SUBJECT: Nevada Department of Human Resources

DECISION

The Nevada Department of Human Resources (Nevada) appeals a determination by the Administration for Children and Families (ACF), dated November 14, 2003. ACF determined that Nevada is subject to a penalty for failure to demonstrate that, for fiscal years (FYs) 2001 and 2002, its child support enforcement program operated pursuant to title IV-D of the Social Security Act (Act) met performance standards relating to the establishment of paternity of minor children who were born out of wedlock. The penalty is $428,360, one percent of the amount of the federal funding that Nevada received for FY 2001 under the Temporary Assistance for Needy Families program (TANF) established by title IV-A of the Act, and was imposed by reducing the TANF funding that Nevada received during FY 2004.

For the reasons discussed below, we sustain ACF's determination that Nevada is subject to a penalty. The Board previously addressed many of the issues presented in this appeal in Alabama Dept. of Human Resources, et al., DAB No. 1989 (2005). The Board there upheld ACF's determinations, also announced in letters dated November 14, 2003, that nine States were subject to penalties for failure to demonstrate that their child support enforcement programs met performance standards during FYs 2001 and 2002. Based on the analysis in DAB No. 1989, the Board also upheld ACF's determination that Puerto Rico was subject to a penalty for FYs 2001 and 2002, in Puerto Rico Dept. of the Family, DAB No. 1993 (2005).

Our decision summarizes and adopts our analysis in DAB No. 1989, and explains why additional issues Nevada raises do not provide a basis for overturning the penalty.  Nevada is properly subject to a penalty because it failed to submit reliable data needed to calculate its performance for FYs 2001 and 2002, including data submitted for FY 2000 that were needed to calculate performance for FY 2001 but which were unreliable. A state's obligation to submit reliable data needed to calculate performance is an important aspect of the IV-D system, which imposes penalties for unreliable data without regard to whether the state met the required level of performance. The applicable regulations and preamble informed states that prior year data are needed to determine a state's performance at establishing paternity, and provided them the opportunity to correct unreliable prior year data for that purpose. ACF's decision to excuse unreliable data for FY 2000 did not permit those data to be used to determine performance in subsequent years, and Nevada did not rely on that decision in any event. Moreover, contrary to what Nevada argues, ACF complied with applicable notice requirements. Proposed statutory changes that would have changed the notice requirements were never enacted, so we and ACF must apply the provisions as in effect. We must also apply regulations prescribing the methods for determining performance and data reliability and initiating the penalty process, and Nevada has failed to demonstrate that these provisions are not applicable and do not support the penalty here.

Summary of the applicable law

Title IV-A of the Act (sections 401-419; 42 U.S.C. �� 601-619), "Block Grants to States for Temporary Assistance for Needy Families" (the TANF program), provides grants to eligible states that have approved programs for providing assistance to needy families with children, and for providing their parents with job preparation, work and support services to enable them to leave the program and become self-sufficient. Sections 401, 402 of the Act. To receive TANF funds, a state must operate a child support enforcement program consistent with title IV-D of the Act. Section 402(a)(2) of the Act. Title IV-D (sections 451-469B; 42 U.S.C. �� 651-669b) is a cooperative federal-state program that aims at increasing the effectiveness of child support collection by such measures as locating absent parents, establishing paternity, obtaining child and spousal support, and assuring that assistance in obtaining support is available to all children for whom such assistance is requested. Maryland Dept. of Human Resources, DAB No. 1875 (2003), citing section 451 of the Act. States operate their child support enforcement programs subject to oversight by ACF's Office of Child Support Enforcement (OCSE). We refer in this decision to ACF as the respondent federal agency; the IV-D regulations refer to OCSE.

Titles IV-A and IV-D and regulations at 45 C.F.R. Part 305 create a system of incentives and penalties under which federal TANF funds are awarded to or withheld from states based on scores they achieve on several IV-D performance measures. The performance measure at issue here is called the "paternity establishment percentage" (PEP). It measures a state's performance at establishing the paternity of children born out of wedlock. (There are five performance measures used to award incentives, of which three are also used to impose penalties.) ACF determines a state's level of performance based on data that the state submits, using a form prescribed by ACF. States are assessed on their performances for each federal fiscal year (FY or FFY), which runs from October 1 through September 30. 45 C.F.R. � 305.32. States must submit complete and reliable performance data for each fiscal year by December 31 following the end of the fiscal year, and only data submitted by that date will be used to determine the state's performance for that fiscal year. 45 C.F.R. � 305.32(f).

ACF conducts data reliability audits, or DRAs, to determine if the data that the state submits for a fiscal year are complete and reliable; the data must meet a 95% standard of reliability. 45 C.F.R. � 305.1(i). (For convenience, in this decision we refer to the complete and reliable data that states must submit simply as reliable data.) ACF may disregard the unreliability of data and treat the data as adequate if it determines that the unreliability is of a technical nature that does not affect calculation of the state's IV-D performance measures. 45 C.F.R. � 305.62. In December 2001, ACF used that authority to accept all unreliable FY 2000 data, which had been submitted by 23 states, including Nevada. That decision plays a part in Nevada's arguments and our analysis, as it did in the appeal of one of the joint States in DAB No. 1989.

As we concluded in DAB No. 1989, the Act and regulations provide for imposing a penalty on a state that, for two consecutive years, fails to demonstrate with reliable data that it achieved the required PEP. Thus, a state is subject to a penalty if, for two consecutive years, it fails either to achieve the required PEP, or to submit reliable data needed to calculate its PEP. (A third basis for a penalty, in addition to failing the IV-D penalty performance measures or submitting unreliable data, is failure to substantially comply with the requirements of the IV-D program. That basis is not at issue here, where the penalty is based on unreliable PEP data.) The penalties consist of reductions in the annual TANF funding that a state receives under title IV-A of the Act, called the State Family Assistance Grant (SFAG). The penalties range from one to five percent, depending on the number of violations and on how many years a state continues to fail to demonstrate with reliable data that it met the required level of IV-D performance. A state may appeal a decision imposing penalties to the Board.

ACF imposed the penalty against Nevada pursuant to section 409 of the Act, titled "Penalties." Section 409(a) provides for TANF funding reduction penalties against states, for some 14 categories of noncompliance with various requirements imposed by title IV, mostly relating to a state's TANF program under title IV-A. ⁽¹⁾ At issue here is section 409(a)(8) of the Act, which imposes the IV-D performance penalties. Section 409(a)(8) provides in relevant part as follows:

(8) NONCOMPLIANCE OF STATE CHILD SUPPORT ENFORCEMENT PROGRAM WITH REQUIREMENTS OF PART D.--

(A) IN GENERAL.--If the Secretary finds, with respect to a State's program under part D, in a fiscal year beginning on or after October 1, 1997--

(i)(I) on the basis of data submitted by a State pursuant to section 454(15)(B), or on the basis of the results of a review conducted under section 452(a)(4), that the State program failed to achieve the paternity establishment percentages (as defined in section 452(g)(2)), or to meet other performance measures that may be established by the Secretary;
(II) on the basis of the results of an audit or audits conducted under section 452(a)(4)(C)(i) that the State data submitted pursuant to section 454(15)(B) is incomplete or unreliable; or
(III) on the basis of the results of an audit or audits conducted under section 452(a)(4)(C) that a State failed to substantially comply with 1 or more of the requirements of part D (other than paragraph (24) or subparagraph (A) or (B)(i) of paragraph (27), of section 454); and
(ii) that, with respect to the succeeding fiscal year--
(I) the State failed to take sufficient corrective action to achieve the appropriate performance levels or compliance as described in subparagraph (A)(i); or
(II) the data submitted by the State pursuant to section 454(15)(B) is incomplete or unreliable; the amounts otherwise payable to the State under this part for quarters following the end of such succeeding fiscal year, prior to quarters following the end of the first quarter throughout which the State program has achieved the paternity establishment percentages or other performance measures as described in subparagraph (A)(i)(I), or is in substantial compliance with 1 or more of the requirements of part D as described in subparagraph (A)(i)(III), as appropriate, shall be reduced by the percentage specified in subparagraph (B).

For some of those other violations listed at section 409(a), the Secretary may not impose a penalty if he finds that there was reasonable cause for the violation, and must afford a state the opportunity to enter into a corrective compliance plan prior to imposing a penalty. Notably, however, section 409 withholds those ameliorative measures from the title IV-D penalties at issue here. Sections 409(b),(c) of the Act.

