Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: Virgin
Islands DATE: September 8, 1993 Department
of
Justice Docket No. A-93-154
Audit
Control No. VI-89-AA Decision No. 1439
DECISION
The Virgin Islands Department of Justice (Virgin Islands) appealed
a
$48,742 funding reduction imposed upon the Virgin Islands' Aid
to
Families with Dependent Children (AFDC) program by the
Administration
for Children and Families (ACF). A state participating
in the AFDC
program, Title IV-A of the Social Security Act (Act), is also
required
to operate a child support enforcement and paternity
establishment
program pursuant to Title IV-D of the Act. 1/ See Section
402(a)(27) of
the Act. Federal auditors concluded that, for the 1989
calendar year,
the Virgin Islands did not substantially comply with various
Title IV-D
requirements. Further, this marked the second consecutive
audit in
which the Virgin Islands did not substantially comply with one
program
requirement, Enforcement of Support Obligation. Consequently,
ACF
imposed a two percent reduction in the total payment due the
Virgin
Islands' AFDC program for the period July 1, 1989 through June 30,
1990.
See section 403(h) of the Act and ACF letter (March 26,
1993)
accompanying the Virgin Islands' Notice of Appeal.
Based on the analysis below, we sustain the reduction in its entirety.
Background
I. The Statute and Regulations
The child support enforcement program was created to provide child
support
enforcement and paternity establishment services for both AFDC
and non-AFDC
families. Regulations implementing Title IV-D require
states to submit
and follow a plan for locating absent parents,
establishing paternity where
necessary, obtaining child and spousal
support, and enforcing the child
support obligations of absent parents.
See 45 C.F.R. Part 302. The Act
requires the Secretary to periodically
audit participating states to
determine whether they are complying
substantially with program
requirements. Section 452(a)(4) of the Act.
For the performance
criteria in issue here, the regulations define
substantial compliance as a
state having taken appropriate action in 75%
of cases requiring such
action. 45 C.F.R. . 305.20(d)(2).
The Child Support Enforcement Amendments of 1984, (specifically section
9
of Public Law 98-378), amended section 403(h)(1) of the Act to provide
that
if a state's Title IV-D program --
is found as the 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 . . . [Title IV-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 . . . .
Additionally, section 403(h)(1) provides for graduated
reductions,
starting with a reduction of "not less than one nor more than
two
percent" and increasing to a maximum of five percent with
each
consecutive finding that a state is not complying substantially with
the
same Title IV-D requirements which had been cited in previous audits.
Section 403(h)(2)(A) of the Act provides that a state found out
of
compliance under paragraph (1) may avoid a reduction if it
timely
submits a corrective action plan which is approved by the Secretary
and
fully implements the plan so that the state is progressing, according
to
the plan's timetable, to achieve substantial compliance with
program
requirements. See also 45 C.F.R. . 305.99. Only one
corrective action
period is provided to a state in relation to a given
criterion when
consecutive findings of noncompliance are made for that
criterion. 45
C.F.R. . 305.99(f).
II. The Facts
On July 10, 1987, the Virgin Islands was notified that, based on an
audit
for the period October 1, 1984 through September 30, 1985, it had
been found
out of compliance with certain Title IV-D requirements and,
consequently, its
Title IV-A payments would be reduced by one percent.
In response, the Virgin
Islands submitted a corrective action plan which
was approved by the
Secretary. Thus, the potential reduction was
suspended for one
year. In July 1988, at the end of the one year
corrective action
period, federal auditors conducted a follow-up review
to determine if the
Virgin Islands had achieved substantial compliance
with the cited
criteria. That review revealed that the Virgin Islands
had still not
achieved substantial compliance with two previously cited
criteria,
Enforcement of Support Obligation and Withholding of
Unemployment
Compensation. See 45 C.F.R. .. 305.26(a), (b), and (e) and
305.39(a)
and (i). As a result, beginning with the July 1, 1988
quarter, the
Virgin Islands was penalized by a one percent reduction in
its total Title
IV-A funding for every quarter until it achieved
substantial compliance.
