Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Wyoming Department of Family Services
DATE: July 28, 1994
Docket No. A-94-52
Decision No. 1487
DECISION
The Wyoming Department of Family Services (Wyoming) appealed a
determination by the Administration for Children and Families (ACF) to
reduce federal payments to Wyoming under title IV-A of the Social
Security Act (Act) by one percent beginning January 1, 1992. ACF
calculated the reduction to be $233,590 1/ for the period January 1,
1992 through December 31, 1992. The determination was based on a
follow-up review, by ACF's Office of Child Support Enforcement (OCSE),
of an OCSE audit which found that Wyoming's Child Support Enforcement
Program was not in "substantial compliance" with the requirements
of
title IV-D of the Act. Title IV-A of the Act provides for a percentage
reduction, which begins with a one percent reduction of payments to a
state under title IV-A and increases by statutory mandate to a possible
maximum percentage reduction of five percent, until a state is found to
be in substantial compliance with the title IV-D program requirements.
See section 403(h)(1) of title IV- A of the Act. 2/
We find that Wyoming failed to comply substantially with requirements of
title IV-D, and that ACF properly implemented the reduction involved
here. Based on our analysis below, we uphold ACF's reduction in full.
Background
On January 8, 1991, ACF notified Wyoming that, based on an audit
conducted by OCSE, Audit Report No. WY-88-PR/PM, it had determined that
Wyoming did not substantially comply with the requirements of seven
criteria of title IV-D. In addition, the notice indicated that total
payments to Wyoming under title IV-A would be reduced by one percent.
However, ACF also told Wyoming that imposition of the percentage
reduction would be suspended if Wyoming submitted a corrective action
plan (plan) to the OCSE Regional Representative within 60 days of the
date of the notice and the plan was approved by OCSE. Finally, ACF told
Wyoming that only one corrective action period would be allowed.
Wyoming submitted its plan on March 11, 1991. See ACF's appeal file,
tab 2. On April 22, 1991, OCSE notified Wyoming that its plan was
approved and that imposition of the reduction was suspended. The
corrective action period ended on January 7, 1992, one year from the
original notice.
After the one-year corrective action period, ACF conducted a follow-up
review, OCSE Audit Report No. WY- 88-FR, to determine whether Wyoming
had achieved substantial compliance with the unmet criteria cited in the
notice. The follow-up review covered the period May 1, 1991 through
April 30, 1992, and the review's fieldwork was performed during the
period July 1, 1992 through December 15, 1992. ACF determined that
Wyoming still failed to meet three criteria cited in the notice: (1) the
state parent locator service requirement at 45 C.F.R. 305.33(g); (2)
reports and maintenance of records requirements at 45 C.F.R.
305.35(b); and (3) separation of cash handling and accounting functions
requirements at 45 C.F.R. 305.38(a) and (c). Additionally, ACF
determined that Wyoming only marginally met the requirement for notice
of collection of assigned support at 45 C.F.R. 305.45(b). See
Wyoming's appeal file, divider no. 4, at 2-3. However, ACF specifically
stated that the latter finding was not a basis for the one percent
reduction imposed here. Applicable authority
Section 403(h)(1) of the Act provides, in relevant part:
Notwithstanding any other provision of this Act, if a State's
program operated under part D is found as a result of a review
conducted under section 452(a)(4) not to have complied
substantially with the requirements of such part for any quarter
beginning after September 30, 1983, and the Secretary determines
that the State's program is not complying substantially with such
requirements at the time such finding is made, the amounts
otherwise payable to the State under this part for such quarter and
each subsequent quarter, prior to the first quarter throughout
which the State program is found to be in substantial compliance
with such requirements, shall be reduced . . . .
Additionally, section 403(h)(1) provides for graduated reductions,
starting with a reduction of "not less than one nor more than two
percent" and increasing to a maximum of five percent with each
consecutive finding that a state is not complying substantially with the
same title IV-D requirements which had been cited in previous audits.
