[Federal Register Volume 65, Number 249 (Wednesday, December 27, 2000)]
[Rules and Regulations]
[Pages 82178-82216]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-32702]
[[Page 82177]]
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Part V
Department of Health and Human Services
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Administration for Children and Families
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45 CFR Parts 302, 304, and 305
Child Support Enforcement Program; Final Rule
Federal Register / Vol. 65, No. 249 / Wednesday, December 27, 2000 /
Rules and Regulations
[[Page 82178]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Administration for Children and Families
45 CFR Parts 302, 304 and 305
RIN 0970-AB85
Child Support Enforcement Program; Incentive Payments, Audit
Penalties
AGENCY: Office of Child Support Enforcement (OCSE), HHS.
ACTION: Final rule.
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SUMMARY: This final rule implements the statutory requirement of the
Social Security Act that requires the Secretary of Health and Human
Services to establish the new performance-based incentive system. It
also implements a performance-based penalty system and establishes
standards for certain types of audits. Finally, this rule includes a
requirement that States establish an administrative review process. The
incentive system will be used to reward States for their performance in
running a Child Support Enforcement (IV-D) Program. The penalty system
will be used to penalize States that fail to perform at acceptable
levels or fail to submit complete and reliable data.
EFFECTIVE DATE: The final rule is effective: December 27, 2000. Section
304.12 is effective through September 30, 2001.
FOR FURTHER INFORMATION CONTACT: Joyce Pitts, OCSE Division of Policy
and Planning, (202) 401-5374. Hearing impaired individuals may call the
Federal Dual Party Relay Service at 800-877-8339 between 8:00 a.m. and
7:00 p.m. eastern time.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Authority
These regulations implement sections 409(a)(8), 452(a)(4) and (g),
and 458A of the Social Security Act (Act), as added by the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996, Pub. L.
104-193, (PRWORA), by the Child Support Performance and Incentive Act
of 1998, Pub. L. 105-200, and as amended by the Balanced Budget Act of
1997, Pub. L. 105-33 and the Consolidated Appropriations Act of FY
2000, Pub. L. 106-113.
These regulations are also issued under the authority granted to
the Secretary of Health and Human Services (the Secretary) by section
1102 of the Act, 42 U.S.C. 1302. Section 1102 of the Act authorizes the
Secretary to publish regulations that may be necessary for the
efficient administration of the functions for which the Secretary is
responsible under the Act.
II. Background
A. The National Strategic Plan
The Government Performance and Results Act of 1993 required Federal
programs to set goals and measure results by establishing strategic
plans. OCSE and State partners developed a National Child Support
Enforcement Strategic Plan by consensus with a vision, mission, goals
and objectives. The plan includes three major goals for the child
support program--that all children have paternity established, all
children in the program have financial and medical support orders
established, and all children in the program receive financial and
medical support from both parents.
After development of the National Child Support Enforcement
Strategic Plan, States and OCSE worked together to develop specific
performance indicators that could be used to measure the program's
success in achieving the goals and objectives. It was this Strategic
Plan and its performance measures that the States and OCSE used to
recommend a performance-based incentive funding system to reward States
for results. The Plan's array of performance measures was reviewed and
the key indicators for the major activities of the child support
enforcement program were selected. The Strategic Plan measures and the
incentive measures for paternity establishment, support order
establishment, collections on current support and cost-effectiveness
are the same. The only deviation from the plan was the measure for
collections on past-due support. State and Federal partners rejected
the Strategic Plan measure that would provide an arrearage collection
rate because there is a wide variation in how States' laws affect
arrearages. State and Federal partners concluded that the only workable
measure that would level the playing field among States in this
important area was one based on the number of cases that were paying on
arrears.
After the incentive funding proposals were developed, State and
Federal partners further collaborated to recommend a system of
performance penalties for States. They returned to the Strategic Plan
and the recommended incentive funding system that was being considered
for legislation. The partners focused on those key measures of the
program's performance which had been recommended for incentives and
chose a subset of the incentive measures for application of financial
penalties. These were the incentive measures which were given a greater
weight in the computation of the incentive formula--paternity
establishment, order establishment and the collection of current
support.
The Strategic Plan was also the basis for shaping a revision of the
child support data reporting and collection systems and the role of the
Federal audit process. This implements key structures that have been
shaped and guided by the Strategic Plan and these structures will, in
turn, help achieve outcomes that fulfill the goals and objectives of
the Plan itself.
B. Issues and Activities Leading to the New Incentive Provisions
Under section 458 of title IV-D of the Act, States are paid a
minimum of six percent of their collections in TANF cases and six
percent of their non-TANF collections as an incentive. Under this
system, there is also the potential to earn up to 10 percent of
collections based on the State's cost-effectiveness in running a child
support program. However, the amount of non-TANF incentives is capped
at 115 percent of the TANF incentive earned.
This incentive system has been questioned for focusing on only one
aspect of the IV-D program--Cost-effectiveness. In addition, since all
States receive the minimum incentive amount of six percent of
collections regardless of performance, this system was not regarded as
having a real incentive effect.
The Personal Responsibility and Work Opportunity Reconciliation Act
of 1996 (PRWORA) required the Secretary, in consultation with State IV-
D Program Directors, to recommend to Congress a new incentive funding
system for State IV-D programs based on program performance. The
Incentive Funding Workgroup recommended a new incentive funding system
based on the foundation of the National Strategic Plan.
The Secretary fully endorsed the incentive formula recommendations
and made recommendations to the Committee on Ways and Means of the
House of Representatives and the Committee on Finance of the Senate.
Most of the recommendations were included in Pub. L. 105-200, the Child
Support Performance and Incentive Act of 1998. This rule implements
that legislation. The legislative language is very explicit. Therefore,
we are for the most part adopting the statutory language in this rule.
[[Page 82179]]
C. Audit and Penalties
Prior to enactment of PRWORA, the Federal statute at former section
452(a)(4) of the Act required periodic, comprehensive Federal audits of
State IV-D programs to ensure substantial compliance with all Federal
IV-D requirements. If the audit found that the State program was not in
substantial compliance and if the deficiencies identified in an audit
were not corrected, States faced a mandatory fiscal penalty of between
1 and 5 percent of the Federal share of the State's title IV-A program
funding under section 403(h) of the Act. Once an audit determined
compliance with identified deficiencies, the penalty was lifted or
ceased.
Such a detailed, process-oriented audit was time-consuming and
labor-intensive for both Federal auditors and the States. In addition,
audit findings did not measure current State performance or current
program requirements because of delays and the time it took to conduct
audits. States contended that the audits focused too much on
administrative procedures and processes rather than performance outcome
and results.
Section 452(a)(4) of the Act, as amended by PRWORA, changed the
Federal audit process to focus on measuring performance and program
results, instead of process. Subsequently, as part of technical
amendments to PRWORA, the penalty provision under section 409(a)(8) of
the Act was modified to conform to the new audit approach under the IV-
D program. The new approach to measuring program results changes the
Federal audit focus to determining the reliability of program data used
to measure performance and requires States to conduct self-reviews,
similar to the former Federal process audits, to assess whether or not
all required IV-D services are being provided. In addition, Federal
auditors will conduct periodic financial and other audits, as
necessary.
The penalty system in this rule replaces the previous penalty under
former section 403(h) of the Act that focused on substantial compliance
with prescriptive Federal IV-D requirements. However, section
452(a)(4)(C)(iii) provides for audits for such other purposes as the
Secretary may find necessary and section 409(a)(8) provides for a
penalty ``on the basis of the results of an audit. * * *''
The assessment of data reliability by Federal auditors is a
critical aspect of assuring that both incentives and penalties are
based on accurate and reliable State-reported data. State-reported
statistical and financial data taken from reporting forms, the OCSE-
157, the OCSE-34A, and the OCSE-396A, will be audited for completeness
and reliability and will be used in determining State performance
levels. State-reported data that is determined to be incomplete or
unreliable may cause reductions in the State's funding under the IV-A
(Temporary Assistance for Needy Families) program and will result in
loss of Federal incentive payments under the IV-D program.
While the specifics of performance measures for penalty purposes,
with the exception of the Paternity Establishment Percentage (PEP)
under section 452(g) of the Act, are left to the discretion of the
Secretary, the approach to assessing penalties in this regulation takes
into consideration the results of work done by State and Federal
partners during the development of the National Strategic Plan and the
proposal for incentive measures, as well as consultations with a wide
variety of other interested parties.
III. Description of Regulatory Provisions--Incentives and
Administrative Review
This final rule does not have many changes from the notice of
proposed rule making published in the Federal Register on October 8,
1999 (64 FR 55073). However, we considered each comment and made some
changes. The administrative complaint procedure was revised and
clarified; a standard was added to the definition of data reliability;
a deadline was established for having final incentive data to OCSE; and
the incentive and reinvestment base-year calculation examples were
removed.
Parts 302, 303 and 304--State Plan Requirements, Standards for
Program Operations, and Federal Financial Participation
The cross-references to existing regulations mentioned in this
Description of Regulatory Provisions are as amended by the Interim
Final Conforming Rule (64 FR 6237) published in the Federal Register
February 9, 1999.
Sections302.55 and 304.12--Regulations for Existing Incentives Process.
Currently, under section 454(22) of the Act and 45 CFR 302.55, the
only restriction on the use of incentive funds awarded to the State is
that States must share incentives earned with any political subdivision
that shares in funding the administrative cost of the program. The
requirement to share funds with political subdivisions is not being
changed. Therefore, we are adding reference to the new part 305 in
Sec. 302.55 by adding the words ``and part 305'' after ``Sec. 304.12''.
Current 45 CFR 304.12(b)(1), as revised on February 9, 1999 at 64
FR 6237, based on section 458 of the Act, computes incentive payments
for States for a fiscal year as a percentage of the State's TANF
collections, and a percentage of its non-TANF collections. The
percentages are determined separately for TANF and non-TANF portions of
the incentive. The percentages are based on the ratio of the State's
TANF collections to the State's total administrative costs and the
State's non-TANF collections to the State's total administrative costs.
This is known as a State's cost-effectiveness ratio. The portion of the
incentive payment paid to a State in recognition of its non-TANF
collections is limited to 115 percent of the portion of the incentive
payment paid in recognition of its TANF collections.
HHS estimates the total incentive payment that each State will
receive for the upcoming fiscal year. Each State includes one-quarter
of the estimated total payment in its quarterly collection report that
will reduce the amount that would otherwise be paid to the Federal
government. Following the end of the fiscal year, HHS calculates the
actual incentive payment the State should have received. If adjustments
to the estimated amount are necessary, an additional positive or
negative title IV-D grant award is issued.
Under section 201(f) of the Child Support Performance and Incentive
Act of 1998, effective October 1, 2001, current section 458 of the Act
will be repealed and section 458A of the Act, will be redesignated as
section 458. To implement this statutory provision, we added a new
paragraph (d) to Sec. 304.12 under which Sec. 304.12 in its entirety
becomes obsolete on October 1, 2001.
A new paragraph (e) is also added to reflect the phase-in of the
new incentive system as prescribed under section 201(b) of the Child
Support Performance and Incentive Act. In fiscal year 2000, the amount
of incentives paid under Sec. 304.12 will be reduced by one-third. In
fiscal year 2001, the amount of incentives paid under Sec. 304.12 will
be reduced by two-thirds.
Section 303.35--Administrative complaint procedure
We have shifted to using an outcome-oriented approach to child
support enforcement program accountability and responsibility. This
approach, much of which was adopted under PRWORA,
[[Page 82180]]
seeks to balance the Federal government's oversight responsibility with
States' responsibilities for child support service delivery and fiscal
accountability. One element of the approach, adopted partially in
PRWORA and being implemented by these final regulations, is the focus
on results-oriented performance measures for incentives and penalties
purposes. A second aspect of the approach replaces statutory and
regulatory Federal audit requirements with States' responsibility for
ensuring that their programs meet IV-D requirements. The requirement
for periodic State self-reviews, intended for management purposes to
identify and resolve deficiencies in case processing, was also adopted
under PRWORA as a State plan requirement at section 454(15)(A) of the
Act. Procedures for State self-reviews are being implemented under a
separate rulemaking.
Although Federal funding of administrative review processes has
long been considered an allowable expenditure under the IV-D program,
we believe it to be a key element to any IV-D program. In the era of
our focus on program results, we believe it appropriate to ensure that
these administrative complaint processes are available to recipients of
IV-D services. Using the authority under section 1102 of the Act to
publish regulations that the Secretary deems necessary for the
efficient administration of the IV-D program, we have added a section
to part 303 requiring States to provide for an administrative review.
Under Sec. 303.35, entitled Administrative Complaint Procedure,
each State must have a procedure in place to allow individuals
receiving IV-D services the opportunity to request a review of their
cases when there is evidence that an action should have been taken on
their cases. In addition, the State must have procedures in place,
notify individuals of the procedures, and make them available to
recipients of IV-D services to use when requesting a review, and use
them for notifying recipients of the results of the review and any
actions taken.
This final rule revises Sec. 303.35 as it appeared in the notice of
proposed rulemaking published in the Federal Register on October 8,
1999 (64 FR 55073). These changes were made to balance our concern for
efficient IV-D service provision with our commitment to allowing States
discretion and flexibility in program design. We believe that
recipients of IV-D services, through administrative complaint
procedures, should be able to lodge complaints when they have evidence
to support specific concerns in their cases. However, we have revised
the regulatory language to address concerns that the proposed language
was overly broad and open to multiple interpretations. In addition, we
have included language to require States to notify individuals of the
availability of administrative complaint procedures.
Part 305--Program Performance Measures, Standards, Financial
Incentives, and Penalties
We added a new part 305 to implement the new incentive system under
section 458A of the Act and certain audit and penalty provisions found
in sections 409(a)(8), 452(a)(4)(C) and 452(g) of the Act. Former part
305 was revoked on February 9, 1999 at 64 FR 6237.
Section 305.0 Scope.
Section 305.0, Scope, explains what part 305 covers, including the
statutory basis for the incentive and penalty systems and a general
description of the contents of part 305. Section 305.1 contains
definitions and Sec. 305.2 contains performance measures. Sections
305.31 through Sec. 305.36 of part 305 describe the incentive system.
Sections 305.40 through Sec. 305.42 and Secs. 305.60 through
Sec. 305.66 describe the grounds for penalties under section 409(a)(8)
of the Act, the procedures for imposing penalties, the types of audits,
and set forth the standards for substantial compliance audits and
certain audit procedures.
Section 305.1 Definitions.
Under Sec. 305.1, Definitions, the definitions found in Sec. 301.1
of program regulations also apply to part 305. In addition, for
purposes of part 305, Sec. 305.1 defines the following terms:
Under paragraph (a), the term IV-D case means a parent (mother,
father, or putative father) who is now or eventually may be obligated
under law for the support of a child or children receiving services
under the title IV-D program. A parent is a separate IV-D case for each
family with a dependent child or children that the parent may be
obligated to support. If both parents are absent and liable or
potentially liable for support of a child or children receiving
services under the IV-D program, each parent is considered a separate
IV-D case. In counting cases for the purposes of this part, States may
exclude cases closed under Sec. 303.11 and cases over which the State
has no jurisdiction. Lack of jurisdiction cases are those in which a
non-custodial parent resides in the civil jurisdictional boundaries of
another country or Federally recognized Indian Tribe and no income or
assets of this individual are located or derived from outside that
jurisdiction, and the State has no other means through which to enforce
the order.
The definition of a IV-D case in Sec. 305.1 implements the
requirement in section 458A(e) that the Secretary include in
regulations directions for excluding from the incentive calculations
certain closed cases and cases over which the States do not have
jurisdiction.
The definition itself is used in required Federal report forms and
defines which cases may be excluded for purposes of calculating
incentives, namely, IV-D cases meeting the conditions for case closure
under Sec. 303.11 and cases over which the State has no jurisdiction.
This definition assures that workable cases are counted while those
cases in which there is no possible action by the IV-D agency will be
discounted. It is essential that we use consistent definitions for all
data and therefore, the definitions in Sec. 305.1 apply equally for
incentives and penalties purposes.
Under paragraph (b), the term Current Assistance collections means
collections received and distributed on behalf of individuals whose
rights to support are required to be assigned to the State under title
IV-A (TANF or Aid to Families with Dependent Children, AFDC), IV-E
(Foster Care), or XIX (Medicaid) of the Act. In addition, a referral to
the State's IV-D agency must have been made. Current Assistance
collections do not include collections received and distributed under
the Tribal TANF program because the statute includes only those
collections where there is an assignment to the State. Tribal TANF
recipients are not required by statute to assign their support rights.
Thus, it is inappropriate to include collections relative to Tribal
TANF programs in this definition.
Under paragraph (c), the term Former Assistance collections means
collections received and distributed on behalf of individuals whose
rights to support were formerly required to be assigned to the State
under either title IV-A, title IV-E, or title XIX of the Act.
Under paragraph (d), the term Never Assistance/Other collections
means all other collections received and distributed on behalf of
individuals who are receiving child support enforcement services under
title IV-D of the Act.
The definitions of various categories of collections above reflect
categories of collections described in section 458A(b)(5)(C) of the Act
and used to calculate the State's collections base used for computing
incentives. Current
[[Page 82181]]
Assistance and Former Assistance collections are multiplied by 2 and
added to Never Assistance/Other collections to determine the State's
collections base.
Under paragraph (e), the term total IV-D dollars expended means
total IV-D administrative expenditures claimed by a State in a
specified fiscal year adjusted in accordance with Sec. 305.32. Section
305.32, addressed later, includes specific expenditures that are
excluded when calculating a State's total IV-D administrative
expenditures for calculation of the cost-effectiveness performance
measure.
The term Consumer Price Index or CPI in paragraph (f) is taken from
the definition in section 458A(b)(2)(B) of the Act, and means the last
Consumer Price Index for all-urban consumers published by the
Department of Labor. The CPI for a fiscal year is the average of the
Consumer Price Index for the 12-month period ending on September 30 of
the fiscal year.
Under paragraph (g), the term State incentive payment share for a
fiscal year means the incentive base amount for the State for the
fiscal year divided by the sum of the incentive base amounts for all of
the States for the fiscal year. This definition is found in section
458A(b)(3) of the Act.
Under paragraph (h), the term State incentive base amount for a
fiscal year means the sum of the State's performance level percentages
(determined in accordance with Sec. 305.33) multiplied by the State's
corresponding maximum incentive base amount for each of the following
measures: (1) The paternity establishment performance level; (2) the
support order performance level; (3) the current collections
performance level; (4) the arrears collection performance level; and
(5) the cost-effectiveness performance level. This definition is found
in section 458A(b)(4) of the Act.
Under paragraph (i), the term reliable data means the most recent
data available which are found by the Secretary to be reliable for
purposes of computing the paternity establishment percentage. This
definition is based on section 452(g)(2)(C) of the Act and includes
further elaboration of the circumstances under which the Secretary will
consider data to be reliable. In the final rule, we have added that
data for computing each of the measures must be found to be
sufficiently complete and error free to be convincing for their purpose
and context. For purposes of incentives and penalties, data must meet a
95 percent standard of reliability beginning in fiscal year 2001. The
95 percent rate was selected based on generally accepted accounting
principles used by the auditing community and our experience from data
reliability audits conducted to date on State systems. This standard is
consistent with the recognition that ``data may contain errors as long
as they are not of a magnitude that would cause a reasonable person,
aware of the errors, to doubt a finding or conclusion made based on the
data.'' Part of this definition is lifted verbatim from Chapter 1,
Introduction of the U.S. General Accounting Office, Office of Policy
Booklet (Standards) entitled, Assessing the Reliability of Computer-
Processed Data, dated September 1990. The official designation of this
booklet is GAO/OP-8.1.3. The Government Auditing Standards--generally
referred to as the ``Yellow Book''--provide the standards and
requirements for financial and performance audits. A key standard
covers the steps to be taken when relying on computer-based evidence.
This booklet from the GAO, Office of Policy is intended to help
auditors meet the Yellow Book standard for ensuring that computer-based
data are reliable.
Under paragraph (j), the term complete means all reporting elements
from OCSE reporting forms that are necessary to compute a State's
performance levels, incentive base amount, and maximum incentive base
amount have been provided within the timeframes established in
instructions to these reporting forms and Sec. 305.32(f).
We believe the definitions in (i) and (j) are appropriate for
purposes of Part 305 since State IV-D programs are required to have
comprehensive statewide automated systems in place by October 1, 2000
which, under section 454A(c) of the Act, must enable the Secretary to
determine the incentive payments and penalty adjustments required by
sections 452(g) and 458 of the Act. In addition, under section
454(15)(A), States must have a process of extracting from the automated
data processing system and transmitting to the Secretary, data and
calculations concerning the levels of accomplishment and rates of
improvement with respect to the applicable performance indicators for
purposes of sections 452(g) and 458 of the Act. Finally, Federal
auditors are required under section 452(a)(4)(C)(i) of the Act to
conduct audits to assess the completeness, reliability, and security of
the data, and the accuracy of the reporting systems used in calculating
performance indicators. These provisions, taken together, require a
clear, accepted and supportable definition of reliable data.
Section 305.2 Performance measures
This section describes the performance measures that will be used
in the incentive and penalty systems. Paragraph (a) of Sec. 305.2,
Performance measures, indicates the child support incentive system will
measure State performance levels in five areas: (1) Paternity
establishment; (2) child support order establishment (cases with
orders); (3) collections on current support; (4) collections on
arrears; and (5) cost-effectiveness. It also requires that the penalty
system measure State performance in three of these areas: (1) Paternity
establishment; (2) child support order establishment; and (3)
collections on current support.
Paragraph (a)(1), Paternity Establishment Performance Level,
reflects the explicit statutory language in section 458A(b)(6)(A)(i) of
the Act, which gives States the choice of being evaluated on one of two
measures--the IV-D or the statewide paternity establishment percentage
(commonly known as the PEP), discussed in detail later. The statute and
the paragraph provide that the count of children shall not include any
child who is a dependent by reason of the death of a parent (unless
paternity is established for that child). It also shall not include any
child with respect to whom there is a finding of good cause for
refusing to cooperate with the State agency in establishing paternity,
or for whom the appropriate State agency determines it is against the
best interest of the child to pursue paternity issues.
The IV-D paternity establishment percentage and statewide paternity
establishment percentage definitions that follow are contained in
paragraphs (a)(1)(i) and (ii) and are set forth in sections
452(g)(2)(A) and (B) of the Act:
IV-D Paternity Establishment Percentage means the ratio that the
total number of children in the IV-D caseload in the fiscal year (or,
at the option of the State, as of the end of the fiscal year) who have
been born out-of-wedlock and for whom paternity has been established or
acknowledged, bears to the total number of children in the IV-D
caseload as of the end of the preceding fiscal year who were born out-
of-wedlock. The equation to compute the measure is as follows
(expressed as a percent):
[[Page 82182]]
[GRAPHIC] [TIFF OMITTED] TR27DE00.039
Statewide Paternity Establishment Percentage is the ratio that the
total number of minor children who have been born out-of-wedlock and
for whom paternity has been established or acknowledged during the
fiscal year, bears to the total number of children born out-of-wedlock
during the preceding fiscal year. The equation to compute the measure
is as follows (expressed as a percent):
[GRAPHIC] [TIFF OMITTED] TR27DE00.040
The second performance measure contained in Sec. 305.2(a)(2),
Support Order Performance Level, requires a determination of whether or
not there is a support order for each case. The equation to compute the
measure is as follows (expressed as a percent):
[GRAPHIC] [TIFF OMITTED] TR27DE00.041
While the performance measure is defined in section
458A(b)(6)(B)(i) of the Act, paragraph (a)(2) provides guidance as to
which orders are counted for calculation of performance measures.
The performance measure in paragraph (a)(3) is Current Collections
Performance Level. It measures the amount of current support collected
as compared to the total amount owed. Current support is money applied
to current support obligations and does not include payment plans for
payment towards arrears. Voluntary collections must be included in both
the numerator and the denominator. This measure will be computed
monthly and the total of all months reported at the end of the year.
The equation to compute the measure will be as follows (expressed as a
percent):
[GRAPHIC] [TIFF OMITTED] TR27DE00.042
As with the other performance measures, this measure derives from
section 458A(b)(6) of the Act. Finally, as provided under section
458A(c) of the Act, support collected by one State at the request of
another State will be treated as having been collected in full by both
States.