The IV-D penalty provisions are implemented at 45 C.F.R. � 305.61, which, in relevant part, refers to failure to achieve the paternity establishment percentage as well as two other penalty performance measures created by the regulations. These measures, not at issue here, assess a state's performance at establishing orders of support and at collecting support in IV-D cases.

� 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 � 305.66:
(1) If on the basis of:
(i) Data submitted by the State or the results of an audit conducted under � 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 � 305.40 of this part, or to meet the support order establishment and current collections performance measures as set forth in � 305.40 of this part; or
(ii) The results of an audit under � 305.60 of this part, the State did not submit complete and reliable data, as defined in � 305.1 of the part; or
(iii) The results of an audit under � 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 � 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.

In the preamble to the Part 305 regulations, which was forwarded to the states as part of Action Transmittal OCSE-AT-01-01, ACF referred to the first of the two consecutive years of failure as the performance year. 65 Fed. Reg. 82,178, 82,186, 82,187, 87,189 (Dec. 27, 2000). In this appeal the performance year was FY 2001, and the corrective action year was FY 2002.

The funding reduction penalties range from one to two percent of a state's SFAG for the first finding of two consecutive years of failure, from two to three percent for the second consecutive finding, and from three to five percent for each subsequent consecutive finding of failure to meet the performance measures with reliable data. Section 409(a)(8)(B) of the Act; 45 C.F.R. � 305.61(c). A state must expend additional state funds to replace any reduction in the SFAG resulting from penalties. Section 409(a)(12) of the Act; 45 C.F.R. � 262.1(e).

The performance measure at issue here, the paternity establishment percentage, is essentially the percentage of children born out of wedlock for whom paternity has been established or acknowledged; it is "commonly known as the PEP." 45 C.F.R. � 305.2(a)(1). The Act and the regulations at Part 305 establish two versions of the PEP, one based on children in a state's IV-D caseload, the other based on all children in the state. States may select either measure and may change their selection from year to year. Id.; section 452(g)(1) of the Act. Nevada selected the "IV-D PEP." That measure is based on the caseload of a state's IV-D program and is defined as follows:

[T]he term "IV-D paternity establishment percentage" means, with respect to a State for a fiscal year, the ratio (expressed as a percentage) that the total number of children--

(i) who have been born out of wedlock,
(ii)(I) except as provided in the last sentence of this paragraph, with respect to whom assistance is being provided under the State program funded under part A in the fiscal year or, at the option of the State, as of the end of such year, or (II) with respect to whom services are being provided under the State's plan approved under this part in the fiscal year or, at the option of the State, as of the end of such year pursuant to an application submitted under section 454(4)(A)(ii), and
(iii) the paternity of whom has been established or acknowledged, bears to the total number of children born out of wedlock and (except as provided in such last sentence) with respect to whom assistance was being provided under the State program funded under part A as of the end of the preceding fiscal year or with respect to whom services were being provided under the State's plan approved under this part as of the end of the preceding fiscal year pursuant to an application submitted under section 454(4)(A)(ii); . . . .

Section 452(g)(2)(A) of the Act. The regulation expresses the IV-D PEP with the following ratio:

Total # of Children in IV-D Caseload in the Fiscal Year or, at the option of the State, as of the end of the Fiscal Year who were Born Out-of-Wedlock with Paternity Established or Acknowledged

---

Total # of Children in IV-D Caseload as of the end of the preceding Fiscal Year who were Born Out-of-Wedlock

45 C.F.R. � 305.2(a)(1).

A state must maintain a PEP of at least 90% to avoid a penalty. A state with a PEP lower than 90% may still avoid a penalty if its PEP increased over the PEP for the previous year by the percentages specified in the following table from the regulation:

----------------------------------------------------------------------------

PEP    Increase required     Penalty FOR FIRST FAILURE if
            over previous         increase not met
           year's PEP

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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.

45 C.F.R. � 305.40(a)(1), Table 4.

Background: basis for the penalty

ACF notified Nevada that it is subject to a penalty in a letter from the Assistant Secretary for Children and Families dated November 14, 2003. The letter stated that Nevada had failed to provide information needed to calculate its FY 2001 PEP and thus did not have a PEP for that year, and that the PEP data that Nevada submitted for FY 2002 did not meet the data reliability standard. Nevada Exhibit (Ex.) 1. The letter stated that Nevada had thus failed for a second consecutive year to demonstrate with reliable data the specified minimum level of PEP performance, and was subject to a reduction in TANF funding equal to one percent of its adjusted SFAG for the TANF program. Id.

The letter identified the information needed to calculate the FY 2001 PEP that Nevada failed to provide as the number of children who were born out of wedlock in Nevada's IV-D caseload as of the end of FY 2000. Id. That information is the denominator of the PEP ratio for FY 2001. 45 C.F.R. � 305.2(a)(1). While Nevada reported that information with its data submission for FY 2000, those data did not meet the data reliability standard, and ACF determined that Nevada had failed to provide that information because Nevada did not submit corrected data by the deadline for submitting data for FY 2001. ACF. Brief (Br.) at 14-16, 27-29.

Nevada challenges ACF's determinations that Nevada failed to submit reliable data needed to calculate its PEP for FY 2001 and had two years of failure. Nevada argues that ACF is estopped from finding unreliable the FY 2000 data needed to calculate Nevada's FY 2001 PEP because ACF had earlier determined to accept unreliable FY 2000 data. Nevada also notes that its FY 2001 data were found to be reliable and argues that it thus does not have the two consecutive years of data or performance deficiency that subject a state to a penalty. Nevada also argues that ACF failed to respond to its requests for clarification about its need to correct unreliable data, and that these and other ACF communications show that the penalty regulations are unclear and subject to varying interpretations.

Nevada also challenges the process that ACF used to notify Nevada that it is subject to a penalty. Nevada argues that ACF failed to comply with the regulation governing notice and failed to afford Nevada and states in general a full year after notice of data or performance deficiencies to correct those deficiencies in the following year. Nevada also challenges ACF's use of data from two consecutive years to calculate the PEP, its imposition of penalties for PEP performance beginning with FY 2001, and its use of a 95% standard to determine if data are reliable.

I. Nevada was properly subject to a penalty for failing to submit reliable data needed to calculate its PEP for FY 2001 and had two years of noncompliance subjecting it to a penalty.

Nevada disputes ACF's determination that Nevada failed to provide information needed to calculate its FY 2001 PEP. Nevada argues that ACF's decision in December 2001 to accept unreliable FY 2000 data meant that those data could be used in conjunction with reliable FY 2001 data that Nevada submitted to calculate Nevada's PEP for FY 2001. Nevada argues that ACF is thus estopped from asserting that the unreliability of Nevada's FY 2000 data prevented calculation of the FY 2001 PEP and that ACF has waived its right to impose penalties based on the FY 2000 data. Even if ACF had not excused unreliable FY 2000 data, Nevada argues, it would still not be subject to a penalty because ACF determined that the data Nevada submitted for FY 2001 were reliable and Nevada thus did not have two consecutive years of deficiency with respect to FYs 2001 and 2002.

For the reasons discussed below, we conclude that Nevada has failed to demonstrate any error in ACF's determination that it is subject to a penalty. Nevada's uncorrected submission of unreliable data for FY 2000 that were needed to calculate its PEP for FY 2001 meant that it failed to establish a PEP for FY 2001 based on reliable data. Although Nevada submitted reliable data on the form used to submit data for FY 2001, that submission did not include all of the data needed to calculate its PEP for FY 2001 and did not fulfill Nevada's obligation to demonstrate that it achieved the required PEP performance level for that year. As we found in DAB No. 1989, ACF's decision in December 2001 to disregard the unreliability of data submitted for FY 2000 applied with respect to the determination of performance for FY 2000 only. It did not relieve Nevada of its obligation to submit in reliable form all data needed to determine its PEP for FY 2001, by the deadline for submitting data for FY 2001. This included FY 2000 data used for the denominator of the PEP for FY 2001.

