WASHINGTON, March 28, 2016 - State agencies administering child nutrition programs would have to implement new financial management procedures, under proposed regulations due for publication in Tuesday’s Federal Register.

USDA's Food and Nutrition Service is updating its regulations in response to passage of the Healthy, Hunger-Free Kids Act of 2010 (HHFKA) and to its own financial audits of state programs. A USDA financial report covering fiscal year 2014 estimated that improper payments in the National School Lunch Program and the School Breakfast Program totaled $2.67 billion – $1.75 billion in the NSLP and $923 million in the SBP.

“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 proposed rule says. The proposal comes with a 60-day comment deadline.

The improper payments resulted from “certification error and meal counting and claiming errors,” FNS said. Certification errors occur when children receive free or reduced-price meals even when their household’s incomes should disqualify them. But they also occur when children who are eligible do not receive benefits for which they qualify.

The meal counting and claiming errors include cashier errors, meals that 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,” FNS said.

One major change is the elimination in the NSLP of cost-reimbursable contracts in favor of fixed-price contracts. Audits by USDA’s Office of Inspector General have found that “the most prevalent area of non-compliance found in (Food Service Management Company) 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 cost-reimbursable contracts,” the agency said.

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Despite FNS providing technical assistance, training, and guidance, “state agencies continue to report challenges, which are costly to school food authority nonprofit food service accounts.” Requiring fixed-price contracts “is the next logical step in protecting and strengthening program integrity.”

The proposal also would expand the list of “serious deficiencies” in the Summer Food Service Program, which are grounds for disapproving a sponsor’s application, or terminating an agreement, to include:

 · The submission of false information to the state agency, including 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;

· Any action affecting a sponsor’s ability to administer the program in accordance with program requirements.

Another change mandated by HHFKA and included in the proposal would prohibit any 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 (a child nutrition) program if the entity or its officials: (1) have been terminated for cause from any Child Nutrition Program; or (2) are currently listed” on a National Disqualified List for the Child and Adult Care Food Program or Summer Food Service Program.



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