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Serious Deficiency Process for Day Care Homes


Nutrition Services Division Management Bulletin
Purpose: Policy, Action Required

To: Child and Adult Care Food Program
Day Care Home Sponsors

Number: USDA-CACFP-06-2010

Attention: Food Program Director

Date: March 2010

Subject: Serious Deficiency Process - Day Care Home Providers

Reference: Child and Adult Care Food Program Integrity Training Manual, Title 7, Code of Federal Regulations, Parts 226.6(l) and 226.16(l); Nutrition Services Division Management Bulletin NSD-CACFP-03-2008

Supersedes: Nutrition Services Division Management Bulletin NSD-USDA-CACFP-07-2009

This Management Bulletin (MB) supersedes MB NSD-USDA-CACFP-07-2009, Serious Deficiency Process – Day Care Home Providers, and provides guidance and instruction on the implementation of the serious deficiency (SD) process for day care home providers (hereinafter providers) operating the Child and Adult Care Food Program (CACFP). In accordance with Title 7, Code of Federal Regulations (7 CFR) Section 226.6(c)(3)(ii)(R), “[f]ailure [by a sponsoring organization] to properly implement and administer the day care home termination and administrative review provisions set forth at paragraph (l) of this section and Section 226.16(l)” is a SD, and could jeopardize the sponsoring organizations participation in the CACFP.

Included with this MB are the following revised documents (see Attachments): the SD process flow charts (Attachments 1 and 2), sample appeal procedures (Attachment 3), and sample letters (Sample Letters A to J) that can be used during the SD process.

Serious Deficiency Determination

Section 226.16(l)(1) of 7 CFR states “[t]he 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. . . .”

  1. Submission of false information on the application;
  2. Submission of false claims for reimbursement;
  3. Simultaneous participation under more than one sponsoring organization;
  4. Non-compliance with the Program meal pattern;
  5. Failure to keep required records;
  6. Conduct or conditions that threaten the health or safety of a child(ren) in care, or the public health or safety;
  7. 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;
  8. Failure to participate in training; or
  9. 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.”
Serious Deficiency Notice

Once the sponsor determines the provider to be SD, the sponsor must issue a timely Serious Deficiency Notice (Sample Letter A) to the provider by a method of delivery that confirms receipt and/or delivery of the notice. A copy of the SD notice must also be sent to the California Department of Education (CDE), Nutrition Services Division (NSD), Program Integrity Unit (PIU). The notice must:

  • Clearly describe the SD finding(s)
  • State the legal basis for each SD finding (cite the SD regulation(s) as well specific provisions in the sponsor/provider agreement and/or regulations that support the SD finding(s))
  • Inform the provider that voluntary termination from the CACFP will result in proposed disqualification of the provider
  • Specify the corrective action(s) to be taken and the time allotted to correct the SD finding(s) (in accordance with 7 CFR Section 226.16(l)(3)(i)(C), corrective action(s) must be taken as soon as possible, but not to exceed 30 days)
  • State that failure to fully and permanently correct each SD finding will result in the proposed termination of the providers CACFP agreement and the proposed disqualification of the provider
  • Notify the provider that there are no appeal rights to the SD determination
  • Inform the provider that program payments will be made during the corrective action period

As required by 7 CFR Section 226.16(d), sponsors must monitor day care home providers operation of the CACFP. If, during a monitoring visit, the sponsor identifies findings described in 7 CFR Section 226.16(l)(2) and in examining the severity and frequency of the findings determines that the findings do not rise to the level of a serious deficiency, the sponsor must document in their monitoring report the finding(s) and what corrective actions must be taken to resolve the finding(s). The CDE recommends that the sponsor warn the provider in the monitoring report that failure to implement permanent corrective action will result in the initiation of the SD process. The provider, if available, must sign the monitoring report as acknowledgement that the finding(s) and corrective actions have been explained to the provider. A sponsor may choose to also notify the provider of the finding(s), corrective actions, and the warning in a separate letter.

In regards to recordkeeping requirements, sponsors have asked the CDE under what situation a provider is declared SD. The CDE recommends that:

  • If on a first offense, a provider fails to provide records for not more than two days, the sponsor must follow the monitoring report requirements stated in above paragraph.
  • If on a first offense, a provider fails to provide records for more than two days, the CDE recommends that the sponsor immediately issue a SD notice and consider the following:
    • All the facts surrounding the reason for the finding(s) and determine the appropriate action.
    • If after considering all the facts, the sponsor does not declare the provider SD, the sponsor must indicate, in the sponsor’s program file for the day care home provider, the reason(s) why the SD notice was not issued.
    • If a SD notice is eventually issued because of a second offense for the recordkeeping finding, the sponsor must tell the PIU why the SD notice was not issued when the sponsor first was aware of the recordkeeping finding.
Corrective Action

As stated above, the sponsor may allow the provider a maximum of 30 days from the receipt date of the SD notice to submit corrective action documents. However, in most situations, providers will be able to implement permanent corrective actions in less time.

