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Collection and Disbursement of Support Payments

AT-97-13

Published: September 15, 1997
Information About:
State/Local Child Support Agencies
Topics:
Case Management, Collections/Distribution/State Disbursement Unit (SDU), Federal Reporting, State Plan
Types:
Policy, Action Transmittals (AT)
Tags:
Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA)

ACTION TRANSMITTAL

OCSE-AT-97-13

September 15, 1997

TO:
STATE AGENCIES ADMINISTERING CHILD SUPPORT ENFORCEMENT PLANS UNDER TITLE IV-D OF THE SOCIAL SECURITY ACT AND OTHER INTERESTED INDIVIDUALS

SUBJECT:
Collection and Disbursement of Support Payments

BACKGROUND:
P.L. 104-193, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), added a title IV-D State plan requirement under which the State plan must provide that, on or after October 1, 1998, the State agency will operate a State disbursement unit (SDU). Section 454(27) of the Social Security Act (the Act) requires that the State IV-D agency have sufficient State staff (consisting of State employees) and (at State option) contractors reporting directly to the State agency to monitor and enforce support collections through the SDU in IV-D cases and to take the expedited administrative actions required under section 466(c)(1) of the Act in appropriate cases.

Section 454B of the Act requires that the State agency establish and operate an SDU for the collection and disbursement of payments under orders in IV-D cases and in non-IV-D cases in which the support order was initially issued on or after January 1, 1994, and in which the income of noncustodial parent is submit to withholding. The SDU must be operated directly by the State agency (or 2 or more State agencies in different States under a regional cooperative agreement) or (to the extent appropriate) by a contractor responsible directly to the State agency. The SDU must be operated in coordination with the State's child support enforcement automated system in IV-D cases.

States may apply for an exemption, in accordance with OCSE-AT-97-07, dated May 15, 1997, to establish an SDU by linking local disbursement units through an automated information network if the system will not cost more nor take more time to establish or operate than a centralized system. Employers must be given one location to which income withholding is sent.

ATTACHMENT:
Attached are the statutory requirements governing the SDU procedures and timing of disbursements and answers to questions received regarding these requirements.

INQUIRIES:
Regional Administrators

________________
David Gray Ross/s/
Deputy Director
Office of Child Support
Enforcement

STATUTORY REQUIREMENTS

STATE PLAN REQUIREMENT

Section 454(27) of the Act requires a State IV-D plan to provide that, on or after October 1, 1998, the State will--

(A) operate a State disbursement unit in accordance with section 454B of the Act; and

(B) have sufficient State staff (consisting of State employees) and (at State option) contractors reporting directly to the State agency to--

(i) monitor and enforcement support collections through the unit in IV-D cases; and

(ii) take the expedited administrative actions described in section 466(c)(1) of the Act in appropriate cases.

Section 454B requires the State IV-D agency to establish and operate an SDU for the collection and disbursement of payments under support orders in all IV-D cases and in all non-IV-D cases in which the support order was initially issued in the State on or after January 1, 1994, and in which the income of the noncustodial parent is subject to withholding under section 466(a)(8)(B).

The SDU must be operated directly by the State agency (or 2 or more State agencies in different States under a regional cooperative agreement), or (to the extent appropriate) by a contractor responsible directly to the State agency. The SDU must also be operated in coordination with the State child support enforcement automated system in IV-D cases.

The SDU may be established by linking local disbursement units through an automated information network, if the Secretary agrees that the system will not cost more nor take more time to establish or operate than a centralized system. Employers must be given one location to which income withholding is sent.

The SDU must use automated procedures, electronic processes, and computer-driven technology to the maximum extent feasible, efficient, and economical, for the collection and disbursement of support payments, including procedures--

(1) for receipt of payments from parents, employers, and other States, and for disbursements to custodial parents and other obligees, the State agency, and the agencies of other States;

(2) for accurate identification of payments;

(3) to ensure prompt disbursement of the custodial parent's share of any payment; and

(4) to furnish to any parent, upon request, timely information on the current status of support payments under an order requiring payments to be made by or to the parent, except that in non-IV-D cases paying through the SDU, the SDU is not required to convert and maintain in automated form records of payments kept before the establishment of the SDU.

With respect to the timing of disbursements:

(1) Except as provided in paragraph (2), the SDU must disburse all amounts payable under section 457(a) of the Act within 2 business days after receipt from the employer or other source of periodic income, if sufficient information identifying the payee is provided. Business day is defined as a day on which the State offices are open for regular business.

Section 5549 of P.L. 105-33, the Balanced Budget Act of 1997, added the following requirement to section 454B(c)(1) of the Act. The date of collection for amounts collected and distributed under title IV-D of the Act is the date of receipt by the SDU, except that if current support is withheld by an employer in the month when due and is received by the SDU in a month other than the month when due, the date of withholding may be deemed to be the date of collection.

(2) The SDU may delay the disbursement of collections toward arrearages until the resolution of any timely appeal with respect to such arrearages.

The requirements governing establishment of an SDU are effective October 1, 1998, with the following exception. Any State which, as of August 22, 1996, processed the receipt of child support payments through local courts may, at the option of the State, continue to process through September 30, 1999, such payments through such courts.

QUESTIONS AND ANSWERS

A. GENERAL/MISCELLANEOUS

Q1: What is a State disbursement unit?

A1: Section 454(27) of the Act requires a State plan for child support enforcement under Title IV-D of the Act to provide that, on and after October 1, 1998, the State agency will operate a State disbursement unit (SDU) in accordance with Section 454B of the Act. States that on August 22, 1996 processed support payments through local courts may continue to do so until October 1, 1999, when the SDU must be operational. Under section 454B, the State disbursement unit must collect and disburse payments under support orders in all IV-D cases, and in non-IV-D cases in which the support order is initially issued in the State on or after January 1, 1994, and in which the income of the noncustodial parent is subject to withholding.