Since the Virgin Islands was being penalized for noncompliance with
Title
IV-D, it was also subject to a comprehensive annual audit to
monitor its
compliance with Title IV-D requirements. 45 C.F.R. .
305.10(b).
The first of these comprehensive annual audits, which
covered the period
January 1 through December 31, 1989, is the basis for
the reduction in
dispute here.
The audit was based on a random sample of 500 cases from the
Virgin
Islands' Title IV-D case listing. The auditors excluded a total
of 273
cases from the sample. Fifty-four cases were excluded because the
case
files could not be located (29 cases) or were missing
pertinent
documentation (25 cases). An additional 219 cases were
excluded for the
following reasons: 65 cases were closed; 82 cases
involved an absent
parent who could not be located prior to the audit; 21
cases did not
require child support services during the audit period; 15
cases
involved children who were emancipated; 9 cases involved absent
parents
who lived in foreign countries; 7 cases involved absent parents who
were
deceased; 7 cases involved absent parents who were incarcerated; 5
cases
involved absent parents who were on public assistance; and 8 cases
were
excluded for other miscellaneous reasons. Audit Report No.
VI-89-AA at
15-16 (Virgin Islands Exhibit (Ex.) A).
The audit of the remaining 227 cases revealed numerous instances
of
noncompliance. The following chart shows the auditors' findings for
the
ten audit criteria at issue here:
Audit
Action Action
Efficiency
Criteria
Taken Required 2/ Rate
3/
State Parent Locator Service (45 C.F.R. . 305.33(g)). 6.17.35%
Support
Obligations (45 C.F.R. . 305.25(a)).13.25.52% Enforcement of
Support
Obligation (45 C.F.R. . 305.26(a), (b), and (e)).11.112.10%
Enforcement
Techniques Utilizing
State Guidelines (45 C.F.R. .. 305.39 and
305.51-53). 1.71. 1% Wage or Income
Withholding Services Provided (45
C.F.R. . 305.49(a) and (b)). 7.43.16%
Medical Support Enforcement (45
C.F.R. . 305.56(a) and (b)). 5.24.21%
Individuals Not Otherwise Eligible
(45 C.F.R. . 305.31(b)).78.159.49%
Provision of Services in Interstate
IV-D Cases (45 C.F.R. . 305.32(a) through
(h)).18.38.47% Notice of
Collection of Assigned Support (45 C.F.R. .
305.45(b)). 0.31. 0%
Payments to the Family (45 C.F.R. . 305.29). 0. 6. 0%
Based on these
sample results and additional statistical calculations, the
auditors
concluded with a confidence level of 95 percent or higher for each
and
every criterion that the Virgin Islands did not meet the 75%
substantial
compliance case processing standard for any of these 10
criteria.
The most important finding was that the Virgin Islands had again failed
to
achieve substantial compliance with the Enforcement of Support
Obligation
criterion. 4/ Since this was the second consecutive period
in which the
Virgin Islands failed to show substantial compliance with
this criterion, ACF
imposed a two percent reduction in the total Title
IV-A funding provided to
the Virgin Islands.
Argument on Appeal
The Virgin Islands argued that the disallowance should be
dismissed
because the impact of Hurricane Hugo, which struck the Virgin
Islands on
September 18, 1989, was not properly factored into the
auditors'
conclusions. The Virgin Islands admitted that the findings in
the Audit
Report may have been correct based on the records reviewed, but
it
asserted that since the hurricane had rendered many
documents
unavailable or unreliable, any audit issued for this period "would
be
factually incorrect." Virgin Islands Brief (Br.) at 9
(unnumbered).
The Virgin Islands noted that its child support enforcement offices
were
located on St. Croix and St. Thomas. The principal office, located
on
the first floor of a building on St. Croix, was directly in the path
of
the hurricane. The Virgin Islands contended that the St. Croix
files
were devastated, initially by the storm and subsequently by vandals,
"to
the point where they were not salvageable." Virgin Islands Br. at
5-6.
The Virgin Islands indicated that damage at St. Thomas was less
severe,
but that office had suffered plumbing and electrical problems so
that
normally secured files were freely accessible. The Virgin
Islands
indicated that, to date, it has been unable "to determine if
documents
in the St. Thomas office were lost or destroyed during Hurricane
Hugo."