A. Background: Nevada's submission of unreliable FY 2000 data precluded determination of its PEP for FY 2001.

Calculation of a state's PEP, the performance measure at issue here, requires data from two consecutive fiscal years. For a state that, like Nevada, selects the IV-D PEP measure, the PEP is the ratio of the number of children in IV-D cases open during or at the end of the fiscal year with paternity established or acknowledged, to the number of children in the state's IV-D caseload who were born out of wedlock as of the end of the preceding fiscal year. Section 452(g)(2)(A) of the Act; 45 C.F.R. � 305.2(a). Because the form on which states submit their data reports PEP data for the current fiscal year only, calculation of the PEP for a given year requires reliable data from that form and reliable data for the prior year. States report data on form OCSE-157, the Child Support Enforcement Annual Data Report, pursuant to the requirement that they submit data following instructions and formats as required by HHS. 45 C.F.R. � 305.32. A state that has selected the IV-D PEP measure uses line 6 of the OCSE-157 to report the number of children in IV-D cases open during or at the end of the fiscal year with paternity established or acknowledged (the numerator of the current year's PEP), and line 5 to report the number of children in IV-D cases open at the end of the fiscal year who were born out of wedlock (the denominator of the following fiscal year's PEP). DAB No. 1989, at 32-33, 62-63. The PEP for a given year is thus the ratio of the number reported at line 6 of the OCSE-157 for that year, to the number reported at 5 of the OCSE-157 for the previous year, expressed as a percentage. If the data that a state submits on line 5 for a given fiscal year are unreliable, then it follows that its PEP for the following year cannot be determined, based on reliable data, unless the state corrects the problem with the data and submits the correct data in a timely manner.

For this reason, ACF has provided that a state may submit corrected line 5 data, by the deadline for submitting its OCSE-157 for the following year (December 31 after the end of that fiscal year). The preamble to the Part 305 regulations addressed this issue as follows:

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.

65 Fed. Reg. 82,184 (emphasis added). The preamble provides an example of a state that submits unreliable data for FY 2001 on the current collections performance measure and corrects the unreliable data for FY 2001 during FY 2002; the state must still have reliable FY 2002 data and meet the performance standard for FY 2002 to avoid a penalty. The preamble advises as follows:

It should be noted, with reference to the example above, that the State may need to correct and resubmit its FY 2001 data in order to demonstrate improvement which would qualify for incentives or to meet the penalty performance measure during FY 2002.

65 Fed. Reg. 82,190. The preamble also answers a comment about incentives that sought clarification as to how to demonstrate an increase in performance when data for the previous year were found to be unreliable. The preamble explained that-

If the State is able to correct the problem and substitutes corrected data by the time data are required to be submitted for next year's incentive payment determination, it will be able 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.

65 Fed. Reg. 82,206-07.

States thus knew that calculation of the IV-D PEP for FY 2001 required line 5 data from FY 2000 and that those data had to be reliable. States also knew that if the FY 2000 data needed to calculate the FY 2001 PEP were found to be unreliable, they had to submit corrected data by December 31, 2001. States were informed of these requirements by the preamble language cited above, the definition of the PEP in the statute and regulations, and the content of form OCSE-157 and the instructions for completing the form that ACF has issued in several Action Transmittals. See, e.g., OCSE-AT-98-20 (July 10, 1998); OCSE-AT-99-15 (Dec. 22, 1999); DAB No. 1989, at 26-27, 67-68.

Nevada asserts that the penalty provision regulations are vague, confusing, and were not supported by proper guidance from ACF. See, e.g., Nevada Reply Br. at 1. Nevada asserts that ACF did not provide clear guidance on the need to resubmit corrected data prior to October 23, 2002, when it issued "Dear Colleague Letter" DCL 02-30 reminding states to resubmit data reported for FY 2001 that had been found unreliable but which were needed to determine performance for FY 2002. Nevada Reply Br. at 6, citing Nevada Ex. 10. That assertion is unavailing in light of the above provisions. States were informed that passing the PEP performance measure in a given fiscal year meant submitting reliable data from that year for the numerator of the PEP ratio, and reliable data from the immediately preceding year for the denominator, by the deadline for submitting data for the given fiscal year.

Congress signaled the importance of a state's responsibility for providing reliable data when it enacted the current IV-D penalty system that imposes penalties for failure to submit reliable data needed to calculate the performance levels, without regard to whether performance is deficient. See DAB No. 1989, at 30-31. Reliable data are necessary for ACF to make incentive and penalty determinations based on data submitted by a state without having to conduct physical reviews of the underlying case records. Id. at 78-79. Nevada does not dispute that the data it reported at line 5 of its OCSE-157 for FY 2000 were not reliable, and that it did not timely submit corrected data. ⁽²⁾ ACF Ex. 3, Nevada Ex. 1. Lacking reliable data, ACF could not determine Nevada's actual PEP for FY 2001. ⁽³⁾

B. ACF's decision to disregard the unreliability of data submitted for FY 2000 did not relieve Nevada of its obligation to submit reliable data needed to determine its PEP for FY 2001.

Nevada argues that ACF could have used the data Nevada submitted at line 5 of its OCSE-157 for FY 2000 to calculate Nevada's PEP for FY 2001, because ACF determined in December 2001 to accept all unreliable data that states submitted for FY 2000. Nevada argues that under the Act and regulations, this determination meant that the unreliability of Nevada's PEP data for FY 2000 was of a technical nature that did not adversely affect the calculation of Nevada's PEP. Nevada argues that ACF is thus estopped from asserting that the unreliability of Nevada's FY 2000 data prevented calculation of the FY 2001 PEP, and that ACF has waived its right to impose penalties based on the FY 2000 data.

The Board addressed identical circumstances in DAB No. 1989. ACF determined there that one of the appellant States, New Hampshire, failed to provide information needed to establish its FY 2001 PEP because data it submitted at line 5 of its OCSE-157 for FY 2000 were unreliable, and New Hampshire did not resubmit reliable data by the deadline for submitting data for FY 2001. Like Nevada, New Hampshire argued that ACF's determination to disregard the unreliability of FY 2000 data meant that those data could be used to calculate its PEP for FY 2001. We concluded that ACF's determination to disregard the unreliability of FY 2000 data affected only the calculation of performance measures for FY 2000 and did not relieve New Hampshire of its obligation to submit reliable data needed to calculate its PEP for FY 2001, by the deadline for submitting data for FY 2001. We adopt those findings here, which we summarize below. First, we describe the applicable legal provisions authorizing ACF to accept unreliable data in certain circumstances, and ACF's decision to apply that authority for unreliable FY 2000 data.

Section 409(a)(8) authorizes the Secretary to accept a state's otherwise unreliable data if the unreliability is of a technical nature that does not adversely affect calculation of the state's performance (and to find a state in substantial compliance with IV-D requirements if its noncompliance is of a technical nature):

(C) DISREGARD OF NONCOMPLIANCE WHICH IS OF A TECHNICAL NATURE.--For purposes of this section and section 452(a)(4), a State determined as a result of an audit--

(ii) to have submitted incomplete or unreliable data pursuant to section 454(15)(B) shall be determined to have submitted adequate data only if the Secretary determines that the extent of the incompleteness or unreliability of the data is of a technical nature which does not adversely affect the determination of the level of the State's paternity establishment percentages (as defined under section 452(g)(2)) or other performance measures that may be established by the Secretary.

Section 409(a)(8)(C) of the Act. The implementing regulation provides in relevant part:

45 C.F.R. � 305.62 Disregard of a failure which is of a technical nature.

A State subject to a penalty under � 305.61(a)(1)(ii) or (iii) of this part may be determined, as appropriate, to have submitted adequate data . . . 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 determination of the level of the State's paternity establishment or other performance measures percentages.

For FY 2000, ACF applied this authority to accept unreliable IV-D data submitted by all of the states that submitted unreliable data for that year, including Nevada. ACF announced this decision in substantively identical letters to the states from the OCSE Commissioner dated December 19 and 27, 2001. ⁽⁴⁾ The letters stated that the basis for that determination was that the new incentive system was being phased in during FY 2000, and that penalties based on state performance would not apply prior to state performance in FY 2001. The letter stated:

However, we note that the Congress provided a phase-in period for the new incentive formula that covers FFY 2000. In addition, the performance standards established by the Secretary that are used to impose penalties are not effective until FFY 2001. In recognition of this phase-in for both incentive and penalty performance standards, we believe that a determination was warranted that the incompleteness or unreliability of these 23 states' data for FFY 2000 was of a technical nature that did not adversely affect the determination of the performance measures.

