Use of Non-LSC Funds, Transfers of LSC Funds, Program Integrity; Cost Standards and Procedures
| Published date | 10 February 2020 |
| Citation | 85 FR 7518 |
| Record Number | 2020-02511 |
| Section | Proposed rules |
| Court | Legal Services Corporation |
Federal Register, Volume 85 Issue 27 (Monday, February 10, 2020)
[Federal Register Volume 85, Number 27 (Monday, February 10, 2020)]
[Proposed Rules]
[Pages 7518-7520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-02511]
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LEGAL SERVICES CORPORATION
45 CFR Parts 1610 and 1630
Use of Non-LSC Funds, Transfers of LSC Funds, Program Integrity;
Cost Standards and Procedures
AGENCY: Legal Services Corporation.
ACTION: Further notice of proposed rulemaking.
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SUMMARY: This further notice of proposed rulemaking provides public
notice for comment about one substantive change to the Legal Services
Corporation's (LSC or Corporation) regulation regarding cost standards
at 45 CFR part 1630 that would permit LSC to question and disallow
costs in addition to other, already available remedial measures when a
recipient uses non-LSC funds in violation of the LSC restrictions that
apply to non-LSC funds. This notice is in addition to the notice of
proposed rulemaking for 45 CFR part 1610 and 1630 published on August
12, 2019.
DATES: Comments must be received by March 26, 2020.
ADDRESSES: You may submit comments by any of the following methods:
Federal Rulemaking Portal: Follow the instructions for
submitting comments.
Email: [email protected]. Include ``Part 1630
Rulemaking'' in the subject line of the message.
Fax: (202) 337-6519.
Mail: Mark Freedman, Senior Associate General Counsel,
Legal Services Corporation, 3333 K Street NW, Washington, DC 20007,
ATTN: Part 1630 Rulemaking.
Hand Delivery/Courier: Mark Freedman, Senior Associate
General Counsel, Legal Services Corporation, 3333 K Street NW,
Washington, DC 20007, ATTN: Part 1630 Rulemaking.
Instructions: LSC prefers electronic submissions via email with
attachments in Acrobat PDF format. LSC will not consider written
comments sent to any other address or received after the end of the
comment period.
FOR FURTHER INFORMATION CONTACT: Mark Freedman, Senior Associate
General Counsel, Legal Services Corporation, 3333 K Street NW,
Washington, DC 20007; (202) 295-1623 (phone), (202) 337-6519 (fax), or
[email protected].
SUPPLEMENTARY INFORMATION:
I. Introduction
On August 12, 2019, the Legal Services Corporation (LSC or
Corporation) published a Notice of Proposed Rulemaking (NPRM or
Proposed Rule) at 84 FR 39787 proposing changes to 45 CFR part 1610--
Use of Non-LSC Funds and to a related provision of 45 CFR part 1630--
Cost Standards and Procedures. LSC stated that the Proposed Rule did
not contain any substantive changes to either rule. Rather, LSC
proposed updates to part 1610 to improve clarity and updates to Sec.
1630.16 to better reference the substantive terms of part 1610. LSC
received two comments during the 60-day comment period and one late
comment. Generally, the comments supported the proposed rule. LSC will
respond to the comments in the Final Rule. These notices and the
comments are published on LSC's website at www.lsc.gov/rulemaking>.
Some of the comments stated that the proposed rule would make one
substantive change in Sec. 1630.16. LSC agrees. LSC is publishing this
Further Notice of Proposed Rulemaking to provide clear notice of that
change and an opportunity for public comment. The proposed language for
Sec. 1630.16 has not changed from the NPRM.
Additionally, on January 10, 2020, the National Association of
IOLTA Programs wrote to LSC noting the same substantive change in Sec.
1630.16 and requesting that LSC repost the proposed substantive changes
for comments.
II. General Background
A. LSC Restrictions on Non-LSC Funds
The Legal Services Corporation Act (LSC Act or Act), 42 U.S.C.
