Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Commonwealth of Puerto Rico Department of
Social Services
DATE: May 20, 1991
Docket No. 90-136
Decision No. 1253
DECISION
The Commonwealth of Puerto Rico Department of Social Services
(Puerto
Rico) appealed a funding reduction imposed under section 403(h) of
the
Social Security Act (Act) by the Office of Child Support
Enforcement
(OCSE). Based on audits of Puerto Rico's child support
enforcement and
paternity establishment program, OCSE determined that Puerto
Rico did
not comply substantially with the requirements of Title IV-D of the
Act.
OCSE proposed a one percent reduction of the amount otherwise payable
to
Puerto Rico for Aid to Families with Dependent Children (AFDC)
during
the period July 1, 1988 through June 30, 1989 (an estimated
$578,851
reduction).
Relying on arguments made by other states appealing similar
funding
reductions, Puerto Rico challenged OCSE's regulations on Title
IV-D
audits and the length of the corrective action period OCSE
allowed
Puerto Rico; alleged that OCSE had failed to supply Puerto Rico
with
technical assistance; and questioned the statistical
sampling
methodology OCSE used as a basis for its findings. Puerto Rico
also
argued that the penalty reduction imposed by OCSE adds a
substantial
strain on Puerto Rico's resources since federal aid to Puerto
Rico for
the AFDC program is subject to a statutorily-imposed funding
cap.
Section 1108(a) of the Act.
For the reasons stated below, we uphold OCSE's decision to reduce by
one
percent Puerto Rico's AFDC funding for the one-year period
beginning
July 1, 1988. Specifically, we conclude that--
o OCSE properly applied its
interpretation of the statutory term
"substantial compliance" to the time
periods at issue here;
o OCSE reasonably interpreted the
statutory requirement for
"substantial compliance" to mean that a state must
be taking action to
provide basic child support services (required under the
Act) in at
least 75% of the cases requiring those services;
o OCSE's failure to supply Puerto Rico
with the specific technical
assistance Puerto Rico requested does not render
OCSE's decision
invalid;
o the statistical sampling evidence submitted here reliably shows
that
Puerto Rico failed to meet OCSE audit criteria related to
locating
absent parents, establishing support obligations, and enforcing
support
obligations in Title IV-D cases; and
o the one-year corrective action period
OCSE allowed is consistent
with the intent of the legislation.
In light of these conclusions, we must uphold the reduction.
Irrespective
of any financial strain on Puerto Rico's resources,
Congress intended that a
funding reduction be imposed in such
circumstances. Indeed, a state's
failure to comply substantially with
child support requirements means the
state's AFDC program incurred costs
that could have been avoided.
Statutory and regulatory provisions
The Commonwealth of Puerto Rico is considered a "state" for purposes
of
Title IV of the Social Security Act. Section 1101(a)(1) of the
Act.
Each state that operates an AFDC program under Title IV-A of the Act
is
required to have a child support enforcement and paternity
establishment
program under Title IV-D of the Act. Section 402(a)(27)
of the Act.
The Title IV-D program has been in existence since July
1975. OCSE has
the responsibility for auditing state Title IV-D
programs, pursuant to
section 452(a)(4) of the Act, and evaluating whether
the actual
operation of such programs conforms to statutory and
regulatory
requirements. Following adoption of Title IV-D, the
participating
states were given 18 months by Congress -- until December 31,
1976 -- to
establish and begin operating their programs before compliance
audits
actually began. Under the applicable statute, a state was
subject to a
five percent reduction of its Title IV-A funds if the audit
found that
the state was not in compliance. Congress, however,
continuously
extended the initial moratorium on imposition of this funding
reduction,
so that no reduction was ever imposed during the first eight years
of
the program's operation, although OCSE did continue its annual audits.
On August 16, 1984, Congress adopted the Child Support
Enforcement
Amendments of 1984, section 9 of Public Law 98-378 (the
1984
Amendments). As amended, section 403(h)(1) of the Act provides
that--
if a State's program operated under Part D is found as a
result
of a review conducted under section 452(a)(4) not to
have
complied substantially with the requirements of such part
for
any quarter beginning after September 30, 1983, and
the
Secretary determines that the State's program is not
complying
substantially with such requirements . . ., the
amounts
otherwise payable to the State under this part [A] for
such
quarter and each subsequent quarter, prior to the first
quarter
throughout which the State program is found to be in
substantial
compliance with such requirements, shall be reduced . . .
.
(Emphasis added.)
