SUBJECT: The Virgin Islands Department of Justice

DECISION

The Virgin Islands Department of Justice (Virgin Islands) appeals a determination by the Administration for Children and Families (ACF), dated November 14, 2003. ACF determined that the Virgin Islands is subject to a penalty for failure to demonstrate that, for fiscal years (FYs) 2001 and 2002, its child support enforcement program under title IV-D of the Social Security Act (Act) met performance standards relating to establishing orders of support. The penalty is $28,902, one percent of the amount of federal funding that the Virgin Islands 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 the Virgin Islands received during FY 2004.

For the reasons discussed below, we sustain ACF's determination that the Virgin Islands is subject to a penalty. The Board previously addressed 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 determinations that three other states were subject to penalties for FYs 2001 and 2002, in Puerto Rico Dept. of the Family, DAB No. 1993 (2005), Nevada Dept. of Human Resources, DAB No. 1995 (2005), and Indiana Family and Social Services Administration, DAB No. 2001 (2005).

Our decision summarizes and adopts our analysis in DAB No. 1989, and explains why the issues that the Virgin Islands raises do not provide a basis for overturning the penalty. The Virgin Islands [Page 2] is subject to a penalty because it failed to submit reliable data needed to calculate its performance in establishing support orders for FYs 2001 and 2002. A state's submission of reliable data on its IV-D performance is an important part of the IV-D incentive and penalty system, which imposes penalties for failure to submit reliable data without regard to whether the state met the required level of performance. Thus, the Virgin Islands' arguments that data errors resulted from the conversion of its data to a new computerized IV-D system and did not evidence failure to deliver IV-D services provide no basis for us to reverse the penalty or for ACF to accept the unreliable data, pursuant to ACF's authority to accept unreliable data where the unreliability does not adversely affect calculation of performance.

Moreover, contrary to what the Virgin Islands argues and what the other States argued in the prior appeals, ACF complied with applicable notice requirements. A proposed statutory amendment that would have changed the notice requirements was 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 for initiating the penalty process. The Virgin Islands 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 with approved programs to assist needy families that have children, and to provide the parents with job preparation, work and support services to enable them to 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 aimed 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 [Page 3] to OCSE. In the TANF and child support enforcement programs, the term "state" includes the Virgin Islands. 45 C.F.R. §§ 260.30, 301.1.

Titles IV-A and IV-D and regulations at 45 C.F.R. Part 305 create a system of incentives and penalties that awards or withholds federal TANF funds based on scores states achieve on several IV-D performance measures. There are five performance measures used to award incentives, of which three are also used to impose penalties. The performance measure at issue here is the Support Order Establishment performance measure (SOE). It measures a state's performance at establishing orders of support in IV-D cases. A state's SOE performance level for a fiscal year is "the percentage of the total number of cases under the State plan approved under this part in which there is a support order during the fiscal year." Section 458(b)(6)(B)(i) of the Act. The regulations define the SOE as the ratio of the number of IV-D cases with support orders during the fiscal year to the total number of IV-D cases during the fiscal year, expressed as a percent. ⁽¹⁾ 45 C.F.R. § 305.2(a)(2). The regulation also presents the SOE as the following ratio:

Number of IV-D Cases with Support Orders
During the Fiscal Year

Total Number of IV-D Cases
During the Fiscal Year

Id.

ACF determines a state's level of performance based on data that the state submits. 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). States report their IV-D performance 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. ACF conducts data reliability audits, or DRAs, to determine if the data that [Page 4] 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 the determination of the state's IV-D performance measures. Section 409(a)(8)(C) of the Act; 45 C.F.R. § 305.62. In December 2001, ACF used that authority to accept unreliable FY 2000 data submitted by 23 states, including the Virgin Islands. ACF Exhibit (Ex.) 8.

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 level of performance on any performance measure. Thus, a state is subject to a penalty if, for two consecutive years, it fails either to achieve the required level of performance, or to submit reliable data needed to calculate its performance, or both with respect to the same performance measure. (A third basis for a penalty, in addition to failing a IV-D penalty performance measure 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 the unreliability of the Virgin Islands' SOE data.)

