[Federal Register Volume 61, Number 63 (Monday, April 1, 1996)]
[Rules and Regulations]
[Pages 14261-14264]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7822]
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LEGAL SERVICES CORPORATION
45 CFR Part 1635
Timekeeping Requirement
AGENCY: Legal Services Corporation.
ACTION: Final rule.
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SUMMARY: This rule requires all recipients of Legal Services
Corporation (``LSC'' or ``Corporation'') funds to account for the time
spent on all cases, matters, and supporting activities by their
attorneys and paralegals, whether funded by the Corporation or by other
sources.
EFFECTIVE DATE: May 1, 1996.
FOR FURTHER INFORMATION CONTACT: Victor M. Fortuno, General Counsel,
Legal Services Corporation, 750 First Street NE., 11th Floor,
Washington, D.C. 20002-4250. (202) 336-8800.
SUPPLEMENTARY INFORMATION: On June 25, 1995, in order to improve the
accountability of recipients for their funds (both Corporation and all
other funds), and in response to concerns expressed by members of
Congress in proposed reauthorization legislation, proposed
appropriations legislation, and in congressional hearings, the LSC
Board of Directors (``Board'') adopted a resolution requiring
Corporation staff to prepare a regulation specifying a time and
recordkeeping system for implementation by LSC recipients. On September
8, 1995, the Board's Operations and Regulations Committee
(``Committee'') held public hearings on proposed 45 CFR part 1635.
After adopting several changes to the proposed rule, the Committee
voted to publish the proposed rule in the Federal Register for notice
and comment.
The proposed rule was published in the Federal Register on
September 21, 1995 (60 FR 48956). Six comments were submitted during
the allotted time and three arrived after the deadline, but all nine
were fully considered. The Committee met on December 17, 1995, to
consider the written and oral comments to the proposed rule. Based on
the comments, the Committee revised the proposed rule. On December 18,
1995, the Board voted to adopt the rule as recommended by the Committee
and directed publication of the rule in the Federal Register as a final
rule.
This rule requires recipients to account for the time spent on all
cases, matters, and supporting activities by their attorneys and
paralegals. These requirements apply whether the case, matter, or
supporting activity is funded by the Corporation or by other sources,
as provided in H.R. 2076, the appropriations bill which included funds
for LSC for fiscal year (``FY'') 1996. (H.R. 2076 was passed by
Congress but vetoed by the President; however, the Corporation
anticipates passage of legislation containing substantially similar
language in the near future.) Such timekeeping is not now required
under 45 CFR Part 1630, Costs Standards and Procedures.
Several comments objected to the proposed rule as time-consuming,
costly and burdensome. The Corporation is mindful of the costs which
this regulation will impose on its recipients. Nevertheless, despite
the possibility that implementation of this rule will reduce a
recipient's LSC-funded capacity for
[[Page 14262]]
client services, the Corporation has concluded that timekeeping by
attorneys and paralegals will materially improve recipients'
accountability for their funds. Stated simply, the potential benefits
of timekeeping to recipients outweigh the costs. These benefits include
improved supervisory information, better cost estimation in bidding for
other funds, enhanced control of priority implementation by local
boards of directors, and more informative reports to the Corporation,
other grantors, and the public. Congress has apparently reached a
similar conclusion, since a timekeeping requirement is included in
Sec. 504(10) of the House bill (H.R. 2076), Sec. 14(a)(10)(A) of the
Senate version, and Sec. 504(a)(10)(A) of the House-Senate Conference
version.
The remainder of this commentary provides a section-by-section
analysis of the rule, discusses the major issues raised by comments,
and notes the changes made in the regulation.
Section 1635.1 Purpose
The purpose of this rule is to ensure recipient accountability for
the use of funds. Although not included as a stated purpose, the
Corporation notes that, as some recipients that currently have
timekeeping systems in place have found, timekeeping may be a useful
management tool as well.
Section 1635.2 Definitions
This section now defines ``case,'' ``matter,'' and ``supporting
activity'' as the functions of a program for which time records are
required to be kept. Several comments criticized the definitions in the
proposed rule as vague, confusing or incomplete, and sought more
examples for guidance. The definitions have been substantially changed
to address these concerns.
Section 504(a)(10)(A) would have required that records of time be
maintained on ``each case or matter.'' One comment pointed out that the
proposed rule failed to indicate where to record time spent on
important elements of program services, such as training, intake, staff
development, the preparation of desk manuals, and continuing legal
education. This final rule assigns such actions to the term ``matter.''
As a result, the categories now closely parallel the terms used in new
accounting standards which every recipient of LSC funding is required
to follow. These new standards for the financial statements of not-for-
profit organizations such as legal services programs require that
annual financial statements report expenses by their functional
classifications, divided into two major classes of expenses for
``program services'' and ``supporting activities.'' Financial
Accounting Standards Board, Statement of Financial Accounting Standards
No. 117, para. 26 (June 1993) [hereafter referred to as ``SFAS 117''].
``Program services'' are defined as actions ``that result in goods and
services being distributed to beneficiaries, customers, or members that
fulfill the purposes or mission for which the organization exists.''
