Public Law 106-224
On June 20, 2000, President
Clinton signed the Agricultural Risk Protection Act of 2000 (Pub. L.
Pub. L. 106-224 amended a
number of provisions in the Richard B. Russell National School Lunch
Act (NSLA) and the Child Nutrition Act of 1966. Attached is guidance
to assist in the initial implementation of the provisions affecting
Section 17 of the NSLA, the Child and Adult Care Food Program (7
U.S.C. 1766). Due to the complexity of the legislative changes, the
guidance is limited. Regulations codifying the legislative changes
and their implementation will be published as soon as possible.
regulations are published, program changes must be implemented based
on the attached guidance. Implementation of the statutory provisions
based on this guidance is extremely important. USDA expects State
agencies to share information in this guidance with CACFP
institutions and facilities as soon as possible, carefully
highlighting those changes affecting those organizations. State
agencies, institutions and facilities will be given reasonable time
to comply with any future implementation changes made in guidance or
Changes to CACFP Mandated by Public Law 106-224
1. Definition of "Institution"
Section 243(a)(2) of Pub. L. 106-224 amended section 17(a)(2) of
the NSLA providing a restructured definition of the term
"Institution." Sponsoring organizations of centers are added
to the statutory definition. These expanded definitions of
"Institution" and "Sponsoring Organization" are
already contained in the CACFP regulations at 7 CFR 226.2.
2. Eligibility Criteria for Institutions
Section 243(a)(8) of Pub. L. 106-224 amended section 17(a)(6) of
the NSLA to mandate four new criteria that institutions must meet to
be eligible for program participation.
A description of these
criteria and a discussion of how State agencies should implement the
State agencies should implement this provision by immediately
requiring all institutions that apply or reapply for CACFP to
certify that the institution has not been disqualified from
participation in any other publicly-funded program for violating
that programís requirements. "Publicly-funded program"
means any program or grant funded by Federal, State, or local
government. More complete guidance will be provided in future
Minimum Federal staffing standards for monitors will be
addressed in forthcoming regulations. We encourage State agencies
to continue using their own staffing standards for monitors until
Sponsors must immediately develop or review their policies on
outside employment of their CACFP employees. General principles to
consider in approving outside employment would include likely
schedule conflicts with CACFP responsibilities and duties and
ethical or conflict-of-interest issues. One approach a sponsor may
use would be to require that any outside employment be approved in
advance by the sponsor, allowing a case-by-case consideration of
the appropriateness of any job. State agencies should provide
guidance to sponsors on developing outside employment policies.
State agencies should use sponsorsí management plans to
determine CACFP responsibilities of each employee. In addition,
during reviews, State agency reviewers should monitor sponsorsí
implementation of this provision.
Where required by State law, regulation, or policy, sponsoring
organizations making initial application to participate in CACFP
must be bonded.
Those sponsors making an initial application to participate in
CACFP after June 20, 2000, must meet any bonding requirements
imposed by applicable State law, regulation, or policy. Bonding
requirements must be met for an organizationís application to be
considered complete. In States where bonding requirements exist,
State agencies must ensure that all applicant organizations are made
aware of this new requirement in the application process.
3. Institution Approval and Applications
Section 243(b) of Pub. L. 106-224 amended section 17(d)(1)(A) of
the NSLA to require that State agencies must only approve
institutions for participation in the program that are financially
viable, administratively capable, and have in effect internal
controls to ensure program accountability.
The statutory language specifically describes administrative
capability for an applicant institution as having business
experience and management plans in place that are appropriate for
operating the program. In addition, FNS has provided guidance to
State agencies through the CACFP Management Improvement Training,
held in 1999 and 2000 in various locations throughout the country,
on how to determine whether an applicant institution meets these
three conditions. We encourage State agencies to review materials
that were provided during the training as questions arise in the
implementation of this provision. In particular, we recommend that
State agency staff review the "Management Plan Evaluation
Guide - Handout C" that was provided in the Session I module
of the training. This guide contains useful information on
evaluating applicant institutions for financial viability,
organizational capability, and internal controls.