Section 458A(b)(6)(D)(i) of the Act sets forth the arrearage
collection performance level included in Sec. 305.2(a)(4) Arrearage
Collection Performance Level. This measure will include those cases
where all of the past-due child support was disbursed to the family, or
all of the past due child support was retained by the State because all
the past due child support was assigned to the State. If some of the
past due child support was assigned to the State and some was owed to
the family, only those cases where some of the support actually was
disbursed to the family will be included. The equation to compute the
measure will be as follows (expressed as a percent):
[GRAPHIC] [TIFF OMITTED] TR27DE00.043
This measure, unlike the current collections measure, counts cases
with child support arrearage collections, rather than the percentage of
arrearages collected.
The final performance measure, reflecting section 458A(b)(6)(E)(i)
of the Act, appears at paragraph (a)(5) Cost-Effectiveness Performance
Level. This measure compares the total amount of IV-D collections for
the fiscal year to the total amount of IV-D expenditures the fiscal
year. The equation to compute this measure is as follows (expressed as
a ratio):
[GRAPHIC] [TIFF OMITTED] TR27DE00.044
[[Page 82183]]
This indicator provides a basic cost-benefit analysis of a child
support enforcement program. As provided under section 458A(c) of the
Act, collections by one State at the request of another State will be
counted as having been collected in full by both States and any amounts
expended by a State in carrying out a special project under section
455(e) of the Act will be excluded. (Section 305.32 lists monies that
are excluded when determining total dollars expended, such as fees
collected from individuals, recovered costs and program income.)
Under Sec. 305.2(b), as specified in section 458A(b)(5) of the Act
for incentive purposes, the five performance measures will be weighted
in the following manner. Each State will earn five scores based on
performance on each of the five measures. The first three measures
(paternity establishment, order establishment, and current collections)
percentage scores earn a maximum of 100 percent of the collections base
as defined in Sec. 305.31(d). The last two measures (collections on
arrears and cost-effectiveness) earn a maximum of 75 percent of the
collections base as defined in Sec. 305.31(d).
The weighting provision was recommended by State and Federal
partners and included in the Secretary's report to Congress as an
essential aspect of the incentive system, placing extra emphasis on
getting support to families each and every month.
Section 305.31 Amount of incentive payment.
Under paragraph (a) of Sec. 305.31 (which addresses the contents of
section 458A(b) of the Act), the incentive payment for a State for a
fiscal year is equal to the incentive payment pool for the fiscal year,
multiplied by the State incentive payment share for the fiscal year. As
specified in section 458A(b)(2) of the Act, paragraph (b) defines the
incentive payment pool as:
(1) $422,000,000 for fiscal year 2000;
(2) $429,000,000 for fiscal year 2001;
(3) $450,000,000 for fiscal year 2002;
(4) $461,000,000 for fiscal year 2003;
(5) $454,000,000 for fiscal year 2004;
(6) $446,000,000 for fiscal year 2005;
(7) $458,000,000 for fiscal year 2006;
(8) $471,000,000 for fiscal year 2007;
(9) $483,000,000 for fiscal year 2008; and
(10) For any succeeding fiscal year, the amount of the incentive
payment pool for the fiscal year that precedes such succeeding fiscal
year multiplied by the percentage (if any) by which the CPI for such
preceding fiscal year exceeds the CPI for the second preceding fiscal
year. In other words, for each fiscal year following fiscal year 2008,
the incentive payment pool will be multiplied by the percentage
increase in the CPI between the two preceding years. For example, for
fiscal year 2009, if the CPI increases by 1 percent between fiscal
years 2007 and 2008, then the incentive pool for fiscal year 2009 will
be a 1 percent increase over the $483,000,000 incentive payment pool
for fiscal year 2008, or $487,830,000.
Paragraph (c) defines, in accordance with section 458A(b)(3) of the
Act, the State incentive payment share for a fiscal year to be the
incentive base amount for the State for the fiscal year divided by the
sum of the incentive base amounts for all of the States for the fiscal
year.
Under paragraph (d), a State's maximum incentive base amount for a
fiscal year is the combined sum of: the State's collections base for
the fiscal year for each of the paternity establishment, support order,
and current collections performance measures; and 75 percent of the
State's collections base for the fiscal year for the arrearage payment
and cost-effectiveness performance measures. This is specified in
section 458A(b)(5) of the Act.
Under paragraph (e), a State's maximum incentive base amount for a
fiscal year is zero, unless a Federal audit performed under Sec. 305.60
(described later in this preamble) determines that the data which the
State submitted for the fiscal year and which will be used to determine
the performance levels involved are complete and reliable. This
provision is required by section 458A(b)(5)(B) of the Act. It is
essential to ensure the integrity of the incentive system and the
timeliness of the determinations. States are accountable for providing
reliable data on a timely basis or they receive no incentives. This
determination will be made using data submitted no later than the end
of the first quarter of the next fiscal year (i.e. December 31). This
deadline is needed so each State's data can be audited promptly during
the first part of the following year to determine reliability and
completeness. Allowing updates, corrections, and adjustments during
that period would impede our ability to make final incentive
determinations, and would result in continuing adjustment of the amount
of the incentives payable to all States.
Finally, under paragraph (f), a State's collections base for a
fiscal year, as provided in section 458A(b)(5)(C) of the Act, is equal
to: 2 times the sum of the total amount of support collected for
Current Assistance cases plus two times the total amount of support
collected in Former Assistance cases, plus the total amount of support
collected in all other cases during the fiscal year, that is:
2 (Current Assistance collections + Former Assistance collections) +
all other collections.
This double-weighting of collections in Current Assistance and
Former Assistance cases when calculating the collection base is another
key component of the new incentives system. As with the emphasis placed
on the current collections performance measure to ensure consistent and
timely support to families, the calculation of the State's collection
base also emphasizes the goal of helping families become and remain
self-sufficient. Under the current incentive system, States lose
incentives when families leave the State assistance rolls because
collections in non-assistance cases are capped at 115 percent of
collections in assistance cases. However, under section 458A of the Act
and these regulations, collections in Former Assistance cases, as well
as collections in Current Assistance cases will count double, while
collections in all other cases (often seen as requiring less work by
IV-D programs) will only be counted once. We note that Current
Assistance cases do not include cases in which assistance is paid under
a Tribal TANF program because the statutory language covers only cases
where an assignment to the State is required by the Act. Tribal TANF
cases have no such required assignment to the State. Tribal TANF cases
will be included in Former Assistance cases to the extent that the
individuals formerly were required to assign support rights to the
State.
Section 305.32 Requirements applicable to calculations
Section 305.32 establishes certain special provisions applicable to
calculating the amount of incentives and penalties. Some are derived
from current incentive rules and practice and some are based on
explicit rules in section 458A of the Act. They are also applied to
penalty calculations because we are using the same measures. Under this
section the following conditions apply:
Section 305.32(a) specifies that each measure will be based on data
relating to the Federal fiscal year (FY). The Federal fiscal year runs
from October 1st of one year through September 30th of the following
year. This is consistent with current practice and reference to the
fiscal year in section 458A of the Act.
[[Page 82184]]
Section 302.32(b) specifies that only collections disbursed or
retained, as applicable, and only those expenditures made by the State,
in the fiscal year will be used to determine the incentive payment
payable for that fiscal year. This is consistent with the way
collections have always been counted on Federal reporting forms.
Section 305.32(c) specifies that support collected by one State at
the request of another State will be treated as having been collected
in full by each State. Required by section 458A(c) of the Act, this
maintains the same practice that exists under the current incentive
system under section 458 of the Act for the new incentive system.
Section 305.32(d) specifies that amounts expended by the State in
carrying out a special project under section 455(e) of the Act will be
excluded from the State's total IV-D dollars expended in computing
incentive payments. This implements section 458A(c) of the Act, and
also appears in section 458 of the Act.
Section 305.32(e) specifies that fees paid by individuals,
recovered costs, and program income, such as interest earned on
collections, will be deducted from total IV-D dollars expended. This is
consistent with Sec. 304.12(b)(4)(iii) which is applicable to the
current incentive system under section 458 and the requirement under
Sec. 304.50 that States exclude from quarterly expenditure claims an
amount equal to all fees, interest and other income earned from
services provided under the State IV-D plan.
Section 305.32(f) specifies that States are required to submit data
used to determine incentives following instructions and formats
required by HHS and on Office of Management and Budget (OMB) approved
reporting instruments, and sets December 31st of each calendar year as
the final deadline for the submittal of State data for a fiscal year.
It includes any necessary data from the previous fiscal year needed to
calculate the paternity establishment percentage or any improvements
over that fiscal year's performance necessary to earn incentives or
avoid penalties for the current fiscal year. This is consistent with
the requirement in Sec. 302.15 under which States must maintain
statistical, fiscal and other records necessary for reporting and
accountability required by the Secretary and make such reports in the
form and containing information the Secretary requires. Data submitted
as of December 31st will be used to determine the State's performance
for the prior fiscal year and the amount of incentive payments due the
States. We encourage States to have the capacity to make reports (e.g.,
year-to-date, previous quarter) available before the end of the
reporting year so that we may conduct audits to determine data
reliability and completeness earlier. By doing so, States will maximize
their opportunity to correct any deficiencies before the end of the
reporting year or, at least, by the end of the succeeding fiscal year
which the statute allows for the State to take corrective action . A
cut-off point is necessary for us to make the required performance
determinations and calculations on a timely basis.
Section 305.33 Determination of applicable percentages based on
performance levels.
This section sets forth the explicit requirements in section
458A(b)(6) of the Act for determining the applicable percentages used
to calculate incentives based on a State's performance levels in the
five performance measures.
Paternity Establishment Percentage
Under paragraph (a), a State's paternity establishment performance
level for a fiscal year will be, at the option of the State, the IV-D
paternity establishment percentage or the Statewide paternity
establishment percentage determined under Sec. 305.2 of this part. The
applicable percentage for each level of a State's paternity
establishment performance is set forth in table 1, except as provided
in paragraph (b).
Under paragraph (b), if the State's paternity establishment
performance level for a fiscal year is less than 50 percent, but
exceeds its paternity establishment performance level for the
immediately preceding fiscal year by at least 10 percentage points,
then the State's applicable percentage for the paternity establishment
performance level is 50 percent.
Support Order
Under paragraph (c), a State's support order performance level for
a fiscal year is the percentage of the total number of IV-D cases where
there is a support order determined under Sec. 305.2 and Sec. 305.32.
The applicable percentage for each level of a State's support order
performance can be found on table 1, except as provided in paragraph
(d).
Under paragraph (d), if the State's support order performance level
for a fiscal year is less than 50 percent, but exceeds the State's
support order performance level for the immediately preceding fiscal
year by at least 5 percentage points, then the State's applicable
percentage is 50 percent.
Table 1.--Use this table to determine the maximum incentive levels for
the paternity establishment and support order performance measures.
If the Paternity Establishment or Support Order Performance Level Is:
------------------------------------------------------------------------
The
But less applicable
At least: (percent) than: percentage
(percent) is:
------------------------------------------------------------------------
80............................................... ......... 100
79............................................... 80 98
78............................................... 79 96
77............................................... 78 94
76............................................... 77 92
75............................................... 76 90
74............................................... 75 88
73............................................... 74 86
72............................................... 73 84
71............................................... 72 82
70............................................... 71 80
69............................................... 70 79
68............................................... 69 78
67............................................... 68 77
66............................................... 67 76
65............................................... 66 75
64............................................... 65 74
63............................................... 64 73
62............................................... 63 72
61............................................... 62 71
60............................................... 61 70
59............................................... 60 69
58............................................... 59 68
57............................................... 58 67
56............................................... 57 66
55............................................... 56 65
54............................................... 55 64
53............................................... 54 63
52............................................... 53 62
51............................................... 52 61
50............................................... 51 60
0................................................ 50 0
------------------------------------------------------------------------
Current Support Collections
Under paragraph (e), a State's current collections performance
level for a fiscal year is equal to the total amount of current support
collected during the fiscal year divided by the total amount of current
support owed during the fiscal year in all IV-D cases, as determined
under Secs. 305.2 and 305.32. The applicable percentage with respect to
a State's current collections performance level can be found on table
2, except as provided in paragraph (f).
Under paragraph (f), if the State's current collections performance
level for a fiscal year is less than 40 percent but exceeds the current
collections performance level of the State for the immediately
preceding fiscal year by at least 5 percentage points, then the State's
applicable percentage is 50 percent.
Arrearage Collections
Under paragraph (g), a State's arrearage collections performance
level
[[Page 82185]]
for a fiscal year is equal to the total number of eligible IV-D cases
in which payments of past-due child support were received and disbursed
during the fiscal year, divided by the total number of IV-D cases in
which there was past-due child support owed, as determined under
Secs. 305.2 and 305.32. The applicable percentage with respect to a
State's arrearage collections performance level can be found on table
2, except as provided in paragraph (h).
Under paragraph (h), if the State's arrearage collections
performance level for a fiscal year is less than 40 percent but exceeds
the arrearage collections performance level for the immediately
preceding fiscal year by at least 5 percentage points, then the State's
applicable percentage is 50 percent.
Table 2.--If the Current Collections or Arrearage Collections
Performance Level Is:
(Use this table to determine the maximum incentive levels for the
current and arrearage support collections performance measures.)
------------------------------------------------------------------------
The
But less applicable
At least: (percent) than: percentage
(percent) is
------------------------------------------------------------------------
80............................................... ......... 100
79............................................... 80 98
78............................................... 79 96
77............................................... 78 94
76............................................... 77 92
75............................................... 76 90
74............................................... 75 88
73............................................... 74 86
72............................................... 73 84
71............................................... 72 82
70............................................... 71 80
69............................................... 70 79
68............................................... 69 78
67............................................... 68 77
66............................................... 67 76
65............................................... 66 75
64............................................... 65 74
63............................................... 64 73
62............................................... 63 72
61............................................... 62 71
60............................................... 61 70
59............................................... 60 69
58............................................... 59 68
57............................................... 58 67
56............................................... 57 66
55............................................... 56 65
54............................................... 55 64
53............................................... 54 63
52............................................... 53 62
51............................................... 52 61
50............................................... 51 60
49............................................... 50 59
48............................................... 49 58
47............................................... 48 57
46............................................... 47 56
45............................................... 46 55
44............................................... 45 54
43............................................... 55 53
42............................................... 43 52
41............................................... 42 51
40............................................... 41 50
0................................................ 40 0
------------------------------------------------------------------------
Under paragraph (i), a State's cost-effectiveness performance level
for a fiscal year is equal to the total amount of IV-D support
collected and disbursed or retained, as applicable during the fiscal
year, divided by the total amount expended during the fiscal year, as
determined under Secs. 305.2 and 305.32. The applicable percentage with
respect to a State's cost-effectiveness performance level can be found
on table 3.
Table 3.--If the Cost-Effectiveness Performance Level Is:
(Use this table to determine the maximum incentive level for the cost-
effectiveness performance measure.)
------------------------------------------------------------------------
The
At least: But less applicable
than: (percent)
------------------------------------------------------------------------
5.00............................................. ......... 100
4.50............................................. 4.99 90
4.00............................................. 4.50 80
3.50............................................. 4.00 70
3.00............................................. 3.50 60
2.50............................................. 3.00 50
2.00............................................. 2.50 40
0.00............................................. 2.00 0
------------------------------------------------------------------------
Because of the complexity of the incentives formula set forth in
section 458A of the Act and implemented by these regulations, we have
included an example of how the system will work in a particular year
for State A:
Let's make the following assumptions regarding State A (See table
A):
State A's paternity performance level is 54 percent,
making its applicable percent 64 percent (see table 1)
State A's order establishment performance level is 79
percent, making its applicable percent 98 percent (see table 1)
State A's current support collections performance level is
41 percent, making its applicable percent 51 percent (see table 2)
State A's arrearage support collections performance level
is 40 percent, making its applicable percent 50 percent (see table 2)
State A's cost-effectiveness ratio is 3.00, making its
applicable percent 60 percent (see table 3)
State A's collections base is $50 million (determined by 2
times the collections for Current Assistance and Former Assistance
cases plus collections for other cases)
The maximum incentive is:
--$32 million collections base for paternity ($50 mil. times 0.64),
plus
--$49 million collections base for orders ($50 mil. times 0.98), plus
--$25.5 million collections base for current collections ($50 mil.
times 0.51), plus
--$18.8 million collections base for arrearage collections ($50 million
times 0.75 times 0.50) plus
--$22.5 million collections base for cost-effectiveness ($50 million
times 0.75 times 0.60) equals
--Resulting in a maximum incentive base amount of $147.8 million for
State A.
Table A
----------------------------------------------------------------------------------------------------------------
Applicable
percent State A's collection
Measure State A's performance based on Weight base (assumed to be
level performance $50.0 million)
(percent)
----------------------------------------------------------------------------------------------------------------
Paternity establishment........... 54%..................... 64 1.00 $32.0 million.
Order establishment............... 79%..................... 98 1.00 $49.0 million.
[[Page 82186]]
Current collections............... 41%..................... 51 1.00 $25.5 million.
Arrearage collections............. 40%..................... 50 0.75 $18.8 million.
Cost-effectiveness................ $3.00................... 60 0.75 $22.5 million.
State A's maximum incentive base $147.8 million.
amount.
----------------------------------------------------------------------------------------------------------------
We must now make some assumptions regarding the other
States. Let's assume that there are only two other States in our
country--and the maximum incentive base amount is $84 million for State
B and $50 million for State C, making the total maximum incentive base
amount $281.8 million for all three States (See table B).
We must now determine what State A's share of the $281.8
million is. It is 52 percent ($147.8 divided by $281.8)
Table B
------------------------------------------------------------------------
Incentive
Maximum State's payment
incentive share pool $422
State base of million
amounts $281.8 (in
million millions)
------------------------------------------------------------------------
A........................................ $147.8 0.52 $219.4
B........................................ 84.0 0.30 126.6
C........................................ 50.0 0.18 76.0
------------------------------------------
Totals................................. 281.8 1.00 422.0
------------------------------------------------------------------------
Let us assume the incentive payment pool for the FY is
$422 million.
Since State A's share is 0.52, this State has earned 52
percent of the $422 million incentive payment pool that Congress is
allowing, or $219.4 ($422 mil. times 0.52) million incentive payment
for this particular fiscal year.
Section 305.34 Payment of Incentives
Section 458A(d) of the Act includes administrative provisions for
estimating and paying incentives. Section 305.34 implements those
provisions. Under paragraph (a), each State must claim/include one-
fourth of its estimated annual incentive payment on each of its four
quarterly expenditure reports for a fiscal year. When combined with the
other amounts reported on each of the State's four quarterly
expenditure reports, the portion of the annual estimated incentive
payment as reported each quarter will be included in the calculation of
the next quarterly grant awarded to the State under title IV-D of the
Act.
Under paragraph (b), following the end of each fiscal year, HHS
will calculate the State's annual incentive payment, using the actual
collection and expenditure data and the performance data submitted by
the State and other States for that fiscal year. To determine the final
incentive amounts, OCSE will first audit State-reported data submitted
by December 31, or if a data reliability audit has already been
performed during that fiscal year, OCSE will confirm that no system's
or other changes have occurred in the interim which may have affected
the data reliability. A determination of reliability will be made.
Because data reliability audits may have to be conducted for some
States which did not take advantage of the opportunity for such audits
to be conducted during the performance year, final calculation of the
State's incentive award will be made in August using actual data and
performance levels of the State and other States, factoring in any
determinations of incomplete or unreliable data as provided in
paragraph (c). Based on this calculation, a positive or negative grant
will be awarded to each State under title IV-D of the Act to reconcile
the actual annual incentive payment that for a fiscal year with the
incentive payment estimated by the State during that year. We are
encouraging states to be conservative in their estimates during the
phase-in years for the new incentive system. This will decrease the
likelihood that HHS will have to make large negative adjustments.
Under paragraph (c), payment of incentives is contingent on a
State's data being determined reliable data by Federal auditors,
consistent with the requirement for complete and reliable data set
forth in section 458A(b)(5)(B) of the Act.
Section 305.35 Reinvestment
Section 458A(f) of the Act requires a State to use incentive
payments to supplement and not supplant other funds used by the State
in its IV-D program, or otherwise with approval of the Secretary. Under
Sec. 305.35, which implements this requirement, paragraph (a) requires
a State to expend the full amount of incentive payments received under
the IV-D program to supplement, and not supplant other funds used by
the States to carry out IV-D program activities; or funds for other
activities approved by the Secretary which may contribute to improving
the effectiveness or efficiency of the State's IV-D program, including
cost-effective contracts with local agencies, whether or not the
expenditures for the activity are eligible for reimbursement under
title IV-D of the Act.
Under paragraph (b), in those States in which incentive payments
are passed through to political subdivisions or localities, in
accordance with section 454(22) of the Act and Sec. 302.55, such
payments must be used in accordance with this section.
Under paragraph (c), State IV-D expenditures may not be reduced as
a result of the receipt and reinvestment of incentive payments.
In order to determine if incentive payments are used to supplement
rather than supplant other amounts used by the State to fund the IV-D
program, a base year level of program expenditures is necessary.
Therefore, under paragraph (d), a base amount will be determined by
subtracting the amount of actual incentives paid to the State which was
reinvested in the IV-D program for fiscal year 1998 from the total
amount expended by the State in the IV-D program during the same
period. The rule also allows States, in the alternative, to use the
average of the previous three fiscal years (1996, 1997, and 1998) as a
base amount. This base amount of State spending will have to be
maintained in future years. Incentive payments under this part are to
be used in addition to, and not in lieu of, the base amount.
We selected fiscal year 1998 rather than fiscal year 1999 because
we believe that the total for fiscal year 1999 may not be available
until some time in fiscal year 2000 and we want States to know what
their base amount that must be
[[Page 82187]]
maintained is in advance of receiving any incentive payments under
section 458A. Additionally, we allow the States the alternative of
computing a 3-year average. We used this alternative because we believe
it might more closely approximate the amount a State has been spending
on its IV-D program and will not give undue weight to any extraordinary
or non-recurring expenditures that the State may have made in fiscal
year 1998.
Based on comments from the proposed regulation, we eliminated the
proposed examples under paragraph (e) and revised the language in
paragraph (d) to clarify when incentive payments would be subtracted
from FY 1998 expenditures. Most commenters found that the examples
added an element of confusion to the base year calculation.
Under paragraph (f), that has been redesignated as the new
paragraph (e), requests for approval of expending incentives on
activities not currently eligible for funding under the IV-D program,
but which would benefit the IV-D program (e.g., work programs for
noncustodial parents), must be submitted in accordance with
instructions issued by the Commissioner of the Office of Child Support
Enforcement. We will develop and disseminate by Action Transmittal
instructions for States seeking approval to expend incentives on
activities that would benefit the IV-D program.
Section 305.36 Incentive Phase-In
Section 201(b) of the Child Support Performance and Incentive Act
of 1998 establishes a transition period which phases in the new
incentives system under section 458A of the Act. Under Sec. 305.36, the
incentive system under part 305 will be phased-in over a three-year
period during which both the current system and the new system will be
used to determine the amount a State will receive. For fiscal year
2000, a State will receive two-thirds of what it would have received
under the incentive formula set forth in Sec. 304.12, and one-third of
what it would have received under the formula set forth under part 305.
In fiscal year 2001, a State would receive one-third of what it would
have received under the incentive formula set forth under Sec. 304.12
and two-thirds of what it would have received under the formula under
part 305. In fiscal year 2002, the formula set forth under part 305
will be fully implemented and will be used to determine all incentive
amounts.
V. Description of Regulatory Provisions--Penalties and Audit
Former Audit and Penalty Process
In implementing the former requirement at section 452(a)(4) of the
Act, the former regulations at part 305 required HHS to conduct an
audit at least once every three years, to evaluate the effectiveness of
each State's program in carrying out the purposes of title IV-D of the
Act and to determine that the program met the title IV-D requirements.
These audits were the sole basis for imposing a penalty under former
section 403(h) of the Act.
The audits were a comprehensive review of all program requirements.