ACF imposed the penalty against the Virgin Islands pursuant to section 409 of the Act, titled "Penalties." Section 409(a) provides for TANF 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. ⁽²⁾ At issue here is section 409(a)(8) of the Act, which describes 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--

[Page 5] (i). . . that the State program failed to achieve the paternity establishment percentages . . . or to meet other performance measures that may be established by the Secretary;

(II) . . . that the State data submitted pursuant to section 454(15)(B) is incomplete or unreliable; or
(III) . . . that a State failed to substantially comply with 1 or more of the requirements of part D . . . 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 . . . is incomplete or unreliable; the amounts otherwise payable to the State under this part . . . 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 . . . .

For some 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, section 409 withholds these ameliorative measures from the title IV-D penalties at issue here. Sections 409(b),(c) of the Act.

The regulation implementing the IV-D penalty provisions states in relevant part as follows:

(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 . . . :

[Page 6] (i) . . . the State's program failed to achieve the paternity establishment percentages . . . or to meet the support order establishment and current collections performance measures . . . or
(ii) . . . the State did not submit complete and reliable data . . . or
(iii) . . . the State failed to substantially comply with one or more of the requirements of the IV-D program . . . 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.

45 C.F.R. § 305.61.

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 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 SFAG is the amount of the basic block grant allocated to each eligible state under the formula at section 403(a)(1) of the Act. 45 C.F.R. § 260.30.) The 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. 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). A state may appeal a decision imposing penalties to the Board. 45 C.F.R. §§ 262.7, 305.66(b)(2).

Basis for the penalty

ACF notified the Virgin Islands that it is subject to a penalty in a letter from the Assistant Secretary for Children and Families dated November 14, 2003. Attachment to the Virgin Islands Brief (Br.). The basis for the penalty was that the Virgin Islands' data for the SOE performance measure for FYs 2001 [Page 7] and 2002 failed to meet the 95% standard for data reliability. The letter stated that the Virgin Islands was thus subject to a reduction in TANF funding of $28,902, one percent of its adjusted SFAG for the TANF program for FY 2001.

For FY 2001, ACF determined that the Virgin Islands' data for four of the five IV-D performance measures, including the SOE, were unreliable because the Virgin Islands did not submit any data for those measures. Instead, the Virgin Islands submitted data for the paternity establishment percentage performance measure only. ACF Ex. 9 (FY 2001 DRA report).

For FY 2002, ACF determined that the Virgin Islands submitted unreliable SOE data. The data in question, the number of IV-D cases open at the end of the fiscal year with support orders established, is the numerator of the SOE ratio. 45 C.F.R. § 305.2(a)(2). States report that number at line 2 of form OCSE-157. ACF determined that the figure that the Virgin Islands reported at line 2 for FY 2002 (4,250 IV-D cases open at the end of the fiscal year with support orders established) failed to meet the 95% standard for data reliability. ACF Ex. 11 (FY 2002 DRA report).

To audit the Virgin Islands' line 2 data, ACF auditors reviewed a sample of 78 cases and determined that the Virgin Islands correctly reported 57 of them, for an efficiency rate of 73% with a 95% confidence interval of 62% to 82%. Of the remaining 21 cases, ACF determined that the Virgin Islands erroneously omitted, from line 2, 20 cases that it should have reported and erroneously reported one case on line 2 that should not have been included on that line. ACF determined that the Virgin Islands erroneously omitted 20 cases because its computerized IV-D system failed to report, as cases with support orders established, cases with closed or terminated support orders. ACF determined that the Virgin Islands should have reported those cases because they do not need to have support orders established. ACF also determined that because of a clerical error, the Virgin Islands erroneously included one case that it should not have reported. ACF Ex. 11, at 4-5. The Virgin Islands concurred with these findings in its comments on a draft version of FY 2002 DRA report that ACF issued prior to the final report. Id. at 10.

The Virgin Islands does not dispute the findings in the DRA reports. Instead, the Virgin Islands presents two principal arguments, one about its data, and one about the legal [Page 8] sufficiency of ACF's November 14, 2003 notice to the Virgin Islands that it is subject to a penalty.

First, the Virgin Islands argues that the penalty should be reversed because of the nature of the errors in the sample cases ACF reviewed to determine that the Virgin Islands' SOE data for FY 2002 were unreliable. The Virgin Islands argues that those errors resulted from computer programming errors in converting the Virgin Islands' IV-D data to a new computerized IV-D case tracking system. The Virgin Islands argues that correct data would have shown that the Virgin Islands was in compliance with the SOE performance measure. The Virgin Islands argues that ACF should have accepted the unreliable FY 2002 data because the unreliability was of a technical nature that did not adversely affect the performance of the Virgin Islands' IV-D program. The Virgin Islands also argues that it has already been penalized for its failure to submit reliable data because that failure prevented the Virgin Islands from earning any incentive payments for the years at issue, and that a further penalty is excessive.

