Attachment AA Federal Register Notice - Child Nutrition Program Integrity Proposed Rule

Vol. 81

Tuesday,

No. 60

March 29, 2016

Part II

Department of Agriculture

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Food and Nutrition Service
7 CFR Parts 210, 215, 220, et al.
Child Nutrition Program Integrity; Proposed Rule

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Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules

DEPARTMENT OF AGRICULTURE
Food and Nutrition Service
7 CFR Parts 210, 215, 220, 225, 226 and
235
RIN 0584–AE08

Child Nutrition Program Integrity

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AGENCY: Food and Nutrition Service,
USDA.
ACTION: Proposed rule.
SUMMARY: This rule proposes to codify
several provisions of the Healthy,
Hunger-Free Kids Act of 2010 affecting
the integrity of the Child Nutrition
Programs, including the National School
Lunch Program (NSLP), the Special
Milk Program for Children, the School
Breakfast Program, the Summer Food
Service Program (SFSP), the Child and
Adult Care Food Program (CACFP) and
State Administrative Expense Funds.
The Department is proposing to
establish criteria for assessments against
State agencies and program operators
who jeopardize the integrity of any
Child Nutrition Program; establish
procedures for termination and
disqualification of entities in the SFSP;
modify State agency site review
requirements in the CACFP; establish
State liability for reimbursements
incurred as a result of a State’s failure
to conduct timely hearings in the
CACFP; establish criteria for increased
State audit funding for CACFP; establish
procedures to prohibit the participation
of entities or individuals terminated
from any of the Child Nutrition
Programs; establish serious deficiency
and termination procedures for
unaffiliated sponsored centers in the
CACFP; eliminate cost-reimbursement
food service management company
contracts in the NSLP; and establish
procurement training requirements for
State agency and school food authority
staff in the NSLP. In addition, this
rulemaking would make several
operational changes to improve
oversight of an institution’s financial
management and would also include
several technical corrections to the
regulations. The proposed rule is
intended to improve the integrity of all
Child Nutrition Programs.
DATES: To be assured of consideration,
written comments must be postmarked
on or before May 31, 2016.
ADDRESSES: The Food and Nutrition
Service, USDA, invites interested
persons to submit written comments on
this proposed rule. In order to ensure
proper receipt, written comments must
be submitted through one of the
following methods only:

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• Preferred method: Federal
eRulemaking Portal at http://
www.regulations.gov. Follow the online
instructions for submitting comments.
• Mail: Comments should be
addressed to Andrea Farmer, Chief,
School Meal Programs Branch, Policy
and Program Development Division,
Child Nutrition Programs, Food and
Nutrition Service, Department of
Agriculture, 3101 Park Center Drive,
Alexandria, Virginia 22302–1594.
• Hand Delivery or Courier: Deliver
comments to the Food and Nutrition
Service, Child Nutrition Programs, 3101
Park Center Drive, Alexandria, Virginia
22302–1594, during normal business
hours of 8:30 a.m.–5:00 p.m., Monday
through Friday.
Comments sent by other methods not
listed above will not be able to be
accepted and subsequently, not posted.
All comments submitted in response to
this proposed rule will be included in
the record and will be made available to
the public. Duplicate comments are not
considered. Please be advised that the
substance of the comments and the
identity of the individuals or entities
submitting the comments will be subject
to public disclosure. The Department
will make the comments publicly
available on the Internet via http://
www.regulations.gov.
FOR FURTHER INFORMATION CONTACT:
Mandana Yousefi, Community Meal
Programs Branch, Policy and Program
Development Division, Child Nutrition
Programs, Food and Nutrition Service at
(703) 305–2590.
SUPPLEMENTARY INFORMATION:
I. Public Comment Procedures
II. Executive Summary
III. Background and Discussion of the
Proposed Rule
IV. Procedural Matters

I. Public Comment Procedures
Your written comments on the
proposed rule should be specific,
should be confined to issues pertinent
to the proposed rule, and should
explain the reason(s) for any change you
recommend or proposal(s) you oppose.
Where possible, you should reference
the specific section or paragraph of the
proposal you are addressing. We invite
specific comments on various aspects of
the rule as described later in this
preamble. We also invite comments
from State agencies, sponsors, and
providers on the administrative cost of
compliance with any of the provisions
in the rule. Additionally, we invite
comments on the potential impact of the
changes in the proposed rule on
Program access, particularly in areas
through the country where there are a
limited number of providers available to

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operate the Programs. Comments
received after the close of the comment
period (refer to DATES) will not be
considered or included in the
Administrative Record for the final rule.
We also invite your comments on how
to make these proposed regulations
easier to understand, including answers
to questions such as the following:
(1) Are the requirements in the
proposed regulations clearly stated?
(2) Does the rule contain technical
language or jargon that interferes with
its clarity?
(3) Does the format of the rule (e.g.,
grouping and order of sections, use of
headings, and paragraphing) make it
clearer or less clear?
(4) Would the rule be easier to
understand if it was divided into more
(but shorter) sections?
(5) Is the description of the rule in the
preamble section entitled ‘‘Background
and Discussion of the Proposed Rule’’
helpful in understanding the rule? How
could this description be more helpful
in making the rule easier to understand?
II. Executive Summary
Purpose of the Regulatory Action
This proposed rule would codify
several provisions of the Healthy,
Hunger-Free Kids Act of 2010 (HHFKA),
Public Law 111–296, that affect the
integrity of the Child Nutrition
Programs, including the National School
Lunch Program (NSLP), the Special
Milk Program for Children (SMP), the
School Breakfast Program (SBP), the
Summer Food Service Program (SFSP),
the Child and Adult Care Food Program
(CACFP), and State Administrative
Expense Funds (SAE). In addition, this
rule would incorporate policy changes
resulting from several findings from
recently conducted targeted
management evaluations of the CACFP
by the Food and Nutrition Service
(FNS), and USDA Office of Inspector
General audit findings, as well as other
miscellaneous revisions to the
regulations. The rule is intended to
improve the integrity of all Child
Nutrition Programs.
USDA anticipates that the provisions
under this proposed rule would be
implemented 90 days following
publication of the final rule, with the
exception of those related to CACFP
audit funds and those related to
assessments against State agencies and
program operators. The provision
granting eligible State agencies
additional CACFP audit funds will be
implemented upon publication of the
final rule. Because States and school
districts have been working diligently to
implement the provisions of the

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Healthy, Hunger-Free Kids Act, USDA
anticipates that the provision
establishing criteria for assessments
against State agencies and program
operators would be implemented one
school year following publication of the
final rule to provide entities the time
they need to complete successful
implementation.
Summary of the Major Provisions of the
Regulatory Action
The major provisions addressed in
this rule are:
Section 303 of the HHFKA: Fines for
Violating Program Requirements—
Section 303 of the HHFKA requires the
Secretary to establish criteria for the
imposition of fines in the Child
Nutrition Programs, referred to as
assessments in this proposed rule. An
assessment refers to a required payment
of funds from non-Federal sources.
Under section 303, the Secretary or a
State agency may establish an
assessment against any school food
authority or school administering the
Child Nutrition Programs if the
Secretary or the State agency determines
that the school or school food authority
failed to correct severe mismanagement
of any program, failed to correct
repeated violations of program
requirements, or disregarded a
requirement of which they have been
informed. Section 303 also provides the
Secretary the authority to establish an
assessment against any State agency if
the Secretary determines the State
agency has failed to correct severe
mismanagement of any program, failed
to correct repeated violations of program
requirements, or disregarded a
requirement of which they have been
informed.
Section 322 of the HHFKA: SFSP
Disqualification—Section 322 requires
the Secretary to establish procedures for
the termination and disqualification of
entities participating in the SFSP, to
maintain a list of entities that have been
terminated or disqualified from SFSP,
and to make this list available to States
for use in approving or renewing service
institutions’ applications for SFSP
participation.
Section 331(b) of the HHFKA: State
Agency/Sponsor Review Requirements
in the CACFP—Section 331(b) requires
the Secretary to develop for State
agencies additional criteria or priorities
for use in choosing institutions for
review, including institutions at risk of
having serious management problems
and institutions conducting activities
other than the CACFP.
Section 332 of the HHFKA: State
Liability for Payments to Aggrieved
Child Care Institutions—Section 332

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requires State agencies to pay all valid
claims for reimbursement, from nonFederal sources, if the required
timeframes for a fair hearing are not
met.
Section 335 of the HHFKA: CACFP
Audit Funding—Section 335 allows the
Department to increase the amount of
audit funds made available to a CACFP
State agency if the State agency
demonstrates it can effectively use the
funds to improve Program management
in accordance with criteria established
by the Department.
Section 362 of the HHFKA:
Disqualified Schools, Institutions, and
Individuals—Section 362 makes any
school, institution, service institution,
facility, or individual that has been
terminated from any Child Nutrition
Program and who is on the CACFP or
SFSP National Disqualified List
ineligible for participation in or
administration of any Child Nutrition
Program.
Costs and Benefits
While all entities—school food
authorities, schools, institutions,
sponsors sites, sponsoring
organizations, day care centers and State
agencies—administering Child Nutrition
Programs will be affected by this
rulemaking, the economic effect is not
expected to be significant as explained
below.
III. Background and Discussion of the
Proposed Rule
The Department is proposing to
amend the regulations for the NSLP,
SMP, SBP, SFSP, CACFP, and SAE
found at 7 CFR parts 210, 215, 220, 225,
226 and 235, respectively. These
changes are intended to improve the
integrity of the affected Child Nutrition
Programs.
The proposed changes respond to
provisions of the HHFKA, findings from
management evaluations of the CACFP
by the Department and from an audit by
the Department’s Office of Inspector
General. In addition, the proposal
includes technical corrections and other
miscellaneous revisions to the
regulations. Each of the proposed
changes is discussed in detail below.
The Department recognizes that the
provisions in this proposed rule impact
many aspects of State administration of
Child Nutrition Programs. As a result,
the Department will provide guidance
and technical assistance to State
agencies to ensure successful
implementation of this regulation.
USDA anticipates that the provisions
under this proposed rule would be
implemented 90 days following
publication of the final rule, with the

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exception of those related to
assessments against State agencies and
program operators and CACFP audit
funds. The provision establishing
criteria for assessments against State
agencies and program operators would
be implemented one school year
following publication of the final rule.
The provision granting eligible State
agencies additional CACFP audit funds
will be implemented upon publication
of the final rule.
Proposed Changes in Response to the
HHFKA
Section 303 of the HHFKA: Fines for
Violating Program Requirements
Section 303 of the HHFKA amended
section 22 of the Richard B. Russell
National School Lunch Act (NSLA) (42
U.S.C. 1769c) to require the Secretary to
establish criteria by which the Secretary
or the State agency may impose a fine,
referred to in this proposed rule as an
assessment, against any school food
authority or school administering a
program authorized under the NSLA or
the Child Nutrition Act of 1966 (42
U.S.C. 1771 et seq.) (CNA). An
assessment refers to a required payment
of funds from non-Federal sources. The
provision also authorizes the Secretary
to establish an assessment against any
State agency administering a program
under the NSLA or the CNA.
Assessments established pursuant to
section 303 are limited to those
situations where a school, school food
authority, or State agency has failed to
correct severe mismanagement of any
program, disregarded a requirement of
which it has been informed, or failed to
correct repeated violations of program
requirements.
The provision implies that an
assessment would be established only in
situations where the regular monitoring,
oversight, corrective action and
technical assistance processes used by a
State agency or the Department do not
result in correction of identified
program violations. It is important to
note that the statutory scheme only
anticipates assessments be established
in instances of severe mismanagement
of a program, disregard of a program
requirement of which the program
operator had been informed, or failure
to correct repeated violations. These
criteria suggest that violations that
would result in assessments would be
egregious or persistent in nature,
remaining unresolved after the normal
monitoring and oversight activities have
failed to secure corrective action.
Current program regulations require
rigorous FNS and State agency
monitoring and oversight. For example,
in accordance with 7 CFR part 210.29,

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FNS conducts management evaluations
of State agencies administering the
NSLP and SBP based on relative-risk for
program administration issues, rather
than by a calendar cycle. At a minimum,
each State agency receives a
management evaluation once every five
years to assess compliance with all
aspects of the State agency’s operation
of the NSLP and SBP. Any findings are
recorded in the management evaluation
report and are either immediately
corrected or a corrective action plan is
implemented with subsequent followup activity until the violations are
corrected. In addition, the monitoring
and oversight process for the NSLP and
SBP calls for a State agency
administrative review of each school
food authority once every three years.
As part of the 7 CFR 210.18
administrative review requirements,
State agencies must assess a school food
authority’s compliance with specific
performance standards as well as with
general areas of review. School food
authorities failing to demonstrate
compliance must develop a corrective
action plan and take corrective actions
to ameliorate the problem. The State
agency must assess the corrective
actions taken, provide any needed
technical assistance, recover any
improperly paid Federal funds, and if
needed, conduct a follow-up review.
Generally, State agencies and school
food authorities work together to correct
Program violations for the betterment of
the Program and the children they serve.
However, there have been cases, albeit
few, where program operators have
failed to correct Program violations
through the normal administrative
review requirements and technical
assistance. This proposed rule would
provide both the Department and State
agencies the authority to establish an
assessment after the normal monitoring
and oversight activities have been
unsuccessful in correcting program
violations. The Department anticipates
assessments would be established only
on rare occasions in securing corrective
action. However, it should serve as a
useful tool when egregious or persistent
disregard of Program requirements
occurs.
Amendatory language under this
proposed rule would affect the NSLP,
SMP, SBP, SFSP, CACFP, and USDA
Donated Foods in schools and
institutions. The Department published
proposed regulation ‘‘Fresh Fruit and
Vegetable Program’’ in the Federal
Register on February 24, 2012 (77 FR
10981), which would establish the basic
structure of the Fresh Fruit and
Vegetables Program (FFVP), and related
requirements, as authorized under

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section 19 of the NSLA (42 U.S.C.
1769a). While the authority set forth in
section 303 also extends to the FFVP,
this proposed rule does not include
amendatory changes relating to the
FFVP, as the FFVP regulations have not
yet been codified. It is the intention of
the Department to incorporate language
identical to that proposed at § 210.26(b)
to extend the authority provided under
section 303 to the FFVP when that rule
is finalized. Any comments related to
assessments established in the FFVP
under section 303 should be submitted
to the Department in response to this
proposed rulemaking.
Section 303 prescribes upper limits
on the amount of the assessments that
can be established against any school
food authority, school, and State agency.
In calculating assessments against
school food authorities and schools, the
Department is directed to base the
amount on the reimbursement earned by
the school food authority or school for
the program in which the violation
occurred. The amount of the assessment
may not exceed the equivalent of:
• For the first assessment, 1 percent
of the amount of meal reimbursements
earned for the fiscal year;
• For the second assessment, 5
percent of the amount of meal
reimbursements earned for the fiscal
year; and
• For the third or subsequent
assessment, 10 percent of the amount of
meal reimbursements earned for the
fiscal year.
In calculating assessments established
against State agencies, the Department is
directed to base the amount on the SAE
funds made available to the State agency
for the State agency’s administration of
the Child Nutrition Programs. Therefore,
the amount of the assessment is based
on SAE funds for all Child Nutrition
Programs, not only SAE support earned
by the program in which the violation
occurred. The amount of the assessment
may not exceed the equivalent of:
• For the first assessment,1 percent of
funds made available for SAE during the
fiscal year;
• For the second assessment, 5
percent of funds made available for SAE
during the fiscal year; and
• For the third or subsequent
assessment, 10 percent of the amount
funds made available for SAE during the
fiscal year.
The proposed regulation bases these
limits on the most recent fiscal year for
which meal reimbursements or SAE
allocations closeout data are available.
Finally, section 303 specifies that funds
used to pay an assessment must be
derived from non-Federal sources. This
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is expected to serve as a deterrent to
those State and local program operators
who disregard the program
requirements of any Child Nutrition
Program.
This rule proposes to amend the
regulations for the NSLP, SMP, SBP,
SFSP, and CACFP at §§ 210.26(b),
215.15(b), 220.18(b), 225.18(k), and
226.25(i) to codify the authority to
establish an assessment, identify the
violations for which an assessment
would be established, and establish the
monetary limits to which an assessment
may be imposed, as outlined in the
NSLA.
Section 303 authorizes the Secretary
or a State agency to establish
assessments against school food
authorities and schools administering
any Child Nutrition Program. However,
in addition to school food authorities
and schools, other types of institutions
operate the Child Nutrition Programs in
accordance with the statutory and
regulatory framework. Institutions, sites,
sponsors, day care centers, and day care
providers also may operate under the
SMP, SFSP, or CACFP.
Investigations conducted by the
USDA OIG and management evaluations
of State agencies conducted by the
Department identified problems in the
Child Nutrition Programs associated
with non-school Program operators. In
2006, OIG conducted an audit of the
SFSP in California and Nevada which
found the majority of private nonprofit
sponsors reviewed to be noncompliant
in Program requirements related to meal
counts, costs and income reporting, as
well as State health and safety code
requirements. In addition, the Child
Care Assessment Project (CCAP) Final
Report, published by the Department in
July 2009, identified inaccurate meal
counts and menu records by providers
and private nonprofit sponsoring
organizations and a failure to employ
the serious deficiency process as
intended. These findings indicate
patterns of non-compliance in CACFP
and SFSP by entities/institutions which
are not school food authorities or
schools. OIG has several audits
currently underway, including a review
of management controls in the CACFP,
areas of risk assessment in the CACFP
and a follow up of the 2006 SFSP audit
in California and Nevada. The findings
of these audits can be found in the
Review of the Management Controls in
the CACFP Final Report published by
the Department in November 2011.
With these findings in mind and
consistent with the Department’s
authority in Section 10(a) of the CNA,
42 U.S.C. 1779(a), to promulgate
regulations necessary to carry out the

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Child Nutrition Programs, this rule
would extend to all entities that have an
agreement with the State agency. Thus,
this proposed rule would apply to
school food authorities, schools,
institutions, sites, sponsors, day care
centers, and day care providers. The
resultant rule would ensure program
integrity and equitable treatment of all
participating entities and institutions.
Given the fiscal consequences of this
provision, the Department would
provide school food authorities,
institutions, and sponsors the
opportunity to appeal any assessment
established pursuant to this regulatory
authority. School food authorities,
institutions, and sponsors administering
the NSLP, SFSP, and CACFP currently
have the ability to appeal fiscal action
through the existing administrative
review process in the NSLP, SFSP, and
CACFP regulations. This proposed rule
would expand current regulatory appeal
rights to include any assessment
established pursuant to this regulatory
authority and would extend those
appeal rights and procedures to both the
SMP and SBP. To ensure the appeal
process is completed on a timely basis,
this proposed rule would make the
determination of the State agency
review official final and not subject to
further administrative review. The
proposed rule also would require the
State agency to notify the Department at
least 30 days prior to establishing an
assessment.
Finally, the proposal would provide
the Department and the State agency the
authority to suspend or terminate the
participation of an entity if the
established assessment is not paid.
This rule also proposes to amend the
SAE regulations at § 235.11(c) to
incorporate the Department’s authority
to establish an assessment against a
State agency, the violations for which an
assessment would be established, and
the monetary limits to which an
assessment may be established.
The proposed rule would expand the
current criteria previously established
in regulation for establishing an
assessment to include the State’s failure
to correct both State and local
mismanagement of the program as a
violation for which an assessment may
be established. This reflects the State
agencies’ responsibility for ensuring the
proper administration of the programs at
both the State and local level.
As with program operators, this
proposed rule would provide State
agencies the ability to appeal any
assessment established through the
existing administrative review process
for State agencies in § 235.11(g), would
make the determination of the

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Department review official in any
appeal final and not subject to further
administrative or judicial review, and
would provide the authority for the
Department to suspend or terminate the
participation of the State agency if the
State agency failed to pay the
assessment.
Finally, the proposed rule would
require that all assessments and any
interest charged would be collected and
paid to the Department and transmitted
to the U.S. Department of the Treasury.
Funds received by and from the State
agencies as a result of assessments must
be paid from non-Federal sources. As
such, the funds could not be used by the
Department.
Accordingly, proposed rule changes
are found at §§ 210.18(q), 210.26(b),
215.15(b), 220.18(b), 225.13(a),
225.18(k), 226.6(k)(2)(xii), 226.25(i), and
235.11(c) and (g).
Section 322 of the HHFKA: SFSP
Disqualification
Section 322 of the HHFKA amended
section 13 of the NSLA (42 U.S.C. 1761)
by adding a new paragraph (q),
Termination and Disqualification of
Participating Organizations. Under this
new authority, State agencies are
required to follow the procedures for the
termination of participation of
institutions in the SFSP established by
the Secretary. The procedures for
termination must include a provision
for a fair hearing and prompt
determination for any service institution
aggrieved by any action of the State
agency that affects the participation of
the service institution in the SFSP or the
claim of the service institution for
reimbursement. The Secretary is
required to maintain a list of institutions
and individuals that have been
terminated or otherwise disqualified
from participation in the SFSP and to
make the list available to States for use
in approving or renewing applications
by institutions for participation in the
SFSP.
Prior to enactment of the HHFKA, the
Department and State agencies did not
have the authority to disqualify SFSP
sponsors. Current regulations at
§ 225.11(c) only provide authority to
terminate sponsor participation. These
regulations prohibit State agencies from
entering into an agreement with any
applicant sponsor, or allowing
participation in the Program, of a
sponsor that was seriously deficient in
its operation of the SFSP, or any other
Federal Child Nutrition Program.
Additionally, State agencies are
required to terminate the Program
agreement with any sponsor determined
to be seriously deficient and provide a

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sponsor reasonable opportunity to
correct problems before termination.
Current regulations indicate the types of
serious deficiencies which are grounds
for disapproval of an application or
termination.
Current regulations at § 225.11(f)
require State agencies to terminate
participation of sites or sponsors for
failure to correct Program violations
within timeframes specified in a
corrective action plan. Additionally,
participation of a site must be
immediately terminated if there is an
imminent threat to the health or safety
of the participating children. Once
terminated, claims for reimbursement
may not be submitted. Under § 225.13,
State agencies must afford sponsors the
right to appeal termination and denial of
an application for participation.
This proposed rule would reorganize
the current SFSP regulations, amend the
current SFSP termination process, and
establish a disqualification process
similar to the process employed in the
CACFP, with modifications reflecting
the shorter duration of the SFSP. For
example, the proposed maximum
timeframe for which the corrective
action plan may be implemented in
SFSP is 10 days, whereas in the CACFP
this maximum timeframe is 90 days.
Because SFSP and CACFP are
administered by the same State agency
in many States, using similar
procedures is expected to facilitate and
streamline the implementation of the
SFSP termination and disqualification
process. Thus, the Department will
develop a National Disqualified List
(NDL) for SFSP that is modeled after the
current CACFP NDL.
The proposed rule makes a number of
changes throughout the SFSP
regulations in order to present a holistic
approach to the termination and
disqualification process. An overview of
the proposed changes follows.
The proposed rule would add the
following definitions to § 225.2,
Definitions. These definitions are
generally consistent with those set forth
in the CACFP regulations at § 226.2:
• Administrative review means a fair
hearing provided upon request to an
entity that has been given notice by the
State agency of any action that will
affect their participation or
reimbursement in the SFSP.
• Administrative review official
means the independent and impartial
official who conducts the administrative
review.
• National disqualified list mean a
list, maintained by the Department, of
sponsors, responsible principals, and
responsible individuals disqualified
from participation in the SFSP.

