Department of Health and Human Services 


OFFICE OF 

INSPECTOR GENERAL 

STATES’ MONITORING OF 

SUBGRANTEES IN THE FOSTER 

CARE PROGRAM: A 

DESCRIPTION OF SIX STATES’ 

SYSTEMS 

Inspector General 

December 2004 

OEI-05-03-00061 
Office of Inspector General 
 http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, 

as amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 

Office of Audit Services 

The OIG's Office of Audit Services (OAS) provides all auditing services for HHS, either by 

conducting audits with its own audit resources or by overseeing audit work done by others. 

Audits examine the performance of HHS programs and/or its grantees and subgrantees 

in carrying out their respective responsibilities and are intended to provide independent 

assessments of HHS programs and operations in order to reduce waste, abuse, and 

mismanagement and to promote economy and efficiency throughout the department. 

Office of Evaluation and Inspections 

The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management 

and program evaluations (called inspections) that focus on issues of concern to the 

department, the Congress, and the public. The findings and recommendations contained 

in the inspections reports generate rapid, accurate, and up-to-date information on the 

efficiency, vulnerability, and effectiveness of departmental programs. The OEI also 

oversees state Medicaid fraud control units, which investigate and prosecute fraud and 

patient abuse in the Medicaid program. 

Office of Investiga ions t

The OIG's Office of Investigations (OI) conducts criminal, civil, and administrative 

investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries 

and of unjust enrichment by providers. The investigative efforts of OI lead to criminal 

convictions, administrative sanctions, or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support in OIG's internal operations. The OCIG imposes program exclusions and 

civil monetary penalties on health care providers and litigates those actions within the 

department. The OCIG also represents OIG in the global settlement of cases arising 

under the Civil False Claims Act, develops and monitors corporate integrity agreements, 

develops compliance program guidances, renders advisory opinions on OIG sanctions to 

the health care community, and issues fraud alerts and other industry guidance. 
∆ ABSTRACT 


As part of a broad Office of Inspector General effort to review the 

management of grant programs under the Department of Health and 

Human Services, this report describes States’ program and fiscal 

oversight of subgrantees in the Title IV-E foster care program. This is a 

companion report to “Oversight of States’ Subgrantee Monitoring in the 

Foster Care Program” (OEI-05-03-00060), which reported that 

monitoring systems in three of the six States are inadequate. 

For this inspection, we interviewed staff and reviewed monitoring 

protocols and subgrantee files in six States that administer over 

45 percent of the $5 billion that the Administration for Children and 

Families (ACF) awards annually for the foster care program. In all six 

States, we found that program monitoring typically consists of an onsite 

visit to subgrantees, and fiscal monitoring typically consists of an 

independent audit. In some States these monitoring mechanisms are 

minimal or not implemented as intended. In addition, all six States rely 

on rate setting to manage foster care expenditures. 

Given the extent that States appear to be using subgrantees to carry out 

fundamental foster care services, lax monitoring can have a significant 

impact. States with limited monitoring systems may want to consider 

bolstering their program and fiscal monitoring. The ACF could consider 

assisting States in their efforts by providing expertise and guidance on 

subgrantee monitoring, and facilitating communication among States. 

We hope the information in this report will be helpful in developing this 

assistance and guidance. 

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∆ E X E C U T I V E S U M M A R Y 

OBJECTIVE 

To describe selected States’ program and fiscal oversight of subgrantees 

in the foster care program. 

BACKGROUND 

The Administration for Children and Families (ACF) awards 

approximately $5 billion each fiscal year to States that serve about 

800,000 children in the Federal Title IV-E foster care program. Most 

States award some portion of their Federal foster care grant to 

subgrantees to provide core program services, such as child placement 

and residential care. 

According to Federal grants management requirements under 

45 CFR Part 74, States must oversee subgrantees to ensure that 

subgrantees comply with Federal fiscal and program regulations, use 

funds for authorized purposes, and achieve performance goals. The 

ACF must ensure that States administer their foster care programs in 

accordance with Federal regulations. 

We conducted site visits to 6 States representing over 45 percent of Title 

IV-E spending. We interviewed monitoring staff, reviewed relevant 

monitoring policies and protocols, and reviewed documentation of 

States’ monitoring for 15 to 19 subgrantee files in each State. 

