenter expressed 

concern that the proposed rule makes 

no provision for good cause from the 

year prior to year one to be considered 

in determining the status of year 1. As 

discussed in the preamble to the 

proposed rule and above, there is no 

appeal right for a determination of a 

year 1 status. Appeal rights only exist 

when a potential liability amount is 

established in year 2 and only that 

year’s error rate and potential liability 

amount are appealable. 

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. Six percent is the potential 

liability threshold provided in the 

FSRA. Thus, if the State’s error rate was 

below 6 percent, no liability amount 

would be established. However, if the 

State’s error rate was determined by a 95 

percent statistical probability to be 105 

percent of the national performance 

measure, 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 would have two 

consecutive years of error rates 

exceeding 105 percent of the national 

performance measure. The law 

mandates that a year be considered a 

year 1 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 year 1 

status. We received one comment 

addressing the relationship between the 

threshold for establishing a liability 

amount and the determination of year 1 

status. The commenter recommended 

that a State be considered to be meeting 

minimum performance standards and 

that it not be counted as a year 1 

whenever a State’s error rate fell below 

6 percent but there was a 95 percent 

statistical probability that the State 

agency’s payment error rate exceeded 

105 percent of the national performance 

measure. While we understand the 

State’s viewpoint, these separate 

measurements are provided by law and 

the Department has no discretion in this 

area. 

Section 4118 of the FSRA provides 

that when a State agency appeals its 

potential liability amount 

determination, if the State agency began 

new investment activities prior to an 

appeal determination, and if the 

potential 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. 

As specified in the interim rule, if the 

State agency appeals the potential 

liability amount and wholly prevails 

and consequently its potential 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 

potential liability amount subject to the 

appeal. 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 

published October 16, 2003, at 68 FR 

59519 established in 7 CFR 

275.23(e)(10) the provisions concerning 

either the Secretary or the State agency 

wholly prevailing. These provisions 

were moved to 7 CFR 275.23(g)(1) in the 

proposed rule. The provisions of the 

interim rule, redesignated as 7 CFR 

275.23(g)(1) by the proposed rule, are 

adopted as final. 

Section 16(c)(1)(F)(iv) of the Food 

Stamp Act (as amended by Section 4118 

of the FSRA) (now the Food and 

Nutrition Act of 2008) provides that the 

Department shall promulgate 

regulations when neither the 

Department nor the State agency wholly 

prevails on appeal. As that section of 

the Act pertains specifically to liability 

amounts used for new investment, the 

Department needed to address a split 

appeals decision in terms of the amount 

designated for new investment. The 

Department believed that the only way 

to accomplish this and implement the 

statutory intent was to apply the initial 

determination percentages to the 

liability amount newly established 

through the appeal. For example, if the 

original liability was $750,000 and the 

Department determined to waive 25 

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

percent ($187,500) be newly invested, 

and require 50 percent ($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 percent ($150,000 

waived, 25 percent ($150,000) required 

to be newly invested, and 50 percent 

($300,000) placed at-risk. Using the 

original percentages, immediate action 

can be taken by both parties to process 

the results of the appeal decision. The 

Department received no comments on 

this proposal. We are adopting the 

provision as proposed. 

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 at the same time that it 

provides the State agency with 

notification of its error rates. If the State 

agency wholly prevails on appeal, the 

amounts originally designated as 

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waived, newly invested, or at-risk 

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. 

K. 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 approved 

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. 

We proposed 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 proposed to 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 proposed 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 

proposed 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 7 CFR 275.23. In the event that a 

State agency fails to comply with its 

new investment plan, we proposed in 

redesignated 7 CFR 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 proposed that interest shall 

be charged beginning with the date the 

State agency received the notice of 

failure to newly invest as required. The 

Department received no comments on 

these proposals. We are adopting these 

provisions as proposed. 

L. Payment of At-Risk Money 

We proposed at 7 CFR 275.23(i) the 

procedures concerning a State agency’s 

payment of the at-risk money. We 

proposed that the at-risk money would 

become due if, in the year subsequent to 

the establishment of the money being atrisk, the State agency is again 

potentially liable for a sanction. Under 

the proposal, payment would have to 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 atrisk for the FY 2004 liability would be 

due by September 30, 2006 unless an 

appeal for the FY 2004 liability was still 

pending. If the State agency had 

appealed the liability determination, the 

State agency would 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 

had been completed. Appeal of a 

subsequent liability amount would not 

have eliminated the State’s requirement 

to pay the at-risk money when it became 

due. The appeal of the subsequent year’s 

liability amount would determine 

whether the liability that year would be 

reduced and would affect the 

establishment of a possible additional 

designation of at-risk money. 