2996-2996l, and, since 1996, LSC's annual appropriation, impose
restrictions and requirements on the use of LSC and non-LSC funds by
recipients of grants from LSC for the delivery of civil legal aid. See,
e.g., Public Law 116-93 (2019) (appropriating funds to LSC subject to
restrictions set out in prior appropriations). LSC implemented the
application of those restrictions and requirements to recipients' use
of non-
[[Page 7519]]
LSC funds through part 1610 of title 45 of the Code of Federal
Regulations.
The current rule describes two categories of restrictions on the
use of non-LSC funds: (1) Restrictions established in the LSC Act (LSC
Act Restrictions) and (2) restrictions established in LSC's annual
appropriation (Appropriations Restrictions). The rule then discusses
how those restrictions apply to three different categories of non-LSC
funds used by recipients: (a) Private funds (such as individual
donations), (b) public funds (such as government grants), and (c)
tribal funds (such as grants from Native American tribes).
All uses of private funds by recipients are subject to both the LSC
Act Restrictions and the Appropriations Restrictions. Additionally, all
uses of public funds by recipients are subject to the Appropriations
Restrictions.
By contrast, the LSC Act Restrictions do not apply to the use of
public funds so long as the recipient uses those funds consistent with
``the purposes for which they are provided'' by the other funding
source (authorized use). 42 U.S.C. 2996i(c). If, instead, the recipient
uses public funds contrary to the purposes for which they were provided
(unauthorized use), then those uses of public funds are subject to the
LSC Act Restrictions. For example, the State of Michigan provides
public funds to many LSC recipients for ``indigent civil legal
assistance.'' MCL Sec. 600.151a. The LSC Act does not apply its
restrictions to those public funds so long as they are used for
purposes authorized by the State of Michigan and consistent with the
terms of the grant awarding them. Michigan law prohibits using those
funds ``to provide legal services in relation to any criminal case or
proceeding . . . .'' MCL Sec. 600.1485(10). Thus, any use of those
Michigan public funds by an LSC recipient for a criminal case would
violate the purposes for which they were provided and therefore subject
those unauthorized uses of the funds to the LSC Act restrictions.
Lastly, both the LSC Act Restrictions and the Appropriations
Restrictions do not normally apply to authorized uses of tribal funds.
42 U.S.C. 2996i(c) and Public Law 104-134, 504(d)(2)(A) (1996) (as
incorporated by reference in LSC's current appropriation).
B. Disallowed Costs for Restricted Uses of Non-LSC Funds
When a recipient violates an LSC restriction, LSC has a range of
available remedial options to both correct the violation and prevent
future recurrences of that violation. Generally, LSC works closely with
the recipient on identifying the problem, including misunderstandings
or recordkeeping and documentation defects, and developing workable
long-term solutions. LSC may also prevent the recipient from charging
to the LSC grant any expenses associated with the violation through
questioned and disallowed costs. 45 CFR part 1630 (rules and procedures
for questioning and disallowing costs). Ordinarily, that combination of
solutions and disallowed costs is sufficient. Nonetheless, in cases
involving persistent or intentional violations, or a failure to take
remedial actions, LSC may also suspend funding, impose sanctions, or
terminate a grant. 45 CFR 1618.5 (referencing suspensions in part 1623
and sanctions or terminations in part 1606).
The LSC cost standards rule appears at 45 CFR part 1630 and sets
rules for when ``[e]xpenditures are allowable under an LSC grant . . .
.'' 45 CFR 1630.5(a). If a recipient engages in an LSC-restricted
activity with LSC funds, then LSC can question and disallow those costs
as not ``in compliance with the Act, applicable appropriations law, LSC
rules, regulations, guidelines, and instructions, the Accounting Guide
for LSC Recipients, the terms and conditions of the grant or contract,
and other applicable law . . . .'' Id. at Sec. 1630.5(a)(4). LSC must
provide the recipient with a written notice of the questioned costs,
identifying both ``the amount of the cost and the factual and legal
basis for disallowing it.'' Id. at Sec. 1630.11(b). The recipient has
an opportunity to respond with evidence and arguments ``to show that
the cost was allowable, or [with] equitable, practical, or other
reasons'' why LSC should allow the cost. Id. at Sec. 1630.11(d). If
LSC proceeds to disallow a cost over $2,500, the recipient can appeal
the decision to the LSC President who may adopt, modify, or reverse the
decision. Id. at Sec. 1630.12.
