Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

S  M
TATES ONITORING OF 
S F
UBGRANTEES IN THE  OSTER 
C P :  A 
ARE  ROGRAM
D S S  
ESCRIPTION OF  IX  TATES
S
YSTEMS 
Inspector General 
December 2004 
OEI-05-03-00061  Office of Inspector General 

http://oig.hhs.gov 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, 
as amended, is to protect the integrity of the Department of Health and Human Services 
(HHS) programs, as well as the health and welfare of beneficiaries served by those 
programs. This statutory mission is carried out through a nationwide network of audits, 
investigations, and inspections conducted by the following operating components: 
Office of Audit Services 
The OIG's Office of Audit Services (OAS) provides all auditing services for HHS, either by 
conducting audits with its own audit resources or by overseeing audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and subgrantees 
in carrying out their respective responsibilities and are intended to provide independent 
assessments of HHS programs and operations in order to reduce waste, abuse, and 
mismanagement and to promote economy and efficiency throughout the department. 
Office of Evaluation and Inspections 
The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management 
and program evaluations (called inspections) that focus on issues of concern to the 
department, the Congress, and the public. The findings and recommendations contained 
in the inspections reports generate rapid, accurate, and up-to-date information on the 
efficiency, vulnerability, and effectiveness of departmental programs.  The OEI also 
oversees state Medicaid fraud control units, which investigate and prosecute fraud and 
patient abuse in the Medicaid program. 
Office of Investigations
The OIG's Office of Investigations (OI) conducts criminal, civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries 
and of unjust enrichment by providers. The investigative efforts of OI lead to criminal 
convictions, administrative sanctions, or civil monetary penalties. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
OIG, rendering advice and opinions on HHS programs and operations and providing all 
legal support in OIG's internal operations. The OCIG imposes program exclusions and 
civil monetary penalties on health care providers and litigates those actions within the 
department. The OCIG also represents OIG in the global settlement of cases arising 
under the Civil False Claims Act, develops and monitors corporate integrity agreements, 
develops compliance program guidances, renders advisory opinions on OIG sanctions to 
the health care community, and issues fraud alerts and other industry guidance.  
 A B S T R A C T
As part of a broad Office of Inspector General effort to review the 
management of grant programs under the Department of Health and 
Human Services, this report describes States program and fiscal 
oversight of subgrantees in the Title IV-E foster care program.  This is a 
companion report to Oversight of States Subgrantee Monitoring in the 
Foster Care Program (OEI-05-03-00060), which reported that 
monitoring systems in three of the six States are inadequate.   
For this inspection, we interviewed staff and reviewed monitoring 
protocols and subgrantee files in six States that administer over 
45 percent of the $5 billion that the Administration for Children and 
Families (ACF) awards annually for the foster care program.  In all six 
States, we found that program monitoring typically consists of an onsite 
visit to subgrantees, and fiscal monitoring typically consists of an 
independent audit.  In some States these monitoring mechanisms are 
minimal or not implemented as intended.  In addition, all six States rely 
on rate setting to manage foster care expenditures.   
Given the extent that States appear to be using subgrantees to carry out 
fundamental foster care services, lax monitoring can have a significant 
impact. States with limited monitoring systems may want to consider 
bolstering their program and fiscal monitoring.  The ACF could consider 
assisting States in their efforts by providing expertise and guidance on 
subgrantee monitoring, and facilitating communication among States.  
We hope the information in this report will be helpful in developing this 
assistance and guidance. 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  i    E X E C U T I V E   S U M M A R Y   
OBJECTIVE 
To describe selected States program and fiscal oversight of subgrantees 
in the foster care program. 
BACKGROUND 
The Administration for Children and Families (ACF) awards 
approximately $5 billion each fiscal year to States that serve about 
800,000 children in the Federal Title IV-E foster care program.  Most 
States award some portion of their Federal foster care grant to 
subgrantees to provide core program services, such as child placement 
and residential care. 
According to Federal grants management requirements under 
45 CFR Part 74, States must oversee subgrantees to ensure that 
subgrantees comply with Federal fiscal and program regulations, use 
funds for authorized purposes, and achieve performance goals.  The 
ACF must ensure that States administer their foster care programs in 
accordance with Federal regulations. 
We conducted site visits to 6 States representing over 45 percent of Title 
IV-E spending.  We interviewed monitoring staff, reviewed relevant 
monitoring policies and protocols, and reviewed documentation of 
States monitoring for 15 to 19 subgrantee files in each State. 
This is a companion report to Oversight of States Subgrantee 
Monitoring in the Foster Care Program (OEI-05-03-00060), which 
reported that monitoring systems in three of the six selected States are 
inadequate. That report also found that ACF pays minimal attention to 
States subgrantee monitoring and has little information about how 
States monitor subgrantees.  While that report provides an assessment 
of States monitoring systems, this report provides descriptive 
information on how subgrantees are being monitored in our selected 
States. In doing so, this report seeks to assist ACF and States in 
addressing the problems identified in the first report.  Both reports are 
part of a broader Office of Inspector General effort to review the 
management of grant programs under the Department of Health and 
Human Services (HHS). 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  ii  E X E C U T I V E   S U M M A R Y

PROGRAM OVERSIGHT 
In all six States, onsite visits are used to monitor subgrantees.  In 
three States, monitoring mechanisms are not implemented as 
intended.  In all six States, subgrantees provision of services is 
primarily evaluated through onsite visits, including licensing visits that 
focus on compliance with regulations.  Monitoring in four States also 
includes program site visits that focus on quality of services.  In three 
States, onsite monitoring mechanisms are not implemented as intended.  
In these States, some subgrantees did not receive their routine licensing 
or program site visits.  
Outcomes-based monitoring has surfaced in some monitoring 
systems.  Five of six States demonstrated at least some movement 
toward an outcomes-based model of monitoring.  In these States, the 
collection of outcomes data has augmented, not replaced, more 
traditional modes of monitoring.  Three of these States make limited use 
of performance-based contracting, which involves rewarding 
subgrantees financially for positive outcomes. 
FISCAL OVERSIGHT 
In all six States, fiscal monitoring is minimal. Most States rely on 
only one mechanism, typically an independent audit, to monitor 
subgrantees fiscally.  Although three States use the more 
comprehensive Single Audit as their fiscal monitoring mechanism, two 
of these States use of the Single Audit is very limited.  In some States, 
fiscal monitoring mechanisms do not apply to all subgrantees or are not 
functioning adequately. 
In all six States, rate setting is used to manage foster care 
expenditures.  In all six selected States, subgrantees are funded 
through fixed rates.  Setting rates differs considerably by State, with 
some rate-setting methodologies being far more sophisticated than 
others.  Some vulnerabilities inherent in a rate-setting system may 
impact monitoring.  These vulnerabilities include:  (1) rates may be set 
inaccurately; (2) rate-setting processes do not address excess funds or 
unallowable costs; and (3) fixed rates of payment may create financial 
incentives for subgrantees to decrease the quality of their services. 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  iii  EE XX EE CC UU TT II VV EE    SS UU MM MM AA RR YY

