:11
FOSTER CARE ADINISTRTIVE COSTS

OFFICE OF INSPECTOR GENERAL 
OFFICE OF ANALYSIS AND INSPECTIONS 
19P 
OCTOBER  Office of Inspector General

The mission of the Office of Inspector General (OIG) is to 
promote the efficiency, effectiveness and integrity of programs 
in the Uni ted SIa es Department of Heal th and Human Services 
(HHS). It does this by developing methods to detect and prevent
fraud, waste and abuse. Created by statute in 1976, the 
Inspector General keeps both the Secretary and the Congress fully 
and currently informed about programs or management problems and 
recommends corrective action. The OIG performs its mission by
conducting audits , investigations and inspections with 
approximately 1 200 staff strategically located around the 
coun try. 
Office of Analysis and Inspections

This report is produced by the Office of Analysis and Inspections 
OIG. 
(OAI), one of the three major offices within the  The other 
Investigations. 
two are the Office of Audit and the Office of 
The OAI conducts inspections which are typically short term 
studies designed to determine program effectiveness, efficiency 
and vulnerability to fraud or abuse. 
This Report

Entitled  Administrati ve Costs 
Foster Care  , this study was 
conducted to evaluate the high absolute levels and wide variation 
among States in Title IV-E foster care administrative and 
training costs. 
The report was prepared by the Regional Inspector General , Office 
Participating in this 
of Analysis and Inspections, Region V. 
project were the following people: 
William 
C. Moran 
Theodore L. Koontz 
Carolyn Kelley
Aquilla 
R. Box 
Laura Chierici  FOSTER CARE ADMINISTRATIVE COSTS

RICHARD P. KUSSEROW

INSPECTOR GENERAL

OAI-05-87-000l2 
October 1987  - .
EXECUTIVE SUMRY

PURPOSE  The purpose of this inspection was to evaluate the 
seemingly high absolute levels and wide variation among States in
ti tle 
This 
IV-E foster care administrative and training costs. 
invol ved an examination of: 
cost; 
indicators of fvster care administrative 
transfer of costs from the Stat s to the Federal Government;

efficiency of State program operations;

Office of Human Development Services (OHDS) performance in

handling administrative cost issues; and

legislative approaches to cost containment.

BACKGROUND  Public Law (PL) 96-272 (the Adoption Assistance and 
Child Welfare Act of 1980) established title IV-E of the Social 
Securi ty Act, and was seen as a means of reforming foster care 
States. At 
and adoption assistance in the United  the time the 
Act was passed, it was believed that the public child welfare 
system had become a holding system for children living away from 
their parents with little hope of either being reunited or 
achieving a permanent heme. 
Ti tle IV-E provided for Federal paYment of 50 percent of the 
administrative costs, 75 percent of the training costs and a 
variable share (not less than 50 percent) of the maintenance 
cost associated with the care of eligible foster care
children. 
Funds' were also made available for adoption 
assistance to aid in the placement of special needs
children. 
Congress believed that title IV-E administrative and 
training costs would not exceed 10 percent of maintenance 
cost and that total expenditures for foster care would be
capped. 
Except for Fiscal Year (FY) 1981, the provisions
for triggering the cap were never met. 
For all practical 
purposes, the foster care program has functioned as an
enti tlement 
program since its inception. 
Federal expenditures for title IV-E foster care 
administrative and training costs have been much greater
than expected. 
Between FYs 1981 and 1985 these costs rose 
by more than 438 percent - from $30. 4 to $163. 4 million. 
The average number of title IV-E children served each month 
000. 
rose only about 5 percent - from 103 000 to 108,  Over 
this same period, the overall ratio of administrative and 
training costs to maintenance costs rose from . 11 to . 49.  MAJOR' FINDINGS  The rise in total Federal share of foster care 
administrative and training costs and the wide variation among 
states in the ratio of administrative to maintenance costs were
unanticipated. 
Some analysts argue that States are either 
charging for unallowable administrative expenses or operating

inefficiently. 
Foster care administrative costs are alleged to 
ost of running the Aid 
be far out of line when compared with the 

to Families with Dependent Children (AFDC), Medicaid and Food

stamp programs.

The title IV-E definition of administrative costs covers a

wide variety of program and service activities that would

not be viewed as administrative costs under AFDC, Medicaid

or Food Stamps. 
These include: referral to services; 
preparation for and participation in judicial

determinations; placement in foster care; development of a

supervision;
case plan; case reviews; case management and 
institutions; 
recrui tment and licensing of foster homes and 
rate setting; and a proportional share of agency overhead. 
The differences in the definition of allowable

administrative costs make comparisons among these programs

difficul t and 
for the most part inappropriate. 
Some of the variation in foster care administrative costs 
appears to be the result of differing State strategies or
abili ties to claim costs 
, and not because of differences in 
effort or efficiency. Not all States have in place systems 
costs. 
necessary to document all allowable administrative 
Some have chosen to deliberately underclaim costs in order 
to transfer leftover amounts to title IV-B child welfare
services. 
Because of this, some measures of relative State 
performance such as administrative cost per child and the 
ratio of administrative to maintenance costs better reflect 
charges  costs
running tto hthee Fe depralr Goovegrnmrenat rmather.  than the

Similarly, the use of percent change 
in administrative cost to measure relative growth over time 
is complicated. Many States had an artificially low base 
in the early years due both to their inability to claim all 
appropriate costs and the absence of required program 
components. 
States maintain they are charging the Federal Government

only for administrative costs allowed by the legislation and

necessary for the operation of their programs. 
The proposed 
reduction in Federal paYment for administrative costs is

seen as transferring these expenses back to the States

rather than controlling costs per se. 
The OHDS has sought to narrow the scope of allowable
administrati ve costs 
by requiring that the expense of 
such activities as preplacement services and the recruiting  ... 
and licensing of foster care providers be prorated on the

- basis of the ratio of IV-E to non-IV-E children. A March 
1987 decision in a case brought by Missouri before the 
Departmental Grant Appeals Board appears to have limited the
abili ty of 
OHDS to control these types of costs by defining 
as payabl  - a variety of services which OHDS had previously 
sought to exclude. The full implications of this decision 
are yet to be determined. 
RECOMMENDATIONS  Over the last several months, OHDS has taken 
steps to evaluate the management of the foster care program and 
is currently involved in a structural realignment aimed at 
improving its own performance. - There are a number of additional 
short and long range actions which can be taken to help achieve 
this objective: 
Seek interpretation of the Missouri decision of the Grant

Appeals Board and issue a policy clarification to the

States. 
Conduct and issue an analysis of cost allocation plans

(CAPs) and eligibility determination systems used by

States that have employed consultants who allegedly

push interpretation of the Act and regulations to the

t . 
imi 
Develop a national protocol for use by regional office staff 
in the routine evaluation of CAPs. Both program and
financial staff should be involved in these reviews. 
Revise the methodology for conducting retrospective

administrative cost reviews to incorporate a broader look

at the relationships between cost, program effort, and

program outcomes. 
Reevaluate the effectiveness of PL 96-272 in reforming the 
foster care delivery system and encouraging adoption.
Include an examination of the: 
- incentive structure in the Act; 
- continued funding of foster care on an income-related

basis; 
- tradeoffs between reduced rates of participation and

expanded client coverage; and

- elimination of artificial distinctions between

administrati ve and maintenance costs. 
AGENCY COMMENTS  In its comments on this inspection, OHDS states

believes the report to be a valuable addition to the

that 
body of knowledge about administrative costs in the title IV-E

iii
 program and that (the inspection) makes observations that (OHDS 
hasl tried to communicate about the complexity of the legislation 
and state administration... " The OHDS indicates that it  ... will 
seriously consider each of the recommendations... (and has) 
already begun implementation of some or parts of some of the
recommendationS-
The OHDS indicated that in the draft inspection report the impact 
of the findings in the Missouri decision of the Grant Appeals 
Board was overstated. We have now included the full text of this 
decision as Appendix C of this final report for the reader to
examine. 
The OHDS was also concerned that the discussion of the 
agency  s opinlon on cost transfer by the states was also 
inaccurate. A review of the discussions with OHDS Headquarters 
and regional office personnel, along with the interviews of state 
officials, confirmed that there was a widespread perception that 
OHDS  considered many expanded state claims for foster care 
aildlmeingiastlr.a tIifv e cost highly inappropriate if not specifically
these perceptions do no reflect official OHDS 
policy, then a clarifying policy memorandum might be needed. 
In order that the Office of Inspector General (OIG) may track the 
specific response to this report, it is recommended that OHDS 
provide an agenda and timetable for the recommendations it plans 
to implement and an additional explanation of why some, or parts 
rejected. 
of some, recommendations have been  -- 
TABLE OF CONTENTS

Page 
EXECUTIVE  SUMRY 
INTRODUC':ION 
Purpose and Obj ecti ves 
Methodology
Background 
Table 1 
II. 
FINDINGS AND ANALYSIS 
Overview 
Review of Indicators 
Transfer of Costs to the Federal Government 
Missouri Decision of the Departmental Grant 
Appeals Board 
Efficient Operation of the Program 
OHDS Handling of Administrative Cost Issues 
Legislative Approaches to Cost Containment 
III. 
RECOMMENDATIONS 
Short Term Recommended Actions 
Long Term Recommended Actions 
OHDS Response and Recommended FOllow-up 
APPENDIX A 
Table 1 
Table 2 
Table 3 
Table 4 
APPENDIX B 
OHDS Comments 
APPEND IX C 
Departmental Grant Appeals Board
Decision: 
Missouri Department of 
Social Services, Docket No. 85-209, 
Decision No. 844, March 2, 1987  NTRODUCTION 
Purpose and Obj ecti ves 
his inspection was to evaluate the seemingly high 
The purpose of 

absol ute levels and wide variation among states in title IV-E 
costs. 
foster care administrative  This involved an examination
of: 
indicators of foster care administrative cost; 
transfer of costs from the States to the Federal

Government; 
efficiency of state program operations;

issues;
the OHDS performance in handling administrative cost 
and 
legislative approaches to cost containment.

Questions emerged from this inquiry regarding whether foster care 
inappropriate, 
administrative costs were more unanticipated than 
the extent to which the level and rate of growth of these costs 
actually constitute a serious problem for the Department, and

what standards should be used to judge the appropriateness of

these administrative costs. 
Methodology 
This inspection built on work which was done as part of the

Program Inspection of AFDC, Medicaid and Food stamp 
1986. 
Administrative Costs" issued in December  For that 
study, discussions were held with personnel of the Office of the 
Secretary, Department of Health and Human Services (HHS) and the
invol ved Operating Divisions (OPDIVs). Si te 
visits were made to 
10 States and a representative from OIG participated as a member 
of a work group on welfare administrative costs established by 
the Office of the Assistant Secretary for Planning and Evaluation 
(ASPE) during the fall of 1986. 
In order to gather additional data specifically related to foster 
care administrative costs, discussions were held with 
Headquarters and/or regional office personnel from the Office of 
Management and Budget (OMB), the Office of the Assistant 
Secretary for Management and Budget (ASMB), ASPE and OHDS. 
addi tion, site visits were made to nine States (Pennsylvania,
Maryland , Georgia, Florida, Indiana, Illinois, Minnesota, Oregon 
issues. 
and Washington) to get their insight into these  The 
States selected did not constitute a random sample of experience 
and as such were not formally representative of the national  experience as a whole. However, they are geographically 
disbursed and provide some cross-national representation. Also, 
they give a sense of some regional contrasts between relatively 
high and low cost States (Maryland vs. Pennsylvania; Georgia vs. 
Florida; Illinois and Minnesota vs. Indiana; and Washington vs.
Oregon) . 

In addition to the discussions, cost allocation materials from 
reviewed. Also 
each of the above States were  examined were draft 
reports prepared by OHDS as part of their internal studies of 
administrative costs, task force documents, and contract studies. 
Background 
The PL 96-272 (the Adoption Assistance and Child Welfare Act of 
1980) established title IV-E of the Social Security Act which was 
seen as a means of reforming the Nation s approach to foster care
and adoption. The first Notice of Proposed Rulemaking described 
the impetus behind this legislation as the: 
Belief of Congress and most State Child Welfare 
administrators, supported by extensive research, that 
the public child welfare system responsible for 
serving children, youth and families had become a 
receiving or holding system for children living away 
from parents, rather than a system that assists 
parents in carrying out their roles and 
responsibili ties and provides alternative placement 
for children who can not return to their own homes. 
Studies (had shown) that under (then) current pOlicies 
and procedures, thousands of children (were) stranded 
in the public foster care system with little hope of 
being united with their families or having a permanent 
home through adoption or other permanency planning, 
thereby causing harm to the children and high costs to 
the States.  ( Federal Register/Vol. 45, Number 
252/Wednesday December 31, 1980/Rules and Regulations, 
p. 86818).

Ti tle IV-E provides for Federal paYment of 50 percent of the cost 
of the proper and efficient administration of the State plan for 
foster care and for 75 percent of the cost of training for 
persons employed or preparing for emploYment by the agency 
administering the plan. Maintenance costs for eligible foster 
care children are matched at a rate which varies between 50 and
75 percent. Ti 
t1e IV-E established a separate category of funds 
to assist the states in subsidizing the adoption of special needs
children. 
The legislation also amended title IV-B of the Social Security 
Act which authorized funds for child welfar.e services. Under the  new provisions, States which wished to receive more than a

minimal level of IV-B funding were required to establish new case

review systems, case planning designed to achieve placement of

foster care children in the least restrictive settings

administrative _Qr court review of the child' s situation every 6

months, and dispositional review by a court no later than 18

months after placement.

The legislation included a complex set of interrelated provisions

aimed at lessening the incentives for long term foster care and

at encouraging and facilitating adoption, particularly for

special needs children. state foster care plans were required to

provide for coordination between title IV-E foster care and

adoption assistance, title IV-B child welfare services and title

XX social services. Previously, foster care had been funded on

program. 
an open-ended basis as part of the AFDC  The new title 
IV-E foster care funds were to be capped, while funding of the

new adoption assistance program was to be an open-ended

enti tlement. 
If a state spent more than the cap on foster 
care, it would have to absorb the difference. If a state

spent less on foster care than the cap, it could transfer

the difference to title IV-B, where it could be used in a

less restrictive manner.