Section 305.33 of 45 C.F.R. (1987) states, in relevant part:
For the purposes of this part, in order to be found in compliance
with the State plan requirement for a parent locator service . . .
a State must:
* * *
(g) Be using the names and other identifying information of absent
parents, the State and local locate data sources and the Federal
[Parent Locator Service], in an attempt to determine the actual
whereabouts of the absent parent, or determine that the whereabouts
of the absent parent cannot be ascertained.
Section 305.20(a)(2) specifies that in order for a state to be found in
compliance with the parent locator service, the required procedures must
be used in 75% of the cases reviewed for this criterion. Section 305.35
of 45 C.F.R. states, in relevant part:
For the purposes of this part, in order to be found to be in
compliance with the State plan requirement for reports and
maintenance of records (45 CFR 302.15), a State must:
* * *
(b) Have established and be utilizing a system for insuring that
reports required by the Secretary are provided when due, and are
accurate and complete.
Section 305.38 of 45 C.F.R. states, in relevant part:
(a) For the purposes of this part, to be found in compliance with
the State plan requirement for the separation of cash handling and
accounting functions (45 CFR 302.20), a State must have written
administrative procedures:
(1) Designed to assure that persons, including the individuals
specified in 302.20(b) of this chapter, responsible for handling
cash receipts of support do not participate in accounting or
operating functions which would permit them to conceal in the
accounting records the misuse of support receipts; and
(2) Designed to assure use of generally accepted accounting
principles.
* * *
(c) The State must use the written procedures specified above.
Compliance with the reports and maintenance of records and the
separation of cash handling and accounting functions criteria are not
judged by a standard measuring percentage of actions taken. Instead, 45
C.F.R. 305.20(a)(1) and (b)(1) state that these systems- related
criteria "must be met."
Analysis
A. Wyoming did not substantially comply with the state parent
locator service requirement at 45 C.F.R. 305.33(g).
ACF determined that Wyoming did not meet the state parent locator
service requirement of 45 C.F.R. 305.33(g) because, of the sample of
cases reviewed requiring location services, only 177 of the 279 required
actions (63%) had been taken. ACF determined that the major deficiency
was that there was no evidence in Wyoming's records of any locate action
being attempted, even though names and other identifying information,
such as last known address, social security number, and/or date of
birth, were available.
Wyoming admitted that it was not in substantial compliance with the
state parent locator service requirement at 45 C.F.R. 305.33(g). See
Wyoming's brief (br.) at 5. Wyoming explained that during the follow-up
review period, its program was essentially manual in all respects,
except that cases had been loaded on a computer. Therefore, in order to
certify cases for the Internal Revenue Service (IRS), so as to comply
with 45 C.F.R. 305.40 [federal tax refund offset], all the cases had
to be pulled manually, which took virtually the entire child support
staff. In fact, Wyoming admitted that it assigned only one employee to
the locate function during this period. See Wyoming's appeal file,
divider no. 5, at 8. In its appeal, Wyoming asserted that its situation
has now changed, and that both the parent locator service and the IRS
functions can occur concurrently without impact on the staff. Wyoming's
notice of appeal at 2. Given that it had improved its program, Wyoming
contended that the percentage reduction should not be imposed.
ACF maintained that because of Wyoming's admitted failure to
substantially comply with 45 C.F.R. 305.33(g), the percentage
reduction must be upheld. We agree.
There is no dispute that Wyoming failed to achieve substantial
compliance with the locate criterion during the follow-up review period.
In District of Columbia Dept. of Human Services, DAB No. 1228 (1991), we
said:
Even assuming that DC's program has improved in general, the
question before us here is whether the program had improved
sufficiently by the follow-up review period to bring DC into
substantial compliance with program requirements. If DC did not
bring its program into substantial compliance, despite notice and
an extended corrective action period, the Act requires that a
reduction in AFDC funding be imposed.
District of Columbia at 11 (emphasis added). We find that the reasoning
in DAB No. 1228 is also applicable to this case. Since Wyoming failed
to achieve substantial compliance by the end of the follow-up review
period, the reduction was properly imposed. The requirement that a
state attempt to locate absent parents has been in place since December
1976. See 41 Fed. Reg. 55,348 (December 20, 1976). Wyoming had the
responsibility to provide adequate resources to carry out all its
obligations under the title IV-D program.