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• Responsible principal or
responsible individual means a sponsor
principal, any other individual
employed by, or under contract with, a
sponsor, or an individual not
compensated by the sponsor,
determined to be responsible for a
sponsor’s serious deficiency.
• Seriously deficient means the status
of a sponsor that has been determined
to be non-compliant in one or more
aspects of its operation of the Program.
• State agency list means a list
maintained by the State agency, which
includes a synopsis of information
concerning seriously deficient sponsors
and which must be updated throughout
all stages of the termination and
disqualification process.
Maintaining a State agency list is a
new requirement for State agencies
under this proposed rule.
Under current § 225.6(b), Approval of
sponsor applications, paragraph (b)(9)
prohibits the State agency from
approving the application of any
applicant sponsor that has been
determined to be seriously deficient.
However, the State agency may approve
the application of a sponsor that has
been disapproved or terminated in prior
years if the applicant demonstrates to
the satisfaction of the State agency that
it has taken appropriate corrective
actions to prevent recurrence of the
deficiencies. This proposed rule would
expand paragraph (b)(9) to require the
State agency to develop policies and
procedures to confirm that serious
deficiencies have been fully and
permanently corrected. This
confirmation must address the
circumstances that led to the serious
deficiency, the responsible parties, the
timeframe for corrective action, and
policies and/or procedures that are in
place to avoid recurrence of the serious
deficiency within the same Program
year or in subsequent Program years.
Under current Program regulations at
§ 225.6(c), Content of sponsor
application, paragraph (c)(1) establishes
basic application requirements, and
paragraph (c)(2)(ii) requires new
sponsors and sponsors that have
experienced significant operational
problems in the prior year to include
additional information in their
application.
This rule proposes to expand
paragraph (c)(1) to require the
application to include the following
information: Full legal name; any
previously used names; mailing address;
and date of birth of the sponsor’s
principals, which includes, but is not
limited to, the Executive Director and
Chairman of the Board of Directors; and
the sponsor’s Federal Employer

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Identification Numbers (FEIN) and/or
the Dun and Bradstreet Data Universal
Numbering System (DUNS) numbers.
This information would be included in
entries submitted by the State agency for
placement on the SFSP NDL if the
sponsor is terminated for cause. Limited
access to the SFSP NDL would be
granted to authorized State agency
personnel tasked with decisions
regarding application approvals or
terminations from participation.
However, FNS is particularly interested
in comments regarding this proposed
change and whether sponsors, in
addition to State agencies, should also
have limited access to the SFSP NDL.
In addition the proposed rule would
expand paragraph (c)(2)(ii) to require
new sponsors and sponsors who have
experienced problems in the prior year
to submit a certification, similar to that
which is required under the CACFP,
that:
• The information on the application,
as required in paragraph (c)(1) is true
and correct;
• Serious deficiencies identified
during the previous year have been fully
and permanently corrected;
• The sponsor, sites under its
jurisdiction, or any responsible
principals have not been terminated for
cause from any Child Nutrition Program
during the past seven years unless
reinstated in, or determined eligible for,
that program, including by the payment
of any debts owed, or are not currently
on the CACFP or the SFSP NDL; and
• The sponsor, sites under its
jurisdiction, or any responsible
principals have not been convicted of
any activity that occurred during the
past seven years and that indicated a
lack of business integrity.
Current Program regulations at
§ 225.6(d), Approval of sites, identifies
criteria State agencies must consider
when approving sites for participation
in the SFSP. This proposed rule would
expand the criteria in paragraph (d) to
specify that State agencies may not
approve a site if the site or its
responsible individuals are currently on
the CACFP or the SFSP NDL or have
been terminated for cause from the
NSLP, SBP, or SMP.
The proposed rule would make a
number of revisions to § 225.11,
including re-titling the section as
Administrative actions for program
violations, and reorganizing the
provisions.
Proposed § 225.11(c), List of serious
deficiencies, would revise existing
paragraph (c) to expand the list of
serious deficiencies to include:
• The submission of false information
to the State agency, including

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concealing criminal convictions, that
occurred in the past seven years and
that indicate a lack of business integrity;
• A significant number of Program
violations at a site;
• Termination or disqualification
from another Child Nutrition Program;
and
• Any action affecting a sponsor’s
ability to administer the Program in
accordance with Program requirements
Additionally, proposed paragraph (c)
would allow no more than 10 days for
corrective action to be completed,
unless otherwise approved by the
Department. If the State agency cannot
confirm that serious deficiencies have
been fully and permanently corrected,
in accordance with § 225.6(b)(9), the
sponsor would be terminated. Current
regulations do not specify a timeframe
for corrective action and CACFP
regulations allow for a timeframe of 90
days. However, given the short duration
of SFSP, the Department determined a
10-day timeframe would best meet the
needs of the SFSP in ensuring Program
integrity. State agencies, institutions,
and sites are encouraged to address the
sufficiency of the proposed 10-day
corrective action timeframe in their
comments on the rule.
Proposed § 225.11(d), Serious
deficiency procedures, would identify
the actions a State agency must take to
declare an institution or individual
seriously deficient. This proposed
paragraph is new to the SFSP and is
modeled after the CACFP serious
deficiency notification procedures
found at § 226.6(c)(1)(i),
§ 226.6(c)(1)(iii)(A), and
§ 226.6(c)(2)(iii)(A). Under the proposed
rule, if an entity is seriously deficient,
the State agency must declare it as such
and send a notification of serious
deficiency to the applicable parties. At
the same time the notice is issued, the
State agency would be required to add
applicable parties to the State agency
list, indicate that the notice of serious
deficiency(ies) has(ve) been issued,
include the basis for the serious
deficiency determination, and provide a
copy of the notice to the Department.
Proposed § 225.11(d)(4) incorporates the
required components of this notice.
Proposed § 225.11(d)(5) addresses the
proposed requirements for the State
agency list. The State agency list, as
discussed above, would include a
synopsis of information concerning
seriously deficient sponsors and would
be updated throughout all stages of the
termination and disqualification
process. The requirement to maintain a
State agency list is new to the SFSP and
is modeled after the CACFP State
agency list. As previously mentioned,

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the term, State agency list, is defined in
proposed § 225.2.
Proposed § 225.11(e), Corrective
action procedures, restates the
provisions of existing § 225.11(f)(1),
which require the sponsor to take
corrective action for violations
identified on a site review. The
proposed rule expands the corrective
action requirement for serious
deficiencies requiring a longer-term
revision of management systems,
meaning actions that require a
significant amount of time to ensure the
serious deficiency is properly
addressed. In such situations, the
proposal would require the corrective
action plan to identify serious
deficiencies and a date by which
corrective action must be completed and
would clarify the State agency’s
monitoring responsibility. At the same
time, the State agency would be
required to revise the State agency list
to indicate that the corrective action
plan has been submitted, and provide a
copy of the plan to the Department.
Proposed § 225.11(f), Successful
corrective action, would identify the
procedures a State agency must take if
the serious deficiency is fully and
permanently corrected. This proposed
paragraph is new to SFSP and is
modeled after the CACFP successful
corrective action process found at
§ 226.6(c)(1)(iii)(B) and
§ 226.6(c)(2)(iii)(B). Under the proposed
rule, the State agency would notify all
affected parties that the State agency has
accepted the corrective action. For those
sponsors whose applications were
denied, the State agency would afford a
new or renewing sponsor the
opportunity to resubmit its application.
Under the proposed rule, if the State
agency initially determines that the
sponsor’s corrective action is complete,
but later determines that the serious
deficiency has recurred, the State
agency would move immediately to
issue a notice of termination and
disqualification, which is similar to the
process used in CACFP. However, FNS
is particularly interested in comments
regarding this proposed change and
whether it would be more effective to
provide the State agency with discretion
to restart the serious deficiency process
for recurring deficiencies when
appropriate, rather than requiring
immediate termination and
disqualification.
Proposed § 225.11(g), Termination
procedures, would incorporate the
termination procedures a State agency
must take if the corrective action plan
is not successfully completed. Proposed
paragraph (g)(1) would require the State
agency to terminate the sponsor’s

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agreement if timely corrective action is
not taken to fully and permanently
correct the serious deficiency. This
paragraph is new to SFSP and is
modeled after the CACFP termination
procedures. However, the SFSP process
differs in that termination occurs
immediately following failed corrective
action, but includes an opportunity for
administrative review. As noted above
in discussing the distinctions between
the Programs’ corrective action
timeframes, the short duration of the
SFSP dictates a more immediate need to
protect Program integrity through quick
resolution of an institution’s serious
deficiencies or removal from SFSP.
Proposed paragraphs (g)(2) through
(g)(4) would restate existing SFSP
provisions requiring the State agency to
terminate a sponsor’s site if the sponsor
fails to take corrective action noted in
the State agency’s review report or if
there is an imminent threat to the health
and safety of the participating children,
and to notify any food service
management company providing meals
to a site within 48 hours of a site’s
termination.
Proposed paragraphs (g)(5) and (g)(6)
would require the State agency to
terminate an institution’s agreement if
the Department or another State
determines the institution to be
seriously deficient and subsequently
disqualifies the institution in this
Program or any other Child Nutrition
Program. Section 362 of the HHFKA
amended section 12 of the NSLA (42
U.S.C. 1760) to prohibit any school,
institution, service institution, facility,
or individual that has been terminated
from any Child Nutrition Program from
participating in or administering any
Child Nutrition Program. This provision
requires expanded access to the CACFP
or SFSP NDL allowing State agencies to
conduct oversight of sections 322 and
362 of the HHFKA.
Under proposed paragraph (g)(7), the
State agency must notify all affected
parties that the State agency has
terminated the sponsor’s agreement or
participation of the sponsor’s site. The
notice would include the procedures for
seeking an administrative review of the
State agency’s decision.
Proposed § 225.11(h), Disqualification
procedures, would identify the
disqualification procedures a State
agency must take in the event that the
time to request an administrative review
expires or when the administrative
review official upholds the State
agency’s decision.
Under the proposed rule, the State
agency must notify all affected parties
who have been disqualified. At the same
time the notice of disqualification is

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17569

issued, the State agency must update the
State agency list and provide a copy of
the notice and related information to
FNS. If the State agency does not
administer all the Child Nutrition
Programs, the State agency must notify
the State agency administering the other
programs of the disqualification. The
proposed rule would also require State
agencies to develop a process to notify
WIC State agencies of entities or
individuals terminated for cause or
disqualified. These proposed actions are
new to SFSP and are modeled after the
CACFP agreement termination and
disqualification procedures found at
§ 226.6(c)(1)(iii)(E) and
§ 226.6(c)(2)(iii)(E).
Proposed § 225.11(i), National
disqualified list, would reference the
authority of the Department to maintain
an NDL and make the list available to
all State agencies. This proposed
paragraph is new to the SFSP and is
modeled after the CACFP NDL
requirements found at § 226.6(c)(7).
Once placed on the SFSP NDL, an entity
or individual may not participate in any
of the Child Nutrition Programs in any
capacity. The entity or individual must
remain on the list until the Department,
in consultation with the State agency,
determines that the entity or individual
is no longer seriously deficient, or until
seven years have elapsed since the
disqualification, provided all debts
owed have been paid.
The Department also is proposing to
amend § 225.13, Appeal Procedures, to
include the opportunity to appeal the
termination of a sponsor’s agreement
and any other action of the State agency
affecting a sponsor’s participation, or its
claim for reimbursement. Proposed
§ 225.13(e) would require State agencies
to provide its administrative review
procedures to sponsors annually and
upon request. Under this proposal, upon
termination, sponsors would be
provided an opportunity to request an
administrative review. However,
disqualification from the Program
would not be subject to appeal.
Although current regulations at
§ 225.13(b)(1) allow sponsors to
continue operation during an appeal of
termination, unlike the procedures in
CACFP, sponsors are not eligible for
continued reimbursement during this
period. This modification is necessary
due to the short duration of the SFSP.
If the termination is ultimately upheld
upon review, the sponsor and
responsible individuals would be
disqualified; if the termination is
overturned, the sponsor would be
eligible for reimbursement for properly
documented meals served during the
review period, unless the termination

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was based on imminent danger to the
health or safety of children.
Accordingly, the proposed rule
changes are found at §§ 225.2, 225.6(b),
225.6(c)(2)(ii)(E), 225.6(c)(2)(ii)(D),
225.6(d), 225.11, 225.13(a), 225.13(e),
and 225.18(b).
Section 331(a) and 321 of the HHFKA:
Termination of Operating Agreements in
CACFP and SFSP
Section 331(a) of the HHFKA
amended section 17(d)(1) of the NSLA
(42 U.S.C.1766(d)(1)) to require all
institutions that meet the conditions of
eligibility for participation in the
CACFP to enter into permanent
agreements with the respective State
agency. Previously this was not a
requirement, but only an option for
State agencies. Similarly, section 321 of
the HHFKA amended section 13(b) of
the NSLA (42 U.S.C. 1761(b)) to require
institutions that meet the conditions of
eligibility for participation in the SFSP
to enter into permanent agreements with
the applicable State agency. State
agencies were advised of the section
331(a) and section 321 requirements for
permanent operating agreements in a
memorandum issued January 14, 2011,
Child Nutrition Reauthorization 2010:
Permanent Agreements in the Summer
Food Service Program and the Child
and Adult Care Food Program (CACFP
07–2011 and SFSP 03–2011).
Section 331(a) and section 321 allow
State agencies and institutions which
enter into permanent agreements in
either the CACFP or SFSP to terminate
a permanent agreement for convenience.
As a result, either party to the
permanent agreement may terminate the
agreement for considerations unrelated
to the institution’s performance of
program responsibilities under the
agreement. In addition, sections 331(a)
and 321 require State agencies to (1)
terminate the permanent agreement for
cause; or (2) terminate the permanent
agreement when an institution’s
participation in the program ends.
To effect the changes required by
section 331(a) in CACFP, the proposed
rule would revise § 226.6(b)(4) to
require State agencies to: (1) Terminate
an institution’s agreement whenever an
institution’s participation in the
Program ends; and (2) terminate the
agreement for cause in accordance with
CACFP regulations. In addition, the
proposed rule would allow the State
agency or institution to terminate the
agreement at the convenience of the
State agency for considerations
unrelated to the institution’s
performance of Program responsibilities
under the agreement. Examples of
termination for convenience include a

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State agency’s inability to effectively
monitor a remote location or an
institution’s desire to self-terminate. No
change is made to current regulations
prohibiting termination for convenience
once an entity has been declared
seriously deficient and corrective action
has not been completed and approved.
The proposal also would amend the
CACFP definition of Termination for
convenience in § 226.2. As currently
defined, Termination for convenience
means termination of a day care home’s
Program agreement by either the
sponsoring organization or the day care
home, due to considerations unrelated
to either party’s performance of Program
responsibilities under the agreement.
Under the proposed rule, the definition
would be expanded to include
agreements between the State agency
and an institution, and a sponsoring
organization and an unaffiliated center.
This change is intended to reflect
sections 331(a) and (c) of the HHFKA,
which require permanent operating
agreements between State agencies and
institutions and between sponsoring
organizations and sponsored centers.
The proposed rule also would amend
SFSP regulations at § 225.6(e) to
incorporate changes related to
termination for cause and end of
Program activity in the SFSP
comparable to those discussed above for
the CACFP. Because the SFSP
regulations currently do not include a
definition of Termination for
convenience, no changes are made to
the SFSP definitions.
Accordingly, the proposed rule
changes are found at §§ 225.2,
225.6(b)(4) and 225.6(c).
Section 331(b) of the HHFKA: State
Agency Sponsor Review Requirements
in the CACFP
Section 331(b) of the HHFKA
amended section 17(d) of the NSLA (42
U.S.C. 1766(d)) to direct the Department
to develop a policy for required reviews
of institutions in the CACFP. As
directed by the statute, each State
agency must conduct: (1) At least one
scheduled site visit at not less than 3year intervals to each institution to
identify and prevent management
deficiencies and fraud and abuse under
the Program and to improve Program
operations; and (2) more frequent
reviews of any institution that sponsors
a significant share of facilities
participating in the Program, conducts
activities other than the CACFP, has
serious management problems as
identified in a prior review, is at risk of
having serious management problems,
or meets such other criteria as are
defined by the Department.

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Current regulations at § 226.6(m)(6)
require State agencies to annually
review at least 33.3 percent of all
institutions participating in the CACFP
in each State. Institutions with 1 to 100
facilities must be reviewed at least once
every three years. Institutions with more
than 100 facilities must be reviewed at
least once every two years. New
institutions with five or more facilities
must be reviewed within the first 90
days of operation. This proposed rule
would amend § 226.6(m)(6) to modify
the review requirements for institutions
that must be reviewed at least every two
years. In addition to reviewing
institutions with more than 100
facilities as currently required, the
proposal also would require the State
agency to review, at least every 2 years,
institutions with 1 to 100 facilities that
conduct activities other than CACFP,
and institutions that have been
identified during a previous review as
having serious management problems,
or that are at risk of having serious
management problems. Institutions that
conduct activities other than CACFP
with more than 100 facilities are
currently reviewed at least once every
two years; therefore, the proposed rule
would not alter the review requirement
for these institutions.
Examples of criteria to be considered
as posing a risk of serious management
problems include: Change in ownership
or significant staff turnover; change in
licensing status; complaints received by
facilities, day care providers, or
participants; significant change in the
number of claims submitted; or
significant increase in the number of
sponsored facilities or day care homes.
The composition of institutions varies
throughout each State, therefore,
determining the burden placed on State
agencies by requiring more frequent
reviews of institutions is difficult to
predict. The Department asks for
comments regarding the effect this
proposed rule will have with respect to
the frequency and number of reviews
the State agency would be required to
administer.
Accordingly, the proposed rule
changes are found at § 226.6(m)(6).
Section 332 of the HHFKA: State
Liability for Payments to Aggrieved
Child Care Institutions
Section 17(e) of the NSLA (42 U.S.C.
1766(e)) requires State agencies to
provide an opportunity for a fair hearing
and a prompt determination to any
institution aggrieved by any action by
the State agency that affects either the
participation of the institution in the
CACFP or the claim of the institution for
reimbursement in the CACFP.

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Section 332 of the HHFKA amended
section 17(e) of the NSLA (42 U.S.C.
1766(e)) to require State agencies failing
to meet required timeframes in
providing a fair hearing and a prompt
determination to pay all valid claims for
reimbursement to the appellant
institution and the facilities of the
institution, using funds from nonFederal sources. The State’s liability for
these claims begins on the day after the
end of any regulatory deadline for
providing the opportunity for a fair
hearing and making the determination,
and ending on the date on which a
hearing determination is made. Section
332 directs the Department to provide
written notice of this liability to a State
agency at least 30 days prior to the
imposition of any liability for
reimbursement.
Current regulations at § 226.6(k)(5)(ix)
specify the procedures for
administrative reviews in CACFP.
Under those procedures, State agencies
must acknowledge the receipt of the
request for an administrative review
within 10 days of its receipt of the
request. Within 60 days of the State
agency’s receipt of the request for an
administrative review, the
administrative review official must
inform the State agency, the institution’s
executive director and chairman of the
board of directors, and the responsible
principals and responsible individuals
of the administrative review’s outcome.
Current regulations at
§ 226.6(c)(3)(iii)(E)(5) specify that all
valid claims for reimbursement must be
paid to the institution and the facilities
of the institution while under
administrative review unless the State
or local health or licensing officials have
cited an institution for serious health or
safety violations.
This proposed rule would make no
changes to the existing administrative
review procedures or timeframes.
However, the proposed rule at
§ 226.6(k)(5)(ii) would require the State
agency to provide a copy of the written
request for an administrative review,
including the date of receipt of the
request, to the Department within 10
days of receipt of the request. This
information would allow the
Department to track State agency
progress and timeliness in meeting the
required administrative review
timeframe.
The proposed rule at § 226.6(k)(5)(ix)
would inform State agencies failing to
meet the required timeframe for
providing a fair hearing and a prompt
determination of their liability to pay all
valid claims for reimbursement to the
institution. Under § 226.6(k)(11) of the
proposal, a State agency that fails to

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meet the 60-day timeframe set forth in
paragraph (k)(5)(ix) would pay all valid
claims for reimbursement to the
institution during the period beginning
on the 61st day and ending on the date
on which the hearing determination is
made. The Department would notify the
State agency of its liability for all valid
claims for reimbursement to an
aggrieved institution(s) at least 30 days
prior to imposing any liability. Liability
for reimbursement would begin 61 days
following the State agency’s receipt of a
request for an administrative review and
end on the date on which a hearing
determination is made. During this
period, the State agency would be
required to pay from non-Federal
sources all valid claims for
reimbursement to the aggrieved
institution. The Department expects
State agencies to assess the validity of
such claims using the same standards
used to review all claims for
reimbursement. The Department would
monitor the approval and payment of
such claims during management
evaluations to ensure State agencies act
in good faith when assessing the
validity of claims once State liability is
imposed. This proposed requirement is
expected to improve State compliance
with the required timeframes for fair
hearings, thus improving the
stewardship of Federal funds.
During fiscal years 2010 and 2011, the
Department conducted CACFP Targeted
Management Evaluations (TMEs) of
State agencies administering the CACFP
to identify patterns of regulatory noncompliance with the serious deficiency
process. For the 10 most recent appeals
of a Notice of Proposed Termination,
State agencies were asked to determine
the average number of days elapsed
between the State agency’s receipt of an
institution’s request and the date of the
administrative review official’s
decision. Of the 21 State agencies for
which TMEs were completed in FY
2010 and for which appeal data was
provided, on average, 9 completed the
administrative review process within
the required 60 days; 13 within 90 days;
and 14 within 120 days. In some
instances, the date on which a hearing
determination was made was hundreds
of days after receipt of the State agency’s
request for an administrative review,
resulting in appellants continuing to
earn Federal reimbursement for long
after the required 60-day review period
had elapsed. Shifting the responsibility
to State agencies for payments to
aggrieved child care institutions is
expected to serve as a deterrent to those
State agencies that have habitually
failed to meet the required timeframes.