A penalty was assessed in accordance with section 403(a) of the Act
when the State failed the audit, but it was suspended during the period
the State was under a corrective action plan. If the State passed the
follow-up review, the penalty was not applied. In addition, HHS then
conducted the comprehensive audit on an annual basis in the case of a
State that was subject to a penalty. For a State operating under a
corrective action plan, the review at the end of the corrective action
period covered only the criteria specified in the notice of non-
compliance.
Part 305 of the regulations was removed as part of an omnibus
clean-up regulation designed to conform existing program regulations to
mandatory changes made by PRWORA and subsequent laws. Since PRWORA and
Pub. L. 105-200 significantly changed the audit and penalty provisions
of the statute, we removed all of part 305. The clean-up regulation was
published February 9, 1999 (64 FR 6237). We include this summary of the
former Federal process, however, because under the revised audit and
penalty provisions in sections 409(a)(8) and 452 (a)(4) and (g) of the
Act, the Secretary is required to assess a penalty if a State IV-D
program is determined not to be in substantial compliance with IV-D
requirements. As explained in greater detail later in this preamble,
the process for making such a determination is based largely on the
former audit and penalty standards and procedures.
New Audit and Penalty Process
Under section 409(a)(8) of the Act, if, based on the data submitted
by the State for a review, the State program fails to achieve the
paternity establishment or other performance standards set by the
Secretary; or if an audit finds that the State data is incomplete or
unreliable; or if the State failed to substantially comply with one or
more IV-D requirements, and the State fails to correct the deficiencies
in the succeeding fiscal year following the performance year, then the
amounts otherwise payable to the State under title IV-A will be
reduced. However under section 409(a)(8)(C) of the Act, a State will be
determined to be in substantial compliance with IV-D requirements if
the Secretary determines that the noncompliance is of a technical
nature which does not adversely affect the performance of the State's
IV-D program, or will be determined to have submitted accurate data
where the incompleteness or unreliability of the data is of a technical
nature which does not affect the determination of the State's
performance on the performance standards.
In these regulations, we have relied heavily on the well-
established, tested and experienced Federal audit process, which was
used for penalties assessed under the former section 403(h) of the Act
and former part 305, to establish the new audit regulations. In fact,
much of our language governing the audit process is taken almost
verbatim from former part 305, particularly in sections dealing with
the audit process, State responsibilities, definition of substantial
compliance, and notice and assessment of the penalty.
Section 305.40 Penalty Performance Measures and Levels
Section 305.40 establishes the performance measures to be used to
determine whether a State IV-D program is performing adequately to
avoid a financial penalty under section 409(a)(8)(A)(i)(I) of the Act.
As discussed earlier in this preamble, under paragraph (a), there are
three performance measures for which States have to achieve certain
levels of performance in order to avoid being penalized for poor
performance. These measures are paternity establishment, support order
establishment, and current collections as set forth in Sec. 305.2 of
these regulations.
The levels of performance that determine whether or not a State is
subject to a penalty were established based on analysis of historical
statistical and financial program data submitted by States. This
program data was used to set the expected levels of performance and
improvements, which are based on past State performance and reasonable
expectations of improved performance. The expectations of performance
in this rule were set taking into consideration State concerns, prior
work done by State and Federal partners to develop the incentive
system, and consultations with State partners about what
[[Page 82188]]
constituted reasonable performance levels supported by historical data.
The measures and levels of performance are:
(1) The paternity establishment percentage which is required under
section 452(g) of the Act for penalty purposes. States have the option
of using either the IV-D paternity establishment percentage or the
statewide paternity establishment percentage defined in Sec. 305.2.
Table 4 shows at which level of performance the State is subject to a
penalty under the paternity establishment measure. For example, if
State A earned a paternity establishment percent of 34 percent and only
improved by 3 percentage points over the previous fiscal year, then
State A is subject to a penalty of 1-2 percent of TANF funds, for the
first finding.
Table 4.--Statutory Penalty Performance Standards for Paternity Establishment
(Use this table to determine the level of performance for the paternity establishment measure that will incur a
penalty.)
----------------------------------------------------------------------------------------------------------------
Increase required over Penalty FOR FIRST FAILURE if increase
PEP previous year's PEP not met
----------------------------------------------------------------------------------------------------------------
90% or more............................. None......................... No penalty.
75% to 89%.............................. 2%........................... 1-2% TANF funds.
50% to 74%.............................. 3%........................... 1-2% TANF funds.
45% to 49%.............................. 4%........................... 1-2% TANF funds.
40% to 44%.............................. 5%........................... 1-2% TANF funds.
39% or less............................. 6%........................... 1-2% TANF funds.
----------------------------------------------------------------------------------------------------------------
(2) The support order establishment performance measure to be used
for penalty purposes is the measure defined in Sec. 305.2. For purposes
of the penalty with respect to this measure, there is a threshold of 40
percent, below which a State is penalized unless an increase of 5
percent over the previous year is achieved--which will also qualify it
for an incentive. Performance in the 40 percent to 49 percent range
with no significant increase will not be penalized, but neither will it
qualify for an incentive payment. Table 5 shows at which level of
performance a State will incur a penalty under the order establishment
measure.
Table 5.--Performance Standards for Order Establishment
(Use this table to determine the level of performance for the order establishment measure that will incur a
penalty.)
----------------------------------------------------------------------------------------------------------------
Performance level Increase over previous year Incentive/Penalty
----------------------------------------------------------------------------------------------------------------
50% or more........................ no increase over previous year Incentive/No Penalty.
required.
40% to 49%......................... w/ 5% increase over previous year.... Incentive/No Penalty.
w/out 5% increase.................... No Incentive/No Penalty.
Less than 40%...................... w/ 5% increase over previous year.... Incentive/No Penalty.
w/out 5% increase.................... No Incentive/Penalty equal to 1-2%
of TANF funds for the first
failure, 2-3% for second failure,
and so forth, up to a maximum of 5%
of TANF funds.
----------------------------------------------------------------------------------------------------------------
(3) For the current collections performance measure, there is a
threshold of 35 percent below which a State is penalized unless an
increase of 5 percent over the previous year is achieved (that
qualifies it for an incentive). Performance in the 35 percent to 40
percent range with no significant increase will not be penalized, but
neither will it qualify for an incentive payment. Table 6 shows at
which level of performance the State will incur a penalty under the
current collections measure.
Table 6.--Performance Standards for Current Collections
(Use this table to determine the level of performance for the current collections measure that will incur a
penalty.)
----------------------------------------------------------------------------------------------------------------
Performance level Increase over previous year Incentive/Penalty
----------------------------------------------------------------------------------------------------------------
40% or more........................ no increase over previous year Incentive/No Penalty.
required.
35% to 40%......................... w/5% increase over previous year..... Incentive/No Penalty.
w/out 5% increase.................... No Incentive/No Penalty.
Less than 35%...................... w/5% increase over previous year..... Incentive/No Penalty.
w/out 5% increase.................... No Incentive/Penalty equal to 1-2%
of TANF funds for the first
failure, 2-3% for second failure,
and so forth, up to a maximum of 5%
of TANF funds.
----------------------------------------------------------------------------------------------------------------
Under paragraph (b), the provisions applicable to calculations
listed under Sec. 305.32, apply to the calculation of performance
levels for penalty purposes, e.g., counting only disbursed collections,
and double-counting interstate collections.
Section 305.42 Penalty phase-in
Section 305.42 sets a schedule for phasing in the new penalty
provisions which relates to the incentive phase-in under Sec. 305.36.
States will be subject to penalties for poor performance as of fiscal
year 2001. States are subject to the performance penalties based on
data reported for FY 2001. Data reported for
[[Page 82189]]
FY 2000 will be used as a base year to determine improvements in
performance during FY 2001. There is an automatic statutory corrective
action period of one fiscal year immediately succeeding the performance
year before any penalty will be imposed. If at the end of the
corrective action period the deficiency is not corrected, the penalty
will be taken. For example, if the Secretary finds with respect to FY
2001, that the State had either failed to achieve the level of
performance required or that the State's FY 2001 data was unreliable or
incomplete, then the State would be required to correct the deficiency
and meet the performance measure during the succeeding year, i.e., FY
2002. If the State has either unreliable or incomplete data or fails
the performance measure for the corrective action year, FY 2002, a
penalty will be assessed.
Since States' performance will be measured on the basis of the
States' own data, a State should be expected to continually monitor its
progress toward meeting the performance standards during the course of
the year. Similarly, States should continuously monitor their own data
for completeness and reliability. OCSE will conduct a data reliability
audit for a State during the year upon request by a State and will
assess performance, based upon the data submitted by the State, as soon
as it is reported at the end of the year. States are on notice,
however, that any corrective action which may be necessary to correct
either a data or a performance deficiency must be achieved before the
end of the fiscal year immediately succeeding the performance year.
Section 305.60 Timing and scope of federal audits
Based on explicit statutory requirements at sections 452(a)(4)(C)
and 409(a)(8)(A)(i)(II) of the Act, under Sec. 305.60 OCSE will conduct
audits, in accordance with the Government auditing standards of the
Comptroller General of the United States--
(1) At least once every three years (or more frequently if the
State fails to meet performance standards and reliability of data
requirements) to assess the completeness, authenticity, reliability,
accuracy and security of data and the systems used to process the data
in calculating performance indicators under part 305;
(2) To determine the adequacy of financial management of the State
IV-D program, including assessments of:
(i) Whether funds to carry out the State program are being
appropriately expended, and are properly and fully accounted for; and
(ii) Whether collections and disbursements of support payments are
carried out correctly and are fully accounted for; and
(3) For such other purposes as the Secretary may find necessary,
including audits to determine if the State is substantially complying
with one or more of the requirements of the IV-D program (with the
exception of the requirements of section 454(24) of the Act relating to
statewide-automated systems of section 454(27)(A) or (B)(i) relating to
the State Disbursement Units).
If a data reliability audit has been performed during the prior
year, OCSE will conduct a limited review to determine whether any
systems or other changes have occurred which may have affected data
reliability or completeness. A State may request a data reliability
audit at any time during the year as such reviews do not necessarily
require analysis of the full year's data.
Substantial compliance audits are defined in Sec. 305.63 and are
discussed later in this preamble. Under these rules the substantial
compliance audits will be conducted at the discretion of the Secretary,
and are triggered based on substantiated evidence of a failure by the
State to meet IV-D program requirements. The evidence that might
warrant such an audit to determine substantial compliance include:
(i) The results of 2 or more sequential State self-reviews
conducted under section 454(15)(A) of the Act which show evidence of
sustained poor performance or indicate that the State has not corrected
deficiencies identified in previous self-assessments and that these
deficiencies are determined to seriously impact the performance of the
State's program; or
(ii) Evidence of a State program's systemic failure to provide
adequate services under the program through a pattern of non-compliance
over time.
While we recognize the advantage and responsibility to maintain the
authority to conduct audits similar to those which resulted in improved
State performance in years past, we are committed to the philosophy
which focuses on measuring program results, and allowing States the
flexibility and responsibility to manage their own programs, while
assuring that Federal requirements are met. We expect States to take
the self-reviews to determine compliance with IV-D requirements
seriously and to use those processes to continually critique and adjust
their programs to ensure that children and families are adequately
served. These Federal process audits authorized under section
452(a)(4)(C) of the Act provide a fall back measure for the Secretary's
use should systemic or serious problems with IV-D programs become
apparent.
The Child Support Performance and Incentive Act of 1998, Pub. L.
105-200, established a specific financial penalty for a State's failure
to meet statewide-automated systems requirements in section 454(24) of
the Act. As a conforming amendment, section 409(a)(8) of the Act was
amended to preclude a financial penalty under that section for failing
to meet automated systems requirements under section 454(24) of the
Act.
Similarly, the Consolidated Appropriations Act for FY 2000, Pub. L.
106-113, established an alternative penalty for States that fail to
comply with the State Disbursement Unit (SDU) requirements under
section 454(27)(A) and (B)(i) of the Act. As a conforming amendment,
section 409(a)(8) of the Act was also amended to preclude a financial
penalty under that section for failing to meet automated systems
requirements under section 454(27)(A) or (B)(i).
While compliance with particular systems requirements will be
excluded from any Federal audit to determine substantial compliance
with IV-D requirements, States must still have complete and reliable
data and meet the individual IV-D program requirements being audited,
as defined in Sec. 305.63, in order to avoid a financial penalty under
Sec. 305.61. These program requirements exist independently from the
systems requirements under section 454(24) of the Act and, therefore,
States will be held accountable for compliance.
Under paragraph (b), as with past audits, during the course of the
audit, OCSE will make a critical investigation of the State's IV-D
program through inspection, inquiries, observation, and confirmation
and use the audit standards promulgated by the Comptroller General of
the United States in ``Government Auditing Standards.''
Section 305.61 Penalty for failure to meet IV-D requirements
To implement the requirements of section 409(a)(8) of the Act,
under paragraph (a) of Sec. 305.61, a State is subject to a financial
penalty and the amounts otherwise payable to the State under title IV-A
of the Act would be reduced:
If, on the basis of:
(i) Data submitted by the State or the results of an audit
conducted under Sec. 305.60, the State's program failed to achieve the
paternity establishment
[[Page 82190]]
percentages, as defined in section 452(g)(2) of the Act and
Sec. 305.40, or to meet the support order and current collections
performance measures set forth in Sec. 305.40; or
(ii) The results of an audit under Sec. 305.60, the State did not
submit complete and reliable data, as defined in Sec. 305.1; or
(iii) The results of an audit under Sec. 305.60, the State failed
to substantially comply with one or more of the requirements of the IV-
D program, as defined in Sec. 305.63;
And, with respect to the corrective action year immediately
following such failure, the State failed to take sufficient corrective
action to achieve the appropriate performance levels or compliance or
the data submitted by the State are still incomplete or unreliable.
A penalty will be applied only if the State failed to correct any
identified deficiencies by the end of this automatic corrective action
year. For example, if a State fails the PEP in fiscal year 2001, it
must have reliable data and meet the PEP in the succeeding fiscal
corrective action year--meaning it must meet the PEP standard for
fiscal year 2002 or face a penalty in fiscal year 2003.
Under paragraph (b) of Sec. 305.61, the penalty reductions
described under Sec. 305.61(c) (discussed below) will be made for
quarters following the end of the automatic corrective action fiscal
year following the fiscal year with respect to which the State
submitted unreliable or incomplete data or failed the performance
measure or was determined not to be in substantial compliance. The
penalty will continue until the beginning of the first quarter
following the end of the first quarter throughout which the State, as
appropriate:
(1) Has achieved the paternity establishment percentages, the order
establishment or the current collections performance measures defined
in Sec. 305.40; and
(2) Has submitted data that is complete and reliable; or
(3) Is in substantial compliance with the IV-D requirements audited
for substantial compliance, as defined in Sec. 305.63.
A State must have reliable and complete data and meet the
performance standards in order to avoid imposition of a penalty
following the end of the automatic corrective action year.
It is important to note that the statute at section 409(a)(8)(A) of
the Act and these regulations clearly require States to submit complete
and reliable data for all of the performance measures under sections
452(g) and 458 or incur financial penalties. However, unlike other
penalty circumstances, penalties for incomplete or unreliable data will
also result in a loss of incentives. When data is incomplete or
unreliable, it will be impossible to accurately determine the State's
level of performance to either pay incentives or to assess performance.
In such cases, a State's data must be complete and reliable by the end
of the succeeding fiscal year and must demonstrate that the submitted
data meets the performance measures in order to avoid the imposition of
a penalty. Correcting incomplete or unreliable data within the
automatic one-year corrective action period is not enough; the data
must also show that the State performed at a high enough level during
the corrective action year to avoid a financial penalty. For example,
say a State is determined to have unreliable current collection
performance data for FY 2001 and the State corrects the unreliable data
for FY2001 during FY 2002. The State must still have reliable FY2002
data and meet the current collection performance standard for FY 2002
or incur a penalty in FY2003.
It should be noted, with reference to the example above, that the
State may need to correct and resubmit its FY2001 data in order to
demonstrate improvement which would qualify for incentives or to meet
the penalty performance measure during FY2002. If the State will
otherwise achieve the minimum performance level without showing an
increase over the prior year, then correction of FY2001 data would be
unnecessary.
Paragraph (c) sets forth the penalty levels from section
409(a)(8)(B) of the Act under which the payments for a fiscal year
under title IV-A of the Act will be reduced by the following
percentages:
(1) One to two percent for the first finding;
(2) Two to three percent for the second consecutive finding; and
(3) Not less than three percent and not more than 5 percent for the
third or a subsequent consecutive finding.
These section 409(a)(8) penalties, which increase with each
subsequent finding, are based upon penalties assessed under the former
audit and penalty process in former section 403(h) of the Act. In
actual practice, OCSE has used the lower amount for each situation.
Because the penalty is taken as a percentage of the amount payable
to the State under part A of title IV, certain provisions applicable to
other TANF penalties also apply to this penalty. The provisions in
section 409(d) of the Act which provide that the total penalties that
may be taken may not exceed 25 percent of the TANF grant applies. In
addition, section 410 of the Act provides for appeals when penalties
are taken pursuant to section 409 of the Act.
Finally, section 409(a)(12) of the Act which requires that a State
spend additional funds to replace the reductions in funds resulting
from the imposition of a penalty applies. The TANF regulations
published April 12, 1999 at 64 FR 17720 and effective October 1, 1999,
contain provisions in new 45 CFR part 262 which address and implement
these statutory provisions. We incorporate those provisions by cross
reference.
Section 305.62 Disregard of a failure which is of a technical nature.
Section 409(a)(8)(C) of the Act, like the former section 403(h) of
the Act, recognizes that certain noncompliance may be insufficient to
significantly impact a State's performance or data reliability. Under
Sec. 305.62, we implement this concept by providing that a State
subject to a penalty under Sec. 305.61(a)(1)(ii) or (iii) may be
determined, as appropriate, to have submitted adequate data or to have
achieved substantial compliance with one or more IV-D requirements, as
defined in Sec. 305.63 (discussed below), if the Secretary determines
that the incompleteness or unreliability of the data, or the
noncompliance with one or more of the IV-D requirements, are of a
technical nature which does not adversely affect the performance of the
State's IV-D program or does not adversely affect the determination of
the level of the State's paternity establishment or other performance
measure percentages.
Section 305.63 Definition of substantial compliance with IV-D
requirements.
Because section 409(a)(8) of the Act requires the assessment of a
penalty should a State be found, as a result of an audit, to have
failed to substantially comply with one or more IV-D requirements which
it fails to correct in the corrective action year, we must provide a
definition of substantial compliance that will be used by the auditors
to measure State compliance with IV-D requirements. Former Sec. 305.20
established, for purposes of the former Federal audit and penalty
process, the definition of an effective program in substantial
compliance with the requirements of title IV-D of the Act. Therefore,
under Sec. 305.63 we use the definition under former Sec. 305.20 as the
basis for a determination that a State
[[Page 82191]]
failed to achieve substantial compliance with one or more IV-D
requirements.
However, there is one significant difference between the new and
former audit and penalty process which deals with the required scope of
the audit. Under the former statute and regulations, a penalty was
based on a complete audit of a State's program for substantial
compliance with all of the applicable IV-D requirements. Under section
408(a)(9) of the Act and these regulations, a State may be audited on
one, some, or all of the requirements and may be assessed a penalty, if
it is found not to comply with one or more IV-D requirements.
Assessment of a penalty could be based, therefore, on a targeted audit
of specific IV-D requirements. Specifically, for the purposes of a
determination under Sec. 305.61(a)(1)(iii), in order to be determined
in substantial compliance with one or more of the IV-D requirements as
a result of an audit conducted under Sec. 305.60, a State is required
to meet the specific IV-D State plan requirement or requirements that
were audited. The IV-D requirements subject to audit are contained in
part 302 of program regulations, and are measured as described in the
following paragraphs.
Under paragraph (a), the State must meet all the requirements under
any of the following areas being audited:
Statewide operations, Sec. 302.10;
Reports and maintenance of records, Sec. 302.15(a);
Separation of cash handling and accounting functions, Sec. 302.20;
and Notice of collection of assigned support, Sec. 302.54.
These areas are identical to those in former Sec. 305.20, which
measured management and accountability of the program.
Under paragraph (b), the State is required to meet the requirements
under the following areas in at least 90 percent of the cases reviewed
for each criterion being audited, consistent with the requirements used
under the former Sec. 305.20:
Establishment of cases, Sec. 303.2(a); and
Case closure criteria, Sec. 303.11.
We believe these criteria should continue to be met in 90 percent
of cases reviewed because of their critical nature. They are intended
to ensure that cases are opened and closed appropriately.
Under paragraph (c), States will be held to the same test they have
been held to under former audit and penalty requirements in place and
used since the early to mid-1990s. Under the paragraph, the State is
required to meet the following areas in at least 75 percent of the
cases reviewed for each criterion being audited:
(1) Collection and distribution of support payments, including:
collection and distribution of support payments by the IV-D agency
under Sec. 302.32(b); distribution of support collections under
Sec. 302.51; and distribution of support collected in title IV--E
foster care maintenance cases under Sec. 302.52;
(2) Establishment of paternity and support orders, including:
establishment of a case under Sec. 303.2(b); services to individuals
not receiving TANF or title IV-E foster care assistance, under
Sec. 302.33(a)(1) through (4); provision of services in interstate IV-D
cases under Sec. 303.7(a), (b) and (c)(1) through (6) and (8) through
(10); location of non-custodial parents under Sec. 303.3; establishment
of paternity under Sec. 303.5(a) and (f); guidelines for setting child
support awards under Sec. 302.56; and establishment of support
obligations under Sec. 303.4(d), (e) and (f);
(3) Enforcement of support obligations, including, in all
appropriate cases: establishment of a case under Sec. 303.2(b);
services to individuals not receiving TANF or title IV-E foster care
assistance, under Sec. 302.33(a)(1) through (4); provision of services
in interstate IV-D cases under Sec. 303.7(a), (b) and (c)(1) through
(6) and (8) through (10); location of non-custodial parents under
Sec. 303.3; enforcement of support obligations under Sec. 303.6 and
State laws enacted in accordance with section 466 of the Act, including
submitting once a year all appropriate cases in accordance with
Sec. 303.6(c)(3) to State and Federal income tax refund offset; and
income withholding under Sec. 303.100. In cases in which income
withholding cannot be implemented or is not available and the non-
custodial parent has been located, States must use or attempt to use at
least one enforcement technique available under State laws in addition
to Federal and State tax refund offset, in accordance with State laws
and procedures and applicable State guidelines developed under
Sec. 302.70(b) of this chapter;
(4) Review and adjustment of child support orders, including:
establishment of a case under Sec. 303.2(b); services to individuals
not receiving TANF or title IV-E foster care assistance, under
Sec. 302.33(a)(1) through (4); provision of services in interstate IV-D
cases under Sec. 303.7(a), (b) and (c)(1) through (6) and (8) through
(10); location of non-custodial parents under Sec. 303.3; guidelines
for setting child support awards under Sec. 302.56; and review and
adjustment of support obligations under Sec. 303.8;
(5) Medical support, including: establishment of a case under
Sec. 303.2(b); services to individuals not receiving TANF or title IV-E
foster care assistance, under Sec. 302.33(a)(1) through (4); provision
of services in interstate IV-D cases under Sec. 303.7(a), (b) and
(c)(1) through (6) and (8) through (10); location of non-custodial
parents under Sec. 303.3; securing medical support information under
Sec. 303.30; and securing and enforcing medical support obligations
under Sec. 303.31; and .
(6) Disbursement of support payments in accordance with the
timeframes in section 454B of the Act or the regulation at Sec. 302.32.
Except for the last requirement for disbursement of support
collected within the timeframe set forth in requirements for a State
Disbursement Unit in section 454B of the Act, the provisions are taken
from the former Sec. 305.20. We are using those standards because we
still consider them to represent the critical aspects of IV-D program
requirements and believe they are essential to any determination of
substantial compliance with any of the requirements being audited for
that purpose. The subparagraphs, as written, are broad and incorporate
revised provisions of title IV-D of the Act, such as any changes in
distribution, additional enforcement techniques, revised review and
adjustment procedures and evolving medical support expectations that
are indicated in the statute or regulations.
The timeframe for disbursement of support collections by the State
Disbursement Unit under section 454B of the Act is included because it
is one of the essential case processing timeframes added by PRWORA.
