82 FR 20555 - Bonding Requirements for Recipients

LEGAL SERVICES CORPORATION

Federal Register Volume 82, Issue 84 (May 3, 2017)

Page Range		20555-20558
FR Document		2017-08857
This proposed rule would revise the Legal Services Corporation's (LSC or Corporation) regulation about bonding requirements for LSC recipients. It would require recipients to bond all their employees and to ensure that third parties who handle recipients' funds have bond coverage, allow recipients to use other forms of insurance similar to fidelity bonds, raise the minimum level of coverage, and allow recipients to use LSC funds to pay for bonding costs. This proposed rule will update part 1629 to reflect current insurance practices and simplify the language in the rule to reduce confusion.
Federal Register, Volume 82 Issue 84 (Wednesday, May 3, 2017)
[Federal Register Volume 82, Number 84 (Wednesday, May 3, 2017)]
[Proposed Rules]
[Pages 20555-20558]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-08857]


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LEGAL SERVICES CORPORATION

45 CFR Part 1629


Bonding Requirements for Recipients

AGENCY: Legal Services Corporation.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This proposed rule would revise the Legal Services 
Corporation's (LSC or Corporation) regulation about bonding 
requirements for LSC

[[Page 20556]]

recipients. It would require recipients to bond all their employees and 
to ensure that third parties who handle recipients' funds have bond 
coverage, allow recipients to use other forms of insurance similar to 
fidelity bonds, raise the minimum level of coverage, and allow 
recipients to use LSC funds to pay for bonding costs. This proposed 
rule will update part 1629 to reflect current insurance practices and 
simplify the language in the rule to reduce confusion.

DATES: Comments must be received by June 2, 2017.

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 1629 
Rulemaking'' in the subject line of the message.
     Fax: (202) 337-6519.
     Mail: Stefanie K. Davis, Assistant General Counsel, Legal 
Services Corporation, 3333 K Street NW., Washington, DC 20007, ATTN: 
Part 1629 Rulemaking.
     Hand Delivery/Courier: Stefanie K. Davis, Assistant 
General Counsel, Legal Services Corporation, 3333 K Street NW., 
Washington, DC 20007, ATTN: Part 1629 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: Stefanie K. Davis, Assistant General 
Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC 
20007; (202) 295-1563 (phone), (202) 337-6519 (fax), or [email protected].

SUPPLEMENTARY INFORMATION:

I. Regulatory Background

    LSC created part 1629 in 1984 after several instances in which 
recipients lost LSC funds through the dishonest behavior of persons 
associated with the recipient. 49 FR 28717, July 16, 1984. While the 
recipient recovered the funds in some cases, in others, the recipient 
had to absorb the loss. Id.
    Before enacting part 1629, LSC recommended that recipients have 
fidelity coverage as a basic internal control. See LSC Audit and 
Accounting Guide for Recipients and Auditors, revised June 1977, p. 3-
3. LSC intended part 1629 to ``make mandatory [this] important 
protection for the limited funds available to serve eligible clients.'' 
49 FR 23396, June 6, 1984. LSC originally proposed requiring programs 
to obtain fidelity bond coverage at a minimum level equal to 25% of the 
recipient's annualized LSC funding. Id. Based on comments received in 
response to the proposed rule, LSC decreased the required coverage 
level to 10%. 49 FR 28717, July 16, 1984. LSC also set a $50,000 
minimum coverage level ``in response to the recognition that a loss to 
a small program is proportionally greater in effect than a similar one 
to a large program.'' Id.
    LSC added rulemaking on part 1629 to its annual rulemaking agenda 
in April 2016. Regulatory action is justified for three reasons. First, 
the regulation is outdated. LSC has not revised part 1629 since it was 
adopted in 1984, and LSC should update it to reflect current insurance 
practices.
    Second, the regulation was derived from a source that does not 
provide the optimal model for a federally funded grant-making entity 
today. The original rule was based on fidelity bonding provisions found 
in the Employee Retirement Income Security Act of 1974 (ERISA). See 
Section 412 of Public Law 93-406, and related regulations at 29 CFR 
2550.412-1 and 29 CFR part 2580. ERISA concerns minimum standards for 
retirement plans in private industry. LSC no longer believes that this 
is an appropriate model for LSC to follow, and that instead LSC should 
look to current regulations governing similar grant-making entities and 
to reflect current insurance practices.
    Third, the current regulation is in some respects unclear or 
ambiguous. LSC has received requests for guidance on how to interpret 
certain provisions in part 1629, particularly those sections about the 
form and extent of coverage required by the rule. LSC does not believe 
that the language in part 1629 provides sufficiently clear guidance to 
LSC recipients or to LSC staff. LSC proposes crafting an approach that 
is tailored to LSC's needs and that simplifies the language in the rule 
to reduce confusion.
    On October 17, 2016, the Operations and Regulations Committee 
(Committee) of LSC's Board of Directors (Board) voted to recommend that 
the Board authorize rulemaking on part 1629. On October 19, 2016, the 
Board authorized LSC to begin rulemaking. On April 23, 2017, the 
Committee voted to recommend that the Board approve publication of this 
NPRM in the Federal Register for notice and public comment. On April 
24, 2017, the Board accepted the Committee's recommendation and voted 
to approve publication of this NPRM with a 30-day comment period.