The SDU must be operated directly by the State agency, two or more State agencies in different States under a regional cooperative agreement, or, to the extent appropriate, by a contractor responsible directly to the State agency. The SDU must be operated in coordination with the Statewide child support enforcement (CSE) automated system required under section 454A of the Act, except in non-IV-D cases in which the support order is initially issued in the State on or after January 1, 1994, and in which the income of the noncustodial parent is subject to withholding.

The SDU must be operated at the State level. Alternatively, and subject to approval by the Secretary of HHS in accordance with requirements for requesting exemptions set forth under OCSE-AT- 97-07, issued May 15, 1997, the SDU may be established by linking local disbursement units through an automated information network, rather than operating from one location at the State level, if the Secretary agrees that the system will not cost more nor take more time to establish or operate than one centralized system. In either case, States must designate one location to which employers send income withholding.

The SDU must use automated procedures, electronic processes, and computer-driven technology to the maximum extent feasible, efficient, and economical, for the collection and disbursement of support payments. Mandated procedures include receipt and disbursement of all payments, accurate identification of payments, prompt disbursement of the custodial parent's share of any payment, and furnishing to any parent, upon request, timely information on the current status of payments under a support order. States are not required to convert and maintain in automated form records of payments in non-IV-D withholding cases before the effective date of the SDU.

Q2: If a State has a centralized State court system, is it possible for the court system to be the SDU?

A2: Yes. Section 454B(a)(2) requires the SDU to be operated directly by the State IV-D agency (or two or more agencies in different States under a regional cooperative agreement) or (to the extent appropriate) by a contractor responsible directly to the State agency. The State IV-D agency could operate the SDU under a contract, purchase agreement or cooperative agreement with a single outside agency or organization, including a centralized State-level court system, but the IV-D agency must have ultimate control over any such operation.

Q2a: Can a State have an SDU which includes one central entity at the State level receiving collections and another, for example, the State Treasurer or Comptroller, disbursing them?

A2a: Yes.

Q3: Section 454B(a)(2)(A) of the Act states that the SDU can be

operated by two or more State agencies under a regional cooperative agreement. What does that mean?

A3: The intent of this section is to allow two or more States to join together to operate an SDU serving all of the involved States. This section allows for regional cooperative agreements between agencies of different States, rather than between agencies in the same State. The only alternative within a State to the requirement for a central State-level collection and disbursement unit is for the linkage of local disbursement units through an automated information network, subject to approval by the Secretary of HHS in accordance with section 454B(a)(3) of the act and OCSE-AT-97-07, dated May 15, 1997.

Section 454(27) of the Act requires that the State IV-D plan shall provide that "the State agency will operate a State disbursement unit." The State agency as used in section 454 means the agency designated by the State to carry out title IV-D functions. The legislative specifications for the Work and Responsibility Act of 1994, 103d Congress, 2d Session, House Document 103-273, where this language originated, stated, "States may form regional cooperative agreements to provide the collection and disbursement function for two or more States through one 'drop box' location with computer linkage to the individual State registries."

Q4: What, if anything, does a State need to submit to ACF if it plans to centralize collection and disbursement through an SDU? A4: To the extent that the SDU is either totally integrated with or interfaced with the Statewide CSE automated system, the request for development costs for the SDU must be included in the State's Advance Planning Document Update. In addition, a State must submit the appropriate State plan preprint page certifying compliance with sections 454(27) and 454B of the Act by the end of the quarter in which the SDU requirement is effective in the State.

Q5: Explain the distinction between disbursement and distribution.

A5: Distribution is the allocation or apportionment of a support collection. Disbursement is the actual dispensing or paying out of the collection. Distribution under section 457 of the Act requires disbursement of a collection according to a specified allocation whereas disbursement under section 454B of the Act is the dispensing process itself.

Q6: Will the distribution requirements under section 457 of the Act for IV-D cases apply to non-IV-D cases subject to withholding and paid through the SDU? For example, if an obligor has a IV-D and a non-IV-D case, and the money we collect for both cases is short of the full amount of current support for both cases, will section 457 apply? Or, would the obligor be able to target the non-IV-D case and just pay that custodial parent?

A6: Any payments through the SDU, including payments in IV-D and non-IV-D cases subject to withholding must be distributed in accordance with section 457 of the act. Since there is no requirement for other payments in non-IV-D cases to be made through the SDU, if these payments are made through the SDU, they are not subject to distribution requirements under section 457 of the Act. Whether the obligor could pay support in one case and not another would generally be a matter to be determined under State law.

Section 457 of the Act does not address allocation of payment between different support orders. However, if there is more than one notice for withholding against a single obligor, States must allocate amounts collected through withholding in accordance with 45 CFR 303.100(a)(5), giving priority to current support up to the limits imposed under section 303(b) of the Consumer Credit Protection Act. The State must establish procedures, in accordance with State law, for allocation of support among families, but in no case shall the allocation result in a withholding for one of the support obligations not being implemented.

Q7: How will the SDU work in a State within which a tribe operates an independent IV-D program and within a State in which there is a cooperative agreement with a tribe under section 454(33) of the Act?

A7: No tribe as yet has requested or received approval to operate an independent IV-D program under section 455(b) of the Act. In accordance with section 455(f) of the Act, as amended by section 5546 of P.L. 105-33, regulations will be published addressing requirements for tribal child support enforcement programs established under section 455(b). In a State in which there is a cooperative agreement with a tribe under section 454(33) of the Act, requirements governing SDUs under section 454B apply, and distribution under 457 is required, with respect to collections received pursuant to the cooperative agreement. Details for forwarding any collections made by a tribe to the SDU should be set forth in the cooperative agreement.