The amended section then provides for graduated reductions, starting
with
a reduction of "not less than one nor more than two percent" and
increasing
to a maximum of five percent with each consecutive finding
that a state is
not complying substantially with Title IV-D
requirements.
The 1984 Amendments provided for the continuation of compliance
audits,
which could in appropriate cases be scheduled as infrequently as
once
every three years. Rather than directing immediate reduction of
funding
for a state which failed an audit, the Amendments provided that
a
reduction could be suspended while the state was given an opportunity
to
bring itself into compliance through a corrective action plan
approved
by OCSE. Section 403(h)(2)(A)-(C) of the Act, as
amended. If a
follow-up review of a state's performance showed that the
state still
did not achieve substantial compliance, a reduction would be
imposed.
Section 403(h)(2)(B)(iii) of the Act.
Section 9(c) of the 1984 Amendments provides that they "shall be
effective
on and after October 1, 1983."
OCSE proposed regulations implementing the Amendments on October 5,
1984,
49 Fed. Reg. 39488 (1984), and issued final regulations on October
1, 1985,
50 Fed. Reg. 40120 (1985). (We refer to these regulations as
the "1985
regulations.") The 1985 regulations amended parts, but not
all, of the
audit regulations at 45 C.F.R. Part 305. Section 305.20(b),
as amended
by the 1985 regulations, provided that, for the fiscal year
(FY) 1985 audit
period, certain listed audit criteria (related primarily
to administrative or
fiscal matters) "must be met." This section also
provided that the
procedures required by thirteen audit criteria "must
be used in 75 percent of
the cases reviewed for each criterion . . . ."
These criteria relate to
performance of basic services provided under a
IV-D state plan and are the
criteria at issue in this appeal. All the
service-related audit
criteria are based on sections of 45 C.F.R. Part
305 which (with minor
exceptions not relevant here) were originally
published in 1976, with minor
amendments in 1982. (We refer to these
provisions, as amended in 1982,
as the "existing regulations" since they
were in effect during FY 1984 and FY
1985.)
Thus, under the 1985 regulations, substantial compliance for FY
1985
audits was measured by audit criteria from the existing regulations,
but
a state had to be providing the required services in 75% of the
cases
requiring them. The regulations also provide for a corrective
action
period not to exceed one year from the date of the noncompliance
notice.
45 C.F.R. 305.99(c). In follow-up reviews after a corrective
action
period, OCSE would examine only the audit criteria that the state
had
previously failed or had complied with only marginally (that is, in
75
to 80% of the cases reviewed for that criterion). 45 C.F.R.
305.10(b)
and 305.99, as amended. 1/
Background
OCSE's program results audit for FY 1985 (October 1, 1984
through
September 30, 1985) resulted in a July 10, 1987 notice to Puerto
Rico
that it had been found to have failed to comply "substantially with
the
requirements of Title IV-D of the Act" in the following areas:
(1)
enforcement of support obligations; (2) state parent locator
service;
(3) establishing paternity; and (4) establishing child
support
obligations. OCSE Exhibit (Ex.) 3. OCSE found that Puerto
Rico took
action in 40 of 112 sample cases (36% of those cases)
requiring
enforcement services; that Puerto Rico took action in 44 of 102
sample
cases (43% of those cases) requiring location of missing parents;
that
Puerto Rico took no action on the 20 cases reviewed
requiring
establishment of paternity efforts; and that Puerto Rico took
action in
only 12 of 49 sample cases (24% of those cases) requiring
establishment
of a support obligation.
Rather than appealing OCSE's findings, Puerto Rico opted to propose
a
corrective action plan that was accepted by OCSE on September 29,
1987,
and the funding reduction was suspended. OCSE Exs. 4 and 5.
Puerto
Rico was informed that the corrective action period ended on July
9,
1988 and that the penalty suspension would end if a follow-up
review
showed that Puerto Rico failed to achieve substantial compliance
with
the unmet criteria cited in the penalty letter.
The follow-up review by OCSE of Puerto Rico's performance for
calendar
year 1988 resulted in the May 22, 1990 notice of
substantial
noncompliance that is the subject of this appeal. Puerto
Rico Ex. B.
OCSE found that Puerto Rico had failed three of the audit
criteria cited
in the program results audit -- state parent locator
service;
establishment of support obligations; and enforcement of
support
obligations. In the follow-up review, OCSE found that Puerto
Rico took
action in only 21 of the 58 sample cases (36% of those cases)
requiring
action to locate absent parents, took action in only 12 of the 37
sample
cases (32% of those cases) requiring action to establish
support
obligations, and took action in 63 of the 123 sample cases (51% of
those
cases) requiring action for enforcement of support obligations.