The foster care cap was to be imposed only when title IV-B child

1981 $163. 
welfare funding reached a certain trigger level (FY 
million; FY 1982 $220 million; and FYs 1983, 1984 and 1985, $266

million).  appropriated. 
Only in FY 1981 was the trigger amount 
Therefore, the title IV-E foster care program has operated as an

enti tlement program in all but 1 year since its inception. 
Wi th the failure of the cap on total IV-E reimbursement, some 
states found it advantageous to obtain title IV-E eligibility for 
as many foster care children as possible and to also ddooclulmaern.t  
every possible eligible administrative and training 
the absence of the cap, the amount which they receive over the 
hypothetical ceiling for foster care more than compensates for 
transfer. 
the loss of IV-B flexibility which would be gained from 
But there are a variety of factors that go into a State 
funds. 
decision on whether or not to transfer  Simple income 
rule. 
maximization is not always the 
Table 1 below presents selected national statistics on the title

1985. 
IV-E foster care program for FY 1981 through FY  (Tables 1 
to 4 in Appendix A present data on individual states and the

District of Columbia over the same time period.  Between FY 1981

and FY 1985, the number of children served rose about 5

193. 
percent--from 102 991 to 108,  The total Federal share of 
administrative and training rose by 438 percent--from $30.

million to $163. 4 million. The ratio of the Federal share

administrati ve and trai4n9in.g  costs to maintenance cost rose 346
percent--from . 11 to .  In FY 1985, five States (Arizona,  Maryland, Missouri , Washington and West Virginia) had claims for
administrati ve and training cost greater than for maintenance.  Table 1

, Foster Care 
Federal Expenditures for Title IV-E
Costs, Average 
Administrative, Training and Maintenance 
Monthly Number of Children Served and Percent Changes 
Fiscal Years 1981-1985. 
FISCAL YEA  PERCENT 
CHANGE 
1981  1982  1983  1984  1985  1981-1985 
FEDERA SHAE (rS)
TITLE IV-E 
ADMINISTRATIVE  $30.  $72.  $ll7. 9  $147.  $163.  +437. 
AND TRAINING 
COSTS (S MILLION)

FEDERA SHAB (rs)
TITLE IV-B 
POSTBR CARB  $278.  $301. 2  $276.  $297.  $333.  +19. 
MAINTBNANCB

COSTS

($ MILLION)

TOTAL  $308.  $373.  $394.  $445.  $497.  +60. 9t 
AVERAGB MONTHLY

NUMBER or  l02, 991  100, 200  98, 727  100, 787  108, l93  +5.

CHILDRBN SERVED

A VERAGB 
ADMINISTRATION  $295  $725  $l, 194  $1, 463  $1, 510  +411.

AND TRAINING

PER CHILD

AVERAGE rs

MANTBNANCB  $2, 703  $3, 006  $2, 805  $2, 955  $3, 083  +l4. 
PER CHILD

(ADINISTRATION

+345.

AND TRAINING)/ 
MAINTBNANCE

Congress did not anticipate that administrative costs would ever 
reach the levels that have been attained. The Conference Report 
made no reference to administrative costs per se, implying that 
inclusion of these expenses was noncontroversial. One respondent 
history, 
contacted, who was familiar with the legislative 
recalled that when the legislation passed it was estimated that 
foster care administrative cost would be less than 10 percent of 
1985. 
maintenance, as compared to the 49 percent it reached in  made 
The language of the legislmaitniiomna lo peexnpeedc ttahtei odnoso.r  Tfhoer  Astcatt e
 s to

make claims beyond thes

reference to allow" ifnogu npda ynmeecnetsss afroyr  bayd mtihnei sstercarteit"va erw yia tnfhdo  rnt Ort
 ahien ipnrgo
per
costs in amounts

and efficient administration of the state plan

(except for training) as to what would actually be

deelfiignii btlieon.
 
However. the requirements for the state plan included 
in section 471(a) of the Act and the definitions in section 475

incorporate a long list of required procedures and safeguards

that were seen as necessary for reform of the foster care

program. 
The regulations further provided ar elfiesrtrianlg  toof  saedlrevltioecwreamsb;iln

 ations;
reviews; 
administrative costs including: 
preparation for and participation in judicial 
placement of the chilsdu:p edrevvieslioopnm:e nrte corfu iat mceanste  apnlda nl;i cceansseing of

setting: and a proportional

case management and 
foster homes and institutionTsh;e  rlaitset
 of specific activities which

share of agency overhead. 
may not be claimed as psaorcti aolf  saedrmviinciesst rpartoivvied ecdo sttos  tcihoseu  nmcsuhceihlli
dn ga nodr

shorter and includes "

the child' s family or foster family which provid

treatment to ameliorate or remedy personal problems,

behavio  or home conditions. 
II. 
FINDINGS AND ANALYSIS 
overview 
Some analysts of the foster care program cite the basic numbers

and statistics on administrative cost as if thethy ep rpoovsiditeio pnr ithmaa
 t,
arguents is 

facie evidence that the unanticipated expenditures are per se

inappropriate. Typical of these 
if state X can run its foster care program for a per unit

(2) state Y is

administrative and training cost of 25 or 50 percent of state

y' s.  providing uncovered
then (1) state X Gios vmeorrnee enft ftihcei ecnots ot ro f 
When a state 
charging the Federal

activities and/or serving ineligible children. 
spends 50 cents or more on administsrhatairoen.  fIofr  every dollar

the administrative
food.
it pays out in maintenance, it is argued that the bureaucracy

must be taking more than its fair  child. 
lesS, there would be more money Qfuoers tsieornvsi caerse, 
 asked
costs were 

shelter and clothing for the needy  463 as opposed

regarding why in 1984 the average Federal share of foster care

administrative and trainiAnFgD Cc. ost per child was $1,

to $94 per recipient in 
, it is necessary to

used. 
In order to deal with these kinds of issues 
first examine how the indicator numbers can and should be 
 efficiency, inappropriate 
Then such questions as rGeolavteirvnee nstt,a atne d OHDS efforts at cost
charges to the Federal
containment can be considered. 
Review of the Indicators

numbers, often used as indicato

An examination of four basic 

state foster care performance over time, illustrates why to date

iotf  thhaes  pbereong rdaimfft.ii  cvTheuesel a rtae:  ntdo  tdroa iann(i y1n)  gs yFcseotdseetmrsaa;tli (c s2 h)sa trFaeet dioseft raiIclV a-slEh  aaf-rn oeEas  ltofyeofs rsIi
Vtse 
 -r E
care administra  costs; ( 3) average number of IV 
foster care maintenance  (4) Federal share of administration

care children per month; Ean dc
hild. 
and training cost per IV-

Analysts have lOoked at these numbers and rates at a particular

time. 
point in time, the rate of change oSvoemre  tsitmued iaensd  htahvee  vaalrsiOa ttiroine
d to 
among states at a point in 

measure through the use of correlation coefficients and

regression analysis, the relationship between these variables and

a variety of demographic, organizational, and quality of output

variables. Such studies were designed to identify statisticallY 
significant relationships which would be interpreted as 
determinants of cost. 
ty with using these variables as program 
The most serious difficul 
charqes  to the Federal
performance indicators is that the Federal share of title IV-E

of running these programs.

administrative costs only represents the 
 actual cost 
Government and not the 

Both state and Federal respondents in this study agreed that

This includes both the

states vary widely in their ability to document the costs

eligible for IV-E administrative match. 

When the proportion

capacity to isolate all eligible expenses and also the ability to

low, total IV-E

identify every child who is IV-E eligibl 
of children identified as IV-E eligiblTeh iiss 
is because the

administrative costs are held down. 
E to non-IV-E foster care children is often used

ratio of IV-
to allocate some indirect costs and other cost poolS.

time, with a

In addition, the degree to which a state cyleaiamr si.n cTlhudise si sall

eligible administrative costs would vary over 

greater percentage included in the later

took time for some statesl etgoi sdleavetiloopn .t hAel scoo,s tt
he 
it  was 
because 
allocation systems required by the 
 it 
states (like congress) did not know how expensive 
 legislation.
or would be to provide the protective and planning services

required and now paid for under the 

The respondents indicated that states vary considerably in their

strategies for claiming costs ando fi,n  mtahxeiimri zpienrgc etphteiiorn sF erdeegraarld
 ing

the need for, or the advantages  of one state indicated clearly

reimbursement. The representative  that she knew they haads  gwreelalt laYs  umnadienrtcelnIaaVinmc-eBed,.   biFonot rho  rtadhdeemrmi  ntiiots  thwraaavste i
 ve

and -training costs, 

funds left over to transfer to title 

easier to get their counties to pick up the unmatched cost than

to get the state legislatuTrhee  troe sappopnrdoepnrti aitned iacdadtcieotdsi totsnh,aa ltt  hfweuh nepdnes r tcfheoenrt


child welfare services. 
In another state where counties

state becomes responsible for all foster care  costs, the state

that are claimed will increase. 

are also required to pay some of the foster care 

The
has lesS incentive to do tthhies  dsettaatiel,  wcoorukn ttiheast  hwaovuel da tr leesausltt  tihnr
 ee

full reimbursement. In 

options on how to claim their local costs for reimbursement. 

respondent indicated that for some officials simplicity was more

important than efficiency.

staff, and extra funding

It appears that in states where the financial management function

is furthest removed from program 

resulting from efficient collections goes to the general revenue

fund, the program people are lesS willing to push professional

staff to do the detailed recowrhde rkee etphien gs tnaetcee sfsianrayn cfioarls  timanafcnfoa,mg eet
mheenyt
 

maximization. In addition,  proof, 
staff are organizationallY distant from the program 

may see greater advantage to operating an audit-

noncontroversial cost allocation system rather than getting back

every Federal dollar. 
other- states in the sample Omnaek er eas psotnrdoenngt  ewfafso rfto rttoh rciagphttu rien  ehviesr
 y
possible Federal dollar. 
assertio  that the capping of title XX andi ntfhlea tfiuonnd,i nrpgeo qsousfii rbtelidet .lhei
s

IV-B at levels which do not keep up with 

state to get additional Federal funds from wherever 

This state and others in the sample have used a national

consul tant who haS taught them to establish sophisticated random 
moment sampling systems for capturing IV-E administrative and
E eligibl

training costs and other methods for identifying an increased

percentage of foster care children as IV

E children

Both the consultant and some state representatives indicated that

This is because the

it was more difficult to increase the percentage of IV-

than to identify other eligible costs. 

social service staff see thiS kind of activity as taking away

time that should be devoted to work on the substantive aspects of

a case. In addi t!on, several respondents indicated thabte cpaaurseen:t s
of potential foster care children have little incentive to

E eligibility determination. This is

cooperate in IV

(1) such cooperation may(  2i)n cpraeraesnet st hgee tp rnoob adbiirleictty  boefn eaf icth iflrdo'm
  
removal from the home: 
(3) there is already likely to

cooperation like they would when providing information in order

the state agency and the

to collect AFDC and Medicaid: and 
s intervention into the

be an adversarial relationship betwe

child.
parents, simplY on the basis of the state

life of the family to protect the 
 Given the differences in what statesm acdlea,i mi tf oirs  aidnmaipnpirsotprriaattieo nt oa
nd

how eligibility determinattihoinns  tairmee
 period comparailsoonnse .o fT htehree 
make either between or wi 
states ' performance based on the basic numbers 
simply is no commonly defined dependent variable (administrative 
cost) against which to plot variouS supposed causal events or
circumstances. Therefore, it is not surprising that neither the
ASPE) nor the internal

Maximums studies (contracted for by

regressio  analyses done by OHDS show any statisticallY
costs. This is
significant relationships between the factors they studied and

the Federal share of administrative and training 

because the explanatory models which they proposed did not

include factors related to the determinants of the claims

and charges, or the strategies of claiming.

In addition, we do not know whether the percent changes in

Federal share of administrative cost over time - for an

individual state or for the nactliaoinm e-d ,a rien  druees otuor ccehsa nugseesd,  ionr
 

the percent of cost actually

both. 
This is important because changes in percent of cost

claimed raise questions about potential cost shifting from

the states to the Federal Government, while changes in

resources used have implications for efficiency 

These problems are further compounded when the Federal share of

E children does

administrative or maintenance costs is corrected for the number

served, because the number of IV-

of IV-E children 
not reflect the same phenomenon in each state due to the

differences in the efficiency of the eligibility determinatio

process. It 
was reported that even where states are working to 
maximize both the number of children found eligible as well as

administrative costs identified, improving eligibility

determination systems takes much longer than implementing a new

cost allocation system. Also, the number of IV-E childreInt  iiss

usually the average number of children served monthly. 

possible that this figure masks differences in administrative

costs that may be associated with longer or shorter length of

stay in foster care.

In summary, some data are available on the charges to the Federal

Government for the administrative and training cost of the IV-E

foster care program. But there are no accurate figures on the
These charge data are further

actual administrative costs. 

complicated because disputes continue between the states and OHDS

with the data,

ems 
over the amount of administrativeG icvoesnt st haec tpuraolblly owed and paid to

a state for a particular year. 
it is impossible to make systemactoisct ,j utdhgem ernetass oanbso ufto rt hvea
riation

determinants of administrative 

among states wi thin a particular time period, or the rate of 
This is not to say that the costs in

growth over time. 
particular states or the overall rate of growth of these costs is
 the absence of common cost

fullY acceptable. But in 

determination or allocation methodOlogies that can be translated

into a set of common categories, the infosrtmuadtiieosn.  about these

events is better determined directly from individual case studies

and indirectlY from reviewing secondary  approach, this

(1) the transfer of

using a variation of the case study and (i 2n)d itrheec ta
lleged (3) 
inspection focused on four general topics:r care program: 
ta te costs to the Federal Government: 
) legislative

inefficienciny go fo fs atdatmesin iisnt rrautnivnien cg otshtes : faonsdt
 (4
OHDS handl 

approaches to cost containment.

Transfer of Costs to the Federal Government

Some OHDS officials have asserted that a growing number of states

are transferring costs to the FIend etreaslt iGmoovneyr nbmeefSno.tr  eHw ohtuihsceeh   Sotefhl
 eeyc
t

themselves should be paying.  Families, U. ner 
- committee on Children, You2t2h,  a1n9d8 7, the commissio

Families, OHDS stated

Representatives on April 

Administration for Children, Youth and 

that : 
It appears that states are finding ways to refinance

existing services through these entitlements and that

the growth in administrative cost does not reflect

increases in services or improved management.