While Wyoming's subsequent improvements may serve to prevent reductions
of this type in the future, they are not a relevant consideration here.
In Guam Dept. of Public Health and Social Services, DAB No. 1050, at 7-8
(1989), we said:
It would appear that Guam is arguing that it should receive some
equitable benefit because of its attempt to improve its program.
The Board has in many decisions stated that we decide only the
merits of the dispute between parties. . . . The Board has no
authority to waive a disallowance (or a penalty) because a state
made improvements in its program administration after the
disallowance period.
Similarly, we have no authority to waive the reduction here based on the
equitable argument made by Wyoming.
B. Wyoming did not meet the reports and maintenance of records
requirement at 45 C.F.R. 305.35(b).
ACF determined that Wyoming did not meet the reports and maintenance of
records requirement of 45 C.F.R. 305.35(b) because Wyoming had serious
problems with the accuracy of its reports. ACF determined that the
major deficiencies were that: (1) data on the OCSE-34 collection report
was not accurate, reliable or complete; (2) interest income for child
support collections, along with some fees, was not reported as other
program income on the OCSE-131 report as an offset to program
expenditures; and (3) the OCSE-158 report did not contain actual
accounts receivable data, and an audit trail did not exist that would
allow accounts receivable data to be traced through the system.
As with requirements discussed in the previous section, Wyoming admitted
that it failed to meet the reports and maintenance of records
requirements at 45 C.F.R. 305.35(b). Wyoming's br. at 5. Further,
Wyoming specifically admitted that its OCSE-34 collection report "is
incorrect and has been incorrect for several years." Wyoming's notice of
appeal at 3. However, Wyoming maintained that its reporting process has
been improved several times and will be further corrected through a
conversion to a statewide system. Further, Wyoming explained that it is
not possible to correct the other deficiencies identified by the
auditors without a statewide system. Id.
We find that Wyoming's efforts, including its completion of a conversion
to a statewide system, do not affect the reduction imposed here. As
noted previously above, prior Board decisions support the conclusion
that reversal is not warranted simply on the basis that Wyoming has
corrected some of the deficiencies after the follow-up review period.
See Guam; District of Columbia, supra. Finally, these reports are needed
so that interest income for child support collections, along with some
other fees collected by Wyoming, could be used to offset program
expenditures by the federal government. See Wyoming's appeal file,
divider no. 5 at 14.
C. Wyoming did not meet the separation of cash handling and
accounting functions requirements at 45 C.F.R. 305.38(a) and
(c), and it was within ACF's authority to review such compliance.
ACF determined that Wyoming did not meet the separation of cash handling
and accounting functions requirements at 45 C.F.R. 305.38(a) and (c)
because (1) at the state level, it did not restrictively endorse child
support checks upon receipt; and (2) at the county level, the written
procedures for district clerks of courts in Laramie and Natrona counties
did not require that the persons responsible for handling cash receipts
of child support not participate in the accounting or operating
functions that would permit them to conceal in the accounting records
the misuse of support receipts.
1. Wyoming failed to restrictively endorse child support checks.
Wyoming maintained that its written procedures were designed and
followed in such a manner to assure use of generally accepted accounting
principles, so that it should be found to be in compliance with 45
C.F.R. 305.38(a) and (c). Wyoming asserted that many of the checks
that it receives are improperly sent to child support enforcement, and
that the real designated payees must be identified and the checks
properly forwarded. Wyoming argued that once checks are properly
identified as child support checks, they are restrictively endorsed.
Wyoming contended that its procedures provide assurance that child
support check payments received cannot be converted to personal use.
We find that Wyoming's arguments are without merit. Wyoming relied
heavily on the fact that 45 C.F.R. 305.38(a) specifies that a state
must have written procedures. However, one question here is whether
those procedures were properly designed to meet the section's
requirements. Moreover, 45 C.F.R. 305.38(c) specifies that a state
"must use the written procedures" required by 305.38(a). Beginning
with the fiscal year 1985 audit period, states had to meet the
requirements of both 305.38(a) and 305.38(c). 45 C.F.R.