OCSE
Ex. 6, p. 5.
Case history
The Board advised the parties in a notice dated September 18, 1990
that
all the appeals pending before the Board that challenged
OCSE's
imposition of penalties under section 403(h) of the Act would be
treated
as concurrent appeals. 2/ The notice stated that since the
appeals
raised similar or identical issues, the Board would consider
arguments
from all the briefs in determining the common legal issues
presented.
Puerto Rico asserted that it would rely on the briefs submitted by
other
appellants to support its challenge to the penalty. The
Commonwealth
listed generally the common issues included in this
dispute. In
addition, Puerto Rico made a brief equitable argument that
the
imposition of a penalty will have a dramatic impact on the
Commonwealth
because its federal funding under the Act is limited.
OCSE concurred with Puerto Rico that this appeal raised no new
legal
issues. Similarly, OCSE relied on the briefs submitted on its
behalf in
the other appeals as well as the Board's decisions on the common
issues
decided in favor of OCSE. See Guam Dept. of Public Health and
Social
Services, DAB No. 1050 (1989); Ohio Dept. of Human Services, DAB
No.
1202 (1990); New Mexico Human Services Dept., DAB No. 1224 (1991);
and
District of Columbia Dept. of Human Services, DAB No. 1228 (1991).
OCSE,
however, specifically addressed certain of Puerto Rico's arguments
which
OCSE determined raised factual issues. Puerto Rico chose not to
submit
a reply brief in this matter. 3/
Analysis
I. Challenges to the 1985 regulations are without merit.
By adopting the argument of other States, Puerto Rico challenged the
1985
regulations that OCSE used in concluding that the states were not
in
substantial compliance. Specifically, Puerto Rico argued that--
o the regulations are impermissibly retroactive under Bowen
v.
Georgetown University Hospital, 488 U.S. 204 (1988)
(hereafter
Georgetown), since OCSE lacked express statutory authorization to
apply
these regulations retroactively;
o the statutory provision setting an
effective date of October 1,
1983, was the result of an "obvious mistake and
thus should not be given
effect;"
o the regulations have retroactive effect
in violation of the APA,
which defines a "rule" as having "future effect"
(see 5 U.S.C. 551(4)
and Georgetown (Scalia, J., concurring));
o the 75% standard in the regulations had
no empirical basis and
therefore was established in an arbitrary and
capricious manner under
Maryland v. Mathews, 415 F. Supp. 1206 (D.D.C. 1976);
and
o the regulations were invalid because
they did not include a
definition of "violations of a technical nature,"
based on section
403(h)(3), as amended.
OCSE disputed Puerto Rico's position, but also pointed out that the
Board
is bound by applicable laws and regulations under 45 C.F.R. 16.14.
The
regulations at issue were "effective" on the date of final
publication
(October 1, 1985). However, section 305.20(a), which sets
out the 75%
standard for service-related audit criteria, states that it
is to be applied
"[f]or the fiscal year 1984 audit period." The
preamble to the
regulations confirmed that OCSE intended to apply this
section starting with
FY 1984 audits, based on the October 1, 1983
effective date of the 1984
Amendments. 50 Fed. Reg. at 40126,
40131-40132, and 40138.
We are, of course, bound by the Department's regulations, even if
invalid
under a constitutional analysis, if those regulations are
applicable.
While some of the issues here clearly would be controlled
by 45 C.F.R. 16.14,
appellants' arguments also raise interrelated
questions of
applicability. We do not need to sort out these issues
precisely,
however, since we conclude that all of the arguments
concerning the
regulations are without merit. Our reasons are:
o Section 403(h)(1) of the Act, as
amended, requires reductions
for states not found to be in substantial
compliance in audits "for any
quarter beginning after September 30, 1983,"
and Congress explicitly
made the 1984 Amendments effective on October 1,
1983. The
circumstances here are therefore distinguishable from those
in
Georgetown, where the agency published cost-limit rules for
Medicare
providers in 1984 and attempted to apply the rules to 1981 costs, in
the
absence of any statutory authority to do so. Here, the
statute
expressly made the change in the standard retroactive.
o In support of the argument that the
statutory language setting a
1984 effective date was an "obvious mistake,"
appellants argued that
legislative history of the 1984 Amendments shows that
Congress intended
that OCSE's implementing regulations would have prospective
effect only.