II. Discussion of the Proposed Changes

Section 1629.1 Purpose

    LSC proposes to add a purpose section stating who must be covered 
under the bond and what losses the bond must protect against. Part 1629 
currently does not have a purpose section.

Section 1629.2 Definitions

    LSC proposes to define annualized funding level to include the 
amount of the Basic Field Grant and special purpose grant funds a 
recipient receives annually from LSC. LSC believes it is necessary to 
include ``special purpose grants'' of LSC funds, such as Technology 
Initiative Grants, Pro Bono Innovation Fund grants, and emergency 
relief grants, in the definition of ``annualized funding level'' to 
ensure that the maximum amount of LSC funds are protected.

Section 1629.3 Who must be bonded?

    LSC currently requires recipients to bond ``[e]very director, 
officer, employee and agent of a program who handles funds or property 
of the program . . . .'' 45 CFR 1629.2(a) (emphasis added). LSC 
considers the term ``handles'' to include access to funds or other 
recipient property or ``decision-making powers with respect to funds or 
property which can give rise to [] risk of loss.'' Id. Through a review 
of recipient insurance policies, LSC has found that most grantees have 
fidelity coverage for all their employees. This common practice exceeds 
the current minimum requirements of part 1629. When employees who were 
not required to be bonded under part 1629 have misappropriated LSC 
funds, grantees that exceeded the minimum part 1629 coverage have 
typically been protected from loss. LSC believes this common practice 
is desirable and proposes to require that recipients carry coverage for 
all employees, regardless of whether the employees ``handle'' program 
funds.
    LSC currently requires grantees to bond ``agents'' who handle funds 
or property of the program. 45 CFR 1629.2(a). But LSC has found that 
most recipients' policies do not cover the dishonest or fraudulent 
actions of agents and independent contractors. In fact, many policies 
explicitly exclude agents and independent contractors from the 
definition of ``covered employee.'' This exclusion is problematic, as 
LSC recipients often turn to third parties to handle payroll functions. 
See Legal Services Corporation Board of Directors, Operations and 
Regulations Committee, Transcript of Rulemaking Workshop, Wednesday, 
May 18, 2016, pp. 82-84

[[Page 20557]]

(comments of Diana White). This means that LSC funds are handled by 
persons outside of the recipient's control and insurance coverage. In 
areas where there are few insurers to choose from, it may be impossible 
for recipients to get insurance that covers ``agents'' or ``independent 
contractors.''
    To address these issues and adequately protect LSC funds from 
misappropriation by recipients and third parties, LSC proposes three 
changes to the existing rule. First, LSC proposes to require that 
recipients' bonds cover volunteers, in addition to directors, officers, 
employees, and agents of the recipient. Second, LSC proposes to require 
that recipients ensure that third parties who provide payroll, billing, 
and collection services to the recipient have fidelity bond coverage or 
similar insurance. The recipient may accomplish this either by 
extending its own insurance to the third party or by ensuring that the 
third party has its own fidelity bond coverage sufficient to protect 
LSC funds in the third party's hands. Finally, LSC proposes to include 
language allowing recipients to either cover subrecipients through 
their own fidelity policies or ensure that the subrecipients have 
policies adequate to protect subgranted funds.

Section 1629.4 What forms of bonds can recipients use?