CONCLUSION 
In many cases, States program and fiscal monitoring systems are 
limited: monitoring either covers a limited number of subgrantees, 
consists of only one monitoring mechanism, or is not functioning as 
intended. Without quality monitoring, States and ACF may have little 
assurance that subgrantees are providing quality services to children in 
a fiscally responsible manner. States with limited monitoring may want 
to consider bolstering their systems to ensure that all subgrantees are 
routinely and comprehensively monitored to ensure a high quality of 
care and the appropriate expenditure of foster care funds. 
We found that some selected States have noteworthy aspects of their 
subgrantee oversight, including outcomes-based monitoring and 
sophisticated rate-setting methodologies. States could benefit from 
learning about well-designed monitoring systems and strategies. The 
ACF may want to consider assisting States in these efforts by providing 
guidance and facilitating communication among States on subgrantee 
monitoring and rate setting. 
OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  iv    T A  B L E   O F   C O N T E N T S  
ABSTRACT ....................................................... i 

EXECUTIVE SUMMARY ........................................ ii 

INTRODUCTION ................................................ 1 

PROGRAM OVERSIGHT ........................................ 6 

Onsite visits are used to monitor subgrantees; some mechanisms  
have limitations.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6

  Outcomes-basedm  onitoring. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8

FISCAL OVERSIGHT ........................................... 10 

Fiscal monitoring ism  inimal  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10

Rate setting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

CONCLUSION ................................................... 16 

APPENDIXES .................................................. 18 

A:  Methodology: State and Subgrantee Selection. . . . . . . . . . . . .  18

B:  Characteristics of States Monitoring Systems. . . . . . . . . . . . .  20

ACKNOWLEDGMENTS ......................................... 27 

END NOTES .................................................... 28
   II NN TT RR OO DD UU CC  TT II OO NN  
OBJECTIVE 
To describe selected States program and fiscal oversight of subgrantees 
in the foster care program. 
BACKGROUND 
The Administration for Children and Families (ACF) administers the 
foster care program, which is authorized under Title IV-E of the Social 
Security Act and which awards nearly $5 billion each fiscal year in 
entitlement grants to States that serve about 800,000 children under 
Title IV-E annually.1   Most States subaward some portion of their Title 
IV-E funds to subgrantees2 to carry out core program activities, such as 
child placement and residential care. 
Recent Federal Interest in Subgrantee Monitoring 
In 2001, the Secretary of the Department of Health and Human 
Services (HHS) created an initiative to improve the management of 
HHS grant programs.  The Office of Inspector General (OIG) has also 
undertaken a broad effort to review the control, effectiveness, and value 
of HHS grant programs. 
Federal stakeholders, including the Office of Management and Budget 
(OMB) and Congress, have expressed concern that States are not 
adequately monitoring their subgrantees, and that this may reflect a 
lack of Federal agency oversight.  Based on this concern, OMB created 
an interdepartmental Task Force on Subrecipient Monitoring in 2002.3 
This task force is reviewing regulations and policies to identify whether 
Federal guidance and oversight of subgrantee monitoring is adequate.  
Congress has also shown its concern by requesting reviews of 
subgrantee monitoring in other HHS programs.4 
This is a companion report to Oversight of States Subgrantee 
Monitoring in the Foster Care Program (OEI-05-03-00060), which 
found that monitoring systems in three of the six selected States are 
inadequate. That report also found that ACF pays minimal attention to 
States subgrantee monitoring and has little information about how 
States monitor subgrantees.  While that report provides an assessment 
of States monitoring systems, this report provides descriptive 
information on how subgrantees are being monitored in our selected 
States. In doing so, this report seeks to assist ACF and States in 
addressing the problems identified in the first report.   
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  1  I N T R O D U C T I O N  
Increased Use of Subgrantees in the Foster Care Program 
According to a recent study, nearly all States use subgrantees to provide 
core foster care services to at least some of their foster children.5 
Foster care services provided by subgrantees include child placement 
services, such as recruiting and training foster families, placing children 
with specific families, and arranging services for these children while in 
their placements.  Subgrantees may also provide services related to 
residential care, using professional staff to care for foster children in 
group homes, residential institutions or schools, mental health or other 
specialty treatment facilities, and emergency shelters. 
The increasing privatization of foster care services has led to concerns 
about the accountability of subgrantees within the foster care program.  
Recent State audits have substantiated the need for concern.  In 2000, 
Ohios State Auditor found that more than $9 million in foster care 
funds had been misspent by private agencies on housing and automobile 
leases, private jet fuel, and other unallowable purchases.  These audits 
uncovered lax control over Federal foster care money, a lack of 
financial and program monitoring, abuse of public funds, and the 
compromised care of some children.6 
Without adequate oversight of foster care subgrantees, the safety and 
welfare of thousands of children a year are potentially jeopardized and 
millions of dollars in annual Federal funds are vulnerable to abuse. 
States Monitoring of Subgrantees  
In HHS, responsibilities for State administration of Federal grant funds 
are delineated by two sets of Federal requirements:   
o 	 the Uniform Administrative Requirements for Awards and 
Subawards (45 CFR Part 74),7 and 
o 	 the Single Audit Act (implemented by OMB Circular A-133). 
Specifically, 45 CFR Part 74 contains HHS grants management 
regulations and incorporates OMB Circular A-133 by reference.   
These Federal grants management requirements8 require States to: 
o 	 Ensure that subgrantees are complying with program 
requirements and achieving performance goals. 
o 	 Ensure subgrantees are complying with fiscal requirements, such 
as having appropriate fiscal controls in place, and are using 
awards for authorized purposes. 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  2  I N T R O D
 U C T I O N  
States can ensure that subgrantees are meeting these requirements 
through a variety of mechanisms, including progress reports, site visits, 
financial reports, independent (third party) financial audits, and/or 
internal (State-conducted) financial audits.   
Under OMB Circular A-133, certain subgrantees must have a specific 
type of independent audit, called a Single Audit.  Single Audits include 
a traditional financial audit of subgrantees basic financial statements, 
as well as an auditors report on subgrantees internal controls and an 
opinion on subgrantees compliance with requirements of major Federal 
programs.  
Subgrantees exempt from the Single Audit include:  all for-profit 
subgrantees, and non-profit subgrantees receiving less than $500,000 in 
total Federal awards, and vendors.   States use Federal guidelines 
delineated in OMB Circular A-133, __.210 to determine whether 
subgrantees are subrecipients and thus subject to a Single Audit, or 
vendors and not subject to a Single Audit.   
These guidelines characterize subrecipients as subgrantees who carry 
out the program:  they may determine eligibility, make programmatic 
decisions, have their performance judged against the program 
objectives, and they must comply with program requirements.  
Vendors are characterized as subgrantees who provide goods and 
services that are ancillary to the operation of the program:  they provide 
goods and services within normal business hours to many different 
purchasers, operate in a competitive environment, and are not subject 
to program compliance requirements.  The guidelines direct States to 
use their judgment in making this determination.  We found that some 
States considered foster care subgrantees to be subrecipients, and 
other States considered subgrantees providing the same core services to 
be vendors. 
SCOPE 
The intent of this report is to provide descriptive information regarding 
monitoring of subgrantees who provide child placement services or 
residential care in six States. This report does not attempt to assess 
whether monitoring mechanisms include appropriate measures or cover 
appropriate issues.  Nor does it assess subgrantees fiscal and program 
performance.  Finally, it does not examine subgrantees that provide only 
training, adoption, or independent living services under the Title IV-E 
program. 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  3  II NN TT RR OO DD UU CC TT II OO NN