, concerns were raised about the impact on

In additio

administrative cost of several consultants that are working with

services.
the states to improve systems for documenting these expenses and

counting clients eligible for 

costs.
In response to these concerns and in order to facilitate broader

objectives of cost containment, OHDS has tried to tighten the

program guidelines which define eligible administrative 

At various times OHDS has proposed legislation which would limit

Federal participation in administrative cost to an amount not

greater than 50 percent of the Federal share of maIiVn-tBe. nance costs

or which would make administrative and training costs for foster

assistance payable under title

care and adoptio

It is important to note that OHDS has not documented that states

are SystematicallY transferring ineligible costs to t(hFeO RFBe)d,e rOaHlD
S.

Governent. seven studies of foster care administrative cost 
But there was no

completed by the Financial operations Review Branch
 OIG' s

abuse. When 
did identify some miscellaneous problems. 

evidence found to demonstrate patterns of

(OA) did an audit of foster care administrative 
Office of Audit 
costs in Missouri (where claimed administrative costs had risen

precipitouSly) they found no serious problems of state violatio

of Federal regulations or guidelines.
 one 
allocation,
The OHDS has alSO presented no information to document hoW the

consul tant recommendations violate the regulations. 
respondent with responsibilitieS relating to cost 
stated that his office hsatdu dnioets  fboeuinndg  mdaejsoirg nteedc hbnyi ctahle  dciofnfsiuclutlatnitess

Rather, he explained, the major

the randomc moment 
wi th 
and implemented by the states.  broad.
problem needing correction appears to be one of eligible cost

tions which are unclear and too 

def ini 
guidelines to limit the

costs. 
The most salient 
The OHDS has tried through program 
issued policy

payout of funds for admin1i9s8t5r,a twihveen 
 it
85-0l)  which held that:

attempt was in November
ACYF-
01 (PA-
Announcement 85
Allowable costs related to foster care may include

the determination of eligibility, preparation for

placement, placement and referral costs before a child

is placed in foster care, but only for childdroeens
 not 
E.... Referral to services... 
actuallY placed in foster care and determined eligibl

for Title IV- with their 
ienvcaluludea tiinovnesst.i..g.a tSiionncse  otrh opshey scihcialld ro r mental

permanentlY placed out of foster

care, administrative

families or otherwis 
care are no longer in foster 

costs for services or other activities related to the

follow-uP or other permanent placement of children no

longer in Title IV-E foster care are not alelaolwsa bBloea.r
 d

of the De artmental Grant A

Missouri Decisio 
of cost Allocation

E CAP submitted bY

In 1985, the Region VII HHS Divisio

(DCA) turned down an amenTdhmieSn ta mteon dtmheen tI Vw-o
uld have authorized

the state of Missouri. 
reimbursement for administrative costs for allE  cehliilgdirbelne .
whO

were foster care candidates and paid for the eligibility

determination of children feocutnido nn otto  ttoh eb eD eIpVa
rtmental Grant

Missouri appealed this rej 
Appeals Board and wasin jfooirmneadt iobyn . two other states which

provided additional  (MiSsouri 
209, Decisio 
On March 2, 1987, the Board issued a decisio
0 s position on every isscuoed eb)u.
t

Department of social Services, Docket No. 85-
for

No. 844) which upheld Missodeufrii nition of a time study

one (regarding a specif ic
The OHDS is responsible f(oArS  ionft esrepprteetmibnegr  tw1hh9ei8 7cd,he  cOciHlsDaiSro i
hfaise sn otth
e

programmatic purposes. 

issued to the states a policyH omweemvoerra,n dt he major issuesC  afnodr
 the

follO  (see Appendi
meaning of this decision).

findings can be sumarized as 
full text of this decision):
 Pa, ents of administratiIvne  acno satmse nfdomre ncta ntdoi diattse sC AwPh,O  tdhoe  not

become IV-E eliqible  eSs  of whether 
state sought to allocate for IV-E payment the cost of 
services incurred before placement, regardl

le. 
the child waS plaIcnecdl uidne df owsetreer  tchaer ec oosrt sd eotfe rsmuicnhe ds etrov ibcee
s as

IV-E eligi 
E payment when these

plan development, court participation and referral to

alSO wanted IV-

services. They 

services were provided to children after they had left

foster care.

The Board held that these services are included in the steps

required of the state igfo aal  cohfi ltdh ei sp rtoog rbaem  eilsi gtiob lkee efpo
 r IV-E

maintenance. Also, a 
children out of foster carTeh easned  cdoesntisa lw ewroeu ladl lsoewrevde  wtiot hwoourtk
 

against thiS oCbjheilcdtri ve.previouslY in foster carceh iwledrree nh,e ladn
d 
restriction. 
to have the same preplacement rights as other 

the costs of required services to them were also eligible

Board
for payment. 
determinations. The 
pa 
necessary 
ent for ne ative eli ibilit 
agreed with the state that the costs of nepgraotgiravme .e  ligibility
determinations were also required and therefo

for the administration of the title IV-E 

, such costs were ruled eligible for participation.
Therefo 
Further, it
The Board stated that eilfi gniebglaet,i vteh ee lsitgaitbei lwiotuyl dd ehtaevrem ianna
 tions

were not found to be 

incentive to make onlY positive determinations.

differentlY,
argued that the cost of negative determinations are eligible

for participation under Medicaid and AFDC and that there

was nO reason whY foster care should be handled 

In rejecting the state 

Reasonable cost arquments 
thin the context of the

amendments, the Agency argued that acceptance would result

in incurring unreasiotnsa bslueb mciossstsi owni 
to the Board, the Agency 
E program. In 
IV-
ttohe otir itlz eed I Vt h-a Et  ctohset sp utrhpaots es hoofu ltdh eh aCvAeaP   btaehmeiennn ldpyma eivndet i flwoeardS   uetnfodf eosrrhti ftto


It called thiS "

title IV-B or XX. E program for money Tthhea tB osahordu ladl sm ore

bleed the title IV

appropriatelY baer gpuaiedn tb ya ntdh eh esltda tteh.a
 t so long as the cost of
rej ected this  regulations, 
preplacement services and negative eligibility

e., the

determinations are authorized bY statute and 
increase of program costs: i
they could not be rejected as eloiwgi bhlyep ctohsettsi csailm pcleyi libnegca. use

they resulted in an. 
agency could not establish its 
have yet to be

The full implicatiopnesr soofn st hcioSn tdaecctiesdi oa
s part of this inspection

determined. Some  s references to the applicable

maintai  that the Board'  alone.

regulations, as weclolu lads  bteo  ltehses elneegdi sblya trieognu,l aitmOprlyy  atchtaito 
 the impact

of thiS decisio  impossible.
others have maintained that the requirements in the Act relating 
to the state plan are of such basic importance to the reform
At least one OHDS

aspects of the foster care program that it would be 

as well as illegal, to limit eligible costs more narrowly than

the regulations (as currentlY interpreted) do. 

regional office has withdrawn objections to a cost allocation

plan that was in ways similar to that submitted bY MissOuri.

Efficient operation of the program

for the efficient operation of the

The legislation allowS Federal participation in the

administrative costs necTehses aOrRyD S.  has responsiIbni loirtdye rf otro  emnesausruirneg  the

foster care program. 
their programs are operated efficien(t 1lY) ,i dentifY oar  caocmtmiovni tiseest of 
ons 
relative efficiency of a particular state or local foster care
a set of functi

program, it would (b2e)  ndeecf eisnsea
 ry to:

desired outcomes;  outcomes; (3) estTahbilsi sahs stuhmee sc,o sotf 
 of

s (children

necessary to produce th(e4s)e  c
 ompare states.
ties; and 
these acti vi 
course, that there is a common set of raW materia 
and their families) that is being transformed into an outcome or
In the 
product. 
To date, these conditions have not been met by ORDS.

runing such programs as
absence of common cost figures and outcome measures, some

analysts tend to make comparisons betWeen atlhseo  faosskt ewrh Yc airne 
some

Medicaid. They

program and the administrative cost of  food,
AFDC, Food stamps and/o 
cases it should cost more for administration and training in 
foster carcelo tthhainn gi at nddo eost hfeorr i ntchied ebnastaiclSs .of maintenance -

shel ter, 

In the "program
The major point here is that the activities included in foster

care administration and training costs are not fullY comparable

to those for AFDC, Food stampS and Medicaid. 

Inspection on AFDC, Medicaid and Food stamp Administrative

costs, " it was found that AFDC administrative costs essentiallY
eligibili ty determination, redetermination, check 
incl ude :  assurance, a share ofF oard mtihnei sFtoroad tsitvaem po vperrohgeraadm.

issuance, quality 
for emplOyment effFoorrt 
Medicaid add the expense of

and a littl
 to "voucher. 
" check" 
change 
we believe that

paying vendor claims and managing a variety ofr ucnositn gc otnhteasinment

efforts, including the establishment of alternative delivteimrye
 ,
Systems and the management of long term care. 

states capture and claim most of the cost of

programs. Because they have been in operation for some
level.
increases from year to year reflect actual changes in cost or

effort at the state or local 
 Foster care administrative costs include a variety of activities 
related to case management and planning that go far beyond the 
home. In a 
issuance of a check to the foster parent or the group 
typical state, there are a variety of labor-intensive 
tivi ties that 
professional a  must be done to protect the welfare 
parents. 
of the child as well as the rights of the natural  These 
to: 
would include such activities related 
Child Welfare - Title IV-E Eligibility Determination. 
(1) collecting . 
This includes:  and verifying information 
from family or others which is used in the determination; 
e.g. 
, income, AFDC, parental deprivation, resources, Social 
Securi ty numbers, birth certificates; (2) filling out and 
processing associated eligibility forms; (3) redetermining
eligibili ty 
every 6 months; and (4) preparing for and 
participating in fair hearings and appeals. 
Placement and Judicial Determination 
This includes: (1) preparing and supporting a petition to 
child; 
seek custody of a  (2) developing case and 
comprehensive reunification plans; (3) working with parents 
to develop voluntary placement agreements; (4) working with 
child; 
foster parents to prepare them for receiving a  (5)
court appearances where the status of a child in custody is 
being reviewed; and (6) completing paperwork and telephone 
activity. 
calls related to placement or judicial 
Child Welfare - Service Administrative - Children in 
Custody  This includes: (1) referral to services; (2)
development of the case plan; (3) case and administrative 
reviews; (4) case management and supervision; (5)
recrui tment, 
approval and training of foster, adoptive, and 
other substitute care families; (6) case conferences and 
permanency planning meetings; (7) investigation, evaluation 
and assessment of the child and family s condition; (8)
arranging for the provision of preventive or protective 
services; and (9) crisis intervention acti vi ty . 
These kinds of activities constitute the basic service functions 
(apart from direct therapy or medical services) necessary to 
operate a foster care program that meets the needs of the 
children and the intent of the legislation. The administrative 
cost reviews conducted by OHDS show that 75 to 80 percent of all 
foster care administrative costs claimed in the States reviewed 
were generated at the county or local level in these type of 
labor-intensive activities. 
The OHDS Handling of Administrative Cost Issues

Each State is required to develop a CAP which establishes the

system for identifying the costs eligible for participation by

HHS programs. The plan covers many programs besides foster
 care , including AFDC, Medicaid and Food stamps. Foster care 
administrative and training costs are quite small when compared 
to the costs -of running these larger programs. In FY 1984 the 
total Federal share of foster care administrative and training 
costs was S147. 5 million as compared with S2. 685 billion for 
Medicaid. 
AFDC, Food stamps and 
This relative difference may 
part explain why, to date, less attention has been devoted to 
foster care than to these other prog ams. 
In the HHS regional offices, DCA has the responsibility for 
approving the CAP with input from the OPDIVs which comment 
on the applicability of the methodology in the plans to the 
specific regulations and guidelines of their individual programs. 
This joint administration of the CAP has its inherent weakness 
since the people with detailed program knowledge do not deal with
interagency issues 
, and DCA, which does, doesn t know the program
details. 
Approval of the plan is essentially approval of a 
methodology, while for the most part it is up to the OPDIVs to 
plan. If 
audit or monitor the implementation of the  there are 
implementation issues that cut across agency lines, these can go
unattended. 
Tradi tionally, the states have been given 
considerable leeway to establish their own accounting and 
financial systems and wi thin states there are different 
structures of county and local administration. Therefore 
states. 
quite difficult to compare expenditures among 
it  is 
From the field discussions with OHDS and DCA, there emerged 
evidence of a widely varying pattern of relationships between
them. In 
some regions, both program and finance people from OHDS 
are substantially involved in review of the CAP, while in some, 
only the financial staff are involved. Some regions have one 
financial person dedicated to understanding foster care issues 
and in others several people have State-focused responsibilities 
for foster care and other OHDS programs. 
In only one case was 
indicated that either OHDS or DCA staff had more than a 
perfunctory knowledge of the statistics necessary to evaluate the 
sampling plans which some States have submitted as part of their 
random moment studies. 
There also appears to be a differing set of relationships between 
OHDS and the States, both among and within individual regions. 
In one region visited, financial and program people work closely 
together as a team to help the States get every possible
legi timate administrative dollar 
from the Government, and not a
cent more. In 
another region, State personnel reported that 
their OHDS financial officer had threatened them with a 
never-ending series of audits and checks across all aspects of 
the foster care and adoption assistance programs if they went 
forward with a CAP that stretched the limits of the
interpretation of the regulations. In 
another region, an OHDS 
financial officer indicated that he had been criticized by 
Headquarters personnel for pointing out to the States how they  couI"d legitimately increase their reimbursement. "
You re here to 
save money, not to show people how to spend it. 
In most cases

the relationship between OHDS and the states was described more

or less as cautiously neutral
, with States receiving fairly good

support from OHDS when the regional office people could answer

their questions.

