[Code of Federal Regulations]
[Title 7, Volume 4]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR226.16]

[Page 211-216]
 
                          TITLE 7--AGRICULTURE
 
    CHAPTER II--FOOD AND NUTRITION SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 226--CHILD AND ADULT CARE FOOD PROGRAM--Table of Contents
 
                    Subpart E--Operational Provisions
 
Sec. 226.16  Sponsoring organization provisions.

    (a) Each sponsoring organization shall comply with all provisions of 
Sec. 226.15.
    (b) A sponsoring organization is prohibited from submitting an 
application on behalf of a facility if either the facility or any of its 
principals is on the National disqualified list. Each sponsoring 
organization shall submit to the State agency all information required 
for its approval and the approval of all child care and adult day care 
facilities under its jurisdiction, including:
    (1) A sponsoring organization management plan and administrative 
budget, in accordance with Sec. 226.6(f)(2), which includes information 
sufficient to document the sponsoring organization's compliance with the 
performance standards set forth at Sec. 226.6(b)(18). As part of its 
management plan, a sponsoring organization of day care homes must 
document that, to perform monitoring, it will employ the equivalent of 
one full-time staff person for each 50 to 150 day care homes it 
sponsors. As part of its monitoring plan, a sponsoring organization of 
centers must document that, to perform monitoring, it will employ the 
equivalent of one full-time staff person for each 25 to 150 centers it 
sponsors. It is the State agency's responsibility to determine the 
appropriate level of staffing for monitoring for each sponsoring 
organization, consistent with the specified ranges and the factors 
established by the State agency in accordance with Sec. 226.6(f)(2). The 
monitoring staff equivalent may include the employee's time spent on 
scheduling, travel time, review time, follow-up activity, and report 
writing. Sponsoring organizations that are participating in the Program 
on July 29, 2002 must submit a management plan or plan amendment that 
meets the monitoring staffing requirement no later than July 29, 2003. 
For sponsoring organizations of centers, the portion of the 
administrative costs to be charged to the Program as shown on the 
administrative budget and the actual administrative costs charged to the 
Program may not exceed 15 percent of the meal reimbursements estimated 
or actually earned during the budget year, unless the State agency 
grants a

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waiver in accordance with Sec. 226.6(f)(3). A sponsoring organization of 
centers must include in its administrative budget all administrative 
costs, whether incurred by the sponsoring organization or its sponsored 
centers. If at any point a sponsoring organization determines that the 
meal reimbursements estimated to be earned during the budget year will 
be lower than that estimated in its administrative budget, the 
sponsoring organization must amend its administrative budget to stay 
within the 15 percent limitation (or any higher limit established 
pursuant to a waived granted under Sec. 226.6(f)(3)) or seek a waiver. 
Failure to do so will result in appropriate fiscal action in accordance 
with Sec. 226.14(a).
    (2) An application for participation, or renewal materials, for each 
child care and adult day care facility accompanied by all necessary 
supporting documentation;
    (3) Timely information concerning the eligibility status of child 
care and adult day care facilities (such as licensing/approval actions);
    (4) For sponsoring organizations applying for initial participation 
on or after June 20, 2000, if required by State law, regulation, or 
policy, a bond in the form prescribed by such law, regulation, or 
policy;
    (5) A copy of the sponsoring organization's notice to parents, in a 
form and, to the maximum extent practicable, language easily 
understandable by the participant's parents or guardians. The notice 
must inform them of their facility's participation in CACFP, the 
Program's benefits, the name and telephone number of the sponsoring 
organization, and the name and telephone number of the State agency 
responsible for administration of CACFP;
    (6) If the sponsoring organization chooses to establish procedures 
for determining a day care home seriously deficient that supplement the 
procedures in paragraph (l) of this section, a copy of those 
supplemental procedures. If the State agency has made the sponsoring 
organization responsible for the administrative review of a proposed 
termination of a day care home's agreement for cause, pursuant to 
Sec. 226.6(l)(1), a copy of the sponsoring organization's administrative 
review procedures. The sponsoring organization's supplemental serious 
deficiency and administrative review procedures must comply with 
paragraph (l) of this section and Sec. 226.6(l);
    (7) A copy of their outside employment policy. The policy must 
restrict other employment by employees that interferes with an 
employee's performance of Program-related duties and responsibilities, 
including outside employment that constitutes a real or apparent 
conflict of interest; and
    (8) For sponsoring organizations of day care homes, the name, 
mailing address, and date of birth of each provider.
    (c) Each sponsoring organization shall accept final administrative 
and financial responsibility for food service operations in all child 
care and adult day care facilities under its jurisdiction.
    (d) Each sponsoring organization must provide adequate supervisory 
and operational personnel for the effective management and monitoring of 
the program at all facilities it sponsors. Each sponsoring organization 
must employ monitoring staff sufficient to meet the requirements of 
paragraph (b)(1) of this section. At a minimum, Program assistance must 
include:
    (1) Pre-approval visits to each child care and adult day care 
facility for which application is made to discuss Program benefits and 
verify that the proposed food service does not exceed the capability of 
the child care facility;
    (2) Staff training for all child care and adult day care facilities 
in Program duties and responsibilities prior to beginning Program 
operations;
    (3) Additional training sessions, to be provided not less frequently 
than annually; and
    (4) Reviews of food service operations to assess compliance with 
meal pattern, recordkeeping, and other Program requirements.
    (i) Reviews of sponsored centers. Reviews must be made at least 
three times each year at each center. In addition:
    (A) At least two of the three reviews must be unannounced;
    (B) At least one unannounced review must include observation of a 
meal service;