Have tax exempt status, as defined under the Internal Revenue
Code of 1986;
Operate a Federal program requiring nonprofit status to
participate in the program; or
Receive Title XX compensation for at least 25 percent of the
children enrolled in the day care center or 25 percent of the
licensed capacity, whichever is less.
This provision eliminates the "moving toward tax exemption
status" that was previously allowed by the NSLA and current CACFP
regulations (7 CFR Part 226). Section 17(d)(1)(B)(ii) of the NSLA
specifically exempts family and group day care homes from these
requirements. State agencies must promptly notify institutions that
are affected by this change. The date of enactment of the law, June
20, 2000, is the pivotal date which affects State agency action on an
institutionís application for participation, as discussed below:
must receive tax exempt status by October 1, 2000; or
must be terminated by the State agency; and
terminations under this provision may not be appealed.
must have tax exempt status at the time of application; or
must be terminated by the State agency; and
terminations under this provision may not be appealed.
Although this provision is effective immediately, the developmental
work required of State agencies in establishing criteria to evaluate
an eligible sponsorís application will take time. In the meantime,
State agencies should begin developing reasonable criteria. When
developing criteria on unmet needs, we encourage State agencies to
consider any unique characteristics that exist within the State.
Examples of such uniqueness might include pockets of populations that
speak a different language or dialect, major changes in employment
resulting in a significant loss or gain of jobs, or geographical
State agencies should note that a criterion requiring a sponsor to
administer a minimum number of homes would not be acceptable. The law
now requires a State agency to reject the application of any sponsor
which is not financially viable, and it is the sponsorís financial
viabilityónot the fact that it has not recruited a particular number
of homesóthat must be evaluated by the State agency. A new
sponsoring organization with no non-CACFP sources of administrative
funding would clearly need to sponsor a higher number of homes to be
"financially viable" than would a multi-purpose community
organization which could pay for some of the costs of administering
CACFP out of other resources.
When the State agencyís criteria are in place, as part of its
initial application to participate, a new sponsoring organization will
be required to justify the need for its services in its initial
application by showing that it proposes to provide benefits to areas,
providers, or children that have a need for Program coverage. As
always, FNS makes itself available to consult and discuss this
provision as State agencies develop their criterion.
4. State and Sponsor Monitoring Requirements
Section 243(b) of Pub. L. 106-224 amended section 17(d)(2)(A)(ii)
of the NSLA to mandate minimum visits to sponsoring organizations,
family day care homes, and centers as follows:
Periodic unscheduled visits by sponsoring organizations to family
day care homes and day care centers not less than once every 3
At least one scheduled visit each year to family day care homes
and day care centers by sponsoring organizations;
At least one scheduled visit every 3 years to sponsoring
organizations and independent centers by State agencies.
Until regulations are published, State agencies are obligated to
continue to adhere to the monitoring requirements in 7 CFR 226.6(l).
In addition, State agencies must ensure that sponsors implement the
new statutory monitoring provisions described above no later than
October 1, 2000, or beginning with their next review cycle if that
begins prior to October 1, 2000.
5. Parental Notification Requirements
Section 243(b) of Pub. L. 106-224 amended section 17(d)(3) of the
NSLA to require that day care homes and child care centers (or their
sponsoring organizations) inform parents or guardians of children
enrolled in CACFP facilities about the program and its benefits. Other
information that must be shared with parents or guardians of enrolled
children includes the name and telephone number of the sponsoring
organization and the State agency. Both the format and, to the maximum
extent practicable, the language of this notice must be easily
understandable to the parent or guardian.
This provision is effective immediately for new children as they
are enrolled. For children that are already enrolled in the program,
parent notification must be provided by September 20, 2000. The
information should be provided at a minimum in English and in the
second most frequently spoken language within the State or locality.
We strongly recommend that State agencies provide any technical
assistance that may be needed by sponsoring organizations or CACFP
facilities in order to meet these requirements. FNS has developed a
brochure containing basic program information that can be used to meet
the notification requirement. The name and telephone number of the
sponsor and the State agency must be added. This publication will be
available in both English and Spanish, and will be provided in bulk
quantities to State agencies in the near future. We will contact you
as soon as the brochure is ready for shipment.
