Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

STATE USE OF SPECIAL NEEDS


ADOPTION FUNDS FOR


NONRECURRING COSTS


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Jm GIBBS BROWN 

Inspector General 

AUGUST 1995 

OEI-06-94-O0560 
EXECUTIVE SUMMARY 

PURPOSE 

This inspection describes states’ experiences inutilizing funds available for Special Needs 

Adoption (SNA) nonrecurring costs. 

BACKGROUND 

The Foster Care and Adoption Assistance programs, authorized under Title IV-E of the


Social Security Act, provide care for children who need placement outside their homes.


Assistance is available for children with special needs who cannot be returned to their


homes and who have had difficulties being adopted. Adopting parents of special needs


children may receive monthly assistance payments which vary among states.


Adopting parents may also receive reimbursement for one-time nonrecurring costs of


special needs adoptions. These nonrecurring costs include adoption fees, court costs,


attorney fees and other expenses which are directly related to the legal adoption of special


needs children. States must report their use of SNA nonrecurring funds cm Federal Form


IV-E-12, but are not required to separate these expenses from normal administrative costs.


This study was requested by the Administration for Children and Families (ACF) out of a


concern that state adoption agencies may not be fully utilizing the nonrecurring costs


provision of the Social Security Act.


This examination of the use of nonrecurring costs in facilitating special needs adoptions


was based on mail surveys completed by state officials knowledgeable about their State’s


adoption practices. To supplement our surveys and to clarify key issues, we conducted


telephone interviews with a number of the state respondents. However, we did not talk to


adoption agent y staff, case workers, or adopting parents. Forty-two state respondents


returned surveys, although not all responded to every question. We also reviewed


relevant policy documents and met with officials in the ACF.


FINDINGS 

Most States Utilize Speciizl Needs Adoption Nonrecum”ng Funds, however this is Not 

Always Rejlected on their Federal Repoti”ng Forms. 

Nonrecurring SNA cost reimbursements were not always captured on Form IV-E-12. 

Most discrepancies in the amount of reimbursements recorded and the amount actually 

spent were due to state payment systems not separating SNA nonrecurring costs from 

normal administrative costs. 

At least 17 percent more funds were spent than were reported as SNA nonrecurring costs. 

An additional $924,185 was spent in FY1994 that was not originally reported on the Form 

IV-E- 12 reports as SNA nonrecurring costs. 

i 
Four states reported not using Federal matching funds for special needs adoption 

nonrecurring costs. 

Due to changes in the new reporting system, there will no longer be any Federal 

accounting of SNA nonrecurring costs beginning in FY 1996. 

Most Stales Authorize Reimbumements for Nonrecum”ng Costs up to the Federal 

Maximum of $2,000 per Adoption. 

When states set reimbursement levels below the $2000 limit this was most often due to 

state budget constraints or because the actual costs per adoptive family were typically 

much lower. In many states, expenses such as court costs and attorney fees were covered 

through other state programs. 

Most States Were Not Proactive in Informing Parents that their iVonrecum”ng SNA 

Costs Could be Reimbursed. 

Outreach strategies were primarily informal, with few states evaluating the effectiveness 

of their outreach efforts. 

State Respondents Judged Reimbursement of Nonrecum”ng Costs Helpful in Facilitti”ng 

Special Needs Adoptions. 

Respondents believed that reimbursement eliminated some financial barriers which may 

have delayed or prohibited adoptions, thereby expanding the pool of adoptive parents to 

include more lower and middle income families. 

Respondents Suggested Allowing a Tm Credit for Adoptive Families or Paying Service 

Providers Directly to Improve the Efficiency of Nonrecum”ng Costs Disbursement. 

ii 
INTRODUCTION 

PURPOSE 

This inspection describes states’ experiences inutilizing funds available for Special Needs 

Adoption (SNA) nonrecurring costs. 

BACKGROUND 

The Foster Care and Adoption Assistance programs, authorized under Title IV-E of the


Social Security Act, provide care for children who need placement outside their homes.


The purpose of this legislation was to enhance the foster care program, strengthen child


welfare services and encourage the adoption of children with special needs. A child is


declared special needs when the state determines that the child cannot be returned to the


parents’ home and that he/she also possesses a factor or condition (such as his/her ethnic


background, age, physical or mental disability, or membership in a sibling group) that


may cause the child to have difficulty being adopted.


Special needs adoption assistance comes in three forms: adopting parents of special needs


children may receive medical benefits, monthly maintenance payments which vary among


states, and they may also receive reimbursement for one-time adoption costs. These


nonrecurring costs include adoption fees, court costs, attorney fees and other expenses


which are directly related to the legal adoption of special needs children. Examples of


other approved costs are health and psychological examinations, placement supervision


services, and the costs of the child’s or family’s transportation, food and lodging


necessary to complete the adoption process.