We did not receive any comments on 

this proposal. However, subsequent to 

the publication of the proposed rule, we 

have determined that a precise reading 

of the law requires that payment of the 

at-risk money be held in abeyance until 

any appeal for the subsequent year’s 

potential liability is resolved. If the 

potential liability amount for the 

subsequent year is reduced to zero, the 

at-risk money would not be subject to 

repayment. If the potential liability 

amount is not reduced to zero, the atrisk money would be required to be 

repaid. We have revised 7 CFR 275.23(i) 

accordingly. 

If an appeal is not pending, we 

proposed that interest begin accruing 

beginning October 1 following the 

September 30 due date for payment of 

any at-risk money. 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 

proposed 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 current 

regulations at 7 CFR 275.23(e)(8) 

(redesignated as 7 CFR 275.23(j)) for 

payment of interest on QC liability 

claims. We also proposed 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 7 CFR 275.23(j). The 

reference to the Federal Claims 

Collection Act of 1966 (Pub. L. 89–508, 

80 Stat. 308) has been updated to refer 

to the Debt Collection Improvement Act 

of 1996, Public Law 104–134, and the 

Federal Claims Collection Standards, 31 

CFR Parts 900–904. The Department 

received no comments on these 

proposals and is adopting them as 

proposed. 

M. Demonstration Projects/Social 

Security Administration (SSA) 

Processing 

Demonstration project and SSA jointprocessed cases (cases processed in 

accordance with 7 CFR 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 SNAP eligibility 

and benefit calculations and SSA jointprocessed 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-byproject 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 7 CFR 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 

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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. Sections 

275.11(g), 7 CFR 275.12(h), 7 CFR 

275.13(f), and 7 CFR 275.23(c)(5) 

(redesignated in this rule as 7 CFR 

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 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 proposed to revise 7 CFR 

275.11(g) and redesignated 7 CFR 

275.23(b)(1) to provide that 

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. The 

Department received two comments 

supporting the proposed revisions. We 

are adopting the revisions as proposed. 

N. 120-Day Variance Exclusion (7 CFR 

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. Paragraph 

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 proposed to clarify 

the language in 7 CFR 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 

proposed to modify the provision to 

indicate that the variance exclusion may 

be authorized on a case-by-case basis in 

the instance of optional legislative or 

regulatory changes, not just mandatory 

changes. However, we did not propose 

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. The 

Department received 6 comments on 

this proposal; 4 commenters supported 

the proposal as written; one commenter 

wanted the exclusion to apply to all 

optional regulatory and legislative 

provisions; one commenter wanted the 

exclusion to apply to waivers. We have 

adopted the provision as proposed. 

O. Federal Information Exchange (FIX) 

Errors (7 CFR 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. Paragraph 

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 for program management 

purposes 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. 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 

proposed to remove 7 CFR 275.12(f)(3). 

We received 4 comments supporting 

this proposed removal, all supporting 

the change. We are adopting it as 

proposed. 

P. Technical Changes 

In addition, we proposed in Part 271 

Definitions to remove definitions no 

longer used in the QC system and to add 

the definition ‘‘National performance 

measure’’ to reflect current QC policy, 

and we also proposed to make technical 

changes throughout Part 275 to remove 

references to other Federally mandated 

QC samples, the Worksheet for 

Integrated AFDC, Supplemental 

Nutrition Assistance Program, and 

Medicaid QC Reviews, and the 

Integrated Review Schedule. With the 

passage of the Personal Responsibility 

and Work Opportunity Reconciliation 

Act of 1996, Public Law 104–193, the 

Aid to Families with Dependent 

Children was eliminated and 

consequently, the integrated QC review 

system was eliminated. Therefore, we 

proposed to change throughout Part 275 

the titles of the Work Sheet and Review 

Schedule to reflect that QC reviews are 

now Supplemental Nutrition Assistance 

Program only reviews. We also 

proposed to remove throughout Part 275 

references to integrated QC samples, 

reviews, and other Federally-mandated 

QC systems. 

Throughout the rule, we proposed 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, benefits are no longer being 

issued as coupons. Accordingly we 

proposed to remove references to 

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coupons in 7 CFR 275.12(c)(2) and 7 

CFR 275.13(d). 

In addition, we proposed technical 

changes throughout Part 275 to correct 

references based on changes proposed to 

be made in the proposed rule. Due to 

the restructuring of 7 CFR 275.23, many 

sections required renumbering and 

reference changes throughout 7 CFR 

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. 

