(a)

1. (1) If we find that, for a fiscal year, the State IV-A agency did not enforce the penalties against recipients required under § 264.30(c), we will reduce the SFAG payable for the next fiscal year by one percent of the adjusted SFAG.
2. (2) Upon a finding for a second fiscal year, we will reduce the SFAG by two percent of the adjusted SFAG for the following year.
3. (3) A third or subsequent finding will result in the maximum penalty of five percent.

(b) We will not impose a penalty if:

1. (1) The State demonstrates to our satisfaction that it had reasonable cause pursuant to § 262.5 of this chapter; or
2. (2) The State achieves compliance under a corrective compliance plan pursuant to § 262.6 of this chapter.