Second, the Virgin Islands argues that ACF did not comply with the penalty regulations because it failed to provide the Virgin Islands notice of its data problems and an opportunity to correct them prior to determining that the Virgin Islands is subject to a penalty.

However, we conclude that these arguments provide no basis to reverse ACF's determination that the Virgin Islands is subject to a penalty.

I. The Virgin Islands' data reliability arguments do not provide a basis to reverse the penalty.

The Virgin Islands operates its computerized IV-D tracking system, the Child Support Territorial Automated Reporting System (CSTARS), pursuant to the requirement that each state operate a single statewide automated IV-D data processing and information retrieval system that has been approved by ACF. Section 454A of the Act; 45 C.F.R. Part 307. The Virgin Islands began operating CSTARS in November 2001, after its prior system, the Virgin Islands Paternity Enforcement Reporting System (VIPERS), failed to receive ACF approval. Virgin Islands Br. at 1-2. The Virgin Islands reports that it erroneously failed to report 20 sample cases at line 2 of the OCSE-157 for FY 2002 because CSTARS did not report inactive cases with support orders that had been established prior to November 2001, when the Virgin Islands began using CSTARS. Id.

[Page 9] The Virgin Islands argues that it would have correctly reported those cases as cases for which support orders had been established if the data on the cases had been accurately converted from VIPERS to CSTARS. The Virgin Islands cites ACF's determination that the Virgin Islands should have reported those cases as demonstrating that the Virgin Islands obtained the required support orders for those cases. The Virgin Islands argues that it should not be subject to a penalty for unreliable data because the Secretary is authorized to determine that the unreliability of a state's data is of a technical nature that does not adversely affect the performance of its IV-D program, or the determination of the level of its performance. The Virgin Islands argues that it is highly unlikely that conversion to a new automated system could occur without some technical errors, and that the penalty is "especially egregious when the Agency has met the performance standards but its computer system did not adequately provide the data." Id. at 2.

However, the Virgin Islands incorrectly states the standard for ACF to accept unreliable data and does not show that its unreliable data met the correct standard. Because the IV-D incentive and penalty system requires timely submission of reliable data and imposes penalties for unreliable data without regard to whether reliable data would show that a state met the performance standards, the Virgin Islands' assertion that it attained a passing SOE score for FY 2002 provides no grounds to reverse ACF's determination that the Virgin Islands is subject to a penalty and, moreover, cannot be verified without reliable data.

A. The Virgin Islands misstates the basis for ACF's authority to accept data where the unreliability is of a technical nature.

The Virgin Islands' argument that the unreliability of its SOE data was of a technical nature that did not adversely affect the performance of its IV-D program misstates the statutory standard for ACF to accept unreliable data. The statute provides as follows:

DISREGARD OF NONCOMPLIANCE WHICH IS OF A TECHNICAL NATURE.--For purposes of this section . . . a State determined as a result of an audit--

(i) to have failed to have substantially complied with 1 or more of the requirements of part D shall be determined to have achieved substantial compliance only if the Secretary determines that the extent of the noncompliance is of a technical nature [Page 10] which does not adversely affect the performance of the State's program under part D; or
(ii) to have submitted incomplete or unreliable data . . . 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 . . . or other performance measures that may be established by the Secretary.

Section 409(a)(8)(C)(ii) of the Act (emphasis added).

Thus, the statute authorizes the Secretary to accept unreliable data only if he determines that the extent of the unreliability is of a technical nature that does not adversely affect the determination of the level of the State's performance measures. The statute does not authorize the Secretary or ACF to accept unreliable data on the basis that the unreliability does not adversely affect the performance of the state's IV-D program. ⁽³⁾ Under the statute, adverse effects on a state's performance are considered only in determining whether the state's failure to substantially comply with the requirements of title IV-D is of a technical nature, such that the state may be determined to have achieved substantial compliance. However, failure to substantially comply with the requirements of title IV-D is a separate basis for a penalty that is not at issue here. Here, the penalty was based solely on the Virgin Islands' failure to submit reliable data.