    Current Sec.  1629.5 allows recipients to choose different forms of 
bonds, such as individual, blanket, or schedule. 45 CFR 1629.5. Section 
1629.5 currently does not address whether recipients may choose types 
of insurance other than a fidelity bond that achieve the same purpose 
as a fidelity bond. Most LSC recipients now protect against employee 
dishonesty through riders to their standard commercial crime policies. 
Few grantees obtain separate fidelity bonds.
    In 1999, LSC issued an external opinion permitting recipients to 
use employee dishonesty insurance to satisfy the bonding requirements 
of part 1629 if the recipient could show that the policy gives the same 
level of protection as a fidelity bond. See External Opinion 1999-10-
26, part 1629 Purchase of Employee Dishonesty Insurance in Lieu of a 
Fidelity Bond (October 26, 1999). To reflect this long-standing LSC 
policy, LSC proposes revising part 1629 to expressly allow recipients 
to substitute employee dishonesty policies or other methods of coverage 
for fidelity bonds. This revision gives recipients greater flexibility 
to choose the most readily available and cost-effective methods of 
insuring LSC funds. The revision also will make clear that the 
substance and amount of coverage is more important than the form.

Section 1629.5 What losses must the bond cover?

    Current Sec.  1629.4 requires recipients to have bonds that protect 
them against ``all those risks of loss that might arise through 
dishonest or fraudulent acts in the handling of funds [.]'' The strict 
language--``all those risks of loss''--implies that recipients must be 
completely covered in the event of a loss, and that policies with 
deductibles would not be acceptable under current part 1629. That is 
because if a recipient has LSC funds stolen, and the policy requires 
the recipient to absorb a portion of that loss by paying a deductible, 
then the recipient's policy did not cover against ``all those risks of 
loss.'' Such strict language makes sense under ERISA statutes and 
regulations, as they are designed to protect retirees' pension funds. 
But such language may prevent recipients from obtaining policies that 
will protect LSC funds adequately if policies without deductibles are 
prohibitively expensive.
    LSC proposes to simplify the language about the types of losses 
that the bond must cover and to revise the rule to allow recipients to 
purchase policies that require payment of deductibles. LSC proposes 
revising the definition to state simply that the ``bond must provide 
recovery for loss caused by such acts as: Fraud, dishonesty, larceny, 
theft, embezzlement, forgery, misappropriation, wrongful abstraction, 
wrongful conversion, willful misapplication, or any other fraudulent or 
dishonest act committed by an employee, officer, director, agent, or 
volunteer.''

Section 1629.6 What is the required minimum level of coverage?

    Under the existing rule, recipients must maintain bond coverage 
equal to at least 10% of the recipient's annualized LSC funding or of 
the initial grant if the program is a new grantee. 45 CFR 1629.1(a). 
The minimum level of coverage may never be less than $50,000. Id. LSC 
proposes to increase the minimum coverage level, which has remained 
unchanged since 1984. Based on a sampling of current recipients' 
policies, the majority of recipients already exceed the $50,000 minimum 
level of coverage. In fact, most policies provided coverage in excess 
of $100,000. Because the common practice among recipients already is to 
insure recipient funds above the minimum amount required by current 
Sec.  1629.1(a), LSC believes it is reasonable for LSC to raise the 
minimum coverage level to $100,000. LSC does not propose to change the 
minimum percentage for coverage.

Section 1629.7 May LSC funds be used to cover bonding costs?

    Part 1629 currently is silent as to which costs associated with 
fidelity bond coverage--deductibles, premiums, rates, and single loss 
retention--are allowable using LSC funds. To improve clarity on this 
point, LSC proposes to allow recipients to use LSC funds to pay for the 
costs of bonding under this part if they are (1) consistent with 45 CFR 
part 1630, (2) in accordance with sound business practice, and (3) 
reasonable. This proposed rule is based on the Uniform Guidance, which 
allows for such costs. See 2 CFR 200.427.
    LSC considered limiting the amount of deductibles that LSC would 
consider reasonable in the proposed rule. During the process of 
drafting this proposed rule, LSC examined a sample of recipients' 
current fidelity bonds and found that most of those recipients' 
policies have deductibles ranging from $1,000 to $5,000. LSC could not 
determine, based on research of external sources, whether there are 
current best practices in the nonprofit insurance world that would help 
LSC establish a reasonable limit on deductibles. LSC determined that it 
would need more data to set deductible limits and has therefore chosen 
to allow recipients the flexibility to consider the losses they are 
willing to absorb when deciding the appropriate deductibles.

List of Subjects in 45 CFR Part 1629

    Fidelity bond, Grant programs--law, Insurance, Legal services, 
Surety bonds.

0
For the reasons set forth in the preamble, the Legal Services 
Corporation proposes to revise 45 CFR part 1629 as follows:

PART 1629--BONDING REQUIREMENTS FOR RECIPIENTS

Sec.
1629.1 Purpose.
1629.2 Definitions.
1629.3 Who must be bonded?
1629.4 What forms of bonds can recipients use?
1629.5 What losses must the bond cover?
1629.6 What is the required minimum level of coverage?
1629.7 Can LSC funds be used to cover bonding costs?