Other explicit requirements of PRWORA are included by reference to laws
enacted under section 466 of the Act and still others, for example, the
State Directory of New Hires and other new locate sources, will be
evaluated as part of the State's automated system certification.
As with the former audit process which recognized that citing
States for each failure to meet a specific timeframe could remove a
State's motivation to move forward in such a case, we propose to adopt
the provisions from former Sec. 305.20 under which States can receive
credit for a case being reviewed if they accomplish the necessary
action within the audit period, despite having missed an interim
timeframe. We remain committed to this concept in these regulations and
have incorporated it into paragraph (d).
Finally, as under the former audit standards in Sec. 305.20,
paragraph (e) requires a State to meet the
[[Page 82192]]
requirements for expedited processes under Sec. 303.101(b)(2)(i) and
(iii), and (e).
Under the new penalty standards in section 409(a)(8) of the Act and
the new audit responsibilities under section 452(a)(4) of the Act, the
Federal audit and subsequent penalty can cover simply one, or a number
of IV-D requirements. Using the definition of substantial compliance
described above, Federal auditors, States and other interested parties
will be aware of the expected level of State performance with respect
to any particular requirement being audited.
Section 305.64 Audit procedures and State comments
This section will adopt the same procedures as were in effect under
former Sec. 305.12. Under paragraph (a), prior to the start of the
actual audit, whether for data reliability and completeness or for
substantial compliance, Federal auditors will hold an audit entrance
conference with the State IV-D agency. At that conference, the auditors
will explain how the audit will be performed and make any necessary
arrangements.
Under paragraph (b), at the conclusion of audit fieldwork, Federal
auditors will afford the State IV-D agency an opportunity to have an
audit exit conference at which time preliminary audit findings will be
discussed and the State IV-D agency may present any additional matter
it believes should be considered in the audit findings.
Under paragraph (c), after the exit conference, Federal auditors
will prepare and send to the State IV-D agency, a copy of an interim
report on the results of the audit. Within a specified timeframe from
the date the report was sent by certified mail, the State IV-D agency
will be able to submit written comments on any part of the report that
the State IV-D agency believes is in error. The auditors will note such
comments and incorporate any response into the final audit report.
Section 305.65 State cooperation in audit
Also consistent with historic State responsibilities with respect
to Federal audits, we incorporated former Sec. 305.13 and require that
each State make available to the Federal auditors such records or other
supporting documentation (electronic and manual) as the audit staff may
request, including records to support the data as submitted on the
Federal statistical and financial reports that will be used to
calculate the State's performance. On-line access to a State's system
and data will expedite the process for both the Federal auditors and
the States. We have included specific reference to the data States must
submit because it is essential to the auditors' work. States will also
be required to make available personnel associated with the State's IV-
D program to provide information that the audit staff may find
necessary in order to conduct or complete the audit.
We also require, under paragraph (b), that States provide evidence
to OCSE that their data are complete and reliable. This ensures the
responsibility for maintaining and providing reliable data is the
State's responsibility.
As was the case under former audit regulations at Sec. 305.13, we
require in paragraph (c), that failure to comply with the requirements
of this section with respect to audits conducted under Sec. 305.64 may
necessitate a finding that the State has failed to comply with the
particular criteria being audited. State cooperation with the audit is
essential to assess performance. In addition, States are encouraged to
provide Federal auditors with on-line access to their systems and data.
On-line access to a State's system and data will expedite the process
for both the Federal auditors and the States.
Section 305.66 Notice, corrective action year, and imposition of
penalty for failure to meet requirements
Section 305.66 addresses notice to the State of any deficiency or
deficiencies identified. Similar to the notice aspects of the former
audit process at former Sec. 305.99, paragraph (a) requires that, if
the Secretary, on the basis of the results of an audit or review, finds
a State to be subject to a penalty, OCSE will notify the State in
writing of such finding.
Under paragraph (b), the notice will:
(1) Explain the deficiency or deficiencies which result in the
State being subject to a penalty, indicate the amount of the potential
penalty, and give reasons for the Secretary's finding; and
(2) Specify that the penalty will be assessed if the State has
failed to correct the deficiency or deficiencies cited in the notice
during the succeeding fiscal year, referred to as the ``corrective
action'' year. The corrective action year is the fiscal year
immediately following the year with respect to which the deficiency
occurred.
The State should be continuously monitoring its own performance and
taking action to improve performance which its own data shows may fail
to achieve the performance measures. The State is also responsible for
maintaining proper procedures and controls to ensure data reliability
and completeness. OCSE is willing to conduct data reliability audits at
any time during the compliance year, but the State should not wait or
rely upon the Secretary's determination of a data or a performance
deficiency in order to begin corrective action. Two consecutive years
of failure (either poor data or poor performance) in the same
performance measure criterion will trigger a penalty imposition.
As discussed earlier in the preamble, the imposition of a penalty
is subject to certain limitations, appeals and replacement of funds
requirements specified in sections 409 and 410 of the Act. We
incorporate those statutory requirements in paragraph (b)(2) by cross
reference to the specific TANF regulatory provisions in 45 CFR part 262
that implement those requirements.
Under paragraph (c), the penalty will be assessed if the Secretary
determines that the State has not corrected the deficiency or
deficiencies cited in the notice by the end of the corrective action
year. This determination will be made as soon as possible after the end
of the corrective action year. The penalty will be assessed, however,
commencing with the first quarter following the end of the corrective
action year. The statute requires that the penalty must be imposed for
a minimum period of one quarter, but may be suspended ``following the
end of the first quarter throughout which the State program has
achieved * * * (compliance).''
We require, as supported by the language of section 409(a)(8) of
the Act, under paragraph (d), that only one corrective action period be
provided to a State in relation to a given deficiency when consecutive
findings of noncompliance are made on that deficiency.
Under paragraph (e), a consecutive finding occurs only when the
State does not meet or achieve substantial compliance with the same
criterion or with any one of the criteria cited in the notice. A new
corrective action year will be triggered by a data deficiency or
performance failure under a different criterion than was cited in the
prior penalty notice.
VI. Response to Comments
We received twenty-eight comments from representatives of State IV-
D agencies, national organizations, and advocacy groups on the proposed
rule published October 8, 1999 in the Federal Register (64 FR 55074). A
summary of the changes made in response to comments is followed by a
[[Page 82193]]
summary of the comments received and our responses follows:
Changes Made in Response to Comments
OCSE carefully considered the comments received and made some
changes to the final regulation in response. Section 303.35 dealing
with the administrative complaint procedure was revised and clarified.
Section 305.1(i) on the definition of data reliability was further
clarified by including a 95 percent standard for data reliability to be
effective for data reported for fiscal year 2001. Section 305.32(f) was
revised to add a deadline of December 31 of each calendar year by which
date complete and reliable data for the prior fiscal year necessary to
compute the prior fiscal year's performance must be submitted to OCSE
or the State will not receive incentives for that prior fiscal year.
The example of the incentives calculation was removed from the
regulation language. The two examples for determining a base year for
the reinvestment requirement were removed.
Comments to Section 303.35 Administrative complaint procedure
We received twenty-six comments on the administrative complaint
procedure from State IV-D agencies, national organizations and advocacy
groups. Of these comments, four expressed strong support for the
proposed review procedure and twenty-two expressed opposition to the
proposal. Most of those expressing support were advocacy groups. In
expressing support for the proposed review process, four commenters
stated that the process would appropriately hold IV-D agencies
accountable in individual cases, would improve customer satisfaction,
would increase efficiency and expedite resolution of individual
problems, and could help States identify systemic problems. However, in
order to strengthen the proposed review process, these commenters made
several suggestions for additions to the regulation.
The twenty-two commenters in opposition to the proposal were from
State IV-D directors. Most of these requested that Sec. 303.35 be
removed from the final regulations.
We believe that an administrative complaint procedure is an
essential component in the child support program. The rule does not
dictate how States must implement the complaint procedure. We recognize
that many States may already have these procedures in place. The rule
sets minimal requirements and States are able to set their own
procedures. We have revised the regulatory language to state that an
administrative complaint procedure must be in place ``as defined by the
State.'' We have addressed individual concerns in the following
responses and have revised the regulatory language to address the
objections. The comments and our responses are as follows:
1. Comment: Three commenters suggested the addition of a specific
deadline for State IV-D agencies in responding to client complaints and
notifying the complainant of the review determination.
Response: We have not adopted this suggestion to include in the
regulation a specific time deadline for response and notification. The
intent of this regulation is to ensure that all State IV-D programs
have a review process in place, not to dictate specific requirements
for States in implementing their complaint procedures.
2. Comment: Three commenters recommended the addition of a
requirement for State IV-D agencies to establish procedures for
informing clients about the availability of the review process.
Response: We have included this suggestion in the regulation, in
order to ensure that recipients of IV-D services are informed of the
State's review process. We would encourage all States to include this
notification in the initial information provided to applicants and
those referred for program services.
3. Comment: Two commenters suggested we add an analysis of types
and origins of complaints as a required element in the State's self-
assessment report to allow for the identification and correction of
systemic problems.
Response: We have chosen not to include analysis of complaints as
required element in the State self-assessment report. However, we would
encourage States to regularly examine the types of complaints they are
receiving in order to identify and correct any chronic or systemic
problems. This examination of complaints could be included in the
optional program service enhancements section of the State self-
assessment, with a description of practices initiated by the State that
are contributing to improved program performance and customer service.
In order to assess the need for any future program improvements, we
will monitor State implementation of the administrative complaint
procedure and seek input from States and other stakeholders.
4. Comment: One commenter recommended we require the reviews to be
conducted by an independent decision-maker to enhance the credibility
and fairness of the process. In so doing, this commenter cited the
California statute that includes such a provision.
Response: We have not adopted this recommendation as we are not
convinced that an independent decision-maker is necessary to ensure
fairness and we wish to provide the maximum flexibility to States in
designing and implementing their administrative review procedures.
States may utilize an independent reviewer to maximize fairness and due
process for all parties involved.
5. Comment: Eighteen commenters stated that the proposed regulation
is unnecessary as most States already have complaint procedures in
place. One commenter stated further that the regulation may create
confusion regarding existing State procedures and whether they are/are
not in compliance with the new regulation. One commenter stated that,
due to existing State procedures, the regulation would provide no new
protections for clients but would add administrative burdens to the
State. Finally, one commenter stated that each State should be free to
set its own complaint procedures.
Response: We believe that an administrative complaint procedure is
an essential component in the move to a program based on outcomes and
performance-based incentives and penalties. Recipients of services,
through administrative complaint processes, should be able to access
the IV-D agency and lodge complaints when they have evidence to support
specific concerns in their cases. It is not our intent to nor does the
rule dictate how States must implement the complaint procedure or to
require States to replace their existing procedures with a more formal
process. We recognize that many States may already have these
procedures in place and do not intend to place additional burdens on
those States with these requirements. The rule sets minimal
requirements and States are able to set their own procedures. We have
revised the regulatory language to state that an administrative
complaint procedure must be in place ``as defined by the State.''
6. Comment: Sixteen commenters expressed concern that the proposed
regulation would divert fiscal and personnel resources away from the
primary IV-D mission. One commenter stated further that this diversion
of resources could ultimately result in decreased agency efficiency and
customer service. Ten commenters stated further that resources might be
drained due to the potential for abuse of
[[Page 82194]]
the system by custodial parents who submit repeated complaints,
requiring multiple reviews in each case. One commenter stated further
that, as a result of this proposal, programs would have difficulty
meeting major program goals, with the result of deficient performance
in critical program areas. Finally, one commenter requested a more
thorough analysis of the costs associated with this proposed
regulation.
Response: Since most States already have procedures in place, as
asserted in comment #1, this regulation would not require additional
resources for them--they may continue with their existing procedures.
In establishing their procedures, States have the ability to establish
parameters for appropriate complaints and to, therefore, avoid
excessive or repeated reviews in a case. For States that do not
currently have a complaint procedure in place, this regulation will
require some additional resources. However, we feel strongly that
customer service and a process for administrative reviews are critical
program areas consistent and supportive of the program's mission.
Further, we believe that the 66 percent Federal funding of State IV-D
programs should allow for sufficient funding to address this
requirement.
7. Comment: Ten commenters stated that the language of the proposed
Sec. 303.35 is vague and overly broad, allowing multiple
interpretations and increasing the potential for abuse of the complaint
system. Two commenters specifically cited the regulatory language
``appropriate action'' and ``resolving'' as examples of this vague,
broad language. Two commenters specifically requested that the second
sentence in paragraph (a), which stated that the State ``must have a
procedure for reviewing the individual's complaint and resolving it
where appropriate action was not taken'', be deleted in order to
eliminate the vague language of ``resolving'' and to require a simpler
case review upon request.
Response: To address these concerns, we revised the regulatory
language to eliminate reference to resolving complaints but retain
language to require States to take any appropriate action. The intent
of this regulation is to allow customers a process for having their
cases reviewed if an error has occurred and not to require formal
administrative hearing processes or adjudication of complaints. We
recognize that ``resolution'' of all complaints would be subject to
interpretation. States determine appropriate action in IV-D cases and
the complaint procedures is intended to remedy errors, not to allow
individuals to dictate actions in a case.
8. Comment: Nine commenters opposed this provision on the basis
that it is beyond the scope and intent of the statute. One commenter,
in referencing congressional intent, specifically cited provisions
similar to this regulation that were in welfare reform bills that were
rejected prior to the passage of PRWORA. One commenter states that the
provision may also be unconstitutional.
Response: Section 1102 of the Act provides the authority to publish
regulations that the Secretary deems necessary for the efficient
administration of the IV-D program. Using this authority, we remain
committed to requiring the administrative complaint procedures as we
believe they are a necessary component in the program shift under
PRWORA to performance-based incentives and State self-reviews. PRWORA
revised Federal audit requirements from a process-based system to a
performance-based system. The administrative complaint procedure
represents a key element to identify case management problems that
would have been captured in the previous, process-based audit system.
We have included the administrative complaint procedure in this final
rule because these regulations implement this program shift toward a
performance-based, rather than process-based system. In the absence of
clear legislative statements to the contrary, we do not believe that
the failure to enact these administrative complaint procedures in
PRWORA was intended to preclude the Secretary from using her regulatory
authority under section 1102 of the Act. In addition, we do not believe
there is any basis upon which to conclude that this provision would be
unconstitutional.
9. Comment: Eight commenters referenced the Supreme Court decision
in the Blessing v. Freestone case, stating that the proposed
administrative complaint procedure would conflict with the Supreme
Court decision in this case. Two additional commenters state that the
proposed regulation would infer an ``individual right of action'', but
do not specifically reference the Blessing v. Freestone case. Five
additional commenters expressed a concern that this regulation would
result in increased litigation against the State IV-D agency.
Response: The United States Supreme Court, in the case of Blessing
v. Freestone, 520 U.S. 329 (1997), ruled unanimously that title IV-D
did not create an individually enforceable right to force States to
``substantially comply'' with all of the requirements of the IV-D
program. The administrative complaint procedure established under
Sec. 303.35 does not conflict with the Court's decision in that case,
nor does it establish or infer an ``individual right of action'' to
pursue judicial remedies for failure to provide specific IV-D services.
We believe that establishment of such administrative procedures will,
in fact, result in a decreased risk of litigation against the State IV-
D agency based upon alleged failure of the State to provide specific
services required under the statute and implementing regulations. Many
of the requirements of title IV-D are concrete, mandatory, and binding
upon the State and local agencies. For example, time limits which have
been established for certain provision of services, distribution of
support, and the like, could be construed as establishing enforceable
rights. The establishment of an administrative complaint procedure,
however, does nothing substantively to enhance or otherwise affect such
rights as may already exist under title IV-D. The establishment of such
procedures merely requires that the State have ``administrative'' pre-
judicial review procedures to determine, and possibly correct, failures
to take particular actions which may have been required under existing
IV-D rules.
The State has broad discretion to determine what sort of an
administrative complaint procedure it chooses to establish. We believe
that most States, in fact, already have adequate procedures in place
and that this new rule may impose virtually no additional requirement
or burden on their program operations. In those States which have not
established any mechanism for responding to complaints arising from
parents' concern that certain mandatory actions have been delayed or
were not taken at all, we believe that creating a forum to review such
allegations will lead to increased customer satisfaction and should
actually reduce the risk of judicial challenges to the State IV-D
program.
10. Comment: Six commenters expressed concern that this provision
would remove State discretion in determining and using the most
appropriate enforcement tools. Instead, the provision would allow the
customers to dictate enforcement in their cases.
Response: We disagree that this provision would allow customers to
dictate enforcement or would remove appropriate State discretion. The
rule does not mandate that the State take any particular action in
response to a complaint. States will continue to have
[[Page 82195]]
responsibility for determining and using the appropriate actions and
enforcement tools in a particular case in accordance with Federal
regulations. This regulation is simply intended to allow recipients of
IV-D services a mechanism for requesting a review of their cases when
there is evidence that an action should have been taken by the IV-D
agency. For example, a IV-D customer might request a review if he or
she has provided information to the IV-D agency on the obligated
parent's place of employment, but no action has been taken within
federally required timeframes to institute wage withholding.
11. Comment: Four commenters stated that OCSE has provided
inadequate documentation to justify the need for regulation in this
area. Three commenters proposed further that OCSE and the States work
together on this proposal to assess the need for regulation. One of
these commenters suggested that OCSE convene a national workgroup to
assess the need for regulation and, if necessary, draft more explicit
regulatory language. Finally, one commenter requested a more thorough
analysis of the costs associated with this proposed regulation.
Response: OCSE remains committed to partnership with States and
consultation with our stakeholders. However, we are also committed to
prioritizing customer service and feel that this regulation is
necessary to ensure appropriate service for all IV-D customers. We will
work with States to provide technical assistance and share best
practices for implementing administrative complaint procedures. In this
process, we will seek input from States and other stakeholders for
further improvements.
12. Comment: Four commenters questioned OCSE's decision to regulate
in this area, citing the recent commitment of OCSE and HHS to avoid
unnecessary regulations.
Response: OCSE believes these requirements are necessary to ensure
IV-D customers are given opportunities to raise concerns about their
cases. We have drafted language that we believe imposes minimal
requirements and allows maximum State flexibility in adopting and
implementing administrative complaint procedures.
13. Comment: Four commenters expressed concern regarding the
language ``actions not taken,'' fearing a potential for litigation or
abuse of the system. One commenter requested that, if the entire
section 303.35 is not removed, that this ``action not taken'' language
be removed from the final regulations.
Response: We agree with the concern that the proposed regulatory
language was subject to multiple interpretations. Thus, we have revised
the language ``action taken, or not taken'' that appeared in the NPRM
to provide that individuals may request a review when there is evidence
that an action should have been taken in their particular cases. The
language now reads: ``Each State must have an administrative complaint
procedure, defined by the State, to allow individuals the opportunity
to request an administrative review, and must take appropriate action
if there is evidence that an error has occurred or an action should
have been taken on a case.'' This final rule will ensure that all
States have administrative complaint procedures in place and that
recipients are notified of the availability of services and the outcome
of the review, but will also allow States the flexibility to define
their own administrative complaint procedures.
14. Comment: Four commenters asserted that the administrative
review requirement would eliminate the efficiency gained by automated
systems by essentially returning case management to a case-by-case
review.
Response: While it is true that this regulation will require some
case review, we disagree that it will eliminate the efficiency of the
automated systems. The majority of cases will continue to be handled
through automation. This regulation will require case review only in
specific instances when the customer requests a review in accordance
with State-established procedures. In these instances, we believe case
review is appropriate in order to ensure the best possible case
management and ensure maximum child support collections for children
and families.
15. Comment: Two commenters expressed concern that the complaint
process implies a requirement for 100% caseload compliance, rather than
``substantial'' compliance.
Response: These requirements are not intended as an avenue for IV-D
customers to lodge complaints without a basis of concern. If the State
is taking appropriate actions, in accordance with Federal requirements
and its own State procedures, there should be no basis for lodging a
complaint. States are expected to comply with Federal requirements in
all cases. However, they will only be penalized when they are not in
substantial compliance.
16. Comment: Two commenters expressed concern that the purpose of
the proposed rule is to create a specific measure of State performance,
but the proposed rule did not include any specifics regarding the
method of measurement for State performance.
Response: The intent of this regulation is to ensure that all State
IV-D agencies have a complaint system in place. We believe that
recipients of services should be able to access the IV-D agency and
lodge complaints when they have specific concerns in their cases.
However, the administrative complaint procedure is not intended to be
used as a specific, quantitative measure of State performance. Nor does
the complaint procedure convert the measure of substantial compliance
test in State self-assessments to a 100 percent standard. Thus, we do
not believe that including a specific method of measurement in the
regulation is necessary. States may choose to address results of their
procedures in their annual self-assessment reports.
17. Comment: Two commenters expressed concern regarding the open-
ended nature of the proposal and requested the review process be
limited to specific areas or issues. One of these commenters proposed
that the review be limited to disputes surrounding the allocation and
distribution of child support, and not applied to case management
issues.
Response: We encourage IV-D agencies to strive to achieve
efficiency and quality customer service in all program areas. The
administrative complaint procedure will allow IV-D programs to
demonstrate this commitment to improving customer service, by providing
recipients of services with a process to express their concerns. We
believe that IV-D recipients of services should have the ability to
request a review of any aspect of their case, including case management
issues. Thus, we have not adopted this specific suggestion to limit the
scope of the regulation to disputes involving allocation and
distribution of collections, although that is an appropriate area for
review, if warranted. However, we have revised the language to require
procedures ``as defined by the State''. This change is intended to
allow States flexibility and discretion in structuring their own
administrative complaint procedures.
18. Comment: Two commenters suggested that an additional paragraph
should be added to Sec. 303.35 to explicitly spell out what the rule
does and does not require. This suggestion was made due to concern that
the regulatory language allows the potential for extreme
interpretations, controversy and legal action. In addition, one
commenter suggested that, if the final regulations do require
administrative reviews of prior
[[Page 82196]]
IV-D activity, that a time limit be included so that reviews will only
go back for a specific period of time. Finally, one commenter expressed
concern that the proposal does not indicate the specific recordkeeping
requirements that would be imposed on States with respect to the review
process.
Response: While we have not adopted these suggestions, they may be
appropriate for State consideration in establishing procedures. As
stated earlier, the intent of this regulation is to ensure that all
State IV-D programs have some type of complaint process in place, not
to dictate the specifics of the procedure. We believe it is preferable
and supportable to allow States to establish their own procedures.
19. Comment: One commenter questioned whether allowing the
custodial parent to review actions taken on their case would be in
conflict with safeguarding provisions, stating that the IV-D agency is
not allowed to release their work product.
Response: We do not believe that this provision would be in
conflict with safeguarding provisions. The regulation does not allow a
IV-D customer to review actions taken on his or her case. It requires
the State to review the case at the request of the customer where there
is evidence an action should have been taken and to notify the
individual of the results of the review. This notification would not be
a per se violation of the safeguarding requirements. Pursuant to
section 454(26) of the Social Security Act, State IV-D programs are
required ``to have in effect safeguards, applicable to all confidential
information handled by the State agency, that are designed to protect
the privacy rights of the parties''. States must design their
administrative complaint procedures to ensure safeguarding requirements
are met and that the information provided does not violate the privacy
rights of one or both parties.
20. Comment: One commenter questioned how the administrative
complaint process would be applied in interstate cases.
Response: Under current interstate case processing, applicants and
recipients of IV-D services would express concerns to the IV-D agency
in the State in which they applied or were referred for services. It
would be the responsibility of that IV-D agency to determine whether
the complaint involves its own actions or a responding State's actions
in the case and to follow up by conducting its own review or contacting
the other State's IV-D agency for an administrative review, as
appropriate.
21. Comment: One commenter indicated that the proposal is ill-timed
as it coincides with the implementation of outcome measures, the
incentive system and the expansion of penalty standards. The commenter
suggested that this provision be delayed to allow OCSE to evaluate the
impact of these other measures on program performance.
Response: We believe that the administrative complaint procedure is
a central component and an appropriate element of the move toward
measuring program results and performance-based incentives. As such, we
do not believe that it is appropriate to delay these requirements for
the administrative complaint procedures beyond the implementation of
the incentive system and other outcome measures.