In accordance with 7 CFR Section 226.16(l)(3)(ii), if the provider corrects the SD finding(s) within the allotted time and to the sponsor’s satisfaction, the sponsor must send a notice of Successful Corrective Action, Rescission of Serious Deficiency (Sample Letter B) to the provider utilizing a method of delivery that confirms receipt and/or delivery of the notice. A copy of the rescission notice must also be sent to the PIU and must inform the provider that:

  • Corrective action(s) must be permanent.
  • If corrective action(s) is/are not permanently corrected, the sponsor will immediately propose termination and disqualification of the provider.
  • The provider may not transfer to another sponsoring organization until the current sponsor completes an additional monitoring visit (no later than 180 days after the date of the rescission notice) verifying the provider implemented permanent corrective actions for the SD(s) (reference MB NSD-CACFP-03-2008.
  • If it is found in any subsequent review that any of these serious deficiencies have not been fully and permanently corrected, the sponsor will immediately propose to terminate the provider’s agreement for cause and propose to disqualify the provider without any further opportunity for corrective action.
Health or Safety Violations

In accordance with 7 CFR Section 226.16(l)(4), if a provider is cited for a serious health or safety violation by state or local health officials, or by a licensing official, the sponsor must immediately suspend the provider’s CACFP participation, even before any formal action has been taken to revoke the provider’s license. If the sponsor determines that there is imminent threat to the health or safety of participants in the home, or the provider engages in activities that threaten public health or safety, the sponsor must immediately notify state or local licensing and health authorities and take action that is consistent with the recommendations and requirements of those authorities. If licensing and health authorities’ recommendations support the issuance of the “Combined Serious Deficiency, Suspension, Proposed Termination, and Proposed Disqualification Notice: Imminent Threat to Health or Safety” (Sample Letter G) notice to the provider, the sponsor must issue the notice with appeal procedures (Attachment 2, Appeal Procedures for Day Care Homes). These documents must be sent utilizing a method of delivery that confirms receipt and/or delivery of the notice. The sponsor should obtain a copy of the state or local licensing official’s report. The report can be used to substantiate the sponsor’s suspension action. A copy of the suspension notice must also be sent to the PIU. The notice must:

  • Inform the provider that participation in the CACFP has been suspended and that the provider has been designated as seriously deficient and that the sponsor is proposing termination and disqualification
  • Specify the serious deficiency(ies) found
  • State that participation, including all program payments, will remain suspended until the administrative review is concluded
  • Inform the provider that if the administrative review official overturns the suspension, the provider may claim reimbursement for eligible meals served during the suspension
  • Inform the provider that the termination of their CACFP agreement will result in the placement of the provider on the National Disqualified List (NDL)
  • Inform the provider that if he/she voluntarily terminates their CACFP agreement after receiving the suspension notice, the provider will be terminated for cause and placed on the NDL
Proposed Termination and Disqualification After SD Notice Rescinded

Several sponsors’ hearing officials have inquired of the CDE whether they can uphold the sponsor’s proposed termination and proposed disqualification actions after the provider’s SD notice has been rescinded for the same or similar SD. The Successful Corrective Action, Rescission of Serious Deficiency (Sample Letter B) provides the following relevant statement: “We have rescinded the serious deficiency determination. However, if it is found in any subsequent review that any of these serious deficiencies have not been fully and permanently corrected, we will immediately propose to terminate your agreement for cause and propose to disqualify you without any further opportunity for corrective action.”

Note: The sponsors should not use the outdated USDA Successful Corrective Action, Rescission of Serious Deficiency (Sample Letter B) previously distributed with MB 05-208 as it contains the following statement that contradicts the statement above:

“. . .This also means that we will not propose to terminate your agreement for cause based on this serious deficiency finding or propose to disqualify you on that basis…. "

To further provide clarification on the definition of “permanent” corrective action, according to 7 CFR Section 226.16(l)(3)(i)(c), the sponsor must require the provider to correct their SD(s) “...as soon as possible, but not to exceed 30 days.” In accordance with 7 CFR Section 226.16(l)(3)(ii), the sponsor must determine shortly after the required corrective action period whether or not the corrective action submitted (and the follow-up review if one is conducted) demonstrates that the provider has implemented corrective action(s), and if so, must issue a rescission notice. Based on the written (and sometimes observed) corrective action, the sponsor must conclude that if the provider were to follow their corrective action plan, they would remain in compliance with program requirements from that date forward. Therefore, if in a future review the same or similar deficiency(ies) are found, the provider has demonstrated that their corrective action plan was not permanently implemented. Accordingly, the sponsor must issue a Notice of Proposed Termination and Proposed Disqualification.