Adoptive families were formerly allowed an itemized tax deduction of up to $1,500 to aid


in the payment of nonrecurring costs. This practice was criticized because it was viewed


as discriminating against families who did not itemize their tax deductions. The Tax


Reform Act of 1986 repealed the tax deduction by amending Title IV-E of the Social


Security Act. The new ruling requires states to reimburse adoptive parents for


nonrecurring SNA costs and provides 50 percent Federal matching funds for a total outlay


of no more than $2,000 per adoptive placement. Implementation of this new policy began


in 1988 with the publication of a Notice of Proposed Rulemaking (NPRM). An important


component of this ruling is the requirement that a reasonable, but unsuccessful, effort first


be made to place the child without providing any adoption assistance.


Under the new policy of reimbursement, adoptive families are required to submit receipts


for costs incurred upon finalization of the adoption and are then compensated by the state


or local agency. Although most use this reimbursement method, a few states pay


providers such as attorneys and social workers directly when possible. States are then


required to report their use of special needs adoption nonrecurring funds on Federal Form


IV-E- 12 which tracks money spent on Foster Care and Adoption Assistance programs.


Although there is a line on the Form IV-E-12 speciilcally for recording the amount spent


1 
on SNA nonrecurring costs, states are not required to declare this amount separately and 

may group these expenditures with other administrative adoption costs. This study was 

requested by the Administration for Children and Families (ACF) out of a concern that 

state adoption agencies may not be fully utilizing the nonrecurring costs provisions of the 

Social Security Act. 

METHODOLOGY 

This examination of the use of nonrecurring costs in facilitating special needs adoptions 

consisted of mail surveys completed by state officials knowledgeable about their state’s 

adoption practices (see Appendix A). To supplement our surveys and to clarify key 

issues, we conducted telephone interviews with a number of the state respondents. 

However, we did not talk to adoption agency staff, case workers, or adopting parents. 

Forty-two states returned surveys, although not all responded to every question. Prior to 

the survey analysis, we reviewed relevant policy documents and met with officials in the 

ACF. We conducted our study in accordance with the Quality Standards for Inspections 

issued by the President’s Council on Integrity and Efficiency. 

2�
FINDINGS


MOST STATES UTILIZE SPECIAL NEEDS ADOPTION NONRECURRING 

FUNDS, HOWEVER THIS IS NOT ALWAYS REFLECTED ON THEIR FEDERAL 

REPORTING FORMS. 

Nonrecum”ng SNA costs reimbumements were not always captured on Fozm IV-E-12. 

Of the 14 states with ~ recorded nonrecurring SNA expenditures in FY1994 on the Form 

IV-E- 12, five states actually did use funds (see Appendix B). 1 Discrepancies in the 

reported and actual expenditures were due to state payment systems not separating SNA 

nonrecurring costs from normal administrative adoption expenditures. 

At least 17 percent more funds were spent than were repotted as SNA nonrecum”ng 

costs. 

An additional $924,185 was spent in FY1994 that was not originally reported on the Form 

IV-E- 12 reports as SNA nonrecurring costs. Based on our survey report, at least $6.4 

million was spent on nonrecurring costs in FY 1994 (see Appendix B). 

Four states repotied not using Federal matching finds for SNA nonrecum”ng costs. 

Reasons for not using nonrecurring SNA funds in Fiscal year 1994 (FY1994) centered on 

a lack of need. These states covered all or most adoption costs such as legal fees and 

home study expenses through the use of state services, requiring little to no out-of-pocket 

expenditure by adoptive families. In the case of one state, the amount requested by 

families was so small that the state adoption officials decided that receiving Federal 

matching funds was not worth completing the necessary paperwork. 

Due to changes in the new repoti”ng system, there will no longer be any Federal 

accounting of SNA nonrecum”ng costs be~”nning in FY1996. 

Form IV-E-12, the current tool for tracking adoption costs, will be replaced in FY1996 

with a new reporting form entitled 431. The new form does not even ask states to 

distinguish nonrecurring adoption reimbursements from normal administrative costs. 

According to officials in the ACF, this change was made in order to reduce the 

administrative burden on states. 

