UDC on the Radar Screen

Hot Topic or Hot Potato?

Undistributed collections (UDC) is a hot topic in the Child Support Program. It is also a political hot potato, to which several agencies with unfavorable -and often undeserved - press can attest. On September 30, 2002 national UDC totaled $657 million, or about 3% of collections. "Getting to the story behind undistributed collections" is a paramount objective of Commissioner Sherri Heller. Under the leadership of OCSE and IV-D directors, several initiatives are underway to study, reduce, prevent and disburse UDC.

In some states, the press has been first to sound the UDC alarm. Unfortunately, lacking an understanding of the complexity of UDC, the media have characterized all undistributed collections as owed to families. Without national standards as to the types or levels of UDC that might be considered "reasonable," the public is left with the impression that the single cause of UDC is agency "mishandling" of funds.

At the request of Senate Finance Chair Chuck Grassley (R-IA), the General Accounting Office (GAO), the investigative arm of Congress, has embarked upon an examination of UDC. In a recent telephone conference with NCSEA President Ann Barkley, several board members and state participants, GAO analysts cited four key areas of research:

How have the data changed over time?
Why are undistributed collections occurring?
How are states dealing with this issue?
Is OCSE providing guidance to states that helps in managing this problem?

Definition and Examples of UDC

UDC is the net difference between "available collections" and "distributed collections," reported by states to the federal government at the end of each quarter on the OCSE-34A report. UDC can include any of the following:

Collections owed to custodial parties who have relocated, but without providing new addresses;
Collections that cannot be associated with existing cases because they lack sufficient identifying information;
Refunds and over-collections owed to non-custodial parents;
Employers' aggregate payments that require further research before they can be allocated to individual cases;
Intentional overpayments by NCPs to satisfy future support due;
Overpayments due to timing differences between employers' payroll cycle and ordered frequency of support;
Joint federal tax refund intercepts held for up to six months as permitted by federal regulations;
Collections held for a period of time by state policy, court order or individual worker action;
Collections made on behalf of other states but not yet forwarded;
Collections sent out, but returned to the IV-D agency as undeliverable;
Collections received on cases that have not yet been opened as enforcement cases, or that have already been closed;
Stale dated warrants that have not yet been cashed by the party for whom the payment/refund was intended;
Collections awaiting escheatment (the process by which a state turns unclaimed money/abandoned property over to the State Treasury);
Collections due State as reimbursement for public assistance or foster care that have not yet been transferred to the respective agency;
Collections pending timely disbursement that are UDC only at a single point in time.

Deconstructing UDC

UDC is reported in aggregate on Line 9B of the OCSE -34A Report. To facilitate analysis of UDC, OCSE is revising its form to divide undistributed collections into two categories. According to the CSE FY 2002 Preliminary Data Report issued by OCSE in April 2003: "One (category) will include payments that are properly held and will go out on time to known addresses (… 'advance' payments and the joint tax-return interceptions). The other will include collections that can't be distributed without more research (…custodial parent's current address or reconciling the employer's mismatched check…")

OCSE and the National Council of Child Support Directors are developing a supplemental report to further classify UDC. A detailed breakdown of the composition of amounts reported on Line 9B should promote a greater understanding of the issues, and spark further dialogue as to the relative merits of each sub-category of UDC. It will also begin to shed light on the effect state policies, levels of automation and size of work force have on a state's UDC. Ultimately, it may help identify the respective percentages of UDC owed to CPs, NCPs and states.

Looking Closely at the Causes

CP Address - We have always known that UDC is partially attributable to unreported changes of address by custodial parents. In DCL 03-06, OCSE clarified that FPLS may be utilized for automated CP locate purposes. Once states have implemented the programming, accumulation of UDC in this category will be mitigated.

Those of us who have spent time studying UDC understand that it is a complex issue requiring a rigorous program of automated and non-automated solutions. Automated CP locate, for example, is a back-end approach to reducing and disbursing UDC. However, prevention is crucial. Consistently working returned-mail, proactive solicitation of updated CP addresses, and customer outreach are essential to curtail growth of UDC in this area.

Injured Spouse Rule - Another known contributor to UDC is joint federal tax refund intercepts held for up to six months before distribution. States have learned that once the money is distributed to CPs, it is difficult to recoup should an "injured spouse" assert ownership over part of the refund. Even though tax refunds can be amended for up to six years, the six-month policy allows IV-D agencies to minimize losses from injured spouse claims. Federal financial participation (FFP) is not available for "bad debts," requiring state budgets to cover 100% of write-offs of this nature.

TANF Reimbursement - Some states have discovered collections designated for TANF reimbursement contributed significantly to their UDC because of incomplete interfaces between IV-A and IV-D systems, insufficient information as to the amount of unreimbursed public assistance (which must compared to assigned debt before amounts due the CP can be calculated), or because TANF or foster care reimbursements had not been transferred to the appropriate agency by the end of the quarter.

Unidentified Payments - All states struggle with "unidentified payments." States with large urban areas, especially, receive money orders from NCPs that are frequently illegible, impeding identification of the case for which the payment was designated. Despite labor intensive research, these payments often remain unresolved.

NCP Overpayment - NCPs often over-pay by accident or intentionally. If programming is not in place to either refund payments to the NCP, or forward them to the CP, they can accumulate and contribute to the national UDC balance.

Other Factors - Each of the 60,000 child support workers across America can likely list twenty reasons why individual payments are not always rapidly disbursed. Some reasons are common to all IV-D programs; others are unique to each state. CPs, NCPs and employers contribute to UDC when they neglect to provide information necessary for timely processing and/or distributing payments. State business practices, policies and laws, implemented for legitimate purposes, can contribute to delays in disbursements of funds. Undiscovered system glitches can cause UDC, as can worker errors. While optimum use of technology can expedite resolution, programming time and costs must be weighed against other critical priorities. The severe budget constraints facing IV-D agencies certainly have an impact on the ability to define, develop and execute manual and automated strategies to tackle UDC.

The studies underway in OCSE, the states and the GAO will provide valuable insights into the composition and challenges of UDC. NCSEA will be offering UDC workshops at the Annual Conference in Orlando, and continuing the national discussion. We hope to heighten awareness of UDC, and provide forums for sharing best practices, lessons learned and innovative solutions. The NCSEA Board welcomes your input on this issue.

Mary Ann Wellbank is director of consulting for MAXIMUS and a member of the NCSEA board. She is formerly IV-D director of Montana and president of the NCCSD. Ms. Wellbank recently oversaw a state-sponsored UDC study, and presents on this topic.

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