Q8: Will there be an approval process for States wishing to forge regional cooperative agreements with other States to operate a collection and disbursement unit?

A8: States considering regional cooperative agreements to operate an SDU should consult with their appropriate Regional Office. Ultimately, approval of State regional cooperative agreements will be granted or denied as part of the State plan approval process.

Q9: Is the SDU responsible for sending out wage withholding notices under §454A(g)?

A9: No. Section 454A(g) requires the Statewide CSE automated system to assist and facilitate the collection and disbursement of support payments through the SDU through the performance of functions, including the transmission of orders and notices to employers (and other debtors) for the withholding of income. In addition, the Systems Certification Guide (Automated Systems for Child Support Enforcement: A Guide for States, Revised 6/93) contains the requirement that the statewide automated systems must automatically generate income withholding notices (objective E-2, part III).

Q10: How will a caseload with non-IV-D cases impact Federal reports?

A10: Federal reports are being revised as a result of PRWORA requirements. OCSE intends to issue revised reporting instructions by the end of the year.

Q11: Will an SDU be required to accept personal checks? If so, is a personal check subject to the two-day disbursement requirement? If so, will the Federal government participate in the cost of bounced checks in which the money has already been disbursed to the custodial parent?

A11: Whether or not the IV-D agency will accept personal checks is a matter of State statute or policy. Disbursement of such payments must be made within two business days after receipt, as required under section 454B(c) of the Act.

OMB Circular A-87 precludes federal funding for losses from uncollectible accounts unless specifically provided for in program regulations. OCSE does not have regulations allowing federal funding for losses, thus the cost of bounced checks/losses has always been absorbed 100% by State funds. PIQ- 97-03, dated May 20, 1997, reiterates that State losses due to insufficient fund checks which are accepted for child support payments are not allowable for FFP.

Q12: Will regulations be issued by OCSE for the SDU provision? If so, when will they be issued?

A12: At this point, we consider the statute to be self- implementing and we do not anticipate issuing regulations on the SDU provision. If the need for regulations arises at a later point, we will reconsider their issuance.

Q13:When custodial parents are overpaid, or warrants are returned by the bank to the SDU as insufficient funds, are States allowed under federal regulations to offset the overpayment from the custodial parent's next monthly support check?

A13: No. All collections must be distributed in accordance with the requirements of section 457 of the Act. However, a State may recoup the overpayment to a custodial parent from the next monthly support payment if the custodial parent agrees to allow the State to do so.

Q14:What is the retention period for maintaining the payment status history records in the SDU?

A14: 45 CFR 74.53 states that "[f]inancial records, supporting documents, statistical records, and all other records pertinent to an award shall be retained for a period of three years from the date of submission of the final expenditure report..." We recommend that payment records be kept for at least three years in accordance with the maintenance of other financial records required pursuant to 45 CFR 74.53. Additional State law or requirements may apply.

Q15:Section 454B(b)(4) of the Act requires procedures to furnish any parent, upon request, timely information on the current status of support payments under an order. The State's Child Support Hotline (or Voice Response System) provides callers with the required information immediately. Will the State be allowed to continue using the hotline (or Voice Response System), or will this responsibility be placed with the SDU?

A15:The State IV-D agency has overall responsibility for customer service and Child Support Hotlines and Voice Response Systems are used in many States. However, the Act places responsibility for furnishing information about the payments received and disbursed by the SDU with the SDU. Under section 454B(b)(4) of the Act, States are required to have in place procedures for the SDU "to furnish to any parent, upon request, timely information on the current status of support payments under an order requiring payments to be made by or to the parent," except in certain specified cases. A State can continue to use its CSE automated system hotline, to provide information regarding the distribution of payments made on behalf of title IV-D cases, but the SDU must have procedures to provide information on all of the payments it received and the disbursements it made. States that place the SDU within their automated systems may continue to use the automated system for providing Hotline (Voice Response System) information.

B. EFFECTIVE DATES

Q16: What is the effective date of section 454B of the Act - October 1998 or 1999? What is the criteria for the later effective date?

A16: Section 312 of PRWORA states that the effective date for establishment of a State Disbursement Unit (SDU) is October 1, 1998. However, any State which, as of the date of enactment of PRWORA (August 22, 1996), processed the receipt of child support payments through local courts may, at the option of the State, continue to process those payments through such courts until September 30, 1999.

If payments are processed through local courts in some counties and not in others, payments may continue to be made to those local courts which processed payments on August 22, 1996, until October 1, 1999. However, payments in counties that did not, on August 22, 1996, process payments, must be sent to an SDU effective October 1, 1998.

If payments in IV-D cases are processed through the State, and payments in non-IV-D cases are processed through local courts, payments in non-IV-D cases may continue to be made to those local courts which processed payments on August 22, 1996, until October 1, 1999.

Q17: Do cases in which payments began after August 22, 1996 have to go through the SDU?

A17: Payments in all IV-D cases, and in non-IV-D cases in which the initial support order was issued on or after January 1, 1994, and in which the obligor's income is subject to wage withholding, must be paid through the SDU, effective on the date the SDU becomes effective, or on the date the support order becomes effective, if that date is later than the effective date for the SDU.

Q18: We would like to implement a pilot to work out the "bugs" before implementing this system statewide. We are concerned that we may not be able to implement a successful pilot and be up and running statewide within the defined timeframe. If we have a pilot in place by the October 1, 1998 deadline, would we be in compliance with the provision of the law?

A18: No. The SDU must be operational throughout the State by October 1, 1998, unless the delayed effective date of October 1, 1999, applies in the State.

Q19: Does a State which has a waiver to develop an automated system using an alternative systems configuration involving counties still have to meet the CSE automated system requirement for EFT/EDI capability in each county if it plans to implement a >State SDU?