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 interim rule was effective 

December 15, 2003. The proposed rule 

provided that the changes in that rule 

would be effective and be implemented 

60 days following publication of the 

final rule in the Federal Register. This 

rule finalizes both the interim rule and 

the proposed rule and is effective July 

12, 2010. The provisions in 7 CFR 271.2, 

7 CFR 275.11(e)(2)(i), 7 CFR 

275.11(e)(2)(ii), 7 CFR 275.13(b), and 7 

CFR 275.13(c)(1) concerning negative 

cases and 7 CFR 273.2(d)(2) concerning 

consequences to households that refuse 

to cooperate with QC reviews must be 

implemented no later than October 1, 

2011. State agencies may choose to 

implement these provisions earlier than 

October 1, 2011. A 120-day hold 

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33436 Federal Register / Vol. 75, No. 112 / Friday, June 11, 2010 / Rules and Regulations 

harmless is provided for 

implementation of 7 CFR 273.2(d)(2), 

concerning consequences to households 

who refuse to cooperate with a QC 

review. If a State agency implements the 

provision before October 1, 2011, the 

120-day hold harmless period begins on 

the date of implementation. All other 

provisions must be implemented August 

10, 2010. 

List of Subjects 

7 CFR Part 271 

Administrative practice and 

procedure, Supplemental Nutrition 

Assistance Program, Grant programs— 

social programs. 

7 CFR Part 273 

Administrative practice and 

procedures, Aliens, Claims, 

Supplemental Nutrition Assistance 

Program, Fraud, Grant programs—social 

programs, Penalties, Reporting and 

recordkeeping requirements, Social 

Security, Students. 

7 CFR Part 275 

Administrative practice and 

procedure, Supplemental Nutrition 

Assistance Program, Reporting, and 

recordkeeping requirements. 

7 CFR Part 277 

Supplemental Nutrition Assistance 

Program, Government procedure, Grant 

programs—Social programs, 

Investigations, Records, Reporting and 

recordkeeping requirements. 

■ Accordingly, 7 CFR Parts 271, 273, 

275, and 277 are amended to read 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’’. 

■ 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. 

* * * * * 

PART 273—CERTIFICATION OF 

ELIGIBLE HOUSEHOLDS 

■ 3. In § 273.2, paragraph (d)(2) is 

amended as follows: 

■ a. Revise ‘‘§ 275.3(c)(5) or 

§ 275.12(g)(1)(ii),’’ to read ‘‘§ 275.3(c)(5) 

and 275.12(g)(1)(ii) of this chapter,’’; 

■ b. Third sentence, revise the number 

‘‘95’’ to read ‘‘125’’; 

■ c. End of the third sentence revise 

‘‘§ 273.2(f)(1)(ix)’’ to read ‘‘paragraph 

(f)(1)(ix) of this section’’; 

■ d. Last sentence revise ‘‘seven’’ to read 

‘‘nine’’ and revise ‘‘§ 273.2(f)(1)(ix)’’ to 

read ‘‘paragraph (f)(1)(ix) of this 

section.’’; 

■ e. Add two new sentences 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 no longer 

resides with a household terminated for 

refusal to cooperate, the penalty for 

refusal to cooperate will attach to 

household of the person(s) who refused 

to cooperate. If the State agency is 

unable to determine which household 

member(s) refused to cooperate, the 

State agency shall determine the 

household to which the penalty shall 

apply. 

* * * * * 

PART 275—PERFORMANCE 

REPORTING SYSTEM 

§ 275.1 [Amended] 

■ 4. Section 275.1 is amended by 

removing the paragraph designation 

from paragraph (a), and removing 

paragraph (b). 

■ 5. In § 275.3: 

■ a. The introductory text of § 275.3 is 

amended by revising the term 

‘‘scheduling and conduct’’ to read 

‘‘scheduling and 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 

sentence, by revising the fourth 

sentence, and by revising 

‘‘§ 275.23(e)(6)’’ in the last sentence to 

read ‘‘§ 275.23(d)(4)’’. 

The revision reads as follows: 

§ 275.3 Federal monitoring. 

* * * * * 

(c) * * * FNS shall validate each 

State agency’s reported negative error 

rate. * * * 

* * * * * 

§ 275.4 [Amended] 

■ 6. In § 275.4, paragraph (c) is amended 

by revising the words ‘‘Integrated TANF, 

Food Stamps and Medicaid Quality 

Control Reviews’’ to read ‘‘Supplemental 

Nutrition Assistance Program’’, by 

revising ‘‘Integrated Review Schedule’’ 

to read ‘‘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 

revising ‘‘standard’’ to read ‘‘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 

revising the words ‘‘and underissuance 

error rates’’ to read ‘‘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 

revising ‘‘§ 275.23(e)(6)’’ in the third 

sentence to read ‘‘§ 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, 

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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 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. 

■ 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 revising the words 

‘‘column (5) of the Integrated 

Worksheet,’’ in the last sentence to read 

‘‘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. 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 and paragraph (f)(3) is 

removed. 

■ o. The introductory text of paragraph 

(g) is amended by removing the words 

‘‘Integrated Review Schedule,’’ in the 

last sentence. 