SFAS 117 at para. 27. ``Supporting activities'' are defined as ``all
activities of a not-for-profit organization other than program
services. Generally, they include management and general, fundraising,
and membership-development activities.'' SFAS 117 at para. 28. The
revised definitions in the regulation adopt the accounting separation
of ``program services'' from ``supporting activities.''
Within the program services category, separate definitions are
provided for a ``case'' and a ``matter.'' The definition of ``matter''
includes both direct program services such as community legal education
and also the types of actions which must be performed in order to
provide direct program services in an effective and efficient manner.
Time spent in training, the preparation of desk manuals, and similar
undertakings is necessary and reasonable to accomplish a recipient's
program service priorities, but it is often not directly allocable to a
particular case or matter. Instead, the costs incurred in such uses of
time are gathered together in an indirect cost pool and then allocated
among the relevant program services and fund sources pursuant to 45 CFR
part 1630 and generally accepted accounting principles. The Corporation
has attempted to clearly delineate the actions which will fall into
each category; however, if in unresolvable doubt as to the category in
which a particular action belongs, the recipient should classify that
action as a ``matter.''
Actions that are administrative in nature would be included in the
supporting activities category. Actions such as board meetings, staff
breaks, general staff meetings, researching and implementing
timekeeping systems, and staff evaluations would be included in the
supporting activities subcategory of ``management and general.''
Section 1635.3 Timekeeping Requirement
This section sets out the timekeeping requirement. The rule sets
out the minimum requirements for a timekeeping system and is not
intended to prevent recipients from implementing a system designed to
collect additional information the recipient will find useful for
program purposes.
The timekeeping rule is intended to require all recipients to
account for the time spent by their attorneys and paralegals on all
cases, matters, and supporting activities, whether the time is funded
by the Corporation or by other sources. Such timekeeping records must
be created contemporaneously. This means that, in most cases, records
should be created no later than the end of the day. The records also
must account for time in increments not greater than one-quarter of an
hour, comprising all of the efforts of the attorneys and paralegals for
which compensation is paid. In response to a question raised in the
comments, it is noted that, although the rule contains a not less than
one-quarter hour requirement, true blocks of time may be accumulated
(for example, where 30 minutes is spent on one activity, the time
record may reflect the 30-minute increment). Because the Corporation
believes time records will be more useful to the Corporation and to the
recipient if certain data are included, the content of the time records
has been specified in more detail to ensure that each case has a
specific and unique client name or case number, and that time spent by
lawyers and paralegals on matters or supporting activities is
identified separately from time spent on cases.
In addition, to avoid misunderstanding, the rule now explicitly
requires that, for time spent after a time record system is
implemented, the system must be able to aggregate, on request, time
data in the legal problem categories that the Corporation uses for its
Case Service Reports. This will ensure that recipients will be able to
demonstrate their time by type of case and will assist them in
estimating future resource commitments. Recipients will be able to meet
this requirement, for example, by entering the legal problem category
on each time record for a case or by aggregating the data of all cases
of the same type through coding of each client name or case number.
Because the rule as proposed contained only an effective date and
did not address the question of precisely when a timekeeping system
must be implemented, the rule has been modified to add a specific time
period by which a timekeeping system must be put in place. Recipients
must implement a system in accordance with the rule no later than 30
days after the rule's effective date, or within 30 days
[[Page 14263]]
of the effective date of a grant or contract, whichever is later.
The timekeeping requirement, with its reference to 45 CFR part
1630, was read by some commentators as creating a new requirement that
all cost allocations for part 1630 purposes be calculated directly from
time records kept pursuant to this rule. This is not correct. Part 1630
requires that costs be allocated to cost objectives (such as grants,
projects, services or other actions) in accordance with the benefits
received by those cost objectives. Time records may well provide the
basis for allocating costs among cost objectives. Under both part 1630
and generally accepted accounting principles, however, in appropriate
situations other bases remain acceptable as well, such as number of
cases, number of employees, or total direct costs. A more extended
discussion of allocation bases can be found in the Supplementary
Information for part 1630 as a final rule, published on August 13, 1986
(51 FR 29078-29079).
Some confusion also arose from the statement in the Supplementary
Information to the proposed rule that recipients must account for 100
percent of attorney and paralegal time spent in the course of their
employment, even if the time is spent outside normal business hours.
The statement that recipients must account for 100 percent of attorney
and paralegal time is not intended to suggest that the number of hours
attorneys and paralegals work should exceed the number of hours in a
normal business day or week. It is assumed that attorneys and
paralegals work the number of hours necessary to perform their job
duties competently and professionally. Pursuant to the rule, time
records are designed to document all (100 percent) the efforts of
attorneys and paralegals for which they are compensated by a recipient,
regardless of whether such compensated work is performed before,
during, or after a recipient's normal business hours. Moreover, since
the purpose of the rule is to ensure accountability for the use of
recipients' funds, it is not intended to require attorneys and
paralegals to account for any time period for which they are not being
compensated by a recipient for work performed on behalf of the
recipient.