The legislative history on which the appellants relied, however,
does
not refer to OCSE's implementation of the substantial
compliance
standard; instead, it refers to the expectation by Congress that
OCSE
would issue new regulations focusing on whether states were
effectively
attaining program objectives (in addition to meeting the existing
state
plan requirements). S. REP. No. 387, 98th Cong., 2d Sess. 32-33
(1984).
o The effect of the 1985 regulations here is also
significantly
different from the effect of the cost-limit rules considered
in
Georgetown. There, Medicare providers were entitled to a specific
level
of reimbursement under the regulations in effect in 1981, and the
1984
rules would have retroactively reduced that level. Here, the
AFDC
funding reduction applies to periods after the 1985 regulations
were
published.
o The audit criteria at issue here were
in the existing
regulations, had been in effect without substantial change
since 1976,
and were based on IV-D state plan requirements. The 75%
standard is
more lenient than the standard in the existing regulations,
which
provided that the states must "meet" the criteria. Even if OCSE
could
not reasonably have implemented this by requiring action in 100% of
the
cases, the existing regulations clearly contemplated a compliance
level
greater than 75%. 4/
o More important, the 1985 regulations
afforded the states a
corrective action period. The states had notice
of the 75% standard
prior to this period, and ample time to adjust their
administrative
practices before the follow-up review period.
o The regulations here merely interpret the statutory term
"substantial
compliance." Obviously, the range of compliance levels
OCSE could adopt
is limited by this term, particularly when it is read
together with
section 403(h)(3) of the Act (which permits a finding of
substantial
compliance only when any noncompliance is of a technical
nature). A
level lower than 75% would have been subject to challenge
as
inconsistent with statutory intent.
o Even in the absence of the 1985
regulations, we would reject
Puerto Rico's position that it should be found
to meet the substantial
compliance standard. The record here supports a
finding that Puerto
Rico did not achieve substantial compliance under any
reasonable reading
of that term. This Department clearly may
retroactively adjudicate a
state's entitlement to AFDC funds under the
applicable statutory
standard, without violating the APA (even as interpreted
in the
concurring opinion in Georgetown).
o Since the 75% standard reasonably
interprets the statutory term
"substantial compliance," the circumstances
here are distinguishable
from those considered in Maryland, where the court
found that
regulations setting "tolerance levels" for AFDC
eligibility
determination errors were not reasonably related to the purposes
of the
statute. Moreover, unlike the "tolerance levels" in Maryland,
the 75%
standard here had an empirical basis in past performance levels
measured
through OCSE's audits. While audit results from FYs 1980 and
1981
showed that some states were not yet achieving 75% levels, other
states
were achieving 100% levels at that time (see OCSE Ex. H in New
Mexico),
and OCSE could reasonably expect all states to be achieving 75%
levels
by FY 1984. 5/
o Finally, we reject the arguments based
on section 403(h)(3) of
the Act. That section permits OCSE to find
substantial compliance only
where any noncompliance is "of a technical nature
not adversely
affecting the performance of the child support program."
OCSE
implemented this provision through its regulations, determining
that
failure to meet the critical service-related audit criteria in
its
regulations is not simply technical since the required activities
are
essential to an effective program. 50 Fed. Reg. at 40130. We
find that
interpretation to be reasonable as applied here since Puerto
Rico's
failures under service-related criteria would adversely affect
program
performance. The record here establishes that Puerto Rico took
no
action whatsoever to provide three basic types of child
support
services in a significant number of cases requiring them. 6/
Thus, we conclude that application of the 1985 regulations here
was
clearly proper, and that those regulations are consistent with the
1984
Amendments.
II. Technical assistance arguments are not grounds
for overturning
the findings of the follow-up review.
Based on arguments made by other States, Puerto Rico argued
generally
that OCSE had failed to provide technical assistance to Puerto Rico
to
assist it in complying with OCSE's regulations. 7/ The
Board
previously rejected a similar contention made by other states.
The
Board determined that OCSE's duty to supply technical assistance
does
not extend to a duty to detail its employees to provide ongoing
on-site
advice to troubled programs. See Guam; District of
Columbia.
Moreover, in the instant case, Puerto Rico did not even allege that it
had
requested technical assistance which had been refused. OCSE, on
the
other hand, provided evidence that OCSE had, in fact, provided
Puerto
Rico with technical assistance throughout the relevant time period
by
telephone, written correspondence, and on-site technical
assistance.
OCSE Ex. 8. Puerto Rico offered no rebuttal to OCSE's
evidence. We
therefore reject Puerto Rico's allegation that OCSE failed
to provide
Puerto Rico with technical assistance and that such failure
could
provide a basis for overturning OCSE's decision.