Comments to Section 305.1 Definitions
1. Comment: Two commenters recommended adding a sentence which
further explains the meaning of ``lack of jurisdiction.'' The added
text would include the following qualifying statement: ``Depending on
applicable law concerning the subject matter jurisdiction in which the
custodial parent or child resides, lack of jurisdiction cases may also
include those cases in which the custodial parent or child resides in
the civil jurisdictional boundaries of another country or federally
recognized Indian Tribe.'' Another commenter stated the definition of
lack of jurisdiction provided is not satisfactory and mentioned that
subject matter jurisdiction issues begin with respect to the place of
conception.
Response: We believe the sentence in Sec. 305.1(a) is clear and
adequate to explain the meaning of ``lack of jurisdiction'' for the
purposes of Federal data reporting. Lack of jurisdiction refers to the
practical effect of a State being unable to take action in a case due
to lack of jurisdiction or other means to take establishment or
collection action in the non-custodial parent's jurisdiction of
residence. In cases where enforcement tools such as long arm
jurisdiction can be used, there is no lack of jurisdiction.
2. Comment: A few commenters compared the proposed regulation with
Federal data reporting instructions and expressed confusion over the
definition of ``collections received and distributed on behalf of title
XIX (Medicaid) cases versus the proposed definition of title XIX
cases.'' The commenters' understanding from Federal data reporting
instructions is that ``Medicaid Only'' collections and cases should be
reported either as current or former assistance.
Response: The commenter's understanding is incorrect. Federal data
reporting instructions for the OCSE-157 (AT-99-15) state that a
``Medicaid Only case'' is ``a case where the child(ren) have been
determined eligible for or are receiving Medicaid under title XIX of
the Act, but who are not current or former recipients of aid under
titles IV-A or IV-E of the Act. ``Medicaid Only'' cases are reported as
never assistance cases.'' We remind States that ``Medicaid Only'' is
defined and reported differently on the Federal financial reporting
form, the OCSE-34A. The OCSE-34A will be the source for calculating a
State's collections base for incentive purposes. ``Medicaid Only''
cases will be reported as current assistance cases on the OCSE-34A,
unless the case was formerly on assistance and, therefore, will be
reported as a former assistance case. States should refer to OCSE-34A
instructions contained in Action Transmittal AT-00-02 and Dear
Colleague letter DC-00-28. Under section 458A(b)(5)(C) of the Act, the
``State Collections Base'' double counts those collections in which the
``support obligation * * * is required to be assigned to the State
pursuant to Title IV-A (TANF), Title IV-E (Foster Care) or Title XIX
(Medicaid) * * *'' Incentive data taken from the OCSE-157 report uses
total caseload and total collection numbers and are not broken into
categories (i.e. current assistance, never assistance, and former
assistance) for performance calculations. So, the fact that Medicaid
only cases are reported differently on the OCSE-157 and OCSE-34A
reports will not have an impact on incentives. However, since several
commenters found this difference to be confusing, we will work with
States to reconcile this difference in the future.
3. Comment: Several commenters requested a specific definition of
``reliable data'' in Sec. 305.1(i). A few commenters offered
definitions of ``reliable data'' that referred to Comptroller General
standards (U.S. General Accounting Office) or specific statistical
analysis methodologies, such as Analysis of Variance (ANOVA). Two
commenters recommended that monitoring compliance with case closure
regulations should be part of the data reliability audits. Another
commenter recommended that data reliability audits should measure
compliance with Federal reporting instructions.
[[Page 82197]]
Response: We have included a 95 percent standard for data
reliability in response to comments to make the standard clearer than
what was included in the proposed regulation. Our 95 percent standard
is based on the unwritten, yet generally accepted 10 percent error rate
used by the auditing community and based on our experience in FY 1999
data reliability audits conducted of State IV-D program data to date.
We believe the definition of ``reliable data'' in Sec. 305.1(i) as
revised is adequate and preserves needed flexibility as State and
Federal partners implement the new incentive, penalty, and audit
system. Although no specific reference is made, General Accounting
Office standards are included in the definition of ``reliable data.''
We rejected the commenter's suggestion to use the analytical technique
known as ANOVA because it is not suited for the comparison of results
obtained from one sample of reported data.
While not included in the definition, case closure will be examined
as part of the sample reviewed in the Data Reliability Audits. In
addition, OCSE employs other methods to assure States are closing cases
appropriately. Such methods may include reviewing reported data for
large decreases in caseload from year to year and following up with a
discretionary audit. State self-assessments are also an important
management tool in assuring compliance with Federal requirements. Data
Reliability Audits will measure the level of each State's compliance
with Federal reporting instructions effectively providing a common
standard by which all States will be compared. If a State does not
comply with Federal reporting instructions, its data will not be
determined to be complete and reliable.
4. Comment: One commenter suggested that the determination of data
reliability and payment of incentives should not occur until a level
playing field is established with statewide certified automated systems
in place in all States.
Response: State and Federal partners began collaborating on
standardized data definitions over five years ago. Consensus among
partners was achieved on almost all details of the revised reporting
system approximately two years ago through a State/Federal data
definitions work group. The statute does not permit a delay in the
assessment of data validity or in the implementation of the new
incentive formula until automated systems are in place in all States.
Data reliability can and will be assessed in States without certified
statewide automated systems. Incentives can also be paid to States with
complete and reliable data that may not have a certified automated
system. However, more frequent audits may be necessary for those States
without an automated system. An audit would be warranted once a
previously non-fully automated State places all cases on its automated
system or when a State passes its FY1999 audit at or below the 95
percent level for any line item.
5. Comment: One commenter suggested that ``parent'' in the context
of a IV-D case could include a legal custodian or guardian who may be
obligated to pay support for a child, not just a mother, father, or
putative father as described in section 301.1(a) of the proposed rule.
Response: While we agree that individuals other than parents may be
obligated to pay support for a child in some cases and understand that
several States have provisions that can hold step-parents liable for
support, we have retained the term ``parent'' in Sec. 305.1(a) for
consistency with the majority of IV-D cases and with the OCSE-157
definition. States should, however, include IV-D cases where a legal
custodian or guardian or step-parent becomes the obligor, and we will
consider an expanded definition of the term in revisions to the OCSE-
157.
6. Comment: Several commenters asked why Federal data reporting
instructions for the OCSE-157 contained statements that were not
included in the proposed rule. Others requested consistency with
Federal reporting forms in a wide variety of definitions and
instructions.
Response: We do not believe it is appropriate to include the same
level of detail in the instructions in the rules. Federal reporting
instructions (AT 99-15) do not conflict with statements in regulations,
but rather elaborate on those requirements with greater specificity and
examples. States must refer to the detailed instructions that accompany
the various reporting forms rather than using the regulations as a
guide to completing Federal data reporting forms.
7. Comment: One commenter suggested that there was not enough time
for States to complete reprogramming of data reporting elements prior
to Data Reliability Audits. The commenter requested that proposed
definitions be deleted and instead a sentence could be added which
refers to definitions contained in Federal reporting instructions. This
way, any changes to the instructions are always covered by this section
of the regulation.
Response: We believe there has been enough time for States to
complete any reprogramming that is necessary. State reprogramming of
data reporting elements should have begun with the issuance of form
OCSE-157 instructions, AT-98-20 dated July 10, 1998. Limited
modifications were made through AT-99-15. States should not be using
the proposed rule or this final regulation as a guide to data
reporting. States that do not report in a timely manner face a
determination of incomplete data.
Almost all of these definitions are included in the statute and
should not change frequently. It is appropriate to include definitions
of key terms in regulations where they are subject to notice and
comment rulemaking.
8. Comment: Several commenters expressed confusion about the words
``received and distributed'' in Sec. 305.1(b) which defines current
assistance collections and made various suggestions to provide
clarification.
Response: This was intended to address collections made in one
fiscal year but disbursed in the next fiscal year. For purposes of
Federal data reporting, ``distributed'' means ``disbursed.'' A State's
incentive collections base for a fiscal year will only include
collections ``disbursed'' in the reporting fiscal year for individuals
receiving IV-D services.
9. Comment: One commenter recommended a phase-in of the data
reliability requirement and consultation with States to determine an
acceptable standard for fiscal year 2000.
Response: The statute requires that data be determined to be
complete and reliable in order for a State to be eligible to receive
incentive payments under the new provisions in section 458A of the Act,
beginning with FY 2000 data. The requirement for complete and reliable
data is being phased-in with the performance-based incentive system,
i.e. the data upon which one-third and two-thirds of incentive funds
will be paid are subject to this requirement in fiscal years 2000 and
2001, respectively. We have included a 95 percent standard for data
reliability in these regulations beginning with respect to FY 2001
data. This standard is based on generally accepted standards within the
auditing community and based on our experience in data reliability
audits conducted to date.
10. Comment: One commenter suggested that the Secretary be given
discretion to waive requirements in Secs. 305.0 through 305.66 for
fiscal year 2000. The commenter's rationale included apparent conflicts
between the proposed rules and current data
[[Page 82198]]
reporting instructions and the uncertainty of projecting State
incentives.
Response: There is no statutory authority for the Secretary to
waive the many elements of the new incentive system implemented by the
regulations. Moreover, the statute is clear enough to be implemented
without final regulations. Federal data reporting instructions are not
in conflict with the proposed rules, but rather contain more detail.
States should follow reporting instructions when reporting information
for incentive calculations. Again, the phase-in period will limit State
and Federal partners' uncertainty with the new performance-based
incentive system.
11. Comment: One commenter asked for the specific lines from the
OCSE-157 data report that match the elements needed to calculate the
incentive collections base described in Sec. 305.1(b)-(d).
Response: In the table below we have provided the specific line
numbers from the reporting forms OCSE-157, OCSE-34A, and OCSE-396A
which are used to calculate the five performance levels. This
information will help States understand how OCSE will calculate State
performance, highlight the importance of key data elements of State-
reported data, and assist States in making projections of their own
performance.
[[Page 82199]]
[GRAPHIC] [TIFF OMITTED] TR27DE00.024
Comments to Section 305.2 Performance Measures
1. Comment: One commenter recommended allowing States to exclude
cases where it is impossible to establish paternity for children born
out-of-wedlock in the preceding year. Examples of cases to exclude
included: Mother's noncooperation, death of child or putative father
before paternity establishment, custodial parent closes case before
paternity establishment, and inconclusive genetic testing. A second
commenter asked if situations where paternity is contested for a child
born within marriage should be included. A third commenter asked if a
child can be excluded if good cause was in effect at any time during
the fiscal year or must it be in effect at the end of the fiscal year.
Response: Some of the examples cited are very rare and are
accounted for within the allowable tolerances in the performance
standards. The performance standards for paternity establishment and
other measures do not require 100% compliance in every case before an
incentive can be earned or a penalty is avoided. State and Federal
partners and Congress recognized that perfect performance was
[[Page 82200]]
not possible and decided to focus on effective or significantly
improved performance.
Moreover, section 452(g)(2) of the Act requires that States exclude
children in cases involving good cause. This would apply to cases where
a good cause finding was in effect at any time during the year. OCSE
has issued more detailed reporting instructions which instruct States
to exclude children where there is noncooperation due to good cause or
death of a parent as provided for under section 452(g) of the Act.
In addition, most State laws presume that a child born within a
marriage is legitimate. These children could be determined to be born
out-of-wedlock only if allowable under State law and then only if a
court determined the presumed father could not have been the child's
biological parent.
2. Comment: A number of commenters wanted Federal data reporting
instructions and the proposed rule to be consistent. One commenter
believed that ``case count at a point in time'' was not as specific as
the wording of the numerator and denominator used in the support order
measure itself.
Response: Federal reporting instructions are consistent with the
measures as described in this regulation. However, regulations will not
be as detailed as reporting instructions. The narrative description of
the support order measure in the regulation is correct in identifying
it as case count at a point-in-time (the end of this fiscal year). This
measure counts cases with at least one support order.
3. Comment: One commenter said that the statewide paternity
establishment percentage should include only children born in the
reporting State and involved in an interstate case as it is
inconsistent to include a child born out-of-wedlock in another State.
Response: Revised OCSE-157 reporting instructions issued in AT-99-
15 explain that with respect to the statewide paternity percentage,
States should report children who were born out-of-wedlock in the State
since States get their data from their vital statistics agencies. This
is also consistent with the instructions for counting the number of
children with paternity established or acknowledged for the statewide
PEP. The instructions require States to only include those children
born in the State with paternity established or acknowledged.
4. Comment: One commenter said that ``modification'' must be
defined in the explanation of the support order establishment measure.
An example was cited from the commenter's State where a second case is
created when a subsequent child is born to the same parents until the
new order can be consolidated with the earlier order.
Response: OCSE data reporting instructions (AT-99-15) explain that
this measure is counting cases with orders, and modifications to an
existing order should not be reported. However, if a second case is
required to be established, it should be counted as a separate case
until the two cases with orders are consolidated. When the
consolidation occurs, the subsequent case should be subtracted from the
count.
5. Comment: One commenter observed that Sec. 305.2(a)(4) conflicts
with AT-97-17 which requires States to first apply IRS Tax Offset
collections to assigned arrears. The commenter believed that the
performance criteria penalizes States that follow Federal distribution
requirements. Another commenter believed that not counting Federal
income tax refund offsets as an arrearage payment when no money goes to
the family would lead to States directing efforts away from collecting
arrears owed to the State. This would negatively impact the State's
cost-effectiveness performance level.
Response: Section 458A(b)(6)(D) of the Act includes a specific
requirement with respect to former assistance cases in which some
arrearages are owed to the State and some arrearages are owed to the
family. In such cases, States may only count cases in which some
arrearage payments are distributed to the family. Congress added this
provision in response to concerns that States would be able to count
former assistance cases as cases paying arrearages for incentive
purposes when the only action taken by the State was to submit the
arrearages owed to the State for Federal income tax refund offset. Thus
States would have no incentive to collect support owed to former
assistance families.
In addition, we do not agree with the second commenter's statement
that counting arrears payments this way would direct States away from
collecting arrears. States have a strong inducement to collect arreas
owned to the State in any circumstance because the State receives a
direct financial benefit and because these collections help families
stay off of TANF, thus increasing self-sufficiency.
6. Comment: One commenter believed that States should not be held
to performance criteria for areas that have not been worked out. The
commenter cited aspects of interstate cases, such as administrative
enforcement and the absence of final regulations implementing the
Uniform Interstate Family Support Act.
Response: Interstate cases are a significant part of the child
support caseload and the statute does not exclude these cases from the
incentive formula's performance measures. Statutory provisions
specifically provide for double counting of collections where one State
collects support for another State, whether it is a traditional
interstate case or an administrative enforcement is employed. Section
458A(c) of the Act requires support collected by one State at the
request of another State to be treated as having been collected in full
by each State.
7. Comment: One commenter said that ``total IV-D dollars expended''
should be defined better in the explanation of the cost-effectiveness
performance measure and added that State program structure should be
taken into account.
Response: ``Total IV-D dollars expended'' is a commonly used term
in Federal financial reporting instructions. Instructions given to
States for form OCSE-396A provide more detail on how this information
should be reported by States. State and Federal partners that
recommended the incentive formula to Congress believed all IV-D
expenditures should be included in the cost-effectiveness performance
measure. States do have the flexibility to structure their programs in
many different ways. We encourage States to consider the impact of
program structure, among many other factors, in assessing barriers to
performance under the new incentive system.
8. Comment: One commenter believed Sec. 305.2(a)(1), which
describes the paternity establishment performance level, should read
the count of children ``may'' (rather than shall) not include children
in cases with a deceased parent or where good cause has been
determined. The commenter stated that these cases are few and data
reporting from automated systems is too costly and complicated.
Response: Section 452(g)(2) of the Act provides that the total
number of children shall not include any child who is dependent by
reason of the death of a parent unless paternity is established for
such child or any child with respect to whom an applicant or recipient
is found to have good cause for refusing to cooperate. Accordingly,
these children shall not be included in the count.
9. Comment: One commenter recommended that special provision be
made for States like California, New York, Florida, and Texas, who have
a higher number of immigrants.
[[Page 82201]]
Response: The statute governing incentives is very specific and
does not allow for any such special provisions. We assume the commenter
is referring to cases where one parent resides in a foreign country.
While we agree that some cases involving immigrants may present greater
challenges to child support enforcement programs, there are often
mechanisms for working these cases such as agreements between the State
and the foreign country. When there is no jurisdiction to work the case
and no mechanism to facilitate government-to-government cooperation,
these cases will not be included in the incentive calculation.
It should also be noted that the Child Support Performance and
Incentive Act of 1998 requires the Secretary to conduct a study ``* * *
that identifies any demographic or economic variables that account for
differences in the performance levels achieved by the States with
respect to the performance measures...'' and make recommendations for
changes ``* * * to the system as may be necessary to ensure that the
relative performance of States is measured from a baseline that takes
account of any such variables.'' This report due to the Congress
October 1, 2000, will provide useful information to the States and
Federal government on the affect such variables have on State
performance.
10. Comment: One commenter asked a question about counting
voluntary collections in the current collections performance level. The
commenter stated that there is no amount ``owed'' in a voluntary
payment and therefore it cannot be included in the denominator.
Response: Section 305.2 requires voluntary payments to be included
in both the numerator and denominator of the current collections
performance level. This is the only way the State can take credit for
the voluntary payment as a ``collection.'' In these circumstances, we
believe it is reasonable to consider the amount paid to be the amount
``owed'' until a support order can be established.
11. Comment: A few commenters recommended excluding ``minor'' from
the numerator of the statewide paternity establishment percentage
because a case may begin when the child is a minor and be resolved
after the age of majority in the same fiscal year.
Response: The numerator of the statewide paternity establishment
percentage is taken directly from section 452(g) of the Act and,
therefore, the word ``minor'' may not be excluded. Federal data
reporting instructions (AT-99-15) state that emancipated children
should not be included in the count of children and that States should
only include those children who are under 18. However, instructions do
allow States to count children who have reached their 18th birthday in
the fiscal year being reported. This standardized definition of a minor
child was added to address States' desire for a ``level playing field''
regarding the paternity establishment percentage--that no particular
State have an unfair advantage regarding the PEP because of the way
that State defines emancipation.
12. Comment: One commenter suggested the inclusion of an additional
optional performance measure for the current collections performance
level. The measure would presumably compare the number of cases paying
on current support to the number of cases with current support due.
Response: There is no statutory authority for including a second
optional measure for the current collections performance level for
incentive payments. In addition, State and Federal partners did not
recommend a case-based measure on current support because States treat
these collections similarly, unlike arrearage collections which are
dealt with in significantly different ways by individual States.
However, nothing prevents a State from tracking performance in this way
for its own program monitoring purposes. For penalty purposes, we
believe States should be measured using the same measure that is used
for incentive payments.
Comments to Sec. 305.31 Amount of incentive payment
1. Comment: One commenter recommended rewording Sec. 305.31(e) for
clarity to read: ``A State's maximum incentive base amount for a State
for a fiscal year is zero if the fiscal year data submitted by the
State to calculate a performance level fails to meet data reliability
items as determined by a Federal audit performed under Sec. 305.60(1)
of this part.''
Response: Paragraph (e) tracks the from statutory language in
section 458A(b)(5)(B) and we believe it is clear as written.
2. Comment: Several commenters inquired about how HHS will handle
downward adjustments in incentive payments for States that
overestimated their quarterly claims or whose performance data was
found to be incomplete or unreliable. Commenters asked if the funds
would go to other States, a pool for future years, or are lost.
Response: In the case of States that overestimated quarterly
estimated claims for incentive payments, there will be a final
adjustment of IV-D grant awards approximately nine months after the end
of the fiscal year. Final adjustments can be either up or down
depending upon the State's original estimated quarterly claims,
calculation of the traditional cost-effectiveness incentive formula and
the proportional distribution of incentive funds to all States based on
performance. This mirrors the traditional process in which incentive
payments have been made to States. During the phase-in period, this
adjustment will be based upon calculation of the traditional cost-
effectiveness incentive and calculation of the new performance-based
incentives. During fiscal year 2000, only one-third of the incentive
pool or $139 million will be available for payment to the States based
on the new incentive, while two thirds of a State's incentive will be
earned based on the traditional incentive system. Funds from downward
adjustments made under the new incentive provisions will go to other
States. Funds from downward adjustments attributable to the existing
incentive system will be returned to the U.S. Treasury. Because of the
uncertainty involved with amounts that individual States will earn
under the new incentive system, we encourage States to be conservative
in their estimates of incentives for the phase-in years of the new
system.
In the case where a State is determined to have incomplete or
unreliable data, and is thus ineligible for incentives under the new
incentive system, those funds will be redistributed to other States
based on their performance for the same fiscal year. We remind
commenters that completeness and reliability of a State's performance
data will be determined on a measure by measure basis. The
determination is not ``all or nothing''--incentive funds are calculated
based on the State's scores for each of the five performance measures.
Accordingly, a State which has incomplete or unreliable data with
respect to one (or more) performance measures may still qualify for
incentive payments based on its performance levels for the remaining
measures.
3. Comment: Several commenters stated that the calculation of the
incentive formula is too complicated, preventing States from estimating
incentives and delaying payment of incentives until all States report
data and final calculations are made. One commenter recommended a
revised process that allows State and Federal governments to make
reasonable decisions about the amount of incentive
[[Page 82202]]
payments. Another commenter said that requiring States to estimate
their own incentives is contrary to legislation which requires the
Secretary to estimate the amount of State incentives. A few commenters
asked for a methodology or guidance to estimate incentives, while
others recommended speedy estimates or taking into account the phase-in
period.
Response: The incentive calculation is explicitly required by
statute and therefore, we are unable to modify it. We are aware that it
presents challenges to State and Federal planning and implementation.
There is a significant amount of uncertainty as we move from the
traditional incentive system to one based on performance. As State and
Federal partners gain more experience with data reporting and
performance under the new system, the ability to predict performance
should improve.
We are committed to monitoring the implementation of the new
incentive payment process and consulting with States. We will recommend
improvements to Congress if elements of the formula prove to be
unworkable or contrary to the intent of improving the program's
performance.
Federal staff have traditionally made estimated incentive payments
based on State estimates of future incentive earnings. The program is
forward funded with final adjustments to funding made later as actual
data is reported. This process will not change. Federal staff will
perform an analysis to determine if State estimates appear to be
significantly higher or lower than likely actual incentives and
recommend adjustments. We believe this comports with the statutory
requirement that the Secretary make estimated payments based on the
best information available. In addition, the phase-in period limits the
amount of uncertainty with regard to estimating incentives for fiscal
years 2000 and 2001.
4. Comment: One commenter observed that States should be able to
identify whether a case formerly received public assistance by use of
an indicator present in State files and the Federal Case Registry.
Computer matching of data files could be used to share this information
with other States in interstate cases so that collections in former
assistance cases can be given double credit in the calculation of the
State incentive base.
Response: The commenter correctly identifies that it will be to
each State's advantage to identify which cases formerly received public
assistance. We encourage States to share this information in interstate
cases. We recognize that each State's ability to identify these cases
will vary depending upon historical records and automation. While
States may not have complete information on older cases, they will
benefit from developing a procedure for recording former assistance
status on cases in FY 2000 and beyond.
The Federal Case Registry does not currently include a data element
which would indicate whether a case formerly received assistance. In
the future, such a data element could be considered for discussion by
State and Federal partners.
5. Comment: Several commenters expressed concern that required Data
Reliability Audits would not be completed in order for FY 2000
incentives to be calculated and paid.
Response: Data Reliability Audits for FY 2000 incentives will not
begin until FY 2000 data is available from States. OCSE is committed to
providing adequate resources for Federal auditors to complete the
necessary work to calculate each year's incentive payments. Data
Reliability Audits rely on the submission of State-reported data and
cooperation of the States. Because of the time it takes to conduct
audits in every State, it is imperative that data be submitted on a
timely basis. That is why we are imposing a deadline of December 31st
for the reporting of final adjusted data for a fiscal year. Audits will
be conducted based on the data submitted by States up until December
31st. If these data are determined to be incomplete or unreliable, the
State will be subject to a loss of incentive funds for the prior fiscal
year. In addition, the results of the fiscal year 1999 audit will be
important in determining the level of audit necessary for a State for
fiscal year 2000. For those States meeting a high level of reliability
in 1999, the audit will not have to be as exhaustive as it will for
those States displaying a low level of reliability in 1999, or for
those States that have made major changes in their systems or other
data related processes. States may request a data reliability audit
during FY 2000 if they have the ability to produce an ``ad hoc'' report
using FY 2000 data which OCSE can review.