In arguing that its failure to submit reliable data should be disregarded as of a technical nature, the Virgin Islands quoted the regulation that implements the two "technical nature" provisions:

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 or to have achieved substantial [Page 11] compliance with one or more IV-D requirements, as defined in § 305.63 of this part, if the Secretary determines that the incompleteness or unreliability of the data, or the noncompliance with one or more of the IV-D requirements, is of a technical nature which does not adversely affect the performance of the State's IV-D program or does not adversely affect the determination of the level of the State's paternity establishment or other performance measures percentages.

45 C.F.R. § 305.62.

The regulation combines into one paragraph the statute's two "technical nature" provisions, one applicable to a state's submission of unreliable data, the other applicable to a state's failure to substantially comply with IV-D requirements. However, the regulation does not authorize ACF to accept unreliable data on the basis that it does not adversely affect IV-D performance, as in the Virgin Islands' argument, because the statute permits ACF to accept unreliable data only if the unreliability is of a technical nature that does not adversely affect determination of the state's performance level. Reading the regulation as permitting ACF to accept unreliable data if the unreliability does not adversely affect a state's IV-D performance is illogical and unnecessary. Without reliable data, ACF cannot calculate a state's performance and cannot determine whether data unreliability adversely affected performance, unless the unreliability does not adversely affect the determination of performance. In that case, however, ACF could accept the unreliable data on the basis that the unreliability does not adversely affect the determination of the state's performance level, and would not need to also consider whether the unreliability affected the state's performance.

The Virgin Islands' reading of the regulation also frustrates an important aspect of the penalty and incentive system: the requirement that states operate computerized systems that can maintain and report reliable IV-D data. Without reliable computerized data, ACF would have to review a state's IV-D case records to determine whether the state provided required IV-D services or met required performance levels. However, states must provide reliable data so that ACF may make incentive and penalty determinations without having to physically review the underlying case records. To that end, states must maintain accurate data not just in case records but also in computerized IV-D systems capable of providing data needed to calculate the IV-D performance measures. Sections 454(15)(B), 454(16), 454A, [Page 12] 458(b)(5)(B) of the Act. The regulations echo the importance of such systems by requiring states to maintain computerized systems that can control, account for, and monitor all the factors in the support collection and paternity determination processes, and by providing federal funding at enhanced rates of 80% and 90% in the costs of developing and installing such systems. 45 C.F.R. §§ 307.5, 307.10, 307.30, 307.31. ACF's audits look not only at a state's data, but also at a state's compliance with the requirements to maintain automated systems. 45 C.F.R. § 305.60(c)(1). DAB No. 1989, at 78-79. The penalty and incentive system at Part 305 requires states to establish their IV-D performance levels with reliable data submitted by a set date and imposes penalties for failure to do so, regardless of the level of performance the state attained. Permitting a state to avoid a penalty for unreliable data on the grounds that it delivered IV-D services would ignore the state's failure to comply with these important requirements.

Requiring that ACF review all IV-D case records to determine the performance of a state that has submitted unreliable data would also violate the time limit that the regulations establish for a state to submit its data. States must submit performance data for a fiscal year by no later than December 31^st following the end of the fiscal year, and ACF may only consider data submitted by that date in determining a state's IV-D performance measures. 45 C.F.R. § 305.32(f). The regulations contain no provisions for extending that deadline. Generally, ACF issues its draft and final DRA reports on a state's data during the calendar year following the end of the fiscal year to which the data apply, after the deadline for the state to submit its data. See, e.g., DAB No. 1989, at 18-19. Here, the OCSE-157 for the Virgin Islands' FY 2002 data was dated December 30, 2002; ACF completed its audit work in June 2003 and issued its draft DRA report on August 5, 2003, and its final DRA report on September 4, 2003. ACF Ex. 11. For ACF to ignore the Virgin Islands' unreliable FY 2002 data and determine its SOE performance based on a review of IV-D case records, ACF would have to use information obtained after the deadline for the Virgin Islands to submit its FY 2002 data. This would violate the regulation requiring that only data submitted by that time be considered in determining a state's IV-D performance measures. 45 C.F.R. § 305.32(f).

Thus, the Virgin Islands' argument that the unreliability of its SOE data was due to computer programming errors and did not adversely affect its IV-D performance does not provide any basis to reverse ACF's determination that the Virgin Islands is subject to a penalty.