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    (C) At least one review must be made during the center's first six 
weeks of Program operation; and
    (D) Not more than six months may elapse between reviews.
    (ii) Reviews of day care homes. Reviews must be made at least three 
times each year at each day care home, except as described at paragraph 
(d)(4)(iii) of this section. In addition:
    (A) At least two of the three reviews must be unannounced;
    (B) At least one unannounced review must include observation of a 
meal service;
    (C) At least one review must be made during the day care home's 
first four weeks of Program operation; and
    (D) Not more than six months may elapse between reviews.
    (iii) Variation for sponsoring organizations of day care homes. If 
the State agency believes that improved efficiency and more effective 
management will result, and subject to FNSRO approval, the State agency 
may allow a sponsoring organization to conduct reviews an average of at 
least three times each year per day care home, provided that:
    (A) Each day care home receives at least two unannounced reviews;
    (B) At least one review is made during each day care home's first 
four weeks of Program operations; and
    (C) No more than six months elapse between reviews;
    (iv) Follow-up reviews. If, in a review of a facility, a sponsoring 
organization detects one or more serious deficiency, the next review of 
that facility must be unannounced. Serious deficiencies are those set 
forth at paragraph (l)(2) of this section, regardless of the type of 
sponsored facility.
    (v) Notification. Sponsoring organizations must provide each 
sponsored center written notification of the right of the sponsoring 
organization, the State agency, the Department, and other State and 
Federal officials to make announced or unannounced reviews of their 
operations during the center's normal hours of child or adult care 
operations, and must also notify sponsored centers that anyone making 
such reviews must show photo identification that demonstrates that they 
are employees of one of these entities. For sponsored centers 
participating July 29, 2002, the sponsoring organization must provide 
this notice sent no later than August 29, 2002. For sponsored centers 
that are approved after July 29, 2002, the sponsoring organization must 
provide the notice before meal service under the Program begins. 
Sponsoring organizations must provide day care homes notification of 
unannounced visits in accordance with Sec. 226.18(b)(1).
    (vi) Other requirements pertaining to unannounced reviews. 
Unannounced reviews must be made only during the facility's normal hours 
of child or adult care operations, and monitors making such reviews must 
show photo identification that demonstrates that they are employees of 
the sponsoring organization.
    (e) Each sponsoring organization shall comply with the recordkeeping 
requirements established in Sec. Sec. 226.10(d) and 226.15(e) and any 
recordkeeping requirements established by the State agency in order to 
justify the administrative payments made in accordance with 
Sec. 226.12(a). Failure to maintain such records shall be grounds for 
the denial of reimbursement.
    (f) The State agency may require a sponsoring organization to enter 
into separate agreements for the administration of separate types of 
facilities (child care centers, day care homes, adult day care centers, 
and outside-school-hours care centers).
    (g) Each sponsoring organization electing to receive advance 
payments of program funds for day care homes shall disburse the full 
amount of such payments within five working days of receipt from the 
State agency. If the sponsor requests the full operating advance to 
which it is entitled, the advances to day care homes shall be the full 
amount which the sponsor expects the home to earn based on the number of 
meals projected to be served to enrolled children during the period 
covered by the advance multiplied by the applicable payment rate as 
specified in Sec. 226.13(c). If a sponsor elects to receive only a part 
of the operating advance to which it is entitled, or if the full 
operating advance is insufficient to provide a full advance to each 
home, the advance shall be disbursed to its homes in a manner and an 
amount the sponsor