6. Comment: One commenter wrote that using 1998 as a base year for
program expenditures will unfairly penalize States that paid for
automated systems during this timeframe.
Response: That is why we have included an alternative base period
that States may elect to use. States have the option of using the
average amount for fiscal years 1996, 1997, and 1998 for determining a
State's base year for reinvestment of incentives. Employing a three-
year average would decrease the effect of large non-recurring
expenditures such as automated systems.
7. Comment: One commenter asked how the statutorily-capped amounts
of the incentive pool for FY 2000 through FY 2008 were determined. The
same commenter inquired if two-thirds of the old incentive formula
equals or exceeds the FY 2000 pool of $422 million for all States, will
additional money be made available for States to earn the one-third new
incentive?
Response: The original statutory requirement for development of a
new performance-based incentive formula required the new formula to be
cost neutral, meaning not costing more than projections of incentives
payments under the old formula. Congress enacted the capped incentive
pool amounts contained in section 458A(b)(2) of the Act based on budget
estimates for these years.
During the phase-in period of FY 2000-2001, the old and new
incentive formulas are in operation concurrently. Thus, for FY 2000 the
old formula which is uncapped would be calculated as usual and two-
thirds of that amount would be actually paid to the States based on
this formula. One-third, or $139 million, of the FY 2000 incentive pool
of $422 million would be paid for States' performance on the new
formula. Because the old formula is affected by declining TANF
collections, which also caps incentives paid for non-TANF collections
under the old incentive formula, and the two-thirds phase-in, we do not
expect that States will earn more than $422 million.
8. Comment: One commenter believed that Sec. 305.32(c) implied that
both States may count an interstate administrative enforcement
collection in its collections base in addition to traditional
interstate collections.
Response: Statutory provisions specifically allow for double
counting of collections where one State collects support for another
State, whether it is a traditional interstate case or administrative
enforcement is employed. Section 458A(c) of the Act provides that
support collected by one State at the request of another State shall be
treated as having been collected in full by each State. Collections
received via administrative enforcement in interstate cases can only be
reported by both the responding and initiating States if they meet the
requirement of section 458A(c). If, for example, State A uses
administrative enforcement to collect support by itself, such as
through interstate wage withholding where State A sends a wage
withholding request directly to an employer in State B, only
[[Page 82203]]
State A would qualify for reporting the collection. Similarly, if State
B provides information or other assistance (and not actual collection)
to State A in response to a request, it would not be able to report the
collection. We will use State-reported data to calculate all components
of the incentive formula including the collections base.
9. Comment: One commenter asked how the phase-in provisions would
impact the payment of incentives under Secs. 305.31 and Sec. 305.34 and
reinvestment of incentives under section Sec. 305.35.
Response: During fiscal years 2000 and 2001, the old and new
incentive formulas are in operation concurrently. Therefore, for fiscal
year 2000, States will be able to earn two-thirds of what they earn
under the traditional cost-effectiveness formula, which is uncapped.
One-third of the $422 million fiscal year 2000 incentive pool or $139
million will be available to all States to be shared under the
performance-based incentive formula. For fiscal year 2001, States will
be able to earn one-third of what they earn under the traditional cost-
effectiveness formula, which is uncapped. Two-thirds of the $429
million fiscal year 2001 incentive pool or $286 million will be
available to all States to be shared under the performance-based
incentive formula.
The incentive payment process required by Sec. 305.34 remains
unchanged during the phase-in period except that we must factor in the
performance of all States for the partial (1/3rd or 2/3rd) calculation
of the performance-based incentive payment. Complete and reliable State
data are required for payment of incentives on the performance-based
formula.
The reinvestment requirement described in Sec. 305.35 is applicable
to one-third and two-thirds portions of the incentives a State may
receive under the new formula for fiscal years 2000 and 2001
respectively.
10. Comment: One commenter pointed out an error in the example
given at Table B to Paragraph (j).
Response: The commenter was correct in that there was an error in
the numbers for two of the fictional States. We corrected that error in
the example which appears earlier in this preamble and are eliminating
the example at Sec. 305.33 (j) from the final rule, since it was there
for illustrative purposes only.
Comments to Section 305.35 Reinvestment
1. Comment: Several commenters suggested that the requirement to
reinvest incentive funds in the Title IV-D program be phased-in over
the same three year period as the new incentive structure. One
commenter stated that there is no need for Federal intrusion into this
area. Another commenter suggested that the reinvestment requirement be
tabled until the new incentive system is fully implemented and data can
be validated. One commenter said the rule was unclear regarding the
starting date of the reinvestment requirement.
Response: Section 458A(f) of the Social Security Act provides for a
phase-in of the requirement for States to reinvest incentive payments
which matches the implementation of the new incentive payment system.
Only incentive payments based on the new system must be reinvested.
Accordingly, one-third of FY 2000 incentives, two-thirds of FY 2001
incentives, and all of FY 2002 incentives and beyond must be reinvested
in the IV-D program. There is no statutory authority to delay
implementation of the reinvestment requirement.
In the past, there were no requirements on use of incentive funds
except that they be shared with political subdivisions that help
operate the program. Over the years, the fact that IV-D incentive funds
could be used to support State or local programs other than child
support drew much attention. The reinvestment requirement had its roots
in the consensus of the State and Federal workgroup on incentives. The
Congress clearly expressed its belief that financial rewards earned by
the IV-D program should be reinvested in the IV-D program by enacting a
reinvestment requirement. The requirement to reinvest incentive funds
should add critical resources to State efforts to improve the
performance of child support enforcement programs.
2. Comment: One commenter suggested a third alternative to
calculating the base amount of a State's IV-D program investment: the
denominator of the previous year's cost effectiveness ratio (total IV-D
dollars expended) minus the previous year's incentives earned, only if
the cost effectiveness ratio was at least $3.00 and at least two other
performance measures remained constant or increased over the previous
year.
Response: We have not implemented the commenter's suggested
alternative because this alternative method would reward States with
average cost-effectiveness and static or increased performance on any
two of the other four measures. Its effect would be to lower the base
amount of State IV-D expenditures. This method would also be more
complicated and might not be applicable to a few States because the
proposed performance criteria would not be met. Our intention was to
provide a simple method of calculation. We do not believe it is
appropriate or consistent with the statutory intent to set criteria
based on performance that would allow some States to employ a favorable
base calculation method while others could not do so.
3. Comment: One commenter suggested a fourth alternative to
calculating the base amount of a State's IV-D program investment. A
base cost per case formula was suggested to allow greater flexibility
for all States in years of substantially declining or increasing
caseloads. The formula was not described further.
Response: We have not implemented the commenter's suggested
alternative. Under this alternative, substantial increases or decreases
in caseload from year to year would significantly affect a State's
required investment. States could have difficulty ensuring that the
appropriate amount was reinvested. The commenter's alternative method
could also have required States to invest more than the value of their
incentive payments. Finally, we are not convinced that a base cost per
case is something that States should be encouraged to maintain.
4. Comment: One commenter suggested clarifying whether the OCSE
Commissioner can approve expenditures of incentives outside the IV-D
program.
Response: OCSE will issue instructions after the publication of the
final regulation which provide the details of the spending approval
process.
5. Comment: Several commenters stated that the outside examples
provided in Sec. 305.35(e) are unclear and should be deleted.
Response: We agree that the examples caused some confusion and
therefore have deleted the examples at Sec. 305.35(e) and redesignated
Sec. 305.35(f) as Sec. 305.35(e). We have revised paragraph (d) to
clarify when incentive amounts may be subtracted from FY 1998
expenditures.
6. Comment: A few commenters suggested that the base amount should
exclude extraordinary or other one-time non-recurring (e.g., expenses
incurred for federal automated system certification) because it would
work against States' cost effectiveness.
Response: The exclusion of long term investments was considered and
rejected numerous times by State and Federal partners on a number of
work groups. It is also not authorized by the statute. Therefore, we
have not implemented this suggestion in the final
[[Page 82204]]
regulation. We appreciate the difficulty created by capital or
nonrecurring expenditures like automated system investments. The rule
provides for an alternative base year calculation that would use a
three-year average calculation in order to avoid inflated spending in
any one year for nonrecurring expenditures. We believe that the
calculation of a State's base amount for reinvestment purposes should
be consistent with the longstanding method of measuring State program's
cost-effectiveness which uses total IV-D expenditures. Total costs are
included in the denominator of the cost-effectiveness measure for
incentive purposes. Certain costs in addition to systems costs, such as
staff training and paternity establishment, may not have immediate
payoff in terms of collections. States that wish to minimize the
problem of nonrecurring expenditures in 1998 should elect to use the
three-year average base amount calculation provided in the final rule.
7. Comment: Two commenters believed the baseline of historic State
expenditures should include all State expenditures, including incentive
payments. The commenters also argued that the proposed rule ignored the
reality that State money is fungible, or easily mixed with other funds.
Response: The inclusion of State incentive payments as expenditures
would require States that have historically used incentive funds to
support the IV-D program to increase their spending by the amount of
any new incentive funds that they received. The reinvestment
requirement is not intended to force States to extraordinarily increase
program funding. However, we recognize that once Federal funds are
transmitted to a State, they become mixed with other funds and can not
be identified as ``IV-D incentive funds.'' A State will be allowed to
subtract the incentive funds received only to the extent that the State
can document that they were re-invested in the IV-D program.
8. Comment: One commenter asked when the instructions on what non-
IV-D activities would be acceptable for the use of incentive funds
would be issued? The commenter also asked if such identified activities
would be eligible for regular Federal financial participation at 66%.
Response: After publication of the final regulations, OCSE will
issue instructions on how States may request to spend incentive funds
on activities not currently eligible for funding under the IV-D
program, but which would benefit the IV-D program. However, while the
statute allows incentives to be used for expenditures outside the IV-D
program, these instructions will offer suggestions for acceptable uses
of incentive funds that will not be all inclusive and will require
documentation of proposed spending. There is no statutory authority to
expand eligibility for Federal IV-D funding of ineligible activities.
9. Comment: One commenter asked how will the Federal government
know if individual counties have complied with the reinvestment
requirement and who is responsible for ensuring compliance. Another
commenter stated that the proposed rule did not address what will occur
when a State is deemed to be supplanting State funds previously used to
fund IV-D functions.
Response: States are responsible for ensuring that all components
of their IV-D programs comply with all Federal requirements, including
local or county IV-D programs, vendors, or other entities that perform
IV-D services under contract or cooperative agreement. Federal
auditors' and central and regional office staff will have a role in
monitoring State compliance with the reinvestment requirement.
Potential Federal actions include financial audits which could result
in disallowances of incentive amounts equal to the amount of funds
supplanted.
10. Comment: One commenter asked what happens if the State's level
of performance and resulting incentives decline in future years after
the base amount is determined?
Response: If the amount of a State's incentives declines in future
years, it would not affect its base amount. Whatever amount of
incentives it received in future years would still have to be spent in
addition to the base amount. If this scenario occurs, overall spending
(base plus incentives) would necessarily decline if the State decided
not to otherwise increase its spending on the program. We remind States
that the base amount plus incentives only establishes a minimum level
of spending and can always be augmented by State increases in spending
on its IV-D program. Additional State spending may address performance
problems which have resulted in declining incentive amounts. If a State
earns less in incentives, fewer incentive dollars would have to be
reinvested the following years.
11. Comment: One commenter stated that the proposed rule would
preclude a State from making cost reductions since the base amount
would need to be spent each year. Another commenter expressed concern
about the use of historical data to determine the base amount.
Response: As noted in the proposed rule, we recognized that a fixed
base year could potentially penalize States that reduce costs as a
result of program improvement or cuts in government spending. On the
other hand, we also recognized that a fixed base year would not reflect
inflation or other increases in the cost of personnel or services.
Thus, any negative effects would be lessened over time. We invited
suggestions for alternative methods and did not receive any that we
believed were better. The trend established by 25 years of the child
support program indicates that most States have increased expenditures
from year to year. The trend in increased spending has reflected the
statutory expansion of the program and growth in the need for services.
Historical data is the most recent available data upon which to
calculate a base amount. We believe that the use of historical data was
the best method available to us for setting this procedure.
12. Comment: One commenter was concerned that the methods proposed
to calculate the base amount will mandate that States will artificially
inflate their expenditures in order to demonstrate that they satisfied
the reinvestment requirement.
Response: State reporting will be audited for reliability in
addition to being monitored by Federal regional and central office
staff. States that report and claim expenditures that are higher than
actual expenditures will be subject to disallowances. Additionally,
they will be subject to a loss of incentive payments and penalties for
unreliable data, since program expenditures are used to compute
incentive payments. Finally, artificial inflation of expenditures would
be counterproductive in that would harm the State's cost-effectiveness
performance level, thus lowering the amount of incentive funds to which
the State would be entitled.
Comments to Sec. 305.40 Penalty performance measures and levels
1. Comment: Several commenters stated that performance penalties
for order establishment and current support collections should be
eliminated from the proposed rule. The commenters identified that the
Social Security Act only expressly requires a performance penalty for
failure to meet the paternity establishment percentages. One of the
commenters recommending elimination characterized the penalties as
``discretionary.''
Response: Section 409(a)(8) states that reductions of up to five
percent would be taken against a State's TANF grant for
[[Page 82205]]
the failure to meet other performance standards as may be specified by
the Secretary. After developing a national strategic plan, incentive
measures, and a new data reporting system, partners met to consider
development of a consistent penalty system. Careful consideration was
given to the importance of applying penalties to the measures on order
establishment and current support collections as indicated by the extra
weight given these measures in calculating incentive payments. These
measures show a State's success in getting critical regular support
payments to families. Substantial consensus that these penalties should
be adopted was achieved among all States, whether as a member of the
work group that reported its recommendations to the OCSE Commissioner,
or consulted through representatives.
2. Comment: Several commenters stated that performance penalties
for order establishment and current support collection should be
delayed. Some of the reasons included current implementation of new
data reliability audit process and the ability of all States and
territories to report performance data completely, accurately and in
accordance with due dates. Since the data reporting ability of States
has not been audited, commenters argued, how can penalties be imposed?
Response: Data reporting on the new form is improving, since
technical assistance on the new form and the new audit process has been
given to States. However, an automatic corrective action period of one
year builds-in delay which allows States to identify and to correct
either reporting or performance problems prior to being assessed a
financial penalty. States should be diligent in continuously monitoring
their own performance and data reliability.
3. Comment: A few commenters suggested that the performance
penalties should be delayed because it is a better management practice
to allow the incentives to produce the desired results first and
implement negative penalties later if poor performance continues.
Response: State and Federal partners considered the implementation
of performance penalties and arrived at a consensus decision to go
forward with a performance penalty system required by statute.
Performance penalties were recommended to be implemented in FY 2001. In
addition, any performance penalty will be delayed an additional (FY
2002) year for corrective action and should performance improve during
that year sufficiently to avoid a penalty, no penalty will be assessed.
Penalties can also be avoided at the lower levels if a significant
level of improvement is achieved over the previous year. The statutory
paternity penalty and requirement to ``meet other performance standards
specified by the Secretary'' have been part of the Social Security Act
since 1997. Since the performance measures are the same, further delay
in implementing penalties while more experience with the incentives is
gained would not be appropriate.
4. Comment: One commenter stated that the incentive and penalty
structure is flawed because a State could receive an incentive and a
penalty ``on the same measure at the same time.''
Response: This statement is potentially true for performance only
in paternity establishment. An incentive could be earned for the high
performance level while the State's lack of improvement at a
significant level would cause a penalty to be incurred. Congress was
aware of this possible interaction when the incentive structure was
built upon the preexisting penalty structure. The corrective action
period of a year not only delays the penalty for one year but also
allows the State to avoid the penalty by improved performance. This
incentive-penalty interaction is unique to the paternity establishment
measure and does not occur with order establishment and current support
collections. Under performance standards for order establishment and
current support collections, high or significantly improved performance
produces an incentive, poor performance triggers a penalty, and
intermediate performance warrants neither an incentive nor a penalty.
5. Comment: Several commenters expressed concern that a State could
be penalized for interstate cases where the State relies on the actions
of another State and recommended that States should have the option to
exclude these cases.
Response: There is no statutory basis to exclude these cases.
Interstate cases represent approximately one-quarter to one-third of
the national child support caseload. This would substantially decrease
the number of cases for which a State was rewarded to achieve results.
Removal from the incentives calculation might actually lead to
encouraging neglect of these cases. Indeed, while interstate cases are
among the most challenging cases to work, the Uniform Interstate Family
Support Act (UIFSA) provides a workable mechanism for States to
cooperate in establishing orders and enforcing cases. State and Federal
partners continually strive to improve coordination among States on
interstate caseloads through training, technical assistance,
standardized procedures and dialogue. The statute and data reporting
instructions only allow for the exclusion of cases where there is no
jurisdiction (international cases and cases involving tribal
sovereignty) and no mechanism such as cooperative agreements to work
the case.
6. Comment: One commenter stated that the penalty structure did not
capture important elements of the child support enforcement program and
would be better focused on different areas of performance from the
incentive measures.
Response: Both State and Federal partners and Congress have clearly
expressed that the areas of paternity establishment, order
establishment, current support collections are the most critical
performance areas of the child support program. These performance
measures have been enacted in law and are given greater weight in the
incentive calculation. We believe these performance areas best express
the results or outcomes desired by the program and the other program
requirements while important, may often reflect measures of process. We
also believe that incentive and penalty structures should be as
consistent as possible. Having a few critial measures sanctioning poor
performance allows States to focus resources, whereas scattering
penalties among other additional performance areas may diminish the
results of the program by spreading resources too thinly. This is also
not the only means of assessing State performance. State self
assessment, Federal regional office reviews and other Federal audits
will contribute to determining whether States are operating programs
that meet all IV-D requirements.
7. Comment: One commenter suggested that assessing penalties
against a State's title IV-A payments was unfair to the Temporary
Assistance to Needy Families (TANF) program. This might lead to tension
between the child support and temporary assistance programs and
penalties taken against either program would reduce resources needed to
achieve desired results.
Response: Section 409(a)(8) of the Act clearly requires that
penalties for lack of compliance, incomplete or unreliable data
reporting or poor performance in the child support program are to be
taken against the State's title IV-A payment. Congress has
traditionally linked these two programs in many areas and has continued
this statutory linkage with performance and other
[[Page 82206]]
penalties in the child support program. The consequences of a penalty
reducing financial resources and affecting services of a program are
real. This reality strengthens the deterrent effect on States to avoid
the penalty initially and to improve performance the year following a
penalty to avoid repetition of negative consequences.
8. Comment: One commenter believed that the order establishment
penalty structure is not equitable to States that perform below the
fifty percent threshold needed for an incentive. State A improves its
performance by five percentage points from one year to the next and
receives an incentive. State B performs at higher level than State A,
but below the fifty percent threshold and improves by three percentage
points over the previous year, but is not eligible for an incentive. A
similar example is provided using the current support collections
performance levels.
Response: Since the commenter's example actually refers to the
bases for receiving or not receiving an incentive, we address our
response accordingly. The performance levels for order establishment
and current support collections were developed by State and Federal
partners after reviewing historical performance data on the child
support program. The group established levels that would reward a State
for significant improvement from year to year in addition to rewarding
high performance above a certain threshold. These performance levels
received a nearly unanimous consensus from the States and Congress
subsequently enacted these levels without change. The commenter's
example is correct. States that achieve a significant improvement of
five percentage points but perform at a lower level than other States
with no significant improvement will receive a portion of the incentive
payment for that measure. The structure is designed to reward
significant improvement at lower levels of performance on order
establishment and current support collections.
9. Comment: One commenter identified that the proposed regulation
Sec. 305.61(c) is ambiguous about when and how different levels of
penalties will be imposed. The commenter suggested that language should
be added that OCSE may impose the higher penalty in situations with
multiple penalties, willful or egregious violations, and repeated
penalties or violations. In addition, the commenter stated that
penalties should be imposed for failing a financial management audit.
Response: Section 305.61 states that the penalty percentage will
increase from one to two percent for the first finding, two to three
percent for the second finding, and three to five percent for a third
or subsequent finding. We believe setting such criteria may confuse
States about when a higher penalty might be imposed. The regulation
clearly imposes higher penalties for repeated failures from year to
year. We believe it is important to preserve discretion of the
Secretary in taking penalties and do not want to restrict
decisionmaking where each circumstance is considered individually.
Section 409 of the Act also limits total penalties assessed by Child
Support or TANF against the TANF grant to 25%. We are cognizant that
multiple penalties and higher penalties raise awareness of the
interaction with the TANF program.
Section 409(a)(8) of the Act also imposes a penalty for failure to
submit complete and reliable data. Collections and expenditure data
will be reviewed by Federal auditors to determine its completeness and
reliability. Section 409(a)(8) does not provide for a penalty for
failing a financial management audit. However, financial management
problems uncovered by Federal staff can result in the disallowance of
claimed expenditures and reductions in grants to States.
Comments to Sec. 305.60 Types and scope of Federal audits
1. Comment: Because of concern about the definition of reliable
data, the Yellow Book standards should be included in the final rule,
or at least referenced.
Response: The final rule refers to standards of the Comptroller
General and to the GAO Standards, as promulgated in ``Government
Auditing Standards'' which is the ``Yellow Book''.
2. Comment: States are currently given a very long time in which to
correct data problems. Meanwhile, OCSE is using unreliable data to
calculate incentives and penalties. Rather than performing a full
audit, in FY 2000, OCSE should conduct a baseline data quality audit of
all States and provide help to those with unreliable data.
Response: The OCSE Division of Audit is conducting baseline audits
of FY 1999 data and informing States of any deficiencies found during
the audits. This process provides States the opportunity for
implementing necessary corrective actions before reporting FY 2000 data
and the initiation of payments under the new incentive system. OCSE is
available to provide technical assistance to States.
3. Comment: At minimum, Sec. 305.60(c)(2)(i) should indicate that
OCSE will audit a program when two or more State self-assessments
indicate poor performance. The regulation should also give OCSE the
power to conduct an audit on the basis of one self-assessment if that
self-assessment indicates serious deficiencies.
Response: The wording of Sec. 305.60(c)(2)(i) and the statute allow
the Secretary flexibility to determine when to carry out additional
types of audits. We do not believe it would be helpful to mandate the
timing of any audits and believe it is appropriate to make the
determination based on all the circumstances involved.
4. Comment: While the proposed regulations do not address the
critical issue of proper distribution, it may be that OCSE intends
disbursement to include distribution, but if it does, it should say so.
Response: Distribution in accordance with the Federal statute and
regulations is not a part of the new incentive and penalty system.
However, proper distribution will still be reviewed under automated
data processing system certification reviews for PRWORA and as part of
substantial compliance audits. For purposes of reporting on OCSE forms,
distribution means disbursement.
5. Comment: A two-year timeframe for an audit based on self-
assessment results with the possibility of a penalty, is
counterproductive. The commenter suggests a graduated approach that
includes consultation, technical assistance, and an advisory audit with
penalties only occurring after 4 or 5 years of insufficient compliance.
Response: These regulations merely indicate that an audit could be
initiated based on two or more poor self assessments. Substantial
compliance audits are discretionary and will be used to monitor
instances of severe deficiencies in State program case processing.
6. Comment: The proposed rule allows States to receive incentives
under certain circumstances based on an increase in performance from
the previous year. The rules do not address the situation which may
occur when the previous year's data was determined incomplete or
unreliable. This should be clarified.
Response: If a State fails to report complete and reliable data for
any one of the incentive measures, the State will not receive an
incentive for the performance measure for which the data are determined
to be incomplete or unreliable. If the State is able to correct the
problem and substitutes corrected data by the time data are required to
be submitted for the next year's incentive payment determination, it
will be able
[[Page 82207]]
to earn incentives for the next year on improvement measures based on
the corrected data. If the data problem is not corrected, a State will
not be able to earn incentives based on improved performance.