METHODOLOGY 
We reviewed six States program and fiscal oversight of foster care 
subgrantees through onsite interviews with State and county 
monitoring staff, a review of monitoring protocols and tools, and a 
review of subgrantee monitoring files. 
Our States included Texas, Michigan, Massachusetts, North Carolina, 
Pennsylvania, and California. In four of the States, the foster care 
program was directly administered by the State. In two of the States, 
the program was jointly administered by the State and the counties. In 
these States, we selected the two counties serving the largest number of 
Title IV-E children for our review. 
Overall, the 6 States comprise more than 45 percent of the Federal 
fiscal year (FY) 2002 Title IV-E funds and are located in 6 of the 10 ACF 
regions. The States and counties we selected funded more than 1,500 
foster care subgrantees during their most recent fiscal year. 
For a further discussion of our selection of States and subgrantees, 
please see Appendix A. 
Staff Interviews. To understand the complexities of State and county 
monitoring systems, we conducted onsite interviews with staff 
responsible for monitoring subgrantees. Typically, this included 
interviews with program, fiscal, and licensing staff. In county-
administered States, we interviewed State and county staff responsible 
for monitoring subgrantees in our selected counties. 
We used structured interview guides to collect information about State 
and county monitoring of subgrantees, focusing in-depth on each 
monitoring mechanism. We also used these interviews to gather 
information about other State and county processes, including 
monitoring of outcomes, use of performance-based contracting, and 
monitoring of costs and payments through rate setting and cost-based 
reimbursement. We supplemented our interviews with a review of 
monitoring policies, protocols, and guidance. 
Subgrantee File Review. To assess whether or not State and county 
monitoring systems were functioning as intended, we selected and 
reviewed 15 to 19 subgrantees in each State from State FY 2003. In the 
county-run States, we selected 8 subgrantees from each selected county, 
for a total of 16 subgrantees in the State. To represent the various 
types of subgrantees, we selected both low- and high-volume child 
placement agencies, as well as low-and high-volume residential care 
OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  4  I N T R O D U C T I O N  
facilities in each State or county.  Overall, we reviewed files for  
98 subgrantees. 
For our file review, we used a structured data collection instrument to 
examine evidence of monitoring, such as site visit reports, audit reports, 
financial reports, and licensing reports.  We did not examine evidence of 
rate setting or focus on outcomes or performance-based contracting in 
our review of subgrantee files. 
Limitations of Data 
Because we did not randomly select States, our findings cannot be 
projected to the larger universe of States.  They do, however, reflect 
subgrantee monitoring in States that account for over 45 percent of the 
Title IV-E foster care funds.   
This inspection was conducted in accordance with the Quality 
Standards for Inspections issued by the Presidents Council on Integrity 
and Efficiency. 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  5  
 FPI RN OD GI NR GASM    O V E R S I G H T
In all six selected States, 
In all six States, onsite visits are used to 
subgrantees provision of 
monitor subgrantees.  In three States, 
services is primarily evaluated 
monitoring mechanisms are not 
through onsite visits.  In three 
implemented as intended.    States, these monitoring 
mechanisms are not operating 
as intended. 
Onsite foster care licensing visits and program site visits are the primary 
mechanisms used to monitor subgrantees. 
All six selected States rely on onsite monitoring to oversee subgrantees 
provision of services. Onsite monitoring may include case file reviews, 
interviews with children and staff, a review of staff training and 
qualifications, and observation of the condition and appropriateness of 
the facility. 
Table 1:  Types of Program Monitoring Mechanisms Used in Six States 
State A  State B  State C  State D  State E  State F 
Licensing Visits  X  X  X  X  X  X 
Comprehensive Program 
X  X  X  X 
Site Visits 
Targeted Program Site 
X  X 
Visits 
Source:  OEI State Site Visit Data 
In all six States, monitoring includes licensing site visits.  As seen in Table 1, 
all six of our selected States use routine licensing visits to monitor 
foster care subgrantees.  Subgrantees are licensed annually in three 
States, and every 2 years in the other three States.  Licensing is fairly 
similar across States; visits focus on compliance with regulations, and 
are usually conducted by a State licensing department separate from 
the foster care department.  Licensing site visits may include assessing 
compliance with regulations related to safety and protection of civil 
rights, as well as a review of numerous program issues, such as case 
record documentation, service planning process, health and treatment 
services, and discipline. 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  6  PP RR OO GG RR AA MM    OO VV EE RR SS II GG HH TT  
In four States, monitoring also includes program site visits. In addition to 
licensing visits, comprehensive program site visits are used in four 
States to ensure program accountability. In two of these States, 
subgrantees receive more than one type of program site visit. They 
receive both a comprehensive program visit and a more targeted 
program site visit. These targeted visits review such things as service 
utilization and outcomes or are geared toward identifying issues in need 
of technical assistance. (See Table 1.) 
While comprehensive program site visits and licensing site visits are 
generally similar in that they both tend to use the same methods (policy 
and record reviews, interviews, and observation) and have some overlap 
in content, there are some key distinctions. The purpose of licensing 
site visits is to assess compliance with laws and regulations, while the 
purpose of program site visits is to ensure that children receive quality 
services. Program site visits may also include a technical assistance 
component. Further, in county-administered States, such as State C 
and State E, licensing visits are conducted by State staff and cover 
subgrantees across the State, and program site visits are conducted by 
county staff and may vary by county. 
Monitoring staff in licensing and program departments in four States 
reported that they communicate with each other and coordinate their 
monitoring efforts to some extent. In a fifth State, staff indicated that 
program and licensing departments do not coordinate and cited this lack 
of coordination as one of the barriers they face in trying to monitor 
subgrantees effectively. 
In three States, program or licensing visits are conducted less frequently than 
annually. Three States onsite visits are conducted at least annually; 
however, visits in the remaining three States are less frequent. State B 
only requires licensing visits to its subgrantees every 2 years and 
program site visits every 12 to 18 months. In State D, all subgrantees 
receive one licensing visit every other year and no program site visit. 
Program monitoring staff in this State rely heavily on a network of 
State and local oversight entities to provide referrals for any 
programmatic problems, rather than establishing regular program site 
visits. In State A, most subgrantees are licensed only once every 
2 years. Some subgrantees in this State receive licensing site visits, but 
for some subgrantees, their biennial licensing only consists of a desk 
review of submitted materials. 
OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  7  P R O G R A M   O V E R S I G H T  