Section 1635.4 Administrative Provisions
The proposed rule included language advising recipients that the
records should be maintained in a manner consistent with the attorney-
client privilege and all applicable rules of professional
responsibility. Since all actions of recipients must be consistent with
the attorney-client privilege and rules of professional responsibility,
upon reflection, the Corporation has determined that inclusion of
specific language in the rule is not necessary. In implementing the
timekeeping requirement, recipients should remain aware of the access
provision and mindful of ethical precepts governing client
confidentiality.
The House-Senate Conference version of H.R. 2076 directed that time
records be accessible to the Corporation (Sec. 509(d)) and to any
Federal department or agency auditing or monitoring the activities of
the Corporation or of a recipient and any independent auditors or
monitors receiving Federal funds to conduct such auditing or monitoring
(Sec. 504(a)(10)(C)). The Conference version also directed that the
Corporation not disclose time records it obtains except to a law
enforcement official or to a bar association official conducting a
disciplinary investigation (Sec. 509(e)). One comment suggested that
the regulation should contain very similar provisions. Because the
final statutory definition of those who will be entitled to access to
time records either directly from the recipient or from the Corporation
is still uncertain, the regulation simply provides notice that there
are organizations and individuals who may have such access under
statutes. On the other hand, with regard to release of such time
records as the Corporation may obtain, the Board decided that it would
adopt the terms of the Conference version of H.R. 2076 and included
them in the final rule without waiting for enactment of the final
appropriations law.
List of Subjects in 45 CFR Part 1635
Legal services, Reporting and recordkeeping requirements.
For reasons set forth in the preamble, LSC amends 45 CFR chapter
XVI by adding part 1635 as follows:
PART 1635--TIMEKEEPING REQUIREMENT
Sec.
1635.1 Purpose.
1635.2 Definitions.
1635.3 Timekeeping Requirement.
1635.4 Administrative Provisions.
Authority: 42 U.S.C. Secs. 2996e(b)(1)(A), 2996g(a), 2996g(b),
2996g(e).
Sec. 1635.1 Purpose.
This Part is intended to improve accountability for the use of all
funds of a recipient by:
(a) Assuring that allocations of expenditures of Corporation funds
pursuant to 45 CFR part 1630 are supported by accurate and
contemporaneous records of the cases, matters, and supporting
activities for which the funds have been expended;
(b) Enhancing the ability of the recipient to determine the cost of
specific functions; and
(c) Increasing the information available to the Corporation for
assuring recipient compliance with Federal law and Corporation rules
and regulations.
Sec. 1635.2 Definitions.
As used in this part--
(a) A ``case'' is a form of program service in which an attorney or
paralegal of a recipient provides legal services to one or more
specific clients, including, without limitation, providing
representation in litigation, administrative proceedings, and
negotiations, and such actions as advice, providing brief services and
transactional assistance, and assistance with individual PAI cases.
(b) A ``matter'' is an action which contributes to the overall
delivery of program services but does not involve direct legal advice
to or legal representation of one or more specific clients. Examples of
matters include both direct services, such as community education
presentations, operating pro se clinics, providing information about
the availability of legal assistance, and developing written materials
explaining legal rights and responsibilities; and indirect services,
such as training, continuing legal education, general supervision of
program services, preparing and disseminating desk manuals, PAI
recruitment, intake when no case is undertaken, and tracking
substantive law developments.
(c) A ``supporting activity'' is any action that is not a case or
matter, including management and general, and fundraising.
Sec. 1635.3 Timekeeping Requirement.
(a) All expenditures of funds for recipient actions are, by
definition, for cases, matters, or supporting activities. The
allocation of all expenditures must be carried out in accordance with
45 CFR part 1630.
(b) Time spent by attorneys and paralegals must be documented by
time records which record the amount of time spent on each case,
matter, or supporting activity.
(1) Time records must be created contemporaneously and account for
time in increments not greater than one-quarter of an hour which
comprise all of the efforts of the attorneys and paralegals for which
compensation is paid.
[[Page 14264]]
(2) Each record of time spent must contain: for a case, a unique
client name or case number; for matters or supporting activities, an
identification of the category of action on which the time was spent.
(c) The timekeeping system must be implemented within 30 days of
the effective date of this regulation or within 30 days of the
effective date of a grant or contract, whichever is later.
(d) The timekeeping system must be able to aggregate time record
information from the time of implementation on both closed and pending
cases by legal problem type.
Sec. 1635.4 Administrative Provisions.
Time records required by this section shall be available for
examination by auditors and representatives of the Corporation, and by
any other person or entity statutorily entitled to access to such
records. The Corporation shall not disclose any time record except to a
Federal, State or local law enforcement official or to an official of
an appropriate bar association for the purpose of enabling such bar
association official to conduct an investigation of an alleged
violation of the rules of professional conduct.
Dated: March 26, 1996.
Victor M. Fortuno,
General Counsel.
[FR Doc. 96-7822 Filed 3-29-96; 8:45 am]
BILLING CODE 7050-01-P