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The Department considered changing
the 60-day timeframe currently set forth
in § 226.6(k)(5)(ix) to alleviate any
burden State agencies may face as a
result of financial and/or administrative
challenges. However, the 60-day
timeframe is intended to provide those
seeking administrative review with a
prompt determination while protecting
the use of Federal funds against
noncompliant entities. The TME
findings do not provide a clear
resolution to meeting these
counterbalancing priorities. Thus, the
Department is requesting comments on
the 60-day timeframe and any
modification which would meet State
needs without compromising the need
for a timely decision for the appellant
and maintaining CACFP integrity.
Finally, the proposed rule at
§ 226.6(k)(11)(ii) would afford a State
agency the opportunity to seek a
reduction or reconsideration of its
liability by submitting to the
Department information concerning the
State’s liability for reimbursement to an
aggrieved institution, including
information regarding any mitigating
circumstances.
The Department recognizes the
financial implications for State agencies
resulting from implementation of this
proposed rule and will assist State
agencies’ efforts to ensure their
administrative review structures meet
the required timeframes. The
Department also recognizes that many
State agencies are experiencing difficult
fiscal circumstances. The Department
will work with the State agencies to
establish milestones to implement this
provision and minimize potential
financial burdens. The Department
encourages State agency commenters to
address the financial implications of
this proposed rule as related to their
State and suggest appropriate
milestones the Department could
require of State agencies during
implementation.
Accordingly, the proposed rule
changes are found at §§ 226.6(k)(5)(ii),
226.6(k)(5)(ix) and 226.6(k)(11).
Section 335 of the HHFKA: CACFP
Audit Funding
Section 17(i) of the NSLA (42 U.S.C.
1766(i)) authorizes the Secretary to
provide funds to each CACFP State
agency to conduct audits of
participating institutions. Each fiscal
year, each State agency receives up to
1.5 percent of the funds used by the
State in the Program during the second
preceding fiscal year for this purpose.
Section 335 of the HHFKA amended
section 17(i) of the NSLA, 42 U.S.C.
1766(i), to allow the Department to

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make available, for each fiscal year
beginning 2016 (i.e., October 1, 2015),
and each fiscal year thereafter,
additional funding for a total of up to 2
percent of the funds used by each State
agency in the Program during the
second preceding year, if the State
agency can effectively use the funds to
improve Program management under
criteria established by the Department.
This provision is expected to allow for
better Program management and
improve the integrity of the CACFP.
Program integrity audits are an
integral component of the CACFP,
allowing State agencies to monitor
Program funding and operations to
ensure that providers and sponsors are
operating the Program in accordance
with the law. In accordance with the
NSLA, current regulations at § 226.4(j)
require funds be made available for the
expense of conducting audits and
reviews to each State agency in an
amount equal to 1.5 percent of the
Program reimbursement provided to
institutions within the State.
Additionally, the amount of assistance
provided to a State agency for this
purpose in any fiscal year may not
exceed the State’s expenditures for
conducting audits as permitted under
§ 226.8 during such fiscal year.
To effect the changes envisioned by
section 335, the Department proposes to
amend § 226.4(j), Audit funds, by
making minor technical changes to
existing language and including the
opportunity for State agencies,
beginning in fiscal year 2016 and each
fiscal year thereafter, to request an
increase in the amount of audit funds.
The technical changes correct the
misuse of the phrase ‘Program
reimbursement provided to institutions’
in reference to the Program funds used
to conduct audits.
This proposed change is consistent
with section 17(i) of the NSLA (42
U.S.C. 1766(i)) and does not alter the
current formula used to calculate audit
funds. The proposed rule would also
require approval by the Department for
increased funding. Such approval
would be based on criteria related to the
State agency’s ability to effectively use
the funds to improve Program
management. Additionally, the
proposed rule would limit the total
amount of audit funds made available to
a State agency to 2 percent of Program
funds used by the State during the
second fiscal year preceding the fiscal
year for which the funds are made
available.
The proposed rule would allow State
agencies to submit a request for an
increase in the amount of audit funds.
The Department’s approval will be

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based on criteria related to the effective
use of funds to improve program
management. The Department expects
this criteria to include a description of
the additional audit and other allowable
activity (e.g., additional review activity)
the State agency would conduct. The
Department expects this process to be
similar to the process currently used for
reallocation of State administrative
funds.
Section 362 of the HHFKA: Disqualified
Schools, Institutions, and Individuals
Section 362 of the HHFKA amended
section 12 of the NSLA (42 U.S.C. 1760)
to prohibit any school, institution,
service institution, facility, or
individual that has been terminated
from any Child Nutrition Program (i.e.,
the NSLP, SMP, SBP, SFSP, and
CACFP), and that is on the CACFP and
SFSP NDL, from being approved to
participate in or administer any Child
Nutrition Program. This provision is
expected to protect program integrity
and federal funds since entities that
have been terminated or disqualified
from one Child Nutrition Program will
be prevented from participating in all of
the Department’s Child Nutrition
Programs.
In assessing implementation of
section 362, the Department determined
the need to clarify three areas. First,
section 362 prohibits approval of
schools, institutions, service
institutions, facilities, and individuals
which have been terminated or
disqualified from any Child Nutrition
Program. However, additional types of
entities participate in the Child
Nutrition Programs. The Department
concluded, then, that the prohibition in
section 362 is not limited to those
identified entities, but extends to all
entities which participate in the Child
Nutrition Programs in similar capacities.
This furthers the intended effect of
section 362, which is to prevent an
entity terminated or disqualified from
one Child Nutrition Program from
participating in another Child Nutrition
Program. Thus, the rule also would
apply to school food authorities, child
care institutions, sponsoring
organizations, sites, day care centers,
and day care homes which participate
in the Child Nutrition Programs.
This provision only applies to the
entities authorized to participate in the
Child Nutrition Programs. Entities
administering the Special Supplemental
Nutrition Program for Women, Infants
and Children (WIC) (or to the WIC
Farmers’ Market Nutrition Program)
under section 17 of the Child Nutrition
Act of 1966 are referred to as ‘‘local
agencies.’’ Because section 362 does not

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include the term ‘‘local agencies,’’ the
Department determined that this
provision does not apply to the WIC
Program, but State agencies must notify
WIC State agencies of entities
disqualified from participation in any
Child Nutrition Program so WIC State
agencies may look into potential threats
to WIC Program integrity. Finally, the
Department also determined that the
term ‘‘individuals’’ refers to responsible
principals or responsible individuals,
and not individuals receiving nutrition
assistance benefits under the Child
Nutrition Programs.
Second, section 362 identifies
‘‘termination’’ from a Child Nutrition
Program as a criterion which results in
ineligibility for participation in or
administration of any Child Nutrition
Program. However, as discussed later in
this preamble, two types of termination
may be invoked in CACFP. One type is
termination for convenience which is
not performance based, and can be used
by either party. The Department
determined that termination for
convenience does not warrant
disqualification from other Child
Nutrition Programs because it is not
based on failure to administer the
Program. The second type of
termination is termination for cause,
based on failure to properly administer
the program or otherwise perform
pursuant to the agreement. Upon
review, Department concluded that
‘‘termination’’ in section 362 refers to
termination for cause.
Third, section 362 prohibits a State
agency from approving for participation
in or administration of the Child
Nutrition Programs, any entity
terminated from a Child Nutrition
Program and appearing on the CACFP
NDL or SFSP NDL. In practice, the
NSLP, SMP, and SBP currently do not
maintain or refer to an NDL. It is
possible that school food authorities
which also participate in CACFP would
appear on the CACFP NDL. In the future
and pursuant to section 322 as
discussed earlier, a school food
authority terminated from SFSP
participation would be added to that
Program’s NDL. The Department
concluded that in order to fully
implement the intent of Congress to
protect integrity of all Child Nutrition
Programs as expressed in section 362,
the implementation of the provision
should be read more broadly to prohibit
participation in or administration of any
Child Nutrition Program.
For these reasons, the proposed rule
would prohibit an entity’s participation
if it meets either criterion. In other
words, the State agency may not
approve any entity terminated from a

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Child Nutrition Program or any entity
appearing on the CACFP or SFSP NDL
for participation in or administration of
any Child Nutrition Program. The
Department encourages commenters to
address this proposed interpretation.
Thus, this proposed rule amends the
regulations for the NSLP, SMP, SBP,
and SFSP to prohibit a State agency
from approving any school, school food
authority, institution, service
institution, facility, individual,
sponsoring organization, site, child care
institution, day care center, or day care
home from participating in or
administering the Program if the entity
or its officials: (1) Have been terminated
for cause from any Child Nutrition
Program; or (2) are currently listed on
the CACFP NDL or SFSP NDL.
Current regulations for CACFP
address the duration of ineligibility.
Under § 226.6(b)(1)(xiii), an entity
remains included on the CACFP NDL
and thus ineligible to participate in
CACFP, until the State agency, in
consultation with the Department,
determines that the deficiency(ies) that
resulted in the ineligible status has(ve)
been corrected, or seven years have
passed. In all cases, all debts owed must
be repaid prior to removal from the
CACFP NDL. State agencies are required
to consult the CACFP NDL when
reviewing any entity’s new or renewal
application, and to deny the entity’s
application if either the entity, or any of
its principals, is on the CACFP NDL.
The proposed rule would adopt the
CACFP approach to limiting the
duration of ineligibility.
Under this proposed rule, the State
agency’s decision not to approve an
entity to participate in or administer a
program based on the entity’s
termination for cause from a Child
Nutrition Program or placement on the
CACFP NDL or SFSP NDL is final and
not subject to further administrative or
judicial review. This rule also proposes
that for entities currently administering
a program, the State agency must use
procedures currently specified in
regulations to suspend or terminate
participation if it is discovered that the
entity was terminated for cause from
another Child Nutrition Program.
Finally, the proposed rule would
require State agencies to develop a
process to share information about
entities and individuals no longer
eligible to administer or participate in
the programs within the State. The
process must be approved by the
Department and must ensure the State
agency works closely with any other
State agency administering a Child
Nutrition Program to ensure information
is shared on a timely basis. The

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proposed rule would also require State
agencies to develop a process to notify
WIC State agencies of the entities’ or
individuals’ termination for cause, since
they might be associated with the WIC
Program. The Department has chosen to
allow State agencies to develop their
own process due to the different
organizational structures of each State.
CACFP and SFSP State agencies will
be required to develop a process to
share information on entities and
individuals terminated or disqualified
with other Child Nutrition Programs if
such a process is not presently in place.
Under § 226.6(b)(1)(xiii), Program
participation is prohibited when the
institution or any of its principals have
been declared ineligible for any other
publically funded program by reason of
violation that program’s requirements.
Therefore, the Department expects
CACFP State agencies to currently have
such process in place. To avoid
duplicative efforts and streamline
efforts, the Department expects to utilize
the database currently used to maintain
the NDL by the Department for the
CACFP for the SFSP NDL.
The Department requests comments
on this requirement, specifically the
process State agencies may propose to
share information, and the potential
obstacles or burdens a State agency may
face. The Department also asks for
comments on the extent to which State
agency access to the NDLs would have
to be expanded under these proposed
requirements.
Accordingly, the proposed rule
changes are found at §§ 210.9(d),
215.7(g), 220.7(h), 225.6(b)(12),
225.6(c)(2)(ii)(E)(3), 225.6(d)(1)(v),
225.6(e), 225.11(c)(5), 225.11(h)(2),
225.14(c)(3), 225.14(c)(4), and
226.6(b)(1)(xiii).
Serious Deficiency and Termination
Procedures for Sponsored Centers in the
CACFP
This proposed rule also amends
current CACFP regulations, to make a
corresponding change as a result of the
intended effect of section 362. The
provision explicitly prohibits entities
terminated or disqualified from one
Child Nutrition Program from being
approved to participate in or administer
any Child Nutrition Program. Approval
or participation of seriously deficient
sponsored child or adult day care
center, then, would be contrary to the
intent of that provision. In order to
implement section 362, this proposed
rule would create serious deficiency,
termination, and disqualification
procedures which are essential to
meeting the intent of statute.

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Current CACFP regulations at § 226.6
include serious deficiency, termination,
and disqualification procedures for
sponsored day care homes, but not
sponsored centers. There are two types
of sponsored centers, affiliated and
unaffiliated. Unlike affiliated centers,
unaffiliated centers are not part of the
same legal entity as the sponsoring
organization responsible for
administration of the CACFP. Currently,
if an unaffiliated center is seriously
deficient in the operation of the
Program, it is the sponsor which a State
agency would declare seriously
deficient. In practice, it is the
responsibility of the sponsor to
complete the corrective action plan, and
it is the sponsor that will ultimately be
terminated and disqualified from the
Program if the serious deficiency is not
corrected. Additionally, current
regulations permit the sponsor to simply
end its association with a seriously
deficient unaffiliated center, rather than
implementing corrective action to
eliminate the serious deficiency and
come into compliance with Program
regulations. Therefore, under current
regulations, it is possible for a
problematic unaffiliated center that has
been removed from the CACFP to
participate in the Program under
another sponsor, or in another Child
Nutrition Program, without the
knowledge of the State agency that a
serious management deficiency exists in
that facility.
The Department has identified CACFP
integrity issues arising from the inability
to declare unaffiliated centers as
seriously deficient and to terminate and
disqualify the centers from CACFP
participation. Currently, problematic
unaffiliated centers and operators of
those centers are not disqualified from
participation if they are found to be in
violation of Program requirements.
Rather they may terminate their
participation voluntarily and seek to
participate in the Program under
another sponsoring organization,
putting Program integrity at risk.
This proposed rule would establish
serious deficiency, termination, and
disqualification procedures for
unaffiliated sponsored centers
consistent with the procedures
established for day care homes in
current regulations. Specifically, the
Department proposes to amend § 226.2,
Definitions, to require inclusion of
unaffiliated centers and the full legal
name and any other names previously
used of entities on the State agency list.
The Department proposed to add the
definition of Sponsored Center in a
separate proposed rule published April
9, 2012, in the Federal Register (77 FR

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21018), Child and Adult Care Food
Program: Amendments Related to the
Healthy, Hunger-Free Kids Act of 2010.
Under that proposal, Sponsored Center
is defined to mean a center that operates
the Program under the auspices of a
sponsoring organization and is
categorized as either an affiliated or
unaffiliated center. Unaffiliated centers
would be entities required to have
permanent agreements with their
sponsoring organization, as they are
legally distinct from the sponsoring
organizations, unlike affiliated centers
that are part of the same legal entity.
Under § 226.6(c)(3)(ii)(R), State
agencies would be required to declare
sponsoring organizations seriously
deficient if they fail to properly
implement the termination and
administrative procedures required in
the Program. If an institution does not
properly oversee the participation of
their unaffiliated centers, they could be
declared seriously deficient by the State
agency or the Department.
Under this proposed rule, throughout
the disqualification process as specified
in § 226.6(c)(7) and § 226.6(c)(8), where
day care homes are referenced,
unaffiliated centers are also included in
the requirement. The request for
removal of a day care home, unaffiliated
center, or responsible principal and
responsible individual from the CACFP
NDL must be made by the State agency,
with concurrence by the Department.
The Department’s concurrence is
necessary to ensure the serious
deficiencies no longer exist prior to
removal.
Under this rule, the administrative
review process would be amended at
§ 226.6(l) and § 226.6(m) to include
unaffiliated centers. The Department
proposes to allow State agencies to
make different elections with regard to
who offers the administrative review,
either the State agency or the sponsoring
organization, to day care homes and
unaffiliated centers. The Department
anticipates that while a State agency
may prefer the sponsoring organization
offer administrative reviews to day care
homes, the State agency may choose to
offer administrative reviews to
unaffiliated centers.
Under this proposed rule, § 226.16,
Sponsoring organization provisions,
would be amended to include
unaffiliated centers wherever day care
homes are referenced, as applicable.
Additionally, § 226.16(l)(2) would be
amended by adding specific serious
deficiencies applicable for unaffiliated
centers only. Serious deficiency
procedures for sponsoring organizations
are also amended under this proposed
rule to include unaffiliated centers,

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applying the same requirements to day
care homes and unaffiliated centers,
where applicable.
A technical change was made under
the proposed rule in § 226.2 to the
definition of ‘Facility’ by removing the
word ‘family’ to correct the meaning of
facility as sponsored center or day care
home.
Accordingly, the proposed rule
changes are found at §§ 226.2,
226.6(c)(2)(ii)(H), 226.6(c)(3)(ii)(R),
226.6(c)(7), 226.6(c)(8), 226.6(l),
226.6(m)(3)(ix), 226.16(b), 226.16(c),
226.16(d), and 226.16(l).
Miscellaneous Provisions
Elimination of Cost-Reimbursement
Contracts
Current Program regulations at 7 CFR
210.16(c) prohibit contracts which
permit all income and expenses to
accrue to the food service management
company, ‘‘cost-plus-a-percentage-ofcost’’ contracts, and ‘‘cost-plus-apercentage-of-income’’ contracts. School
food authorities are currently permitted
to use two types of contracts when
procuring Program goods and services.
Contracts that provide for fixed fees,
commonly referred to as ‘fixed price
contracts,’ are those that provide for
management fees established on a per
meal basis. Cost-reimbursable contracts,
an alternative to fixed price contracts,
are those that provide for payment of
allowable incurred costs. Unlike fixed
price contracts, cost-reimbursable
contracts require the return of rebates,
discounts and credits on all costs from
the food service management company
to the school food authority. During
management evaluations, FNS has
observed that non-compliant costreimbursable contracts are becoming
more common.
Since 2002, the Department’s OIG has
conducted various reviews of the
effectiveness of Federal and State
oversight and monitoring of school food
authority contracts with food service
management companies (FSMCs). These
OIG reports, entitled ‘‘National School
Lunch Program—Food Service
Management Company Contracts’’
published January 2013, ‘‘National
School Lunch Program CostReimbursable Contracts with a Food
Service Management Company’’
published December 2005, and
‘‘National School Lunch Program Food
Service Management Companies’’
published April 2002, identified
compliance problems associated with
procurements at the local level. OIG
identified some instances where school
food authorities were not receiving (1)
purchase discounts and rebates in full

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and/or (2) the proper value of USDA
foods returned to their nonprofit food
service account. For the most part, OIG
concluded that the instances arose from
problematic language in costreimbursement contracts between
FSMCs and local school food
authorities. FNS has attempted to
resolve such issues by requiring State
agencies to review contracts prior to
execution by school food authorities per
Program regulations at 7 CFR
210.19(a)(5). Further efforts have been
made by FNS to educate State agencies
and school food authorities through
trainings on procurement standards
using national conferences, and
stakeholder meetings. Likewise,
Regional offices have offered additional
trainings to State agency staff. FNS has
also provided technical assistance
during management evaluations,
reviewed State agency prototype
solicitations and contracts, if available;
assisted on administrative reviews to
assess school food authority contracts
and monitoring of contractor
performance; and developed tools to
assist State agencies when reviewing
and approving school food authority
contracts with FSMCs. This proposal is
the next step in ensuring the oversight
and monitoring of school food authority
contracts with FSMCs.
All school food authorities, including
sub grantees, must follow applicable
Federal procurement regulations when
entering into agreements to purchase
products and services under the NSLP.
However, in evaluating State agency
oversight of FSMC contracts, during
agency compliance reviews and with
information provided by OIG audits and
investigations, FNS determined that
many school food authorities with
FSMC cost-reimbursable contracts are
engaged in practices that weaken the
competitive procurement process. The
most prevalent area of non-compliance
found in FSMC cost-reimbursable
contracts is the failure to return the
value of discounts, rebates, and credits
to the nonprofit food service account.
This loss represents millions of dollars
for school food authority nonprofit food
service accounts annually. FNS has
determined that it is too complex and
burdensome for school food authority
staff to consistently and effectively
ensure compliance with program
requirements across all costreimbursable contracts. State agencies
have expressed a lack of expertise and
the magnitude of monitoring
transactions at this level is unduly
burdensome and growing. Increasingly,
school food authorities are moving from
self-operated programs to contracting

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operations with a FSMC. As a result of
State agency challenges, FNS has
published guidance for school food
authorities on considerations before
contracting the operation with a FSMC
and on the benefits and burdens of
fixed-price contracts and costreimbursable contracts. FNS has
conducted trainings on this guidance for
State agencies and made presentations
at stakeholder national conferences,
provided technical assistance during
management evaluations, assisted State
agencies on administrative reviews of
school food authorities and developed
review tools to assist State agencies with
oversight. Additionally, FNS has
engaged many stakeholders (industry,
State Agencies, school food authorities,
GAO, and OIG) in discussion on how to
best address these concerns. Despite
FNS’s technical assistance, training, and
guidance, State agencies continue to
report challenges, which are costly to
school food authority nonprofit food
service accounts. Based on FNS’
engagements, requiring fixed price
contracts is the next logical step in
protecting and strengthening Program
integrity.
This rule proposes to amend
§ 210.16(c) to eliminate costreimbursable contracts as a type of food
service management company contract
school food authorities may use in the
NSLP. This rule proposes to require the
use of only fixed-price contracts, such
as contracts that provide per meal and/
or management fees established on a per
meal basis, either with or without
economic price adjustments tied to a
standard index. In solicitations seeking
and resulting in a fixed-price contract,
contractors respond with bids/proposals
that have already taken discounts,
rebates and other credits into
consideration when formulating their
final bid prices; this holds true for any
fixed-fee component of a costreimbursable contract.
Current Program regulations at 7 CFR
210.16(a)(10) require school food
authorities who employ a FSMC in the
operation of its nonprofit school food
service to ensure that the State agency
has reviewed and approved the contract
terms. However, current Program
regulations at 7 CFR 210.19(a)(5) require
each State agency to annually review,
not approve, each contract and contract
amendment between any school food
authority and FSMC to ensure
compliance with all the provisions and
standards before the execution of the
contract by either party. This rule also
proposes to amend and align 7 CFR
210.19(a)(5) with the requirements in 7
CFR 210.16(a)(10) to require each State
agency to annually review, and now

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also approve, each contract and contract
amendment between any school food
authority and food service management
company. Requiring approval will serve
to strengthen oversight of compliance
with all the provisions and standards
before the execution of the contract by
either party. State agencies, institutions,
and FSMCs are encouraged to address
the elimination of cost-reimbursable
contracts as a type of food service
management company contract school
food authorities may use in the NSLP in
their comments on the rule.
Accordingly, the proposed rule
changes are found at § 210.16 and
§ 210.19(a)(5).
Annual Procurement Training in NSLP
This rule also proposes to incorporate
recommendations made by the
Department of Agriculture’s Office of
Inspector General (OIG) audit report
entitled ‘‘National School Lunch
Program-Food Service Management
Company Contracts’’ (Audit).
Specifically, the audit found risk of
misuse of Federal funds due to
difficulties experienced by State
agencies and school food authorities
enforcing contractual terms and
regulatory procurement requirements.
Therefore, this rule proposes that a
portion of the professional standards
required for school nutrition programs
include procurement training
specifically for personnel tasked with
this key area. Further, such training
must be documented.
Currently, regulatory requirements
related to program operations training
are found in the professional standards
requirements for the NSLP. The
Department issued a memorandum on
February 12, 2013, strongly encouraging
periodic training for State agency and
school food authority staff tasked with
procurement responsibilities. See
Guidance Reaffirming the Requirement
that State agencies and School Food
Authorities Periodically Review Food
Service Management Company Cost
Reimbursable Contracts and Contracts
Associated with USDA Foods (SP 23–
2013), http://www.fns.usda.gov/
guidance-reaffirming-requirement-stateagencies-and-school-food-authoritiesperiodically-review-food. Given that the
Audit, as well as the Department’s own
monitoring activities, determined that
program integrity may be at risk, it is
necessary to specifically require training
to ensure that all relevant staff are aware
of procurement requirements. Under
such a requirement, State agency and
school food authority staff annually
would gain knowledge of procurement
requirements for implementation at the
State and local level.