The Adoption and Foster Care and Analysis Reporting System (AFCARS) collects data on 

adoptions, but does not request that states list nonrecurring costs separately. States are 

required to report through AFCARS the number of adoptions where the state agency had 

any involvement. This involvement could be the reimbursement of nonrecurring costs, 

but could also be foster care, monthly maintenance payments or other adoption assistance 

services. Therefore, there will be no Federal method for capturing state use of funds for 

nonrecurring adoption costs beginning in FY 1996. 
MOST STATES AUTHORIZE REIMBURSEMENTS FOR NONRECURRING 

COSTS UP TO THE FEDERAL MAXIMUM OF $2,000 PER ADOPTION. 

Twenty-six states reimbursed parents at the maximally allowed $2000 reimbursement


limit, while 15 states reimbursed at levels ranging from $400 to $1,500


(see Appendix C) .2 States reimbursed at levels below the $2000 limit for the following


reasons: 1) costs were already covered in other ways, e.g., use of state-appointed


attorneys; 2) states had mandated lower maximums due to budget constraints; and 3)


adoptive families often requested less than the limit.


MOST STATES WERE NOT PROACTIVE IN INFORMING PARENTS THAT 

THEIR NONRECURRING SNA COSTS COULD BE REIMBURSED. 

Outreach strategies were primarily informal. 

Although states used a variety of methods to make parents aware of SNA funds, informal 

woral-of-mouth by caseworkers was the most common. As stated earlier, Federal 

regulation dictates that an effort frost be made by adoption agencies to place special needs 

children without providing any financial assistance. Therefore most states do not actively 

solicit use of the nonrecurring funds. Outreach methods seem to be mostly ad hoc and 

unstructured. 

Most agencies informed adoptive parents about costs reimbursement during the interview 

or home study, either verbally or with brochures (see Appendix C). Some states provided 

training for private adoption agencies and for individual adoptive families, while others 

relied on the court system, parent support groups or adoption exchange organizations to 

publicize available fimds. These supplementary groups were most often used as 

reinforcements rather than as primary sources of information. Although nearly all states 

sought to inform parents of nonrecurring funds, only one used the existence of funds as a 

tool for recruiting parents. 

Few stales evaluated the effectiveness of their outreach effotis. 

Only thirteen states sought to determine the effectiveness of their procedures for informing 

parents of nonrecurring SNA costs reimbursement. These evaluations appeared to be 

mostly non-systematic. Examples included: 1) occasional follow-up interviews with 

adoptive parents; 2) discussions with caseworkers; and 3) surveys sent to private adoption 

agencies. 

STATE RESPONDENTS JUDGED REIMBURSEMENT OF NONRECURRING 

COSTS HELPFUL IN FACILITATING SPECIAL NEEDS ADOPTIONS. 

A large majority of state respondents considered reimbursement of nonrecurring SNA 

costs to be helpful in facilitating special needs adoptions. Financial barriers were thought 

to delay and even prohibit adoptions, particularly when families were required to pay legal 

fees and court costs. Many state respondents argued that the families most likely to adopt 

4

were often middle to lower income households whose limited resources were needed to 

meet other expenses directly related to the needs of the child, such as home 

modifications. 3 

STATE ADOPTION STAFF RECOMMENDED POLICY CHANGES TO IMPROVE 

THE EFFICIENCY OF NONRECURRING SNA COSTS DISBURSEMENT. 

The most common suggestion given by state respondents for improving the disbursement 

of nonrecurring SNA funds was to create a system which grants tax credits to adoptive 

families. Unlike the previous itemized tax deduction, a tax credit could be easily used by 

all adoptive families. They cited decreased administrative costs and reduced paperwork as 

incentives to implement a tax credit and claimed the current reimbursement method 

created an administrative burden on their agencies and on families. 

Respondents claimed that in many cases adoptive families had difficulty paying for costs 

in advance and then waiting to be reimbursed. others recommended encouraging states to 

pay providers directly to avoid families’ initial financial outlays. In addition to the issue 

of payment methods, some respondents felt that the Federal definition of acceptable 

nonrecurring expenses should be broadened to include home modifications made by 

adoptive parents to accommodate the special needs child. 

5�
EN DNOTES


1.	 Of the nine remaining states not separating nonrecurring SNA expenditures for 

FY1994 on their IV-E-12 form, four states were non-respondents, four states did 

not utilize funds, and one state respondent did not have fiscal information 

available. 

2. The one remaining state described its reimbursements as “usual and customary. ” 

Under existing NPRM regulation, the one-time costs for alteration of adoptive 

parents’ homes or properties are @ expenses reimbursable as a nonrecurring costs 

expenditure. 

6�

3 
APPENDIX A 

STATE SURVEY QUESTIONS FROM QUESTIONNAIRE 

STATE:


PERSON COMPLETING FORM:


TELEPHONENUMBER: ( ) —-


1.HOW much State and Federal funds did you spend on nonrecuming costs for special needs adoptions (SNA) in fiscal year 1994? 