This is a companion report to “Oversight of States’ Subgrantee 

Monitoring in the Foster Care Program” (OEI-05-03-00060), which 

reported that monitoring systems in three of the six selected States are 

inadequate. That report also found that ACF pays minimal attention to 

States’ subgrantee monitoring and has little information about how 

States monitor subgrantees. While that report provides an assessment 

of States’ monitoring systems, this report provides descriptive 

information on how subgrantees are being monitored in our selected 

States. In doing so, this report seeks to assist ACF and States in 

addressing the problems identified in the first report. Both reports are 

part of a broader Office of Inspector General effort to review the 

management of grant programs under the Department of Health and 

Human Services (HHS). 

 O E I - 0 5 - 0 3 - 0 0 0 6 1 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT ii 
EXECUTIVE SUMMARY

PROGRAM OVERSIGHT 

In all six States, onsite visits are used to monitor subgrantees. In 

three States, monitoring mechanisms are not implemented as 

intended. In all six States, subgrantees’ provision of services is 

primarily evaluated through onsite visits, including licensing visits that 

focus on compliance with regulations. Monitoring in four States also 

includes program site visits that focus on quality of services. In three 

States, onsite monitoring mechanisms are not implemented as intended. 

In these States, some subgrantees did not receive their routine licensing 

or program site visits. 

Outcomes-based monitoring has surfaced in some monitoring 

systems. Five of six States demonstrated at least some movement 

toward an outcomes-based model of monitoring. In these States, the 

collection of outcomes data has augmented, not replaced, more 

traditional modes of monitoring. Three of these States make limited use 

of performance-based contracting, which involves rewarding 

subgrantees financially for positive outcomes. 

FISCAL OVERSIGHT 

In all six States, fiscal monitoring is minimal. Most States rely on 

only one mechanism, typically an independent audit, to monitor 

subgrantees fiscally. Although three States use the more 

comprehensive Single Audit as their fiscal monitoring mechanism, two 

of these States’ use of the Single Audit is very limited. In some States, 

fiscal monitoring mechanisms do not apply to all subgrantees or are not 

functioning adequately. 

In all six States, rate setting is used to manage foster care 

expenditures. In all six selected States, subgrantees are funded 

through fixed rates. Setting rates differs considerably by State, with 

some rate-setting methodologies being far more sophisticated than 

others. Some vulnerabilities inherent in a rate-setting system may 

impact monitoring. These vulnerabilities include: (1) rates may be set 

inaccurately; (2) rate-setting processes do not address excess funds or 

unallowable costs; and (3) fixed rates of payment may create financial 

incentives for subgrantees to decrease the quality of their services. 

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EXECUTIVE SUMMARY

CONCLUSION 

In many cases, States’ program and fiscal monitoring systems are 

limited: monitoring either covers a limited number of subgrantees, 

consists of only one monitoring mechanism, or is not functioning as 

intended. Without quality monitoring, States and ACF may have little 

assurance that subgrantees are providing quality services to children in 

a fiscally responsible manner. States with limited monitoring may want 

to consider bolstering their systems to ensure that all subgrantees are 

routinely and comprehensively monitored to ensure a high quality of 

care and the appropriate expenditure of foster care funds. 

We found that some selected States have noteworthy aspects of their 

subgrantee oversight, including outcomes-based monitoring and 

sophisticated rate-setting methodologies. States could benefit from 

learning about well-designed monitoring systems and strategies. The 

ACF may want to consider assisting States in these efforts by providing 

guidance and facilitating communication among States on subgrantee 

monitoring and rate setting. 

O E I - 0 5 - 0 3 - 0 0 0 6 1 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT iv 
∆ T A B L E O F C O N T E N T S 

ABSTRACT ....................................................... i 

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

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

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

Onsite visits are used to monitor subgrantees; some mechanisms 

have limitations. ........................................ 6

 Outcomes-based monitoring ............................... 8

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

Fiscal monitoring is minimal .............................. 10

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

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

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

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

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

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

END NOTES .................................................... 28
∆ INTRODUCTION I N T R O D U C T I O N 

OBJECTIVE 

To describe selected States’ program and fiscal oversight of subgrantees 

in the foster care program. 