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This proposed rule would require
State agency and school food authority
staff tasked with procurement
responsibilities to successfully complete
procurement training annually. The
Department expects State agencies to
ensure required training includes
applicable State and Federal
procurement requirements as found in
existing statutes and regulations. This
requirement may be met at the
discretion of the State agency through a
variety of methods, including using
State developed procurement training or
trainings on the aforementioned
procurement areas developed by other
expert organizations such as the USDA
web-based procurement training offered
by the National Food Service
Management Institute, available at no
cost (http://www.nfsmi.org/Templates/
TemplateDefault.aspx?qs=
cElEPTEzNQ). State agencies and school
food authorities would be required to
maintain documentation of compliance
with this provision.
Accordingly, the proposed rule
changes are found at § 210.15(b)(8),
§ 210.20(b)(16), and § 210.21(h).
Financial Reviews of Sponsors in the
CACFP
Through TMEs of State agencies
conducted by the Department in fiscal
years 2010 and 2011 and previous
management evaluations, it was
determined that misuse of funds was
often an indicator of a sponsoring
organization’s systemic Program abuse.
It was also determined that financial
reviews of sponsors conducted by State
agencies could be improved to better
detect and prevent the misuse of funds.
Current regulations at § 226.7(g)
require State agencies to approve
sponsors’ budgets and assess sponsors’
compliance with Program requirements,
including ensuring that Program funds
are used only for allowable expenses.
Currently, the process by which sponsor
compliance with CACFP financial rules
is assessed is left to the discretion of the
State agency, consistent with Program
regulations. Thorough reviews of
sponsor financial records are vital in
ensuring Program integrity. The
Department found that the financial
reviews conducted by State agencies
were inconsistent with federal
regulations and often lacked focus on a
sponsor’s CACFP bank account activity,
but rather focused on matching the
sponsors’ representation of their
expenses to supporting documents. This
often resulted in other suspicious
transactions on a sponsor’s CACFP bank
account to be left unnoticed if
supporting documents presented were
valid.

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Currently federal regulations do not
require sponsors to fully account for
their expenditure of CACFP funds. A
sponsor may use funds for both
allowable and unallowable
expenditures, but provide a State agency
reviewer with receipts for only the
allowable costs to support Program
administration. It is possible for the
amount of the allowable expenditures to
appear reasonable to a State reviewer if
the expenditures match the
approximations made in the sponsor’s
approved budget for that fiscal year.
However, a reviewer is only required to
confirm support for the receipts
provided by the sponsor and thus may
never be provided with or become
aware of the sponsor’s unallowable
expenditures.
Also, the State agency’s current ability
to monitor sponsors’ use of CACFP
funds is limited. While sponsors must
submit annual budgets for State agency
approval, which must detail the project
expenditures by cost category, sponsors
are not required to report actual
expenditures. Requiring annual
reporting of actual expenditures would
improve sponsor accountability, and
provide State agencies a means by
which to identify misuse of CACFP
funds. State agencies could then
reconcile reported expenditures to
Program payments to ensure funds are
spent on allowable costs, and use the
reported actual expenditures as the
basis for selecting a sample of
expenditures for validation against the
sponsor’s CACFP bank account activity.
To facilitate reconciliation, the report
should use the same cost categories as
are used on the sponsor’s approved
annual budget.
The Department proposes to require
State agencies to have a system in place
to annually review at least one month’s
bank account activity of all sponsoring
organizations compared to documents
adequate to demonstrate that the
transactions meet Program
requirements. Under this rule, if the
State agency identifies any expenditures
that have the appearance of violating
Program requirements, the State agency
reviewer could continue to investigate
the account activity further or refer the
matter to someone else within the State
agency, such as an auditor.
This proposed rule also would require
State agencies to have a system in place
to annually review a report of actual
expenditures of Program funds and the
amount of meal reimbursement funds
retained from centers (if any) for
administrative costs for all sponsoring
organizations of unaffiliated centers.
Under this rule, State agencies would be
required to reconcile reported

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expenditures with Program payments to
ensure funds are fully accounted for,
and use the reported actual
expenditures as the basis for selecting a
sample of expenditures for validation. If
the State agency identifies any
expenditures that have the appearance
of violating Program requirements, the
State agency would be required to refer
the sponsoring organization’s account
activity to the appropriate State
authorities for verification as discussed
above.
Accordingly, the proposed rule
changes are found at §§ 226.7(b),
226.7(m) and 226.10(c).
Informal Purchase Methods
Informal purchase methods are used
in conducting the procurement of
services, supplies, and other property
whose cost falls below the threshold
established for requiring a procuring
entity to formally solicit bids or
proposals from suppliers. The
availability of informal purchase
methods for procurements under
Federal awards is covered in the
Uniform Administrative Requirements,
Cost Principles, and Audit
Requirements for Federal Awards (the
‘‘Uniform Guidance’’) published by the
OMB at 2 CFR part 200 and adopted by
USDA at 2 CFR part 400. The
Department is proposing to update
applicable program regulations at 7 CFR
226.21 and 226.22 in order to bring their
procurement provisions into conformity
with the government-wide and
departmental pronouncements
referenced above.
There are two types of informal
purchase methods: small purchases and
micro-purchases. These methods differ
in terms of dollar thresholds below
which their use is permitted, and the
degree of informality that characterizes
each of them. The Uniform Guidance
sets the applicable dollar thresholds,
which are periodically adjusted for
inflation. 2 CFR 200.67 of the Uniform
Guidance authorizes a program operator
to use the micro-purchase method for a
transaction in which the aggregate cost
of the items purchased does not exceed
the prescribed threshold. 2 CFR 200.67
currently sets the micro-purchase
threshold at $3,500. Under section
200.88, a program operator can use the
small purchase method for purchases
ranging in cost from $3,501 to the
simplified acquisition threshold of
$150,000. As noted above, formal
advertising is required for procurements
above that threshold.
7 CFR 226.21 (Food service
management companies) and 226.22
(Procurement standards) of the CACFP
regulations currently contain

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procurement provisions that are
inconsistent with the foregoing
requirements. Specifically, they do not
mention the micro-purchase threshold
and set the threshold for small
purchases at $10,000. The $10,000
threshold does not align with current
practices and is thus obsolete.
Given the foregoing, the Department
is proposing to remove the $10,000
figure and substitute language
referencing the applicable passages in
the Uniform Guidance. This will benefit
the CACFP by expanding the
availability of the informal purchase
methods. It will also resolve all
questions about which threshold
applies, the one set by program
regulations or the one(s) given in the
Uniform Guidance. The Department will
no longer need to update the Program
regulations each time the thresholds are
adjusted for inflation.
Accordingly, the proposed rule
changes are found at §§ 226.21(a),
226.22(i)(1), 226.22(l)(2), and
226.22(l)(3).
The Department recognizes that the
provisions in this proposed rule impact
many aspects of State administration of
Child Nutrition Programs. As a result,
the Department will provide guidance
and technical assistance to State
agencies to ensure successful
implementation of this regulation.
USDA anticipates that the provisions
under this proposed rule would be
implemented 90 days following
publication of the final rule, with the
exception of those related to
assessments against State agencies and
program operators and CACFP audit
funds. The provision establishing
criteria for assessments against State
agencies and program operators would
be implemented one school year
following publication of the final rule.
The provision granting eligible State
agencies additional CACFP audit funds
will be implemented upon publication
of the final rule.
IV. Procedural Matters
A. Executive Order 12866 and Executive
Order 13563
Executive Orders 12866 and 13563
direct agencies to assess all costs and
benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits
(including potential economic,
environmental, public health and safety
effects, distributive impacts, and
equity). Executive Order 13563
emphasizes the importance of
quantifying both costs and benefits, of

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Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules
reducing costs, of harmonizing rules,
and of promoting flexibility.
This proposed rule has been
determined to be significant and was
reviewed by the Office of Management
and Budget (OMB) in conformance with
Executive Order 12866.
B. Regulatory Impact Analysis Summary
As required for all rules that have
been designated significant by the Office
of Management and Budget, a
Regulatory Impact Analysis (RIA) was
developed for this proposal. A summary
is presented below.
Need for Action
The proposed rule updates the
regulations governing the
administration of USDA’s child
nutrition programs in response to
statutory changes made by The Healthy,
Hunger-Free Kids Act of 2010.1 These
changes, as well as other discretionary
changes, will help ensure proper and
efficient administration of the programs,
reduce misuse of program funds,
improve compliance with meal patterns
and nutrition standards, reduce
participant certification error, improve
the integrity of the procurement process,
and reduce meal counting and claiming
error through increased administrative
review and penalties for noncompliance.

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Benefits
Each of the proposed rule’s provisions
is intended to remedy deficiencies in
the administration of USDA’s child
nutrition programs at the sponsor,
provider, SFA, and State agency levels.
The rule addresses the types of
problems commonly encountered in
CACFP sponsor reviews, in USDA’s
Targeted Management Evaluations of
the CACFP, and in Coordinated Review
Effort (CRE) and in School Meals
Initiative (SMI) reviews of schools and
school food authorities. Through the
reforms outlined in the preceding
sections, the rule is expected to increase
the quality of program meals served to
participants, as inefficiently managed
funds and improper payments subvert
the nutritional intent of program meals.
This rule generates these benefits
through the following specific actions:
• A reduction in the incidence of
existing meal pattern violations,
1 Public

Law 111–296.
payments due to certification error
include both overpayments and underpayments.
Overpayments occur when children are certified for
free or reduced-price meals when their household
incomes exceed the thresholds for those benefits.
Federal reimbursements for meals served to those
children are too high. Underpayments occur when
children are denied free or reduced-price benefits,
2 Improper

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resulting in improved nutrition for
program participants; and
• prompt compliance with new
Federal regulations on school meal
nutrition standards and nutrition
standards for competitive school foods
that will further improve the school
nutrition environment;
and through the following specific
transfers:
• An increase in Federal audit
funding available to State agencies;
• a reduction in financial
mismanagement that diverts Federal
funds from their intended purpose of
providing nutritious meals to children;
• a reduction in certification errors
that will better target Federal benefits to
eligible children; and
• full compliance with Sections 205
and 206 of HHFKA that prevent Federal
meal reimbursements, intended
primarily to provide meals to low
income students, from subsidizing
meals for more affluent students, and
from subsidizing non-program foods.
These are the expected results of the
rule’s provisions, which add new
requirements to existing reviews of
child nutrition program sponsors,
subject additional sponsors to periodic
review, increase USDA and State agency
authority to penalize seriously deficient
sponsors and providers, and standardize
the processes of termination and
disqualification from program
participation, all of which will
contribute to an increase in the quality
of program meals served to program
participants.
We cannot quantify these nutritional
benefits, nor can we quantify the dollar
effects of the actions and transfers listed
above, as we do not know the rates or
magnitudes of error in the population,
nor do we know the percentage of errors
that will be avoided or rectified because
of the implementation of these
provisions. However, the size of the
problem addressed by the proposed rule
has been partly quantified:
• The 2014 USDA Agency Financial
Report (http://www.ocfo.usda.gov/docs/
USDA%20AFR%20201412.30.2014.pdf) estimates that improper
payments in the NSLP and the SBP due
to certification error 2 and meal counting
and claiming errors 3 totaled $2.67
billion ($1.75 billion in the NSLP and

$923 million in the SBP) in FY 2014.
Even small percentage point reductions
in these improper payment amounts,
which the rule’s provisions can help to
promote, would quickly exceed the cost
of its implementation.
• The 2014 USDA Agency Financial
Report estimates that improper
payments in the CACFP due to mistakes
by program sponsors in determining the
reimbursement eligibility of family day
care home providers (‘‘tiering’’ errors)
totaled $10 million in FY 2014. In
addition, data gathered by USDA during
its 2004–2007 Child Care Assessment
Project (CCAP) are suggestive of
possible over-reporting of Federally
reimbursable meals served by family
day care home providers.4 Estimates of
the value of improper claims by CACFP
centers, or by sponsors and service
providers in the remaining USDA child
nutrition programs, are not available.
Though the data available is limited,
the estimates of improper payments in
the NSLP and SBP alone indicate that
the potential impact of the proposed
rule is substantial.

and Federal reimbursements for meals served to
those children are too low.
3 These include cashier errors, when meals are
identified as reimbursable when they are missing a
required meal component, or when the cashier
makes a mistake in identifying the child receiving
the meal as free, reduced-price, or paid eligible.
Counting and claiming errors also include mistakes
made in totaling the number of free, reduced-price,

or paid meals served when submitting claims for
reimbursement.
4 ‘‘Child Care Assessment Project Final Report’’,
USDA Food and Nutrition Service, Child Nutrition
Division, July 2009, pp. 34–36 (http://
www.fns.usda.gov/cnd/Care/Management/pdf/
CCAP_Report.pdf).

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Costs/Administrative Impact
Most of the cost of complying with
the rule is associated with the
additional review responsibilities
placed on State administering agencies.
Other State agency costs are tied to
documentation, and establishing and
carrying out new procedures for
termination and disqualification of
program sponsors, providers, and
responsible individuals. Program
sponsors will incur minimal additional
cost to provide their State agencies with
additional financial data. The primary
Federal government cost, an increase in
funds made available for CACFP audits,
is expected to offset the additional
administrative costs incurred by State
agencies.
The regulatory impact analysis
quantifies the impact of the three
provisions in the rule that we estimate
have non-negligible cost implications
for the Federal government, State
agencies, and/or SFAs, as well as the
new reporting and recordkeeping
requirements of the rule. The following
table summarizes these effects.

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Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules
TABLE 1—SUMMARY OF ESTIMABLE ADMINISTRATIVE COSTS AND RESOURCES 5
Fiscal year
(millions)
2017

2018

2019

2020

2021

Total

State agency administrative costs
State agency sponsor reviews (CACFP)
State agency bank statement reviews
(CACFP) ...............................................
Information collection burden (reporting
and recordkeeping) ..............................
Total State agency administrative
costs ..............................................

$2.7

$2.8

$2.8

$2.9

$3.0

$14.2

1.3

1.3

1.3

1.4

1.4

6.7

0.3

0.3

0.4

0.4

0.4

1.8

4.3

4.4

4.5

4.7

4.8

22.7

$0.1

$0.1

$0.6

$2.4
18.5

$2.5
19.2

$11.6
89.1

School Food Authority administrative costs
SFA Information collection burden (reporting and recordkeeping) ..................

$0.1

$0.1

$0.1

Increase in Federal audit funding for State agencies (CACFP)
Low estimate ............................................
Upper bound estimate .............................

$2.1
16.3

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We note that the maximum available
amount of additional federal audit
funding for State agencies (presented as
the projected upper bound estimate in
Table 1) exceeds the combined
estimated costs of the rule’s State
agency sponsor review, sponsor bank
statement review, and information
collection requirements.
C. Regulatory Flexibility Act
This proposed rule has been reviewed
with regard to the requirements of the
Regulatory Flexibility Act of 1980 (5
U.S.C. 601–612). Pursuant to that
review, it has been determined that this
rule will not have a significant impact
on a substantial number of small
entities. This rule sets forth proposed
provisions to implement sections 303,
322, 331(b), 332, 335, 362, of Public Law
111–296, the HHFKA that affects the
management of USDA’s Child Nutrition
programs. Most of the provisions
included in the proposed rule increase
the authority of USDA and State
agencies to enforce existing program
rules, and do not impose additional
burden on small entities. The rule does
impose some additional reporting and
documentation requirements on
program sponsors and providers, but we
expect these costs to be very small
relative to existing program
requirements.
D. Unfunded Mandates Reform Act
Title II of the Unfunded Mandates
Reform Act of 1995 (UMRA), Public
Law 104–4, establishes requirements for
5 Numbers shown in Table 1 may not add due to
rounding.

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$2.2
17.3

$2.3
17.8

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 Department generally must prepare
a written statement, including a cost
benefit analysis, for proposed and final
rules with ‘‘Federal mandates’’ that may
result in expenditures by State, local or
tribal governments, in the aggregate, or
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 the
Secretary to identify and consider a
reasonable number of regulatory
alternatives and adopt the most cost
effective or least burdensome alternative
that achieves the objectives of the rule.
This proposed rule does not contain
Federal mandates (under the regulatory
provisions of Title II of the UMRA) that
would result in expenditures for State,
local and tribal governments or the
private sector of $100 million or more
in any one year. Thus, the rule is not
subject to the requirements of sections
202 and 205 of the UMRA.

administered at the State level. The
Department headquarters and regional
office staff engage in ongoing formal and
informal discussions with State and
local officials regarding program
operational issues. This structure of the
Child Nutrition Programs allows State
and local agencies to provide feedback
that forms the basis for any
discretionary decisions made in this and
other rules.

E. Executive Order 12372

FNS headquarters and regional offices
have formal and informal discussions
with State agency officials on an
ongoing basis regarding the Child
Nutrition Programs and policy issues.
Prior to drafting this proposed rule, FNS
held several conference calls and
meetings with the State agencies and
organizations representing local
program operators, advocacy groups and
State government to discuss the
statutory requirements addressed in this
proposed rule.

The NSLP, SBP, SAE, SMP, CACFP
and SFSP are listed in the Catalog of
Federal Domestic Assistance Programs
under NSLP No. 10.555, SBP No.
10.553, SAE No. 10.560, SMP No.
10.556, CACFP No. 10.558, and SFSP
No. 10.559, respectively and are subject
to Executive Order 12372 which
requires intergovernmental consultation
with State and local officials (See 2 CFR
chapter IV). The Child Nutrition
Programs are federally funded programs

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F. Executive Order 13132
Executive Order 13132 requires
Federal agencies to consider the impact
of their regulatory actions on State and
local governments. Where such actions
have federalism implications, agencies
are directed to provide a statement for
inclusion in the preamble to the
regulations describing the agency’s
considerations in terms of the three
categories called for under Section
(6)(b)(2)(B) of Executive Order 13121.
1. Prior Consultation With State
Officials

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Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules
2. Nature of Concerns and the Need To
Issue This Rule
State agencies expressed concern
regarding the implementation of the
provisions, specifically the
administrative burden that may be
placed on the State agencies. State
agencies also expressed concerns
relating to the fiscal consequences of the
state liability provision.
3. Extent to Which the Department
Meets Those Concerns
FNS has considered the impact of this
proposed rule on State and local
operators. We have attempted to balance
the goal of strengthening the integrity of
the Child Nutrition Programs against the
need to minimize the administrative
burden placed on program operators.
FNS will provide guidance and
technical assistance to program
operators once the final rule is
published, and expects to provide ongoing assistance to State and local
program operators to ensure the
provisions of this rulemaking are
implemented efficiently and in a
manner that is least burdensome.