[[Page 214]]

deems appropriate. Each sponsor shall disburse any reimbursement 
payments for food service due to each day care home within five working 
days of receipt from the State agency. Such payment shall be based on 
the number of meals served to enrolled children at each day care home, 
less any payments advanced to such home. However, the sponsoring 
organization may withhold from Program payments to each home an amount 
equal to food service operating costs incurred by the sponsoring 
organization in behalf of the home and with the home provider's written 
consent. If payments from the State agency are not sufficient to provide 
all day care homes under the sponsoring organization's jurisdiction with 
advance payments and reimbursement payments, available monies shall be 
used to provide all due reimbursement payments before advances are 
disbursed.
    (h) Sponsoring organizations shall make payments of program funds to 
child care centers, adult day care centers or outside-school-hours care 
centers within five working days of receipt from the State agency, on 
the basis of the management plan approved by the State agency, and may 
not exceed the Program costs documented at each facility during any 
fiscal year; except in those States where the State agency has chosen 
the option to implement a meals times rates payment system. In those 
States which implement this optional method of reimbursement, such 
disbursements may not exceed the rates times the number of meals 
documented at each facility during any fiscal year.
    (i) Disbursements of advance payments may be withheld from child and 
adult day care facilities which fail to submit reports required by 
Sec. 226.15(e).
    (j) A for-profit organization shall be eligible to serve as a 
sponsoring organization for proprietary title XIX or title XX centers 
which have the same legal identity as the organization, but shall not be 
eligible to sponsor proprietary title XIX or title XX centers which are 
legally distinct from the organization, day care homes, or public or 
private nonprofit centers.
    (k) Before sponsoring organizations expend administrative funds to 
assist family day care homes in becoming licensed, they shall obtain the 
following information from each such home: a completed free and reduced 
price application which documents that the provider meets the Program's 
income standards; evidence of its application for licensing and official 
documentation of the defects that are impeding its licensing approval; 
and a completed CACFP application. These funding requests are limited to 
$300 per home and are only available to each home once.
    (l) Termination of agreements for cause. (1) General. The sponsoring 
organization must initiate action to terminate the agreement of a day 
care home for cause if the sponsoring organization determines the day 
care home has committed one or more serious deficiency listed in 
paragraph (l)(2) of this section.
    (2) List of serious deficiencies for day care homes. Serious 
deficiencies for day care homes are:
    (i) Submission of false information on the application;
    (ii) Submission of false claims for reimbursement;
    (iii) Simultaneous participation under more than one sponsoring 
organization;
    (iv) Non-compliance with the Program meal pattern;
    (v) Failure to keep required records;
    (vi) Conduct or conditions that threaten the health or safety of a 
child(ren) in care, or the public health or safety;
    (vii) A determination that the day care home has 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, or the concealment of such a 
conviction; or
    (viii) Any other circumstance related to non-performance under the 
sponsoring organization-day care home agreement, as specified by the 
sponsoring organization or the State agency.