305.20(b).
Nothing in Wyoming's explanation of its check identification process
assured that Wyoming's process met the regulation's requirements during
the relevant period. In its notice of appeal, at 2-3, Wyoming said:
The system we currently have in place is that all checks are date
stamped and logged upon receipt; the checks are identified; after
the child support checks have been identified they are
restrictively endorsed. Receipt logs are balanced to daily
[Automated Child Support Administration and Systematic Enforcement
Management System (CASE)] batches and to daily deposits.
The reviewers found that the process described by Wyoming in its notice
of appeal was not the receipting process in place during the follow-up
review period. Further, reviewers found that payments were not
processed through the CASE system at that time. In fact, the reviewers
found that unendorsed checks were often held overnight, and Wyoming
presented no evidence to rebut this finding. ACF alleged that this was
contrary to generally accepted accounting principles and Wyoming did not
dispute this allegation. Moreover, Wyoming presented nothing to show
what measures, if any, it used to protect the child support checks from
conversion prior to restrictive endorsement during the relevant time
period. Wyoming did not explain how the need to identify and forward
checks improperly sent to child support enforcement would be a barrier
to restrictively endorsing checks when they were received. Finally, as
noted above, simply because Wyoming has made improvements and completed
its computerized system after the audit period does not mean the
reduction at issue here was not proper.
2. Wyoming failed to maintain the separation of functions
envisioned by the regulation.
ACF determined that in Laramie County, the same person handled cash
receipts and participated in the accounting or operating functions.
Further, ACF found that in Natrona County, all six deputy clerks of the
court were authorized to receive payment and two of them were
responsible for the accounting and operating functions. 3/
Wyoming maintained that ACF's on-site audit of county clerks of court
was ultra vires. Specifically, Wyoming argued that ACF acted improperly
and violated the Single Audit Act of 1984, 31 U.S.C. 7501-7507, when
it conducted "fieldwork" or audited two of its offices in Laramie
and
Natrona counties. Wyoming maintained that the Single Audit Act limits
the scope of audits conducted under individual federal assistance
programs in addition to those already conducted by local government
entities. Additionally, Wyoming asserted that state statutory mandate
prescribes specific procedures for the fiscal accounting and auditing of
all governmental entities within the state, that it properly complied
with all the requirements for auditing by independent auditors, and that
OCSE's recommendations regarding Wyoming's internal control system
therefore constitute a duplication of effort in violation of the Single
Audit Act. See Wyoming's br. at 16-20.
We reject Wyoming's contention that ACF acted beyond its authority when
it conducted a review of the court clerks in order to determine state
compliance with the regulation. Section 454(7) of the Act and 45 C.F.R.
302.34 require states to enter into cooperative agreements with
appropriate courts when necessary to collect support payments. It is
undisputed that the Laramie and Natrona county courts have entered into
such cooperative agreements with the Wyoming IV-D agency for child
support collections. All cooperative agreements must comply with title
IV-D of the Act, the implementing federal regulations, and other
applicable federal requirements. See 45 C.F.R. 302.20(b)(2),
303.107(c) and 305.34. Specifically, 45 C.F.R. 302.20(b)(2) requires
employees of the court performing under a cooperative agreement to
comply with the separation of cash handling and accounting functions
requirements. Thus, in order to determine whether Wyoming met these
requirements, ACF properly reviewed the activities of the court clerks
in these areas.
Further, Wyoming's argument that ACF violated the Single Audit Act is
without merit. The Single Audit Act establishes uniform audit
requirements for state and local governments receiving federal financial
assistance. See ACF's appeal file, tab 6. Specifically, the Single
Audit Act requires each state and local government receiving $100,000 or
more per year in federal financial assistance to obtain an annual,
independent, organization-wide audit. See 31 U.S.C. 7502(a) and (d).
The single audit may be a financial or a financial/compliance audit.