A19: Statewide CSE automated systems must still meet the EFT/EDI requirement by October 1, 1997. However, the State does not have to provide EFT/EDI capability in each county by October 1, 1997, as long as they provide the ability for any interested employer or State to transmit child support payments electronically via EFT/EDI.

Q20: Does the October 1, 1999 effective date (for States where local courts receive payments) apply to all collections, including collections through income withholding?

A20: Yes. The delayed effective date applies to all collections.

C. COSTS

Q21: If the State wants to process child support payments in non-IV-D cases not subject to wage withholding through the SDU, is FFP available in the costs of processing payments in these cases through the SDU?

A21: No. Under 45 CFR §304.20(b), FFP is limited to services and activities pursuant to the approved title IV-D State plan which are determined by the Secretary to be necessary expenditures properly attributable to the IV-D program. Should States choose to include payments by means other than withholding in non-IV-D cases in the SDU, they must allocate the costs associated with these cases.

Q22: Is FFP available for the cost of the cost/benefit analysis related to a request for an exemption to link local disbursement units?

A22: Yes, FFP at the regular matching rate is available to the State child support agency for the cost of the cost/benefit analysis related to a request for an exemption to link local disbursement units.

Q23: What level of FFP is available for the SDU?

A23: If the State is incorporating the SDU functions into its Statewide CSE automated system, those costs are eligible for 80% enhanced FFP. If the State is selecting another entity, public or private, to provide the SDU services, the IV-D agency can seek regular rate 66% reimbursement for the costs of the SDU, but the interface with the CSE automated system is eligible for 80% FFP. See OCSE-AT-96-10 for more explanation.

Q24: Are non-IV-D wage withholding payments handled by the SDU eligible for Federal incentive payments?

A24: Under section 458(a) of the Act, incentives are paid to States "...to encourage and reward State child support enforcement programs which perform in a cost-effective and efficient manner to secure support for all children who have sought assistance in securing support..." whether they are receiving IV-A assistance or applied for services under the title IV-D plan. This language limits incentives to support collected in IV-D cases. However, PRWORA required the Secretary to propose, in consultation with States, an alternative incentive formula, which has been submitted to, and is currently under consideration by, the Congress.

Q25: States are concerned about unfunded federal mandates. Will the Federal Government share in the costs States incur to meet the requirement under the new statute that withholding payments in non-IV-D cases in which the support order was initially issued on or after January 1, 1994, flow through the SDU?

A25: We believe that under PRWORA, the Federal government will share in the cost of Federally-mandated collection and disbursement through the SDU of support paid through income withholding orders in which the support order was initially issued on or after January 1, 1994. Specifics of allowable costs associated with these activities will be set forth in regulations or program guidance.

Q26: Is FFP available if States choose to collect and disburse withholding payments in non-IV-D cases through their SDUs before October 1, 1998?

A26: Yes, FFP would be available at the regular (66%) matching rate for administrative costs associated with collection and disbursement through an SDU meeting the requirements of section 454B of support paid through income withholding in non-IV-D cases with orders initially issued on or after January 1, 1994, if a State chooses to do so.

Q27: If local disbursement units are not currently under cooperative agreement with the IV-D agency and perform their collection duties per State law, may these units continue to assess and collect from the noncustodial parent a fee to defray their cost without such fee being considered program income?

A27: Local disbursement units which processed child support payments on August 22, 1996, are not under cooperative agreement with the IV-D agency, and assess and collect a fee from the obligor to cover their costs may continue to do so until October 1, 1999, at which point the State must process payments in all IV-D cases and those non-IV-D cases as required under section 454B(a)(1)(B) of the Act through a central State disbursement unit, unless the Secretary of HHS approves the linking of local disbursement units in the State pursuant to an exemption request by the State under section 454B(a)(3) and OCSE-AT-97-07. If the State establishes the SDU by linking local disbursement units through an exemption, the IV-D agency remains ultimately responsible for meeting the requirements for the SDU under section 454B. Therefore, there must be a cooperative agreement or contract between the IV-D agency and the local disbursement units.

Once SDU requirements are effective in a State, all payments received through the SDU, including payments through linked local disbursement units under an exemption, must be distributed in accordance with section 457 of the Act. While the Federal statute does not prohibit fees, any fees collected must be reported as program income if there is a cooperative agreement and the local disbursement units receive Federal funding.

Q28: Does the requirement in section 454(22) of the Act under which "if one or more of the political subdivisions of the State participate in the costs of carrying out activities under the State plan during any period, each subdivision shall be entitled to receive an appropriate share (as determined by the State) of any such incentive payments made to the State for such period," apply to local courts that are involved in the collection and disbursement process either under current law or in accordance with an exemption to establish an SDU by linking local disbursement units?

A28: If local courts are considered as part of the political subdivisions of the State under State law and participate in the costs of carrying out activities under the State plan, they could be entitled to receive an appropriate share of incentives, as determined by the State, in accordance with section 454(22) and 458 of the Act, and 45 CFR 303.52 and 304.12.

Q29: If a State must alter its currently approved automated systems design methodology to accommodate an SDU, will the Federal office "write off" the costs and benefits of the development of the 1988 mandated Statewide CSE automated system and its attendant cost/benefit analysis even though the life cycle of the previously mandated Statewide CSE automated systems has years left?

A29: The enactment of PRWORA may impact the development of Statewide CSE automated systems and, while the costs can't be "written off", States should footnote their Statewide CSE automated systems' cost-benefit analysis required in APD Updates to note the areas where projected benefits may be impacted by changes in Federal requirements. If the State opts to enhance its existing CSE automated system to meet PRWORA automation requirements, the State has the option of submitting a combined Advance Planning Document that includes both Family Support Act and PRWORA automated system requirements in one document and therefore one cost-benefit analysis. Many States have already indicated that the benefits of even partial automation have exceeded the costs of their automated systems.