In three States, onsite monitoring mechanisms are not implemented as 
intended. 
In three States, licensing or program monitoring is not implemented as 
intended.  For example, in State C, licensing is designed to include 
annual site visits for all subgrantees, but less than half of the selected 
subgrantees actually received this annual licensing visit.  In one county 
in this State, licensing is the only program monitoring mechanism for 
nearly all child placement agencies.  In this county, half of the 
subgrantees we reviewed did not receive a site visit and thus had not 
been relicensed, resulting in foster children being cared for by 
unlicensed providers.  State licensing staff indicate that they have 
limited resources and thus give priority to investigating complaints or 
problems over conducting their annual licensing visits. 
Program monitoring is not implemented as intended in State B, where 
staff were unable to provide documentation of program visits for more 
than half of the subgrantees selected.  This State also indicated that 
they lack resources and have lost significant staff recently. 
Finally, our review found that one county in State E did not meet its 
own program site visit goals, although county staff actually visited all 
selected subgrantees at least annually.  County staff intended to visit 
all subgrantees quarterly; however, we found that only half of the 
selected subgrantees were visited quarterly.  
Five of the six selected States 
Outcomes-based monitoring has surfaced in 
demonstrated at least some 
some monitoring systems. 
movement toward an outcomes-
based model of monitoring.  In 
each of these States, the collection of outcomes data has augmented, not 
replaced, more traditional monitoring mechanisms, such as site visits.  
Traditionally, States have paid subgrantees based on the services they 
provide and have monitored their processes.  In an outcomes-based 
system, States monitor the outcomes of these processes. Thus, States 
encourage subgrantees to focus more on outcomes and less on processes. 
States may take additional steps to reinforce a focus on outcomes by 
offering incentive payments for positive performance or structuring 
reimbursement around performance, as in performance-based 
contracting. 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  8  P R O G R A M   O V E R S I G H T  
In three States, performance-based contracting is used on a limited 
basis. In all three States, subgrantees under these contracts are paid a 
relatively low monthly fee per foster child, with the understanding that 
they will receive additional funding once they meet specified 
performance outcomes. These outcomes may include successfully 
transitioning clients to a less restrictive level of care, sustaining a child 
in a placement for a certain length of time, and successfully moving a 
child into adoption.  Subgrantees under performance-based contracts 
are typically penalized for negative outcomes, namely when a foster 
child is returned to the system from an unsuccessful placement.  In this 
situation, the subgrantee shoulders the burden of finding an alternate 
placement for the child without any additional monthly payments from 
the State. 
In three States, monitoring staff have started to collect outcomes but do 
not use or analyze the information they collect.  For instance, State F 
determines the number of positive and negative outcomes each 
subgrantee has per year.  State F plans to expand the number and types 
of outcomes it collects and move to a performance-based contracting 
system by FY 2006.  State D uses performance-based contracting for 
some subgrantees and has started to collect outcomes for all others, but 
does not plan to use them until the next contract cycle.  In addition, one 
county in State C collects specific outcomes information related to 
education and independent living skills.  The county does not currently 
have plans to hold subgrantees accountable for their outcomes. 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  9  In all six States, fiscal monitoring is minimal. . In five selected States, fiscal
monitoring consists of only one
primary mechanism. In four
States, an annual independent audit is the only systemic means of
monitoring the fiscal functioning of their 
subgrantees. A 
fih State
minimally supplements its annual independent audits 
with additional
internal financial audits of approximately 10 residential care facilities
each year. Finally, a sixth State's fiscal monitoring consists of an
annual review of subgrantees' financial information, such as fiancial
statements, billngs and budgets, and an onsite review of selected
financial records for some subgrantees.
Of the five States that rely on independent audits
, two States use a
traditional fiscal audit as opposed to the more comprehensive Single
Audit. These States have classifed their foster care sub 
grantees as
vendors " which exempts them from Single Audit requirements. By not
employing the Single Audit, these States limit their financial oversight
of Title IV-E funds to a review of the basic financial controlsofthe
sub grantee provided by a fiancial audit. States are not provided with
the more specifc review of sub grantees
' use of program funds that
would be conducted in a Single Audit.
Three States use the Single Audit to monitor sub grantees fiscally;
however, two States' use of the Single Audit is very liinited. State B
only requires that a Single Audit be performed 
on subgrantees for their
fist yeaI\ providing servces.9 Of the 19 subgrantees we reviewed from
this State, the Single Audit was only required for 4 subgrantees. State
D does not correctly identif the grant as Title IV-E funds. Instead
, it
identifies foster care funds as Social Services Block Grant funds.
Because ofthis error, auditors review the sub grantees compliance with
Social Services Block Grant requirements and not Title IV-E
requirements. Only State E uses the 
Single Audit for all subgrantees
and for Title IV-E funds. Both State D and one county in 
State E
supplement the Single Audit by requiring additional 
auditor opinions
and subgrantee.financial statements.
In some States, fiscal monitoring mechanisms do not apply to all
subgrantees or are not functioning as intended.
Two States' fiscal monitoring abilities are limited due to the fa:c that
they do not require an audit or onsite fiscal review of all of 
their
ubgrantees. In one State, subgrantees providing mental health
OEI.05.03-00061 STATES' MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT F I S C A L   O V E R S I G H T  
services are not subject to an audit or any other fiscal review related to 
their Title IV-E funds.  Of the 16 subgrantee files we reviewed in this 
State, 6 subgrantees were not required to submit audits.  In the other 
State, whether or not a subgrantees finances are reviewed onsite and 
the extent of that review is based on an assessment of the subgrantees 
risk.  All high- and medium-risk subgrantees receive a site visit, while 
2 percent of low-risk subgrantees are selected for a site visit. All other 
subgrantees receive a desk review of submitted financial information.  
Of the 16 subgrantees that we selected, 6 subgrantees did not receive an 
onsite fiscal review.  
We also found that two States fiscal monitoring is not functioning as 
intended.  In one State, we found that many selected subgrantee files 
did not include an audit.  Further, staff in both of these States perform 
only a cursory review of submitted audits, limiting the usefulness of the 
audit as an oversight mechanism. One State has program staff review 
the audit to make sure the numbers make sense, even though the staff 
have not received any financial training.  Our review of 16 subgrantee 
files in this State found no evidence that audits had been reviewed even 
minimally. The other State only reviews audits to detect severe 
problems with a subgrantee, such as bankruptcy.  
Staffing and resources are not being invested in fiscal oversight.  
In the face of States budget crises, States have drastically reduced 
fiscal monitoring staff.  Four States reported severe limitations in fiscal 
monitoring due to lack of staff.  
Internal audit departments have been especially affected by budget 
cuts. One State completely cut its internal audit division due to budget 
issues.  Audit offices in three States have only enough resources to 
perform internal audits in response to complaints or problems, but not 