7. Comment: It should be clear that States must pass the audit
before any incentives are paid and that periodic audits begin only
after the initial audit. The regulation should also clarify OCSE
authority to conduct audits more frequently than every 3 years. It
should include a catchall provision for audits whenever there is reason
to question a State's data reliability. The broad scope of audits
should be made clear, including that auditors are not limited to a
review of material provided by the State.
Response: We believe the statutory and regulatory language is clear
on all of these points. Section 305.60(d) states that ``OCSE will
conduct audits of the State's IV-D program through inspection,
inquiries, observation, and confirmation * * *'' as well as a review
of State provided material. Before incentives may be paid for any
fiscal year, the Secretary must determine, based on an audit, that the
State's data are complete and reliable. Thus there is no need to add
any language concerning audits of data reliability.
Federal audits have proven to be a valuable tool to focus States on
necessary improvements. The integrity of the new incentives and penalty
process depends on reliable, complete data and on the Federal auditors'
role in assessing whether States produce such data.
8. Comment: An audit should review the use of funds to determine if
incentive payments are being used to supplement rather than supplant
other funds.
Response: Administrative cost audits will be performed and will
determine if program funds are expended in accordance with Federal
regulations.
9. Comment: Section 305.60(c)(2) should provide that ``OCSE may
initiate audits to determine substantial compliance, or for such other
purposes as OCSE may find necessary, whenever it has credible evidence
of a failure to comply with one or more of the requirements of the IV-D
program.''
Response: We believe the wording of Sec. 305.60(c)(2) as currently
drafted allows OCSE maximum flexibility to carry out our mandated and
authorized duties.
10. Comment: Does the term substantial compliance apply to each
individual requirement identified? If so, does this mean that a State
can be penalized based on an audit that just reviewed one specific area
(e.g., case closure) that the State failed?
Response: The term substantial compliance does apply to each
individual requirement identified for audit. Yes, a State is subject to
a penalty based on a failure to meet requirements in a specific area if
corrective measures are not taken during the specified corrective
action period.
11. Comment: The regulation should provide that when a State fails
data reliability requirements, it will be audited annually until it
passes. Data reliability should be checked annually for States without
a certified system or when there are changes to a system. An audit of
data quality should include an audit for compliance with case closure
regulations.
Response: OCSE will continue its practice of performing annual
audits of any State that it determines does not achieve substantial
compliance with a program requirement or requirements or fails data
reliability requirements until such time that the State able to achieve
substantial compliance or the data reliability requirements are met.
Also, a State may make significant changes to the system used to
accumulate and report their performance indicator data. These changes
will be reviewed by the auditors each year to the extent necessary to
determine the completeness and reliability of the performance indicator
data. While case closure is not one of the performance measures, it is
evaluated during data reliability audits.
12. Comment: The rule is unclear whether an error in a case applies
to the ``life of the case'' or is restricted to a given fiscal year. We
recommend that the error be restricted to a given fiscal year.
Response: An error in a case is restricted to a given fiscal year.
13. Comment: We are concerned about language in proposed
Sec. 305.60 describing the types and scope of audits. For example,
subsection (b)(2) states that audits would be conducted to determine,
``whether collections and disbursements of support payments are carried
out correctly and are fully accounted for.'' With the extremely
complicated arrearage distribution rules that became law with PRWORA,
we are concerned that a strict interpretation of this language could
make States vulnerable to penalties. This language should be rewritten
to recognize the complexity of the distribution system and reduce the
vulnerability of States.
Response: States are required to meet the distribution rules as
enacted in PRWORA. OCSE auditors are knowledgeable of the extremely
complicated statutory arrearage distribution rules and this is
reflected in the audit instructions.
14. Comment: Section 305.63 would allow penalties to be imposed on
States based on targeted audits of specific IV-D requirements. We are
concerned that targeted audits would not measure ``substantial
compliance'' and would increase the financial exposure of States.
Response: Targeted audits will measure substantial compliance with
the area audited. A penalty could be imposed if a State is found not to
be in substantial compliance with specific IV-D requirements.
Maintaining the Secretary's authority to audit State programs to
determine compliance with IV-D requirements is essential to carrying
out her oversight responsibilities for the program.
Section 305.62 Disregard of a failure which is of a technical nature.
Comment: A commenter expressed concern about the process under
which OCSE will decide not to impose a penalty because of ``technical
non-compliance''. Section 305.62 should provide a concrete definition
of ``technical non-compliance.''
Response: It is impossible to foresee all the circumstances under
which a penalty might be imposed for technical non-compliance. Thus, it
is not possible to provide a concrete definition. ``Technical non-
compliance'' is defined in a broad way allowing it to be applied to
unknown situations that may occur. This definition is based on a
historical application that has been used by OCSE to evaluate States'
program performance.
VII. Regulatory Flexibility Analysis
The Secretary certifies, under 5 U.S.C. 605(b), the Regulatory
Flexibility Act (Pub. L. 96-354), that these regulations will not
result in a significant impact on a substantial number of small
entities. The primary impact is on State governments. State governments
are not considered small entities under the Act.
VIII. Executive Order 12866
Executive Order 12866 requires that regulations be reviewed to
ensure that they are consistent with the priorities and principles set
forth in the Executive Order. The Department has determined that this
rule is consistent with these priorities and principles. This rule
implements the statutory provisions by specifying the performance-based
incentive and penalty systems.
[[Page 82208]]
IX. Unfunded Mandates Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (Unfunded
Mandates Act) requires that a covered agency prepare a budgetary impact
statement before promulgating a rule that includes any Federal mandate
that may result in the expenditure by State, local, and Tribal
governments, in the aggregate, or by the private sector, of $100
million or more in any one year.
If a covered agency must prepare a budgetary impact statement,
section 205 further requires that it select the most cost-effective and
least burdensome alternative that achieves the objectives of the rule
and is consistent with the statutory requirements. In addition, section
203 requires a plan for informing and advising any small government
that may be significantly or uniquely impacted by the rule.
We have determined that these rules will not result in the
expenditure by State, local, and Tribal governments, in the aggregate,
or by the private sector, of more than $100 million in any one year.
Accordingly, we have not prepared a budgetary impact statement,
specifically addressed the regulatory alternatives considered, or
prepared a plan for informing and advising any significantly or
uniquely impacted small government.
X. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995, Public Law 104-13, all
Departments are required to submit to the Office of Management and
Budget (OMB) for review and approval any reporting or recordkeeping
requirements inherent in a proposed or final rule. The reports
necessary to implement this rule have received OMB approvals. They are
the OCSE-157, OMB No. 0970-0177; the OCSE-34A, OMB No. 0970-0181; and
the OCSE-396A, OMB No. 0970-0181. This rule requires no other reporting
or recordkeeping requirements.
XI. Congressional Review
This rule is not a major rule as defined in 5 U.S.C., Chapter 8.
XII. Assessment of Federal Regulations and Policies on Families
Section 654 of the Treasury and General Government Appropriations
Act of 1999 requires Federal agencies to determine whether a proposed
policy or regulation may affect family well-being. If the agency's
conclusion is affirmative, then the agency must prepare an impact
assessment addressing seven criteria specified in the law. These
regulations will not have an impact on family well-being as defined in
the legislation. This regulation provides an alternative system to
reward good performance and sanction poor performance and the new
system, like its predecessor, will positively impact families needing
support.
XIII. Executive Order 13132 Federalism Assessment
Executive Order 13132 on Federalism applies to policies that have
federalism implications, defined as ``regulations, legislative comments
or proposed legislation, and other policy statements or actions that
have substantial direct effects on the States, on the relationship
between the national government and the States, or on the distributions
of power and responsibilities among the various levels of government.''
This rule does not have federalism implications for State or local
governments as defined in the executive order.
List of Subjects
45 CFR parts 302 and 303
Child support, Grant programs/social programs, Reporting and
recordkeeping requirements.
45 CFR part 304
Child support, Grant programs/social programs, Penalties, Reporting
and recordkeeping requirements, Unemployment compensation.
45 CFR part 305
Child support, Grant programs/social programs, Accounting.
(Catalog of Federal Domestic Assistance Programs No. 93.563, Child
Support Enforcement Program)
Dated: August 17, 2000.
Olivia A. Golden,
Assistant Secretary for Children and Families.
Dated: August 23, 2000.
Donna E. Shalala,
Secretary, Department of Health and Human Services.
For the reasons discussed above, we amend title 45 CFR Chapter III
of the Code of Federal Regulations as follows:
PART 302--STATE PLAN REQUIREMENTS
1. The authority citation for part 302 is revised to read as
follows:
Authority: 42 U.S.C. 651 through 658A, 660, 664, 666, 667, 1302,
1396(a)(25), 1396B(d)(2), 1396b(o), 1396(p), 1396(k).
Sec. 302.55 [Amended]
2. Section 302.55 is amended by adding the words ``and part 305''
after ``Sec. 304.12''.
PART 303--STANDARDS FOR PROGRAM OPERATIONS
3. The authority section for part 303 continues to read as follows:
Authority: 42 U.S.C 651 through 658, 660, 663, 664, 667, 1302,
1396a(a)(25), 1396b(d)(2), 1396b(o), 1396b(p), and 1396(k).
4. A new Sec. 303.35 is added to read as follows:
Sec. 303.35 Administrative complaint procedure.
(a) Each State must have in place an administrative complaint
procedure, defined by the State, in place to allow individuals the
opportunity to request an administrative review, and take appropriate
action when there is evidence that an error has occurred or an action
should have been taken on their case. This includes both individuals in
the State and individuals from other States.
(b) A State need not establish a formal hearing process but must
have clear procedures in place. The State must notify individuals of
the procedures, make them available for recipients of IV-D services to
use when requesting such a review, and use them for notifying
recipients of the results of the review and any actions taken.
PART 304--FEDERAL FINANCIAL PARTICIPATION
5. The authority citation for part 304 continues to read as
follows:
Authority: 42 U.S.C. 651 through 655, 657, 658, 1302,
1396(a)(25), 1396b(d)(2), 1396b(o), 1396(p), and 1396(k).
6. Section 304.12 is amended by adding new paragraphs (d) and (e)
to read as follows:
Sec. 304.12 Incentive payments.
* * * * *
(d) Effective date. This section is in effect only through
September 30, 2001.
(e) Phase in process. The amounts payable under this section will
be reduced by one-third for fiscal year 2000 and two-thirds for fiscal
year 2001.
PART 305--PROGRAM PERFORMANCE MEASURES, STANDARDS, FINANCIAL
INCENTIVES, AND PENALTIES
7. A new part 305 is added to read as follows:
Sec.
305.0 Scope.
305.1 Definitions.
305.2 Performance measures.
305.31 Amount of incentive payment.
305.32 Requirements applicable to calculations.
305.33 Determination of applicable percentages based on
performance levels.
[[Page 82209]]
305.34 Payment of incentives.
305.35 Reinvestment.
305.36 Incentive phase-in.
305.40 Penalty performance measures and levels.
305.42 Penalty phase-in.
305.60 Types and scope of Federal audits.
305.61 Penalty for failure to meet IV-D requirements.
305.62 Disregard of a failure which is of a technical nature.
305.63 Standards for determining substantial compliance with IV-D
requirements.
305.64 Audit procedures and State comments.
305.65 State cooperation in the audit.
305.66 Notice, corrective action year, and imposition of penalty.
Authority: 42 U.S.C. 609(a)(8), 652(a)(4) and (g), 658A and
1302.
Sec. 305.0 Scope.
This part implements the incentive system requirements as described
in section 458A (to be redesignated as section 458 effective October 1,
2001) of the Act and the penalty provisions as required in sections
409(a)(8) and 452(g) of the Act. This part also implements Federal
audit requirements under sections 409(a)(8) and 452(a)(4) of the Act.
Sections 305.0 through 305.2 contain general provisions applicable to
this part. Sections 305.31 through 305.36 of this part describe the
incentive system. Sections 305.40 through 305.42 and Secs. 305.60
through 305.66 describe the penalty and audit processes.
Sec. 305.1 Definitions.
The definitions found in Sec. 301.1 of this chapter are also
applicable to this part. In addition, for purposes of this part:
(a) The term IV-D case means a parent (mother, father, or putative
father) who is now or eventually may be obligated under law for the
support of a child or children receiving services under the title IV-D
program. A parent is a separate IV-D case for each family with a
dependent child or children that the parent may be obligated to
support. If both parents are absent and liable or potentially liable
for support of a child or children receiving services under the IV-D
program, each parent is considered a separate IV-D case. In counting
cases for the purposes of this part, States may exclude cases closed
under Sec. 303.11 and cases over which the State has no jurisdiction.
Lack of jurisdiction cases are those in which a non-custodial parent
resides in the civil jurisdictional boundaries of another country or
federally recognized Indian Tribe and no income or assets of this
individual are located or derived from outside that jurisdiction and
the State has no other means through which to enforce the order.
(b) The term Current Assistance collections means collections
received and distributed on behalf of individuals whose rights to
support are required to be assigned to the State under title IV-A of
the Act, under title IV-E of the Act, or under title XIX of the Act. In
addition, a referral to the State's IV-D agency must have been made.
(c) The term Former Assistance collections means collections
received and distributed on behalf of individuals whose rights to
support were formerly required to be assigned to the State under title
IV-A (TANF or Aid to Families with Dependent Children, AFDC), title IV-
E (Foster Care), or title XIX (Medicaid) of the Act.
(d) The term Never Assistance/Other collections means all other
collections received and distributed on behalf of individuals who are
receiving child support enforcement services under title IV-D of the
Act.
(e) The term total IV-D dollars expended means total IV-D
administrative expenditures claimed by a State in a specified fiscal
year adjusted in accordance with Sec. 305.32 of this part.
(f) The term Consumer Price Index or CPI means the last Consumer
Price Index for all-urban consumers published by the Department of
Labor. The CPI for a fiscal year is the average of the Consumer Price
Index for the 12-month period ending on September 30 of the fiscal
year.
(g) The term State incentive payment share for a fiscal year means
the incentive base amount for the State for the fiscal year divided by
the sum of the incentive base amounts for all of the States for the
fiscal year.
(h) The term incentive base amount for a fiscal year means the sum
of the State's performance level percentages (determined in accordance
with Sec. 305.33) multiplied by the State's corresponding maximum
incentive base on each of the following measures:
(1) The paternity establishment performance level;
(2) The support order performance level;
(3) The current collections performance level;
(4) The arrears collections performance level; and
(5) the cost-effectiveness performance level.
(i) The term reliable data, means the most recent data available
which are found by the Secretary to be reliable and is a state that
exists when data are sufficiently complete and error free to be
convincing for their purpose and context. State data must meet a 95
percent standard of reliability effective beginning in fiscal year
2001. This is with the recognition that data may contain errors as long
as they are not of a magnitude that would cause a reasonable person,
aware of the errors, to doubt a finding or conclusion based on the
data.
(j) The term complete data means all reporting elements from OCSE
reporting forms, necessary to compute a State's performance levels,
incentive base amount, and maximum incentive base amount, have been
provided within timeframes established in instructions to these forms
and Sec. 305.32(f) of this part.
Sec. 305.2 Performance measures.
(a) The child support incentive system measures State performance
levels in five program areas:
Paternity establishment; support order establishment; current
collections; arrearage collections; and cost-effectiveness. The penalty
system measures State performance in three of these areas: Paternity
establishment; establishment of support orders; and current
collections.
(1) Paternity Establishment Performance Level. States have the
choice of being evaluated on one of the following two measures for
their paternity establishment percentage (commonly known as the PEP).
The count of children shall not include any child who is a dependent by
reason of the death of a parent (unless paternity is established for
that child). It shall also not include any child whose parent is found
to have good cause for refusing to cooperate with the State agency in
establishing paternity, or for whom the State agency determines it is
against the best interest of the child to pursue paternity issues.
(i) IV-D Paternity Establishment Percentage means the ratio that
the total number of children in the IV-D caseload in the fiscal year
(or, at the option of the State, as of the end of the fiscal year) who
have been born out-of-wedlock and for whom paternity has been
established or acknowledged, bears to the total number of children in
the IV-D caseload as of the end of the preceding fiscal year who were
born out-of-wedlock. The equation to compute the measure is as follows
(expressed as a percent):
[[Page 82210]]
[GRAPHIC] [TIFF OMITTED] TR27DE00.045
(ii) Statewide Paternity Establishment Percentage means the ratio
that the total number of minor children who have been born out-of-
wedlock and for whom paternity has been established or acknowledged
during the fiscal year, bears to the total number of children born out-
of-wedlock during the preceding fiscal year. The equation to compute
the measure is as follows (expressed as a percent):
[GRAPHIC] [TIFF OMITTED] TR27DE00.046
(2) Support Order Establishment Performance Level. This measure
requires a determination of whether or not there is a support order for
each case. These support orders include all types of legally
enforceable orders, such as court, default, and administrative. Since
the measure is a case count at a point-in-time, modifications to an
order do not affect the count. The equation to compute the measure is
as follows (expressed as a percent):
[GRAPHIC] [TIFF OMITTED] TR27DE00.047
(3) Current Collections Performance Level. Current support is money
applied to current support obligations and does not include payment
plans for payment towards arrears. If included, voluntary collections
must be included in both the numerator and the denominator. This
measure is computed monthly and the total of all months is reported at
the end of the year. The equation to compute the measure is as follows
(expressed as a percent):
[GRAPHIC] [TIFF OMITTED] TR27DE00.048
(4) Arrearage Collection Performance Level. This measure includes
those cases where all of the past-due support was disbursed to the
family, or retained by the State because all the support was assigned
to the State. If some of the past-due support was assigned to the State
and some was to be disbursed to the family, only those cases where some
of the support actually went to the family can be included. The
equation to compute the measure is as follows (expressed as a percent):
[GRAPHIC] [TIFF OMITTED] TR27DE00.049
(5) Cost-Effectiveness Performance Level. Interstate incoming and
outgoing distributed collections will be included for both the
initiating and the responding State in this measure. The equation to
compute this measure is as follows (expressed as a ratio):
[GRAPHIC] [TIFF OMITTED] TR27DE00.050
(b) For incentive purposes, the measures will be weighted in the
following manner. Each State will earn five scores based on performance
on each of the five measures. Each of the first three measures
(paternity establishment, order establishment, and current collections)
earn 100 percent of the collections base as defined in Sec. 305.31(e)
of this part. The last two measures (collections on arrears and cost-
effectiveness) earn a maximum of 75 percent of the collections base as
defined in Sec. 305.31(e) of this part.
Sec. 305.31 Amount of incentive payment.
(a) The incentive payment for a State for a fiscal year is equal to
the incentive payment pool for the fiscal year,
[[Page 82211]]
multiplied by the State incentive payment share for the fiscal year.
(b) The incentive payment pool is:
(1) $422,000,000 for fiscal year 2000;
(2) $429,000,000 for fiscal year 2001;
(3) $450,000,000 for fiscal year 2002;
(4) $461,000,000 for fiscal year 2003;
(5) $454,000,000 for fiscal year 2004;
(6) $446,000,000 for fiscal year 2005;
(7) $458,000,000 for fiscal year 2006;
(8) $471,000,000 for fiscal year 2007;
(9) $483,000,000 for fiscal year 2008; and
(10) For any succeeding fiscal year, the amount of the incentive
payment pool for the fiscal year that precedes such succeeding fiscal
year multiplied by the percentage (if any) by which the CPI for such
preceding fiscal year exceeds the CPI for the second preceding fiscal
year. In other words, for each fiscal year following fiscal year 2008,
the incentive payment pool will be multiplied by the percentage
increase in the CPI between the two preceding years. For example, if
the CPI increases by 1 percent between fiscal years 2007 and 2008, then
the incentive pool for fiscal year 2009 would be a 1 percent increase
over the $483,000,000 incentive payment pool for fiscal year 2008, or
$487,830,000.
(c) The State incentive payment share for a fiscal year is the
incentive base amount for the State for the fiscal year divided by the
sum of the incentive base amounts for all of the States for the fiscal
year.
(d) A State's maximum incentive base amount for a fiscal year is
the State's collections base for the fiscal year for the paternity
establishment, support order, and current collections performance
measures and 75 percent of the State's collections base for the fiscal
year for the arrearage collections and cost-effectiveness performance
measures.
(e) A State's maximum incentive base amount for a State for a
fiscal year is zero, unless a Federal audit performed under Sec. 305.60
of this part determines that the data submitted by the State for the
fiscal year and used to determine the performance level involved are
complete and reliable.
(f) A State's collections base for a fiscal year is equal to: two
times the sum of the total amount of support collected for Current
Assistance cases plus two times the total amount of support collected
in Former Assistance cases, plus the total amount of support collected
in Never Assistance/other cases during the fiscal year, that is:
2(Current Assistance collections + Former Assistance collections) + all
other collections.
Sec. 305.32 Requirements applicable to calculations.
In calculating the amount of incentive payments or penalties, the
following conditions apply: ]
(a) Each measure is based on data submitted for the Federal fiscal
year. The Federal fiscal year runs from October 1st of one year through
September 30th of the following year.
(b) Only those Current Assistance, Former Assistance and Never
Assistance/other collections disbursed and those expenditures claimed
by the State in the fiscal year will be used to determine the incentive
payment payable for that fiscal year;
(c) Support collected by one State at the request of another State
will be treated as having been collected in full by each State;
(d) Amounts expended by the State in carrying out a special project
under section 455(e) of the Act will be excluded from the State's total
IV-D dollars expended in computing incentive payments;
(e) Fees paid by individuals, recovered costs, and program income
such as interest earned on collections will be deducted from total IV-D
dollars expended; and
(f) States must submit data used to determine incentives and
penalties following instructions and formats as required by HHS on
Office of Management and Budget (OMB) approved reporting instruments.
Data necessary to calculate performance for incentives and penalties
for a fiscal year must be submitted to the Office of Child Support
Enforcement by December 31st, the end of the first quarter after the
end of the fiscal year. Only data submitted as of December 31st will be
used to determine the State's performance for the prior fiscal year and
the amount of incentive payments due the States.
Sec. 305.33 Determination of applicable percentages based on
performance levels.
(a) A State's paternity establishment performance level for a
fiscal year is, at the option of the State, the IV-D paternity
establishment percentage or the Statewide paternity establishment
percentage determined under Sec. 305.2 of this part. The applicable
percentage for each level of a State's paternity establishment
performance can be found in table 1 of this part, except as provided in
paragraph (b) of this section.
(b) If the State's paternity establishment performance level for a
fiscal year is less than 50 percent, but exceeds its paternity
establishment performance level for the immediately preceding fiscal
year by at least 10 percentage points, then the State's applicable
percentage for the paternity establishment performance level is 50
percent.
(c) A State's support order establishment performance level for a
fiscal year is the percentage of the total number of cases where there
is a support order determined under Secs. 305.2 and 305.32 of this
part. The applicable percentage for each level of a State's support
order establishment performance can be found on table 1 of this part,
except as provided in paragraph (d) of this section.
(d) If the State's support order establishment performance level
for a fiscal year is less than 50 percent, but exceeds the State's
support order establishment performance level for the immediately
preceding fiscal year by at least 5 percentage points, then the State's
applicable percentage is 50 percent.
Table 1.--If the Paternity Establishment or Support Order Establishment
Performance Level Is:
(Use this table to determine the applicable percentage levels for the
paternity establishment and support order establishment performance
measures.)
------------------------------------------------------------------------
But less than: The applicable
At least: (percent) (percent) percentage is:
------------------------------------------------------------------------
80 ...................... 100
79 80 98
78 79 96
77 78 94
76 77 92
75 76 90
74 75 88
73 74 86
72 73 84
71 72 82
70 71 80
69 70 79
68 69 78
67 68 77
66 67 76
65 66 75
64 65 74
63 64 73
62 63 72
61 62 71
60 61 70
59 60 69
58 59 68
57 58 67
56 57 66
55 56 65
54 55 64
53 54 63
52 53 62
51 52 61
50 51 60
0 50 0
------------------------------------------------------------------------
[[Page 82212]]
(e) A State's current collections performance level for a fiscal
year is equal to the total amount of current support collected during
the fiscal year divided by the total amount of current support owed
during the fiscal year in all IV-D cases, determined under Secs. 305.2
and 305.32 of this part. The applicable percentage with respect to a
State's current collections performance level can be found on table 2,
except as provided in paragraph (f) of this section.