    Authority: 42 U.S.C. 2996e(1)(A) and 2996f(3).


Sec.  1629.1  Purpose.

    This part is intended to protect LSC funds by requiring that 
recipients be

[[Page 20558]]

bonded or have similar insurance coverage to indemnify recipients 
against losses resulting from fraudulent or dishonest acts committed by 
one or more employees, officers, directors, agents, volunteers, and 
third-party contractors who handle LSC funds.


Sec.  1629.2  Definitions.

    Annualized funding level means the amount of:

(1) Basic Field Grant funds (including Agricultural Worker and Native 
American) and
(2) Special grants of LSC funds, including Technology Initiative 
Grants, Pro Bono Innovation Fund grants, and emergency relief grants, 
awarded by LSC to the recipient for the fiscal year included in the 
recipient's annual audited financial statements.


Sec.  1629.3  Who must be bonded?

    (a) A recipient must supply fidelity bond coverage for all 
employees, officers, directors, agents, and volunteers.
    (b) If a recipient uses a third party for payroll, billing, or 
collection services, the recipient must either supply coverage covering 
the third party or ensure that the third party has a fidelity bond or 
similar insurance coverage.
    (c) For recipients with subgrants:
    (1) The recipient must extend its fidelity bond coverage to supply 
identical coverage to the subrecipient and the subrecipient's 
directors, officers, employees, agents, and volunteers to the extent 
required to comply with this Part; or
    (2) The subrecipient must supply proof of its own fidelity bond 
coverage that meets the requirements of this Part for the 
subrecipient's directors, officers, employees, agents, and volunteers.


Sec.  1629.4  What forms of bonds can recipients use?

    (a) A recipient may use any form of bond, such as individual, name 
schedule, position schedule, blanket, or any combination of such forms 
of bonds, as long as the type or combination of bonds secured 
adequately protects LSC funds.
    (b) A recipient may use similar forms of insurance that essentially 
fulfill the same purpose as a fidelity bond.


Sec.  1629.5  What losses must the bond cover?

    The bond must provide recovery for loss caused by such acts as 
fraud, dishonesty, larceny, theft, embezzlement, forgery, 
misappropriation, wrongful abstraction, wrongful conversion, willful 
misapplication, or any other fraudulent or dishonest act committed by 
an employee, officer, director, agent, or volunteer.


Sec.  1629.6  What is the required minimum level of coverage?

    (a) A recipient must carry fidelity bond coverage or similar 
coverage at a minimum level of at least ten percent of its annualized 
funding level for the previous fiscal year.
    (b) If a recipient is a new recipient, the coverage must be at a 
minimum level of at least ten percent of the initial grant.
    (c) Notwithstanding paragraphs (a) and (b) of this section, 
recipients must not carry coverage under this part at a level less than 
$100,000.


Sec.  1629.7  Can LSC funds be used to cover bonding costs?

    Costs of bonding required by this part are allowable if expended 
consistent with 45 CFR part 1630. Costs of bonding such as rates, 
deductibles, single loss retention, and premiums, are allowable as an 
indirect cost if such bonding is in accordance with sound business 
practice and is reasonable.

    Dated: April 27, 2017.
Stefanie K. Davis,
Assistant General Counsel.
[FR Doc. 2017-08857 Filed 5-2-17; 8:45 am]
 BILLING CODE 7050-01-P
20556 Federal Register / Vol. 82, No. 84 / Wednesday, May 3, 2017 / Proposed Rules