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G. Executive Order 12988
This proposed rule has been reviewed
under Executive Order 12988, Civil
Justice Reform. This proposed rule is
intended to have preemptive effect with
respect to any State or local laws,
regulations or policies which conflict
with its provisions or which would
otherwise impede its full and timely
implementation. This rule is not
intended to have retroactive effect
unless so specified in the Effective Dates
section of the final rule. Prior to any
judicial challenge to the provisions of
the final rule, appeal procedures in
§ 210.18(q), § 225.13, § 226.6(k) and
§ 235.11(f), of this chapter, must be
exhausted.
H. Executive Order 13175
Executive Order 13175 requires
Federal agencies to consult and
coordinate with Tribes on a
government-to-government basis on
policies that have Tribal implications,
including regulations, legislative
comments or proposed legislation, and
other policy statements or actions that
have substantial direct effects on one or
more Indian Tribes, on the relationship
between the Federal Government and
Indian Tribes, or on the distribution of
power and responsibilities between the
Federal Government and Indian Tribes.
In the spring of 2011, FNS offered
opportunities for consultation with
Tribal officials or their designees to
discuss the impact of the HHFKA on
tribes or Indian Tribal governments. The

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consultation sessions were coordinated
by FNS and held on the following dates
and locations:
1. HHFKA Consultation Webinar &
Conference Call—April 12, 2011
2. HHFKA Consultation In-Person—
Rapid City, SD—March 23, 2011
3. HHFKA Consultation Webinar &
Conference Call—June 22, 2011
4. Tribal Self-Governance Annual
Conference In-Person Consultation
in Palm Springs, CA—May 2, 2011
5. National Congress of American
Indians Mid-Year Conference InPerson Consultation, Milwaukee,
WI—June 14, 2011
6. FNS Quarterly Consultation
Conference Call, May 2, 2012
The six consultation sessions in total
provided the opportunity to address
Tribal concerns related to school meals.
There was only one question asked
about this regulation, regarding how the
NDL functions, which was explained by
FNS staff during an aforementioned
Tribal Consultation session. Additional
comments were not received. Reports
from these consultations are part of the
USDA annual reporting on Tribal
consultation and collaboration. FNS
will respond in a timely and meaningful
manner to Tribal government requests
for consultation concerning this rule.
Currently, FNS provides regularly
scheduled quarterly consultation
sessions as a venue for collaborative
conversations with Tribal officials or
their designees.
I. Civil Rights Impact Analysis
FNS and the Department has
reviewed this proposed rule in
accordance with the Departmental
Regulation 4300–4, ‘‘Civil Rights Impact
Analysis,’’ to identify any major civil
rights impacts the rule may have on
program participants on the basis of age,
race, color, national origin, sex, or
disability. After a careful review of the
rule’s intent and provisions, FNS has
determined that this rule is no intended
impact in any of the protected classes
and is not intended to reduce a child or
eligible adult’s ability to participate in
the National School Lunch Program,
School Breakfast Program, Special Milk
Program, Child and Adult Care Food
Program or Summer Food Service
Program.
J. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. Chapter 35; see 5 CFR part
1320) requires that OMB approve all
collections of information by a Federal
agency from the public before they can
be implemented. Respondents are not
required to respond to any collection of

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17579

information unless it displays a current
valid OMB control number. This
proposed rule contains information
collections that are subject to review
and approval by OMB; therefore, FNS
has submitted an information collection
under 0584–NEW, which contains the
burden information in the proposed rule
for OMB’s review and approval. These
changes are contingent upon OMB
approval under the Paperwork
Reduction Act of 1995. When the
information collection requirements
have been approved, FNS will publish
a separate action in the Federal Register
announcing OMB’s approval.
Comments on the information
collection in this proposed rule must be
received by May 31, 2016.
Send comments to the Office of
Information and Regulatory Affairs,
OMB, Attention: Desk Officer for FNS,
Washington, DC 20503. Please also send
a copy of your comments to, Andrea
Farmer, Child Nutrition Programs, Food
and Nutrition Service, U.S. Department
of Agriculture, 3101 Park Center Drive,
Alexandria, Virginia 22302. For further
information, or for copies of the
information collection requirements,
please contact Andrea Farmer at the
address indicated above. Comments are
invited on: (1) Whether the proposed
collection of information is necessary
for the proper performance of the
Agency’s functions, including whether
the information will have practical
utility; (2) the accuracy of the Agency’s
estimate of the proposed information
collection burden, including the validity
of the methodology and assumptions
used; (3) ways to enhance the quality,
utility and clarity of the information to
be collected; and (4) ways to minimize
the burden of the collection of
information on those who are to
respond, including use of appropriate
automated, electronic, mechanical, or
other technological collection
techniques or other forms of information
technology.
All responses to this request for
comments will be summarized and
included in the request for OMB
approval. All comments will also
become a matter of public record. Once
OMB approval is obtained, FNS will
merge burden hours into the currently
approved National School Lunch
Program, OMB Control Number 0584–
0006, expiration date 2/29/2016; Child
and Adult Care Food Program, OMB
Control Number 0584–0055, expiration
date 9/30/2016; and Summer Food
Service Program for Children, OMB
Control Number 0584–0280, expiration
date 3/31/2016, respectfully.

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Title: 7 CFR parts 210, 215, 220, 225,
226 and 235, Child Nutrition Programs
Integrity Proposed Rule.
OMB Number: Not Yet Assigned.
Expiration Date: Not Yet Determined.
Type of Request: New Collection.
Abstract: This rule proposes to codify
several provisions of the Healthy,
Hunger-Free Kids Act of 2010 affecting
the management of the Child Nutrition
Programs, including the National School
Lunch Program (NSLP), the Special
Milk Program for Children, the School
Breakfast Program, the Summer Food
Service Program (SFSP), the Child and
Adult Care Food Program (CACFP) and
State Administrative Expense Funds.
The Department is proposing to
establish criteria for establishing
assessments against State agencies and
program operators who jeopardize the
integrity of any Child Nutrition
Program; eliminate cost-reimbursement

food service management company
contracts in the NSLP; establish
procurement training requirements for
State agency and school food authority
staff in the NSLP, establish procedures
for termination and disqualification in
the SFSP; modify State agency site
review requirements in the CACFP;
establish State liability for
reimbursements incurred as a result of
a State’s failure to conduct a timely
hearing in the CACFP; establish criteria
for an increase in State audit funding;
establish procedures to prohibit the
participation of entities or individuals
terminated from any of the Child
Nutrition Programs; and establish
serious deficiency and termination
procedures for sponsored centers in the
CACFP. In addition, this rule would
make several operational changes to
improve oversight of an institution’s
financial management and would also
Estimated
number of
respondents

Affected public

Number of
responses per
respondent

include several technical corrections.
The proposed rule is intended to
improve the integrity of all Child
Nutrition Programs. The average burden
per response and the annual burden
hours for reporting and recordkeeping
are explained below and summarized in
the charts which follow.
CACFP—7 CFR Part 226
Affected Public: State Agencies.
Estimated Number of Respondents:
54.
Estimated Number of Responses per
Respondent: 39.29.
Estimated Total Annual Responses:
2,122.
Estimated Time per Response: 2.4345.
Estimated Total Annual Burden:
5,166.
Refer to the table below for estimated
total annual burden.
Total annual
responses

Estimated total
hours per
response

Estimated total
burden

Reporting
State Agencies .....................................................................

54

13.15

710

4.095

2,907.5

26.15

1,412

1.5995

2,258.5

Recordkeeping
State Agencies .....................................................................

54

Total of Reporting and Recordkeeping CACFP
Reporting ..............................................................................
Recordkeeping .....................................................................

54
54

13.15
26.15

710
1,412

4.095
1.5995

2,907.5
2,258.5

Total ..............................................................................

54

39.29

2,122

2.435

5,166

With OMB Approval, 0584–NEW CACFP burden will be merged to OMB Control Number 0584–0055.

SFSP—7 CFR Part 225
Affected Public: State Agencies.
Estimated Number of Respondents:
53.

Estimated Number of Responses per
Respondent: 21.
Estimated Total Annual Responses:
1,113.
Estimate Time per Response: 6.214.
Estimated
number of
respondents

Affected public

Number of
responses per
respondent

Estimated Total Annual Burden:
6,916.5.
Refer to the table below for estimated
total annual burden.
Total annual
responses

Estimated total
hours per
response

Estimated total
burden

Reporting
State Agencies .....................................................................

53

20

1,060

6.5

6,890

1

53

.5

26.5

Recordkeeping

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State Agencies .....................................................................

53

Total of Reporting and Recordkeeping SFSP
Reporting ..............................................................................
Recordkeeping .....................................................................

53
53

20
1

1,060
53

6.5
.5

6,890
26.5

Total ..............................................................................

53

21

1,113

6.214

6,916.5

With OMB Approval, 0584–NEW SFSP burden will be merged to OMB Control Number 0584–0280.

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Estimated Number of Responses per
Respondent: 2.0054.
Estimated Total Annual Responses:
41,940.
Estimate Time per Response: .25.

NSLP—7 CFR Part 21
Affected Public: State Agencies and
School Food Authorities.
Estimated Number of Respondents:
20,914.

Estimated
number of
respondents

Affected public

Number of
responses per
respondent

Estimated Total Annual Burden:
10,485.
Refer to the table below for estimated
total annual burden.
Estimated total
hours per
response

Total annual
responses

Estimated total
burden

Reporting
State Agencies ...................................................................

0

0

0

0

0

1
1

56
19,878

.25
.20

14
3,964.4

Recordkeeping
State Agencies ...................................................................
School Food Authorities .....................................................

56
19,822

Total of Reporting and Recordkeeping NSLP
Reporting * ..........................................................................
Recordkeeping ...................................................................

0
19,878

0
1

0
19,878

0
.20

0
3,978.4

Total ............................................................................

19,878

1

19,878

.2

3,978

* There is no reporting burden associated with procurement training requirements for State agency and SFA staff in the NSLP.
With OMB Approval, 0584–NEW NSLP burden will be merged to OMB Control Number 0584–0006.

K. E-Government Act Compliance

7 CFR Part 226

The Food and Nutrition Service is
committed to complying with the EGovernment Act 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.

Accounting, Aged, Day care, Food
assistance programs, Grant programs,
Grant programs—health, American
Indians, Individuals with disabilities,
Infants and children, Intergovernmental
relations, Loan programs, Reporting and
recordkeeping requirements, Surplus
agricultural commodities.
7 CFR Part 235

List of Subjects
7 CFR Part 210
Grant programs—education, Grant
programs—health, Infants and children,
Nutrition, Penalties, Reporting and
recordkeeping requirements, School
breakfast and lunch programs, Surplus
agricultural commodities.
7 CFR Part 215
Food assistance programs, Grant
programs—education, Grant programs—
health, Infants and children, Milk,
Reporting and recordkeeping
requirements.

Administrative practice and
procedure, Food assistance programs,
Grant programs—education, Grant
programs—health, Infants and children,
Reporting and recordkeeping
requirements, School breakfast and
lunch programs.
Accordingly, 7 CFR parts 210, 215,
220, 225, 226, and 235 are proposed to
be amended as follows:
PART 210—NATIONAL SCHOOL
LUNCH PROGRAM
1. The authority citation for part 210
continues to read as follows:

■

Authority: 42 U.S.C. 1751–1760, 1779.

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7 CFR Part 220
Grant programs—education, Grant
programs—health, Infants and children,
Nutrition, Reporting and recordkeeping
requirements, School breakfast and
lunch programs.
7 CFR Part 225
Food assistance programs, Grant
programs—health, Infants and children,
Labeling, Reporting.

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2. In § 210.9, add paragraph (d) to read
as follows:

■

§ 210.9

Agreement with State agency.

*

*
*
*
*
(d) Terminations or disqualifications.
(1) General. The State agency may not
approve any school food authority or
school to participate in or administer
the Program if the school food authority,
school, or its officials:

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(i) Have been terminated for cause
from any program authorized under this
part or parts 215, 220, 225 and 226 of
this chapter; or
(ii) Are currently included on the
National disqualified lists under
§§ 225.11 or 226.6 of this chapter.
(2) Duration. State agencies must
ensure that school food authorities or
schools described in paragraph (d)(1) of
this section do not participate in or
administer the Program until the State
agency, in consultation with FNS,
determines that the deficiency(ies)
has(ve) been corrected, or until seven
years have elapsed since they were
terminated or disqualified. However, if
a school food authority, school or
official has failed to repay debts owed
under the Program, they will remain
ineligible until the debt has been repaid.
(3) State actions. The State agency’s
decision not to approve a school food
authority or school to participate in or
administer the Program as required by
paragraph (d)(1) of this section is final
and not subject to further administrative
or judicial review. For school food
authorities and schools currently
administering the Program, the State
agency must suspend or terminate the
Program in accordance with the
procedures set forth in § 210.25.
(4) Process for identifying
terminations and disqualifications.
State agencies must develop a process to

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share information on school food
authorities, schools and individuals not
approved to administer or participate in
the programs as described under
paragraph (d)(1) of this section. The
process must be approved by the Food
and Nutrition Service Regional Office
(FNSRO) and must ensure the State
agency works closely with any other
State agency within the State
administering the programs under parts
215, 220, 225 226, 246 and 248 of this
chapter to ensure information is shared
for program purposes and on a timely
basis.
■ 3. In § 210.15, add paragraph (b)(8) to
read as follows:
§ 210.15

Reporting and recordkeeping.

*

*
*
*
*
(b) * * *
(8) Records to document compliance
with the procurement training
requirements under § 210.21(h).
■ 4. In § 210.16, revise paragraph (c)
introductory text and add paragraph
(c)(4) to read as follows:
§ 210.16 Food service management
companies.

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*

*
*
*
*
(c) Contracts. Contracts that permit all
income and expenses to accrue to the
food service management company,
‘‘cost-plus-a-percentage-of-cost,’’ ‘‘costplus-a-percentage-of-income,’’ and
‘‘cost-reimbursable’’ contracts are
prohibited. Contracts that provide for
fixed-fees such as those that provide for
management fees established on a per
meal basis are allowed. Only fixed-price
contracts, such as contracts that provide
a per meal and/or management fees
established on a per meal basis, either
with or without economic price
adjustments tied to a standard index, are
allowed. Contractual agreements with
food service management companies
shall include provisions which ensure
that the requirements of this section are
met. Such agreements must also include
the following:
*
*
*
*
*
(4) Provisions in 7 CFR part 250,
subpart D must be included to ensure
the value of donated foods, i.e., USDA
Foods are credited to the nonprofit
school food service account.
■ 5. In § 210.18, revise paragraph (q)
introductory text and paragraph (q)(1)
introductory text to read as follows:
§ 210.18

Administrative reviews.

*

*
*
*
*
(q) School food authority appeal of
State agency findings. Except for FNSconducted reviews authorized under
§ 210.29(d)(2), each State agency shall
establish an appeal procedure to be

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followed by a school food authority
requesting a review of a denial of all or
a part of the Claim for Reimbursement,
withholding payment arising from
administrative or follow-up review
activity conducted by the State agency
under § 210.18, or assessments
established under § 210.26. State
agencies may use their own appeal
procedures provided the same
procedures are applied to all appellants
in the State and the procedures meet the
following requirements: Appellants are
assured of a fair and impartial hearing
before an independent official at which
they may be represented by legal
counsel; decisions are rendered in a
timely manner not to exceed 120 days
from the date of the receipt of the
request for review; appellants are
afforded the right to either a review of
the record with the right to file written
information, or a hearing which they
may attend in person; and adequate
notice is given of the time, date, place
and procedures of the hearing. If the
State agency has not established its own
appeal procedures or the procedures do
not meet the above listed criteria, the
State agency shall observe the following
procedures at a minimum:
(1) The written request for a review
shall be postmarked within 15 calendar
days of the date the appellant received
the notice of the denial of all or a part
of the Claim for Reimbursement,
withholding of payment, or assessments
established under § 210.26, and the
State agency shall acknowledge the
receipt of the request for appeal within
10 calendar days;
*
*
*
*
*
§ 210.19

[Amended]

6. In § 210.19: Amend paragraph (a)(5)
by adding the phrase ‘‘and approve’’
after the words ‘‘annually review’’ in the
first sentence.
■ 7. In § 210.20, add paragraph (b)(16) to
read as follows:
■

§ 210.20

Reporting and recordkeeping.

*

*
*
*
*
(b) * * *
(16) Records to document compliance
with the procurement training
requirements under § 210.21(h).
■ 8. In § 210.21, add paragraph (h) to
read as follows:
§ 210.21

Procurement.

*

*
*
*
*
(h) Procurement training. State agency
and school food authority staff tasked
with procurement responsibilities shall
successfully complete annual training in
procurement standards including but
not limited to the procurement process
generally, government-wide Federal

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procurement requirements, competitive
procurements, the Buy American
provision, State agency and school food
authority responsibilities in regard to
food service management company
contracts and all contract changes,
USDA Foods, intergovernmental
cooperation, geographic preference,
protests, and ethics in accordance with
§ 210.21(a). State agencies and school
food authorities must retain records to
document compliance with the
procurement training requirements in
this paragraph.
■ 9. Revise § 210.26 to read as follows:
§ 210.26

Penalties and assessments.

(a) Penalties. Whoever embezzles,
willfully misapplies, steals, or obtains
by fraud any funds, assets, or property
provided under this part whether
received directly or indirectly from the
Department shall, if such funds, assets,
or property are of a value of $100 or
more, be fined no more than $25,000 or
imprisoned not more than 5 years or
both; or if such funds, assets, or
property are of a value of less than $100,
be fined not more than $1,000 or
imprisoned not more than 1 year or
both. Whoever receives, conceals, or
retains for personal use or gain, funds,
assets, or property provided under this
part, whether received directly or
indirectly from the Department,
knowing such funds, assets, or property
have been embezzled, willfully
misapplied, stolen, or obtained by fraud,
shall be subject to the same penalties.
(b) Assessments.
(1) The State agency may establish an
assessment against any school food
authority when it has determined that
the school food authority or school
under its agreement has:
(i) Failed to correct severe
mismanagement of the Program;
(ii) Disregarded a Program
requirement of which the school food
authority or school had been informed;
or
(iii) Failed to correct repeated
violations of Program requirements.
(2) FNS may direct the State agency
to establish an assessment against any
school food authority when it has
determined that the school food
authority or school meets the criteria set
forth under paragraph (b)(1) of this
section.
(3) Funds used to pay assessments
established under this paragraph must
be derived from non-federal sources. In
calculating an assessment, the State
agency must base the amount of the
assessment on the reimbursement
earned by the school food authority or
school for this Program for the most
recent fiscal year for which closeout

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data are available, provided that the
assessment does not exceed the
equivalent of:
(i) For the first assessment, 1 percent
of the amount of meal reimbursement
earned for the fiscal year;
(ii) For the second assessment, 5
percent of the amount of meal
reimbursement earned for the fiscal
year; and
(iii) For the third or subsequent
assessment, 10 percent of the amount of
meal reimbursement earned for the
fiscal year.
(4) The State agency must inform the
FNSRO at least 30 days prior to
establishing the assessment under this
paragraph. The State agency must send
the school food authority written
notification of the assessment
established under this paragraph and
provide a copy of the notification to the
FNSRO. The notification must:
(i) Specify the violations or actions
which constitute the basis for the
assessment and indicate the amount of
the assessment;
(ii) Inform the school food authority
that it may appeal the assessment and
advise the school food authority of the
appeal procedures established under
§ 210.18(q);
(iii) Indicate the effective date and
payment procedures should the school
food authority not exercise its right to
appeal within the specified timeframe.
(5) Any school food authority subject
to an assessment under paragraph (b)(1)
of this section may appeal the State
agency’s determination. In appealing an
assessment, the school food authority
must submit to the State agency any
pertinent information, explanation, or
evidence addressing the Program
violations identified by the State
agency. Any school food authority
seeking to appeal the State agency
determination must follow State agency
appeal procedures.
(6) The decision of the State agency
review official is final and not subject to
further administrative or judicial
review. Failure to pay an assessment
established under this paragraph may be
grounds for suspension or termination.
(7) Money received by the State
agency as a result of an assessment
established under this paragraph against
a school food authority and any interest
charged in the collection of these
assessments must be remitted to FNS.
PART 215—SPECIAL MILK PROGRAM
FOR CHILDREN
10. The authority citation for part 215
continues to read as follows:

■

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

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11. In § 215.7, add paragraph (g) to
read as follows:

■

§ 215.7

Requirements for participation.

*

*
*
*
*
(g) Terminations or disqualifications.
(1) General. The State agency may not
approve any school food authority,
school or child care institution to
participate in or administer the Program
if the school food authority, school,
child care institution or its officials:
(i) Have been terminated for cause
from any program authorized under this
part or parts 210, 220, 225 and 226 of
this chapter; or
(ii) Are currently included on the
National disqualified lists under
§§ 225.11 or 226.6 of this chapter.
(2) Duration. State agencies must
ensure that school food authorities,
schools or child care institutions
described in paragraph (g)(1) of this
section do not participate in or
administer the Program until the State
agency, in consultation with FNS,
determines that the deficiency(ies)
has(ve) been corrected, or until seven
years have elapsed since they were
terminated or disqualified. However, if
a school food authority, school, child
care institution or official has failed to
repay debts owed under the Program,
they will remain ineligible until the
debt has been repaid.
(3) State actions. The State agency’s
decision not to approve a school food
authority, school or child care
institution to participate in or
administer the Program as required by
paragraph (g)(1) of this section is final
and not subject to further administrative
or judicial review. For school food
authorities, schools and child care
institutions currently administering the
Program, the State agency must suspend
or terminate the Program in accordance
with the procedures set forth in
§ 215.16.
(4) Process for identifying
terminations and disqualifications.
State agencies must develop a process to
share information on school food
authorities, schools, child care
institutions and individuals not
approved to administer or participate in
the programs as described under
paragraph (g)(1) of this section. The
process must be approved by the
FNSRO and must ensure the State
agency works closely with any other
State agency within the State
administering the programs under parts
210, 220, 225, 226, 246 and 248 of this
chapter to ensure information is shared
for program purposes and on a timely
basis.
■ 12. Revise § 215.15 to read as follows:

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17583

§ 215.15 Withholding payments and
establishing assessments.

(a) Withholding payments. In
accordance with OMB regulations at 2
CFR part 200.338 (Remedies for
noncompliance), implemented by
Departmental regulations at 2 CFR part
400, the State agency may withhold
Program payments in whole or in part,
to any school food authority which has
failed to comply with the provisions of
this part. Program payments shall be
withheld until the school food authority
takes corrective action satisfactory to the
State agency, or gives evidence that
such corrective actions will be taken, or
until the State agency terminates the
grant in accordance with § 215.16.
Subsequent to the State agency’s
acceptance of the corrective actions,
payments will be released for any milk
served in accordance with the
provisions of this part during the period
the payments were withheld.
(b) Assessments. (1) The State agency
may establish an assessment against any
school food authority, school under its
agreement, or child care institution
when it has determined that the school
food authority or child care institution
has:
(i) Failed to correct severe
mismanagement of the Program;
(ii) Disregarded a Program
requirement of which the school food
authority, school, or child care
institution had been informed; or
(iii) Failed to correct repeated
violations of Program requirements.
(2) FNS may direct the State agency
to establish an assessment against any
school food authority or child care
institution when it has determined that
the school food authority, school, or
child care institution has committed one
or more acts the under paragraph (b)(1)
of this section.
(3) Funds used to pay an assessment
established under this paragraph must
be derived from non-federal sources. In
calculating an assessment, the State
agency must base the amount of the
assessment on the reimbursement
earned by the school food authority,
school, or child care institution for this
Program for the most recent fiscal year
for which closeout data are available,
provided that the assessment does not
exceed the equivalent of:
(i) For the first assessment, 1 percent
of the amount of reimbursement earned
for the fiscal year;
(ii) For the second assessment, 5
percent of the amount of reimbursement
earned for the fiscal year; and
(iii) For the third or subsequent
assessment, 10 percent of the amount of
reimbursement earned for the fiscal
year.