enough resources to proactively monitor subgrantees.  Funding cuts in 
two States have left audit divisions without enough staff to provide even 
reactive internal audits for the Title IV-E program.  
In all six States, rate setting is used to manage  One way States can manage their 
foster care expenditures.  foster care expenditures is to use 
rate setting to establish 
reasonable rates of payment for subgrantees. Another way States can 
manage their expenditures is through a cost-based system of 
reimbursement.  Under this system, States reimburse each subgrantee 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  11  F I S C A L   O V E R S I G H T  
for their actual costs based on itemized invoices that subgrantees 
submit to the State. 
In all six of our selected States, the majority of subgrantees are funded 
through a rate-setting system of payment rather than a cost-based 
system of reimbursement.  Two of the six States also use a cost-based 
system of reimbursement for a small minority of their subgrantees.  
These States use cost-based reimbursement in cases where it is 
particularly difficult to establish rates, such as for new subgrantees, 
subgrantees providing new services, or for services with unpredictable 
costs. 
Under a rate-setting system, the State pays subgrantees based on a 
specific rate they have established prior to the award period, rather 
than retrospectively reimbursing them based on subgrantees reported 
expenses.  The State typically determines a per diem/per child rate for 
the package of services subgrantees will be contracted to provide.  For 
example, the States rate for residential facilities would encompass the 
expenses associated with shelter, food, and administrative overhead.  To 
pay a particular subgrantee, the State would multiply this set rate by 
the number of children served and by the number of days for which care 
was provided. 
Rate-setting processes vary by State, but are used to manage foster care 
expenditures. 
While the rate-setting process differs considerably by State, the goal is 
the same:  to establish a fair, but economical payment that only reflects 
allowable Title IV-E costs. Rate-setting systems in the six selected 
States appear to vary along a continuum in their level of sophistication. 
At one end of the spectrum are certain rates set using only the most 
minimal data.  In one of the selected States, rates for certain 
subgrantees are based solely on the amount of funding the State has 
available.  This State does not take into account the costs associated 
with caring for children in foster care when setting these rates. In 
another State, rates for certain subgrantees are based solely on 
childcare costs as reported by the U. S. Department of Agriculture. 
However, both of these States use more complex methodologies for 
setting other rates; for example, rates for subgrantees serving children 
whose needs require advanced levels of care. 
At the other end of the spectrum are certain rates set using 
sophisticated approaches.  Three of the selected States base their rates 
on more complex estimations of actual cost.  States review annual or 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  12  F I S C A L   O V E R S I G H T  
biennial cost reports submitted by their subgrantees.  These reports 
itemize foster care and administrative costs in great detail.  In addition, 
some States require supplemental documentation, such as independent 
audit statements and time studies assessing staff time spent on 
allowable foster care activities. 
Once States estimate costs, three States establish a general set of rates 
for all subgrantees based on the intensity of care provided by the 
subgrantee or the age of the child.  Alternately, rates in two States are 
set for each individual subgrantee.  
In several States, final rates are determined by cost and budget 
considerations and may not reflect subgrantees estimated expenses. 
For instance, one State imposes a cap on individual rates that no 
individual facility rate may exceed, regardless of its expenses. Another 
State requires new subgrantees to estimate costs up front in order to set 
a rate.  The subgrantee is held to that rate, even if its actual expenses 
exceed the estimated rate.  Finally, in three of the six States, the State 
legislature makes the final rate determination based on the States 
available funding.  
The rate-setting process may present vulnerabilities. 
While all six States have a significant interest in establishing accurate 
rates and some dedicate significant resources to doing so, vulnerabilities 
may still exist.   
Rates may be set inaccurately. When States attempt to estimate 
subgrantees expenses to provide a basis for the State rate, they run the 
risk that cost reports do not accurately reflect reasonable, actual costs.  
For instance, cost reports may be falsified or enhanced by subgrantees 
seeking to hide unallowable costs or excess funds.  Cost reports could 
also reflect unreasonable costs spent by subgrantees who are poor fiscal 
managers or subgrantees who failed to obtain a fair purchase price for 
goods or services, paying more than necessary.  
Although States typically use cost estimates to develop rates, it can be 
difficult to ensure that the rates set by States appropriately reflect 
accurate, reasonable expenses.  One reason for this is that costs are 
likely to vary across subgrantees.  Larger subgrantees may be better 
able to reduce costs by purchasing in large quantities than small 
subgrantees.  Subgrantees in urban areas may pay considerably higher 
fixed costs than subgrantees in rural areas.  Further, external factors, 
such as State budget shortfalls and limits imposed by State legislatures, 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  13  FF II SS CC AA LL    OO VV EE RR SS II GG HH TT  
may require that rate-setting staff impose arbitrary caps on rates, thus 
overriding efforts to reflect reasonable, allowable costs in their rates. 
To mitigate some of these vulnerabilities, some of the six selected States 
use traditional fiscal monitoring mechanisms as part of their rate-
setting processes. For instance, two States use audits to ensure the 
accuracy of cost reports. One of these audits verifies cost report data 
line item by line item. 
Rate setting does not typically address excess funds and/or unallowable costs. 
While rate setting is used to ensure that rates are reasonable, and 
therefore, grant funds are expended economically, it does not function to 
ensure that funds are actually expended only for reasonable and 
allowable costs. Subgrantees could potentially spend funds on items or 
services that are unallowable under Title IV-E statute or other Federal 
regulations. Further, Federal grants management regulations prohibit 
profit,10 yet subgrantees may receive excess funding if rates exceed 
subgrantees actual costs. This may be unavoidable when paying 
various subgrantees the same rate, since some subgrantees costs are 
likely to exceed the rate, while others costs are likely to fall short of the 
rate. 
Despite this potential vulnerability, three of our six States rate-setting 
processes are not designed to recoup inappropriately spent or excess 
funds. If these States identify that subgrantees have received excess 
funds, the only action they take is to readjust the rate during the next 
cycle of rate setting. Even when States specifically identify subgrantees 
that did not provide services commensurate with their established 
rates, States typically do not recoup excess funds; they simply adjust 
the rate when problems are discovered. 
In three States, rate setting includes a mechanism designed to recoup 
funds; however, only one county in one of these States has a mechanism 
that applies to more than a small subset of subgrantees. This county 
requires subgrantees to submit an auditors statement calculating the 
amount by which funding exceeded or fell short of subgrantees 
expenditures. If auditors identify excess funds, county fiscal staff can 
require subgrantees to repay this amount. Two other States have some 
mechanism for recoupment, but only for subgrantees in the first year of 
a new contract, or for a small sample of subgrantees selected for a 
targeted audit each year. 
While the extent of this vulnerability is unknown, subgrantees in at 
least three States have been identified as using foster care funds 
OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  14  F I S C A L   O V E R S I G H T  