recipients. It would require recipients to to obtain fidelity bond coverage at a II. Discussion of the Proposed Changes
bond all their employees and to ensure minimum level equal to 25% of the
Section 1629.1 Purpose
that third parties who handle recipients’ recipient’s annualized LSC funding. Id.
funds have bond coverage, allow Based on comments received in LSC proposes to add a purpose
recipients to use other forms of response to the proposed rule, LSC section stating who must be covered
insurance similar to fidelity bonds, raise decreased the required coverage level to under the bond and what losses the
the minimum level of coverage, and 10%. 49 FR 28717, July 16, 1984. LSC bond must protect against. Part 1629
allow recipients to use LSC funds to pay also set a $50,000 minimum coverage currently does not have a purpose
for bonding costs. This proposed rule level ‘‘in response to the recognition section.
will update part 1629 to reflect current that a loss to a small program is Section 1629.2 Definitions
insurance practices and simplify the proportionally greater in effect than a
LSC proposes to define annualized
language in the rule to reduce similar one to a large program.’’ Id.
funding level to include the amount of
confusion. LSC added rulemaking on part 1629 the Basic Field Grant and special
DATES: Comments must be received by to its annual rulemaking agenda in April purpose grant funds a recipient receives
June 2, 2017. 2016. Regulatory action is justified for annually from LSC. LSC believes it is
ADDRESSES: You may submit comments three reasons. First, the regulation is necessary to include ‘‘special purpose
by any of the following methods: outdated. LSC has not revised part 1629 grants’’ of LSC funds, such as
• Federal Rulemaking Portal: Follow since it was adopted in 1984, and LSC Technology Initiative Grants, Pro Bono
the instructions for submitting should update it to reflect current Innovation Fund grants, and emergency
comments. insurance practices. relief grants, in the definition of
• Email: lscrulemaking@lsc.gov. Second, the regulation was derived ‘‘annualized funding level’’ to ensure
Include ‘‘Part 1629 Rulemaking’’ in the from a source that does not provide the that the maximum amount of LSC funds
subject line of the message. optimal model for a federally funded are protected.
• Fax: (202) 337–6519. grant-making entity today. The original
• Mail: Stefanie K. Davis, Assistant Section 1629.3 Who must be bonded?
rule was based on fidelity bonding
General Counsel, Legal Services provisions found in the Employee LSC currently requires recipients to
Corporation, 3333 K Street NW., Retirement Income Security Act of 1974 bond ‘‘[e]very director, officer,
Washington, DC 20007, ATTN: Part (ERISA). See Section 412 of Public Law employee and agent of a program who
1629 Rulemaking. 93–406, and related regulations at 29 handles funds or property of the
• Hand Delivery/Courier: Stefanie K. CFR 2550.412–1 and 29 CFR part 2580. program . . . .’’ 45 CFR 1629.2(a)
Davis, Assistant General Counsel, Legal ERISA concerns minimum standards for (emphasis added). LSC considers the
Services Corporation, 3333 K Street retirement plans in private industry. term ‘‘handles’’ to include access to
NW., Washington, DC 20007, ATTN: LSC no longer believes that this is an funds or other recipient property or
Part 1629 Rulemaking. appropriate model for LSC to follow, ‘‘decision-making powers with respect
• Instructions: LSC prefers electronic to funds or property which can give rise
and that instead LSC should look to
submissions via email with attachments to [] risk of loss.’’ Id. Through a review
current regulations governing similar
in Acrobat PDF format. LSC will not of recipient insurance policies, LSC has
grant-making entities and to reflect
consider written comments sent to any found that most grantees have fidelity
current insurance practices.
other address or received after the end coverage for all their employees. This
of the comment period. Third, the current regulation is in common practice exceeds the current
FOR FURTHER INFORMATION CONTACT: some respects unclear or ambiguous. minimum requirements of part 1629.
Stefanie K. Davis, Assistant General LSC has received requests for guidance When employees who were not required
Counsel, Legal Services Corporation, on how to interpret certain provisions in to be bonded under part 1629 have
3333 K Street NW., Washington, DC part 1629, particularly those sections misappropriated LSC funds, grantees
20007; (202) 295–1563 (phone), (202) about the form and extent of coverage that exceeded the minimum part 1629
337–6519 (fax), or sdavis@lsc.gov. required by the rule. LSC does not coverage have typically been protected
believe that the language in part 1629 from loss. LSC believes this common
SUPPLEMENTARY INFORMATION:
provides sufficiently clear guidance to practice is desirable and proposes to
I. Regulatory Background LSC recipients or to LSC staff. LSC require that recipients carry coverage for
LSC created part 1629 in 1984 after proposes crafting an approach that is all employees, regardless of whether the
several instances in which recipients tailored to LSC’s needs and that employees ‘‘handle’’ program funds.
lost LSC funds through the dishonest simplifies the language in the rule to LSC currently requires grantees to
behavior of persons associated with the reduce confusion. bond ‘‘agents’’ who handle funds or
recipient. 49 FR 28717, July 16, 1984. On October 17, 2016, the Operations property of the program. 45 CFR
While the recipient recovered the funds and Regulations Committee (Committee) 1629.2(a). But LSC has found that most
in some cases, in others, the recipient of LSC’s Board of Directors (Board) recipients’ policies do not cover the
had to absorb the loss. Id. voted to recommend that the Board dishonest or fraudulent actions of agents
Before enacting part 1629, LSC authorize rulemaking on part 1629. On and independent contractors. In fact,
recommended that recipients have October 19, 2016, the Board authorized many policies explicitly exclude agents
fidelity coverage as a basic internal LSC to begin rulemaking. On April 23, and independent contractors from the
nlaroche on DSK30NT082PROD with PROPOSALS