III. The statistical sampling arguments do not
provide abasis for
overturning the funding reduction.
We next turn to Puerto Rico's arguments about OCSE's statistical
sampling
methodology. We first provide background about the methodology
used,
and then discuss those sampling issues which the facts here appear
to
raise.
A. Background
In both the program results audit for FY 1985 and the follow-up
review,
OCSE used statistical sampling techniques to determine whether
Puerto
Rico met the 75% standard for the applicable service-related
audit
criteria. OCSE drew a systematic random sample of Puerto Rico's
Title
IV-D cases that were open during each relevant time period. 8/
OCSE
first examined each sample case to determine what action, if any,
was
required in the case (in other words, what audit criteria applied).
For
example, if an absent parent's location was unknown, the case would
be
classified as a "locate" case, requiring review to see if Puerto
Rico
took any action, as required by 45 C.F.R. 305.33. OCSE then
examined
the case files and other records to determine whether Puerto Rico
had,
in fact, taken any required action during the relevant time
period,
finding either "action" or "no action" for each sample case
reviewed.
OCSE used its sample findings to calculate an "efficiency rate" and
an
"efficiency range" for each criterion. The "efficiency rate" is
the
single most likely estimate of the percentage of cases requiring
review
under an audit criterion which were "action" cases. The
"efficiency
range" was to be equivalent to what is called the "95%
confidence
interval." A confidence interval is a statistician's
calculation of the
range of values within which the statistician can say with
a specified
degree of certainty (here, 95%) the true value occurs.
Under OCSE's audit procedures, a criterion was considered "unmet" if
the
"high end" of the "efficiency range" (also called the "upper limit"
of
the confidence interval) was less than 75%, and only "marginally met"
if
the "high end" was 75 to 80%. It is undisputed that, to determine
the
upper limit of a two-sided 95% confidence interval, you first
calculate
the "standard error" associated with a particular sample, then
multiply
that amount by 1.96, and then add the product to the efficiency
rate.
See Ohio, pp. 9-10; New Mexico, pp.12-13; and District of Columbia,
pp.
12-14.
In the program results audit, OCSE examined all relevant audit
criteria
listed in section 305.20(a) and (b) of the 1985 regulations.
In the
follow-up review, OCSE examined only those four audit criteria
which
were "unmet" in Puerto Rico's program results audit, finding that
it
could say with at least 95% confidence that Puerto Rico still failed
to
meet three of those criteria.
Various arguments concerning sampling methodologies used for
different
states were raised in the related appeals. For the most part,
these
arguments were based on the specific facts of these cases, and
Puerto
Rico did not allege that those factual bases were present here.
Some of
the states' arguments, however, related to OCSE's recalculation of
the
upper limits of the confidence intervals for sample results based
on
stratified samples. Since the program results audit for Puerto
Rico
used stratified sampling, and OCSE performed recalculations for
Puerto
Rico using the same methods it used for other states, we address
the
recalculation issues below.
OCSE provided a declaration by a statistical sampling expert
explaining
that the results of the follow-up review did not require
reevaluation
because the auditors used a single-stage sample and the
proper
evaluation techniques for this method of random sampling.
See
Declaration, p.6. Puerto Rico did not rebut this
evidence.
Consequently, we find that Puerto Rico's general challenge to
the
statistical sampling methods is not sufficient to raise a dispute
about
the method used in the follow-up review, and we conclude that OCSE
has
reliably shown that Puerto Rico did not meet the 75% standard in
the
follow-up review.
B.
OCSE's recalculations for the program results
audit were appropriate
and reliable.
The history of how the recalculation issues developed is fully
described
in Ohio and New Mexico. See Ohio, pp. 11-15; and New Mexico,
pp. 18-22.
In those decisions, we rejected the States' position that we
must
reverse the disallowances because of defects in how OCSE
originally
calculated the efficiency rates and ranges. We concluded
that the issue
is properly viewed as an evidentiary question: whether
the sample
findings are reliable evidence that the states did not meet the
75%
standard for the criteria at issues. Ohio at 15. In Ohio, as
here,
OCSE recalculated the efficiency rates and ranges using
several
formulas. The Board concluded that OCSE Methodologies #2 and #3
are
valid methods, of a type which would ordinarily be relied on
by
statisticians, and that the assumptions underlying them are
generally
sound. 9/ The Board also determined that the limited
modification
proposed by Ohio's expert would not result in a finding of
substantial
compliance. We, therefore, determined that recalculation of
the
efficiency rates and ranges was permitted and in those instances
showed
that the states did not meet the 75% standard. 10/
In this appeal, Puerto Rico did not dispute the mathematical accuracy
of
the recalculations of the program results audit for FY 1985 performed
by
OCSE based on Methodologies #2, #2A, and #3 developed by OCSE's
expert.
