The National Council of Child Support Directors values the state and federal funding partnership in the child support program as a key element of program success. Further, the Council recognizes the fiscal impact experienced by states when complying with timely turnaround of child support payments;
The NCCSD resolves and urges the federal Office of Child Support, Administration for Children and Families, Department of Health and Human Services to immediately promulgate regulations allowing federal participation in non-sufficient funds checks submitted by obligated parents and employers for child support payments, and in losses incurred by the state due to IRS and state tax adjustments to tax offset collections.
Given the requirements of the Social Security Act for expeditious processing of checks and tax refunds, it is appropriate for the federal government to participate with state governments in losses incurred complying with these requirements. We recommend a participation rate of 66% to ensure states have a stake in recovering losses before writing them off, and that states have written procedures in place acceptable to federal auditors to attempt recovery before losses are written off.
Because parties to a child support case receive immediate cash benefits from unfunded disbursements, we also recommend OCSE permit states to recoup the full amount of any unfunded disbursements through interception of subsequent current and past due support payments received from the obligor or employer prior to distribution of any funds to the obligee.
We urge the OCSE to complete these regulations prior to the change in administration.
OMB Circular A-87 (Revised 5/4/95, as Further Amended 8/29/97) establishes principles to be applied in establishing the allowability or unallowability of certain items of cost. Section 7, "Bad Debts," provides, "Any losses arising from uncollectible accounts and other claims, and related costs, are unallowable unless provided for in Federal program award regulations."
Title 45, Part 300 (Specifically 304.20) of the Code of Federal Regulations provides for federal financial participation in necessary expenditures of the state IV-D program; however, these regulations do not provide for participation in NSF checks or losses due to IRS adjustments to tax offset collections, or employer or payor errors resulting in unfunded cash disbursements by the IV-D agency.
Because CFR Title 45, Part 300 does not specifically provide for participation in NSF checks or losses due to IRS adjustments to tax offset collections, OMB Circular A-87 precludes federal participation in these losses. OCSE's position on this issue is summarized in PIQ-97-03 dated 5/20/97 in a memorandum from Anne F. Donovan, Acting Deputy Director, OCSE, to Barbara Addison, Chief, Office of Audit Support.
The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) signed into law by President Clinton in August 1996 mandates states to create a State Disbursement Unit to process and distribute all IV-D and non-IV-D payments received within two business days of receipt. Neither PRWORA nor federal regulations allow states to delay distribution until the checks issued for payment clear the bank or financial institution. As a result, states are required to disburse uncollected funds.
Title IV-D of the Social Security Act further provides that states may delay distribution of the amount withheld from joint tax refunds for a period not to exceed six months although Department of Treasury statutes allow injured spouse claims to be filed within six years of the date of offset. If an injured spouse claim is filed, the Department of Treasury will deduct the excess amount from amounts subsequently payable to the State. This means the State is exclusively responsible for making up the cash loss from its own funds and then attempting to collect this amount from the obligated parent or the obligee.
Title IV-D of the Social Security Act also provides that states must immediately distribute amounts withheld from individual returns, although Department of Treasury Regulations allow individuals to file amended returns for up to six years. Again, this means the State is responsible for making up the cash loss from its own funds and then attempting to collect this amount from the obligated parent or the obligee. Net losses from unfunded disbursements currently average $12 to 17 million nationally.
Federal regulations also make it difficult for states to recover these amounts. Current regulations do not allow states to efficiently and equitably recover cash losses in accordance with standard business practices used by financial institutions, the Department of Treasury and other private and public entities. . Unlike financial institutions which deduct unfunded payments from subsequent deposits, or the Department of Treasury which deducts unfunded disbursements from amounts subsequently payable to states, states are precluded from intercepting the next current support payment designated for the obligee who received an "unfunded disbursement" without the obligee's permission.
Even if states were permitted to intercept designated current support payments without the obligee's permission, many obligees do not receive regular support payments from which these amounts can be recouped. In most cases the party benefiting from the unfunded disbursement fails or refuses to immediately reimburse the state for the cash deficit the state incurred.
This leaves states solely responsible for recovering losses caused by NSF checks, injured spouse claims, amended returns, stop payments, and other payor errors through cumbersome, litigious and costly collection processes.
Given the requirements of the Social Security Act for expeditious processing of checks and tax refunds, it is appropriate for the federal government to participate in losses incurred by states. It is also reasonable and appropriate for the federal government to permit states to recover losses caused by unfunded disbursements in the most efficient and equitable manner by allowing states to intercept subsequent current and past due support payments received from the obligor or employer before they are distributed.