BACKGROUND 

The Administration for Children and Families (ACF) administers the 

foster care program, which is authorized under Title IV-E of the Social 

Security Act and which awards nearly $5 billion each fiscal year in 

entitlement grants to States that serve about 800,000 children under 

Title IV-E annually.1 Most States subaward some portion of their Title 

IV-E funds to subgrantees2 to carry out core program activities, such as 

child placement and residential care. 

Recent Federal Interest in Subgrantee Monitoring 

In 2001, the Secretary of the Department of Health and Human 

Services (HHS) created an initiative to improve the management of 

HHS grant programs. The Office of Inspector General (OIG) has also 

undertaken a broad effort to review the control, effectiveness, and value 

of HHS grant programs. 

Federal stakeholders, including the Office of Management and Budget 

(OMB) and Congress, have expressed concern that States are not 

adequately monitoring their subgrantees, and that this may reflect a 

lack of Federal agency oversight. Based on this concern, OMB created 

an interdepartmental Task Force on Subrecipient Monitoring in 2002.3 

This task force is reviewing regulations and policies to identify whether 

Federal guidance and oversight of subgrantee monitoring is adequate. 

Congress has also shown its concern by requesting reviews of 

subgrantee monitoring in other HHS programs.4 

This is a companion report to “Oversight of States’ Subgrantee 

Monitoring in the Foster Care Program” (OEI-05-03-00060), which 

found that monitoring systems in three of the six selected States are 

inadequate. That report also found that ACF pays minimal attention to 

States’ subgrantee monitoring and has little information about how 

States monitor subgrantees. While that report provides an assessment 

of States’ monitoring systems, this report provides descriptive 

information on how subgrantees are being monitored in our selected 

States. In doing so, this report seeks to assist ACF and States in 

addressing the problems identified in the first report. 

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INTRODUCTION 

Increased Use of Subgrantees in the Foster Care Program 

According to a recent study, nearly all States use subgrantees to provide 

core foster care services to at least some of their foster children.5 

Foster care services provided by subgrantees include child placement 

services, such as recruiting and training foster families, placing children 

with specific families, and arranging services for these children while in 

their placements. Subgrantees may also provide services related to 

residential care, using professional staff to care for foster children in 

group homes, residential institutions or schools, mental health or other 

specialty treatment facilities, and emergency shelters. 

The increasing privatization of foster care services has led to concerns 

about the accountability of subgrantees within the foster care program. 

Recent State audits have substantiated the need for concern. In 2000, 

Ohio’s State Auditor found that more than $9 million in foster care 

funds had been misspent by private agencies on housing and automobile 

leases, private jet fuel, and other unallowable purchases. These audits 

uncovered “lax control over Federal foster care money, a lack of 

financial and program monitoring, abuse of public funds, and the 

compromised care of some children.”6 

Without adequate oversight of foster care subgrantees, the safety and 

welfare of thousands of children a year are potentially jeopardized and 

millions of dollars in annual Federal funds are vulnerable to abuse. 

States’ Monitoring of Subgrantees 

In HHS, responsibilities for State administration of Federal grant funds 

are delineated by two sets of Federal requirements: 

o the Uniform Administrative Requirements for Awards and 

Subawards (45 CFR Part 74),7 and 

o the Single Audit Act (implemented by OMB Circular A-133). 

Specifically, 45 CFR Part 74 contains HHS grants management 

regulations and incorporates OMB Circular A-133 by reference. 

These Federal grants management requirements8 require States to: 

o Ensure that subgrantees are complying with program 

requirements and achieving performance goals. 

o Ensure subgrantees are complying with fiscal requirements, such 

as having appropriate fiscal controls in place, and are using 

awards for authorized purposes. 

 O E I - 0 5 - 0 3 - 0 0 0 6 1 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT 2 
INTROD UCTION 

States can ensure that subgrantees are meeting these requirements 

through a variety of mechanisms, including progress reports, site visits, 

financial reports, independent (third party) financial audits, and/or 

internal (State-conducted) financial audits. 

Under OMB Circular A-133, certain subgrantees must have a specific 

type of independent audit, called a Single Audit. Single Audits include 

a traditional financial audit of subgrantees’ basic financial statements, 

as well as an auditor’s report on subgrantees’ internal controls and an 

opinion on subgrantees’ compliance with requirements of major Federal 

programs. 

