Treatment of Income Earned by States from Interest, Investments or Other Income
August 15, 1989
TO: STATE AGENCIES ADMINISTERING CHILD SUPPORT ENFORCEMENT PLANS APPROVED UNDER TITLE IV-D OF THE SOCIAL SECURITY ACT AND OTHER INTERESTED INDIVIDUALS
SUBJECT: Treatment of income earned by States from interest, investments or other income producing activities resulting from fees and child support collections received in the administration of the Child Support Enforcement Program.
BACKGROUND:The operation and administration of the Child Support Enforcement Program requires that the State IV-D agency receive monies either as collections of child support payments from absent parents or as assorted fees or recovered costs in connection with the provision of various child support enforcement services.
Although not required by either statute or regulation, many States have chosen to invest or deposit these funds in income-producing accounts. Any amount earned through these activities is considered program income and must be used by States to offset program expenditures.
In instances where the State deposits or invests collections, fees and/or recovered costs in an account separate from other State revenues, the accurate determination of the amount earned is a simple matter.
In many instances, however, States do not segregate funds received through the operation of the Child Support Enforcement Program from other State revenues. In those instances, a methodology must be developed to separate the collections, fees and recovered costs from other amounts and determine and allocate the amount of interest or investment income earned on those funds.
PURPOSE: The purpose of this Action Transmittal is to describe a methodology to be used, when needed, for determining the amount of income earned in the State's interest or investment activities.
CALCULATION METHODOLOGY:Each State will be in one of the following categories in regard to interest or other investment income earned on any combination ofchild support collections, program fees, or recovered costs:
1. No interest/investment income earned: No action required; no amounts to be reported.
2. Interest/investment income earned and correctly calculated: If the OCSE Regional Representative determines that the State has utilized a reasonable methodology, resulting in an accurate amount of interest or investment income being calculated, no further action is required other than to determine that the amount is correctly reported as described below.
3. Interest/investment income earned and not reported or incorrectly calculated: If the OCSE Regional Representative determines that the State is either failing to report or is incorrectly reporting the income earned, a disallowance must be taken for the amount of unreported income. To do so, the Regional Representative must determine the amount earned by the State for the portion of its interest or investment activity that utilizes collections, fees or recovered costs and the starting and ending dates of this activity.
Starting Date. In all instances, reportable interest or investment income begins to be earned under title IV-D on the date the collection, fee or recovered cost is placed in an income earning account or activity at the State or local level.
Ending Date. This date will vary by the ultimate disposition of the collections, fees or recovered costs:
Distributed AFDC Collections. The date that the title IV-D agency ceases to have control over the collections. This will be the earlier of either: (a) the date the State title IV-A agency reduces its drawdown of Federal funds from its letter of credit for AFDC assistance payments as a result of the collections made; or (b) the date the State title IV-D agency transfers the Federal share of collections to the State title IV-A agency prior to that agency's use of the funds to reduce its drawdown for assistance payments. (However, if the State continues to earn interest or investment income on the collections transferred to the title IV-A agency, it must continue to be reported as an offset against AFDC assistance payments. SeeFSA-AT-89-35, dated August 15, 1989)
Distributed Non-AFDC Collections. Any interest or investment income earned on non-AFDC collections is to be added to the amount of the collction and included in the regular distribution process to either the custodial or absent (non-custodial) parent. If, for any reason, this action is not performed, the income earned is reported as program income.
In either situation, the ending date of the income earning activity for reporting purposes, is the date the State's checking account is debited in the amount of the collection. This will occur when a State check in the amount of the collection is either forwarded to and "cashed" by the custodial parent or returned to and "cashed" by the absent (non-custodial) parent. For collections received through the IRS tax offset process, this distribution may be delayed for up to six months.
Undistributed AFDC or Non-AFDC Collections. Interest/investment income continues to be earned as long as the collection remains in "undistributed" status. These collections will ultimately be either identified and distributed as described above, or will be "written off" by the State, at which time the calculation will cease.
Program Fees and Recovered Costs. The date the State title IV-D agency reduces its drawdown of Federal funds from its letter of credit for child support enforcement administrative expenditures as a result of the receipt of these fees or recovered costs.
REPORTING REQUIREMENTS:Interest/investment income earned by the State on collections, fees or recovered costs are reported on line 3 of Form OCSE-41, the "Child Support Enforcement Program Quarterly Report of Expenditures."
(Form OCSE-41 will soon be replaced by Form OCSE-131, the "Child Support Enforcement Program Financial Report." Interest/investment income earned by the State on collections, fees or recovered costs will be reported on this form on line 3 of Part 1, the "Quarterly Report of Expenditures and Estimates.")
RELATED REFERENCES: OCSE-PIQ-88-4, dated March 25, 1988
FSA-AT-89-35, dated August 15, 1989
45 CFR 304.50
INQUIRIES TO: OCSE Regional Representatives
Robert C. Harris
Associate Deputy Director
Office of Child Support Enforcement