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(4) The State agency must inform the
FNSRO at least 30 days prior to
establishing an assessment under this
paragraph. The State agency must send
the school food authority or child care
institution written notification of the
assessment established under this
paragraph and provide a copy of the
notification to the FNSRO. The
notification must:
(i) Specify the violations or actions
which constitute the basis for the
assessment and indicate the amount of
the assessment;
(ii) Inform the school food authority
or child care institution that it may
appeal the assessment and advise the
school food authority or child care
institution of the appeal procedures
established under § 210.18(q) of this
chapter;
(iii) Indicate the effective date and
payment procedures should the school
food authority or child care institution
not exercise its right to appeal within
the specified timeframe.
(5) Any school food authority or child
care institution subject to an assessment
under paragraph (b)(1) of this section
may appeal the State agency’s
determination. In appealing an
assessment, the school food authority or
child care institution must submit to the
State agency any pertinent information,
explanation, or evidence addressing the
Program violations identified by the
State agency. Any school food authority
or child care institution seeking to
appeal the State agency determination
must follow State agency appeal
procedures.
(6) The decision of the State agency
review official is final and not subject to
further administrative or judicial
review. Failure to pay an assessment
established under this paragraph may be
grounds for suspension or termination.
(7) Money received by the State
agency as a result of an assessment
established under this paragraph against
a school food authority and any interest
charged in the collection of these
assessments must be remitted to FNS.
PART 220—SCHOOL BREAKFAST
PROGRAM

§ 220.18 Withholding payments and
assessments.

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

mstockstill on DSK4VPTVN1PROD with PROPOSALS2

■

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

14. In § 220.7, add paragraph (h) to
read as follows:

■

§ 220.7

Requirements for participation.

*

*
*
*
*
(h) Terminations or disqualifications.
(1) General. The State agency may not
approve any school food authority or

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Jkt 238001

school to participate in or administer
the Program if the school food authority,
school or its officials:
(i) Have been terminated for cause
from any program authorized under this
part or parts 210, 215, 225 and 226 of
this chapter; or
(ii) Are currently included on the
National disqualified lists under
§§ 225.11 or 226.6 of this chapter.
(2) Duration. State agencies must
ensure that school food authorities or
schools described in paragraph (h)(1) of
this section do not participate in or
administer the Program until the State
agency, in consultation with FNS,
determines that the deficiency(ies)
has(ve) been corrected, or until seven
years have elapsed since they were
terminated or disqualified. However, if
a school food authority, school or
official has failed to repay debts owed
under the Program, they will remain
ineligible until the debt has been repaid.
(3) State actions. The State agency’s
decision not to approve a school food
authority or school to participate in or
administer the Program as required by
paragraph (h)(1) of this section is final
and not subject to further administrative
or judicial review. For school food
authorities and schools administering
the Program, the State agency must
suspend or terminate the Program in
accordance with the procedures set
forth in § 220.19.
(4) Process for identifying
terminations and disqualifications.
State agencies must develop a process to
share information on school food
authorities, schools and individuals not
approved to administer or participate in
the programs as described under
paragraph (h)(1) of this section. The
process must be approved by the
FNSRO and must ensure the State
agency works closely with any other
State agency within the State
administering the programs under parts
210, 215, 225, 226, 246 and 248 of this
chapter to ensure information is shared
for program purposes and on a timely
basis.
■ 15. Revise § 220.18 to read as follows:

(a) Withholding payments. In
accordance with Departmental
regulations 2 CFR part 400, the State
agency may withhold Program
payments, in whole or in part, to any
school food authority which has failed
to comply with the provisions of this
part. Program payments shall be
withheld until the school food authority
takes corrective action satisfactory to the
State agency, or gives evidence that
such corrective actions will be taken, or

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until the State agency terminates the
grant in accordance with § 220.19.
Subsequent to the State agency’s
acceptance of the corrective actions,
payments will be released for any
breakfasts served in accordance with the
provisions of this part during the period
the payments were withheld.
(b) Assessments. (1) The State agency
may establish an assessment against any
school food authority or school under
its agreement when it has determined
that the school food authority has:
(i) Failed to correct severe
mismanagement of the Program;
(ii) Disregarded a Program
requirement of which the school food
authority or school had been informed;
or
(iii) Failed to correct repeated
violations of Program requirements.
(2) FNS may direct the State agency
to establish an assessment against any
school food authority when it has
determined that the school food
authority or school has committed one
or more acts the under paragraph (b)(1)
of this section.
(3) Funds used to pay an assessment
established under this paragraph must
be derived from non-federal sources. In
calculating an assessment, the State
agency must base the amount of the
assessment on the reimbursement
earned by the school food authority or
school for this Program for the most
recent fiscal year for which closeout
data are available, provided that the
assessment does not exceed the
equivalent of:
(i) For the first assessment, 1 percent
of the amount of meal reimbursement
earned for the fiscal year;
(ii) For the second assessment, 5
percent of the amount of meal
reimbursement earned for the fiscal
year; and
(iii) For the third or subsequent
assessment, 10 percent of the amount of
meal reimbursement earned for the
fiscal year.
(4) The State agency must inform the
FNSRO at least 30 days prior to
establishing an assessment under this
paragraph. The State agency must send
the school food authority written
notification of the assessment
established under this paragraph and
provide a copy of the notification to the
FNSRO. The notification must:
(i) Specify the violations or actions
which constitute the basis for the
assessment and indicate the amount of
the assessment;
(ii) Inform the school food authority
that it may appeal the assessment and
advise the school food authority of the
appeal procedures established under
§ 210.18(q) of this chapter;

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Federal Register / Vol. 81, No. 60 / Tuesday, March 29, 2016 / Proposed Rules
(iii) Indicate the effective date and
payment procedures should the school
food authority not exercise its right to
appeal within the specified timeframe.
(5) Any school food authority subject
to an assessment under paragraph (b)(1)
of this section may appeal the State
agency’s determination. In appealing an
assessment, the school food authority
must submit to the State agency any
pertinent information, explanation, or
evidence addressing the Program
violations identified by the State
agency. Any school food authority
seeking to appeal the State agency
determination must follow State agency
appeal procedures.
(6) The decision of the State agency
review official is final and not subject to
further administrative or judicial
review. Failure to pay an assessment
established under this paragraph may be
grounds for suspension or termination.
(7) Money received by the State
agency as a result of an assessment
established under this paragraph against
a school food authority and any interest
charged in the collection of these
assessments must be remitted to FNS.
PART 225—SUMMER FOOD SERVICE
PROGRAM
16. The authority citation for part 225
continues to read as follows:

■

Authority: Secs. 9, 13, and 14, Richard B.
Russell National School Lunch Act, as
amended (42 U.S.C. 1758, 1761 and 1762a).

17. In § 225.2, add new definitions
‘‘Administrative review’’,
‘‘Administrative review official’’,
‘‘National disqualified list’’,
‘‘Responsible principal or responsible
individual’’, ‘‘Seriously deficient’’ and
‘‘State agency list’’ in alphabetical order
to read as follows:

■

§ 225.2

Definitions.

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Administrative review means the fair
hearing provided upon request to:
(a) A sponsor that has been given
notice by the State agency of any action
that will affect their participation or
reimbursement under the Program, in
accordance with § 225.13; and
(b) A principal or individual
responsible for a sponsor’s serious
deficiency after the responsible
principal or responsible individual has
been given a notice of intent to
disqualify them from the Program.
Administrative review official means
the independent and impartial official
who conducts the administrative review
held in accordance with § 225.13.
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National disqualified list means the
list, maintained by the Department, of

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sponsors, responsible principals, and
responsible individuals disqualified
from participation in the Program.
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Responsible principal or responsible
individual means:
(a) A principal, whether compensated
or uncompensated, who the State
agency or FNS determines to be
responsible for a sponsor’s serious
deficiency;
(b) Any other individual employed
by, or under contract with, a sponsor
who the State agency or FNS determines
to be responsible for the sponsor’s
serious deficiency; or
(c) An individual not compensated by
the sponsor who the State agency or
FNS determines to be responsible for a
sponsor’s serious deficiency.
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Seriously deficient means the status of
a sponsor that has been determined to
be non-compliant in one or more
aspects of its operation of the Program;
such noncompliance is also referred to
as a serious deficiency.
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State agency list means an actual
paper or electronic list, or the
retrievable paper records, maintained by
the State agency, which includes a
synopsis of information concerning
seriously deficient sponsors in that
State. The list must be made available
to FNS upon request, and must include
the following information:
(a) Sponsors determined to be
seriously deficient by the State agency,
including the names and mailing
addresses of the sponsors, the basis for
each serious deficiency determination,
and the status of the sponsors as they
move through the possible subsequent
stages of corrective action, agreement
termination, and/or disqualification, as
applicable;
(b) Responsible principals and
responsible individuals determined by
the State agency to be associated with
the serious deficiency, including their
full legal names, and any other names
previously used, mailing addresses, and
dates of birth.
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■ 18. In § 225.5, add paragraph (g) to
read as follows:
§ 225.5 Payments to State agencies and
use of Program funds.

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(g) FNS may establish an assessment
against any State agency administering
the Program, consistent with the
provisions set forth in § 235.11(c) of this
chapter.
■ 19. In § 225.6,
■ a. Revise paragraph (b)(9);

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b. Add paragraph (b)(12);
c. Amend paragraph (c)(1) by revising
the third sentence;
■ d. Add paragraph (c)(2)(ii)(E);
■ e. Add paragraph (c)(3)(ii)(D);
■ f. Add paragraph (d)(1)(v);
■ g. Revise paragraph (e) introductory
text;
The revisions and additions read as
follows:
■
■

§ 225.6

State agency responsibilities.

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(b) * * *
(9) The State agency shall not approve
the application of any applicant sponsor
identifiable through its organization or
principals as a sponsor which has been
determined to be seriously deficient as
described in § 225.11(c). However, the
State agency may approve the
application of a sponsor which has been
determined to be seriously deficient in
prior years in accordance with this
paragraph if the applicant demonstrates
to the satisfaction of the State agency
that it has taken appropriate corrective
actions to prevent recurrence of the
deficiencies. The State agency must
develop policies and procedures to
confirm that serious deficiencies have
been fully and permanently corrected.
This confirmation must address the
circumstances that led to the serious
deficiency, the responsible parties, the
timeframe for corrective action and
policies and/or procedures that are in
place to avoid recurrence of the serious
deficiency within the same Program
year or in subsequent Program years.
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(12) Terminations or
disqualifications.
(i) General. The State agency may not
approve any sponsor or site to
participate in or administer the Program
if the sponsor, site or its responsible
principals or individuals:
(A) Have been terminated for cause
from any program authorized under this
part, parts 210, 215, 220, or 226 of this
chapter; or
(B) Are currently included on the
National disqualified lists under this
part or § 226.6 of this chapter.
(ii) Duration. State agencies must
ensure that sponsor or sites described in
paragraph (b)(12)(i) of this section do
not participate in or administer the
Program until the State agency, in
consultation with FNS, determines that
the deficiency(ies) has(ve) been
corrected, or until seven years have
elapsed since they were terminated or
disqualified. However, if a sponsor, site
or its responsible principals or
individuals has failed to repay debts
owed under the Program, they will

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remain ineligible until the debt has been
repaid.
(iii) State actions. The State agency’s
decision not to approve a sponsor or site
to participate in or administer the
Program as required by paragraph
(b)(12)(i) of this section is final and not
subject to further administrative or
judicial review.
(c) * * *
(1) * * * The State agency may use
the application form developed by FNS,
or it may develop an application form,
for use in the Program; provided that
such form requests the full legal name,
any previously used names; mailing
address; date of birth of the sponsor’s
principals which includes the Executive
Director and Chairman of the Board; and
the sponsor’s Federal Employer
Identification Number (FEIN) and/or
Dun and Bradstreet Data Universal
Numbering System (DUNS) number.
* * *
(2) * * *
(ii) * * *
(E) Sponsors must submit a
certification of the following
information:
(1) That all information on the
application is true and correct;
(2) That serious deficiencies
identified during the previous year have
been fully and permanently corrected;
(3) That the sponsor, sites under its
jurisdiction or any responsible
principals have not been terminated for
cause from any program authorized
under this part, parts 210, 215 220, and
226 of this chapter during the past seven
years or are not currently included on
the National disqualified lists under this
part or § 226.6 of this chapter. Or, if the
sponsor has been terminated for cause
from any program authorized under this
part, parts 210, 215 220, and 226 of this
chapter during the past seven years, the
sponsor has been reinstated in, or
determined eligible for, that program,
including the payment of any debts
owed; and
(4) That the sponsor, sites under its
jurisdiction or any responsible
principals have not been convicted of
any activity that occurred during the
past seven years and that indicated a
lack of business integrity. A lack of
business integrity includes fraud,
antitrust violations, embezzlement,
theft, forgery, bribery, falsification or
destruction of records, making false
statements, receiving stolen property,
making false claims, obstruction of
justice, or any other activity indicating
a lack of business integrity as defined by
the State agency.
(3) * * *
(ii) * * *

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(D) Certification that all information
on the application is true and correct.
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(d) * * *
(1) * * *
(v) The site and its responsible
individuals are not currently on the
National disqualified lists under this
part or 226.6 of this chapter and have
not been terminated for cause from any
program authorized under this part,
parts 210, 215, and 220 of this chapter
as specified in § 225.6(b)(12).
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(e) State-Sponsor Agreement. A
sponsor approved for participation in
the Program must enter into a
permanent written agreement with the
State agency. The existence of a valid
permanent agreement does not limit the
State agency’s ability to terminate the
agreement, as provided under
§ 225.11(g). The State agency must
terminate the sponsor’s agreement
whenever a sponsor’s participation in
the Program ends. The State agency
must terminate the agreement for cause
under § 225.6(b)(12)(i), or if the sponsor
or its responsible principal or
responsible individual are on the
National disqualified lists under this
part or § 226.6 of this chapter, as
required under § 225.11(i). The State
agency or sponsor may terminate the
agreement at its convenience for
considerations unrelated to the
institution’s performance of Program
responsibilities under the agreement.
All sponsors must agree in writing to:
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■ 20. Revise § 225.11 to read as follows:
§ 225.11 Administrative actions for
program violations.

(a) Investigations. Each State agency
shall promptly investigate complaints
received or irregularities noted in
connection with the operation of the
Program, and shall take appropriate
action to correct any irregularities. The
State agency shall maintain on file all
evidence relating to such investigations
and actions. The State agency shall
inform the appropriate FNSRO of any
suspected fraud or criminal abuse in the
Program which would result in a loss or
misuse of Federal funds. The
Department may make investigations at
the request of the State agency, or where
the Department determines
investigations are appropriate.
(b) Meal disallowances. (1) If the State
agency determines that a sponsor has
failed to plan, prepare, or order meals
with the objective of providing only one
meal per child at each meal service at
a site, the State agency shall disallow

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the number of children’s meals prepared
or ordered in excess of the number of
children served.
(2) If the State agency observes meal
service violations during the conduct of
a site review, the State agency shall
disallow all of the meals observed to be
in violation.
(3) The State agency shall also
disallow children’s meals which are in
excess of a site’s approved level
established under § 225.6(d)(2).
(c) List of serious deficiencies. The list
of serious deficiencies is not identical
for each category of sponsor (new,
renewing, participating) because the
type of information likely to be available
to the State agency is different,
depending on whether the State agency
is reviewing a new or renewing
sponsor’s application or is conducting a
review of a participating sponsor. The
State agency shall afford a sponsor an
opportunity not greater than 10 days,
unless approved by the FNSRO, to
correct problems before terminating the
sponsor for being seriously deficient.
Serious deficiencies which are not fully
and permanently corrected will result in
the sponsor’s termination from the
program. Serious deficiencies which are
grounds for termination or disapproval
of application include, but are not
limited to, any of the following:
(1) Noncompliance with the
applicable bid procedures and contract
requirements of Federal child nutrition
program regulations;
(2) The submission of false
information to the State agency,
including but not limited to a
determination that the sponsor has
concealed a conviction for any activity
that occurred during the past seven
years and that indicates a lack of
business integrity. A lack of business
integrity includes fraud, antitrust
violations, embezzlement, theft, forgery,
bribery, falsification or destruction of
records, making false statements,
receiving stolen property, making false
claims, obstruction of justice, or any
other activity indicating a lack of
business integrity as defined by the
State agency;
(3) Failure to return to the State
agency any start-up or advance
payments which exceeded the amount
earned for serving meals in accordance
with this part, or failure to submit all
claims for reimbursement in any prior
year, provided that failure to return any
advance payments for months for which
claims for reimbursement are under
dispute from any prior year shall not be
grounds for disapproval in accordance
with this paragraph;
(4) Significant number of Program
violations at a site, or Program

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violations at a significant proportion of
the sponsor’s sites. Such violations
include, but are not limited to, the
following:
(i) Noncompliance with the meal
service requirements;
(ii) Failure to maintain adequate
records;
(iii) Failure to adjust meal orders to
conform to variations in the number of
participating children;
(iv) The simultaneous service of more
than one meal to any child;
(v) The claiming of Program payments
for meals not served to participating
children;
(vi) Service of a significant number of
meals which did not include required
quantities of all meal components;
(vii) Excessive instances of off-site
meal consumption; and
(viii) Continued use of food service
management companies that are in
violation of health codes.
(5) Termination or disqualification
from another Child Nutrition Program,
in accordance with § 225.6(b)(12)(i); and
(6) Any action affecting the sponsor’s
ability to administer the Program in
accordance with Program requirements.
(d) Serious deficiency procedures. (1)
If the State agency determines that a
sponsor has committed one or more
serious deficiencies listed in paragraph
(c) of this section, the State agency must
declare the sponsor to be seriously
deficient.
(2) If the State agency determines that
a responsible principal or individual
has committed one or more serious
deficiencies listed in paragraph (c) of
this section, the State agency must
declare the responsible principal or
individual to be seriously deficient.
(3) If the State agency holds an
agreement with a sponsor whose
principal FNS determines to be
seriously deficient and subsequently
disqualified, the State agency must
determine the sponsor to be seriously
deficient and initiate action to terminate
and disqualify the sponsor. The State
agency must initiate these actions no
later than 10 days after the date of the
principal’s disqualification by FNS.
(4) If the State agency determines a
sponsor, responsible principal or
individual to be seriously deficient, the
State agency must notify the sponsor’s
Executive Director and Chairman of the
Board of Directors. The notice must
identify the responsible principals and
responsible individuals (e.g., for new
sponsor, the person who signed the
application) and must be sent to those
persons as well. The State agency may
specify in the notice different corrective
action, and time periods for completing
the corrective action for the sponsor, the

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responsible principals and responsible
individuals. The notice must also
specify:
(i) The serious deficiency(ies);
(ii) The actions to be taken to correct
the serious deficiency(ies);
(iii) The time allotted to correct the
serious deficiency(ies);
(iv) That the serious deficiency
determination is not subject to
administrative review;
(v) For new sponsors, that failure to
fully and permanently correct the
serious deficiency(ies) within the
allotted time will result in either the
denial of a new sponsor’s application
and the disqualification of the sponsor
and the responsible principals and
responsible individuals;
(vi) For renewing and participating
sponsors, that failure to fully and
permanently correct the serious
deficiency(ies) within the allotted time
will result in the State agency’s denial
of the renewing sponsor’s application,
the termination of the sponsor’s
agreement, and the disqualification of
the sponsor and the responsible
principals and responsible individuals;
(vii) That the State agency will not
pay any claims for reimbursement or
allowable administrative expenses
incurred until the State agency has
approved any sponsor’s application and
the sponsor has signed a Program
agreement;
(viii) For renewing and participating
sponsors, that the sponsor’s withdrawal
of its application, after having been
notified that it is seriously deficient,
will still result in the sponsor’s formal
termination by the State agency and
placement of the sponsor and its
responsible principals and individuals
on the National disqualified list;
(ix) That, if the sponsor voluntarily
terminates its agreement after receiving
the notice of serious deficiency, the
sponsor and the responsible principals
and responsible individuals will be
disqualified; and
(x) That, if the State agency does not
possess the date of birth for any
individual named as a ‘‘responsible
principal or individual’’ in the serious
deficiency notice, the submission of that
person’s date of birth is a condition of
corrective action for the sponsor and/or
individual.
(5) State agency list. At the same time
the notice is issued, the State agency
must add the sponsor, responsible
principals and/or individuals to the
State agency list, indicate that the notice
of serious deficiency(ies) has(ve) been
issued, include the basis for the serious
deficiency determination, and provide a
copy of the notice to the appropriate
FNSRO.