inappropriately.  In two of the six selected States, anonymous 
allegations of misspending led States to discover that some subgrantees 
spent hundreds of thousands of dollars on items that were unallowable 
under State and Federal regulations.  In addition to these cases, in 
2000, the Ohio Auditor of State found that more than $9 million in 
foster care funds had been misspent by private agencies on housing and 
automobile leases, private jet fuel, and other egregious purchases.  
Notably, these abuses of funds were discovered through special 
inquiries, not through the States rate-setting process or routine fiscal 
monitoring tools.   
Rate setting may impact the quality of foster care services. One vulnerability 
inherent in a rate-setting system is a reduction in the quality of foster 
care services.  Because subgrantees are reimbursed based on the 
number of children they serve and not on the amount of resources they 
expend, there is a financial incentive for subgrantees to serve the 
greatest number of children for the least amount of money. In addition, 
if States establish rates that are too low, subgrantees may legitimately 
not have enough money to provide children with quality services. To 
mitigate this vulnerability, States must rely on program monitoring to 
ensure that subgrantees are providing quality services at a level 
commensurate with their assigned rate. 
Staff in two States mentioned the impact poor fiscal performance could 
have on the quality of services.  For example, staff in one county 
identified a situation where children were missing crucial 
appointments, such as court and doctor visits, because the facilitys van 
broke down, and there were no funds available to repair it.   
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  15  In some States, program and fical monitorig is 
limited. In these
cases, monitoring either covers a limited number of subgrantees
consists of only one monitoring mechanism, or isnt functioning as
intended. Without quality monitoring, 
States and ACF have no
assurance that sub grantees are providing appropriate, quality services
to children in a fiscally responsible manner- The States 
and counties we
selected funded more than 1
500 foster care sub grantees in their most
recent fical year. Given the extent that sub grantees are used to carr
out fundamental foster care servces, lax monitoring can have a
signifcant impact-
To improve their oversight of subgrantees, States with limited
monitoring could bolster their program and 
fical monitoring
mechanisms by ensuring that all subgrantees are routinely and
comprehensively monitored to ensure a high quality of care and the
appropriate expenditure of foster care funds. Additionally, these States
could add a means to recoup funds to their current rate-setting systems
to address any subgrantees that use Federal funds for unallowable costs
or retain excess funds.
States could benefit from learning about each others monitoring
systems and oversight strategies. We found that 
some States have
noteworthy aspects within their subgrailtee oversight systems. 
Some
States have sophisticated program-monitoring mechanisms that include
outcomes-based monitoring through performance-based contracting.
Alo, some States combine intricate rate-setting methodologies with
traditional fiscal-monitoring mechanisms to reduce vulnerabilties
inherent in the rate
setting process.
We encourage ACF to assist States by providing guidance and
facilitating communication between States on subgrantee monitoring
and rate setting. Further information and guidance on good rate setting
and subgrantee monitoring practices would provide much 
needed
direction to struggling States. We encourage ACF to consider
developing expertise at the regional level on these practices
particularly those related to outcomes monitoring, including
performance-based contracting, and rate setting. Further
, ACF could
consider holding regional or interregional conference calls to discuss
existing and emerging practices, and encouraging States to utilze
OEI.05-03-00061 STATES' MONITORINO OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT C O N C L U S I O N  
National Resource Centers, such as the Center on Organizational 
Improvement, for technical assistance.  
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  17  METHODOLOGY: SELECTION OF STATES AND
SUBGRANTEES
To understand States' monitoring of subgrantees we conducted site 
visits
in six States. This appendix provides greater detail regarding our
selection of States and subgrantees.
State Selection
We selected the six study States based on the 
following factors:
(1) maximizing coverage of Title IV-E funds; (2) 
representing both State-
adminitered and county-administered States; (3) maximizing 
coverage of
ACF regions; and (4) avoiding States participating in Child and Famiy
Servces Reviews or in the OIG region VII's case study of eight States
foster care programs. In our final selection of States
, we included 3 of the
11 States that have a county-
administered system.
Our six States include three State-
administered systems: Texas
Michigan, and Massachusetts; and three county-adminitered systems:
California, Pennsylvania, and North Carolina. In our county.
administered States, we selected the two largest counties based on the
number of Title IV-E children served. In California
, we selected Los
Angeles and San Diego counties, and in Pennsylvania, we selected
Philadelphia and Allegheny counties. We did not select any counties in
North Carolina due to the States exclusive role in monitoring
subgrantees. Even though the counties in North 
Carolina are responsible
for administering the foster care program
, they are not responsible for
monitoring the foster care subgrantees.
Subgrantee Selection
Due to the intensity of our case fie review
, we limited the number of
sub grantee files selected. We estimated 
that we could complete between
15 to 20 case file reviews in each State. 
We used the following procedure
to ensure that our selection of subgrantees included representation of
both child placement agencies and residential facilities
, and included
sub grantees that served a high volume of 
Title IV- E children, as well as
those that served a low volume of Title IV-E 
children. Our pre-inspection
research indicated that States' monitoring practices might vary between
these diferent types of subgrantees.
From each State and county selected, we requested a list of all foster care
sub grantees providing child placement or residential care to Title IV-E
children in State FY 2003. To select subgrantees we stratified each
subgrantee list, first by type of subgrantee (i. , child placement agencies
OEI.05.03.00061 STATES' MONITORING OF FOSTER CARE SUB GRANTEES: A DESCRIPTIVE REPORT A P P E N D I X ~ A  
and residential facilities) and then by the number of Title IV-E children 
served.  To stratify by number of children served, we calculated the 
average number of children served, and then designated subgrantees as 
low or high volume, according to where they fell in relation to the average. 
We then randomly selected subgrantees from each of the four groups: 
low-volume child placement agencies, high-volume child placement 
agencies, low-volume residential facilities, and high-volume residential 
facilities. 
In each State we randomly selected 16 foster care subgrantees.  In county-
run States, we randomly selected eight subgrantee files in each of the two 
selected counties.  In State D, one subgrantee did not fit our sampling 
criteria and was discarded in our analysis.  In State B, a few selected 
subgrantees had more than 1 contract with the State, bringing the total 
number of files reviewed up to 19.  (See Table 2.) 
Table 2:  Sample and Universe of Subgrantees 
Serving Title IV-E Eligible Children During States' 
Fiscal Year 2003 
State/County  Sample  Universe 
State A  16  472 
State B  19  132 
State C, County 1  8  224 
State C, County 2  8 68    
State D  15  172 
State E, County 1  8  132 
State E, County 2  8 49    
State F  16  263 
Total Subgrantees  98  1,512 
Although State D is primarily State-administered, a portion of the foster 
care program is privately administered.  For the purposes of this study, 
we focused only on the portion of State Ds program that is State-
administered. State D contracts with subgrantees through a central office 
and through local offices and regional offices.  Our file review included 
subgrantees hired by all three types of entities.  The vast majority of the 
subgrantees were selected from the States central office, as this entity 
has significantly more subgrantees than any of the regional or area 
offices. 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  19    A P P E N D I X   ~   B
CHARACTERISTICS OF MONITORING SYSTEMS IN SIX STATES 
To provide a more complete description of monitoring systems used by 
each State or county, this appendix describes routine monitoring 
mechanisms used in each State to ensure program and fiscal integrity. 
Each table contains three descriptive elements:  intended coverage, 
intended frequency, and actual utilization.   
First, intendedcoverageindicates the set of subgrantees for which the 
mechanism is supposed to be used. In some cases this will be all, as 
some mechanisms apply to all subgrantees.  However, some States use 
different monitoring mechanisms for certain subsets of subgrantees 
depending on subgrantee characteristics, such as type of services 
provided.   
The second column indicates the intendedfrequencyat which the
monitoring mechanism is supposed to be used.  