Q30: What federal funds are available to assist in modifying non-IV-D systems to transmit data on payment records to an SDU or otherwise link local systems? Is federal reimbursement available for updating non-IV-D records in a non-IV-D system or in a linked system?

A30: FFP at the 80% rate is available for the cost of establishing an automated interface with the non-IV-D systems to transmit data to the State CSE automated system (see OCSE-AT-96- 10). If the State is granted an exemption pursuant to OCSE-AT- 97-07 to establish the SDU by linking local disbursement units through an automated information network, FFP at the 66% rate would be available, under cooperative agreement with the local units, for costs of meeting the requirements under §454B of the Act. The costs associated with establishing and maintaining the State Case Registry and the SDU, including the costs of maintaining non-IV-D support order records in the State case registry and necessary identification and payment information in the State Disbursement Unit, are eligible for reimbursement at the applicable rate of FFP. In addition, FFP is available for the cost of converting non-IV-D case information (not payment records) necessary to process collections required to be paid through the SDU. Generally, developmental costs are eligible for enhanced FFP and operational costs at regular FFP.

Section 454B(b)(4) provides that for non-IV-D cases subject to wage withholding in which the support order was initially issued on or after January 1, 1994, the SDU shall not be required to convert and maintain in automated form records of payments before the effective date of the section of SDU (October 1, 1998 or 1999, depending upon whether payments are currently made through the local courts). Since there is no requirement to convert payment records, there is also no authority to provide reimbursement at either the enhanced or regular FFP rate for updating or converting these non-IV-D case payment records into automated form. However, FFP at the 66% rate would be available for including in the SDU, earlier than the mandated date, non-IV-D cases in which the support order was initially issued on or after January 1, 1994, and in which the income of the noncustodial parent is subject to withholding.

D. EXEMPTIONS

Q31: What does a State need to submit to ACF to request an exemption to operate local units of disbursement?

A31: Instructions for requesting an exemption to operate an SDU by linking local disbursement units can be found in OCSE-AT-97- 07, dated May 15, 1997.

Q32: Can the already-incurred costs of integrating the local county courts into the Statewide CSE automated system be considered in the cost/benefit analysis required when requesting approval to establish a SDU by linking local disbursement units?

A32: No. The already-incurred costs of integrating local county courts into the Statewide CSE automated system may not be considered in comparing the timing and costs associated with establishing and operating an SDU at the State level vs. through the linking of local disbursement units.

Q33: When requesting an exemption to establish an SDU by linking local disbursement units, is there any standard for a length of time to show that the investment to establish an SDU has been

recouped? What cost accounting methodology and standards are to be used for states desiring to maintain local disbursement units?

A33: Section 454B(a)(3) of the Act and OCSE-AT-97-07, dated May 15, 1997, set forth requirements for requesting an exemption to establish an SDU by linking local disbursement units. In addition, ACF Information Memorandum #OISM-ACF-IM-93-4 provides documentation of a Feasibility, Alternatives, and Cost/Benefit Analysis Guide, which might be helpful to States. The Guide's purpose is to suggest a standard analytical approach for conducting cost/benefit analyses and measurement. The Guide also includes several cost tables and worksheets for evaluation and measurement purposes.

Q34: In Iowa, the judiciary has an automated system which contains information on non-IV-D individuals, and the IV-D agency has an automated system with information on IV-D cases. The systems are not currently compatible. What factors will the Secretary consider in making the determination about relative costs of linking local units versus operating a centralized system? Will cost comparison include the cost of abandoning existing systems (with large development costs) as well as developing the replacement systems?

A34: Under §454B(a)(3) of the Act, a State must demonstrate to the satisfaction of the Secretary that an SDU established by linking local disbursement units through an automated information network will not cost more nor take more time to establish or operate than a centralized system. Therefore, the costs of establishing and operating both types of units must be compared. OCSE-AT-97-07 specifies the documentation a State must submit to support such an exemption.

Q35: When will a State Plan change need to be filed to reflect that a State received an exemption to establish its SDU by linking local disbursement units?

A35: States must request an exemption, in accordance with OCSE- AT-97-07, by April 1, 1998, to ensure adequate time for OCSE to assess and evaluate the State's exemption request. In the event the exemption request is denied, adequate time must be available for the State to establish an SDU at the State level which meets the requirements of section 454B of the Act.

A State plan preprint page must be submitted by the end of the quarter in which the State is required to meet the SDU requirement, in accordance with 45 CFR 301.11. The effective date for the SDU is October 1, 1998, unless the State processes payments through the local courts, in which case they may continue to do so until October 1, 1999.

Q36: If a State obtains an agreement from the Secretary to link local disbursement units, must these local disbursement units be under a cooperative agreement with the State? (In some states, Clerks of Court are not under cooperative agreement with the IV-D agency, but rather their duties are defined in State law.)

A36: There is nothing in PRWORA that specifically requires that linked local disbursement units be operated under a cooperative agreement with the State. However, cooperative agreements are necessary to ensure ultimate IV-D agency control of IV-D functions and if costs are intended to be reimbursed by Federal funds. If local disbursement units' responsibility for IV-D functions are already defined in State law, then there may be no need for a cooperative agreement to address these responsibilities. However, the IV-D agency is ultimately responsible for meeting the requirements of section 454B of the Act and, therefore, there must be recognition of that fact, through a cooperative agreement or other legal mechanism between the IV-D agency and local disbursement units. The local disbursement units must meet all requirements under section 454B of the Act. Any payments received in cases required under section 454B of the Act that are received and disbursed through the local disbursement units must be distributed in accordance with section 457 of the Act.