control. See LSC Audit and Accounting 2017, the Committee voted to definition of ‘‘covered employee.’’ This
Guide for Recipients and Auditors, recommend that the Board approve exclusion is problematic, as LSC
revised June 1977, p. 3–3. LSC intended publication of this NPRM in the Federal recipients often turn to third parties to
part 1629 to ‘‘make mandatory [this] Register for notice and public comment. handle payroll functions. See Legal
important protection for the limited On April 24, 2017, the Board accepted Services Corporation Board of Directors,
funds available to serve eligible clients.’’ the Committee’s recommendation and Operations and Regulations Committee,
49 FR 23396, June 6, 1984. LSC voted to approve publication of this Transcript of Rulemaking Workshop,
originally proposed requiring programs NPRM with a 30-day comment period. Wednesday, May 18, 2016, pp. 82–84

VerDate Sep<11>2014 13:34 May 02, 2017 Jkt 241001 PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 E:\FR\FM\03MYP1.SGM 03MYP1
Federal Register / Vol. 82, No. 84 / Wednesday, May 3, 2017 / Proposed Rules 20557

(comments of Diana White). This means will make clear that the substance and raise the minimum coverage level to
that LSC funds are handled by persons amount of coverage is more important $100,000. LSC does not propose to
outside of the recipient’s control and than the form. change the minimum percentage for
insurance coverage. In areas where there coverage.
Section 1629.5 What losses must the
are few insurers to choose from, it may
bond cover? Section 1629.7 May LSC funds be used
be impossible for recipients to get
insurance that covers ‘‘agents’’ or Current § 1629.4 requires recipients to to cover bonding costs?
‘‘independent contractors.’’ have bonds that protect them against Part 1629 currently is silent as to
To address these issues and ‘‘all those risks of loss that might arise which costs associated with fidelity
adequately protect LSC funds from through dishonest or fraudulent acts in bond coverage—deductibles, premiums,
misappropriation by recipients and the handling of funds [.]’’ The strict rates, and single loss retention—are
third parties, LSC proposes three language—‘‘all those risks of loss’’— allowable using LSC funds. To improve
changes to the existing rule. First, LSC implies that recipients must be clarity on this point, LSC proposes to
proposes to require that recipients’ completely covered in the event of a allow recipients to use LSC funds to pay
bonds cover volunteers, in addition to loss, and that policies with deductibles for the costs of bonding under this part
directors, officers, employees, and would not be acceptable under current if they are (1) consistent with 45 CFR
agents of the recipient. Second, LSC part 1629. That is because if a recipient part 1630, (2) in accordance with sound
proposes to require that recipients has LSC funds stolen, and the policy business practice, and (3) reasonable.
ensure that third parties who provide requires the recipient to absorb a This proposed rule is based on the
payroll, billing, and collection services portion of that loss by paying a Uniform Guidance, which allows for
to the recipient have fidelity bond deductible, then the recipient’s policy such costs. See 2 CFR 200.427.
coverage or similar insurance. The did not cover against ‘‘all those risks of LSC considered limiting the amount
recipient may accomplish this either by loss.’’ Such strict language makes sense of deductibles that LSC would consider
extending its own insurance to the third under ERISA statutes and regulations, as reasonable in the proposed rule. During
party or by ensuring that the third party they are designed to protect retirees’ the process of drafting this proposed
has its own fidelity bond coverage pension funds. But such language may rule, LSC examined a sample of
sufficient to protect LSC funds in the prevent recipients from obtaining recipients’ current fidelity bonds and
third party’s hands. Finally, LSC policies that will protect LSC funds found that most of those recipients’
proposes to include language allowing adequately if policies without policies have deductibles ranging from
recipients to either cover subrecipients deductibles are prohibitively expensive. $1,000 to $5,000. LSC could not
through their own fidelity policies or LSC proposes to simplify the language determine, based on research of external
ensure that the subrecipients have about the types of losses that the bond sources, whether there are current best
policies adequate to protect subgranted must cover and to revise the rule to practices in the nonprofit insurance
funds. allow recipients to purchase policies world that would help LSC establish a
that require payment of deductibles. reasonable limit on deductibles. LSC
Section 1629.4 What forms of bonds LSC proposes revising the definition to
can recipients use? determined that it would need more
state simply that the ‘‘bond must data to set deductible limits and has
Current § 1629.5 allows recipients to provide recovery for loss caused by such therefore chosen to allow recipients the
choose different forms of bonds, such as acts as: Fraud, dishonesty, larceny, flexibility to consider the losses they are
individual, blanket, or schedule. 45 CFR theft, embezzlement, forgery, willing to absorb when deciding the
1629.5. Section 1629.5 currently does misappropriation, wrongful abstraction, appropriate deductibles.
not address whether recipients may wrongful conversion, willful
choose types of insurance other than a misapplication, or any other fraudulent List of Subjects in 45 CFR Part 1629
fidelity bond that achieve the same or dishonest act committed by an Fidelity bond, Grant programs—law,
purpose as a fidelity bond. Most LSC employee, officer, director, agent, or Insurance, Legal services, Surety bonds.
recipients now protect against employee volunteer.’’ ■ For the reasons set forth in the
dishonesty through riders to their
standard commercial crime policies. Section 1629.6 What is the required preamble, the Legal Services
Few grantees obtain separate fidelity minimum level of coverage? Corporation proposes to revise 45 CFR
bonds. Under the existing rule, recipients part 1629 as follows:
In 1999, LSC issued an external must maintain bond coverage equal to at PART 1629—BONDING
opinion permitting recipients to use least 10% of the recipient’s annualized REQUIREMENTS FOR RECIPIENTS
employee dishonesty insurance to LSC funding or of the initial grant if the
satisfy the bonding requirements of part program is a new grantee. 45 CFR Sec.
1629 if the recipient could show that the 1629.1(a). The minimum level of 1629.1 Purpose.
policy gives the same level of protection coverage may never be less than 1629.2 Definitions.
as a fidelity bond. See External Opinion $50,000. Id. LSC proposes to increase 1629.3 Who must be bonded?
1999–10–26, part 1629 Purchase of the minimum coverage level, which has 1629.4 What forms of bonds can recipients
use?
Employee Dishonesty Insurance in Lieu remained unchanged since 1984. Based 1629.5 What losses must the bond cover?
of a Fidelity Bond (October 26, 1999). on a sampling of current recipients’ 1629.6 What is the required minimum level
To reflect this long-standing LSC policy, policies, the majority of recipients of coverage?
nlaroche on DSK30NT082PROD with PROPOSALS