Both the States and the OHDS regional offices continue t

have
questions about exactly what administrative costs are eligible

for reimbursement. The 
OHDS Headquarters has been thought to be

tougher on cost 
containment, but there continue to be

appropriate pOlicy. 
disagreements over what  is  The Missouri
further widens these concerns.

decision 
At the time of the field work
, we found that OHDS had no one

consistent approach to controlling and managing foster care

administrative costs. 
In the regional office
posi  , the most common

to attempt to determine whether a particular State

tion  is 
, expenditure is legal or eligible under the regulations or program

With some exceptions
guidelines.  , there did not appear to be any

significant conceptual interest at the regional level in how one

evaluates State expenditures in relation to program 

outcomes. 
The methodology developed, by 
OHDS for the administrat1 
reviews provides for a somewhat broader and more detailveed  cloosotk at 
State practices in claiming these cost and included some 
questions about the reasons for increase and variation. 
But the
reports which were reviewed as part of this inspection tended to 
stress compliance with existing interpretations of the
regulations, 
-with l ittle evaluation of  causation. 
pa,tterns of 
In OHDS Headquarters
, there was a strong grouping of opinion

which explicitly stated that administrative costs are growing too

quickly, that the variation between States is unreasonable and

that 
, for all practical purposes
, many States are violating the
spiri t if not technical requirement of the law. 
argued: If 
Some persons
the Missouri decision says the law and regulations
authorize broader expenditures
, then either the decision is wrong
or the regulations and/or law should be 

changed. Again
was no evidence presented by these people regarding the, there

relationship between administrative cost and program 

outcomes.
There were also indications that there was little input sought

from program or policy staff on decisions to push cost

containment efforts that might have the effect of constraining

State program efforts.

The OHDS is aware of many of the issues which have been raised in

this inspection report regarding both the nature of foster care

administrative and training costs and the difficulties of

managing them. 
The ongoing series of administrative cost

reviews 
, which are being jointly conducted by OHDS Headquarters

and regional office staff
, has the potential to gather much
 information on state practices which would be useful in both 
policy. 
clarifying and rationalizing  During the time this 
inspection was being conducted, OHDS established a task force to 
advise the Assistant Secretary on the questions raised by OMB as 
1986. 
part of the budget passbook in  The report of that task 
force contains a number of recommendations that, if adopted, 
would be useful in improving the management of the foster care
program. In May 1987 , a structural realignment of foster care 
staff was being conducted to both consolidate and better 
coordinate the management operations of this program. Although
the final 
structure was not available to OIG at the time the 
field work for this study was completed, there were preliminary

indicators that it should help to achieve the desired outcomes 
force. 
sought by the task 
Legislative Approaches to Cost Containment

In the early stages of this inspection, consideration was given 
to including title IV-E foster care administrative and training 
costs in the OIG proposal to fund AFDCb, aFsooids .s tamps and Medicaid 
administrative costs on a prospective  Eventually, this 
was rej ected. Under the prospective paYment proposal , states 
would receive a combined amount per recipient for all three 
programs , derived from the weighted national average cost per
recipient 
, corrected for inflation and relative state and local 
costs. 
government labor  Although it was recognized that the 
overall difficulties of running an effective and efficient cost 
allocation program apply to foster care as well as AFDC, Food 
Stamps and Medicaid, there are a number of nonparallel aspects
of these four programs. 
For AFDC, Medicaid and Food Stamps 
costs. 
the States claim almost all allowable  Therefore, the 
national average administrative cost per recipient represents the 
programs. As indicated
actual average cost of running these 
above , the variation in foster care administrative costs actually 
represents a variation in charges to the Federal Government.

Also , these costs include a much broader set of services which 
States. 
may be less uniform among 
respondents, 
During the discussions with the State and Federal 
questions were raised about the desirability and/or acceptability 
of various other proposals to control foster care administrative 
change. 
costs through legislative  Methodologically, these are 
the most difficult kinds of issues to deal with as part of an

discussion. 
open-ended, but time-limited,  This is because few 
respondents have more than a general knowledge of these proposals

or have access to the detailed numbersf atrheat.  would indicate

exactly how a particular State would  Also, some persons 
wi th a detailed knowledge of a State s day-to-day operations were

reluctant to comment on larger policy issues that might affect

future state revenues. 
As a result, more information was 
collected on generic concerns than on the positive and negative

aspects of proposal details.  costs. 
In general,
state respondents did not have any real sense of urgency about

the. control of foster care administrative 
they believe that they are charging only eligible costcso tso t.t iIttle
IV-E and that under the current rules the Federal Government is
share, regardleSs of total

obligated to pay its full 

was not surprising to learn that the lower the per recipient

admin  trative cost in a state, the more likely its respondents

were to accept a cap somewhere above their current level of

But since even the lowest cost states in the

expendi tures.  increase, everyone appeared

sample were anticipating some sort of 

cautious about accepting limitantoinoen. s that were perceived to

punish some states and reward 

One senior respondent from cao nhtiagihnemre ncto,s ta rsgtuaitneg  rtehjaetc tiefd  tehnet
 irely

level, he would be

the whole concept of cost 
inspection discussions went forward at that 

accepted. He

reduced to quibbling about the details of a proposal that would

hurt his organization no matter what change was 

argued that neither title XX nor title IV-B funds have kept up

inflation and that the ratio of state to Federal

wi th 
for social welfare services had risen constantlY

expendi tures  Any reduction in Federal fundingand 
over the last several years.  states. He 
was perceived as another transfer of costs to the
272 was a complex piece of legislation

others stated that PL 96-
paYments.
which required the states to carry out myriad specific actions
sumarized: If the Feds require,
and services to children in order to get maintenance 

share.

Their response can in part be 
then the Feds should pay their fair 

There seemed to be agreement among state respondents that any new

legislative proposal shiotu.ld  open up dainsyc,u ssshioounl do fh atvhee  spormoeg rsaormt
  of
requirements. cost containment, if 
Several persons would be interested in
incentive attached to  care, adoptio  assistance and child

a block grant for all foster 

welfare activities if it could be tied to some type of 

saenl fi-ncfolrarteicotni nign dinedxi.c aTthoery  swuocuhl da sb en uwmiblelri nogf  tcoh itlrdardeen  fsleerxviebgdir olaiwnttdyh
 .
and reduction in oversight for some limitation in future 

It was argued that if there is a discuassssiiosnt aonfc en,e ws efvuenrdailn gof the

Among 
methods for foster care and adoption 

about thea prreo:g ram should be reviewed.

basic assumptio  Why do we pay only for the 
the issues to be discussed 
maintenance of poor children whenH ocwh icladn  awbeu sbee tatnedr  nteigel etcotg egtoheesr

acrosS class and income lines?  XX, IV-B and IV-E?

the efforts supported under titles 
 III. 
RECOMMENDATIONS 
The recommendations which follow are divided into two groupings:
(1) Short term actions aimed at improving the ability of OHDS to 
moni tor foster care administrative and training costs and to 
provide accurate guidance and effective assistance to States as 
they prepare to document and submit claims for these expenses.
( 2) Long term actions which w  ld enable' OHDS to better 
participate in the larger discussion of the Federal role in 
meeting the needs of foster care children and in promoting child 
general. 
welfare issues in 
Short Term Recommended Actions

The interactive incentive system of PL 96-272 has not fully

functioned as anticipated. The unanticipated increase in

administrative costs, coupled with the perceived inability

of OHDS to get full administrative control of the situation has

led to calls for reductions in funding which many not have always

taken into consideration the impact of these cuts on program

activities. The recommendations which follow are aimed at

assisting OHDS in taking greater control of their program and at

providing a more stable environment wi thin which States can

predict and manage the resources necessary to serve their client

population. 
It is recognized that many of the problems that OHDS has had

to face are similar to those dealt with by the Health Care

Financing Administration, Family Support Administration, and the

Department of Agriculture s Food and Nutrition Service over the

years with only limited success. In various 
forums, OHDS has 
recognized the seriousness of the issues which it must confront 
and is in the midst of a structural realignment for improving the 
programs. 
management of title IV-E  Some of the short term 
recommendations which follow may have already been anticipated 
and begun by OHDS. If so, it is hoped that this analysis will 
provide additional logic and support for these activities. The 
OHDS should: 
Seek from the Office of General Counsel (OGC) immediate

clarification of the meaning of the Missouri decision of the

Grant Appeals Board. It is of particular importance to

determine which of the findings are derived from the statute

as opposed to regulations. This would give a better sense

of which kinds of services and activities funded as

administrative and training must be prorated on the basis of

the percentage of foster care children eligible for title

IV-E maintenance.

Take the interpretation of the Missouri decision and

translate it into a policy announcement which details the
 implications for state cost allocation plans and claiming

methodologies. 
Conduct a systematic analysis of cost allocation plans, 
sampling methodologies and eligibility determination systems 
used by states that have employed the services of 
consul tants who are alleged to unacceptably stretch the
interpretation of legislation and regulations. states 
should be informed of both the negative and positive results

of this study.

Conduct a survey of states to determine the anticipated 
levels of claims for foster care administrative and training 
costs over the next 2 or 3 years and to identify the reasons 
why States anticipate any major shifts up or down. This 
would give a more accurate grasp of the magnitude of the 
short term demand for funds for administrative costs. 
Develop a national protocol for use in the routine

evaluation of foster care cost allocation plans. 
Since 
accurate claims for foster care administrative costs are 
surrogate measures for program effort, both program and 
financial staff should be involved in the reviews. This 
would improve the ability to track the level of effort
invol ved in 
the provision of foster care and its 
relationship to other child welfare services. 
Revise the methodology used for conducting retrospective 
administrative cost reviews to incorporate any revised 
costs. 
standards of participation in administrative  The 
questions addressed as part of these reviews should be 
expanded to include a broader look at the relationship 
efforts. 
between cost and program  The methodology for these 
reviews should be coordinated with the prospective review of 
the CAPs. 
Long Term Recommended Actions

Al though it will be both necessary and important for OHDS to 
achieve short term gains by clarifying reimbursement policies and 
rationalizing the system for monitoring and paying foster care 
administrative costs, there remain broader, long term policy 
solved. 
questions to be  The most crucial and difficult issue 
that must be addressed is how to reconcile competing valid 
demands for reduction in the Department' s budget and the 
development and operation of a unified Federal child welfare
program. In 
its simplest terms, the questions can be phrased: 
What kind of child welfare program does this country want? What 
should be the Federal role? How much are we willing to pay for
it?  The OHDS should be preipsasruede st.o  lead the Department'

This will require an interaction 
consideration of the 
between persQns with both program and financial knowledge.
ignoring, or

deal with either the cost or the service issue while

, will be to

worse, misrepresenting the subtleties of the other

sol 
end up wi th  tions that are incomplete and/or unacceptable to 
one or another of the constituent groups involved in the larger

discussion. To this end, OHDS should:

Ensure that any changes in regulations aimed at controlling

administrative cost take into consideration the potential

impact on state foster care program operations.

Reevaluate the overall effectiveness of PL 96-272 in 
achieving the goals of reforming the foster care delivery
adoption. 
Included should be an 
system and encouraging 
the: 
examination of 
breakdown of the incentive structure to promote

adoption and improve child welfare services that

legislation; 
was included in the 
continued validity of funding some child welfare system

services on an income related basis and funding others

for all children;

advantages that might be achieved from Federal

participation in the funding of foster care for

all children at a reduced rate of participation;

and 
elimination of artificial distinctions between

administrati ve and maintenance costs. 
OHDS Response and Recommended FOllow-up

The full text of OHDS comments onB t.h e draft of this inspection 
In these remarks OHDS states 
report are included as Appendix 
t it" ... believes the report to be a valuable addition to the 
body of knowledge about administrative costs in the Title IV-E 
(OHDS 
program and the (the inspection)... makes observations that 
has) tried to communicate about the complexity of the legislation 
and state administration... 
, that the impact of the Grant Appeals

The OHDS indicated, however
stated. As 

Board findings in the Missouri appeal is over 
September 1987, OHDS has still not issued an interpretation of

this decision. Therefore, it is difficult to fully determine how

our restatement and the OHDS interpretation of the decision would
differ. 
The full text of the decision is included as Appendix C
conclusions.
which the reader may examine to draw their own 
 inaccurate.
The OHDS comments also indicate that the report of OHDS opinion

" law
on cost transfer and the role of consultants is also 

These comments maintain that OHDS is only concerned that the

allows  states to transfer costs (and consultants to help them do 
it) and that those provisions of the law should be reconsidered.
records of discussions with OHDS personnel in

A review of th  offices, and with state officials,

Headquarters and the regional 

nds a wide spread perception that OHDS has considered the

illegal.
expanded state claims for administrative cost highlY

inappropriate, if not specifically 

We will seriously consider each of the

The response concludes: "

recommendations as we continue our efforts to improve management

We have already begun implementation

of the title IV-E programs.

some, recommendations.

of some, or parts of 

further recommended that OHDS devaebloovpe .a  Aspne caigfeincd ar easnpdo
 nse

It  is 
to each of the recommendations listed 

timetable should be included for those items with which OHDS

agrees. In addition, there should be a discussion of the reason 
for rej ecting the recommendations which OHDS chooses not to 
implement.  ,.. 
APPENDIX A

Table 
per month

Average number of title IV-E fCoosltuemrb icaa, re1 9c8h1i-l1d9r8e5n. 

by state and the District of 

l.e4 
1'83 
.b .m.
l..k.  470
018  3'5
 455
Ari z on.  370  404  2130'

U.7'7  111 "7 
ACr. lk i. "+'o.r.n. i a  708  17520  707  1204  1804
Colorado  7.s  1105  1100  1087
775  337
Co,.,..ct i cut  273  24.  272  15'2  11'. 
1."  110. 
D.l a""a" e  1812  13"  1"4  1301
Di.t. of Col.  11'4 
Florida  1151  134  1.02  1750
13.1  1211 
1.. 
Geo"'Q' a
 15. 
1.2 
"'a"". i i  420
171  410" 
ldano  SlD  4412 
1111na1.  5521  144  148"  13.1
1.7.  143'  701
.42 
l,.d1 ana  .s1  .27  104  10'. 
K10."n". ...  1328  1111  1,1f5t3   1587
12..  12.5  111.4'.5   2115
Kentuckv 
11.7  1541 
oui.1ana 
1145  1042  110  15.5
1.28 
""''aa1, .vland  2334  2110048'   .37  .27  .4.2 
501  584  0082 
..a..acnu..t. t.  5785  S84t  1..5  173.
....11 c,h. ,1. .Q.aat'". a  U."  1342  1188002   150  7.1
..i  11'  835  207.
..i ..1  20"  1.1.  2114  1748 
cac: i  . 311
..1..01.'" i  25' 
250  743
"'0'" t ana  .52  023  03S 
N.bra.Ka  52'"0 '  20'  23'  224  24144'
N.vaaa  447 
484  14'7"4   3320  3'77 
New ..all.n 1  1.15  302  524 
N."" J.,...v  104  112  1..81  17.22
New "'.M 1 co  1".01  18434 
20113  lA"  1524  142S 
N... Vo,.k  1115  2.2
Na,.th Carolina 
342  41"  41S.
Na,.th Dakota 
'14  1003
Ohio  "'1  '11  132  135  .1.2038
Oklaha.a  144  145' 
Op"e'8n9nQ.nvlvant.  1314  530  51'  52"1831  348 
Rhod. ls1aru8  424  44'  845  1.2
Saut.h Carali na  521  ,.2  282  211