Q37: Do political subdivisions qualify as contractors under section 454B(a)(2)(A) of the Act if an exemption is sought and approved under section 454B(a)(3) of the Act?

A37: A political subdivision under cooperative agreement or contract with the IV-D agency to operate as the SDU under an exemption to establish the SDU by linking local disbursement units would be considered a "contractor responsible directly to the State agency" under section 454B(a)(2)(A).

Q38: If a State receives an exemption to establish an SDU by linking local disbursement units, could the State IV-D agency meet the requirement to establish a single place for employers to send withholdings through a contract with a vendor, including, for example, a bank or a Clerk of the Court association?

A38: Yes.

E. ELIGIBILITY (IV-D VS. NON-IV-D)

Q39: Must all payments in IV-D cases be made through the SDU?

A39:Section 454B of the PRWORA specifies that the SDU is to include payment under support orders for all IV-D cases, and for those non-IV-D cases with support orders initially issued on or after January 1,1994 and in which the income of the obligor is subject to wage withholding. Under 454B(b)(1), the SDU must use automated procedures for receipt of payments from parents, employers and other states, and for disbursement of payments to custodial parents, other obligees, the State agency and agencies of other States.

Q40: Does "subject to wage withholding" under §454B(a)(1)(B) of the Act mean that the individual currently has a support obligation withheld from his wages, or is the definition broader to include individuals who are subject to wage withholding if their payments fall into arrears?

A40: Under §454B(a)(1)(B) of the Act, the SDU is responsible for the collection and disbursement of payments in non-IV-D cases in which the support order was initially issued in the State on or after January 1, 1994, and in which the income of the noncustodial parent is subject to withholding pursuant to section 466(a)(8)(B). "Subject to wage withholding" in this context means that the individual's income is currently being withheld from his or her wages. It does not include cases that may eventually be subject to income withholding if a payment is missed or cases which should be paying through withholding but are not.

Q41: Are non-IV-D cases included in the SDU subject to any enforcement services?

A41: No, the State IV-D agency is not responsible for enforcement in non-IV-D cases unless there is an application for IV-D services. The State IV-D program's responsibilities in these cases are limited to receipt, recording, prompt disbursement and responding to requests for information on the current status of support payments made through the SDU. Should payment through withholding cease, the obligee must apply for the full range of IV-D services before enforcement through the program can proceed.

Under §454(27)(B)(i), the State agency must have sufficient State staff to "monitor and enforce support collections through the [State disbursement] unit in cases being enforced by the State pursuant to §454(4) (including carrying out the automated data processing responsibilities described in §454A(g))." "Cases being enforced by the State pursuant to §454(4)" are limited to IV-D cases. Also, see section 454B(a)(2)(B) on operation of the State disbursement unit which says that the unit shall be operated "except in cases described in paragraph (1)(B), in coordination with the automated system established by the State pursuant to §454A." This means that the SDU is not required to coordinate with the automated system with respect to "cases described in paragraph (1)(B)," i.e., non-IV-D withholding cases. These two sections limit enforcement and coordination with the automated system to IV-D cases. Section 454A(g), which requires use of the State's automated payment system to transmit withholding orders and to trigger use of enforcement procedures if payments are not made timely, cannot be read alone but rather must be read in conjunction with these other limiting sections.

Q42: May an applicant for IV-D services refuse to allow collections to be paid through the SDU?

A42: No. An applicant or recipient of IV-D services is not free to pick and choose which specific services he or she wants; anyone receiving IV-D services must accept all IV-D services, including the use of the SDU.

Q43: Can an applicant or recipient of IV-D services be deemed non-cooperating and be refused IV-D services if he or she refuses to have payments flow through the SDU?

A43: Yes. Support collections in cases being enforced under the IV-D program must flow through the SDU.

Q44: How will States handle the application fee for non-TANF cases? If it is mailed to a central location first and then has to trickle down to a local office this could delay service for an unnecessary time period.

A44: Section 454B requires the State agency to establish and operate a unit for the collection and disbursement of payments under support orders. There is no requirement in the law for the application fee for receiving IV-D services in non-IV-A cases under section 454(6) of the Act to be mailed to a central location.

F. SYSTEMS

Q45: My state has a waiver under section 452(d)(3) of the Act for an interface between the State CSE automated system and the court system. How does that affect this requirement for an SDU?

A45: The new statutory requirement for an SDU under section 454B of the Act does not affect the existing waiver. A State with a waiver for an interface between the State CSE automated system and a court system must still meet the requirement under section 312 of PRWORA to have an SDU. The State must meet the requirement for an SDU or seek an exemption to establish an SDU by linking local disbursement units under section 454B(a)(3) of the Act.

Q46: Our State has "centralized" collection by virtue of its small size, but we are concerned that we may not have the level of automation required by the statute. What level of automation is required for the SDU?

A46: The statute indicates that the SDU shall use automated procedures, electronic processes, and computer-driven technology to the maximum extent feasible, efficient and economical. The level of automation will differ based on caseload and other State-specific operations, but some of the indicators that ACF would look at include whether the SDU is using automation to accurately identify payments (number of payments in suspense, for how long), timeliness of the payment to the custodial parent, customer service to any recipient of services or parent, timeliness, convenience and accuracy of the information provided.

Q47: Can distribution in IV-D cases be done by the SDU?

A47: No. Distribution for IV-D cases is the responsibility of the IV-D agency and must be calculated by the Statewide automated CSE system. The SDU must interface with the Statewide automated CSE system in IV-D cases and disburse the child support payments in accordance with the distribution scheme provided by the Statewide automated CSE system.

Q48: Can the SDU calculate distribution of payments in non-IV-D wage withholding cases?