See Declaration of Dr. Benjamin Mandel, Appendix 1. The high
range
figures produced by both OCSE Methodology #2 and #3 for the
program
results audit are substantially less than 75% for the three
unmet
criteria: "enforcement of support obligations" (#2 42.3% and #3
44%),
"State parent locator service" (#2 35.9% and #3 52.1%), and
"support
obligations" (#2 38.1% and #3 36.3%). Puerto Rico submitted no
expert
testimony of its own on the validity of these methods. 11/
Moreover,
even assuming that Puerto Rico intended to adopt expert
testimony
submitted in other cases to the effect that further refinements to
the
calculations were needed, Puerto Rico failed to show that
such
refinements would make a difference here. Thus, we conclude that
OCSE
has established with the requisite statistical validity and
reliability
that the Commonwealth failed to achieve substantial
compliance.
C.
OCSE was not required to promulgate its sampling
methodology using
notice and comment rulemaking under the
Administrative Procedure
Act.
Puerto Rico relied on the argument made in New Mexico that the
sampling
methodology used by OCSE for selecting cases for audit review
was
invalid because OCSE failed to comply with the notice and
comment
rulemaking requirements of the Administrative Procedure Act. We
adopt
our analysis and conclusions made in New Mexico. See New Mexico,
pp.
14-16. In New Mexico, after careful consideration of the use
and
application of these audit methodologies, we concluded that the
OCSE
review guides describing the sampling methodologies are
general
statements of policy or rules of agency procedure or practice,
not
legislative rules. We considered OCSE's audit methodologies to be
a
means for gathering evidence about whether a state has
achieved
substantial compliance, not as an inflexible standard that must
be
applied. OCSE developed its sampling methodologies for use by
its
auditors and did not consider its methodologies binding. The
review
guides do not change what the states are required to do in
administering
their programs, and if anything, lessen the burden of an audit
on states
by permitting sampling rather than 100% review.
Therefore, we conclude that the fact that OCSE did not use notice
and
comment rulemaking procedures to promulgate its sampling
methodologies
does not render use of those methodologies invalid.
IV. The one-year corrective action period is
consistent with the
intent of the legislation.
Puerto Rico generally argued as a common issue that OCSE's
regulations
limiting states to a one-year corrective action period were
arbitrary,
capricious, and inconsistent with the intent of legislation.
Section 403(h)(2)(A) of the Act, as amended, provides that--
the reduction required under paragraph(1) shall be suspended
for
any quarter if-- (i) the State submits a corrective action
plan,
within a period prescribed by the
Secretary
following notice of the finding under
paragraph
(1), which contains steps necessary to
achieve
substantial compliance within a time period
the
Secretary finds to be appropriate; . . . .
(Emphasis added.) The provisions of 45 C.F.R. 305.99(c)
were
promulgated by the Secretary in accordance with the provisions
of
section 403(h) which authorizes the Secretary to prescribe what
he
considers an appropriate period of time for a state to take the
steps
necessary for substantial compliance. See 45 C.F.R. 305.99(c); 50
Fed.
Reg. 40145 (October 1, 1985). The plain language of the statute
leaves
it to the Secretary's discretion to determine what is an
appropriate
time period for implementing the corrective action plan and
achieving
substantial compliance. In this instance, the Secretary
determined in
regulations promulgated pursuant to an express delegation by
Congress
after prior notice and comment pursuant to the Administrative
Procedure
Act that a corrective action period will not exceed one year.
45 C.F.R.
305.99(c). Moreover, the legislative history refers to "a
corrective
action plan which will remedy the problem within a reasonable
period of
time." S. Rep. No. 387, 98th Cong., 2d Sess. (1984),
reprinted in 1984
U.S. CODE CONG. & ADMIN. NEWS, 2397, 2429. The
Secretary, therefore,
enacted a regulation of uniform applicability to all
states that defines
the outer parameter of what will constitute a "reasonable
period of
time" for corrective action as being one year.
Moreover, prior to the 1984 amendments to the Title IV-D program,
the
states were expected to achieve full compliance and there was
no
provision for a corrective action period. With the 1984
amendments,
Congress recognized that states should be given a reasonable
period to
come into compliance before a penalty reduction is assessed, but
also
indicated that this corrective period should parallel the
Congressional
policy of the 1984 amendments, i.e., to bring states
expeditiously and
fairly into substantial compliance with the fundamental
purpose and
requirements of Title IV-D in order to generate more effective
state
child support enforcement programs. To balance these interests,
the
Secretary selected a uniform, maximum period that does not
make
exceptions for some states over others, that is easy to administer
and
free of elaborate and time-consuming determinations.