432  10.3

STauetn.nh .D.a..k.a t.a  1130  14'3  12450t1t   121M3115   2814
2"1  2542  251
T.Ma.  22'  1'4  252  46'

431 
Utah  241  ,"4 
20' 
vv.i,r Qtfainn ti a  2270  213.  11.1173'   1203  11"0 11,
2 
812  1021  774  103'
W..hi nQta,.  514 
005  050  22"  2435
W..t Vi,.qi"ia  2.74 
38".  3555 
Wi.ca,..i" 
Wvotfi"q  ..727  100787  1081"3 
100200 
02"" 1 
TOTA  ,., 
Table 
Average $ Federal share of title IV-E foster care administrative 
child, 
and training costs per  State and the District of 
Columbia,  1981-1985. 
1.81  1.82  1.B3  1.B4  1.BS 
labama  174
la.ka 
r1 zona  .B4  183.  2.3.
Arkan.a.  Sb  103  1.b 
3.' 
Cali oforni a  b40  2120  23S2  2284 
Colorado 
Connecticut  74S  837  10S3 
S22 
eel aware 

Di.t. of Col.  4S3  1451  2331
Florida 
110  105  472 
aeorqi a  372  2440  2552  2112  20.2 
Hawai i  150  202  217  3.4  400 
Idaho  125  131  101  12.  174 
noi. 
I 111  164  201  6'7  228  147
Indi ana  111  1'4 
Iowa  827  1064  1215  963
Kan.a.  297  484  .58  678
Kentuckv 
Loui.i ana  242  4.3  632  2830  24.6 
""ai ne  1196  1304  1201
/"arvland  124  2413 
/"a..achu.et t.  130  2639  2436  236. 
Mi ch i caan  817  1129  132S  1543  lSB6 
nne.ota 
/"1  lB7  36S  708  1025  1289 
/"i ..1..1 ggi  100  106  10. 
..our i 
/"i  1218  2717  1728
Montana  166.  B21  1215  114B
Nebraska  24S  63.  557  14B3  1646
Nevada  25S  102  108  121
New Hallel."'ire  107  503  634  1028  1019 
New Jer..v  370  775 
New ""eM i Cel  543  1:n  2341 
New Yorlc  174  2037  2107  2441  22.9
Nort.. Carol 1  103  110
Nort.. Dakota  125  191  233  336 
0..10  2.5  131 
Ok la"'o",a  110  2342  15ge  1225 
OreQon  1015  107.  1422  1170  1147
Penn.vl vania  373  434  S62  736  6S0 
1101
R"'ode I .1 and 
Sout.. Carol i  113  lS9  317  7.1
South Calcota  17b
Tenne..e. 
Te)C  111  165  2427  1028 
Utah  200  338  870  1172  164S 
Vermont  240  1414  2b52  2265  234S
Virqi ni a 
106  177  2S2  277  230 
Washi ngton  42S  lS07  1499  1739  184.
West Vi rqini a  1.77  3846  4027 
Wi scon.t n  444  488  .8S  1437  141. 
Wvoml nQ
Total 
72S  1403 
1S1C1  Table 3

Average $ Federal share of title IV-E foster care maintenance
costs per child 
by State and the District of Columbia 
1981;"1985. 
1981  1982  1983  1984  198
Alabama  1376  1381  136.  lS06 
Ala.ka  3'63  421  6000 
Ari zona  1271  2736  2341  260 
Arkan.a.  1130  131  1178 
2746  2.6'  3129  3281 
orni a 
Cali 
Colorado  1406  1842  131  1392 
Connecti cu.t  1961  1900  177  1823  1810 
Delaware  1242  1270  1265  1353  1306 
Di.t. 04 Col.  3320  36.6  3119  3042  3792 
Florida  1361  1650  1402  2092 
GeorQi a  1333  1673  2481  2430  2406 
932  120.  1087  1286 
Ha_ai 1 
Idaho  1377  1441  1486  1060
Illinois  1209  1219  1160  130  137. 
Indi ana  600  628  627 
158 
Iowa  1454  1524  1692 
2"4 
Kansas  2205  2143  2442  2587 
Kentuckv  16S8  1842  2866
1196  3..6 
L.o'-i.i ana  172.  3123  2476  2878 
""aine  1914  2051  1963  2292  212 
1295  1321  1443  1605  2165 
"""a"..a v .1. aandc 
husetts  4872  2701  3348  3088 
Mi ch i qan  3193  3427  3936  4254 
Mi nnesota  2585  2431  1978  289  a-u 
M1..i..iDDi  1067  .84  434  1190  1300 
I'i ..ou.. i  965  1014  1779  1471 
Montana  3095  3195  2805  3067  32.6 
Nebra.ka  1984  2080  2084  2124  2236 
Nevada  1821  1676  1496  1496  1607 
Ne- Halloshi..e  1206  1224  994  le65 
Ne- Jersev  1165  1334  1728  1577  1597 
N... ""ex i co  476  1260  2143  1949  2441 
Ne- York  221  563  4945  5362  207 
128 
NCNth Carol i na  1119  1165  1308  1334 
North Dakota  1881  2254  2443  2575  2786 
Ohio  896  122  1293  1672 
Oklaho..  1472  1"4  27'9  248  2201 
OIeoon  2510  2337  2490  2743  2762 
Pennsvl vani a  5248  5900  4057  4864  4388 
Rhode I.land  2176  2480  19.1  1593  2540 
SOu.th Carol i na  1057  1074  1131  1270  13-.. 
South Dakota  1451  U.94  1754  1100  1964 
Tenne.s.e  1129  1115  1129  1423  1563 
TeKas  2088  2098  2027  2352  2468 
15" 
Utah  1793  1-'64  1559  1926 
Ve..mont  2329  2714  2205  2516 
Vi"'Qinia  1145  1193  1292  1281  13-.3 
1.5 
Wa.hi nCjton  1583  1947  17.5 
We. t Vi.. q i n i a  1830  2225  2348  3336  31-.8 
Wi .con.i n  1972  2307  2605  3118  3313 
Wvominq  163-.  2205  258-'  2158  1570 
Total  2703  3006  280  2955  3083 
.\ 3
 Table 

Ratio, $ Federal share of title IV-E administrative and training 
costs/$ Federal share maintenance costs, by state and the 
District of Columbia, 1981-1985. 
1981  1982  1983  1984  198 
Al 
Al 
A,. 1 zona  1. 13 
A,.kan.a.
C.lifo,.nia
O. 7 
Colo"ado 
Conn.cti cut
D.la.a,..  O. 
Di.t. of Col.

Fl o,.i da 
G.o,.qi a 
"'a.ai 1

Idaho 
11li.n01. 
Indi ana
O. 1 
Io.a 
Kan.a. 
K.ntuckv 
L.oui.1 ana 
I'a1 
1' a,. v 1 and  1. 11 
I'a..achu..t t.

I'l chi e;an
I'i nn..ota  O. 4 
l"i ..i ..i ooi  O. OS 
I'i ..ou,. i
1 . 
I'ontana  O. 3 
N.b,.a.ka
N.vada

N.. 
"'a",08hi,..

N.. J .,...v
N.. 
"'.M 1 CO 
N.w Yo,. k
No,.th Carol1na
No,.th Dakota 
Ohio 
OklahCMa 
O,..oon
P.nn8vlvan1a 
Rhod. I.land 
South 
Ca,.011 na 
South Dakota

T.nn..... 
T.M a.

Utah 
V.,.mont
Vi,.qinia
Wa.h1n;ton 1.0: 
W..t Vil"qinia 
1. 1  1. 
Wi .con.i n 
Wvoml ne;
Total  ' .
.t r  Ll't LI.."'a. 

0"'("  "t',uU  foIH S. r'flr 
Hurnar 
..,0' 	 ttl'  "'ER\' ICE 
OErART.Y.E	 or HlAlTH 

ASSIS:iI-,t S,:  ..1.1'
C 2C2C 
Washlf1 lt.;" 
, 6 9J
SEP 
Kusserow 
Rich 
rd p. 

TO: 
Inspector General

Acting Assistant secretary

FROM: 
for Human Development serv 

OIG Report on Foster care Administrative ;osts

SUBJECT:	
(ORDS J
rV ice s 

lopmen t se 
f Ruman DOve  to the body of

the Of f ice 0 
In g ener a l.  the Title IV-E progratmh.e 
 r s 
te to 0 
believes the report to be a wveal huaavblee t ra ideddi ttioo c
 ommun ica 
knowledge about administrative costs in 

obse r vat ions that  We.

It ma ke s  asS istance programs.

about the complexity of the legislation and Staitrem sa dtmhien ifsotlrlaotwiionng


of the foster care and adopti

spec if ically. are pleased that the report conf 
for 
points: 
opened the door 
The language of the legislatio 
The 
States to make claims beyond these minimianld iecxapteOctrsat. i"Ons.
e of the statistical 
with regard to s 
the
most serious difficulty with using these variables as

program performance indicators is that the Fedearcatlu aslh acroes
t

IV-E administrative costs only represents 

of Ti tle 
charges	 to the Federal Governmpentr aond gnort athem 
 s.. . the degree to which a State
in the la te r 
of running thes	
te r percentage 
ies for
claim includes all eligible administrative costS would

tbeir strateg  neec 
va r y over time. with a grea 
years. . . States vary considerablY in 
claiming costs and in tbeir perceptions regarding the 

for. or tbe advantages of. maximiZing tbeir federal

reimburse.ent. . 
pounded wben tbies  Fceodrerreaclt
ed

Tbes  problems are furtber mca	intenance costs 
 numb.
sbare of administrative or

for tbe number of IV-E cbildren served. because tbe 

of IV-E cbildren does not reflect tbe same pbenomenon 

each state...	
is impossible to make

Given problems witb tbe data. it  r iat ion among 
s for va

Systematica tj iuvdeg ecmoenstt.s  tabbe Orueta stobne  determinantS of

iad. or tbe rate of 
adm in is tr 

States wi tb a partiCular time per 
growth over time.  ,.\ 

P. Kusserow

Page 2 - Richard 
ise as

the report that we would rev

There are some sections of 

follows: 
Appeals Board (GAB) 
impact of tiH  Gr an t 
In gener al, the  i is overstated. Interpretatio of the
findings on Missour  left to

GAB decision for programmatiinc  apnu rOpIoGs erse vs hieowu lwdh  biech
  may be

OHDS and should not appeara " Federal" interpretatio  . A 
construed by outs iders as 
simple restatement of the GAB decision would be more
10, 11, 12)
appropriate. (pages

ize the proposed organizational changes

We do not character 
in the Administration for Children, Youth and Families as a

prefer to call it a structural

major reorganization. We 
realignment for improving the management of Title IV-E
programs. 
(page 18) 
ion on transfer of costs to the

In regard to OHDS opin 
is inaccurate in two

Federal government, the report

instances: 
ioner I s quote on 
The language preced ing the ACYF commiss 
page 9 implies that OHDS officials believe that States 
in transferr ing costs to the

are doing something wrong 
Federal government.

repeated regarding consultants

Tahses issatmineg t Shetmaet eiss  to " unfairly " claim unallowable costs. 
In both instances, the reportS tmaitserse atdos  ttrahen sOfHeDrS  ccoosmptsl a(ianntd 

allows 
that the current law 
 it) and that those provisio

consu  tants to help them do 
idered.
of law should be recons 

" 12 months " should read "6 months" and the 
On page 3, the 
" 18 months. 
24 months. should read 
ider each of the recommendations as we

We will ser iously cons 
improve management of the Title IV-E

continue our efforts to  of some, or parts

programs. We have already begun implementatio 
of some, recommendations. 
N. Hawkes

Ph i 11 ip  APPENDIX C

DEPARTMENTAL GRAT APPEALS BOAR 
Department of Heal th and Human Services 
SUBJECT:  Missouri Department of  DATE:  March 2, 1987 
Social Services

ocket No. 85-209

ecision No. 844

DECISION 
The Missouri Department of Social Services (DOSS, State)

he decision of the Regional Director, Region VII 
appealed 
(Agency), of the Department of Health and Suman Services 
affirming the disapproval by the Region VII Division of Cost
Allocation 
(DCA) of the State s proposed amendment to its cost
allocation ulan (CA) for services under Title IV-E of the 
central issue raised by this 
Social Security Act (Act). The 
CA so as to claim 
appeal is whether the State can amend its 
certain activities performed by DOSS as administrative costs
under the IV-E program. The Regional Director had found that 
an amendment authorizing reimbursement of these activities 
could not be approved because the activities were outside
the scope of the IV-E program. 
In a related finding, the 
Regional Director concluded that definitions for time study

codes used in the proposed amendment were inconsistent with

Agency requlations.

For the reasons described below, we find that the disputed

activities themselves, if properly defined by the State in

its plan, are reimbursable under the IV-E program as admin

istrative costs. 
The activities are proper and necessary 
administrative activities under the statute and regulations

and indeed are specifically identified without qualification

costs. 
under the requlations as reimbursable administrative 
We also find, however, that the Agency may require changes in

the def ini tions for time study codes in the State I s proposed 
amendment to ensure that the codes are consistent with the

regulations and to ensure that they are as specific as

field. 
necessary for correct implementation in the 
In the course of this appeal the Board received submissions in 
support of the State s position from the Arkansas Department of 
Human Services, the Maryland Department of Human Resources and 
Services. 
the West Virginia Department of Human  These state 
agencies (Intervenors) alleged that they had either submitted 
or were in the process of submitting CAP amendments similar in  ). 