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(e) Corrective action procedures. (1)
Whenever the State agency observes
violations during the course of a site
review, it shall require the sponsor to
take corrective action within 10 days,
unless approved by the FNSRO. If the
State agency finds a high level of meal
service violations, the State agency shall
require a specific immediate corrective
action plan to be followed by the
sponsor and shall either conduct a
follow-up visit or in some other manner
verify that the specified corrective
action has been taken.
(2) For serious deficiencies requiring
the long-term revision of management
systems or processes, the corrective
action must be approved by the FNSRO
and must include milestones and a
definite completion date that the State
agency will monitor. The determination
of serious deficiency will remain in
effect until the State agency determines
that the serious deficiency(ies) has(ve)
been fully and permanently corrected
within the allotted time.
(3) At the same time the notice of
serious deficiency is issued, the State
agency must also update the State
agency list to indicate that the corrective
action plan has been issued and provide
a copy of the corrective action plan to
the appropriate FNSRO.
(f) Successful corrective action. If
corrective action has been taken to fully
and permanently correct the serious
deficiency(ies) within the allotted time
and to the State agency’s satisfaction,
the State agency must:
(1) Notify the sponsor’s Executive
Director and Chairman of the Board of
Directors, and the responsible principals
and responsible individuals, that the
State agency has temporarily deferred
its serious deficiency determination;
and
(2) Offer the new or renewing sponsor
the opportunity to resubmit its
application. If the new or renewing
sponsor resubmits its application, the
State agency must complete its review
of the application within 30 days after
receiving a complete and correct
application.
(3) If corrective action is complete for
the sponsor but not for all of the
responsible principals and responsible
individuals (or vice versa), the State
agency must continue with the actions
against the remaining parties;
(4) At the same time the notice is
issued as required under paragraph
(f)(1), the State agency must also update
the State agency list to indicate that the
serious deficiency(ies) has(ve) been
corrected and provide a copy of the
notice to the appropriate FNSRO; and
(5) If the State agency initially
determines that the sponsor’s corrective

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action is complete, but later determines
that the serious deficiency(ies) has
recurred, the State agency must move
immediately to issue a notice of
termination and proposed
disqualification, in accordance with
paragraph (g) of this section.
(g) Termination procedures. (1) If
corrective action is not taken to fully
and permanently correct the serious
deficiency(ies) within the timeframe
established in paragraph (e)(1) of this
section, the State agency must
immediately terminate the sponsor’s
agreement.
(2) The State agency shall terminate
the participation of a sponsor’s site if
the site or sponsor fails to take action to
correct the Program violations noted in
a State agency review report within the
timeframes established by the corrective
action plan.
(3) The State agency shall
immediately terminate the participation
of a sponsor’s site if during a review it
determines that the health or safety of
the participating children is imminently
threatened.
(4) If the site is vended, the State
agency shall within 48 hours notify the
food service management company
providing meals to the site of the site’s
termination.
(5) If the State agency holds an
agreement with a sponsor that FNS
determines to be seriously deficient and
subsequently disqualifies, the State
agency must terminate the institution’s
agreement effective no later than 10
days after the date of the sponsor’s
disqualification by FNS. As noted in
§ 225.13(f)(4), the disqualification is not
subject to administrative review. At the
same time the notice of disqualification
is issued, the State agency must add the
sponsor to the State agency list and
provide a copy of the notice to the
appropriate FNSRO.
(6) If the State agency holds an
agreement with a sponsor operating in
more than one State that another State
determines to be seriously deficient and
subsequently disqualifies, the State
agency must terminate the institution’s
agreement effective no later than 10
days after the date of the sponsor’s
disqualification by FNS. As noted in
§ 225.13(f)(4), the disqualification is not
subject to administrative review. At the
same time the notice of disqualification
is issued, the State agency must add the
sponsor to the State agency list and
provide a copy of the notice to the
appropriate FNSRO.
(7) If the State agency terminates the
sponsor’s agreement for cause, the State
agency must notify the sponsor’s
Executive Director and Chairman of the
Board of Directors, and the responsible

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principals and responsible individuals,
of the termination and disqualification.
At the same time the notice is issued,
the State agency also must update the
State agency list and provide a copy of
the notice to the appropriate FNSRO.
The notice also must specify:
(i) That the State agency is
terminating the sponsor’s agreement and
will disqualify the sponsor and the
responsible principals and responsible
individuals;
(ii) The basis for the actions; and
(iii) The procedures for seeking an
administrative review of the application
denial and/or termination as provided
in § 225.13.
(8) If this action results in children
not receiving meals under the Program,
the State agency shall make reasonable
effort to locate another source of meal
service for these children.
(h) Disqualification procedures. (1)
When the time for requesting an
administrative review expires or when
the administrative review official
upholds the State agency’s denial of the
sponsor’s application or termination,
the State agency must notify the
sponsor’s Executive Director and
Chairman of the Board of Directors, and
the responsible principals and
responsible individuals that the sponsor
and the responsible principal and
responsible individuals have been
disqualified.
(2) At the same time the notice of
disqualification is issued, the State
agency must update the State agency
list. The State agency must provide a
copy of the notice and the mailing
address and date of birth for each
responsible principal and responsible
individual to the appropriate FNSRO to
place the sponsor, responsible principal
and/or responsible individuals on the
National disqualified list. If the State
agency does not administer all programs
authorized under this part or parts 210,
215, 220 and 226 of this chapter, the
State agency must develop a process to
share information on sponsors,
responsible principals and responsible
individuals that were terminated and
disqualified, with any other State
agency in its State, administering a
Child Nutrition Program. The State
agency also must notify any State
agency in its State, administering a
program under parts 246 and 248 of this
chapter, of the termination and
disqualification of any sponsor,
responsible principal, or responsible
individual. The process must be
approved by the FNSRO and must
ensure the State agency works closely
with any other State agency within the
State administering the programs under
parts 210, 215, 220, 226, 246, and 248

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of this chapter to ensure information is
shared for Program purposes and on a
timely basis.
(i) National disqualified list. (1) FNS
will maintain the National disqualified
list and make it available to all State
agencies. In addition:
(i) No sponsor, responsible principals
or responsible individuals on the
National disqualified lists under this
part or § 226.6 of this chapter may
participate in the Program as a sponsor
or site. The State agency must not
approve the application of a new or
renewing sponsor if the sponsor,
responsible principals or responsible
individuals are on the National
disqualified lists under this part or
§ 226.6 of this chapter. If the State
agency holds an agreement with a
sponsor that has been placed on the
National disqualified lists under this
part or § 226.6 of this chapter, the State
agency must terminate the agreement.
(ii) No individual on the National
disqualified lists under this part or
§ 226.6 of this chapter, may serve as a
principal for any sponsor or as a site
operator.
(2) Once included on the National
disqualified list, a sponsor and
responsible principals and responsible
individuals remain on the National
disqualified list until such time as FNS,
in consultation with the appropriate
State agency, determines that the
serious deficiency(ies) that led to their
placement on the list has(ve) been
corrected, or until seven years have
elapsed since they were disqualified
from participation. However, if the
sponsor, principal or individual has
failed to repay debts owed under the
Program, they will remain on the list
until the debt has been repaid; and
(3) Within 10 days of disqualifying a
sponsor, the State agency must provide
the appropriate FNSRO the full legal
name, previously used names, mailing
address, and date of birth of each
responsible party, which includes, but
is not limited to, the Executive Director
and Chairman of the Board of Directors.
In addition, the sponsor’s Federal
Employer Identification Numbers (FEIN)
and/or the Dun and Bradstreet Data
Universal Numbering System (DUNS)
numbers must be provided.
(4) A sponsor or a responsible
principal or individual may only be
removed from the National disqualified
list based on the determination of the
State agency with concurrence from
FNS.
■ 21. In § 225.13,
■ a. Revise paragraph (a); and
■ b. Add paragraphs (e) and (f).
The revision and additions read as
follows:

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§ 225.13

Appeal procedures.

The additions read as follows:

(a) Each State agency shall establish a
procedure to be followed by an
applicant appealing: A denial of an
application for participation (except if
the applicant has failed to complete a
corrective action plan from the previous
year); a denial of a sponsor’s request for
an advance payment; a denial of a
sponsor’s claim for reimbursement
(except for late submission under
§ 225.9(d)(6)); a State agency’s refusal to
forward to FNS an exception request by
the sponsor for payment of a late claim
or a request for an upward adjustment
to a claim; a claim against a sponsor for
remittance of a payment; an assessment
established under § 225.18(k); the
termination of the sponsor or a site;
termination of a sponsor’s agreement; a
denial of a sponsor’s application for a
site; a denial of a food service
management company’s application for
registration, if applicable; the revocation
of a food service management
company’s registration, if applicable; or
any other action of the State agency
affecting a sponsor’s participation, or its
claim for reimbursement. Appeals shall
not be allowed on decisions made by
FNS with respect to late claims or
upward adjustments under § 225.9(d)(6).
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(e) The State agency’s administrative
review procedures must be provided:
(1) Annually to all sponsors;
(2) To a sponsor and to each
responsible principal and responsible
individual when the State agency takes
any action subject to an administrative
review; and
(3) Any other time upon request.
(f) The State agency is prohibited from
offering administrative reviews of the
following actions:
(1) A decision by FNS to deny an
exception request by a sponsor for
payment of a late claim, or for an
upward adjustment to a claim;
(2) A determination that a sponsor is
seriously deficient;
(3) A determination by the State
agency that the corrective action taken
by a sponsor does not completely and
permanently correct a serious
deficiency;
(4) Disqualification of a sponsor or a
responsible principal or responsible
individual, and the subsequent
placement on the State agency list and
the National disqualified list; or
(5) Termination of a sponsor or
responsible principal or responsible
individual under § 225.6(b)(12(i).
■ 22. In § 225.14, redesignate
paragraphs (c)(3) through (c)(7) as
paragraphs (c)(5), through (c)(9); and
add new paragraphs (c)(3) and (c)(4).

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§ 225.14 Requirements for sponsor
participation.

*

*
*
*
*
(c) * * *
(3) Has not been terminated from any
program authorized under this part or
parts 210, 215, 220 and 226 of this
chapter during the past seven years
unless reinstated in, or determined
eligible for, that program, as specified in
§ 225.6(b)(12);
(4) Is not currently listed on the
National disqualified lists under this
part or § 226.6 of this chapter;
*
*
*
*
*
■ 23. In § 225.18,
■ a. Remove paragraph (b)(2) and
redesignate paragraph (b)(3) as
paragraph (b)(2);
■ b. Amend newly redesignated
paragraph (b)(2) by removing the words
’’any funds paid to the State agency or
a sponsor or’’ and ’’or by the State
agency from a sponsor’’;
■ c. Add paragraph (k).
The addition reads as follows:
§ 225.18 Miscellaneous administrative
provisions.

*

*
*
*
*
(k) Assessments.
(1) The State agency may establish an
assessment against any sponsor when it
has determined that the sponsor or site
has:
(i) Failed to correct severe
mismanagement of the Program;
(ii) Disregarded a Program
requirement of which the sponsor or site
had been informed; or
(iii) Failed to correct repeated
violations of Program requirements.
(2) FNS may direct the State agency
to establish an assessment against any
sponsor when it has determined that the
sponsor or site meets the criteria set
forth under paragraph (k)(1) of this
section.
(3) Funds used to pay an assessment
established under this paragraph must
be derived from non-federal sources. In
calculating an assessment, the State
agency must base the amount of the
assessment on the reimbursement
earned by the sponsor or site for this
Program for the most recent fiscal year
for which closeout data are available,
provided that the assessment does not
exceed the equivalent of:
(i) For the first assessment, 1 percent
of the amount of meal reimbursement
earned for the fiscal year;
(ii) For the second assessment, 5
percent of the amount of meal
reimbursement earned for the fiscal
year; and
(iii) For the third or subsequent
assessment, 10 percent of the amount of

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meal reimbursement earned for the
fiscal year.
(4) The State agency must inform the
FNSRO at least 30 days prior to
establishing an assessment under this
paragraph. The State agency must send
the sponsor written notification of the
assessment established under this
paragraph and provide a copy of the
notification to the FNSRO. The
notification must:
(i) Specify the violations or actions
which constitute the basis for the
assessment and indicate the amount of
the assessment;
(ii) Inform the sponsor that it may
appeal the assessment and advise the
sponsor of the appeal procedures
established under § 225.13; and
(iii) Indicate the effective date and
payment procedures should the sponsor
not exercise its right to appeal within
the specified timeframe.
(5) Any sponsor subject to an
assessment under paragraph (k)(1) of
this section may appeal the State
agency’s determination. In appealing an
assessment, the sponsor must submit to
the State agency any pertinent
information, explanation, or evidence
addressing the Program violations
identified by the State agency. Any
sponsor seeking to appeal the State
agency determination must follow State
agency appeal procedures.
(6) The decision of the State agency
review official is final and not subject to
further administrative or judicial
review. Failure to pay an assessment
established under this paragraph may be
grounds for suspension or termination.
(7) Money received by the State
agency as a result of an assessment
established under this paragraph against
a sponsor and any interest charged in
the collection of these assessments must
be remitted to FNS.
PART 226—THE CHILD AND ADULT
CARE FOOD PROGRAM
24. The authority citation for part 226
continues to read as follows:

■

Authority: Secs. 9, 11, 14, 16, and 17,
Richard B. Russell National School Lunch
Act, as amended (42 U.S.C. 1758, 1759a,
1762a, 1765 and 1766).

25. In § 226.2,
a. Amend the definition of ‘‘Facility’’
by removing the word ‘‘family’’; and
■ b. Revise the definitions of ‘‘State
agency list’’ and ‘‘Termination for
convenience’’.
The revisions read as follows:
■
■

§ 226.2

Definitions.

*

*
*
*
*
State agency list means an actual
paper or electronic list, or the

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retrievable paper records, maintained by
the State agency, that includes a
synopsis of information concerning
seriously deficient institutions and
providers or unaffiliated centers
terminated for cause in that State. The
list must be made available to FNS upon
request, and must include the following
information:
(a) Institutions determined to be
seriously deficient by the State agency,
including the full legal names, and any
other names previously used, and
mailing addresses of the institutions, the
basis for each serious deficiency
determination, and the status of the
institutions as they move through the
possible subsequent stages of corrective
action, proposed termination,
suspension, agreement termination,
and/or disqualification, as applicable;
(b) Responsible principals and
responsible individuals who have been
disqualified from participation by the
State agency, including their full legal
names, and any other names previously
used, mailing addresses, and dates of
birth; and
(c) Day care home providers or
unaffiliated centers whose agreements
have been terminated for cause by a
sponsoring organization in the State,
including their full legal names, and any
other names previously used, mailing
addresses, and dates of birth.
*
*
*
*
*
Termination for convenience means
termination of a Program agreement due
to considerations unrelated to either
party’s performance of Program
responsibilities under the agreement
between;
(a) A State agency and the sponsoring
organization;
(b) A sponsoring organization and the
unaffiliated center; or
(c) A sponsoring organization and the
day care home.
*
*
*
*
*
■ 26. In § 226.4, revise paragraph (j) to
read as follows:
§ 226.4
funds.

Payments to States and use of

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*
*
*
*
(j) Audit funds. For the expense of
conducting audits and reviews under
§ 226.8, funds shall be made available to
each State agency in an amount equal to
one and one-half percent of the Program
funds used by the State during the
second fiscal year preceding the fiscal
year for which these funds are to be
made available. Beginning in fiscal year
2016 and each fiscal year thereafter,
State agencies may request an increase
in the amount of funds made available
under this paragraph. FNS approval for
increased funding will be based on

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criteria related to the effective use of
funds to improve program management.
The total amount of audit funds made
available to any State agency under this
paragraph may not exceed two percent
of Program funds used by the State
during the second fiscal year preceding
the fiscal year for which the funds are
made available. The amount of
assistance provided to a State under this
paragraph in any fiscal year may not
exceed the State’s expenditures under
§ 226.8 during the fiscal year in which
funds are made available.
*
*
*
*
*
■ 27. In § 226.6,
■ a. Revise paragraph (b)(1)(xiii)(A);
■ b. Revise paragraph (b)(1)(xv);
■ c. Revise paragraph (b)(4)
■ d. Amend paragraph (c)(2)(ii)(H) by
removing the words ‘‘day care home’’
and adding the phrase ‘‘relating to day
care homes and unaffiliated centers as’’
after the word ‘‘provisions’’;
■ e. Amend paragraph (c)(3)(ii)(R) by
removing the words ‘‘day care home’’
and adding the phrase ‘‘relating to day
care homes and unaffiliated centers as’’
after the word ‘‘provisions’’;
■ f. Revise paragraphs (c)(7)(vi) and
(c)(8);
■ g. Amend paragraph (k)(2)(xi) by
removing ‘and’
■ h. Redesignate paragraph (k)(2)(xii) as
paragraph (k)(2)(xiii) and add new
paragraph (k)(2)(xii);
■ i. Amend paragraph (k)(5)(ii) by
adding a second sentence at the end of
the paragraph;
■ j. Amend paragraph (k)(5)(ix) by
adding the third sentence at the end of
the paragraph;
■ k. Add paragraph (k)(11);
■ l. Amend paragraph (l) by revising the
paragraph heading and by revising
paragraph (l)(1);
■ m. Amend paragraph (l)(2) by adding
the words ‘‘and/or unaffiliated center’’
after the word ‘‘home’’;
■ n. Amend paragraph (l)(4) by adding
the words ‘‘and unaffiliated centers’’
after the word ‘‘homes’’ in the paragraph
heading;
■ o. Amend paragraph (l)(4)(i) by adding
the words ‘‘and unaffiliated centers’’
after the word ‘‘homes’’;
■ p. Amend paragraph (l)(4)(ii) by
adding the words ‘‘or an unaffiliated
center’’ after the word ‘‘home’’;
■ q. Amend paragraph (l)(5) by
removing the words ‘‘election pursuant’’
and adding the words ‘‘election(s)
according’’ in their place; by adding the
words ‘‘or unaffiliated centers’’ after the
word ‘‘home’’ in all instances it appears;
and by adding the words ‘‘or
unaffiliated centers’’ after the word
‘‘homes’’;

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r. Revise paragraph (m)(3)(ix); and
s. Revise paragraphs (m)(6)(i) and
(m)(6)(ii).
The additions and revisions read as
follows:

■
■

§ 226.6 State agency administrative
responsibilities.

*

*
*
*
*
(b) * * *
(1) * * *
(xiii) Ineligibility for other publicly
funded programs.
(A) General. A State agency is
prohibited from approving an
institution’s application if, during the
past seven years, the institution or any
of its principals have been declared
ineligible for any other publicly funded
program by reason of violating that
program’s requirements. This
prohibition does not apply if the
institution or the principal has been
fully reinstated in, or determined
eligible for, that program, including the
payment of any debts owed.
(1) A State agency is prohibited from
approving an institution’s application if,
during the past seven years, the
institution, unaffiliated center, day care
home provider, or any principals were
terminated for cause from any program
authorized under parts 210, 215, 220,
225 of this chapter; or any institution,
unaffiliated center, day care home
provider, or any principals are currently
listed on the National disqualified lists
under this part or § 225.11 of this
chapter.
(2) State agencies must develop a
process to share information on any
institution, unaffiliated center, day care
home provider, or principal terminated
or disqualified under this part with any
agency within the State administering a
Child Nutrition Program under parts
210, 215, 220, and 225 of this chapter.
State agencies also must notify any
agency within the State administering a
program under parts 246 and 248 of this
chapter, of the termination and
disqualification of any institution,
unaffiliated center, day care home
provider, or principal. The process must
be approved by the FNSRO and must
ensure the State agency works closely
with any other State agency within the
State administering the programs under
parts 210, 215, 220, 225, 246 and 248 of
this chapter to ensure information is
shared for program purposes and on a
timely basis.
*
*
*
*
*
(xv) Certification of truth of
applications and submission of names
and addresses. Institutions must submit
a certification that all information on
the application is true and correct, along
with the name, mailing address, and

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date of birth of the institution’s
executive director and chairman of the
board of directors or, in the case of a forprofit center that does not have an
executive director or is not required to
have a board of directors, the owner of
the for-profit center. In addition, the
institution’s Federal Employer
Identification Numbers (FEIN) and/or
the Dun and Bradstreet Data Universal
Numbering System (DUNS) numbers
must be provided;
*
*
*
*
*
(4) Program agreements.
(i) The State agency must require each
institution that has been approved for
participation in the Program to enter
into a permanent agreement governing
the rights and responsibilities of each
party. The existence of a valid
permanent agreement, however, does
not eliminate the need for an institution
to comply with the reapplication and
related provisions at paragraphs (b) and
(f) of this section.
(ii) The existence of a valid
permanent agreement does not limit the
State agency’s ability to terminate the
agreement, as provided under paragraph
(c)(3) of this section. The State agency
must terminate the institution’s
agreement whenever an institution’s
participation in the Program ends. The
State agency must terminate the
agreement for cause based on violations
by the institution or its responsible
principals in accordance with paragraph
(c) of this section. The State agency or
institution may terminate the agreement
at its convenience for considerations
unrelated to the institution’s
performance of Program responsibilities
under the agreement.
*
*
*
*
*
(c) * * *
(7) * * *
(vi) Removal of day care homes and
unaffiliated centers or responsible
principals and responsible individuals
from the list. Once included on the
National disqualified list, a day care
home, unaffiliated center, or responsible
principals and responsible individuals
will remain on the list until such time
as the State agency, in concurrence with
the appropriate FNSRO, determines that
the serious deficiency(ies) that led to its
placement on the list has(ve) been
corrected, or until seven years have
elapsed since its agreement was
terminated for cause. However, if the
day care home, unaffiliated center, or
responsible principals and responsible
individuals remain as failed to repay
debts owed under the Program, it will
remain on the list until the debt has
been repaid.
(8) State agency list.

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(i) Maintenance of the State agency
list. The State agency must maintain a
State agency list (in the form of an
actual paper or electronic list or
retrievable paper records). The list must
be made available to FNS upon request,
and must include the following
information:
(A) Institutions determined to be
seriously deficient by the State agency,
including the full legal names, and any
other names previously used, and
mailing addresses of the institutions, the
basis for each serious deficiency
determination, and the status of the
institutions as they move through the
possible subsequent stages of corrective
action, proposed termination,
suspension, agreement termination,
and/or disqualification, as applicable;
(B) Responsible principals and
individuals who have been disqualified
from participation by the State agency,
including their full legal names, and any
other names previously used, mailing
addresses, and dates of birth; and
(C) Day care home providers and
unaffiliated centers whose agreements
have been terminated for cause by a
sponsoring organization in the State,
including their full legal names, and any
other names previously used, mailing
addresses, and dates of birth.
(ii) Referral of disqualified day care
homes and unaffiliated centers to FNS.
Within 10 days of receiving a notice of
termination and disqualification from a
sponsoring organization, the State
agency must provide the appropriate
FNSRO the name, mailing address, and
date of birth of each day care home
provider, unaffiliated centers, or
responsible principals and responsible
individuals whose agreement is
terminated for cause.
*
*
*
*
*
(k) * * *
(2) * * *
(xi) Overpayment demand. Demand
for the remittance of an overpayment
(see § 226.14(a));
(xii) Assessment. An assessment
established by FNS or the State agency
under § 226.25(i); and
*
*
*
*
*
(5) * * *
(ii) * * * The State agency must
provide a copy of the written request for
an administrative review, including the
date of receipt of the request to the
appropriate FNSRO within 10 days of
its receipt of the request.
*
*
*
*
*
(ix) * * * State agencies failing to
meet the timeframe set forth in this
paragraph are liable for all valid claims
for reimbursement to aggrieved

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17591

institutions, as specified in paragraph
(k)(11)(i) of this section.
*
*
*
*
*
(11) State liability for payments.
(i) A State agency that fails to meet
the 60-day timeframe set forth in
paragraph (k)(5)(ix) of this section must
pay from non-Federal sources all valid
claims for reimbursement to the
institution during the period beginning
on the 61st day and ending on the date
on which the hearing determination is
made.
(ii) FNS will notify the State agency
of its liability for reimbursement at least
30 days before liability is imposed. The
timeframe for written notice from FNS
is an administrative requirement and
may not be used to dispute the State’s
liability for reimbursement. The State
agency may submit for FNS review
information supporting a request for a
reduction or reconsideration of the
State’s liability for reimbursement. After
review, FNS will recover any
improperly paid Federal funds.
(l) Administrative reviews for day care
homes and unaffiliated centers.
(1) General. The State agency must
ensure that, when a sponsoring
organization proposes to terminate its
Program agreement with a day care
home or unaffiliated center for cause,
the day care home or unaffiliated center
and any responsible principals are
provided an opportunity for an
administrative review of the proposed
termination. The State agency may do
this either by electing to offer a Statelevel administrative review, or by
electing to require the sponsoring
organization to offer an administrative
review. State agencies may make
different elections with regard to who
offers the administrative review for day
care homes and for unaffiliated centers;
however, the same election must apply
to all day care homes and the same
election must apply to all unaffiliated
centers. The State agency must notify
the appropriate FNSRO of its election
under this option, or any change it later
makes under this option within 30 days
of any subsequent change under this
option. The State agency or the
sponsoring organization must develop
procedures for offering and providing
these administrative reviews, and these
procedures must be consistent with this
paragraph (l).
*
*
*
*
*
(m) * * *
(3) * * *
(ix) If a sponsoring organization of
day care homes or unaffiliated centers,
implementation of the serious
deficiency and termination procedures
for day care homes or unaffiliated

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centers and, if such procedures have
been delegated to sponsoring
organizations in accordance with
paragraph (l)(1) of this section, the
administrative review procedures for
day care homes and unaffiliated centers;
*
*
*
*
*
(6) * * *
(i) At least once every three years,
independent centers and sponsoring
organizations of 1 to 100 facilities must
be reviewed. A review of such a
sponsoring organization must include
reviews of 10 percent of the sponsoring
organization’s facilities;
(ii) At least once every two years,
sponsoring organizations with more
than 100 facilities, sponsoring
organizations that conduct activities
other than CACFP with 1 to 100
facilities and independent centers and
sponsoring organizations that have been
identified during a previous review as
having serious management problems or
that are at risk of having serious
management problems must be
reviewed. These reviews must include
reviews of 5 percent of the first 1,000
facilities and 2.5 percent of the facilities
in excess of 1,000; and
*
*
*
*
*
■ 28. In § 226.7,
■ a. Revise paragraph (b); and
■ b. Remove paragraph (m).
The revision reads as follows:
§ 226.7 State agency responsibilities for
financial management.