Therefore, in accordance with the authority granted the Secretary, no state will be subject to a penalty for incomplete or unreliable FFY 2000 data. This determination applies only to unreliable or incomplete FFY 2000 data and does not affect potential data or performance penalties that may result from states' FFY 2001 or subsequent years' data or performance.

Nevada Ex. 5, at 2. The letter cautioned states that (among other things) they would be subject to penalties for poor performance as of FY 2001:

If the Secretary finds for FFY 2001 that a state either failed to achieve the level of performance required on any of the three penalty performance standards for paternity establishment, support order establishment, and current collections in 45 C.F.R. � 305.40, or that the state's FFY 2001 data were unreliable or incomplete, the state would have to correct any data deficiency and meet the applicable performance standard(s) during the succeeding year, FFY 2002. If the state has either unreliable or incomplete data or fails to meet the same performance standard(s) for the corrective action year FFY 2002, a penalty of 1 percent of its Federal TANF funds for FFY 2003 will be assessed.

Id. at 2-3.

Nevada argues that ACF's assurance in the letter that "no state will be subject to a penalty for unreliable or incomplete FFY 2000 data" waived any penalties based on unreliable FY 2000 data. Nevada argues that the determination meant that the unreliability of its FY 2000 PEP data was of a technical nature that did not adversely affect the determination of the performance measures, and that the data were "cleared of any stigma of unreliability" for purposes of calculating the PEP for FY 2001. Nevada Br. at 6. Nevada asserts that ACF used the same FY 2000 data to calculate performance for the purpose of awarding incentive payments to states.

In DAB No. 1989, we found that the same arguments made by New Hampshire did not provide a basis for reversing ACF's determination that New Hampshire was subject to a penalty. Our reasons for so holding and for determining that Nevada's arguments similarly lack merit are as follows:

� A determination to disregard the unreliability of data submitted on the OCSE-157 for a given year applies only to that year and to the calculation of that year's performance, and effectively means that the unreliability does not adversely affect the determination of performance measures for that year only. This is because data submissions, reliability determinations, and performance calculations are made yearly and apply to each year individually. The provision permitting ACF to disregard data unreliability begins by referring to data that has been found to be unreliable pursuant to the statutorily-required audits of data that states submit annually. Section 409(a)(8)(C) of the Act. States submit their data on OCSE-157 forms for discrete, individual years, and performance is calculated yearly. The regulation applies the disregard provision to a state that is "subject to a penalty," and states are subject to a penalty for each successive year of unreliable data or failing performance. 45 C.F.R. � 305.62.

� A determination that data unreliability is merely technical and does not adversely affect the calculation of performance cannot apply to a subsequent year, as state data and performances for the subsequent year are not yet known. That determination is thus necessarily linked to calculating the performance for the year for which the OCSE-157 containing the data is submitted. ACF determined to disregard the unreliability of FY 2000 data shortly before the deadline for submitting FY 2001 data, when ACF was not aware of data or performances for FY 2001 and could not determine whether the unreliability of data for FY 2000 would adversely affect determination of a state's PEP for FY 2001.

� The provision permitting the disregard of data unreliability says only that the data may be considered "adequate," and its application does not render data reliable when they are not. Language in the penalty regulation stating that a penalty will be imposed if data in a succeeding year "are still incomplete and unreliable" does not except data that are unreliable or incomplete but have been found to be adequate. 45 C.F.R. � 305.61(a)(2).

� Circumstances permitting ACF to disregard the unreliability of FY 2000 data for the purpose of determining performance for penalty purposes clearly applied only to performance for FY 2000, and did not apply in subsequent years. Since penalties for IV-D performance were not being imposed for years prior to FY 2001, ACF had determined that the unreliability of data for FY 2000 did not affect performance measures, for purposes of any penalty for failure to meet performance standards in FY 2000. The regulation phasing in the IV-D performance penalties provides states would first be subject to penalties for poor performance as of FY 2001. 45 C.F.R. � 305.42. The December 19, 2001 letter states that the determination to disregard unreliable data, which applied to all 23 states that submitted unreliable FY 2000 data, was made so that states would not be subject to penalties for unreliable FY 2000 data, prior to the start of performance penalties in FY 2001. The letter cautioned that the determination did not apply to performance penalties that could result from performance during FY 2001. It thus did not apply to performance during FY 2001, nor to data for FY 2000 needed to calculate performance for FY 2001. Additionally, given the preamble's instructions (discussed earlier) about a state's obligation to submit corrected data needed to calculate performance for the following fiscal year if the data first submitted were found to be unreliable, Nevada could not reasonably rely on or interpret the December 2001 letter as permitting its unreliable FY 2000 data to be used to calculate performance for FY 2001.

� The "technical nature" exception in the statute applies only when the Secretary determines that a state has submitted adequate data because the incompleteness or unreliability of the data "is of a technical nature which does not adversely affect the determination of the level of the State's paternity establishment percentages . . . or other performance measures . . . ." Section 409(a)(8)(C)(ii) of the Act. Thus, the exception is limited to data failures that have no substantive effect on whether penalties are imposed (or incentives are awarded) based on state performance in meeting IV-D goals.

� Even if its position regarding ACF's determination to disregard the unreliability of FY 2000 data had been reasonable, New Hampshire, like Nevada here, did not argue or establish that it declined to resubmit reliable data because of ACF's December 19, 2001 letter. Nevada argues only that it is entitled to rely on the determination announced in the December 2001 letter "in using the line 5 data to calculate the PEP for FY 2001," and asserts that it relied on ACF's use of those data to calculate incentives for FY 2000. Nevada Br. at 6. However, Nevada does not allege that it relied on that letter in declining to resubmit reliable FY 2000 line 5 data that were needed to calculate its PEP for FY 2001, or that it would have resubmitted those data in the absence of the December 19, 2001 letter. Nevada received ACF's December 19, 2001 letter on December 24, 2001, likely too late for Nevada to have relied on that letter in declining to resubmit reliable line 5 data that it would otherwise have provided. Additionally, Nevada's assertion that ACF used its unreliable FY 2000 data to calculate incentives appears to be incorrect. A notice of FY 2000 incentives dated September 28, 2001 indicates that Nevada was not eligible for incentives for PEP performance because its PEP data were unreliable. Moreover, the December 19, 2001 letter states that the determination that data unreliability is of a technical nature renders the data "adequate for penalty purposes" but does not indicate that ACF permitted states to earn incentives based on the unreliable data. ACF Ex. 4; Nevada Ex. 5.

See DAB No. 1989, at 65-69.

Finally, we note that Nevada's unreliable FY 2000 data would not have yielded a passing PEP score for FY 2001. At line 5 of its OCSE-157 for FY 2000, Nevada reported 45,130 children in IV-D cases open at the end of FY 2000 who were born out of wedlock. Nevada Ex. 3. At line 6 of its OCSE-157 for FY 2001, Nevada reported 31,036 children in IV-D cases open during or at the end of FY 2001 who were born out of wedlock and for whom paternity had been established. Nevada Ex. 4. These data, if accepted as reliable, would yield a PEP for FY 2001 of approximately 69%. Thus, Nevada's argument, that ACF's decision to disregard the unreliability of FY 2000 data meant that those data could be used to calculate performance for FY 2001, would not provide a basis to reverse the penalty in any event.

For the above reasons, we conclude that the determination in December 2001 to disregard the unreliability of data for FY 2000 did not permit those data to be used in determining Nevada's performance for FY 2001, and did not relieve Nevada of its obligation to submit corrected FY 2000 data needed to determine FY 2001 performance. Thus, leaving aside the issue of whether estoppel may lie against federal agencies, ACF did not mislead Nevada by its determination to disregard the unreliability of FY 2000 data, and did not waive its right to determine that Nevada is subject to a penalty. ⁽⁵⁾

C. Nevada's submission of reliable data on the OCSE-157 for FY 2001 did not fulfill its obligations for that year.

Nevada argues that even without ACF's determination to disregard the unreliability of all FY 2000 data, it did not have the two consecutive years of failing data or performance that subject a state to a penalty, because ACF determined that the data Nevada submitted on its OCSE for FY 2001 were reliable. To be subject to a penalty, Nevada argues, a state must have one of the three failures listed in section 409(a)(8) (failure to meet PEP, failure to submit reliable data, failure to comply with the requirements of part D), and then fail to correct that failure with respect to the succeeding year. Nevada argues that it corrected its failure for FY 2000 - the submission of unreliable PEP data - by submitting reliable PEP data on its OCSE-157 for FY 2001, and that its submission of unreliable FY 2002 data was thus not the second consecutive year of unreliable data that would subject it to a penalty.