!! !!. !!.
- 2 

here. 
whole or in part to those at issue  The Board deter
mined that these state agencies had a " clearly identifiable

d substantial interest in the outcome of the dispute" and

admitted thelr 8ubmissions into the record as intervenors in

accord wi th 45 CFR 16. 16 (b) . The Board gave the Agency the

opportunity to respond to these submissions. 
Statutory Background of the IV-E Program

The Child Welfare Services program has been a part of the Act

since the Act'  1935. 
s inception in  In 1968 Congress trans
ferred this program to Ti tle IV-B of the Act (sections 420-425
of the Act). Historically, Ti 
tle IV-B has provided federal 
grants to states to establish, extend, and strengthen child
welfare services. The services are available to all qualified

children, including the handicapped, homeless, neglected, and

dependen t . 
The Adoption Assistance and Child Welfare Act of 1980, Pub. L. 
96-272, was enacted o  June 17, 1980. In addition to amending

Title IV-B, this legi'
slation established a new program, the 
Title IV-E program, Federal Payments for Foster Care and

Adoption Assistance. The foster care component of the aid

to families with dependent children (AFDC) program, which had

been an integral part of the AFDC program under Ti 
tle IV-A of

the Act, was transferred to the new Title IV-E, effective
October 1, 1982. 
Title IV-E (42 U.  C. SS670-676, sections 470-476 of the Act)
had as its impetus the belief that the public child welfare 
system responsible for serving dependent and neglected children 
had become a holding system for children living away from their
parents. 
Congress intended Ti 
tle IV-E " to lessen the emphas
on foster care placement and to encourage greater efforts to

find permanen  homes for children either by making 
it possible

for them to return to their own families or by placing them 

adoptive homes.  S. Rep. No. 336, 96th Cong., 1st Sess. 1

repri  ted in  1980 u. 
S. CODE CONGo & AD. NEWS 1448,
(1979), 
1450. 
Title IV-E enables each state to provide, in appropriate cases,
foster care and adoption assistance for children who otherwise 
would be eligible for assistance under a state 
s approved Title
!V-A plan (42 U.  ) or, in the case of adoption

C. S601 

assistance, would be eligible for benefits under the Supple
mental Securi y Income program of Title XVI 
(42 U.  C. S1381 
!n order to carry out the provisions of Title IV-E,
appropriations made avallable for that program are to be used  . .
- 3 

submitted, and

for making payments to those states which have 
he DHHS Secretary, state plans under Ticle
hIadV appr-ovEed b.y  
 . S671. 
42 U.  Congr  ss identified three separate 
egories of expenditures for which states are entitled to 
FFP under payment formulas set forth in 42 U .  C. S674: foster 
care maintenance payments for children in foster care homes or 
itutions 
child care ins  (42 C.  C. S672): adoption assistance
payments (42 U. S. C. 5673): and payments " found necessary by the 
he proper and efficient administration of the 
Secretary for 

State plan  42 U.  C. 5674(a). The last category, 
expendi tures for plan administration, is subdivided to cover 
the cost of training state personnel to admintiusrteers .t he IV-E 
program and all other administrative expendi  42 U. S. 
(3). 1/ 
S6 74 (a) 
The Agency s regulations implementing Title IV-E are codified 
(1983). 
at 45 CFR Part 1356 
The Cost Allocation Plan Process

A state participating in the various categorical programs under

the Act, including Title IV-E, is required to make determina
tions as to the amount of commonly incurred expendi tures, such
as staff 
time, that are attributable to each program the state 
administers. A state is required to submi t a plan for cost

allocation to the Director, DCA, in the appropria e DHHS

507(a). 
regional office. 45 CFR 95.  This cost allocation plan 
is defined as " a narrative description of the procedures that

the State agency will use in identi 
fying, measuring, and 
of all 
allocating all State agency costs incurred in support 
programs administered by the State agency.  45 CFR 95. 505. 
The CAP must contain sufficient information to permit the DCA

Director to make an informed judgment on the correctness and

fairness of the state 
s procedures for identifying, measuring, 
and allocating all costs to each of the programs administered
by the state agency. 
45 CFR 95. 507(a) (4). 
i/ 
For foster care maintenance assistance payments and adop
tion assistance payments, each state with an approved plan 

entitled to a pa  ent equal to the federal medical assistance

percentage (as desftianeted .i n 42 U .  C. S1396d(b)) of the amounts 
expended by the  For staff training, 75% of a state
bursed. 
costs are rei 
For any remaining administrative 
expendi tures, 50% of the costs are reimbursed.
 - 4 

Amendments to a CAP may be submi t ted to DCA (45 CFR 95. 509), 
and, if DCA disapproves the amendment, a state may seek recon
sideration of- Director. 
the DCA decision by the DBBS Regional 
75. k 
Regional Director 
45 CFR Part  s negative determination 
6(c). 
may be appealed to the Board. 45 CFR 75.
Factual Background

Pursuant to 42 U.  C. 5671, the State had an approved plan for

the provision of Title IV-E services. On September 25, 1984, 
its 
the State submitted to the Region VII DCA an amendment to 
Ex. A. 
CAP then in effect. State Appeal File,  The propose 
CAP amendment took the form of a series of tt time study codes 
describing various administrative activities performed by
Children  s Services field workers of the Missouri Division 
(DFS). 
of Family Services  Under the proposed amendment, the
Children  s Services workers would record the time spent on 
activities described by each code during a designated sampling
period. 
These records would then become the ba.i. for the 
State 
s allocation of costs among various programs. Code 3 
of the proposed amendment concerned the provision of social 
IV-E. 
services which would not be charged to Title  Code 4,
entitled " Child Welfare Service Administration, N listed 
examples of administrative costs which would be allocated to
Title 
IV-E. 
On May 29, 1985, the Director, DCA, rejected the proposed

amendment and found that the definitions used for the time

study codes charged to the IV-E program included unallowable

social services which should be allocated to either the Title

IV-B or Title XX (Social Services) programs. State Appeal
File, Ex. B. 
On September 9, 1985, the-Agency  s Regional 
Director affirmed DCA' s decision.

While the original CAP amendment was being reviewed by the 
CA 
Regional Director, the State suomi tted a revised  amendment 
to DCA. The DCA Director, on September 23, 1985, approved a 
version of the State s CA with revised time study codes. The 
plan was given the same effective date as the effective date 
of the original amendment (July 1, 1984). The State, however, 
maintained, with its appeal to the Board, that the origlnal CAP 
amendment .hould have been approved.  - 5 

Issues in Dispute

The issues raised by the State 
in its appeal brief are as

follows: 
whether administra 
ive costs, such as those for plan 
development, judicial determinations and referr 
ls, are

allowable under Ti le IV-E if incurred for candidates for

IV-E cash benefi ts who do not become recipients:

2/ 
In addition to its substantive arguments, the State 
contended that it was legally entitled to approval of its

CAP amendment on procedural grounds. The State alleged that
the Director, DCA, had failed to comply 
wi th the mandates of

45 CFR 95. 511 (1983) and that, accordingly, the Director was

estopped and prohibi ted from disapproving the CAP amendment.

The State alleged that it had submitted the CA amendment 
on September 25, 1984, and the DCA did not respond until

December 20, 1984 when DCA indicated that the State s infor
ation concerning the amendment was " incomplete. 
The Agency
disputed the State s interpretation of 45 CFR 95. 511(a) and

denied that the absence of the written notification constitutes

approval of an amendmen 

I n add i t ion  I s procedures 
to employing the Board 
to reverse the
Agency  s decision, the State sought a preliminary and permanent 
injunction in a United States district court requiring DBBS to 
take the necessary administrative action to release 
funds
claimed by the State for fiscal years 1983, 1984, and 1985
pending the ou tcome of its appeal before the Board. 
The
District Court ruled that DCA' 
s failure to respond in writing

within 60 days did not constitute "
deemed approval" of the
proposed plan amendment, and further refused to adopt the
State 
s suggestion that section 95. 511 could be interpreted as
providing for such a "deemed approval.  State of Missouri
Bowen , No. 85-4592-CV-C-5 (W.D. Mo. April 1, 1986 
an Order to Develop the Record, the Board suggested to the

parties that it would appear to be bound by the court' 
511.  s ruling
on the applicability of section 95. 
The State responded 
utha.t  iSt . Couwas rt oafp pealing the district court' s decision to the

Appeals for the Eighth Circui 
t and requested
that the Board continue its deliberations on this point in the
possibility that a Board decision 
in the State s favor would

render moot the need for further appellate proceedings.

As a United States district court has ruled on this specific 
procedural point and the State did not provide any reasons why
the court' 
s ruling was wrong or why it should not be bindlng,
we rej ect the State s procedural argument.  . ' . . '-' .'.  ....---- .......,..... ..-" ,.,""=- ""-- ' "".",. ''.''- '._''--'' - ,  -.-.,,.-,----..-._--_-,---..... ,,-, ", ~~~ ....-, .
- 6 

whether the costs associated with negative determinations

of IV-E eligibility qualify 
for FFP under Title IV-E: and

--- whether definitions in the Sta

s time study code for

unallowable social services and allowable administrative

activities are 
impermissible. 
In the course of this appeal the Agency raised the additional
iss 
e of whether the administrative costs resulting from the
State 
s amendment, if 
accepted, would be unreasonable 
within the context and intent of the IV-E 

program. 
Whether administrative activit 
es, such as those for
plan development, court parti 
ipation and referrals,
are reimbursable under Ti 
tle IV-E if undertaken for 
program candidates who never become recipients. 
The State s proposed CAP amendment sought to allocate to Title

IV-E administrative costs incurred prior to the actual place

ment of a child in foster 
care, regardless of whether the child

ul timate1y 
becomes a recipient of IV-E cash benefi 
ts, and costs 
incurred after a foster care placement has been 
terminated. 3/
The specific administrative activities at issue are:
develo
ment of the case plan, preparation for and participation in 
judicial determinations, and referral to 

services. The

Regional Director rejected the State s proposal, holding that
the only administrative costs reimbursable under Title IV-E are 
those which relate to children who go on to become recipients 
of benefits as specified in 42 U.  C. S672. This section
provides that a state shall make foster care maintenance 
payments for a child who has been removed from a home of a 
relative either as the result of a voluntary placement 
agreemen t or a judicial determlna t ion. 
According to the
Agency, if a child 
is a program candidate and does not ever 
3/ 
The State reasoned that a child who has been in foster care 
can be just as much a candidate for foster care p1acemen 
child who has not been in placement.  as a 
-"v  --.c  """1 .._  - 7 

become a recipient of cash benefits, no adminlstrative expen
indl v idual 
d:  ures incurred for  a t  should be reimbursable. 
The State maintained that the Agency s focus on section 672 
I s removal 
eligibility and the child  from his heme confuses the 
standard for FFP in foster care maintenance payments wi 
th the
standard for FFP in administrative costs under the IV-E 
program. 
The State argued that the program established three
distinct categories of expenditures which qualify for 
FFP: 
foster care maintenance payments,  doption assistance payments,

and payments necessary for the proper administration of the

IV-E state plan. The State insisted that the issue raised by

its CAP amendment was whether the specific activities were

allowable administrative costs -- whether they were necessary

for the proper and efficient administration of the state plan

-- regardless of whether they were provided to candidates who

became recipients.

The State explained that there are administrative steps

required by the program which must be taKen before a child

can be removed from his home and placed in foster care and

thus become eligible for benefits. 
The State is first required

by its State plan to taKe reasonable efforts to prevent or

eliminate the need for removal of the child from his home or 
to maKe it possible for the child to return home. 
42 U.
671(a) (15). If these efforts fail, the State is then required
to develop a case plan and a case review system. 
42 u. s.
S671(a) (16). As a necessary step in removing 
a child from the
home, the State may have to prepare for and participate in a
judicial proceeding. 
The State asserted that the Agency ha 
4/ 
Although the Agency included in its appeal file (Ex. 13)
a policy announcement (PA-ACYF-85-
0l, effective November 18,
1985) in support of its position, it did not rely at all on the
announcement in its arguments before the Board. In any event,
the policy announcement could not be binding on the State 
for 
the first two years covered by the proposed plan amendment
years beginning July 1984 and July 
1985), since it was not
issued until November 18, 1985. 
Moreover, to the extent the
policy announcement conflicts with the applicable sta

ute and

regulations for any subsequent 
period, the Board must give
precedence to the sta:ute and 
regulations. As we discuss
below 
, the State s positlon is fully supported by both the
sta  ute and the regulations.  - -
8 
:horized reimbursement for administ a:ive activities to carry
ut these ste  by the issuance of 45 CFR 1356. 60(c)(2), where
such act i vi ties as referral to serv ices, prepara t i on for and 
participation in judicial determinations, and development of

case plan a e listed as allowable IV-E administrative costs. 
We find that the disputed activities are 
in fact required by

and are s 
the progra  ecifically identified by 
the regulation
as allowable with absolutely no indication of 
the restriction

the Agency here seeks to impose. 
Indeed, several other
examples of allowable administrative activities listed 
in the

regulation are not directly tied to individual cash recipients
under the program  ., licensing of foster homes and rate

set t ing) . More importantly, however, the program statute and

regulations =onsistently recognize that 
the acti'vities in

quest ion would be proper admi nistrat i ve costs for program
candidates. 
As the State argued, these activities are administrative

y the State under its program to bring about

steps taken 

foster care placement and hence eligibility for oash benefits. 
Consequently, where the State performs one of these activities

in anticipation of qualifying an otherwise eligible ohild for

fos ter care benef its, the State should rece i ve re imbursemen t 
cost. 
for the activities as a necessary administrative 
The
program required the State to take the aotions irrespeotive of
whether the child subsequently 
is determined eligible for IV

not. 
benefi ts or 
The Agency has agreed to rei  burse identical activities 
provided prior to removal from the home for those children

who ultimately become eligible. 
The State, however , provides

the activities  not knowing whether a ohild wlll

in question 
be removed and should not lose reimburse ent simply beoause a
is not removed. 
chi ld  (The reas on a chi ld is not removed, for
example , may be that the oase plan led to a reassessment of the
child' 
s home situation or a court refused to remove a ohild
from its home in spite of the State' 
s efforts in judicial
proceed i ngs. ) The State' s CAP would all 
oca te these oos 
to IV-E only for ohildren who are candidates for foster care 
benefits and who would be reoipients 
but for the oompletion of
thseseel fad.m inistrative steps and the eligibility determinati
The Agency loses sight of the fact 
that, in order to
ensure that every eligible individual becomes a recipient, the
State will have to engage in activities for candidates who will 
er become recipients. These activities are just as much

necessary activities for the program as those provided for

children who do beoome program recipients.  - 9 -

Tne Agency would herive i rteiequsi,r es utchha ta st hree fSetrartael sa lalnodc actaes ea lpll
an 
of the disputed act 
some otner federal program, such as those
B or XX. Yet the Agency nowhere 
development, 
authorized by Titles IV
ther program

explains precisely what relationship these costs would have

:0 another program and why allocation to the 

should be mandatory in the aWbes esnecee  noof  rsetaastount owrhyy  otrh er eSgtualtaet
 ory

authority to that effect.  s elsewhere when they are

must be forced to allocate the ciolsl
  IV-E requirements. il

ically undertaken to fulf 
speci f 
fically singles out case development activi

The Agency speci 
ties as not deserving reimbursement because, according to the

Agency, the statutere acuetivhoinrgiz efso srteeirm bcuarrsee mmeanitn tfeonra ntcheo psaey mseenrtvsi.ces

only for children'  (42 use S671(a) (16)), however, does not

The provision at issue 

specificallY concern reimbursement but rather requires that an

approved state plan provide for the development of a case plan

(as defined in section 675(a)) for each child receiving payments. 
further support to the