I I I I 1 

1st Qtr 2nd Qtr 3rd Qtr 4tb Qtr 

State Federal State Federal State Federal State Federal 

$ $ $ $ $ $ $ $ 

2. If the money amounts you gave in question 1 above are different from the combined Federal and State amounts we gave you in our cover memo, please explain the 

discrepancy, (For example, if we show zero amounts in our cover memo, but you did spend monies for nonrecurring SNA costs, explain why the amounts spent are 

not reflected int he Form WE-12 reports.) 

3 If zero amounts are accurately shown either in the figures we gave you in our cover page, or in the figures you gave us in question 1 above, please explain why no 

funds are being used for nonrecuming SNA costs. 

4.What is the maximum amount you will pay for SNA nonrecurring costs per child? $ 

If it is not $2,000 ($1 ,000 State and $1,000 Federal maximum), why is it set at this rate’! 

5 .What process (mechanism) do you use to claim nonrecurring SNA costs? (For example, do you claim them as SNA costs or normal administrative costs’?) 

6, What process do you use to reimburse parents and how do you account for these amounts’? (For example, are the parents paid by the State or local agencies and 

what documentation is required?) 

7. Is the use of nonrecurring costs reimbursement helpful in getting SNA children adopted? Yes — No — 

Please explain you answer. 

8 Are there barriera to the use of nonrecurring costs reimbursement? Yes —— No If yes, what are they?

9 How are SNA adoptive parents made aware of nonrecurring costs reimbursement? 

Do you evaluate the effectiveness of your procedures? Yea No _ If yes, how? What have the resuka been? 

10. Other than additional funding, what would you recommend to make reimbursement of nonrecurring costs of S NA adoptions more effective at either the national or 

State level? 

1

APPENDIX B 

FEDERAL AND STATE FISCAL YEAR 1994 EXPENDITURES 

FOR NONRECURRING COSTS FOR SPECIAL NEEDS ADOPTIONS 

Total State & Total State & Explanation of Differences Between 

Federal Federal the Reported Information on the 

Expenditure Expenditure IV-E-12 Form and Survey Information. 

for FY1994 for FY1994 

Reported on Reported on 

IV-E-12 Form Survey 

AL $22,751 $22,751 

AK $81,198 $107,081 An additional $25,883 paid as State-only 

SNA for children outside the Federal 

definition of Special Needs. 

AZ $58,893 $58,893 

AR $5,772 $5,773 

CA o $284,824 Expenditures were made, but claimed as 

administrative costs on the IV-E-12 form. 

co o Unknown Expenditures were made, but claimed as 

administrative costs on the IV-E-12 form. 

However, the exact amount spent on 

nonrecurring costs is unknown. 

CT $4,023 NR Non-respondent 

DE o 0 All special needs adoptions are done directiy 

by the state so there are no costs to the 

adoptive family. 

DC o NR Non-respondent 

FL $55,864 $55,864 

GA $163,459 $163,454 

HI o 0 Some expenditures were made out of state 

funds, but not claimed for Federal 

reimbursement t. 

ID $37,786 $37,806 

IL o NR Survey completed, however fiscal 

information not submitted 

IN $171,828 NR Non-respondent 

1A $87,179 $87,179 

B-1

Total State & Total State & Explanation of Differences Between 

Federal Federal the Reported Information on the 

Expenditure Expenditure IV-E-12 Form and Survey Information. 

for FYl 994 for FY1994 

Reported on Reported on 

IV-E-12 Form Survey 

KS $161,458 $161,458 The information on the IV-E-12 form 

originally was $297,654. However, this 

amount included all adoption assistance 

administration expenditures instead of only 

nonrecurring expenditures. 

KY $30,644 $30,646 

LA $131,720 $131,720 

ME n o System for reimbursing parents not in 

place yet. 

MD .$32,252 NR Non-respondent 

MA o $5,000 Expenditures were made, but claimed as 

administrative costs on the IV-E-form 

MI o NR Non-respondent 

MN $195,870 $195,870 

MS $974 $18,964 Nonrecurring costs not cIaimed to Federal 

government due to reporting problem with 

computer system. The problem has since 

been resolved. 

MO $327,871 $327,921 

MT $7,742 NR Non-respondent 

NB $37,797 $37,797 

Nv $18,196 $18,196 

NH o $30,017 Expenditures were made, but claimed as 

administrative costs on the IV-E-12 form. 

NJ o $553,122 Delay in the completion of the Cost 

Allocation Plan for FY 1994. 