We disagree with Nevada's analysis, for two reasons. First, as discussed above, data that Nevada was required to furnish for FY 2001 included not only the data that Nevada submitted on its OCSE-157 for FY 2001, but also reliable data for FY 2000. Any FY 2000 data that were unreliable but were needed to calculate performance for FY 2001 had to be corrected and submitted by December 31, 2001. Nevada did not allege before us that it submitted corrected FY 2000 data. Nevada's failure to submit reliable data needed to calculate performance for FY 2001 thus was a failure to establish a PEP for performance year FY 2001 with reliable data, which was followed by submission of unreliable PEP data for FY 2002, the corrective action year.

Second, as we noted in DAB No. 1989, a state's obligation for a given year is not merely to submit reliable data, but to demonstrate with reliable data that it achieved the required level of performance on the measures established by the statute and regulations. DAB No. 1989, at 41-43. A state's obligation is apparent from the Part 305 preamble, which provides that "[T]wo consecutive years of failure (either poor data or poor performance) in the same performance measure criterion will trigger a penalty imposition." 65 Fed. Reg. 82,192. While Nevada may have submitted reliable PEP data on its OCSE-157 for FY 2001, it did not satisfy its obligation because those data were not all the data that were needed to calculate its PEP for FY 2001. Nevada did not allege that it submitted reliable data needed as the denominator of its PEP for FY 2001, or that reliable data would have established a passing PEP score for FY 2001. Instead, as we noted above, ACF e-mails that Nevada submitted with its reply brief indicate that Nevada concluded that reliable data, if submitted, would show that Nevada failed the PEP performance measure for FY 2001. Supra at 12-13, n.2. In any event, Nevada's failure to submit reliable FY 2000 data needed to calculate the FY 2001 PEP meant that Nevada did not demonstrate with reliable data that it attained the required PEP performance level for FY 2001.

D. ACF communications with Nevada do not support reversing the penalty.

Nevada argues that ACF communications show that the penalty regulations are unclear and subject to varying interpretations and that ACF was uncertain of their meaning. These communications address topics including the resubmission of data that have been found to be unreliable and whether certain children should be included in a state's PEP data. Nevada argues that these communications show that ACF did not provide clear advice concerning the resubmission of data, applied inconsistent judgment in auditing data, and failed to timely respond to Nevada's requests for guidance. After reviewing these communications, however, we find that they do not support Nevada's assertions.

Communications concerning the resubmission of data comprise the following:

� An affidavit from the former chief of Nevada's child support enforcement program, stating that ACF regional and central office staff that he spoke with in the fall and December of 2002 did not know why ACF wanted Nevada to resubmit corrected data, and told him that policy staff who could advise him were out of the office for the holidays. Nevada Ex. 13.

� E-mails from March 2004, in which Nevada and ACF disagreed about whether Nevada had submitted a revised OCSE-157 for FY 2000. Nevada Ex. 12. Nevada reported in an e-mail to ACF that it had submitted a revised OCSE-157 in February 2001, whereas ACF in an e-mail to Nevada reported that Nevada had instead submitted "revised audit trails" for lines 5 and 6, in November 2002. Id. In one of these e-mails, the former chief of Nevada's child support enforcement program stated that ACF had told him at the time he submitted the revised FY 2000 data that a revised report could not be submitted "after December 31." Id.

� Internal ACF e-mails from December 2002 and January 2003. In them, ACF described Nevada as believing that its FY 2002 PEP would be 62%, and that its PEP for FY 2001, based on corrected FY 2000 data, was 74%. Nevada Ex. 7. ACF also characterized Nevada as believing that failing to submit the corrected FY 2000 data needed to establish the PEP for FY 2001 would result in a PEP of zero, above which its otherwise failing FY 2002 PEP would have increased sufficiently to avoid a penalty. Id. One of the December 2002 e-mails states that since Nevada met the data reliability standard for FY 2001, "they would not be in a penalty situation for that period." Id. One January 2003 e-mail refers to the former chief of Nevada's child support enforcement program reporting that he did not get a clear response about the due date for submitting corrected FY 2000 data or about whether failure to submit revised data would result in a PEP of zero, and the other states that December 31 "was the last date for submitting revised 157's for the current or prior years for consideration in determining FY 2002 incentives or penalty status." Id.

These communications do not demonstrate that provisions regarding submission of corrected data are vague or that ACF was unsure of their application or gave Nevada misleading advice. As we discussed earlier, the preamble stated clearly the requirement to submit corrected data when data submitted previously were found unreliable but the correct data are needed to calculate performance in the following year. If anything, the communications demonstrate that Nevada was aware of these requirements. While one of the March 2004 e-mails from the former chief of Nevada's child support enforcement program states that he was told that Nevada could not submit revised FY 2000 data "after December 31," one of the internal ACF e-mails from January 2003 indicates that the referenced date was December 31, 2002, the last date for submitting data to be used for FY 2002. Significantly, the former chief of Nevada's child support enforcement program did not assert in his affidavit that he was told that Nevada could not submit revised FY 2000 data, and Nevada does not make any such allegation in its appeal. Instead, the affidavit verifies that he was aware that ACF wanted states to resubmit reliable data, as he was seeking further information about that requirement.

Similarly, the internal ACF e-mails from December 2002 discussing Nevada's inquiries about data resubmission show that Nevada well understood why a state would submit corrected data for data that had been found unreliable when submitted for a prior year, and was only seeking confirmation that there would be no need to submit corrected data if the data would not establish that the PEP had improved enough to avoid a penalty. While it is regrettable that the e-mails do not reflect a prompt correction of a Nevada official's apparent misbelief that submission of unreliable PEP data would establish a PEP of zero percent for FY 2001, Nevada does not point to anything in the regulations to support that belief, and it is clearly unreasonable. Under that theory, a state that submits unreliable PEP data for one year could avoid a penalty by establishing a PEP for the following year of only 6%. 45 C.F.R. � 305.40(a)(1), Table 4.

In context, the statement in an e-mail among ACF staff that Nevada "would not be in a penalty situation" for FY 2001 because its FY 2001 data met the data reliability standard can be read as referring to Nevada's submission of reliable data on its OCSE-157 for FY 2001, which ACF does not dispute. In any event, this comment in December 2002 was well after the deadline for submitting corrected FY 2000 data needed to calculate the PEP for FY 2001.

Nevada also cites a letter that it sent to ACF in April 2000 asking why FY 1999 data were being audited for reliability, if incentives were not being calculated under the new system established by Public Law No. 105-200 prior to FY 2000. ⁽⁶⁾ ACF Ex. 12. Nevada asserts that it never received a response to its April 2000 letter and that ACF never produced one. Nevada Reply Br. at 1. ACF had, however, produced a letter dated May 5, 2000 responding that Public Law No. 105-200 had added the requirement that data used to calculate incentives be reliable, and that calculation of the PEP for FY 2000 required data from FY 1999. ACF Ex. 6. ACF's response is consistent with its position here that data from a prior year needed to calculate performance for a fiscal year must be reliable.

Nevada also provided e-mails concerning whether certain children who have been born out of wedlock should be included in a state's PEP data. Nevada cites these e-mails as evidence that ACF issued vague audit guidelines and applied inconsistent judgment in auditing state data. These consist of the following:

� E-mails between Nevada's former child support enforcement chief and ACF, from July 2002, concerning how states should report IV-D cases where neither parent has custody of the child, and where the mother does not have custody of a child born out of wedlock and the father's IV-D case is closed. Nevada Ex. 7 (ACF informally advised that each noncustodial parent should be reported as a separate IV-D case, and that the child born out of wedlock should be reported at line 5 as born out of wedlock). ⁽⁷⁾

� An August 2002 e-mail from the ACF regional office in Kansas City concerning inquiries by Nebraska about whether certain children born out of wedlock who were born in other states, were adopted, or who have died should be included in Nebraska's PEP data. Nevada Ex. 8 (ACF stated simply that, for each situation, children who were born out of wedlock must be reported in the PEP data, and cited instructions for completing the OCSE-157 that ACF issued on June 5, 2001 as OCSE AT-01-09).