(f) If the State's current collections performance level for a
fiscal year is less than 40 percent but exceeds the current collections
performance level of the State for the immediately preceding fiscal
year by at least 5 percentage points, then the State's applicable
percentage is 50 percent. r
(g) A State's arrearage collections performance level for a fiscal
year is equal to the total number of IV-D cases in which payments of
past-due child support were received and distributed during the fiscal
year, divided by the total number of IV-D cases in which there was
past-due child support owed, as determined under Secs. 305.2 and 305.32
of this part. The applicable percentage with respect to a State's
arrearage collections performance level can be found on table 2 except
as provided in paragraph (h) of this section.
(h) If the State's arrearage collections performance level for a
fiscal year is less than 40 percent but exceeds the arrearage
collections performance level for the immediately preceding fiscal year
by at least 5 percentage points, then the State's applicable percentage
is 50 percent.
Table 2.--If the Current Collections or Arrearage Collections
Performance Level Is:
(Use this table to determine the percentage levels for the current
collections and arrearage collections performance measures.)
------------------------------------------------------------------------
The
But less applicable
At least (percent than: percentage
(percent) is:
(percent)
------------------------------------------------------------------------
80............................................... ......... 100
79............................................... 80 98
78............................................... 79 96
77............................................... 78 94
76............................................... 77 92
75............................................... 76 90
74............................................... 75 88
73............................................... 74 86
72............................................... 73 84
71............................................... 72 82
70............................................... 71 80
69............................................... 70 79
68............................................... 69 78
67............................................... 68 77
66............................................... 67 76
65............................................... 66 75
64............................................... 65 74
63............................................... 64 73
62............................................... 63 72
61............................................... 62 71
60............................................... 61 70
59............................................... 60 69
58............................................... 59 68
57............................................... 58 67
56............................................... 57 66
55............................................... 56 65
54............................................... 55 64
53............................................... 54 63
52............................................... 53 62
51............................................... 52 61
50............................................... 51 60
49............................................... 50 59
48............................................... 49 58
47............................................... 48 57
46............................................... 47 56
45............................................... 46 55
44............................................... 45 54
43............................................... 55 53
42............................................... 43 52
41............................................... 42 51
40............................................... 41 50
0................................................ 40 0
------------------------------------------------------------------------
(i) A State's cost-effectiveness performance level for a fiscal
year is equal to the total amount of IV-D support collected and
disbursed or retained, as applicable during the fiscal year, divided by
the total amount expended during the fiscal year, as determined under
Secs. 305.2 and 305.32 of this part. The applicable percentage with
respect to a State's cost-effectiveness performance level can be found
on table 3.
Table 3.--If the Cost-Effectiveness Performance Level Is:
(Use this table to determine the percentage level for the cost-
effectiveness performance measure.)
------------------------------------------------------------------------
But less The app.
At least: than: % is
------------------------------------------------------------------------
5.00.............................................. ......... 100
4.50.............................................. 4.99 90
4.00.............................................. 4.50 80
3.50.............................................. 4.00 70
3.00.............................................. 3.50 60
2.50.............................................. 3.00 50
2.00.............................................. 2.50 40
0.00.............................................. 2.00 0
------------------------------------------------------------------------
Sec. 305.34 Payment of incentives.
(a) Each State must report one-fourth of its estimated annual
incentive payment on each of its four quarterly collections' reports
for a fiscal year. When combined with the amounts claimed on each of
the State's four quarterly expenditure reports, the portion of the
annual estimated incentive payment as reported each quarter will be
included in the calculation of the next quarterly grant awarded to the
State under title IV-D of the Act.
(b) Following the end of each fiscal year, HHS will calculate the
State's annual incentive payment, using the actual collection and
expenditure data and the performance data submitted by December 31st by
the State and other States for that fiscal year. A positive or negative
grant will then be awarded to the State under title IV-D of the Act to
reconcile an actual annual incentive payment that has been calculated
to be greater or lesser, respectively, than the annual incentive
payment estimated prior to the beginning of the fiscal year.
(c) Payment of incentives is contingent on a State's data being
determined complete and reliable by Federal auditors.
Sec. 305.35 Reinvestment.
(a) A State must expend the full amount of incentive payments
received under this part to supplement, and not supplant, other funds
used by the State to carry out IV-D program activities or funds for
other activities approved by the Secretary which may contribute to
improving the effectiveness or efficiency of the State's IV-D program,
including cost-effective contracts with local agencies, whether or not
the expenditures for the activity are eligible for reimbursement under
this part.
(b) In those States in which incentive payments are passed through
to political subdivisions or localities, such payments must be used in
accordance with this section.
(c) State IV-D expenditures may not be reduced as a result of the
receipt and reinvestment of incentive payments.
[[Page 82213]]
(d) A base amount will be determined by subtracting the amount of
incentive funds received and reinvested in the State IV-D program for
fiscal year 1998 from the total amount expended by the State in the IV-
D program during the same period. Alternatively, States have an option
of using the average amount of the previous three fiscal years (1996,
1997, and 1998) as a base amount. This base amount of State spending
must be maintained in future years. Incentive payments under this part
must be used in addition to, and not in lieu of, the base amount.
(e) Requests for approval of expending incentives on activities not
currently eligible for funding under the IV-D program, but which would
benefit the IV-D program, must be submitted in accordance with
instructions issued by the Commissioner of the Office of Child Support
Enforcement.
Sec. 305.36 Incentive phase-in.
The incentive system under this part will be phased-in over a
three-year period during which both the old system and the new system
will be used to determine the amount a State will receive. For fiscal
year 2000, a State will receive two-thirds of what it would have
received under the incentive formula set forth in Sec. 304.12 of this
chapter, and one-third of what it would receive under the formula set
forth under this part. In fiscal year 2001, a State will receive one-
third of what it would have received under the incentive formula set
forth under Sec. 304.12 of this chapter and two-thirds of what it would
receive under the formula under this part. In fiscal year 2002, the
formula set forth under this part will be fully implemented and would
be used to determine all incentive amounts.
Sec. 305.40 Penalty performance measures and levels.
(a) There are three performance measures for which States must
achieve certain levels of performance in order to avoid being penalized
for poor performance. These measures are the paternity establishment,
support order establishment, and current collections measures set forth
in Sec. 305.2 of this part. The levels the State must meet are:
(1) The paternity establishment percentage which is required under
section 452(g) of the Act for penalty purposes. States have the option
of using either the IV-D paternity establishment percentage or the
statewide paternity establishment percentage defined in Sec. 305.2 of
this part. Table 4 shows the level of performance at which a State will
be subject to a penalty under the paternity establishment measure.
Table 4.--Statutory Penalty Performance Standards for Paternity
Establishment
(Use this table to determine the level of performance for the paternity
establishment measure that will incur a penalty.)
------------------------------------------------------------------------
Increase required Penalty FOR FIRST
PEP over previous year's FAILURE if increase
PEP not met
------------------------------------------------------------------------
90% or more................. None................ No Penalty.
75% to 89%.................. 2%.................. 1-2% TANF Funds.
50% to 74%.................. 3%.................. 1-2% TANF Funds.
45% to 49%.................. 4%.................. 1-2% TANF Funds.
40% to 44%.................. 5%.................. 1-2% TANF Funds.
39% or less................. 6%.................. 1-2% TANF Funds.
------------------------------------------------------------------------
(2) The support order establishment performance measure is set
forth in Sec. 305.2 of this part. For purposes of the penalty with
respect to this measure, there is a threshold of 40 percent, below
which a State will be penalized unless an increase of 5 percent over
the previous year is achieved--which will qualify it for an incentive.
Performance in the 40 percent to 49 percent range with no significant
increase will not be penalized but neither will it qualify for an
incentive payment. Table 5 shows at which level of performance a State
will incur a penalty under the child support order establishment
measure.
Table 5.--Performance Standards for Order Establishment
(Use this table to determine the level of performance for the order
establishment measure that will incur a penalty.)
------------------------------------------------------------------------
Increase over
Performance level previous year Incentive/Penalty
------------------------------------------------------------------------
50% or more................. no increase over Incentive.
previous year
required.
40% to 49%.................. w/5% increase over Incentive.
previous year.
w/out 5% increase... No Incentive/No
Penalty.
Less than 40%............... w/5% increase over Incentive.
previous year.
w/out 5% increase... Penalty equal to 1-
2% of TANF funds
for the first
failure, 2-3% for
second failure, and
so forth, up to a
maximum of 5% of
TANF funds.
------------------------------------------------------------------------
(3) The current collections performance measure is set forth in
Sec. 305.2 of this part. There is a threshold of 35 percent below which
a State will be penalized unless an increase of 5 percent over the
previous year is achieved (that qualifies it for an incentive).
Performance in the 35 percent to 40 percent range with no significant
increase will not be penalized but neither will it qualify for an
incentive payment. Table 6 shows at which level of performance the
State will incur a penalty under the current collections measure.
[[Page 82214]]
Table 6.--Performance Standards for Current Collections
(Use this table to determine the level of performance for the current
collections measure that will incur a penalty.)
------------------------------------------------------------------------
Increase over
Performance level previous year Incentive/Penalty
------------------------------------------------------------------------
40% or more................. no increase over Incentive.
previous year
required.
35% to 39%.................. w/5% increase over Incentive.
previous year.
w/out 5% increase... No Incentive/No
Penalty.
less than 35%............... w/5% increase over Incentive.
previous year.
w/out 5% increase... Penalty equal to 1-
2% of TANF funds
for the first
failure, 2-3% for
second failure, and
so forth, up to a
maximum of 5% of
TANF funds.
------------------------------------------------------------------------
(b) The provisions listed under Sec. 305.32 of this part also apply
to the penalty performance measures.
Sec. 305.42 Penalty phase-in.
States are subject to the performance penalties described in
Sec. 305.40 based on data reported for FY 2001. Data reported for FY
2000 will be used as a base year to determine improvements in
performance during FY 2001. There will be an automatic one-year
corrective action period before any penalty is assessed. The penalties
will be assessed and then suspended during the corrective action
period.
Sec. 305.60 Types and scope of Federal audits.
(a) OCSE will conduct audits, at least once every three years (or
more frequently if the State fails to meet performance standards and
reliability of data requirements) to assess the completeness,
authenticity, reliability, accuracy and security of data and the
systems used to process the data in calculating performance indicators
under this part;
(b) Also, OCSE will conduct audits to determine the adequacy of
financial management of the State IV-D program, including assessments
of:
(1) Whether funds to carry out the State program are being
appropriately expended, and are properly and fully accounted for; and
(2) Whether collections and disbursements of support payments are
carried out correctly and are fully accounted for; and
(c) OCSE will conduct audits for such other purposes as the
Secretary may find necessary.
(1) These audits include audits to determine if the State is
substantially complying with one or more of the requirements of the IV-
D program (with the exception of the requirements of section 454(24) of
the Act relating to statewide-automated systems and section 454(27)(A)
and (B)(i) relating to the State Disbursement Unit) as defined in
Sec. 305.63 of this part. Other audits will be conducted at the
discretion of OCSE.
(2) Audits to determine substantial compliance will be initiated
based on substantiated evidence of a failure by the State to meet IV-D
program requirements. Evidence, which could warrant an audit to
determine substantial compliance, includes:
(i) The results of two or more State self-reviews conducted under
section 454(15)(A) of the Act which: Show evidence of sustained poor
performance; or indicate that the State has not corrected deficiencies
identified in previous self-assessments, or that those deficiencies are
determined to seriously impact the performance of the State's program;
or
(ii) Evidence of a State program's systemic failure to provide
adequate services under the program through a pattern of non-compliance
over time.
(d) OCSE will conduct audits of the State's IV-D program through
inspection, inquiries, observation, and confirmation and in accordance
with standards promulgated by the Comptroller General of the United
States in ``Government Auditing Standards.''
Sec. 305.61 Penalty for failure to meet IV-D requirements.
(a) A State will be subject to a financial penalty and the amounts
otherwise payable to the State under title IV-A of the Act will be
reduced in accordance with Sec. 305.66:
(1) If on the basis of:
(i) Data submitted by the State or the results of an audit
conducted under Sec. 305.60 of this part, the State's program failed to
achieve the paternity establishment percentages, as defined in section
452(g)(2) of the Act and Sec. 305.40 of this part, or to meet the
support order establishment and current collections performance
measures as set forth in Sec. 305.40 of this part; or
(ii) The results of an audit under Sec. 305.60 of this part, the
State did not submit complete and reliable data, as defined in
Sec. 305.1 of the part; or
(iii) The results of an audit under Sec. 305.60 of this part, the
State failed to substantially comply with one or more of the
requirements of the IV-D program, as defined in Sec. 305.63; and
(2) With respect to the immediately succeeding fiscal year, the
State failed to take sufficient corrective action to achieve the
appropriate performance levels or compliance or the data submitted by
the State are still incomplete and unreliable.
(b) The reductions under paragraph (c) of this section will be made
for quarters following the end of the corrective action year and will
continue until the end of the first quarter throughout which the State,
as appropriate:
(1) Has achieved the paternity establishment percentages, the order
establishment or the current collections performance measures set forth
in Sec. 305.40 of this part;
(2) Is in substantial compliance with IV-D requirements as defined
in Sec. 305.63 of this part; or
(3) Has submitted data that are determined to be complete and
reliable.
(c) The payments for a fiscal year under title IV-A of the Act will
be reduced by the following percentages:
(1) One to two percent for the first finding under paragraph (a) of
this section;
(2) Two to three percent for the second consecutive finding; and
(3) Not less than three percent and not more than 5 percent for the
third or a subsequent consecutive finding.
(d) The reduction will be made in accordance with the provisions of
45 CFR 262.1(b)-(e) and 262.7.
Sec. 305.62 Disregard of a failure which is of a technical nature.
A State subject to a penalty under Sec. 305.61(a)(1)(ii) or (iii)
of this part may be determined, as appropriate, to have submitted
adequate data or to have achieved substantial compliance with
[[Page 82215]]
one or more IV-D requirements, as defined in Sec. 305.63 of this part,
if the Secretary determines that the incompleteness or unreliability of
the data, or the noncompliance with one or more of the IV-D
requirements, is of a technical nature which does not adversely affect
the performance of the State's IV-D program or does not adversely
affect the determination of the level of the State's paternity
establishment or other performance measures percentages.
Sec. 305.63 Standards for determining substantial compliance with IV-D
requirements.
For the purposes of a determination under Sec. 305.61(a)(1)(iii) of
this part, in order to be found to be in substantial compliance with
one or more of the IV-D requirements as a result of an audit conducted
under Sec. 305.60 of this part, a State must meet the standards set
forth below for each specific IV-D State plan requirement or
requirements being audited and contained in parts 302 and 303 of this
chapter, measured as follows:
(a) The State must meet the requirements under the following areas:
(1) Statewide operations, Sec. 302.10 of this chapter;
(2) Reports and maintenance of records, Sec. 302.15(a) of this
chapter;
(3) Separation of cash handling and accounting functions,
Sec. 302.20 of this chapter; and
(4) Notice of collection of assigned support, Sec. 302.54 of this
chapter.
(b) The State must provide services required under the following
areas in at least 90 percent of the cases reviewed:
(1) Establishment of cases, Sec. 303.2(a) of this chapter; and
(2) Case closure criteria, Sec. 303.11 of this chapter.
(c) The State must provide services required under the following
areas in at least 75 percent of the cases reviewed:
(1) Collection and distribution of support payments, including:
collection and distribution of support payments by the IV-D agency
under Sec. 302.32(b) of this chapter; distribution of support
collections under Sec. 302.51 of this chapter; and distribution of
support collected in title IV-E foster care maintenance cases under
Sec. 302.52 of this chapter;
(2) Establishment of paternity and support orders, including:
Establishment of a case under Sec. 303.2(b) of this chapter; services
to individuals not receiving TANF or title IV-E foster care assistance,
under Sec. 302.33(a)(1) through (4) of this chapter; provision of
services in interstate IV-D cases under Sec. 303.7(a), (b) and (c)(1)
through (6) and (c)(8) through (10) of this chapter; location of non-
custodial parents under Sec. 303.3 of this chapter; establishment of
paternity under Sec. 303.5(a) and (f) of this chapter; guidelines for
setting child support awards under Sec. 302.56 of this chapter; and
establishment of support obligations under Sec. 303.4(d), (e) and (f)
of this chapter;
(3) Enforcement of support obligations, including, in all
appropriate cases: establishment of a case under Sec. 303.2(b) of this
chapter; services to individuals not receiving TANF or title IV-E
foster care assistance, under Sec. 302.33(a)(1) through (4) of this
chapter; provision of services in interstate IV-D cases under
Sec. 303.7(a), (b) and (c)(1) through (6) and (c)(8) through (10) of
this chapter; location of non-custodial parents under Sec. 303.3 of
this chapter; enforcement of support obligations under Sec. 303.6 of
this chapter and State laws enacted under section 466 of the Act,
including submitting once a year all appropriate cases in accordance
with Sec. 303.6(c)(3) of this chapter to State and Federal income tax
refund offset; and wage withholding under Sec. 303.100 of this chapter.
In cases in which wage withholding cannot be implemented or is not
available and the non-custodial parent has been located, States must
use or attempt to use at least one enforcement technique available
under State law in addition to Federal and State tax refund offset, in
accordance with State laws and procedures and applicable State
guidelines developed under Sec. 302.70(b) of this chapter;
(4) Review and adjustment of child support orders, including:
Establishment of a case under Sec. 303.2(b) of this chapter; services
to individuals not receiving TANF or title IV-E foster care assistance,
under Sec. 302.33(a)(1) through (4) of this chapter; provision of
services in interstate IV-D cases under Sec. 303.7(a), (b) and (c)(1)
through (6) and (c)(8) through (10) of this chapter; location of non-
custodial parents under Sec. 303.3 of this chapter; guidelines for
setting child support awards under Sec. 302.56 of this chapter; and
review and adjustment of support obligations under Sec. 303.8 of this
chapter; and
(5) Medical support, including: establishment of a case under
Sec. 303.2(b) of this chapter; services to individuals not receiving
TANF or title IV-E foster care assistance, under Sec. 302.33(a)(1)
through (4) of this chapter; provision of services in interstate IV-D
cases under Sec. 303.7(a), (b) and (c)(1) through (6) and (c)(8)
through (10) of this chapter; location of non-custodial parents under
Sec. 303.3 of this chapter; securing medical support information under
Sec. 303.30 of this chapter; and securing and enforcing medical support
obligations under Sec. 303.31 of this chapter; and
(6) Disbursement of support payments in accordance with the
timeframes in section 454B of the Act and Sec. 302.32 of this chapter.
(d) With respect to the 75 percent standard in paragraph (b) of
this section:
(1) Notwithstanding timeframes for establishment of cases in
Sec. 303.2(b) of this chapter; provision of services in interstate IV-D
cases under Sec. 303.7(a), (b) and (c)(4) through (6), (c)(8) and (9)
of this chapter; location and support order establishment under
Sec. 303.3(b)(3) and (5), and Sec. 303.4(d) of this chapter, if a
support order needs to be established in a case and an order is
established during the audit period in accordance with the State's
guidelines for setting child support awards, the State will be
considered to have taken appropriate action in that case for audit
purposes.
(2) Notwithstanding timeframes for establishment of cases in
Sec. 303.2(b) of this chapter; provision of services in interstate IV-D
cases under Sec. 303.7(a), (b) and (c)(4) through (6), and (c)(8) and
(9) of this chapter; and location and review and adjustment of support
orders contained in Sec. 303.3(b)(3) and (5), and Sec. 303.8 of this
chapter, if a particular case has been reviewed and meets the
conditions for adjustment under State laws and procedures and
Sec. 303.8 of this chapter, and the order is adjusted, or a
determination is made, as a result of a review, during the audit
period, that an adjustment is not needed, in accordance with the
State's guidelines for setting child support awards, the State will be
considered to have taken appropriate action in that case for audit
purposes.
(3) Notwithstanding timeframes for establishment of cases in
Sec. 303.2(b) of this chapter; provision of services in interstate IV-D
cases under Sec. 303.7 (a), (b) and (c) (4) through (6), and (c)(8) and
(9) of this chapter; and location and wage withholding in Sec. 303.3(b)
(3) and (5), and Sec. 303.100 of this chapter, if wage withholding is
appropriate in a particular case and wage withholding is implemented
and wages are withheld during the audit period, the State will be
considered to have taken appropriate action in that case for audit
purposes.
(4) Notwithstanding timeframes for establishment of cases in
Sec. 303.2(b) of this chapter; provision of services in interstate IV-D
cases under Sec. 303.7 (a), (b) and (c) (4) through (6), and (c)(8) and
(9) of this chapter; and location and enforcement of support
obligations in Sec. 303.3(b) (3) and (5), and Sec. 303.6 of this
chapter, if wage withholding is not appropriate in a particular case,
and the
[[Page 82216]]
State uses at least one enforcement technique available under State
law, in addition to Federal and State income tax refund offset, which
results in a collection received during the audit period, the State
will be considered to have taken appropriate action in the case for
audit purposes.
(e) The State must meet the requirements for expedited processes
under Sec. 303.101(b)(2)(i) and (iii), and (e) of this chapter.
Sec. 305.64 Audit procedures and State comments.
(a) Prior to the start of the actual audit, Federal auditors will
hold an audit entrance conference with the IV-D agency. At that
conference, the auditors will explain how the audit will be performed
and make any necessary arrangements.
(b) At the conclusion of audit fieldwork, Federal auditors will
afford the State IV-D agency an opportunity for an audit exit
conference at which time preliminary audit findings will be discussed
and the IV-D agency may present any additional matter it believes
should be considered in the audit findings.
(c) After the exit conference, Federal auditors will prepare and
send to the IV-D agency a copy of their interim report on the results
of the audit. Within a specified timeframe from the date the report was
sent by certified mail, the IV-D agency may submit written comments on
any part of the report which the IV-D agency believes is in error. The
auditors will note such comments and incorporate any response into the
final audit report.
Sec. 305.65 State cooperation in audit.
(a) Each State shall make available to the Federal auditors such
records or other supporting documentation (electronic and manual) as
the audit staff may request, including records to support the data as
submitted on the Federal statistical and financial reports that will be
used to calculate the State's performance. The State shall also make
available personnel associated with the State's IV-D program to provide
information that the audit staff may find necessary in order to conduct
or complete the audit.
(b) States must provide evidence to Office that their data are
complete and reliable as defined in Sec. 305.2 of this part.
(c) Failure to comply with the requirements of this section with
respect to audits conducted to determine compliance with IV-D
requirements under Sec. 305.60 of this part, may necessitate a finding
that the State has failed to comply with the particular criteria being
audited.
Sec. 305.66 Notice, corrective action year, and imposition of penalty.
(a) If a State is found by the Secretary to be subject to a penalty
as described in Sec. 305.61 of this part, the OCSE will notify the
State in writing of such finding.
(b) The notice will:
(1) Explain the deficiency or deficiencies which result in the
State being subject to a penalty, indicate the amount of the potential
penalty, and give reasons for the finding; and
(2) Specify that the penalty will be assessed in accordance with
the provisions of 45 CFR 262.1(b) through (e) and 262.7 if the State is
found to have failed to correct the deficiency or deficiencies cited in
the notice during the automatic corrective action year (i.e., the
succeeding fiscal year following the year with respect to which the
deficiency occurred.)
(c) The penalty under Sec. 305.61 of this part will be assessed if
the Secretary determines that the State has not corrected the
deficiency or deficiencies cited in the notice by the end of the
corrective action year.
(d) Only one corrective action period is provided to a State with
respect to a given deficiency where consecutive findings of
noncompliance are made with respect to that deficiency. In the case of
a State against which the penalty is assessed and which failed to
correct the deficiency or deficiencies cited in the notice by the end
of the corrective action year, the penalty will be effective for any
quarter after the end of the corrective action year and ends for the
first full quarter throughout which the State IV-D program is
determined to have corrected the deficiency or deficiencies cited in
the notice.
(e) A consecutive finding occurs only when the State does not meet
the same criterion or criteria cited in the notice in paragraph (a) of
this section.
[FR Doc. 00-32702 Filed 12-26-00; 8:45 am]
BILLING CODE 4184-01-P