A48: Yes. Under §454B(a)(2), non-IV-D case payment processing need not be coordinated with the State IV-D program's automated system which is responsible for distribution under section 457 of the Act. Therefore, the SDU could do distribution in "pure" non- IV-D cases. However, if the case was previously an assistance case and arrearages are owed, or if the non-IV-D case is a multiple obligee case with at least one of the connected cases a IV-D case, the SDU cannot do the distribution.

Q49: Can a State with a statewide automated system have an SDU generate overnight wire transfers of funds and information to local offices and require recipients to continue to pick up child support payments at local offices, i.e. the court clerks' offices, rather than through the mail?

A49: A State would have to request an exemption to establish the SDU by linking local disbursement units through an automated information network, provided that the State can prove, to the satisfaction of the Secretary of the Department of Health and Human Services, that it will be neither more costly nor more time-consuming to establish or operate than a centralized unit. However, it should be noted that the intent of this requirement is to ensure that the child support collected is disbursed within two days of receipt whether or not the money is mailed or picked up at the local court clerk's offices.

Q50: Would the definition of an SDU include a network of banks collecting, receipting, and disbursing collections through EFT with receipt of cash at local banks?

A50: No. While a bank can be the entity designated by the State as the SDU, a network of banks would not meet the requirement of centralizing collection and disbursement of child support collections.

Q51: May a State continue its practice in which the IV-D central collection and disbursement unit receives and disburses payments while other IV-D location, establishment and enforcement activities are performed by functionalized work units in State agency field offices throughout the State or by central operations, all of which use the single statewide automated system?

A51: Yes. Under section 454(27) of the Act, the State plan must provide that (A) the State operate an SDU in compliance with section 454B, and (B) the State have sufficient staff to monitor and enforce cases being enforced by the State and take appropriate actions in those cases. It does not, however, require that both functions be housed in the same entity.

Q52: Can the same automated system be used for the SDU and the State case registry, or must there be separate systems?

A52: Yes, the same system may be used. Under section 454B(a)(2)(B) of the Act, the SDU must be operated in coordination with the State CSES established under section 454A of the Act. In many States, these are not really new functions for the IV-D cases. Many States have already built much of the functionality required for the IV-D cases for State Case Registry and the State Disbursement Unit into their existing statewide automated CSE system, but may still need to add to the State Case Registry non-IV-D orders established or modified in the State on or after October 1, 1998, in accordance with section 454A(e)(1)(B) of the Act.

Q53: Our county clerks, under cooperative agreement with the IV-D agency, currently collect and disburse child support payments. Because they are under cooperative agreement, we are required to include them as part of our statewide, automated system by October 1, 1997. But under PRWORA, we are mandated to centralize collections and disbursement. Are we still required to provide our clerks with hardware, telecommunications and our child support automated system for what is likely to be just a year or two?

A53: Because of the changes in systems functional requirements under PRWORA, ACF, under certain circumstances, will grant conditional certifications of automated CSE systems to States that have not implemented the automated CSE systems "statewide" into office of clerks of the court that are operating under a cooperative agreement. The circumstances would be that collection and disbursement is the only IV-D function performed by the clerks, that the State states, in writing, its intent to centralize collections and disbursement through a SDU, and the State provides an alternative means of transmitting collections and related information to the statewide CSE system in the interim.

G. LOCATION FOR WAGE WITHHOLDING

Q54: If an exemption is obtained to establish an SDU by linking local disbursement units, do employers have an option of submitting withholding locally, if the employer so chooses, rather than to one single location at the State level?

A54: No. The statute clearly states that there is to be one central location in each State to which wage withholdings are to be sent.

Q55: If approval to establish an SDU by linking local units is given by the Secretary, can employers who have multiple wage assignments, all of which are issued within the State, be allowed the flexibility to select the local disbursement unit to whom the employer can send all withholdings?

A55: No. Even if an exemption is granted to link local disbursement units, employers must still be given one place in each State to which the wage withholding payments shall be sent, which shall be operated by one state agency or an entity under contract with the state agency. The law at section 454B(a)(3) is very clear on this.

Q56:Is it possible that one automated location in each county, with a modem to a central location, would be acceptable for income assignments?

A56: No. The statute clearly states that all income withholding be sent to one location in each State. Centralized collection will greatly simplify the wage withholding process for employers by providing them with one location to which to send wage withholding payments. This will become increasingly significant as the number of UIFSA States increases.

Q57: Can multiple locations be used for receipt of income withholding in a state as long as a given employer only has one location to which it sends its income withholding?

A57: No. Section 454B(a)(3) makes it clear that there is to be one location in each State for receipt of all income withholdings.

Q58: Section 466(b)(6)(B) of the Act provides that an employer can be permitted to combine all withheld amounts into a single payment to each appropriate agency or entity, and (b)(6)(A)(i) states that withheld amounts are to be paid to the SDU. Since subparagraph (B) refers to "each" appropriate agency or entity, is it possible that an employer could write multiple checks, one to each local disbursement unit (which is linked to form the SDU) but send them to a single point?

A58: Yes, it is possible. Section 454B(a)(3) requires that there be one location in each State to which all income withholdings are sent; it does not require that they all have the same payee. However, the SDU must have procedures to promptly disburse payments to custodial parents and other obligees under §454B(b)(1) and (3) and (c)(1). This would preclude sending such checks to local courts for endorsement, deposit and disbursement.

Q59: If a State has a statewide system, receives payments locally and the local office is capable of posting collections to the central system, and the state offers EFT/EDI capability to employers, and all checks are disbursed from a central office, does this meet the requirement for an SDU?

A59: No. The Act states in section 454B(a)(1) that for a State to meet the requirements of this section it must establish and operate an SDU for the collection and disbursement of payments. Section 454B(a)(3) provides for the linking of local disbursement units after approval by the Secretary if the State can show that the local system will not cost more nor take more time to establish or operate than a centralized system. In addition, all income withholding payments must be sent to one location. The EFT/EDI option would not meet the requirement for withholdings to be sent to one location.