Part 1630 generally focuses on the costs charged to LSC funds
provided in an LSC grant, including standards for allowability of such
costs and a process for LSC to question impermissible costs incurred by
a grantee. By contrast, Sec. 1630.16(c) provides a mechanism to
respond to the use of non-LSC funds in violation of the LSC
restrictions by authorizing LSC to ``recover from a recipient's LSC
funds an amount not to exceed the amount improperly charged to non-LSC
funds.'' Part 1630 has contained a version of this provision since
1986, when LSC first adopted the rule. 51 FR 29076 (Sec. 1630.12 in
the first rule), 62 FR 68219 (Sec. 1630.11 in the revised rule with
updates), 82 FR 37327 (Sec. 1630.16 in the revised rule without
changes).
As discussed above, part 1610 provides the rules for determining
when the LSC restrictions prohibit a recipient from engaging in
restricted activities using certain categories of non-LSC funds.
Generally, when part 1610 and Sec. 1630.16(c) are read together, they
provide the authority for LSC to invoke Sec. 1630.16(c) any time a
recipient uses non-LSC funds in violation of the LSC restrictions.
Regardless of disallowing costs, LSC has authority to address any
violation of the restrictions or part 1610 with non-LSC funds through
all other remedial options, including suspensions, sanctions, or
terminations pursuant to parts 1606, 1618, and 1623.
Section 1630.16 creates a conflict with part 1610 by providing an
incomplete summary of the statutory restrictions on non-LSC funds.
Section 1630.16(a) summarizes the application of the LSC Act
Restrictions to public and tribal funds, but it omits the LSC Act
Restrictions on unauthorized uses of public funds. The history of part
1630 provides no explanation for this omission. By contrast, the Sec.
1630.16(b) summary of the Appropriations Restrictions does not omit any
categories of non-LSC funds and includes public, private, and tribal
funds. The Proposed Rule would eliminate this unexplained gap.
The National Legal Aid and Defender Association stated in its
comment on the Proposed Rule that the current omission in Sec.
1630.16(a) means that the authority to question and disallow costs in
Sec. 1630.16(c) does not apply when a recipient uses non-LSC public
funds for an activity prohibited by an LSC Act restriction and contrary
to the authorized purposes set by the public funder providing those
funds. Thus, in that situation, the recipient will have violated the
LSC Act and Sec. 1610 with non-LSC public funds, but LSC cannot
question or disallow an equivalent amount of LSC funds under Sec.
1630.16(c). By contrast, Sec. 1630.16(c) provides LSC with that
authority for all other uses of public funds, or of other non-LSC
funds, in violation of the restrictions on non-LSC funds set out in the
LSC Act, Appropriations Restrictions, and part 1610.
C. Proposed Revisions to Sec. 1630.16
The revision to Sec. 1630.16 in the Proposed Rule eliminates this
problem by referring directly to part 1610 to define the scope of the
restriction on the use of non-LSC funds. This approach is consistent
with the relationship between part 1630 and the other LSC restrictions.
Part 1630 provides the rules
[[Page 7520]]
and procedures for questioning and disallowing costs charged to LSC
funds based on violations of substantive restrictions appearing in the
LSC statutes, regulations, and other requirements. Furthermore, the
proposed approach ensures that LSC has one standard, set out in Part
1610, for determining whether a recipient has used non-LSC funds in
violation of the restrictions.
In this rulemaking, the commenters asked LSC to retain the omission
so that Sec. 1630.16 would not permit LSC to disallow costs for the
unauthorized use of public, non-LSC funds in violation of the LSC Act
Restrictions. They provided no rationale, however, as to why such an
exception should exist for public funds but not for private or tribal
funds. They also did not address why such an exception should exist
when public funds are used in violation of the LSC Act Restrictions but
not when public funds are used in violation of the Appropriations
Restrictions.
