(1) The department may determine a grant recipient does not comply with these rules if the grant recipient:

(a) is not in compliance with any of the requirements of Title 10, chapter 4, MCA;

(b) uses or distributes funds for any purpose other than those identified in the grant agreement and 10-4-306, MCA; or

(c) has not timely provided information requested by the department.

(2) If the department determines a grant recipient does not comply with these rules, the department shall send the entity a deficiency letter identifying the rule or requirement that is not met and the action needed to correct the deficiency. The entity has 60 days from the date of the deficiency letter to correct all deficiencies and demonstrate compliance.

(3) A grant recipient that has received a deficiency letter may request an additional 30 days to correct deficiencies and demonstrate compliance with the rules. The request must be filed within 30 days of the date of the deficiency letter referenced in (2).

(4) If a grant recipient disputes a department determination, the entity may ask the department to provide formal notice of agency action and an opportunity for hearing.

(5) Except as provided in (3) or (4), if an entity has not corrected all deficiencies and demonstrated compliance with these rules within 60 days of the deficiency letter, the department shall provide the entity notice and an opportunity for hearing under Title 2, chapter 4, part 6, MCA.

(6) The department may appoint a hearing examiner to conduct hearings under 2-4-611, MCA.

(7) The final determination in a contested case regarding a grant recipient's compliance with these rules is made by the department director.

(8) When the department makes a final determination that a grant recipient does not comply with these rules, the department may either:

(a) reduce or suspend payment to the grant recipient;

(b) require repayment of funds expended on activities determined not to meet the eligibility requirements; or

(c) both.