These e-mails do not demonstrate uncertainty or confusion about reporting PEP data. Instead, ACF's responses were simple and direct. They do not show that ACF directed Nevada "to place a noncustodial mother in the born-out-of-wedlock category for reporting purposes," as Nevada asserts. Nevada Reply Br. at 5. Rather, the relevant e-mail appears to state that a child's status as having been born out of wedlock is not changed for reporting purposes by the fact that the mother does not have custody and the alleged father's IV-D case is closed. Nevada Ex. 7. ACF's e-mails to Nevada are not at odds with the regulations, the preamble, the audit guide, or the instructions for completing the OCSE-157. ACF's advice in the e-mail concerning the Nebraska inquiry is consistent with the definition of the PEP in the Act and regulations, which is based on children who are born out of wedlock. The brevity and definitiveness of the answers are not consistent with Nevada's claim of vague policies and unclear guidance.

In sum, the communications that Nevada cites provide no basis to find that Nevada is not properly subject to a penalty.

II. ACF complied with applicable notice requirements.

Having determined that there was no error in ACF's determination that Nevada was subject to a penalty for failures in two consecutive years, we turn to Nevada's argument that ACF failed to comply with applicable notice requirements. The notice regulation provides (emphasis added):

45 C.F.R. � 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 � 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 C.F.R. � 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 � 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.

Nevada argues that this regulation requires that ACF notify a state of performance or data failures when it is at risk for a penalty, in time for the state to avoid the penalty by taking corrective action during the second of the two years for which a penalty may be imposed. Nevada argues that ACF failed to notify Nevada that its FY 2001 PEP was deficient and could result in a penalty in time for Nevada to avoid a penalty by taking corrective action during FY 2002, as required by the regulations. Nevada notes that section 409(a)(8) of the Act and 45 C.F.R. � 305.61 afford states a year to take corrective action prior to being assessed penalties, and argues that ACF must provide notice of data reliability findings on or near the end of a fiscal year for the state to have a full corrective action year in which to correct or resubmit data. Nevada argues that the DRA reports it receives in late August or early September of the year following the submission of data for the previous fiscal year are thus not sufficient, as they are not received until near the time for Nevada to submit data for the current fiscal year. Nevada points out that ACF's November 14, 2003 letter stating that Nevada was subject to a penalty was issued too late to permit Nevada to correct any failings from FY 2001 during FY 2002, the corrective action year. And, as ACF had determined in December 2001 to disregard the unreliability of FY 2000 data submitted by Nevada and 22 other states, Nevada argues that it had no notice prior to the November 14, 2003 letter that its submission of unreliable FY 2000 PEP data had prevented determination of its PEP for FY 2001. Nevada also argues generally that the penalty provision regulations are vague, confusing, and were not supported by proper guidance from ACF.

Nevada's arguments about the process for notifying states that they are subject to penalties are similar to those that the Board rejected in DAB No. 1989. There, we held that the law and regulations do not require notice of a state's IV-D data or performance failures until after the end of the corrective action year, and that the penalty process is self-implementing in that the corrective action year automatically follows the performance year without notice from ACF. We further held that the structure of the system established by section 409 of the Act and the Part 305 regulations necessarily does not permit states a full year following notice of their performance-year failures before the imposition of penalties upon the end of the corrective action year. We concluded that these provisions place on a state the ultimate responsibility for monitoring its own performance, and that the States were aware of their own performances and moreover had been informed of their data reliability problems during FY 2002, the corrective action year. Our reasons for so holding and for determining that Nevada's arguments similarly lack merit are as follows:

� The notice requirements of section 305.66 apply if a state is found to be "subject to a penalty as described in � 305.61 . . . ." Section 305.61 provides that a state will be "subject to a financial penalty," and the amounts otherwise payable to it under title IV-A will be reduced, upon the completion of two consecutive years of noncompliance or unreliable data relating to the same performance measure. A state is thus not subject to a penalty, and the notice requirements of section 305.66 do not apply, until the completion of two consecutive years of noncompliance, after which a penalty must be assessed. Similarly, the Act imposes penalties if the Secretary finds that a state failed to attain the required level of performance in the same penalty performance measure, submitted unreliable data needed to calculate performance, or failed to substantially comply with the requirements of the IV-D program, and "that, with respect to the succeeding fiscal year," the state failed to take sufficient corrective action to achieve the appropriate performance levels or compliance, or submitted unreliable data. Section 409(a)(8)(A) of the Act (emphasis added). Section 409(a)(8) makes no reference to notice being required to commence the second of the two consecutive years for which deficient performance or unreliable data will subject a state to a penalty. Thus, ACF is not required to notify a state that it is subject to penalties until after the end of two consecutive years of deficient performance or unreliable data.

� The conditional nature of some of the language in section 305.66, such as its reference to "potential penalties," likely reflects its incorporation of selected regulations from 45 C.F.R. Part 262 that concern penalties for some of the several violations listed in section 409(a) of the Act, other than the IV-D performance and data failures listed at section 409(a)(8) and at issue here. Part 262 addresses the collection of penalties for multiple violations, the maximum reduction that may be made in a state's SFAG regardless of the number of penalties, and the right to appeal penalty determinations to the Board. 45 C.F.R. �� 262.1(b)-(e), 262.7. A IV-D penalty that a state is subject to following two years of unreliable data or IV-D performance is still a potential penalty because it is subject to these Part 262 provisions before the actual amount of the reduction to be taken in a state's SFAG is determined. The November 14, 2003 letter noted these other provisions, stating that the announced penalty "will be imposed in accordance with the provisions of 45 C.F.R. � 262.1(b) through (e) . . . ." Nevada Ex. 1. However, there is no indication here that the penalty is to be combined with penalties under portions of section 409(a) other than section 409(a)(8), or exceeds the maximum reduction that may be taken in a state's SFAG. In the absence of multiple penalties, ACF could inform Nevada of the amount of its SFAG reduction in the November 14, 2003 letter issued pursuant to section 305.66, as it did.

� The structure of the penalty system necessarily does not permit the start of the corrective action year to be conditioned on notice from ACF of performance or data reliability deficiencies in the performance year, and further does not afford a state a full year following notice to correct its deficiencies before being subject to penalties. A state has until December 31^st to submit its data relating to performance in a given fiscal year, which ends on the previous September 30^th. 45 C.F.R. � 305.32(f). As this deadline is approximately 90 days into the immediately succeeding corrective action year, it does not permit review of the data and notification to the state of data or performance findings in time for the state to have a full year to take corrective action. Language from the preamble to the notice regulation confirms that the decision that a state is subject to a penalty is a determination that "will be made as soon as possible after the end of the corrective action year." 65 Fed. Reg. 82,192.

� The Act's only requirement of notice regarding the penalties imposed by section 409(a) is in section 410. Section 410(a) requires that the Secretary notify the chief executive officer of the state of any adverse action, including any action with respect to the imposition of a penalty under section 409, within 5 days after the date the Secretary takes such adverse action. This section makes no reference to notice prior to the time that ACF determines that a state is subject to a penalty.

� Section 409 of the Act withholds from a state opportunities to avoid a IV-D penalty that it affords for some of the other violations listed in section 409(a), which primarily concern the operation of a state's TANF program under title IV-A. Section 409(b) forbids the Secretary from imposing a penalty for those other violations if he finds that there was reasonable cause for the violation, and section 409(c) grants the state the opportunity to enter into a corrective compliance plan prior to suffering a penalty. However, section 409 states that these ameliorative measures, implemented in Part 262 of 45 C.F.R., do not apply to any penalty under section 409(a)(8). Sections 409(b)(2),(c)(4) of the Act. The inapplicability of the corrective compliance plan process to IV-D violations underscores the self-implementing nature of the IV-D penalty process, which is not dependent on intermediate action by ACF (such as approving a corrective compliance plan or providing a state notice of its performance failures) before the commencement of the automatic corrective action year.