III. Elimination of the Conflict Between Parts 1610 and 1630
LSC proposes to harmonize parts 1610 and 1630 with new text in
Sec. 1630.16(a) that will replace the existing Sec. 1630.16(a) and
(b) and that will reference the substantive rules on non-LSC funds set
out in part 1610. Doing so will eliminate the conflict between the
rules. It will also incorporate into Sec. 1630.16 the more detailed
information about the application of these restrictions to non-LSC
funds set out in the proposed part 1610. These revisions capture the
statutory requirements more accurately than the current text of either
Sec. 1630.16 or part 1610.
The Proposed Rule would provide at Sec. 1630.16(a) that:
No cost may be charged to non-LSC funds in violation of Sec. Sec.
1610.3 or 1610.4 of this chapter.
The referenced sections of part 1610 are as set out in the Proposed
Rule at 84 FR 39787. That proposed text would replace the existing text
at Sec. 1630.16(a) and (b) that provides (emphasis added):
(a) No costs attributable to a purpose prohibited by the LSC Act,
as defined by 45 CFR 1610.2(a), may be charged to private funds, except
for tribal funds used for the specific purposes for which they were
provided.
(b) No cost attributable to an activity prohibited by or
inconsistent with Public Law 103-134, title V, sec. 504, as defined by
45 CFR 1610.2(b), may be charged to non-LSC funds, except for tribal
funds used for the specific purposes for which they were provided.
Part 1600 defines ``non-LSC funds'' as ``any funds that are not
Corporation funds or LSC funds,'' which includes private funds, public
funds, and tribal funds. Part 1610 defines ``private funds,'' ``public
funds,'' and ``tribal funds.''
IV. Request for Comments
LSC requests public comments on this proposal. Comments that
propose keeping the gap between part 1610 and Sec. 1630.16 must:
1. Identify a valid purpose for the gap consistent with the
statutory restrictions;
2. Explain why, for the LSC Act Restrictions, Sec. 1630.16 should
not apply to unauthorized uses of public funds that violate the LSC Act
while continuing to apply to unauthorized uses of tribal funds that
violate the LSC Act;
3. Explain why Sec. 1630.16 should not apply to unauthorized uses
of public funds that violate the LSC Act while continuing to apply to
any uses of public funds that violate the restrictions in the LSC
appropriation.
Comments that otherwise oppose the proposed cross reference to part
1610 in Sec. 1630.16(a) must provide a justification for any
distinction between the rules for the use on non-LSC funds in part 1610
and in Sec. 1630.16, including justifying the distinction consistent
with the statutory restrictions and justifying any distinctions in
Sec. 1630.16 among the different types of restrictions on non-LSC
funds set out in part 1610.
List of Subjects in 45 CFR Part 1630
Accounting, Government contracts, Grant programs--law, Hearing and
appeal procedures, Legal services, Questioned costs.
For the reasons set forth in the preamble, the Legal Services
Corporation proposes to amend 45 CFR chapter XVI as follows:
PART 1630--COST STANDARDS AND PROCEDURES
0
1. The authority citation for part 1630 continues to read as follows:
Authority: 42 U.S.C. 2996g(e).
0
2. Revise Sec. 1630.16 to read as follows:
Sec. 1630.16 Applicability to non-LSC funds.
(a) No cost may be charged to non-LSC funds in violation of
Sec. Sec. 1610.3 or 1610.4 of this chapter.
(b) LSC may recover from a recipient's LSC funds an amount not to
exceed the amount improperly charged to non-LSC funds. The review and
appeal procedures of Sec. Sec. 1630.11 and 1630.12 govern any decision
by LSC to recover funds under this paragraph.
Dated: February 4, 2020.
Mark Freedman,
Senior Associate General Counsel.
[FR Doc. 2020-02511 Filed 2-7-20; 8:45 am]
BILLING CODE 7050-01-P