Q60: Is the requirement that employers be given one disbursement unit to which income withholding is sent mandatory for employers or may an employer elect whether to send income withholdings to a central location or a local location?

A60:The provision is mandatory for employers.

H. PAYMENTS OUTSIDE SDU

Q61: How would the SDU process cases/payments that were being handled by a private collection agency under contract to the IV-D agency?

A61: The State IV-D agency is responsible for all distribution of support collections in accordance with section 457 of the Act. The contractor must forward all collections to the IV-D agency for distribution. The SDU would then be responsible for disbursement.

Q62: If an applicant or recipient of IV-D cases has also hired a private collection agency, must payments be made through the SDU first?

A62: Payments through income withholding or as a result of services provided or actions taken by the IV-D agency must be made through the SDU.

Q63: How should a State handle a situation in which a noncustodial parent walks into a local office with a check or cash to pay child support? Is an occasional payment prohibited?

A63: No, an occasional payment at a local office is not prohibited. In the interest of facilitating payments, the State must have procedures to accept the support payment and to require the local office to immediately transmit the payment and identifying information to the SDU for disbursement. However, payments at the local office should be the exception, not the rule. All payers should be instructed as to the location to which they should make their payments.

Q64: In many states there will always be collections at the local office as a result of enforcement remedies such as the Rule to Show Cause before a Family Court Judge. On those days, thousands of dollars are collected, in cash, as a result of these hearings. Thousands more are received from noncustodial parents who are sentenced to jail but with a provision allowing them to purge the sentence by payment of a specified amount of arrearage. These payments are received,in cash, usually within the week after sentencing. A Clerk of Court collects these monies and immediately disburses them. Will this be allowed under an SDU?

A64: Any cash payment should be the exception. Any cash payments received must be transmitted by the Clerk of Court to the SDU immediately for crediting and disbursement.

I. PRIVATIZATION

Q65: Are there any guidelines on privatizing the SDU? Must a State submit the RFP or contract to ACF for prior approval if it chooses to privatize the SDU function?

A65: ACF will provide assistance and guidance on RFPs and contracts, but there is no requirement for prior submission or approval. If FFP for development costs related to Statewide CSE automated systems is sought, the current rules regarding prior approvals of contracts and funding approvals still apply. OCSE does not require prior approval for the operating costs of private agencies performing child support enforcement services, and reasonable costs are eligible for FFP at the regular rate. Purchased services must be secured in accordance with 45 CFR Part 74 and 304.22. If a State is seeking FFP in the costs of acquisition of ADP equipment or services, prior approval requirements in 45 CFR Part 95 Subpart F apply.

Q66: What aspects of the SDU can be privatized?

A66: Under section 454B(a)(2)(A), any of the requirements of section 454B may be performed under contract. Section 454B(a)(2)(A) of the Act provides that the SDU may be operated (to the extent appropriate) by a contractor reporting directly to the State agency. 45 CFR 304.22 defines conditions for FFP in purchased services. The privatization must meet the requirements of 45 CFR Part 74.

Q67: Section 454(27) of the Act requires the State to have sufficient State staff and, at State option, contractors, to monitor and enforce support collections for those cases being enforced by the State under section 454(4) of the Act (IV-D cases). Can the State contract the collections and disbursement functions separately from the monitoring and enforcement functions? Can these functions be done by two different vendors or a combination of a vendor and State staff?

A67: Yes, the State may contract the collection and disbursement functions separately from the monitoring and enforcement functions. The two functions may also be performed by different vendors or a combination of a vendor and State staff.

Q68: Under PRWORA, is it acceptable for a contractor to collect all child support, disburse the non-IV-D money, and send the IV-D money to the state to disburse?

A68: Section 454B(a)(2) provides for the operation of the SDU by a contractor "to the extent appropriate," which would allow contracting out a part of the process, such as the collection of support or the disbursement of support. However, an SDU at the State level may not consist of a single point of receipt and multiple points of disbursement.

K. TIMING OF DISBURSEMENTS

Q69: Can there be a single point of receipt and multiple points of disbursement? If multiple points of disbursement are allowed, how does the two-day limit for disbursement as provided in (c) apply?

A69: No, there cannot be multiple points of disbursement unless an exemption is granted under section 454B(a)(3) of the Act, and OCSE-AT-97-07, issued May 15, 1997, allowing for linking of local disbursement units through an automated information network. Should an exemption be granted, disbursements of collections must still be made within two business days of receipt by the local unit, as required by section 454B(c)(1).

Q70: The provision requires distribution of support within two business days after receipt by the SDU. Does this supersede the federal regulation at 45 CFR 302.32 which allows payments of amounts owed to families receiving assistance within 15 calendar days of the end of the month of collection?

A70: Yes. Section 454B(c)(1) of the Act requires the SDU to disburse amounts payable under section 457(a) of the Act within 2 business days after receipt from the employer or other source of periodic income, if sufficient information is provided. The SDU may delay the disbursement of collections of arrearages until the resolution of any appeal with respect to such arrearages. Allotment to specific accounts under distribution rules at section 457(a) of the Act must be completed before disbursement can be made to the family. The requirement in section 454B(c)(1) is intended to ensure prompt disbursement of the custodial parent's share of any payment, as required in section 454B(b)(3) of the Act.

Therefore, in current assistance cases, the SDU must disburse payments within 2 business days of determining that the family is entitled to a portion or all of the collection. If States continue to pass through a portion of the support collection every month to the assistance family, disbursement of that monthly portion to the family is required within 2 business days of receipt by the SDU of the pass-through amount.

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