The actual utilizationcolumn describes whether the mechanism is 
meeting its intended coverageand intended frequency listed in the first 
two columns.  The numerator is the number of selected subgrantees that 
were actually monitored using the mechanism at the intended frequency.
The denominator is the number of subgrantees that were intended to be 
monitored using the mechanism at the intended frequency. 
Example: 
We selected 16 subgrantees in State X.   
Intended Coverage: State X intends to conduct program site visits 
for residential facilities only.  We selected eight residential facilities. 
Intended Frequency: State X intends to conduct program site visits 
annually. 
Actual Utilization:  Only four residential facilities actually received 
a site visit annually. Thus, for this mechanism the utilization 
column would read 4/8. (Four residential facilities actually received 
a site visit when eight were supposed to receive a site visit.) 
An empty space means the State does not use the mechanism. 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  20  A P P E N D I X ~ B  S T A T E  A 
State A: Characteristics of Program and Fiscal Monitoring Mechanisms 
Intended  Actual 
Monitoring Mechanism  Intended Coverage 
Frequency  Utilization 
Program Monitoring 
CPA  Every 2 years  8/8 
Licensing Site Visit 
Non-Mental Health RF  Annual  2/2 
Desk Review/Site Visit  Mental Health RF  Every 2 years  6/6 
Program Site Visit 
Additional Site Visit 
Fiscal Monitoring 
Single Audit 
CPA  Every 2 years  8/8 
Independent Financial Audit 
Non-Mental Health RF  Annual  2/2 
Internal Fiscal Review 
CPA=Child Placement Agency  Total Number of Sampled Subgrantees = 16 
RF=Residential Facility 
Important Characteristics of State A 
In State A, monitoring varies depending on subgrantee characteristics.  All child placement 
agencies are monitored by one department.  This department also monitors residential facilities 
with no mental health services.  A second department monitors residential facilities with mental 
health services.   
Child placement agencies and non-mental health residential facilities receive regular licensing 
visits that focus on compliance but also incorporate some program site visit components.  These 
licensing visits are conducted by program monitoring staff.  Residential facilities with mental 
health services receive a licensing site visit initially and then every 2 years receive a desk review 
to renew their license.  The row in the table marked Desk Review/Site Visit reflects this. 
As evidenced in the table, residential facilities with mental health services do not receive any 
form of fiscal monitoring for Title IV-E funds.  As noted, these same subgrantees do not receive 
any licensing site visits after the initial visit.  
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  21  A P P E N D I X ~ B  S T A T E  B 
State B:  Characteristics of Program and Fiscal Monitoring Mechanisms 
Intended  Actual 
Monitoring Mechanism  Intended Coverage 
Frequency  Utilization 
Program Monitoring 
Licensing Site Visit  All  Every 2 years  17/19 
Program Site Visit  All  Every 12-18 months  8/19 
Additional Site Visit 
Fiscal Monitoring 
Single Audit  New Subgrantees  Annual  4/4 
Independent Financial Audit  Old* Subgrantees  Annual  7/15 
Internal Fiscal Review 
* Subgrantees that have received grants  Total Number of Sampled Subgrantees = 19 
from the State for over 1 year. 
Important Characteristics of State B 
For their first year of contracting with the State, subgrantees must submit a Single Audit.  The 
State requires independent financial audits of all other subgrantees.  State staff set rates for each 
new subgrantee using the subgrantees Single Audit.  The State legislature has assumed the 
responsibility of setting any rate increases after the first year.  This State also requires Single 
Audits for a handful of subgrantees whose rates are set by a competitive bidding process.  These 
subgrantees offer certain difficult-to-provide services. 
Historically, the annual audit was an integral part of setting the rates the State paid for foster 
care services.  However, ever since the State legislature decided to set State foster care rate 
increases, the rate-setting office has had little use for the audits.  They continue to receive and 
track the submission of the audits due to historical precedence.  They have also maintained the 
responsibility of reviewing the audits although they only do so to determine if there are basic 
solvency issues that would warrant contract termination.  
Although staff intends to conduct licensing visits every 2 years and program site visits every 12 to 
18 months, our review found that not all subgrantees received these visits.  The State used to 
conduct visits annually but has begun to conduct them less frequently due to a reduction in staff. 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  22  A P P E N D I X ~ B  S T A T E  C 
State C, County 1:  Characteristics of Program and Fiscal Monitoring Mechanisms 
Intended  Actual 
Monitoring Mechanism  Intended Coverage 
Frequency  Utilization 
Program Monitoring 
State Licensing Site Visit  All  Annual  3/8 
Full visit - every 3 years 
CPA  4/4 
County Program Site Visit  Partial visit - annual 
RF  Annual  4/4 
County Additional Site Visit  RF  Quarterly  4/4 
Fiscal Monitoring 
Single Audit 
State Independent Financial Audit  All  Annual  8/8 
State Internal Fiscal Review  Randomly Selected  RF  Annual  0/0 
CPA = Child Placement Agencies    RF = Residential Facilities  Total Number of Sampled Subgrantees = 8 
State C, County 2:  Characteristics of Program and Fiscal Monitoring Mechanisms 
Intended  Actual 
Monitoring Mechanism  Intended Coverage 
Frequency  Utilization 
Program Monitoring 
State Licensing Site Visit  All  Annual  4/8 
Intensive Treatment CPA  Quarterly  1/1 
County Program Site Visit 
RF  Annual  4/4 
Additional Site Visit 
Fiscal Monitoring 
Single Audit 
State Independent Financial Audit  All  Annual  7/7 
State Internal Fiscal Review  Randomly Selected RF  Annual  0/0 
CPA = Child Placement Agencies   RF = Residential Facilities  Total Number of Sampled Subgrantees = 8 
Important Characteristics of State C 
According to staff in both counties, monitoring resources focus on residential facilities because of 
the direct, daily contact these facilities have with children in foster care.  For County 1, this focus 
on residential facilities translates into annual comprehensive site visits, as well as quarterly site 
visits intended to provide both targeted monitoring and technical assistance. 
Although this State is county-administered, State staff retain primary responsibility for licensing 
and fiscal monitoring of all county subgrantees. We found evidence in both counties that State 
staff were not licensing all subgrantees in a timely manner. The State used independent financial 
audits to routinely monitor subgrantees fiscal performance, during the time period we reviewed.  
In 2003, this State began monitoring subgrantees through Single Audits rather than independent 
audits. The State also conducts internal fiscal reviews on a small number of randomly selected 
residential facilities to ensure that services are provided commensurate with their assigned rate. 
To supplement these reviews, County 1 conducts targeted fiscal audits on about a dozen poorly 
performing subgrantees a year.  Because this mechanism is only used in response to identified 
problems, it is not reflected in the chart as one of the countys primary monitoring mechanisms. 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  23  A P P E N D I X ~ B  S T A T E  D 
State D:  Characteristics of Program and Fiscal Monitoring Mechanisms 
Intended  Actual 
Monitoring Mechanism  Intended Coverage 
Frequency  Utilization 
Program Monitoring 
Licensing Site Visit  All  Every 2 years  15/15 
Program Site Visit 
Additional Site Visit 
Fiscal Monitoring 
Single Audit 
Independent Financial Audit  All  Annual  14/14 
Internal Fiscal Review 
Total Number of Sampled Subgrantees = 15 
Important Characteristics of State D 
State Ds fiscal monitoring includes Single Audits.  However, since foster care funds are 
misidentified as Social Services Block Grant funds, auditors do not review subgrantees 
compliance with Title IV-E requirements.  Due to this error, these subgrantees Single Audits do 
not provide a more comprehensive review of program funds than routine independent fiscal audits 
would. Thus, the table indicated that subgrantees receive an independent financial audit and not 
a Single Audit.  This State supplements the financial audit by requiring auditors to submit 
additional schedules and opinions on subgrantees financial position.   
State Ds routine program monitoring consists solely of biennial licensing visits.  Foster care 
program monitoring staff in this State rely on a complex network of other oversight entities (such 
as case workers, licensing staff, and fiscal monitoring staff) for referrals of problems with 
particular subgrantees. 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  24  A P P E N D I X ~ B   S T A T E   E  
State E, County 1: Characteristics of Program and Fiscal Monitoring Mechanisms 
Intended  Intended  Actual 
Monitoring Mechanism 
Coverage  Frequency  Utilization 
Program Monitoring 
State Licensing Site Visit  All  Annual  8/8 
County Program Site Visit  All  Annual  8/8 
Additional Site Visit 
County Reports  PBC Subgrantees  Monthly  2/2 
County Reports  PBC Subgrantees  Twice a year  2/2 
Fiscal Monitoring 
Subgrantees receiving 