Thus, we conclude that the one-year corrective action period set forth
in
the Department's regulations is consistent with the statute and
legislative
intent.
V. Puerto Rico has no right to preliminary
reconsideration of this
disallowance by OCSE.
Puerto Rico also incorporated into its brief an issue raised
by
Mississippi in Board Docket No. 89-3 that states are entitled to
request
and receive reconsideration of the penalty imposed prior to appeal
to
the Board. 12/ The State argued that under section 1116(d) of the
Act a
state is entitled to and upon request shall receive reconsideration of
a
disallowance. The State also pointed to 45 C.F.R. 205.146(e)
which
provides that whenever a penalty is imposed pursuant to section
403(h)
of the Act, the State shall be entitled reconsideration of the
penalty
in accordance with section 1116(d) of the Act and the regulations
issued
thereunder. The State argued, without citation to any
applicable
authority, that under American jurisprudence the organizational
unit
that imposed the sanction would also be the organizational unit
to
reconsider the sanction.
We disagree. In interim final rules published in 1978, the
Departmental
Grant Appeals Board, now the Departmental Appeals Board, was
given the
authority to issue, pursuant to its own procedures, the
final
administrative decision with respect to reconsiderations
of
disallowances arising under the various Federal-State public
assistance
programs (title I, IV, VI, X, XIV, XIX, and XX) of the Social
Security
Act as authorized by section 1116(d) of the Act. See 43 Fed.
Reg. 9264
(March 6, 1978). This authority became applicable to
any
reconsideration request after March 6, 1978 and available for
requests
filed before that date at the option of the State. The 1978
Board rules
clearly set forth that the agency determination to disallow must
be made
by the head of the constituent agency or someone he designates for
that
purpose in order to assure that states have an opportunity for
their
claims to be reviewed by an official at a high enough level in
the
agency to be familiar with the overall operation of the program
under
which the claim arose before the disallowance is issued.
Consistent
with these prior rules, the Board's procedures at 45 C.F.R. Part
16 were
revised in 1981. The revised procedures call for the Board
Chair to
determine whether an appeal meets the requirements of Appendix A to
45
C.F.R. Part 16, i.e., whether the Board has jurisdiction over an
appeal.
Appendix A, Paragraph G. In Mississippi, the Board Chair found
that
there was no question that the Board has jurisdiction over the
dispute
as a request for reconsideration of a disallowance under section
1116(d)
of the Act. Like the prior Board procedures, Appendix A,
paragraph B of
the revised Board's procedures states that the Board reviews
final
written decisions in disputes arising in HHS programs authorizing
the
award of mandatory grants, and specifically lists
disallowances
including penalty disallowances under Title IV of the
Act. This section
encompasses the transfer of reconsideration requests
to the Board in
1978 and was issued pursuant to section 1116(d).
Thus, we find no basis for the argument that states are entitled
to
request and receive reconsideration of the penalty prior to appeal
to
the Board; the Board was expressly authorized to
consider
reconsideration requests..VI.Puerto Rico argued that the imposition
of a
penalty will dramatically impact the Commonwealth.
Puerto Rico noted that the imposition of a penalty would have a
dramatic
impact on it since it receives only limited federal funding under
the
Act. However, the Board is bound by all applicable laws
and
regulations. 45 C.F.R. 16.14. In this instance, Congress
enacted Title
IV-D and provided for the imposition of a penalty if a state
did not
substantially comply with the program. The record here shows
that
Puerto Rico fell far short of substantial compliance. As a result
of
Puerto Rico's failures, many children did not receive the child
support
due to them, and the AFDC program incurred costs which could have
been
avoided. Congress clearly intended that a funding reduction be
imposed
where substantial compliance was not achieved.
Consequently, Puerto Rico's argument about its resources provides no
basis
for the Board to rescind the penalty.
Conclusion
For the reasons stated above and in the decisions cited above which
we
incorporate by reference here, we uphold OCSE's decision to reduce
by
one percent Puerto Rico's AFDC funding for the one-year period
beginning
July 1, 1988.
_____________________________ Donald F. Garrett
_____________________________ Norval D. (John) Settle
_____________________________ Judith A. Ballard Presiding
Board
Member
1. The 1985 regulations also provided an expanded list
of
service-related audit criteria for subsequent audit periods, and
added
new performance-related indicators for use beginning with the FY
1988
audit period.