Id. at 7-8. The Virgin Islands also noted that its enforcement
efforts
following the hurricane were hampered by the general disruption of
life
in the Islands. Id. at 6-7.
Given these facts, the Virgin Islands asserted that it should not
be
penalized for substantial noncompliance where a natural
disaster
prevented it from fully documenting its case processing
actions.
Additionally, the Virgin Islands cited two statements by the
auditors
which, it argued, supported a conclusion that the audit was
unreliable
since records necessary to show its compliance were missing due to
the
hurricane. The auditors noted, "While we recognize that Hurricane
Hugo
occurred during the audit period and caused disruption to
normal
operations, we had no means of measuring the impact on
efficiency
rates." Virgin Islands Ex. A at 11. Later they stated,
"We agree that
the Hurricane did have an impact on the availability of case
records and
we revised the report to treat this as a management issue rather
than
substantial noncompliance." Id. at 17.
Analysis
There is no question that Hurricane Hugo had a severe impact upon
the
Virgin Islands. However, the Virgin Islands' entire argument on
appeal
has been an effort to attribute every shortcoming in its 1989 Title
IV-D
enforcement efforts to the hurricane. While an attempt to
link
allegedly missing records and the devastation caused by a
major
hurricane might appear superficially persuasive, the facts belie
the
Virgin Islands' argument.
Having premised almost its entire argument on the destruction of
essential
records, it is incumbent upon the Virgin Islands to come
forward with some
evidence that such records existed or that required
actions occurred.
The Virgin Islands has offered nothing. Moreover,
the Virgin Islands
has conceded that now, almost four years after the
hurricane, it is still
unclear as to the status of documentation housed
in the St. Thomas office
during the hurricane. Thus, in the absence of
any evidence that
essential records existed, the Board cannot reasonably
conclude that such
records were destroyed by the hurricane.
There is no evidence that the records on which the auditors based
their
findings were incomplete. The auditors eliminated 54 cases from
the
original 500 case sample either because files could not be located
(29
cases) or were missing documentation which precluded auditors
from
making a determination as to whether case activity was required
or
provided during the audit period (25 cases). Virgin Islands Ex. A
at
16. The Virgin Islands did not show that these actions did
not
satisfactorily take into account the damage done to its files by
the
hurricane. Moreover, while the Virgin Islands attempted to cast
doubt
on the remaining records upon which the auditors based their
findings,
it did not produce any evidence to show that these records were in
fact
incomplete, nor even specifically identify documents which should
have
been in the case records but were lost as the result of the
hurricane.
For example, it did not specify where, in any of the 227 case
records
reviewed, a document referred to, by a case log or another document,
is
missing. 5/
Furthermore, with respect to the Virgin Islands' contention that
Hurricane
Hugo hampered its compliance efforts, we note that the
hurricane struck the
Virgin Islands on September 18th, after almost
three-fourths of the audit
year had passed. Thus, although it
undoubtedly affected performance in
the later part of the year, it is
highly unlikely that the hurricane was
responsible for the Virgin
Islands' failure to achieve substantial compliance
over the entire audit
period. The extent of the Virgin Islands'
compliance with the ten cited
audit criteria ranged from bad to worse.
In only one criterion was the
Virgin Islands' efficiency rate above 50% and
then only marginally. In
two others, its rate was slightly below
50%. In the remaining seven
categories, its rate was 35% or lower,
including three in which it was
1% or less.
As ACF noted, it is possible that, but for the hurricane, the
efficiency
rates might have varied somewhat. However, the Virgin
Islands'
efficiency rates were so uniformly low that blaming its failure
to
achieve substantial compliance on the hurricane is not a
plausible
explanation. In the most critical criterion, Enforcement of
Support
Obligation, the Virgin Islands achieved only a 10% efficiency
rate. The
Virgin Islands was obviously aware of the need to
substantially comply
with this criterion since it was one of the two which
served as the
basis of an earlier one percent reduction imposed upon
it. Given the
scope of its failure with regard to this criterion, the
Virgin Islands'
insistence that a hurricane which occurred with slightly more
than 100
days left in the year precluded it from acting where it had
only
minimally acted in the previous eight and one-half months
ignores
reality. The record indicates that the Virgin Islands did very
little
to meet the Title IV-D program requirements prior to the hurricane.