6. Administrative Expenses for Sponsors
Pub. L. 106-224 addressed administrative expenses for sponsoring
organizations in two separate provisions.
Section 243(b) amended section 17(d)(4) of the NSLA to require
USDA to develop, in consultation with State agencies and sponsoring
organizations, a list of allowable reimbursable administrative
expenses for CACFP sponsoring organizations.
We are in the process of revising FNS Instruction 796-2,
Financial Management - Child and Adult Care Food Program. The
revised instruction will contain a list of allowable
administrative expenses for sponsoring organizations based on
principles established in USDA Uniform Federal Assistance
Regulations (7 CFR Part 3015) and applicable OMB circulars (in
particular, A-87 and A-122). State agencies and sponsors, through
their representatives on the Management Improvement Task Force,
will have an opportunity to comment on the list. In this regard,
however, commenters should note that we are obligated to utilize
well-established principles of cost allowability in Part 3015 and
OMB circulars which are not subject to change through this
State agencies must implement the restrictions on center sponsorsí
administrative funds retention no later than October 1, 2000. This
should allow for an orderly transition at the beginning of the new
budget cycle for FY 2001. When evaluating a sponsoring organizationís
proposed budget, States should consider how effectively the
sponsoring organizationís proposed allocations support all aspects
of program operations. State agencies should also consider the
effects of geography on the sponsoring organizationís cost of
doing business, the types of centers the sponsor oversees, and the
total amount of reimbursement due to each center.
7. Terminations and Appeals
Section 243(c)of Pub. L. 106-224 amended section 17(d)(5) of the
NSLA to mandate several new provisions concerning terminations and
appeals of CACFP institutions and family or group day care homes.
standards for terminating an institution or family or group
day care home that engages in unlawful practices, falsifies
information, conceals criminal background, or substantially
fails to fulfill the terms of the program agreement;
a requirement that institutions and family or group day care
homes take corrective action prior to termination, except in
situations that imminently threaten the health or safety of
participants or the public, as determined by the State agency;
provision of a fair hearing for institutions and family or
group day care homes before termination.
USDA must maintain and make available to State agencies a list of
terminated institutions, family and group day care homes, and
individuals. State agencies will use the list to approve or renew
applications of institutions, family or group day care homes and
individuals in the program.
We will address implementation of these provisions in regulations.
8. Funds Recovery Procedures
Section 243(d) of Pub. L. 106-224 amended section 17(f)(1) of the
NSLA to allow State agencies to recover disbursed funds when
institutions have engaged in fraud or abuse with respect to CACFP or
submitted an invalid claim. This provision stipulates that:
funds may be repaid over one or more years;
repayments cannot come from funds that are used to pay for meals
and supplements; and
institutions must be provided a fair hearing prior to funds
It has always been the position of FNS to prohibit the repayment
of overclaims with reimbursements for meals. Furthermore, as stated
at Section 226.14(a) of the CACFP regulations, institutions have had
the right to appeal any disallowance and demand for repayment before
the State agency proceeds. However, the provision that allows
institutions to repay debts over one or more years does
represent a change to the current FNS policy, and it must be
implemented immediately. Pertinent regulatory provisions are
Section 226.14(a) gives State agencies authority to recover
funds that were improperly claimed. This paragraph states in part,
"State agencies shall disallow any portion of a claim for
reimbursement and recover any payment to an institution not
properly payable under this part."
USDA Uniform Federal Assistance Regulation at 7 CFR Part 3015
and OMB Circulars Nos. A-87 and A-122 provide guidelines that
prohibit the use of Federal reimbursement funds for repayment of
debts resulting from overclaims. In addition, FNS Instruction
796-2, Rev. 2, at (VII)(A)(1) requires that allowable costs
"must represent an actual operating/administrative cost
incurred in the normal course of conducting the program." In
our revision of this instruction, we will clarify, through the use
of examples, the prohibition on the use of Federal reimbursement
funds to repay debts.
9. Limits on Family Day Care Home Transfers
Section 243(f) of Pub. L. 106-224 amended section 17(f)(3) of the
NSLA to require State agencies to limit family and group day care
homes transfers between sponsoring organizations to once a year.