The Single Audit Act specifically exempts from the scope of the single
audit "economy and efficiency audits, program results audits or program
evaluations." See 31 U.S.C. 7502(c). The legislative history of the
Single Audit Act confirms:
The single audit is not, however, intended to replace any existing
Federal requirements for recipients to obtain economy and
efficiency audits or program results audits. (These types of
audits are defined in the general accepted government auditing
standards issued by the Comptroller General.)
H.R. No. 98-708, 98th Cong., 2d Sess. 4 (1984), reprinted in 1984
U.S.C.C.A.N. 3955, 3967 (see ACF's appeal file, tab 6). The general
accounting standards issued by the Comptroller General provide that
"program results audits" include --
determining (1) the extent to which the desired results or benefits
established by the legislature or other authorizing body are being
achieved, (2) the effectiveness of organizations, programs,
activities, or functions, and (3) whether the entity has complied
with laws and regulations applicable to the program.
The review in question here was clearly designed to determine whether
Wyoming complied with the regulations applicable to the title IV-D
program. It was therefore a program results audit which was not covered
by the Single Audit Act.
Moreover, Wyoming did not reply to ACF's contention that, at the time of
the initial audit and the follow-up review, OCSE auditors were not made
aware of any relevant county audits conducted by Wyoming under the
Single Audit Act. Further, Wyoming was invited by ACF to produce the
county audit reports during the appeal in this case and Wyoming failed
to do so. Thus, we conclude that ACF's review did not duplicate any
audit conducted by Wyoming. Consequently, we conclude that Wyoming did
not comply with this criterion.
D. ACF properly imposed the reduction.
Wyoming made a general argument that ACF continued to impose a reduction
"even though of the initial seven criteria considered unmet . . . only
two, or less than 29 percent, were unmet at the time of the Follow-up
Audit and Report." 4/ Wyoming's br. at 7.
As stated previously, section 403(h)(1) of the Act requires a reduction
for any state found not to be in substantial compliance. Section
305.20(d) of 45 C.F.R. provides the criteria necessary for a program to
be found in substantial compliance. The regulation lists all the audit
criteria that "must be met" and all the audit criteria that "must
be
used in 75 percent of the cases reviewed." Included in the "must be
met" list are audit criteria for "[r]eports and maintenance of records,"
and "[s]eparation of cash handling and accounting functions." Included
in the list of audit criteria that "must be used in 75 percent of the
cases reviewed" is the audit criterion for "[s]tate parent locator
service." Thus, ACF clearly intended that a state must meet each audit
criterion set out in the regulations in order to avoid imposition of the
reduction. Moreover, all of these criteria are important to running a
sound title IV-D program. Indeed, Wyoming's deficient efforts in the
area of parent location likely reduced the number of cases requiring
subsequent action such as establishment of paternity or enforcement of
support orders and thus possibly skewed the review results in its favor.
Given the Act's requirement of a reduction for substantial
noncompliance, ACF properly imposed the reduction even if Wyoming
complied with a substantial percentage of the audit criteria.
Conclusion
Based on the foregoing, we uphold the disallowance in full.
Judith A. Ballard
Donald F. Garrett
M. Terry Johnson Presiding Board Member
1. On page 4 of its brief, Wyoming identified the amount of the
disallowance as $223,590. It appears from the material submitted with
the brief that this is a typographical error, since the letter to which
Wyoming referred clearly identified the disallowance amount as $233,590.
See Wyoming's appeal file, divider no. 2.
2. The reduction was imposed starting with the quarter beginning
October 1, 1990, and continues until Wyoming is in substantial
compliance with the title IV-D requirements. Although the original
audit period was October 1, 1987 through September 30, 1988, because of
subsequent actions, including the corrective action period, ACF did not
implement the reduction until January 1, 1992.
3. In its notice of appeal, Wyoming maintained that it had requested
a waiver of the separation of cash handling and accounting functions
requirements. However, ACF noted and Wyoming did not dispute that the
waiver request was submitted after the follow-up review period and did
not include Laramie and Natrona counties.
4. Wyoming's reference to two criteria is based on its having
admitted to failing the state parent locator service and the reports and
maintenance of records criteria. However, we have also determined that
it failed a third criterion as well, the separation of cash handling and
accounting functions