LSC proposes revising part 1629 to already exceed the $50,000 minimum 1629.7 Can LSC funds be used to cover
expressly allow recipients to substitute level of coverage. In fact, most policies bonding costs?
employee dishonesty policies or other provided coverage in excess of Authority: 42 U.S.C. 2996e(1)(A) and
methods of coverage for fidelity bonds. $100,000. Because the common practice 2996f(3).
This revision gives recipients greater among recipients already is to insure
flexibility to choose the most readily recipient funds above the minimum § 1629.1 Purpose.
available and cost-effective methods of amount required by current § 1629.1(a), This part is intended to protect LSC
insuring LSC funds. The revision also LSC believes it is reasonable for LSC to funds by requiring that recipients be

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20558 Federal Register / Vol. 82, No. 84 / Wednesday, May 3, 2017 / Proposed Rules

bonded or have similar insurance § 1629.5 What losses must the bond SUMMARY: Petitions for Reconsideration
coverage to indemnify recipients against cover? (Petitions) have been filed in the
losses resulting from fraudulent or The bond must provide recovery for Commission’s rulemaking proceeding
dishonest acts committed by one or loss caused by such acts as fraud, by Jennifer A. Manner, on behalf of
more employees, officers, directors, dishonesty, larceny, theft, HUGHES NETWORK SYSTEMS, LLC,
agents, volunteers, and third-party embezzlement, forgery, Bohdan R. Pankiw, on behalf of
contractors who handle LSC funds. misappropriation, wrongful abstraction, Pennsylvania Public Utility
wrongful conversion, willful Commission, and Arthur F. McNulty, on
§ 1629.2 Definitions. misapplication, or any other fraudulent behalf of Pennsylvania Department of
Annualized funding level means the or dishonest act committed by an Community and Economic
amount of: employee, officer, director, agent, or Development.
(1) Basic Field Grant funds (including volunteer.
Agricultural Worker and Native DATES: Oppositions to the Petitions
American) and § 1629.6 What is the required minimum
level of coverage? must be filed on or before May 18, 2017.
(2) Special grants of LSC funds, Replies to an opposition must be filed
including Technology Initiative (a) A recipient must carry fidelity
bond coverage or similar coverage at a on or before May 30, 2017.
Grants, Pro Bono Innovation Fund
grants, and emergency relief grants, minimum level of at least ten percent of ADDRESSES:Federal Communications
awarded by LSC to the recipient for its annualized funding level for the Commission, 445 12th Street SW.,
the fiscal year included in the previous fiscal year. Washington, DC 20554.
recipient’s annual audited financial (b) If a recipient is a new recipient,
the coverage must be at a minimum FOR FURTHER INFORMATION CONTACT:
statements. Alexander Minard, Telecommunications
level of at least ten percent of the initial
§ 1629.3 Who must be bonded? grant. Access Policy Division, Wireline
(a) A recipient must supply fidelity (c) Notwithstanding paragraphs (a) Competition Bureau, at (202) 418–7400
bond coverage for all employees, and (b) of this section, recipients must or email: Alexander.Minard@fcc.gov.
officers, directors, agents, and not carry coverage under this part at a SUPPLEMENTARY INFORMATION: This is a
volunteers. level less than $100,000. summary of the Commission’s