Proposed Termination of Agreement

If a provider fails to permanently correct the serious deficiency(ies) in the time allotted for corrective action or any time after the original SD notice has been rescinded, the sponsor must issue a Notice of Proposed Termination and Proposed Disqualification (Sample Letter C) to the provider utilizing a method of delivery that confirms receipt and/or delivery of the notice and submit a copy of the notice to the PIU. The notice must:

  • Reference the SD notice and state why corrective action was not acceptable (or state that the provider failed to submit a corrective action document within the time allotted)
  • Offer the provider the opportunity to appeal (7 CFR Section 226.6(l)(2)), including appeal procedures (7 CFR Section 226.16(b)(6)) (Attachment 2, Appeal Procedures for Day Care Homes)
  • Notify the provider that the termination of the provider’s CACFP agreement will result in termination for cause and disqualification from the CACFP
  • Notify the provider that voluntary termination of the CACFP agreement after the receipt of the proposed termination/disqualification notice will still result in the proposed disqualification
  • Notify the provider that he/she may continue to participate in the CACFP through the appeal deadline, or, if an appeal is requested, until the hearing officer issues a decision

(7 CFR Section 226.16(l)(3)(iii))

Hearing Official’s Decision

The hearing official must be independent and impartial. Although the administrative review official may be an employee or board member of the sponsoring organization, he/she must not have been involved in the action that is the subject of the administrative review or have a direct personal or financial interest in the outcome of the administrative review (7 CFR Section 226.6(l)(5)(iv)).

In accordance with 7 CFR Section 226.6(l)(5)(ii), “[t]he day care home may retain legal counsel, or may be represented by another person.” Therefore, if the provider is represented in an appeal by another person, the hearing official must be sure that all correspondence and communication pertaining to the appeal is done through the individual representing the provider. The hearing official must base his/her decision on the documents and testimony provided by the sponsor and the provider, on the applicable federal regulations, and on the applicable CDE and USDA guidance governing the CACFP. The hearing official must not issue a decision in favor of the provider based solely on the providers “promise” or “agreement” to abide by CACFP requirements. The hearing official’s decision must be issued to the sponsor and the provider within 30 days from the receipt date of the hearing request. The hearing official’s decision must include the documents reviewed, the legal basis(es), and facts supporting the decision. The decision issued by the hearing official is the final determination to be afforded to the provider (7 CFR Section 226.6(l)(5)(v) and (vii)). A copy of the hearing official’s decision must be sent to the PIU.

Rescission of Serious Deficiency, Proposed Termination, and Proposed Disqualification After Provider Wins Appeal

If the hearing official overturns the sponsor’s proposed termination and proposed disqualification actions, the sponsor must issue a:

  • Rescission of Serious Deficiency, Proposed Termination, and Proposed Disqualification (after provider wins appeal) (Sample Letter F)
  • Rescission of Serious Deficiency, Suspension, Proposed Termination, and Proposed Disqualification: Imminent Threat to Health or Safety (after provider wins appeal) (Sample Letter J)

The letter must be sent to the provider utilizing a method of delivery that confirms receipt and/or delivery of the notice, and a copy of the notice must be sent to the PIU.

If the hearing official overturns the sponsor’s proposed termination and proposed disqualification actions, and in the future, the sponsor determines that the provider has committed the same or similar serious deficiency, the sponsor cannot move directly to proposed termination and proposed disqualification. Rather, the sponsor must implement the SD process from the beginning.

Agreement Termination and Disqualification

In accordance with 7 CFR Section 226.16(l)(3)(v), if the provider does not submit a timely request for appeal, or if the hearing official upholds the sponsor’s proposed actions, the sponsor must immediately terminate the provider’s agreement to participate in the CACFP and disqualify the provider from future CACFP participation. If the hearing official upholds the sponsor’s proposed actions, the sponsor must issue to the provider one of the following:

  • Notice of Termination and Disqualification (after sponsor wins appeal) (Sample Letter D)
  • Notice of Termination and Disqualification: Imminent Threat to Health or Safety (after sponsor wins appeal) (Sample Letter H)

The letter must be sent to the provider utilizing a method of delivery that confirms receipt and/or delivery of the notice, and a copy of the notice must be sent to the PIU

The date of the termination and disqualification will be the date of the hearing official’s decision.

If the provider did not request an appeal, the sponsor must issue to the provider one of the following:

  • Notice of Termination and Disqualification (following failure to appeal) (Sample Letter E)
  • Notice of Termination and Disqualification: Imminent Threat to Health or Safety (following failure to appeal) (Sample Letter I)

The letter must be sent to the provider utilizing a method of delivery that confirms receipt and/or delivery of the notice, and a copy of the notice must be sent to the PIU. The effective date will be the day after the appeal deadline.

The sponsor must also provide the PIU with a Site Change Request (SCR) form dropping the provider. (The sponsor should not include the terminated provider on your monthly SCR form that includes your regular add, drop, or modified providers, as the provider may not be identified as “disqualified” and can therefore be added by another sponsoring organization under these circumstances.) You must also provide the PIU with the provider’s date of birth and any amount owed to the CACFP as a result of the SD.

As appropriate, please share this information with your management, monitors, hearing officials, and other business personnel.

If you have any questions regarding the SD process, please contact Brandi Airada, Analyst, Program Integrity Unit at 916-323-1344 or bairada@cde.ca.gov.

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Questions:   Nutrition Services Division | 800-952-5609
Last Reviewed: Monday, February 22, 2016
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