NM $44,723 $44,723 The information on the IV-E-12 form 

originally was $22,360. However, this 

number was later corrected. 

NY $1,666,634 $1,666,634 

NC $38,866 NR Non-respondent 

B-2

Total State & 

Federal 

Expenditure 

for FY1994 

Reported on 

IV-E-12 Form 

ND o 

OH $547.035 

OK $103,753 

OR $100,29’0 

PA $117,687 

RI o 

Sc $179,212 

SD $50,856 

TN $82,144 

TX $519,564 

UT $54,536 

VT $24,557 

VA $27,091 

WA $258,748 

Wv $1,255 

WI $70,394 

WY 0 

Total $5,520,622 

Total State & 

Federal 

Expenditure 

for FY1994 

Reported on 

Survey 

$7,760 

$547,036 

$103,753 

$100,830 

$117,687 

0 

$179,212 

$50,856 

$82,144 

$518,564 

$54,536 

$24,556 

NR 

$258,748 

NR 

$70,394 

NR 

$6,161,760 

+ 283,0571 

$6,444,817 

Explanation of Differences Between 

the Reported Information on the 

IV-E-12 Form and Survey Information. 

Payment and claims system has no method 

of separating amount paid for nonrecurring 

costs. Calculation made on survey required 

manual case reviews. 

Transposed numbers during 4th quarter, so 

$540 was inadvertently not re~orted. 

All special needs adoptions are done directly 

by the agency so there are no costs to the 

adoptive family. 

Survey completed, however fiscal 

information not submitted 

Non-respondent 

Non-respondent 

$924,195 =� Amount of additional 

expenditure that 

was not captured on 

Form IV-E-12 as SNA 

nonrecurring costs. 

R State did not submit information 

Represents the total amount claimed by states on the IV-E-12 form not responding to our survey. 

B-3

APPENDIX C 

COMPARISON OF STATE POLICIES & PRACTICES REGARDING 

USE OF SPECIAL NEEDS ADOPTION FUNDS FOR NONRECURRING COSTS 

Maximum State Type of 

Amount Reimbursed Reimbursement 

Reimbursed Parents for Process 

Per Child Nonrecurring (State/Local) 

Costs in 

FY1994 

AL $1,000 

AK $2,000 

AZ $2,000 

AR $1,500 

CA $400 

co $800 

CT NR 

DE $2,000 

DC NR 

FL $2,000 

GA $2,000 

HI $2,000 

ID $2,000 

IL $1,500 

IN NR 

IA usual 

Customary 

Ks $2,000 

d State 

J State 

J State 

d State 

J Local 

No Local 

NR NR 

No *

NR NR 

J State 

d Local 

No State 

J State 

NR State 

NR NR 

J State 

J Local 

Outreach Conducted by 

State Regarding 

Availability 

of Nonrecurring Costs 

Reimbursement 

workers inform parents 

workers inform parents 

training, in policy material 

workers inform parents 

workers inform parents 

workers	 inform parents, in 

brochure 

NR 

* 

NR 

workers inform parents 

during training 

workers inform parents 

during training 

workers inform parents, 

on application 

workers & court attorneys 

inform parents 

workers inform parents 

NR 

workers inform parents 

workers & private adoption 

agencies inform parents 

c-1 
Maximum State Type of 

Amount Reimbursed Reimbursement 

Reimbursed Parents for Process 

Per Child Nonrecurring (State/Local) 

Costs in 

FY1994 

KY $1,000 J State 

LA $1,000 J State 

ME * $2,000 No 

MD NR NR NR 

MA $400 J State 

MI NR NR NR 

MN $2,000 J State 

MS $1,000 J State 

(State only) 

MO $2,000 d State 

MT NR NR NR 

NB $1,500 J State 

NV $2,000 J State 

NH $2,000 d State 

NJ $2,000 d State 

NM $2,000 J State 

NY $2,000 / Local 

NC NR NR NR 

ND $2,000 d Local 

OH $2,000 d Local 

OK $2,000 J State 

Outreach Conducted by 

State Regarding 

Availability 

of Nonrecurring Costs 

Reimbursement 

in handbook, county court 

clerks 

workers inform parents 

workers inform parents 

NR 

workers inform parents, 

in adoptive parent newsletter 

NR 

workers	 inform parents, in 

brochure 

workers inform parents 

workers inform parents, in 

flyer 

NR 

adoption agencies & 

attorneys made aware 

workers inform parents, 

in booklets & part of training 

State agency informs 

parents in writirg 

written notification to parents 

workers inform parents 

local agency training, 

workers inform parents 

NR 

workers inform parents 

booklet given to parents 

training & information given 

to courts 

c-2