[Page 13] B. The Virgin Islands did not qualify to have its unreliable data accepted through application of the "technical nature" provision.

As we concluded above, ACF could have accepted the Virgin Islands' unreliable FY 2002 SOE data only if ACF determined that the unreliability was of a technical nature that did not affect the determination of the Virgin Islands' SOE performance level for that year. The Virgin Islands does not allege and did not demonstrate that its unreliable data met this standard. The Virgin Islands also has not shown that the errors were so de minimis that they resulted in misstating its SOE performance level by a only few hundredths or thousandths of a percent. Instead, the undisputed DRA findings show that the Virgin Islands' FY 2002 SOE data had an efficiency or accuracy rate of 73% with a 95% confidence interval of 62% to 82%, well below the required 95% accuracy standard for data reliability. ACF Ex. 11. Also, errors made did adversely affect determination of the SOE performance level because they resulted in cases being either erroneously omitted from, or erroneously included in, the line 2 data used to calculate performance. ACF thus had no basis to accept the Virgin Islands' unreliable FY 2002 SOE data.

It is also not relevant, in applying the "technical nature" provision, that the data errors ACF uncovered in the DRA might have tended to lower, rather than increase, the Virgin Islands' reported SOE score, or that they resulted from the conversion of computerized data to a new computer system. In DAB No. 1989, we held that the statute and regulations do not distinguish among unreliable data based on whether data errors improperly increase or decrease a state's score on the penalty and incentive performance measures. We held that the emphasis of the requirement that data meet a 95% reliability standard is on the magnitude of the errors, as opposed to the type of errors. 45 C.F.R. § 305.1(i). We also held that data conversion errors that evidence serious discrepancies between written documentation and computer records call into question the reliability of the data for calculating the state's performance. Data containing enough errors to render them unreliable offer no assurance that the performance calculation may be relied upon as a reasonably accurate measure of a state's performance, regardless of the nature of the errors. A high incidence of data errors of any type increases the likelihood that there may be other errors that go undetected and calls into question the reliability of the entire body of state data. DAB No. 1989, at 26-32.

Moreover, application of the "technical nature" provision would not permit the Virgin Islands to avoid a penalty. That provision [Page 14] simply authorizes ACF to use unreliable data. As we discussed above, it does not call for ACF to discard the data and calculate performance based on information gleaned from case records underlying the data. Here, the SOE data that the Virgin Islands submitted for FY 2002, including the unreliable data that the Virgin Islands reported at line 2 of the OCSE-157, yield an SOE performance level of 38%, below the 40% minimum score required to avoid a penalty. ⁽⁴⁾ Thus, accepting the unreliable data would not have permitted the Virgin Islands to avoid a penalty.

The Virgin Islands' argument that it provided IV-D services is also unavailing because the Act makes failure to submit reliable data a distinct basis for a penalty, apart from any consideration of whether the state might actually have passed the applicable performance measure. This was not the case prior to enactment of the current penalty provisions at section 409(a)(8), when states were subject to penalties for failure to comply substantially with title IV-D requirements, but not for failure to submit reliable data needed to calculate performance. Former section 403(h) of the Act. Congress's enactment of the current IV-D penalty statute signaled the importance of a state's responsibility for providing reliable data. DAB No. 1989, at 30. As we observed in DAB No. 1989, section 409(a)(8) regards a state's failure to submit reliable data as equivalent to failing to achieve the required performance levels. A state's obligation is not merely to submit reliable data each year, but to demonstrate with reliable data that it achieved the required level of performance on the measures established by the statute and regulations. Id. at 41-43. That 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. Thus, the Virgin Islands was properly subject to a penalty for failing for two consecutive [Page 15] years to submit reliable data needed to calculate its SOE performance level.

Thus, the Virgin Islands' allegation that it provided required IV-D services including the establishment of support orders has no bearing on whether it is subject to a penalty for failing to submit reliable data that ACF needed to determine the level of the Virgin Islands' performance.