6/
As the auditors noted, the Virgin Islands' child support
enforcement
program was not automated and had staff shortages of almost
25%. See
Virgin Islands Ex. A at 19. Even without the hurricane,
these factors
likely hindered the Virgin Islands' efforts to provide adequate
support
enforcement functions. Here, the Virgin Islands'
inability to meet the
audit criteria for 1989 was attributable to inherent
program failures
and not the uncontrollable forces of nature. Based on
our analysis, we
conclude that the record supports a finding that the Virgin
Islands did
not meet the 75% standard for any of the audit criteria in issue
here.
See Ohio Dept. of Human Services, DAB No. 1202 (1990).
Finally, the auditors' statements quoted above regarding the hurricane
do
not undercut the validity of the auditors' conclusions as suggested
by the
Virgin Islands. It is apparent from the Audit Report that the
auditors
initially contemplated citing the Virgin Islands for
substantial
noncompliance with the record retention requirements at 45
C.F.R. .
305.35(a). However, when the Virgin Islands commented that
such a
finding implied a systemic failure and did not provide for the
hurricane's
impact, the auditors revised their report to treat the
problem as a
management, rather than a compliance, issue. See Virgin
Islands Ex. A
at 17. The auditors clearly regarded this action as
adequate to account
for the impact of the hurricane.
The Virgin Islands also cited the auditors' statement that they
were
unable to measure the impact of Hurricane Hugo on efficiency rates
as
proof that the audit findings could not support this
disallowance.
Virgin Islands Br. at 4. However, this statement does not
acknowledge
that the hurricane had any significant impact on efficiency
rates, but
merely indicates that there was no way of measuring what the
impact, if
any, was. As discussed above, it is clear that the hurricane
was not
primarily responsible for the Virgin Islands' low efficiency
rates.
Conclusion
Based on the preceding analysis we sustain the funding reduction
of
$48,742 imposed on the Virgin Islands by ACF.
_________________________
Judith
A. Ballard
_________________________
Donald
F. Garrett
_________________________
M.
Terry Johnson Presiding
Board
Member
1. The Virgin Islands is a "state" for purposes
of Title IV. See
section 1101(a)(1) of the Act.
2. Since some of the 227 cases examined by the
auditors required
more than one action during the audit period, this column
adds up to
more than 227.
3. By "efficiency rate" the auditors in this case
meant the simple
ratio of actions taken over actions required. See
Virgin Islands Ex. A
at 16.
4. Had it achieved substantial compliance with the
Enforcement of
Support Obligation criterion, the Virgin Islands would have
been able to
provide an approvable corrective action plan to avoid, at
least
temporarily, a reduction based on its failure to achieve
substantial
compliance with the remaining criteria.
5. Moreover, some of the steps a state must take
under 45 C.F.R. .
305.26 to enforce support obligations would involve contact
with others
(such as officials of other states or attorneys), who could be
expected
to maintain records of the contacts. Yet, the Virgin Islands
has not
provided even one example of such a record to corroborate its
assertion
that it took steps not reflected in the case files relied on by
the
auditors.
6. Even if we were to give the Virgin Islands the
benefit of the
doubt and assume that, over the final 104 days of 1989, it
would have
increased by 50% the number of actions which the auditors credited
it
with taking, it still would not have achieved substantial compliance
in
nine of the ten audit criteria. For example, regarding the
Enforcement
of Support Obligation, which triggered this two percent
reduction, the
auditors determined that the Virgin Islands had taken action
in only 11
of the 112 cases requiring action, a 10% efficiency rate.
Even assuming
a 50% improvement over the last few months and crediting the
Virgin
Islands with action in an additional six cases, the Virgin Islands
would
achieve a only a hypothetical total of 17, for a 15%
efficiency