2. These appeals include Puerto Rico (Board Docket No.
90-136),
Oklahoma (Board Docket No. 90-70; DAB No. 1223 (1991)), Ohio
(Board
Docket No. 89-45; DAB No. 1202 (1990)), New Mexico (Board Docket
No.
88-252; DAB No. 1224 (1991)), Mississippi (Board Docket No. 89-3),
the
District of Columbia (Board Docket No. 89-229; DAB No. 1228 (1991)),
and
Arizona (Board Docket No. 89-230).
3. In its notice of appeal, Puerto Rico had requested a hearing,
but
Puerto Rico subsequently effectively withdrew its request when it
failed
to meet Board requirements set as a condition for a hearing (i.e.,
that
Puerto Rico indicate in its brief what material facts are in dispute
and
identify the witnesses to be presented at the hearing and the
general
nature of their testimony).
4. The existing regulations required the states to have and
be
utilizing written procedures detailing step by step actions to be
taken.
45 C.F.R. 305.1, 305.24(a), 305.25(a), 305.33; 45 C.F.R. Part
303
(1983). Although no reduction had actually been imposed based on
the
existing audit criteria, this was due to the moratoria. The states
had
no guarantee that Congress would continue to delay imposition of
the
reductions.
5. We note that the percentages given in a draft analysis by OCSE
of
1980 and 1981 audit results, which was submitted as Exhibit H in
New
Mexico, are derived simply by dividing the number of complying
sample
cases by the total number reviewed. If OCSE had instead used the
same
method for estimating compliance levels it used in the 1984 and
1985
audits for all states, the compliance percentages shown on Exhibit H
for
the earlier years would have been higher. Moreover, in Maryland,
the
Secretary had acknowledged that some errors in making
eligibility
determinations were unavoidable due to the complex nature of
the
requirements. Here, Puerto Rico did not argue that the
service-related
requirements were complex or that there was any barrier to
meeting those
requirements which could not be overcome.
6. Puerto Rico presented no evidence to show that its particular
errors
were merely technical.
7. Section 452(a)(7) provides that the Secretary of Health and
Human
Services should establish a separate organizational unit under
the
direction of a Secretarial designee, who shall report directly to
the
Secretary and "provide technical assistance to the States to help
them
establish effective systems for collecting child and spousal support
and
establishing paternity. . . ."
8. For a systematic random sample, the auditor first selects a case
at
random and then selects every nth case thereafter to achieve the
desired
sample size. For example, in a universe of 6,000 cases where a
sample
size of 100 was desired, the auditor would select every sixtieth
case
after the first randomly selected one. In New Mexico, we rejected
the
State's challenge to use of systematic sampling, finding that
this
method is generally reliable and that the State had not shown
it
resulted in a biased sample. New Mexico, pp. 17-18.
9. In Ohio, OCSE's expert said that Methodology #2A was advanced
solely
in support of Methodology #2; the Board did not discuss Methodology
#2A
separately.
10. We also concluded in Ohio that OCSE's failure to justify the
sample
size and any failure by OCSE to follow its audit guides did not
provide
a basis for reversing the disallowance. In addition, we
determined that
OCSE did not violate the statutory requirement that it
conduct a
complete audit. We adopt our reasoning and conclusions in
Ohio here.
See Ohio, pp. 21-25.
11. Moreover, if Puerto Rico had failed to achieve 75% for only
one
criterion, it still would have been subject to a follow-up review
for
that criterion and any other criteria that were only marginally met
(75%
- 80%).
12. Puerto Rico also adopted two other Mississippi arguments: (1)
that
the final penalty letter violated due process by abbreviating
the
State's right to have 30 days to appeal it and by taking action
to
implement the final decision; and (2) that OCSE assured the states
that
it would continue to apply current audit regulations to all
program
audits for fiscal years beginning prior to September 30, 1984.
As for
the first argument, the record here shows that OCSE instructed
Puerto
Rico that it could appeal that final penalty decision to the
Board
within 30 days of the receipt of the penalty notice and that if
an
appeal were filed, the implementation of the penalty would be
stayed
pending the Board's decision. Final Penalty Letter to Puerto
Rico from
OCSE dated May 22, 1990. Thus, Puerto Rico was accorded all
its
procedural appeal rights. As for the second argument, OCSE's
assurance
is inapplicable to Puerto Rico since the initial program review was
for
Puerto Rico's FY 1985. Therefore, OCSE's audit commenced
after
September 30,