■ p. Paragraph (g)(1)(ii) is amended by 

removing the word ‘‘may’’ in the second 

sentence and adding in its place the 

word ‘‘must’’. 

■ q. Paragraph (g)(2)(iv) is amended by 

adding the words ‘‘of this chapter’’ after 

the reference ‘‘§ 273.17’’. 

■ r. 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 or optional 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. 

* * * * * 

■ 10. In § 275.13 is amended by revising 

paragraphs (a), (b), and (c)(1), and 

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 valid 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, 

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suspend, or terminate the case for the 

specific reason given for the action, the 

negative case shall be considered 

invalid. 

* * * * * 

§ 275.14 [Amended] 

■ 11. In § 275.14 is amended in 

paragraph (c) by revising the words 

‘‘Integrated Review Worksheet, Form 

FNS–380,’’ in the first sentence to read 

‘‘Form FNS–380’’ and in paragraph (d) 

by revising the words ‘‘Integrated 

Review Schedule,’’ in the first sentence 

to read ‘‘Integrated Review Worksheet,’’. 

■ 12. Section 275.16 is amended by 

removing paragraph (b)(2) and 

redesignating paragraphs (b)(3), (b)(4), 

(b)(5), and (b)(6) as (b)(2), (b)(3), (b)(4), 

and (b)(5), respectively; and newly 

redesignated paragraph (b)(5) is revised 

to read 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: 

■ 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 

revising the number ‘‘95’’ in the first 

sentence to read ‘‘115’’ 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 additions read as 

follows: 

§ 275.21 Quality control review reports. 

* * * * * 

(b) * * * 

(2) The State agency shall have at 

least 115 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 time 

frames 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 

125 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 time 

frames 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 Supplemental 

Nutrition Assistance Program by 

measuring State compliance with the 

standards contained in the Food and 

Nutrition 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 

determination for each individual 

project 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 

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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 

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 Time frames 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 and 

Nutrition 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 time frames 

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 time 

frame. 

(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 the 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 multiplied by 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 

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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 for each State 

agency whose payment error rate 

subjects it to a liability amount the 

following 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 cannot be 

appealed. 

(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 

Supplemental Nutrition Assistance 

Program 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 Supplemental 

Nutrition Assistance Program 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 

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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 Supplemental 

Nutrition Assistance Program 

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 percent of the liability amount; 

however, no more than 100 percent 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 

Supplemental Nutrition Assistance 

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 

Supplemental Nutrition Assistance 

Program 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 Supplemental 

Nutrition Assistance Program 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 Supplemental Nutrition 

Assistance Program 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 Supplemental 

Nutrition Assistance Program 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 

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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 

Supplemental Nutrition Assistance 

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 

Supplemental Nutrition Assistance 

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 

considered. Mathematically this formula 

could result in a waiver of more than 

100 percent of the liability amount; 

however, no more than 100 percent of 

a State’s liability amount will be waived 

for any one fiscal year. 

(4) Program changes. A change in the 

Supplemental Nutrition Assistance 

Program or other Federal or State 

program that has a substantial adverse 

impact on the management of the 

Supplemental Nutrition Assistance 

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 Supplemental Nutrition 

Assistance Program 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 Supplemental Nutrition 

Assistance Program or other Federal and 

State programs: 

(1) State efforts to control impact on 

program operations; 

(2) The proportion of Supplemental 

Nutrition Assistance Program caseload 

affected; and/or 

(3) The duration of the unusual 

changes in the Supplemental Nutrition 

Assistance 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) The State agency shall provide the 

following information 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 

Supplemental Nutrition Assistance 

Program 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 Supplemental 

Nutrition Assistance Program 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 

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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. 

(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 and 

Nutrition 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 

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33444 Federal Register / Vol. 75, No. 112 / Friday, June 11, 2010 / Rules and Regulations 

of the date of the final billing. The 

requirement that the State agency pay 

the at-risk amount for the prior year will 

be held in abeyance pending the 

outcome of any pending appeal for the 

subsequent liability. If the subsequent 

year’s liability is reduced to $0, the atrisk money from for the prior fiscal year 

will not be required to be paid. If the 

subsequent year’s liability is not 

reduced to $0, the State agency will be 

required to pay the at-risk money within 

30 days of the date of the appeal 

decision. The amount of a State’s at-risk 

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 atrisk 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 

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 

revising ‘‘paragraphs (b)(2) and (b)(3)’’ to 

read ‘‘paragraphs (b)(1) and (b)(2)’’. 

Dated: May 27, 2010. 

Kevin Concannon, 

Under Secretary, Food, Nutrition, and 

Consumer Services. 

[FR Doc. 2010–13446 Filed 6–10–10; 8:45 am] 

BILLING CODE 3410–30–P 

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