The regulatory history provides

S51 tate  s poEsi.t ion that it may claim these activities iuonnd ewrh
ich 
In the preamble to the proposed psrtoavtiesd : 
Title IV- 60, the Agency 
eventually became 45 eFR 1356. fulfill-
The costs of conducting the activities essential to 

ing the plan requirements under Sections 471 of the Act

idered as necessary for the proper 
L 45 eFR 1356. 801 are cons 
of the State plan under Title
and the
and efficient administratio 
IV-E, except for the nonrecurring costs of adoptio 
th the reporting requirements which are

cost of complying wi 
deemed to be child welfare services costs and may not be

Furthermore, the costs of

reimbursed under this part. 

children, parents or foster parents

direct services to 
to ameliorate personal problems and which go beyond the

activities specified in the regulation are to be funded

The regulation delineates such social 
from other programs. 
E.  it is 
service costs from those required to carry out the provi-
Apart from these exceptio 
sions under Title IV-
ties prescribed in the law and
recognized that the activi  t Ti tle IV-B, 
the protections provided under TShee crteigounl a4t2i7o  , therefore,

ro rams 
42 U.  the States to choose which 
C. S6271 may overlap. 
 and 
rovides flexibilit to  for char In 
hese costS and the method used

to char e 

cla lml ng cos 

31, 1980) (emphasi

86817, 86826 (December 
45 Fed. Reg. 
added) .  . .
- 10 

The statute, in defining " case plan, " clearly envisions that a 
ate may begin to prepare a plan for program candidates prior
to their actua  placement in foster care, and the Agency did
not argue otherwise. Indeed, as already mentioned, the Agency 
reimburses for case plans prepared prior to removal if the

child ultimately becomes eligible for benefi ts. The prepara
tion of case plans prior to placement, moreover, appears to be 
fully cons istent wi th the purpose of the statute. It means 
that the case plan is prepared at a time when options may stlll 
exist as to placement and is not merely a justification on 
paper of what already has occurred. The legislative history
strongly suggests that the case plan requiremen  was to be more 
than a mere paper requirement. S. Rep. No. 336, 96th Cong.,
1st Sess. 1  1980 U. S. CODE CONG. & AD.
NES 1448. (1979),  reprinted
Thus, as long as a state is acting within the 
discretion afforded by statute, regulation, its own state plan,
and Agency policy guidance by preparing case plans in advance

of the removal of the child from the home, we find that the

State is performing an activity necessary for the proper

ltimately
administration of the program even if the child 

does not become a benefit 
recipient. 
The program provisions authorizing " referral" activities

provide a similar case in point. Referrals support the

program goal of taking reasonable efforts -

(A) prior to the placement of a child in foster 
care, to

prevent or eliminate the need for removal of the child

from his home, and (B) to make it possible for the child

to return to his home.  (42 U.  C. 5671(a) (16))

Obviously to achieve this statutory goal the State would have
to engage in referral acti vi ties 
for program candidates, as
well as recipients. Moreover, if the referrals are successful,
as would be hoped, the child never becomes a program recipiept.
Since the regulation clearly authorizes reimbursement for 
referrals and since referrals so clearly further a program 
/ I 
f in prepar ing the case plan, the State decides that the 
child is no longer a candidate for foster care cash benefits, 
any subsequent case plan activities would not be chargeable to
Title 
IV-E. 
CIO
 11 
goal affecting only program candidates

, we see no reason

Why the State' s efforts for such indi viduals 
der the program.  would not be 
reimbursable  The Agency, of course 
1 imi t reimbursement to only those indi viduals  , can
reasonably views as candidates and to only thosteh er eSfteartrea
 ls

ecifiCallY designed 
to further the statutory goal of section

). 1/ 
7 1  ( 1 
As a final pOint showing the unreasonableness of the Agency'
position 
, we agree with the Intervenors that the result of 
adopting the Agency'
s position would be to deny FFP where the
purpose of the IV-E program -- to keep children out of foster 
ble -- was achieved. 
care where poss 
As noted above
Congress' concerns was the warehousing of children aw,a yo nfer oomf 
their natural homes with little hope of permanent
placement.
Thus , for example , se tion 671(a)(1S) calls for reasonable

efforts to prevent the removal of a child from his natural
home. 
Yet the Agency' s interpretation would have the opposite
effect to that intended by Congress. 
Position  Under the Agency'

, a state could be deterred from taking preventive

efforts such as referrals since 

it would have no assurance of

receiving IV-E reimbursement if 
would be recei  it did , since no reimbursement

child.  ved for referrals that prevented removal of the
On the other hand
, a state which incurred administra
tive costs prfor to the removal stage would have the incentive

if it wished to claim FFP for its administrative activities

rsue removal of a child from his home even if other option,s 
to

to removal were available. 

Certainly this would not seem to

have been Congress I intention when it enacted the Adoption

Ass i stance and Child Welfare Act.

On tbe basis of the 
foregoing, we find that 
and existing regulations , under the statute

, the State should be able to receive

reimbursement for the disputed administrative 
activities. 
II. Whether costs associated with negative determinations

of IV-E eligibility are reimbursable under Title 

IV-E. 
The State' 
s proposed CAP amendment sought to allocate to Title
IV-E the costs of making all eligibility determinations 
positive and negative , for-he  , both 
IV-E program. 
7/ Furthermore
, as we emphasize 
in part III of this decision,
the State is 
limited specifically to the referral service

and may not claim counseling services under the aegis

of a referral. 
ell
 - 12 

The Agency rejected this proposal, holding that costs

associated with the determination . 
of IV-E eligibility must

be allocated-- IV-B and Ti t1e 
to Ti tle  XX on the basis of the

percentage of Ti tle IV-E to non-IV-E children in the State 
' s 
custody. As with the question of pre-placement administrative
costs, the Agen i contended that only administrative costs
related to children ecliogsibtlse.  under 42 U .  C. S672 are allowable 
IV-E administrative  The Agency claimed that it was
longstanding policy fer the IV-E program not to allow reim
bursement for negative eligibility determinations, .with
re imbursement for tho  e el ig ib i  ty determinations for chi ldren 
1 i 
provided foster care under a program other than IV-E charged to

that program.

The State argued that toe determination of eligibility, be
it positive or negative, is an administrative cost "necessary
. for the proper and efficient administration of the State
plan. 
The State argued that the Agency by regulation has 
explicitly authorized eligibility determination as an allowable
administrative cost:

The determination and redetermination of el 
igibil i ty,

fair hearings and appeals, rate setting and other costs

directly related only to the administration of foster

care program under this part are deemed allowable

paragraph. 
administrative costs under this 
They may
not be claimed under any other section or Federal 
program. 
4 5 CF R 13 56 . 60 ( c) ( 1 
The State emphasized that the IV-E program 
is an entitlement

program, and as such, the determination of who is and who

is not eligible is an indispensable part of the 
foster care

. program. 
The State asserted that the Agency routinely reim
burses all eligibility determinations in such programs as
AFDC and the Medicaid program. The State pointed out tha
the Agency had the opportunity to explicitly list negative 
eligibility determinations as unallowable IV-E costs in 
45 CFR 1356.60 as it did other costs, but failed to do so. 
Finally, the State questioned the logic of the Agency

interpretation of the statute and regulations. 
The State
reasoned: 
affirmative 
If only " " eligibility determinations recelved
FFP, there would be a great incentive on the part of the

states in borderline situations to make "positive 
" deter
minations, or to not be as diligent in ascertaining the

C 12  - 13 

negative " determinations, 
information needed to make "
since only in " positive " eligibility cases under DCA' 
interpretation would the states receive FFP for their

erminat ion expenses. 
e1 igibili ty de 
Appellant' s Brief, p. 15. 
As with pre- and post-placement services, we find that the

costs of making eligi  ility determinations are administrative

expendi tures necessary for the proper and efficient administra

tion of the IV-E program, regardless of the ou come of the

60(c)(1) 
determination process. We note that 45 CFR 1356.
specifically authorizes as allowable administrative costs 
the determination and redetermination of eligibility. 
are persuaded that this entails negative determinations as 
we 11 . 
As an entitlement program, IV-E requires the State to make

eligibility determinations. While the parties have disputed

the complexity of the Title IV-E eligibility determination

process -- the Agency contending that it is generally a simple

process, while the State and the Intervenors insisting that 

is a complex endeavor requiring many tasks by caseworkers --
involved. Other 
is undisputed that ad  inistrative costs are 
entitlement programs, such as Medicaid, reimburse negative as
well as positive eligibility determinations. 
The applicable 
l001(a), is 
Medicaid regulation in this regard, 42 CFR 435. 
essentially the same as 45 CFR l356.60(c) (1): 
FFP is available in the necessary administrative

determining and

costs the State incurs in 

redetermining  Medicaid eligibility 
added) 
( emhas i s 
Similarly, all deter inations for the AFDC program are

reimbursed. We see no reason why Title IV-E determinations

should be treated any dif ferently. 
We also find that, i: reimbursement for determinations for

unallowable, states
eligibility that turned up negative were 
might have an i 
centive to make more positive determinations. 
The corresponding amount of cos s that would necessarily

follow could overshadow the costs associated with a negative

determination of eligibility.

We also note that in 45 CFR 1356. 60 (c) (3) and (4) the Agency
speci f ically excluded certain act i vi ties from be ing reimbursed 
Cl3  4 

The a  sence of  any ment ion 
l. administrative costs.  subsections
as allowa 
erminations of !elli gi  ility in these eligibility
of negative de  determinations of 
supports our conclusion that  are, accord-

60(c) (1), and 
fall within the scope of 45 CFR l356.

ingly, reimbursable under the IV-E program.

it reasonable to allocate negative

Finally, we do not find 
eligibility determinations to another program since there has

ration that the finding of non-eligibili ityli tfyor
been no demons  igi 
Title IV-E is the same process as the finding of e

for the other program. 
Accordingly, OD the bas is of the foregoing, we conclude 
scheme, the St 
s existing regulatory 
that, under the Agency 
should be permitted to claim for negative as well as positiv 
eligibility determinations.

II I.  s proposed time study codes comply

Whether the State 
wi th Title IV-E and the applicable regulations.

lished the following

In the CAP amendment the State esta

time study codes for its caseworkers to record time spent on

(Code 3) and on

services unallowable as costs under Title IV-E 

inistrative activities allowable as costs under Title IV-E

(Code 4):

WELFAR THERAEUTIC COUNSELING 
CODE 3 - CHILD 
is directly

This code should be employed when the worker  risk,
counseling or providing treatment to a child at
the child' s family, or to the child' s alternative care 
provider which is aimed at amelioraticnogn doirt iorenmse.dying
personal problems, behavior or home 

WELFAR SERVICE ADMINISTRATION 
CODE 4 - CHILD 
i vi ty
This code shou ld be used when the CHILDd WeEfLiFnAiRtEio ancst
. All
does not fit into the three preceding

examples  of CHILD WELFAR SERVICE 
the following are 

ADMINI STRAT ION:

. Referral to services:
 judicial 
o preparatio	
for and participating in 
determina t ions: 
o Placement of the child:

o Development 0 
f the case plan: 
reviews: 
o Case and administrative  - 15 

. Case management and supervision: 
foster,
. Recrui tment, study, and approval of 
facilities:
adoptive, and other alternative care 
. Case s taf f ings and con ferences: 
. Permanency planning conferences:

t ion, evaluation, and assessment of

. Invest iga 
the child and family s condition:

. Child welfare public information and outreach 
including contracts with the media, special
interest groups, potential volunteers, . and
caretakers: 
. Communication with natural parents or alternative 
care providers on the status of the child, the case 
plan, goals for the child and the family, and
administrative procedures of the agency:
. Crisis intervention activity:

. All planning, assessments, and paperwork which

contribute to the above activities:

. Travel associated with any child welfare activity:

The Agency faulted Code 3 as being under-inclusive and Code 4
as over-inclusive. 
Specifically, the Agency argued that under 
direct counsel ing or treatment were considered
Code 3 only 

unallowable costs under Ti 
tle IV-E instead of all social 
services, while Code 4 contained activi ties that should be 
considered social services reimbursable under either Title 
IV-B or Title XX, but not under Title IV-E. 
The State questioned why its Code 3 should be rejected when

essentially repeats the wording of 45 CFR 1356. 60(c) (3). This 
regulation provides: 
Allowable administrative costs do not include the costs of 
social services provided to the 
child, the child' s family
or foster family which provide counseling or treatment to 
ameliorate or remedy personal problems, behaviors or home
cond i t ions. 
The State argued that the focus of this regulatory prohibition 
barring IV-E reimbursemen  is not on the broad category of
social services, " but only on those social services "which
provide counseling or treatment, 
" a prohibition repeated
its Code 
The Agency responded that Code 
3, by merely echoing the broad

based prohibition of 45 CFR l356. 
60(c) (3), would leave the

determination of how certain questionable services should be

CIS
 - 16 

worker. 
coded to the unfettered discretion of a social ss earrvei icnet
 ended to

hasized that administrative cos

The Agency em  s social

costs, not to encompa

be technical, managerial-type 
The Agency alleged that the Sta

services and treatment. 
rovide examples of what type of activities would

failed to 
 3, thereby leaving open the possibility that a

fall under Code 
other social services could be charged to IV-E which

myr iad of  Ti tle IV-B or Ti tle 

had previously been allocated to the
 s li=i ted interpre
programs. The Agency added that the State ' 
tation of the prohibition of social services ionf  CCooddee  3
  is

exacerbated by the over-inclusive provisio

ties as crisis intervention and

wherein such listed activi 

communication with natural parents or alternative care

providers are unmistakably social services appropriately

charged to the Title IV-B and Title XX programs only.