The Virgin Islands also argues that it has already been penalized because its failure to submit reliable data barred it from receiving any incentive payments for IV-D performance, and that the 1% reduction in its TANF funding is effectively a second penalty. We rejected a similar argument in DAB No. 1989. We noted that reliable data is an important feature of the incentive process, and that the threat of penalties in addition to the possible loss of incentive payments is a further motive for states to submit reliable data. The potential loss of incentives by itself may be slim motivation to improve data reliability for states with performance sufficiently poor that they are unlikely to earn incentives. Additionally, loss of incentives may not be as much of a penalty as the Virgin Islands suggests, because a state that submits unreliable data for one performance measure may still be eligible for incentives for its performance on the other measures. In the Part 305 preamble, ACF explained that "a State which has incomplete or unreliable data with respect to one (or more) performance measures may still qualify for incentive payments based on its performance levels for the remaining measures." 65 Fed. Reg. 82,201; see also DAB No. 1989, at 55-56.

Accordingly, we conclude that the Virgin Islands' arguments about its data do not provide a basis to reverse the penalty.

II. ACF complied with applicable notice requirements.

The Virgin Islands argues that ACF failed to comply with the IV-D incentive and penalty regulation because it failed to provide the Virgin Islands with notice of its data failures and an opportunity to correct those failures prior to determining that the Virgin Islands is subject to a penalty. The Virgin Islands states that the first indication of a penalty that ACF provided was the November 14, 2003 letter informing the Virgin Islands of the penalty that it now appeals, for failure to submit reliable SOE data for FYs 2001 and 2002. The Virgin Islands argues that this letter did not constitute notice that a failure during one year might result in a penalty if not corrected during the next year that ACF must provide prior to assessing penalties. As evidence of the lack of sufficient notice, the Virgin Islands [Page 16] cites 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," and stating that the Assistant Secretary had been discussing a possible solution with members of Congress.

We rejected this same argument in DAB No. 1989 and in the other decisions in appeals of IV-D penalties imposed under section 409(a)(8) of the Act. It reflects an essential misunderstanding of the nature of the IV-D penalty process.

The following regulation outlines when a state is subject to a penalty, and the notice ACF must furnish:

(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 CFR 262.1(b) through (e) and 262.7 if the State is found to have failed to correct the deficiency or deficiencies cited in the notice during the automatic corrective action year (i.e., the succeeding fiscal year following the year with respect to which the deficiency occurred.)

(c) The penalty under § 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 [Page 17] 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.

45 C.F.R. § 305.66 (emphasis added).

In our summary of the applicable law, above, we discussed how the statute and regulations subject states to penalties for two consecutive years of either failing performance or unreliable data or both, with the second of the two years being the corrective action year, during which the state may avoid a penalty by correcting failures that occur during the first year.

In DAB No. 1989 and the subsequent decisions, we held that the penalty process is self-implementing and that ACF is not required to give notice of a state's IV-D data or performance failures prior to the beginning of the corrective action year. We further held that the structure of the penalty system necessarily does not permit states a full year following notice of their performance-year failures to take corrective action. We concluded that these provisions place on a state the ultimate responsibility for monitoring its own performance, and that the States had been informed of their data reliability problems during FY 2002, the corrective action year. Our reasons for so holding and for determining that the Virgin Islands' arguments lack merit as well 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. Similarly, the Act provides for 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 [Page 18] action to achieve the appropriate performance levels or compliance, or submitted unreliable data. Section 409(a)(8)(A) of the Act (emphasis added). That has happened here. 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 some of the penalties listed in section 409(a) of the Act, other than the IV-D penalties at section 409(a)(8) that are at issue here. Part 262 addresses the collection of multiple penalties, the maximum reduction that may be made in a state's SFAG, and the right to appeal penalty determinations to the Board. 45 C.F.R. §§ 262.1(b)-(e), 262.7. A IV-D penalty to which a state is subject following two years of unreliable data or deficient IV-D performance is a potential penalty because it is subject to these 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 CFR 262.1(b) through (e) . . . ." However, there is no indication here that the penalty is to be combined with penalties under other provisions of section 409(a), or exceeds the maximum reduction that may be taken in a state's SFAG. In the absence of multiple penalties, ACF could inform the Virgin Islands 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 does not permit notice from ACF of performance-year failures prior to the start of the corrective action year and does not afford a state a full year following notice to correct deficiencies before being subject to a penalty. A state must submit its data for a given fiscal year by December 31^st following the end of the fiscal year (September 30^th). 45 C.F.R. § 305.32(f). Since this deadline is approximately 90 days into the corrective action year, it does not permit review of the data and notification of findings in time for the state to have a full year to take corrective action. [Page 19] 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 in section 409(a) is in section 410. Section 410(a) requires the Secretary to 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 five 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 penalties listed in section 409(a), which primarily concern compliance with TANF requirements. Section 409(b) forbids the Secretary from imposing some of those other penalties if he finds that there was reasonable cause for the noncompliance, and section 409(c) grants states the opportunity to avoid a penalty by achieving compliance pursuant to a corrective compliance plan that the state develops and ACF approves. However, those ameliorative measures "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 penalties underscores the self-implementing nature of the IV-D penalty process, which is not dependent on intermediate action by ACF before the automatic corrective action year commences. Moreover, the penalties for which corrective action plan procedures are available may be imposed after only a single year of failure, rather than the two consecutive years for which a state is subject to IV-D penalties. Sections 409(a)(1)-(5), (9), (11), (14) of the Act. ACF thus reasonably implemented a IV-D penalty system that affords states the opportunity to remedy deficiencies prior to being penalized, but holds them responsible for monitoring their own data and performances and taking whatever actions are necessary to achieve compliance after a year of failing data or performance. Part 305 affords a state the opportunity to comment on draft audit reports, giving the state some notice of problems that may lead to a penalty and an opportunity to present its views before a [Page 20] determination is made that the state is subject to a penalty. 45 C.F.R. § 305.64.