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    (3) Serious deficiency notification procedures. If the sponsoring 
organization determines that a day care home has committed one or more 
serious deficiency listed in paragraph (l)(2) of this section, the 
sponsoring organization must use the following procedures to provide the 
day care home notice of the serious deficiency(ies) and offer it an 
opportunity to take corrective action. However, if the serious 
deficiency(ies) constitutes an imminent threat to the health or safety 
of participants, or the day care home has engaged in activities that 
threaten the public health or safety, the sponsoring organization must 
follow the procedures in paragraph (l)(4) of this section instead of 
those in this paragraph (l)(3).
    (i) Notice of serious deficiency. The sponsoring organization must 
notify the day care home that it has been found to be seriously 
deficient. The sponsoring organization must provide a copy of the 
serious deficiency notice to the State agency. The notice must specify:
    (A) The serious deficiency(ies);
    (B) The actions to be taken by the day care home to correct the 
serious deficiency(ies);
    (C) The time allotted to correct the serious deficiency(ies) (as 
soon as possible, but not to exceed 30 days);
    (D) That the serious deficiency determination is not subject to 
administrative review.
    (E) That failure to fully and permanently correct the serious 
deficiency(ies) within the allotted time will result in the 
institution's proposed termination of the day care home's agreement and 
the proposed disqualification of the day care home and its principals; 
and
    (F) That the day care home's voluntary termination of its agreement 
with the institution after having been notified that it is seriously 
deficient will still result in the day care home's formal termination by 
the State institution and placement of the day care home and its 
principals on the National disqualified list.
    (ii) Successful corrective action. If the day care home 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 that it has rescinded its determination of serious 
deficiency. The sponsoring organization must also provide a copy of the 
notice to the State agency.
    (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 agreement for cause. The notice must explain the day care home's 
opportunity for an administrative review of the proposed termination in 
accordance with Sec. 226.6(l). The sponsoring organization must provide 
a copy of the notice to the State agency. The notice must:
    (A) Inform the day care home that it may continue to participate and 
receive Program reimbursement for eligible meals served until its 
administrative review is concluded;
    (B) Inform the day care home that termination of the day care home's 
agreement will result in the day care home's termination for cause and 
disqualification; and
    (C) State that if the day care home seeks to voluntarily terminate 
its agreement after receiving the notice of intent to terminate, the day 
care home will still be placed on the National disqualified list.
    (iv) Program payments. The sponsoring organization must continue to 
pay any claims for reimbursement for eligible meals served until the 
serious deficiency(ies) is corrected or the day care home's agreement is 
terminated, including the period of any administrative review.
    (v) Agreement termination and disqualification. The sponsoring 
organization must immediately terminate the day care home's agreement 
and disqualify the day care home when the administrative review official 
upholds the sponsoring organization's proposed termination and proposed 
disqualification, or when the day care home's opportunity to request an 
administrative review expires. At the same time the notice is issued, 
the sponsoring organization must provide a copy of the termination and 
disqualification letter to the State agency.

[[Page 216]]

    (4) Suspension of participation for day care homes.
    (i) General. If State or local health or licensing officials have 
cited a day care home for serious health or safety violations, the 
sponsoring organization must immediately suspend the home's CACFP 
participation prior to any formal action to revoke the home'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 that the day care home 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) 
(and not the procedures in paragraph (l)(3) of this section) to provide 
the day care home notice of the suspension of participation, serious 
deficiency, and proposed termination of the day care home's agreement.
    (ii) Notice of suspension, serious deficiency, and proposed 
termination. The sponsoring organization must notify the day care home 
that its participation has been suspended, that the day care home has 
been determined seriously deficient, and that the sponsoring 
organization proposes to terminate the day care home's agreement for 
cause, and must provide a copy of the notice to the State agency. The 
notice must:
    (A) Specify the serious deficiency(ies) found and the day care 
home's opportunity for an administrative review of the proposed 
termination in accordance with Sec. 226.6(l);
    (B) State that participation (including all Program payments) will 
remain suspended until the administrative review is concluded;
    (C) Inform the day care home that if the administrative review 
official overturns the suspension, the day care home may claim 
reimbursement for eligible meals served during the suspension;
    (D) Inform the day care home that termination of the day care home's 
agreement will result in the placement of the day care home on the 
National disqualified list; and
    (E) State that if the day care home seeks to voluntarily terminate 
its agreement after receiving the notice of proposed termination, the 
day care home will still be terminated for cause and disqualified.
    (iii) Agreement termination and disqualification. The sponsoring 
organization must immediately terminate the day care home's agreement 
and disqualify the day care home when the administrative review official 
upholds the sponsoring organization's proposed termination, or when the 
day care home'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 that has been suspended 
until any administrative review of the proposed termination is 
completed. If the suspended day care home prevails in the administrative 
review of the proposed termination, the sponsoring organization must 
reimburse the day care home for eligible meals served during the 
suspension period.

[47 FR 36527, Aug. 20, 1982; 47 FR 46072, Oct. 15, 1982, as amended at 
48 FR 21530, May 13, 1983; 50 FR 8580, Mar. 4, 1985; 50 FR 26975, July 
1, 1985; 53 FR 52591, Dec. 28, 1988; 63 FR 9729, Feb. 26, 1998; 64 FR 
72260, Dec. 27, 1999; 67 FR 43490, June 27, 2002]