In response to a Board inquiry as to what specific types of

activities would fall within the ambits of Code 3 or Code 

the State replied that, in keeping with the provisio

Coae 3 would include only those
45 CFR l356. 65(c) (3), 
ameliorate or remedy

counseling or treatment activities which " These would

personal problems, behaviors, or home conditions.

include counseling:

o to prepare a child for adoption:

o to prepare the child and/or his biological family for 
I s  care: 
the child  return home from foster 
o to the child and/or biological parents regarding

rights:
termination of parenI tsa la
djustment 
o regarding the child  to school, 
and foster home: 
communi ty,  parents, or foster 
o with the foster child, biological 
groups -- to alleviate 
parents -- individually or in 
personal or behavioral problems: and tions,
o with biological parents to remedy home condi 

such as abuse or neglect, which are injurious to the

child. 
The State declared that the activi ties listed under Code 4 are 
activities eligible

oi 
self-explanatory and fall with the range  60(c) (2).

for Title IV-E reimbursement listed at 45 CFR l356.
That regulatio  gives a list of examples of IV-E reimbursable
activities: 
( i) Referral to services:
for participation in judicial
preparatio 
( i i) 
determinations: 
C16
 - 17 

(iii)
Placement of the child;

( i v) Development of the case plan;

(v) -
Case rev i ews ;
vi)
Case management and supervision;
(vii) 
Recrui tment 
icensing of foster homes and
institutions;and 
(viii)
Rate setting; and
( i x)  A proportionate share of related agency
overhead. 
In describing these activities 
the State stressed that a

Division of Family Services caseworker does not typically

provide counseling or treatment 
worker is primarily a case manaagcetri.v ities; rather , the case

The State explained that
the majori y of the counseling and treatment services listed

under COde 3 are provided by outside contract specialists.

If a caseworker were to engage 
in such activities, the

caseworker'  3. If
s time would be listed as COde 
, however
the caseworker refers a child or a child'

s parents to services

provi ded by an outsi de 
, contract provi der , the caseworker'
action would be a Code 4 allowable administrative cost for 
referral to services as provided for  60(c)(2)(i).
in 45 CFR 1536.
The State emphasized that Code 
4 is used only when an activity
does not fit into the definitions of the three preceding 

codes.
The State further noted 
that the alternate cost allocation plan

amendment  (7herien  Affidavit, Ex. III), submitted after the
original amendment was rejected 
, was approved by the Agency

and contained most of the Code 4 activities. 
Regulations require that a CAP must contain "sufficient 
on in such detail" to allow 
i nforma t 
 the DCA Director to
make an informed judgment on the correctness and fairn 
costs. 
of a state' s procedures for allocating 
507(a)(4).  45 CFR
95. While the State' 
s proposed Code 3 closely
follows 45 CFR 1356. 60(c)(3), we do not consider

unreasonable that the DCA Director demanded more detail

from the State. 
Section 1356. 60(c)(2) provides examples of

what activities are reimbursable under Title IV-E. It is
not an all-inclusive 
list, but states are still limited to
activities closely related to the activities listed and are 
tted t 
not permi  develop ent irely new categories of acti 
es.
Moreover , the codes for reimbursable activities must be fv uitl li y
consistent with the provisions proscribing reimbursement for 
counseling at section 1356. 60(c)(3). 
As noted above , the State provided the Board with a list of

counseling activities that 
it felt were encompassed by its

Code 3. This list closely parallels 
the revised Code 3 

C 17  ;. 

18 
ulti  Therie 
ears in the am r.dec CA? 
ately ac:ep:ed.

A f  i d a v it, E  - I I I . Thiset S i ntagt  eo af   par e n t 1 y t h us  : a k es  t he vie 
that a more detai led 1  unreimbursabl e counsel ing 
le. 
ivities is possi 
incorpora  admir.istrative 
The revised Code 4  es the examples of 
60(c)(2). 
costs listed at 45 CFR 1356.  The State  s original 
activities, 
Code 4 contained many of these same or related 
but also included costs which , in our opinion, give the 
appearance of creating new ca tegor ies of act i vi ties unrelated 
to the underlying regulation. For axample , crisis intervention
could be subject to, misinterpretat ion as including proscribed 
ing. 
counseli ng serv ices, in that it suggests counse 
We find , therefore , that the Agency may properly require the 
State to use time study codes identical to those adopted by
the part ies in the rev i sed CAP. 
60(c) to 
Both parties have cited the preamble to 45 eFR 1356.
$upport their positions, the Agency arguing that the regulation 
prohibits all social services costs, the State arguing that the 
barred. 
costs of only counseling or treatment are  In respond-
i ng to commenters who opposed the prohi bi t ion on reimbursemen t 
of administrative costs for social services, the Agency said 
the preamble: 
treatment-oriented services , such as 
We agree that 

helping families be reunited or finding new permanent 
homes for children , are vital to the goals of Pub. L. 
96-272. However , concurrently wi th the enactment of 
title IV-E, Congress en cted a revised title IV-B (Child 
Welfare Services Program) which provides for the delivery 
t he s e so cia 1 s e r v ice s . I n add i t ion , tit 1 e XX 0 f the 
Act, now the Social Services Block Grant, provides funds
to States for services. 
Because other sources of Federal 
services, 
funds are available for the provision of these 
the (Agency) has prohibited reimbursement from title IV-
funds for trea  serv ices  as i  wi th 
tmen t-or ien ted  ncons i s ten t 
enditures. 
the statutory concept of mai tenance ex  Funds 
for those purposes are the major focus of the serv i ce 
programs. Therefore  the final regulation continues the 
E for 
NPRM reQuirement by prohibiting FFP under title IV-
treatment-oriented services. 
15, 
47 Fed. Reg. 30922 , 30923 (July  1982) (emphasis 
added by tne S:a:e). 
C18
 , p. 
- 19 

Contrary to the State' s ariument , the preamble emphas izes 
that treatment-oriented services are not to receive IV-E

nding. 
The &CA Director' s insistence on greater deta 11s 
om the State is in no way inconsistent with tr.e preamble.

The revised Code 3, acceptable to DCA, does not conflict wi 

the preamble; it merely prov i des more spec i f ic i t 
Y as to the 
types of counseling activities not reimbursable under Title

I V 

Nor are we compelled to find for the State beca 
se another

region  s DCA Director has apparently approved a CAP amendment 
3. 
similar to the State' s proposed Code  The Int  rvenors 
supplied evidence that a different region had approved the

time study code of one state, Louisiana, which reads: 
THERAPEUTIC COUNSELING: Counseling or treatment

provided to the chi 
ld, the child' s family or foster
family aimed at ameliorating or remedying personal

problems, behavior or home conditions. 
The Agency admitted that it "has apparently approved a similar

vague time study code for the 8St.a te of Louisiana. " Agency'
Response to Ami cus Br ief  The Agency added , however, 
tha t	 it is presently cons i der ing ac t i on to requ ire Loui s iana
to modify its time study code. 
In approving CAPs , a regional DCA Director is not required

by the regulations to be bound by another region'
s actions.
Furthermore 
, as noted above , we do not consider this an
i ncons is tency, bu t rather a reques t for greater spec i f i city,
as permi t ted by the regula t ions. 
In summary, we therefore find that the DCA Director was within 
h is regulatory authority when he rej ec ted the State' s proposed
Code 3 and Code 4. 
IV.	 Whether acceptance of the State 
s CAP amendment 
would result in unreasonable costs being allocated 
to the IV-E program. 
In the course of this appeal the Agency raised an addi t ional
ground for the rejection of 
the State s amendment:
proved , the amendmen t would resul t  in admi n is tra t i ve cos
that would be unreasonable within the context of the IV-
program. 
The Agency alleged that one effect of the amendment
would be an increase 
in the State s IV-E claims for administra
tive expenditures from fiscal year 
1985, $7,  , p(F.Y )6 1.9 84 , $153, 599, to FY
606  716. Agency s Brief  Total claims for the 
CI9
 - 2a 

IV-E program woulj  ease , ac:ording to  e Agency, from
Ithde . FY 1984 level or $2 288  $12, 780,  for FY 1985.
The Agenci contended tha814t t o
 this manifol9d04  increase 
in IV-E
CTaims was not acco  corresponding increase (only
panied by  any 
9 percent) in the number of children served by the State 
program.  s IV-E
The Agency concluded that the amendoent' s increase
in administrative costs was clearly unreasonable given the 
virtually nonexistent increase 
in the scope of the State'
IV-E program. As further proof of the unreasonableness of the
amendment , the Agency compared the amendment'
s proposed IV-
costs to IV-E costs in other states in 
the region and deemed

the State' s costs extravagant.

The Agency theorized that the purpose of the amendment was

to shift to Title IV-E costs more appropriately allocable

to either Title 
IV-B, Title XX, or the State' s own child
welfare programs because IV-E has no funding 
ceiling, while
Titles IV-B and XX have funding caps. 8/ The Agency termed
the amendment . a thinly veiled attempt to bleed the Title IV-E 
oney that should more appropriately be supplied

program for 

from other sources, namely state appropriation.
15.  " Agency

Response to Board Order  As a fi nal 
, pp. 14- example of the
unreasonableness of the effect of the amendment, the Agency

stated that, while costs previously paid under Title IV-B 
and
XX would be shifted to Title IV-E, the State' 
s claims under
Titles IV-B and XX would not correspondingly decrease

would rather retai  , but 
n the ir prev i ous levels. 
The State vehemently denied the Agency 
s allegations concern

ing the reasonableness of the administrative costs under the

amendment. 
The State declared that its previous CAP severely
underclaimed IV-E administrative costs because 
it contained no

time study codes to determine and allocate the administrative

cos ts of Children s Serv ices caseworkers. The State explained

that it had previously claimed IV-E reimbursement under the 
optional hypothetical ceilings set forth at 42 U. 
because it never had suff  C. S674(c)
ther it
i c ien t da ta to determi ne whe 
was fully reporting all of the 
costs attributable to the IV-E
program; instead 
, it had reported only sufficient foster care
claims to qualify DFS to receive grant awards up to the

8/ 
For the IV-B program , states receive funds pursuant to
an allotment set forth  621. 
at 42 U.  For  the Title XX
program  C. 
, the allotment formula is set forth at 42 U. 
1397b.  S . C . 
C20
 , pp.

- 21 

ei:ing.  5. 
Therien Affidavit 
hypothetical  , paragraph  The
State mainta4  ed that the anticipated IV-E costs would not

unreasonable because they would not represent new or 
increased
costs; rather , the State would be allocating and reporting
these costs differently, charging Title IV-E with 

costs  its true

, and no longer using Title rV-B and Title XX funds to 
pay for IV-E activities. 
 ., paragraph 6.

The State noted that neither DCA nor the Regional Director

had ci ted the unreasonableness of potent ial

for disapproval of the amendment.  cos ts as a bas 

The State further argued

that there is no evidence that indicates 

that it has actually

increased the administrative costs generated by the IV-E

program; the State has merely changed 
its methodology for

claiming those costs. 
The State disputed 
the Agency'

contention that the State'
s IV-E administrative costs would

be disproportionate to IV-E costs claimed by other states 
nat ionally, supplying tables and graphs to support this 
claim.
Reply Brief
, p. 36; Therien Affldavi t , Ex. I. As for the
reg ional comparison made by the 
Agency, the State contended
that it is imposs i ble for 
the Agency to make an accurate
comparison when those other states are still operating their

IV-E programs under the hypothetical rei 
bursement ceiling

set forth  in  42 U.  C. S674(c).

As this case developed
, the Agency conceded a significant

portion of any Possible increase by agreeing 

that preplace

ments costs for candidates who ultimately are determined IV-E

g i bl e are re imbursable 
2el 5-26.  under IV - , Agency s Br ief
There has been no demonstration 
, then , of what part

or the original alleged increase represents activities still 
disputed. Also , we agree wi 
th the Agency that the language
of the time study codes should 
the total amount ultimately clabime emodd.i fied and that may affect
Regardless of the amount
of claim increases resulting from the amendment 
, we find the

increases would be reasonable since they represent 

necessary administrative activities  roper and

in the IV-E program.

As we stated previously 
in this decision 
, the costs for
pre-placement and negative eligibility determinations are 
authorized by statute and regulations as IV-E reimbursable
costs. If 
the activities are thus authorized 
that the claimed costs may increase from one , the mere fact

fiscal year to

the next through use of a different claiming methodology

implemented by a plan amendment should 

not be used as a

C21  ' '
" .
.. 
- 22 

ground for disaipspsr oibvilneg.  the amend ent i: t e a endmen 
herwise per  :he Agency' s concl  s io 
parl  on oNorf d o tweh  e State ' 
s IV-E adcinistratlve 
drawn from a  to those of other sta 
As long as the cos:s ar 
cos ts  tes val id. 
e '
authorized under the Act, a, state should be 
er.  itled to receive 
reimbursemen:, regardless of whether neighboring states fai 1 to
clai 
simi:a: activities or struct 
re their IV-E progra:s in a
fashion that results in lower claims against the federa: 
gove'rnmen t . 
Conclusion 
For the reasons discussed above, we reverse the Regional

Director 
s finding that the State may not claim 
in its CAP
certain administrative costs under Title IV-E and current 
regulations implementing Title IV-E. We also find, however,
that the DCA Director ' s rejectlon of the definitions in the

original time study codes was permissible under the regula

tions. 
f: 
It.. 
Norval D. (John 
Sett le 
DOn  Garr 
Presiding Board Member

e22