However, a State agency may permit or require more frequent transfers
for "good cause," as the State agency defines the term. The
statute provides one example of a situation that would justify
transfers more frequently than once a year - when a sponsoring
organization stops participating in the program.
State agencies should ensure that this policy is in place by the
beginning of FY 2001.
10. Expansion of For-Profit Demonstration Project: Delaware
Section 243(g) of Pub. L. 106-224 amended section 17(p)(1) of the
NSLA to authorize a third demonstration project that allows for-profit
centers to participate in CACFP if 25 percent of their enrollment or
licensed capacity are eligible for free or reduced price school meals.
Descriptive criteria that are specified in the statutory language
at section 17(p)(3) of the NSLA qualify the State of Delaware.
Beginning October 1, 2001, Delaware may begin operations, thus
becoming the third State, in addition to Iowa and Kentucky, to operate
a for-profit demonstration project, which was made permanent by the
Child Nutrition Reauthorization Act of 1998 (Pub. L. 105-336).
11. USDA Management Training Requirements
Section 243(h) of Pub. L. 106-224 amended section 17(q)(2) of the
NSLA to require that USDA provide continuous training to State
agencies on the identification and prevention of fraud and abuse of
the program. USDA must ensure that State agencies provide this
training to sponsoring organizations.
Additional annual funding of $1 million for fiscal years 1999-2003
enables FNS to provide CACFP Management Improvement Training as an
ongoing process. New provisions that have been mandated by Pub. L.
106-224 will be incorporated into the training materials that were
used to train State agencies from September 1999 to January 2000.
Section 243(j) of Pub. L. 106-224 amended section 7(a)(9)(A) of the
Child Nutrition Act to give USDA authority to withhold state
administrative funds (SAE) from State agencies for failure to provide
sufficient training, technical assistance, or monitoring of the
This provision clarifies that the statutory authority of USDA to
withhold State administrative expense (SAE) funds from State agencies
for failure to properly administer the program specifically includes
the failure to provide sufficient training, technical assistance, and
monitoring of CACFP. This provision heightens the importance of
training, assisting, and monitoring CACFP institutions and facilities.
Broad sanction authority, based on the previous statutory language, is
found at 7 CFR 235.11(b) which allows FNS to recover, withhold, or
cancel payment of up to one hundred percent of State administrative
expenses for failure of a State agency to comply with child nutrition
program regulations, including part 226 (CACFP regulations). We will
make revisions to the current regulatory language accordingly.
12. Meals Added to At-Risk Afterschool Care Centers for Six States
Section 243(i) of Pub. L. 106-224 amended section 17(r)(2) of the
NSLA to add meal (supper) benefit provisions for at-risk afterschool
care centers in six States. Section 17(r)(5) names the eligible States
as: Delaware, Pennsylvania, Michigan, Missouri, and two other States
that will be selected by USDA on a competitive basis.
We have addressed these provisions in separate memoranda to the
four named States. In the near future, we will solicit applications
from State agencies that want to make this additional meal
reimbursement available to at-risk afterschool care centers in their
State. In our communication to State agencies, we will describe the
criteria that States must address in their applications, and the
method by which FNS will select the two qualifying States.
13. Free and Reduced Price Application Confidentiality Requirements
Section 242 of Pub. L. 106-224 amended section 9(b)(2)(C)(iii) of
the NSLA to permit sharing of information contained on free and
reduced price meal applications with administrators of the State
Medicaid Program (Medicaid) and the State Childrenís Health
Insurance Program (SCHIP). Both the State agency and the
school/institution must agree to share the information prior to
disclosure. The use of this information is limited to identifying
children eligible for benefits under, and enrolling children in,
Medicaid/SCHIP. States and school food authorities that choose to
provide the information must ensure that schools/institutions sharing
have a written agreement with the respective Medicaid or SCHIP
agencies in place prior to disclosure, which requires the recipient
agencies to use the information to enroll children in their
notify each household of the information that will be disclosed
and that it will be used only to enroll children in Medicaid or
provide each parent or guardian an opportunity to decline to have
the information disclosed.
Due to the complexity of this issue, we provided guidance in a
separate memorandum, dated July 6, 2000.
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