(a)Basis for withholding. The Secretary may withhold or limit payments under section 111 or 622(a) of the Act, as provided by section 107(c) and (d) of the Act, if the Secretary determines that—
(1) The State plan, including the supported employment supplement, has been so changed that it no longer conforms with the requirements of this part or 34 CFR part 363; or
(2) In the administration of the State plan, there has been a failure to comply substantially with any provision of that plan or a program improvement plan established in accordance with section 106(b)(2) of the Act.
(b)Informal resolution. Prior to withholding or limiting payments in accordance with this section, the Secretary attempts to resolve disputed issues informally with State officials.
(c)Notice. If, after reasonable effort has been made to resolve the dispute, no resolution has been reached, the Secretary provides notice to the State agency of the intention to withhold or limit payments and of the opportunity for a hearing.
(d)Withholding hearing. If the State agency requests a hearing, the Secretary designates one or more individuals, either from the Department or elsewhere, not responsible for or connected with the administration of this Program, to conduct a hearing in accordance with the provisions of 34 CFR part 81, subpart A.
(e)Initial decision. The hearing officer issues an initial decision in accordance with 34 CFR 81.41.
(f)Petition for review of an initial decision. The State agency may seek the Secretary's review of the initial decision in accordance with 34 CFR 81.42.
(g)Review by the Secretary. The Secretary reviews the initial decision in accordance with 34 CFR 81.43.
(h)Final decision of the Department. The final decision of the Department is made in accordance with 34 CFR 81.44.
(i)Judicial review. A State may appeal the Secretary's decision to withhold or limit payments by filing a petition for review with the U.S. Court of Appeals for the circuit in which the State is located, in accordance with section 107(d) of the Act.