• Statements in the November 14, 2003 letter that the Virgin Islands cited, recognizing that states "do not have a full year to correct deficiencies following the release of final DRA reports," and that the Assistant Secretary had been discussing a possible solution with members of Congress, confirm the self-implementing nature of the penalty system. Like the Virgin Islands, the States in DAB No. 1989 cited these statements as evidence that ACF did not provide proper notice of FY 2001 data or performance failures in time for corrective action during FY 2002. We held there and in our other decisions that the cited statement, and the legislative history of the possible solution, acknowledge that under current law, the corrective action year commences automatically after the end of the performance year. The amendment would have made the start of the corrective action year conditioned on notice from ACF. DAB No. 1989, at 21-22, citing S. Rep. No. 108-162, at 53-54 (Oct. 3, 2003). The amendment was never passed, and ACF is bound by the current law.
  
  
• States are responsible for monitoring their own performances and data reliability. 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 year 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 [Page 21] 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). In DAB No. 1989, we noted that the States had time periods ranging from four to seven months following release of the FY 2001 DRA reports (and from six to eight months following release of the draft reports), to correct any data reliability problems prior to submitting their FY 2002 data, which were due December 31, 2002. Here, ACF's final DRA report on the Virgin Islands' FY 2001 data was dated June 18, 2002, and the draft report was issued on May 2, 2002. ACF Ex. 9. As noted earlier, the Virgin Islands failed to submit FY 2001 data for any performance measure except the paternity establishment percentage. It thus knew prior to receiving the DRA report that it had failed to demonstrate with reliable data that it met those performance measures for FY 2001. The statutory and regulatory provisions discussed earlier informed the Virgin Islands that any similar failure in FY 2002 would subject it to a penalty.

See DAB No. 1989, at 11-26.

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

Conclusion

For the reasons explained above, we sustain the penalty in full.

Judith A. Ballard

Cecilia Sparks Ford

Donald F. Garrett
Presiding Board Member

1. 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).

2. Those other penalties may be combined with IV-D penalties to increase the total amount of the reduction in a state's TANF funding. Those other penalties are not at issue here.

3. We refer to ACF as sharing the Secretary's authority to determine whether data unreliability is of a technical nature, because the Secretary has delegated authority to administer the TANF and child support enforcement programs to the Assistant Secretary for Children and Families. 62 Fed. Reg. 52,133 (Oct. 6, 1997); 56 Fed. Reg. 42,332, 42,350 (Aug. 27, 1991).

4. As mentioned above, the SOE is the ratio of the number of IV-D cases with support orders during the fiscal year to the total number of IV-D cases during the fiscal year, expressed as a percent. The Virgin Islands' SOE performance level for FY 2002 is the ratio of the number it reported at line 2 of the OCSE-157 for FY 2002 (4,250) to the number it reported at line 1 (11,164), expressed as a percent. ACF determined that the number that the Virgin Islands reported at line 1 was reliable. While the OCSE-157 is not in the record, the data that the Virgin Islands reported on that form are set out in an attachment to the FY 2002 DRA report. ACF Ex. 11, at 8.