(b) If a recipient uses a third party for document, Report No. 3075, released
§ 1629.7 Can LSC funds be used to cover
payroll, billing, or collection services, bonding costs? April 25, 2017. The full text of the
the recipient must either supply Petitions is available for viewing and
coverage covering the third party or Costs of bonding required by this part
are allowable if expended consistent copying at the FCC Reference
ensure that the third party has a fidelity Information Center, 445 12th Street SW.,
bond or similar insurance coverage. with 45 CFR part 1630. Costs of bonding
such as rates, deductibles, single loss Room CY–A257, Washington, DC 20554.
(c) For recipients with subgrants:
(1) The recipient must extend its retention, and premiums, are allowable They also may be accessed online via
fidelity bond coverage to supply as an indirect cost if such bonding is in the Commission’s Electronic Comment
identical coverage to the subrecipient accordance with sound business Filing System at: http://apps.fcc.gov/
and the subrecipient’s directors, practice and is reasonable. ecfs/. The Commission will not send a
officers, employees, agents, and Dated: April 27, 2017. copy of this document pursuant to the
volunteers to the extent required to Stefanie K. Davis,
Congressional Review Act, 5 U.S.C.
comply with this Part; or 801(a)(1)(A), because this document
Assistant General Counsel.
(2) The subrecipient must supply does not have an impact on any rules of
[FR Doc. 2017–08857 Filed 5–2–17; 8:45 am]
proof of its own fidelity bond coverage particular applicability.
BILLING CODE 7050–01–P
that meets the requirements of this Part Subject: In the Matter of Connect
for the subrecipient’s directors, officers, America Fund, ETC Annual Reports and
employees, agents, and volunteers. Certifications, FCC 17–12, published at
FEDERAL COMMUNICATIONS
§ 1629.4 What forms of bonds can COMMISSION 82 FR 14466, March 21, 2017, in WC
recipients use? Docket Nos. 10–90, 14–58. This
(a) A recipient may use any form of 47 CFR Part 54 document is being published pursuant
bond, such as individual, name to 47 CFR 1.429(e). See also 47 CFR
[WC Docket Nos. 10–90, 14–58; Report No.
schedule, position schedule, blanket, or 3075]
1.4(b)(1) and 1.429(f), (g).
any combination of such forms of Number of Petitions Filed: 2.
bonds, as long as the type or Petitions for Reconsideration of Action
Federal Communications Commission.
combination of bonds secured in Rulemaking Proceeding
Marlene H. Dortch,
adequately protects LSC funds. AGENCY: Federal Communications
(b) A recipient may use similar forms Secretary.
Commission.
of insurance that essentially fulfill the [FR Doc. 2017–08858 Filed 5–2–17; 8:45 am]
ACTION: Petitions for reconsideration.
same purpose as a fidelity bond. BILLING CODE 6712–01–P
nlaroche on DSK30NT082PROD with PROPOSALS

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Document Created: 2018-11-08 08:36:31
Document Modified: 2018-11-08 08:36:31
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Proposed Rules
Action		Notice of proposed rulemaking.
Dates		Comments must be received by June 2, 2017.
Contact		Stefanie K. Davis, Assistant General Counsel, Legal Services Corporation, 3333 K Street NW., Washington, DC 20007; (202) 295-1563 (phone), (202) 337-6519 (fax), or [email protected]
FR Citation		82 FR 20555
CFR Associated		Fidelity Bond; Grant Programs-Law; Insurance; Legal Services and Surety Bonds