� The self-implementing nature of the penalty system is confirmed by a statement in ACF's November 14, 2003 letter recognizing that states "do not have a full year to correct deficiencies following the release of final DRA reports." The letter noted that Congress had been considering a "technical fix" to the federal statute to ensure that states receive a full year for corrective action following notice of a deficiency, but that in the absence of such an amendment there was no choice but to impose penalties under current law until Congress enacts legislation. Nevada Ex. 1. The States in DAB No. 1989 cited these statements as showing that ACF did not provide proper notice of FY 2001 deficiencies in time for corrective action during FY 2002. Nevada also cites similar language in a letter to Nevada from the Assistant Secretary dated February 9, 2004, informing Nevada that it will be subject to a penalty if failures noted in FY 2002 continue in FY 2003. Nevada Ex. 9. However, as we held in our earlier decision, the cited statement and the legislative history of the subject amendment acknowledge that under the current law the corrective action year commences automatically after the performance year, without any action by ACF in the form of audit reports or notices. The amendment would have "change[d] the corrective action year to the fiscal year following the fiscal year in which the Secretary makes a finding of noncompliance and recommends a corrective action plan." The reason for this change was that "[c]urrent language does not recognize the time necessary to conduct federal audits and that those audits now occur during what is, under current law, a state's corrective action year. This technical correction will give states a full year to correct identified deficiencies." S. Rep. No. 108-162, at 53-54 (Oct. 3, 2003). The subject bill, H.R.4, 108^th Cong., 1^st Sess., as reported in the Senate on October 3, 2003, was apparently never brought to a vote. 150 Cong. Rec. S3520, S3529, S3538 (Apr. 1, 2004). We are thus bound to apply the statute as written.

� States are responsible for monitoring their own performances and the reliability of their data. The Part 305 preamble cautions that a 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." 65 Fed. Reg. 82,192. The preamble goes on to note that "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." Id. Elsewhere, the preamble describes the automatic corrective action period as a "delay which allows States to identify and to correct either reporting or performance problems prior to being assessed a financial penalty," and again warns states that they "should be diligent in continuously monitoring their own performance and data reliability." 65 Fed. Reg. 82,205.

� States moreover are aware of their own performances because they are responsible for submitting the data used to calculate their performances and can perform the calculations themselves. They are aware of whether their data for a fiscal year are reliable because they receive draft and final DRA reports during the following calendar year, and are entitled to audit exit conferences at the conclusion of audit fieldwork. 45 C.F.R. � 305.64(b). Here, Nevada was informed of its unreliable FY 2000 PEP data, the basis of its failure to establish a PEP for FY 2001, in a draft DRA report dated August 15, 2001 and a final DRA report dated August 29, 2001. ACF Ex. 3. States are thus aware of the reliability of their data sooner than Nevada suggests. Additionally, as we discussed in the prior section of this analysis, states that submitted unreliable FY 2000 PEP data that were needed to calculate their PEPs for FY 2001 were aware that they had to resubmit corrected, reliable PEP data by the deadline for submitting FY 2001 data, December 31, 2001. Nevada's argument in this appeal that ACF's November 14, 2003 letter was its first notice that Nevada had to submit corrected FY 2000 PEP data needed to calculate its FY 2001 PEP is thus unavailing.

See DAB No. 1989, at 11-26, 62-69.

For the above reasons, we conclude that ACF complied with the applicable notice requirements in determining that Nevada is subject to a penalty.

III. There was no error in ACF's method for determining the PEP, in its imposition of penalties for PEP performance beginning in FY 2001, or in its use of the 95% standard for data reliability.

Nevada makes arguments about ACF's use of data reported for one year to calculate the PEP for that year and the following year, its use of data from two consecutive years to calculate the PEP, and the standard for determining whether PEP data are reliable. As explained below, these arguments lack merit. Moreover, Nevada has not shown that these arguments apply to its appeal or that accepting them would alter ACF's determination that Nevada is subject to a penalty.

A. The method for determining the PEP is not arbitrary and capricious.

Nevada argues that ACF was arbitrary and capricious in using data reported for one year to calculate the PEP for that year and the following year, because only one year of unreliable data can cause two consecutive years of PEP failure and result in a penalty. Nevada offers a hypothetical example of a state that submits unreliable data at lines 5 and 6 of its OCSE-157 for FY 2001. Line 6, the number of children in IV-D cases open during or at the end of the fiscal year with paternity established or acknowledged, is the numerator of the PEP for FY 2001, while line 5, the number of children in IV-D cases open at the end of the fiscal year who were born out of wedlock, is the denominator of the PEP for FY 2002. While acknowledging that it is not in this situation, Nevada argues that the state's submission of unreliable data at lines 5 and 6 of the OCSE-157 for FY 2001 will cause it to have unreliable PEP data for FYs 2001 and 2002 and be subject to a penalty, in violation of the statute's requirements that a penalty be based only on two consecutive years of deficiencies and that states have an opportunity to correct deficiencies prior to being penalized. Nevada Br. at 9. Nevada characterizes this aspect of the PEP as a defect in the statute that the Secretary could remedy under section 452(g)(3) of the Act, which states:

The Secretary may modify the requirements of this subsection [452(g)] to take into account such additional variables as the Secretary identifies (including the percentage of children in a State who are born out of wedlock or for whom support has not been established) that affect the ability of a State to meet the requirements of this subsection. ⁽⁸⁾

Nevada's argument ignores a state's ability to submit corrected data for use in a succeeding year, however. A state's submission of unreliable PEP data on line 5 of its OCSE-157 for FY 2001 does not prevent it from passing the PEP measure for FY 2002, as in Nevada's hypothetical example, if the state submits corrected data needed to calculate FY 2002's PEP (and also submits reliable PEP data in its data submission for FY 2002). The preamble confirms that data "for a fiscal year" includes any necessary data from the previous fiscal year needed to calculate the PEP. 65 Fed. Reg. 82,184. As we discussed above, a state that has submitted unreliable data for a given fiscal year that are needed to calculate the following year's PEP or to demonstrate that performance has improved may submit corrected data, by the deadline for submitting data for the following year. 65 Fed. Reg. 82,184, 82,190. Thus, we do not concur that there is a defect in the statute requiring modification by the Secretary pursuant to section 452(g)(3) of the Act. In any event, even if there were a defect in the requirements, the Secretary has not modified those requirements and we must apply them here, as written.

Thus, we find that ACF properly used data reported on data submissions for two consecutive years to calculate the PEP.

B. The regulation phasing in IV-D performance penalties does not bar ACF from imposing penalties for deficient PEP performance beginning in FY 2001, and Nevada's argument to the contrary does not apply to its appeal.

ACF began imposing penalties for deficient IV-D performances under Part 305 for states' performances in FYs 2001 and 2002. Nevada argues that, with respect to deficient PEP performance, those first two years should have been FYs 2002 and 2003. Nevada's argument is based on a regulation phasing in the IV-D performance penalties. That regulation, 45 C.F.R. � 305.42, "Penalty phase-in," provides:

States are subject to the performance penalties described in � 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.

Because the regulation first subjected states to penalties based on data reported for FY 2001, Nevada argues, penalties cannot be imposed for PEP performance during FY 2001, because calculation of the PEP for FY 2001 uses data reported for FY 2000. Nevada argues that because data reported for FY 2001 are used to calculate the PEP for both FYs 2001 and 2002, it had no notice as to whether FY 2001 or FY 2002 would be the first penalty year. And because data reported for FY 2000 were to be used as a base year, Nevada argues, the base year for PEP performance was thus FY 2001 and not FY 2000, for which the PEP uses data reported for FY 1999. Under this argument, FY 2002 was the first year for which calculation of the PEP does not require FY 2000 data, and FYs 2002 and 2003 were thus the first two years based on which ACF could impose penalties for deficient PEP performance. ⁽⁹⁾

This argument is unavailing, however. First, any uncertainty as to when penalties would apply to deficient performance was resolved by the preamble to section 305.42:

Section 305.42 sets a schedule for phasing in the new penalty provisions which relates to the incentive phase-in under � 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 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.

65 Fed. Reg. 82,188-89. This language and the example confirm that performance penalties could be imposed based on failures in FYs 2001 and 2002.

Second, Nevada's argument fails to account for the nature of data needed to calculate performance for a given year. As we discussed above, data needed to calculate the PEP for FY 2001 are considered data for FY 2001, even if originally reported on the OCSE-157 for FY 2000. The difference between data for the same data element reported for FY 2000 and FY 2001 is that, when reported for FY 2001, the data may be submitted by the deadline for all FY 2001 data, December 31, 2001, and may reflect corrections and revisions made after the data were submitted for FY 2000. In that respect, the line 5 data needed to calculate the PEP for FY 2001 data are not the same data as the line 5 data reported on the OCSE-157 for FY 2000. Nevada in essence did not submit the data at issue for FY 2001, because the data it did report at line 5 of its OCSE-157 for FY 2000 were not reliable. Nevada was still free, though, to submit corrected data by the deadline for FY 2001 data. Data that Nevada was originally supposed to report at line 5 of the OCSE-157 for FY 2000 are data for FY 2001 because they are used to calculate the PEP for FY 2001. These data concern only out-of-wedlock births during FY 2000 and are not used to measure a state's performance at establishing paternities during FY 2000. Thus, basing a penalty on the unreliability of these data does not conflict with the decision to not base penalties on a state's performance in FY 2000.