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*

*
*
*
*
(b) Financial management system.
Each State agency shall establish and
maintain an acceptable financial
management system, adhere to financial
management standards and otherwise
carry out financial management policies
in accordance with 2 CFR parts 200,
400, 415, 416, 417, 418, 421, and FNS
Instruction 796–2, as applicable, and
related FNS guidance to identify
allowable Program costs and establish
standards for institutional
recordkeeping and report. The State
agency shall provide guidance on
financial management requirements to
each institution.
(1) State agencies shall also have a
system in place for:
(i) Annually reviewing at least one
month’s bank account activity of all
sponsoring organizations against
documents adequate to support that the
transactions meet program
requirements. If the State agency
identifies any expenditures that have
the appearance of violating Program
requirements, the State agency must
refer the sponsoring organization’s
account activity to the appropriate State
authorities for verification;

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(ii) Annually reviewing actual
expenditures reported of Program funds
and the amount of meal reimbursement
funds retained from centers (if any) for
administrative costs for all sponsoring
organizations of unaffiliated centers.
State agencies shall reconcile reported
expenditures with Program payments to
ensure funds are fully accounted for,
and use the reported actual
expenditures as the basis for selecting a
sample of expenditures for validation. If
the State agency identifies any
expenditures that have the appearance
of violating Program requirements, the
State agency must refer the sponsoring
organization’s account activity to the
appropriate State authorities for
verification: And
(iii) Monitoring and reviewing the
institutions’ documentation of their
nonprofit status to ensure that all
Program reimbursement funds are used:
(A) Solely for the conduct of the food
service operation; or
(B) To improve such food service
operations, principally for the benefit of
the participants.
(2) The financial management system
standards for institutional
recordkeeping and reporting shall:
(i) Prohibit claiming reimbursement
for meals provided by participant’s
family, except as authorized § 226.18(e);
and
(ii) Allow the cost of meals served to
adults who perform necessary food
service labor under the Program, except
in day care homes.
*
*
*
*
*
■ 29. In § 226.10, revise paragraph (c) to
read as follows:
§ 226.10

Program payment procedures.

*

*
*
*
*
(c) Claims for Reimbursement shall
report information in accordance with
the financial management system
established by the State agency, and in
sufficient detail to justify the
reimbursement claimed and to enable
the State agency to provide the final
Report of the Child and Adult Care Food
Program (FNS 44) required under
§ 226.7(d). In submitting a Claim for
Reimbursement, each institution shall
certify that the claim is correct and that
records are available to support that
claim.
(1) Prior to submitting its
consolidated monthly claim to the State
agency, each sponsoring organization
must perform edit checks on each
facility’s meal claim. At a minimum, the
sponsoring organization’s edit checks
must:
(i) Verify that each facility has been
approved to serve the types of meals
claimed; and

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(ii) Compare the number of children
or eligible adults enrolled for care at
each facility, multiplied by the number
of days on which the facility is
approved to serve meals, to the total
number of meals claimed by the facility
for that month. Discrepancies between
the facility’s meal claim and its
enrollment must be subjected to more
thorough review to determine if the
claim is accurate.
(2) Sponsoring organizations of
unaffiliated centers must submit an
annual report detailing actual
expenditures of Program funds and the
amount of meal reimbursement funds
retained from centers (if any) for
administrative costs for the year to
which the claims apply. The report shall
use the same cost categories as the
approved annual budget submitted by
the sponsoring organization.
(3) Sponsoring organizations of forprofit child care centers or for-profit
outside-school-hours care centers must
submit the number and percentage of
children in care (enrolled or licensed
capacity, whichever is less) that
documents that at least 25 percent are
eligible for free or reduced-price meals
or are title XX beneficiaries. Sponsoring
organizations of such centers must not
submit a claim for any for-profit center
in which less than 25 percent of the
children in care (enrolled or licensed
capacity, whichever is less) during the
claim month were eligible for free or
reduced-price meals or were title XX
beneficiaries.
(4) For each month in which
independent for-profit child care centers
and independent for-profit outsideschool-hours care centers claim
reimbursement, they must submit the
number and percentage of children in
care (enrolled or licensed capacity,
whichever is less) that documents at
least 25 percent are eligible for free or
reduced-price meals or are title XX
beneficiaries. However, children who
only receive at-risk afterschool snacks
and/or at-risk afterschool meals must
not be considered in determining this
eligibility.
(5) Independent for-profit adult day
care centers shall submit the
percentages of enrolled adult
participants receiving title XIX or title
XX benefits for the month claimed for
months in which not less than 25
percent of enrolled adult participants
were title XIX or title XX beneficiaries.
Sponsoring organizations of such adult
day care centers shall submit the
percentage of enrolled adult participants
receiving title XIX or title XX benefits
for each center for the claim. Sponsoring
organizations of such centers shall not
submit claims for adult day care centers

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in which less than 25 percent of
enrolled adult participants were title
XIX or title XX beneficiaries for the
month claimed.
*
*
*
*
*
■ 30. In § 226.16,
■ a. Amend paragraph (b)(2) and (b)(3)
by removing the phrase ‘‘child care and
adult day care’’;
■ b. Amend paragraph (b)(4) by
removing the phrase ‘‘on or after June
20, 2000’’;
■ c. Amend paragraph (b)(6), by adding
the phrase ‘‘or unaffiliated center’’ after
the word ‘‘home’’ in the first sentence;
and by adding the phrase ‘‘or an
unaffiliated center’s’’ after the word
‘‘home’s’’ in the second sentence;
■ d. Amend paragraph (b)(8) by adding
the phrase ‘‘or unaffiliated centers’’ after
the word ‘‘homes’’;
■ e. Amend paragraph (c) by removing
the phrase ‘‘child care and adult day
care’’;
■ f. Amend paragraph (d)(1) by
removing the phrase ‘‘child care and
adult day care’’ after the word ‘‘each’’
and the phrase ‘‘child care’’ after the
phrase ‘‘capability of the’’;
■ g. Revise paragraph (d)(3);
■ h. Amend paragraph (i) by removing
the phrase ‘‘child care and adult day
care’’;
■ i. Amend paragraph (l)(1) by adding
the phrase ‘‘or an unaffiliated center’’
after the word ‘‘home’’ both times it
appears in the text;
■ j. Amend paragraph (l)(2) by adding
the phrase ‘‘or unaffiliated centers’’ after
the word ‘‘homes’’ in the paragraph
heading and in the introductory text;
■ k. Amend paragraph (1)(2)(vii) by
adding the phrase ‘‘, unaffiliated center
or responsible principle’’ after the word
‘‘home’’;
■ l. Add paragraph (l)(2)(x);
■ m. Amend paragraph (l)(3) by adding
the phrase ‘‘or unaffiliated center’’ after
the word ‘‘home’’ each time it appears
in the text;
■ n. Amend paragraph (l)(3)(i) by
adding the phrase ‘‘or unaffiliated
center’’ after the word ‘‘home’’;
■ o. Amend paragraph (l)(3)(i)(B) by
adding the phrase ‘‘or unaffiliated
center’’ after the word ‘‘home’’;
■ p. Amend paragraph (l)(3)(i)(E) by
adding the phrase ‘‘or unaffiliated
center’s’’ after the word ‘‘home’s’’; and
removing the words ‘‘and its’’ and
adding the words ‘‘, unaffiliated center
or any responsible’’ in their place;
■ q. Amend paragraph (l)(3)(i)(F) by
adding the phrase ‘‘or unaffiliated
center’s’’ after the word ‘‘home’s’’ both
times it appears in the text; and
removing the words ‘‘and its’’ and
adding the words ‘‘, unaffiliated center,
or any responsible’’ in their place;

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r. Revise paragraphs (l)(3)(ii) and
(l)(3)(iii);
■ s. Amend paragraph (l)(3)(iv) by
adding the phrase ‘‘or unaffiliated
center’s’’ after the word ‘‘home’s’’;
■ t. Amend paragraph (l)(3)(v) by adding
the phrase ‘‘or unaffiliated center’s’’
after the word ‘‘home’s’’ both times it
appears and adding the phrase ‘‘or
unaffiliated center’’ after the word
‘‘home’’;
■ u. Revise paragraph (l)(4); and
■ v. Revise paragraph (m).
The addition and revisions read as
follows:
■

§ 226.16 Sponsoring organization
provisions.

*

*
*
*
*
(d) * * *
(3) Additional mandatory training
sessions, as defined by the State agency,
for key staff from all sponsored facilities
not less frequently than annually. At a
minimum, such training must include
instruction, appropriate to the level of
staff experience and duties, on the
Program’s meal patterns, meal counts,
claims submission and review
procedures, recordkeeping
requirements, and reimbursement
system.
*
*
*
*
*
(l) * * *
(2) * * *
(x) For unaffiliated centers only:
(A) Use of a food service management
company that is in violation of health
codes;
(B) Failure to adjust meal orders to
conform to variations in the number of
participants;
(C) Claiming reimbursement for meals
served by a for-profit child care center
or a for-profit outside-school-hours case
center during a calendar month in
which less than 25 percent of the
children in care (enrolled or licensed
capacity, whichever is less) were
eligible for free or reduced-price meals
or were title XX beneficiaries;
(D) Claiming reimbursement for meals
served by a for-profit adult day care
center during a calendar month in
which less than 25 percent of its
enrolled adult participants were title
XIX or title XX beneficiaries;
(E) Failure to perform any of the other
financial and administrative
responsibilities required by this part;
(F) The fact that the unaffiliated
sponsored center or any of its
responsible principals have been
declared ineligible for any other
publicly funded program by reason of
violating that program’s requirements
during the past seven years unless
reinstated in, or determined eligible for,
that program, including the payment of

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any debts owed. However this
prohibition does not apply if the
unaffiliated center or any of its
responsible principals have been fully
reinstated in, or are now eligible to
participate in, that program.
(3) * * *
(ii) Successful corrective action. If the
day care home or unaffiliated center
corrects the serious deficiency(ies)
within the allotted time and to the
sponsoring organization’s satisfaction,
the sponsoring organization must notify
the day care home or unaffiliated center
that it has temporarily deferred its
determination of serious deficiency. The
sponsoring organization must also
provide a copy of the notice to the State
agency. However, if the sponsoring
organization accepts the day care
home’s or unaffiliated center’s
corrective action, but later determines
that the corrective action was not
permanent or complete, the sponsoring
organization must then propose to
terminate the day care home’s or
unaffiliated center’s Program agreement
and disqualify any responsible
principals, as set forth in paragraph
(l)(3)(iii) of this section.
(iii) Proposed termination of
agreement and proposed
disqualification. If timely corrective
action is not taken to fully and
permanently correct the serious
deficiency(ies) cited, the sponsoring
organization must issue a notice
proposing to terminate the day care
home’s or unaffiliated center’s
agreement for cause. The notice must
explain the day care home’s or
unaffiliated center’s opportunity for an
administrative review of the proposed
termination in accordance with
§ 226.6(l). The sponsoring organization
must provide a copy of the notice to the
State agency. The notice must specify
that:
(A) It may continue to participate and
receive Program reimbursement for
eligible meals served until its
administrative review is concluded;
(B) Termination of the day care
home’s or unaffiliated center’s
agreement will result in termination for
cause and disqualification; and
(C) If the day care home seeks to
voluntarily terminate its agreement after
receiving the notice of intent to
terminate, the day care home or
unaffiliated center or any responsible
principals will still be placed on the
National disqualified list.
*
*
*
*
*
(4) Suspension of participation for
day care homes or unaffiliated centers.
(i) General. If State or local health or
licensing officials have cited a day care

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home or an unaffiliated center for
serious health or safety violations, the
sponsoring organization must
immediately suspend the day care
home’s or unaffiliated center’s CACFP
participation prior to any formal action
to revoke the day care home’s or
unaffiliated center’s licensure or
approval. If the sponsoring organization
determines that there is an imminent
threat to the health or safety of
participants at a day care home or an
unaffiliated center, or that the day care
home or an unaffiliated center has
engaged in activities that threaten the
public health or safety, and the
licensing agency cannot make an
immediate onsite visit, the sponsoring
organization must immediately notify
the appropriate State or local licensing
and health authorities and take action
that is consistent with the
recommendations and requirements of
those authorities. An imminent threat to
the health or safety of participants and
engaging in activities that threaten the
public health or safety constitute serious
deficiencies; however, the sponsoring
organization must use the procedures in
this paragraph (l)(4) of this section (and
not the procedures in paragraph (l)(3) of
this section) to provide the day care
home or an unaffiliated center notice of
the suspension of participation, serious
deficiency, and proposed termination of
the day care home’s or an unaffiliated
center’s agreement.
(ii) Notice of suspension, serious
deficiency, and proposed termination.
The sponsoring organization must notify
the day care home or unaffiliated center
that its participation has been
suspended, that the day care home or
unaffiliated center has been determined
seriously deficient, and that the
sponsoring organization proposes to
terminate the agreement for cause, and
must provide a copy of the notice to the
State agency. The notice must specify
that:
(A) The serious deficiency(ies) found
and the day care home or unaffiliated
center’s opportunity for an
administrative review of the proposed
termination in accordance with
§ 226.6(l);
(B) Participation (including all
Program payments) will remain
suspended until the administrative
review is concluded;
(C) If the administrative review
official overturns the suspension, the
day care home or unaffiliated center
may claim reimbursement for eligible
meals served during the suspension;
(D) Termination of the day care
home’s or unaffiliated center’s
agreement will result in the placement
of the day care home or unaffiliated

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center on the National disqualified list;
and
(E) If the day care home or
unaffiliated center seeks to voluntarily
terminate its agreement after receiving
the notice of proposed termination, the
day care home or unaffiliated center
will still be terminated for cause and
disqualified.
(iii) Agreement termination and
disqualification. The sponsoring
organization must immediately
terminate the day care home’s or
unaffiliated center’s agreement and
disqualify the day care home or
unaffiliated center when the
administrative review official upholds
the sponsoring organization’s proposed
termination, or when the day care
home’s or unaffiliated center’s
opportunity to request an administrative
review expires.
(iv) Program payments. A sponsoring
organization is prohibited from making
any Program payments to a day care
home or unaffiliated center that has
been suspended until any
administrative review of the proposed
termination is completed. If the
suspended day care home or
unaffiliated center prevails in the
administrative review of the proposed
termination, the sponsoring
organization must reimburse the day
care home or unaffiliated center for
eligible meals served during the
suspension period.
(m) Sponsoring organizations of day
care homes or unaffiliated centers must
not make payments to employees or
contractors solely on the basis of the
number of homes or centers recruited.
However, such employees or contractors
may be paid or evaluated on the basis
of recruitment activities accomplished.
§ 226.21

[Amended]

31. In § 226.21, amend paragraph (a)
by removing the text ‘‘$10,000’’ and
adding in its place the words ‘‘the small
purchase threshold as defined by 2 CFR
200.88 and established by 41 U.S.C. 134,
as applicable,’’.
■ 32. In § 226.22,
■ a. Amend paragraph (i)(1) by
removing the text ‘‘$10,000’’ and adding
in its place the words ‘‘the small
purchase threshold as defined by 2 CFR
200.88 and established by 41 U.S.C. 134
as applicable’’ both times it appears;
and
■ b. Amend paragraph (l)(2) and (l)(3) by
removing the text ‘‘$10,000’’ and adding
in its place the words ‘‘the small
purchase threshold as defined by 2 CFR
200.88 and established by 41 U.S.C. 134,
as applicable,’’ both times it appears:
■ 33. In 226.25, add paragraph (i) to
read as follows:
■

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§ 226.25

Other provisions.

*

*
*
*
*
(i) Assessments.
(1) The State agency may establish an
assessment against any institution when
it has determined that the institution,
unaffiliated center, or day care provider
has:
(i) Failed to correct severe
mismanagement of the Program;
(ii) Disregarded a Program
requirement of which the institution,
unaffiliated center, or day care provider
had been informed; or
(iii) Failed to correct repeated
violations of Program requirements.
(2) FNS may direct the State agency
to establish an assessment against any
institution when it has determined that
the institution, unaffiliated center, or
day care provider has committed one or
more acts under paragraph (i)(1) of this
section.
(3) Funds used to pay an assessment
established under this paragraph must
be derived from non-federal sources. In
calculating an assessment, the State
agency must base the amount of the
assessment on the reimbursement
earned by the institution, unaffiliated
center, or day care provider for this
Program for the most recent fiscal year
for which closeout data are available,
provided that the assessment does not
exceed the equivalent of:
(i) For the first assessment, 1 percent
of the amount of meal reimbursement
earned for the fiscal year;
(ii) For the second assessment, 5
percent of the amount of meal
reimbursement earned for the fiscal
year; and
(iii) For the third or subsequent
assessment, 10 percent of the amount of
meal reimbursement earned for the
fiscal year.
(4) The State agency must inform the
FNSRO at least 30 days prior to
establishing an assessment under this
paragraph. The State agency must send
the institution written notification of an
assessment established under this
paragraph and provide a copy of the
notification to the FNSRO. The
notification must:
(i) Specify the violations or actions
which constitute the basis for the
assessment and indicate the amount of
the assessment;
(ii) Inform the institution that it may
appeal the assessment and advise the
institution of the appeal procedures
established under § 226.6(k);
(iii) Indicate the effective date and
payment procedures should the
institution not exercise its right to
appeal within the specified timeframe.
(5) Any institution subject to an
assessment under paragraph (i)(1) of this

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section may appeal the State agency’s
determination. In appealing an
assessment, the institution must submit
to the State agency any pertinent
information, explanation, or evidence
addressing the Program violations
identified by the State agency. Any
institution seeking to appeal the State
agency determination must follow State
agency appeal procedures.
(6) The decision of the State agency
review official is final and not subject to
further administrative or judicial
review. Failure to pay an assessment
established under this paragraph may be
grounds for suspension or termination.
(7) Money received by the State
agency as a result of an assessment
established under this paragraph against
an institution and any interest charged
in the collection of these assessments
must be remitted to FNS.
PART 235—STATE ADMINISTRATIVE
EXPENSE FUNDS
34. The authority citation for part 235
continues to read as follows:

■

Authority: Secs. 7 and 10 of the Child
Nutrition Act of 1966, 80 Stat. 888, 889, as
amended (42 U.S.C. 1776, 1779).

35. In § 235.11,
a. Redesignate paragraphs (c), (d), (e)
and (f) as paragraphs (d), (e), (f) and (g);
and add new paragraph (c);

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■

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b. Amend newly redesignated
paragraph (e) by removing the phrase
‘‘or (c)’’ after the phrase ‘‘paragraphs
(b)’’ and adding in its place the phrase
‘‘, (c) or (d)’’; and
■ c. Amend newly redesignated
paragraph (g) by adding in the first
sentence ‘‘and (c)’’ after the words
‘‘provisions of paragraph (b)’’; and
adding the words ‘‘or assessment’’ after
the word ‘‘sanction’’ each time it
appears.
The addition reads as follows:
■

§ 235.11

Other provisions.

*

*
*
*
*
(c) Assessments.
(1) FNS may establish an assessment
against any State agency administering
the programs under parts 210, 215, 220,
225 and 226 of this chapter and in part
250 of this chapter as it applies to the
operation of the Food Distribution
Program in schools and child and adult
care institutions when it has determined
that the State agency has:
(i) Failed to correct a State or local
mismanagement of the programs;
(ii) Disregarded a program
requirement of which the State has been
informed; or
(iii) Failed to correct repeated
violations of the program requirements.
(2) Funds used to pay an assessment
established under paragraph (c)(1) must

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be derived from non-federal sources.
The amount of the assessment will not
exceed the equivalent of:
(i) For the first assessment, 1 percent
of the funds made available under
§ 235.4 during the most recent fiscal
year for which closeout data are
available;
(ii) For the second assessment, 5
percent of the funds made available
under § 235.4 during the most recent
fiscal year for which closeout data are
available; and
(iii) For the third or subsequent
assessment, 10 percent of the funds
made available under § 235.4 during the
most recent fiscal year for which
closeout data are available.
(3) State agencies seeking to appeal an
assessment established under this
paragraph must follow the procedures
set forth in § 235.11(g). Failure to pay an
assessment established under this
paragraph may be grounds for
suspension or termination.
*
*
*
*
*
Dated: March 22, 2016.
Kevin Concannon,
Under Secretary, Food, Nutrition and
Consumer Services.
[FR Doc. 2016–06801 Filed 3–28–16; 8:45 am]
BILLING CODE 3410–30–P

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