County Single Audit  $300,000 or more in  Annual  1/1 
Federal funds 
Subgrantees receiving less 
County Independent Financial 
than $300,000 in Federal  Annual  7/7 
Audit 
funds 
Internal Fiscal Review 
PBC Subgrantees = Subgrantees contracting under the County's  Total Number of Sampled Subgrantees = 8 
Performance-Based Contracting System 
State E, County 2: Characteristics of Program and Fiscal Monitoring Mechanisms 
Intended  Intended  Actual 
Monitoring Mechanism 
Coverage  Frequency  Utilization 
Program Monitoring 
State Licensing Site Visit  All  Annual  8/8 
County Program Site Visit  All  Quarterly  4/8 
Additional Site Visit 
Fiscal Monitoring 
Subgrantees receiving 
County Single Audit  $300,000 or more in  Annual  7/7 
Federal funds 
Independent Financial Audit 
Internal Fiscal Review 
Total Number of Sampled Subgrantees = 8 
Important Characteristics of State E 
County 1 in State E uses performance-based contracting for child placement agencies that serve 
more than 50 children. In addition to the countys routine program monitoring, these subgrantees 
must submit two reports related to their performance-based contracts. 
All subgrantees in State E are subject to requirements for Single Audits.  According to these 
requirements, subgrantees receiving less than $300,000 in Federal funds are not required to 
submit a Single Audit. (Since our review, OMB has raised this threshold to $500,000.)  For 
subgrantees subject to a Single Audit, County 1 requires auditors to submit additional schedules 
and opinions on subgrantees financial position.  For subgrantees receiving less than $300,000 in 
Federal funds, County 1 requests that subgrantees submit a traditional independent fiscal audit.   
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  25  A P P E N D I X ~ B  S T A T E  F 
State F: Characteristics of Program and Fiscal Monitoring Mechanisms 
Intended  Actual 
Monitoring Mechanism  Intended Coverage 
Frequency  Utilization 
Program Monitoring 
Licensing Site Visit  All  At least annual  13/16 
Desk Review/Site Visit  All  Annual  16/16 
Program Site Visit 
All except Emergency 
Additional Site Visit  Annual  15/15 
Shelters 
Fiscal Monitoring 
Single Audit 
Independent Financial Audit 
Internal Fiscal Review  All  Annual  16/16 
Total Number of Sampled Subgrantees = 16 
Important Characteristics of State F 
State F has a unique approach to monitoring.  The State uses one site visit that incorporates both 
program monitoring and an internal fiscal review.  Also, State F systematically varies its 
monitoring practices based on an assessment of subgrantee risk.  The State uses a risk-based 
approach for most fiscal and program monitoring and assigns subgrantees a separate risk 
designation for licensing site visits, program desk review/site visits, and internal fiscal reviews. 
This State assesses about 100 different factors using three instruments to determine subgrantees 
risk designations.  These factors range from the subgrantees level of internal controls to the 
subgrantees history of noncompliance with requirements to the experience level of the 
subgrantees key management staff.  For program desk reviews/site visits, risk factors are 
weighted according to their relative importance, and subgrantees are assigned risk designations 
based on the aggregation of weighted risk points.   The frequency and intensity of each 
monitoring mechanism depends on a subgrantees risk designation.   
While State F utilizes program desk reviews/site visits and internal fiscal reviews at 100 percent, 
because the State uses a risk-based approach, not all selected subgrantees were actually visited.  
All selected subgrantees were evaluated, using the risk assessment instruments, to determine 
whether the subgrantee needed to be visited and the intensity of the monitoring during the visit. 
For example, the risk assessment determines whether the subgrantee needs to have a program 
site visit or a desk review.  While all subgrantees risk levels were assessed, 10 subgrantees 
actually received a program site visit, and 8 actually received a site visit including an internal 
fiscal review. 
All subgrantees, except emergency shelters, also receive an additional site visit.  This additional 
site visit determines the level of care a subgrantee is able to provide.  The level of care the 
subgrantee is authorized to provide dictates the rate it will receive per child. 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  26  
 A C K N O W L E D G M E N T S
This report was prepared under the direction of William Moran, Regional 
Inspector General for Evaluation and Inspections in the Chicago regional 
office.  Other principal Office of Evaluation and Inspections staff who 
contributed include: 
Susan Otter, Team Leader 
Ann Maxwell, Team Leader 
Mara Siler-Price, Lead Analyst 
Anna Fleming, Program Analyst 
Laura Torres, Program Analyst 
Sara Zuiderveen, Intern 
Linda Hall, Program Specialist 
Elise Stein, Director, Public Health and Human Services Branch 
Technical Assistance  
Barbara Tedesco, Mathematical Statistician 
  OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT  27  
 E N D   N O T E S
1	 According to Administration for Children and Families (ACF) 
estimates, 810,000 children spent some time in Title IV-E foster care 
during Federal FY 2002.  There were an estimated 534,000 children in 
Title IV-E foster care on September 30, 2002.  Retrieved       
March 11, 2004 from: 
www.acf.hhs.gov/programs/cb/dis/afcars/publications/afcars.htm. 
2	 We use the term subgrantee, as opposed to terms that are commonly 
used by States but have specific technical definitions in Federal grants 
management requirements, such as contractor or subrecipient.   
3	 Task Force members include staff from:  the Office of Management and 
Budget (OMB); the Departments of Health and Human Services (HHS), 
Transportation, Agriculture, Education, Justice, Labor, and the Navy; 
the Federal Emergency Management Agency; the National Science 
Foundation; and the States of Louisiana and Texas.   
4	 A 2002 Government Accountability Office (GAO) study, Welfare 
Reform: Federal Oversight of State and Local Contracting can be 
Strengthened, GAO-02-661, 2002, examined State and local agency 
monitoring of subgrantees receiving Temporary Assistance for Needy 
Families funds, and found that ACF staff were not aware of monitoring 
problems identified in States Single Audit reports.  These audit reports 
cited weaknesses in States monitoring, including inadequate fiscal and 
program monitoring of local contracting entities. 
Congress has also expressed concern that the Health Resources and 
Services Administration (HRSA) does not adequately monitor grantees 
oversight of their subgrantees.  Consequently, in 2001, the Senate 
Finance Committee requested that the Office of Inspector General 
(OIG) review HRSAs oversight of Ryan White CARE Act Title I and 
Title II grantees and grantees oversight of their subgrantees. 
5	 The National Survey of Child and Adolescent Well-Being (NSCAW) 
found that at least 90 percent of States used subgrantees to provide 
child placement and residential care that specifically includes 
treatment.  This study did not include other commonly used private 
residential facilities, such as group homes, residential schools, or 
OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT	 28  emergency shelters in their survey.  Further, there has been little 
research into the extent to which States use subgrantees:  whether 
States use subgrantees to serve a small subgroup of the States foster 
children or for the majority of foster children in the State.  The NSCAW 
reports that 70 percent of States use subgrantees statewide to provide 
residential treatment services, and an additional 26 percent use 
subgrantees in some counties.  The NSCAW local agency survey also 
found that using subgrantees to provide foster care services is more 
common in urban areas, larger counties, larger agencies, and State-
administered foster care systems.  Department of Health and Human 
Services, Administration for Children, Youth, and Families, National 
Survey of Child and Adolescent Well-Being:  State Child Welfare 
Agency Survey:  Report and National Survey of Child and Adolescent 
Well-Being:  Local Child Welfare Agency Survey:  Report, Washington, 
2001. 
6	 Petro Issues Montgomery County Foster Care Audit, Ohio Auditor of 
State News Release.  February 10, 2000. 
7	 There are two sets of HHS regulations that provide Uniform 
Administrative Requirements:  45 CFR Part 74, which typically applies 
to awards to nongovernmental entities, and 45 CFR Part 92, which 
typically applies to awards to governmental entities.  Until very 
recently, States receiving Title IV-E funds were subject to the 
requirements under 45 CFR Part 74, which are very similar to those 
under 45 CFR Part 92.  Recently, HHS re-designated Title IV-E State 
grants to be subject to 45 CFR Part 92. 
8	 OMB Circular A-133, __.400(d) states that . . . a pass-through entity 
shall perform the following for the Federal awards it makes:     
. . . (3) Monitor the activities of subrecipients as necessary to ensure 
that Federal awards are used for authorized purposes in compliance 
with laws, regulations, and the provisions of contracts or grant 
agreements and that performance goals are achieved. 
9	 This State also requires Single Audits for a handful of subgrantees that 
have their rates set by competitively bidding to provide certain 
difficult-to-provide services. 
10 45 CFR  74.81. 
OEI-05-03-00061  STATES MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT	 29