Third, the phase-in regulation applies only to "the performance penalties described in � 305.40 . . . ." Section 305.40 lists the performance levels and percentage point increases in performance that states must attain to avoid being penalized for poor performance. Nevada is subject to a penalty for its failure to submit reliable data, which meant that its PEP performance could not be determined. Thus, Nevada's argument about the phase-in regulation would not in any event provide a basis to reverse the penalty it appeals.

C. ACF's selection of a 95% standard for data reliability was not arbitrary and capricious.

Nevada argues that ACF was arbitrary and capricious in adopting a 95% standard of reliability for data submitted for FY 2001, after using a 90% standard for FY 2000, and that ACF should have accepted Nevada's FY 2002 data as reliable. Nevada asserts that the FY 2002 PEP data failed to meet the 95% reliability standard by only one point, a difference attributable to one error among the sample cases that the ACF auditors reviewed, and notes that it immediately implemented programming changes to correct the errors. Nevada argues that language in the definition of reliable data gives the Secretary discretion to decide what is reliable, discretion that he should have exercised because of the de minimis nature of the extent by which Nevada was found to have failed to meet the 95% standard for FY 2002. Nevada cites the Act at section 452(g)(3)(C), which defines "reliable data" as "the most recent data available which are found by the Secretary to be reliable for purposes of this section," and the highlighted language in the regulation:

(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.

45 C.F.R. � 305.1(i) (emphasis added).

Nevada's argument that ACF was arbitrary and capricious in adopting the 95% data reliability standard provides no basis for the Board to reverse the penalty or the determination that the data were unreliable. That standard is imposed by an applicable regulation. The Board is bound by all applicable regulations. 45 C.F.R. � 16.14, made applicable to appeals of section 409 penalties by 45 C.F.R. � 262.7(e). The requirement that "[s]tate data must meet a 95 percent standard of reliability effective beginning in fiscal year 2001" is unambiguous.

As ACF points out, Nevada's assertion that FY 2002 PEP data failed to meet the 95% reliability standard by only one percentage point does not consider the method used to determine reliability. The 94% figure was not the actual efficiency rate of the line 6 data that ACF sampled, but only the upper end of the 95% confidence interval yielded by the sample. The actual reliability or efficiency rate was 86%. ACF Ex. 7, at 6. The confidence interval means that there is a 95% probability that the actual efficiency rate was between 74% and 94%, and the actual rate is just as likely to be 74% as 94%. Id. As we noted in DAB No. 1989, ACF's sampling methods for evaluating data reliability were conservative methods that gave the states the benefit of the doubt by using the upper bound of the 95% confidence interval. DAB No. 1989, at 38.

The cited language also does not require ACF to determine that Nevada's data were reliable even though they failed to meet the 95% standard. In referring to data that are found by the Secretary to be reliable, the regulation simply repeats the statutory definition of reliability, which authorizes the Secretary to adopt a standard to determine that data are reliable. The regulation then adopts such a standard, which is 95%. ACF was entitled to select a clear numerical criterion for assessing data reliability. We also agree with ACF that the 95% standard recognizes that, as stated in the regulation, data may contain errors that 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. Thus, there is no basis for the Board to alter ACF's finding that Nevada submitted unreliable PEP data for FY 2002.

Conclusion

For the reasons explained in our decision, we sustain the penalty in full.

Judith A. Ballard

Cecilia Sparks Ford

Donald F. Garrett
Presiding Board Member

1. Penalties for those other violations may be combined with IV-D penalties to increase the total amount of the reduction in a state's TANF funding. Those other penalty provisions are not at issue here.

2. In e-mails to ACF in March 2004 that Nevada submitted with its reply brief, Nevada reported that it submitted a revised OCSE-157 for FY 2000 in February 2001. Nevada Ex. 12. In e-mails to Nevada, ACF denied receiving a revised OCSE-157 and reported that Nevada submitted "revised audit trails" for lines 5 and 6 in November 2002. Id. An internal ACF e-mail from December 2002 states that Nevada determined that revised line 5 data for FY 2000 would result in a PEP for FY 2001 of 74%, and thought that its PEP for FY 2002 would be 62%. Nevada Ex. 7. Before the Board, however, Nevada did not allege that it timely submitted corrected line 5 data from FY 2000 or that such revised data would show that Nevada achieved a passing PEP score for FY 2001.

3. Nevada argues that ACF's letter dated November 14, 2003 notifying Nevada that it is subject to a penalty was misleading because it stated that Nevada had failed to provide information needed to calculate its PEP for FY 2001, when the real basis was that data Nevada submitted for FY 2000 that were needed to calculate the FY 2001 PEP were not reliable. That letter does not refer to Nevada's FY 2000 data being unreliable, and states only that no information was provided on the total number of children in the IV-D caseload as of the end of the fiscal year preceding FY 2001 who were born out of wedlock. The letter was not really misleading because Nevada knew that the data it submitted on line 5 of the OCSE-157 for FY 2000 had been found to be unreliable and that ACF did not have information needed to calculate a PEP for FY 2001 (i.e., reliable data from the end of FY 2000). While Nevada did provide the referenced information, it was found to be unreliable. The letter's ultimate finding that Nevada did not have a reliably established PEP for FY 2001 is correct.

4. The Assistant Secretary for Children and Families has been delegated the Secretary's authority to administer the TANF and child support enforcement programs at titles IV-A and IV-D of the Act. 62 Fed. Reg. 52,133 (Oct. 6, 1997); 56 Fed. Reg. 42,332, 42,350 (Aug. 27, 1991).

5. The prevailing view in the federal courts is that equitable estoppel does not lie against the federal government, if indeed it is available at all, absent at least a showing of affirmative misconduct. See, e.g., Northstar Youth Services, Inc., DAB No. 1884 (2003), and cases cited therein (including Office of Personnel Management v. Richmond, 496 U.S. 414 (1990) and Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51 (1984)). An allegation that the December 19, 2001 letter was unclear is not evidence of affirmative misconduct.

6. Public Law No. 105-200, the Child Support Performance and Incentive Act of 1998, created the system of awarding incentives to states based on five IV-D performance measures, currently at section 458 of the Act.

7. A IV-D "case" is "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." 45 C.F.R. � 305.1(a). States report information on the number of IV-D cases open at the end of the fiscal year at line 1 of the OCSE-157, not at issue here.

8. The referenced subsection, section 452(g) of the Act, contains the definition of the PEP and the performance levels that states must attain (or improvements they must establish) to comply substantially with the requirements of title IV-D, for the purposes of section 409(a)(8) of the Act. They are the same performance levels that states must meet to avoid being subject to a penalty. 45 C.F.R. � 305.40(a)(1), Table 4.

9. Regarding FY 2002, Nevada reports that it submitted reliable PEP data for FY 2002 prior to December 31, 2003, consistent with ACF's advice that states submit corrected data for FY 2002 by that date "or it would not be considered in calculating the paternity establishment percentage." Nevada Reply to ACF Reply Br. at 5. Nevada asserts that imposition of a penalty for FY 2002 is thus premature. Nevada cites OCSE DCL 03-43 (Dec. 5, 2003), which reminded states of the importance of correcting unreliable data reported for FY 2002 needed to determine performance for FY 2003. Nevada Ex. 2. It is not clear, however, whether Nevada reports having submitted reliable FY 2002 data needed for FY 2003 as part of its argument that ACF could not impose penalties for two consecutive years of PEP failure prior to FYs 2002 and 2003, or whether Nevada argues that its submission of corrected FY 2002 data means that it is not subject to a penalty for failing to submit reliable data for FY 2002. To the extent it makes the latter argument, Nevada's reliance on the ACF issuance is misplaced. Nothing in DCL 03-43 suggests that submitting corrected FY 2002 data by December 31, 2003 would satisfy a state's earlier obligation to submit reliable data for FY 2002 by December 31, 2002.