Subgrantees exempt from the Single Audit include: all for-profit 

subgrantees, and non-profit subgrantees receiving less than $500,000 in 

total Federal awards, and “vendors.” States use Federal guidelines 

delineated in OMB Circular A-133, §__.210 to determine whether 

subgrantees are “subrecipients” and thus subject to a Single Audit, or 

“vendors” and not subject to a Single Audit. 

These guidelines characterize “subrecipients” as subgrantees who carry 

out the program: they may determine eligibility, make programmatic 

decisions, have their performance judged against the program 

objectives, and they must comply with program requirements. 

“Vendors” are characterized as subgrantees who provide goods and 

services that are ancillary to the operation of the program: they provide 

goods and services within normal business hours to many different 

purchasers, operate in a competitive environment, and are not subject 

to program compliance requirements. The guidelines direct States to 

use their judgment in making this determination. We found that some 

States considered foster care subgrantees to be “subrecipients,” and 

other States considered subgrantees providing the same core services to 

be “vendors.” 

SCOPE 

The intent of this report is to provide descriptive information regarding 

monitoring of subgrantees who provide child placement services or 

residential care in six States. This report does not attempt to assess 

whether monitoring mechanisms include appropriate measures or cover 

appropriate issues. Nor does it assess subgrantees’ fiscal and program 

performance. Finally, it does not examine subgrantees that provide only 

training, adoption, or independent living services under the Title IV-E 

program. 

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INTRODUCTION

METHODOLOGY 

We reviewed six States’ program and fiscal oversight of foster care 

subgrantees through onsite interviews with State and county 

monitoring staff, a review of monitoring protocols and tools, and a 

review of subgrantee monitoring files. 

Our States included Texas, Michigan, Massachusetts, North Carolina, 

Pennsylvania, and California. In four of the States, the foster care 

program was directly administered by the State. In two of the States, 

the program was jointly administered by the State and the counties. In 

these States, we selected the two counties serving the largest number of 

Title IV-E children for our review. 

Overall, the 6 States comprise more than 45 percent of the Federal 

fiscal year (FY) 2002 Title IV-E funds and are located in 6 of the 10 ACF 

regions. The States and counties we selected funded more than 1,500 

foster care subgrantees during their most recent fiscal year. 

For a further discussion of our selection of States and subgrantees, 

please see Appendix A. 

Staff Interviews. To understand the complexities of State and county 

monitoring systems, we conducted onsite interviews with staff 

responsible for monitoring subgrantees. Typically, this included 

interviews with program, fiscal, and licensing staff. In countyadministered States, we interviewed State and county staff responsible 

for monitoring subgrantees in our selected counties. 

We used structured interview guides to collect information about State 

and county monitoring of subgrantees, focusing in-depth on each 

monitoring mechanism. We also used these interviews to gather 

information about other State and county processes, including 

monitoring of outcomes, use of performance-based contracting, and 

monitoring of costs and payments through rate setting and cost-based 

reimbursement. We supplemented our interviews with a review of 

monitoring policies, protocols, and guidance. 

Subgrantee File Review. To assess whether or not State and county 

monitoring systems were functioning as intended, we selected and 

reviewed 15 to 19 subgrantees in each State from State FY 2003. In the 

county-run States, we selected 8 subgrantees from each selected county, 

for a total of 16 subgrantees in the State. To represent the various 

types of subgrantees, we selected both low- and high-volume child 

placement agencies, as well as low- and high-volume residential care 

O E I - 0 5 - 0 3 - 0 0 0 6 1 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT 4 
INTRODUCTION 

facilities in each State or county. Overall, we reviewed files for 

98 subgrantees. 

For our file review, we used a structured data collection instrument to 

examine evidence of monitoring, such as site visit reports, audit reports, 

financial reports, and licensing reports. We did not examine evidence of 

rate setting or focus on outcomes or performance-based contracting in 

our review of subgrantee files. 

Limitations of Data 

Because we did not randomly select States, our findings cannot be 

projected to the larger universe of States. They do, however, reflect 

subgrantee monitoring in States that account for over 45 percent of the 

Title IV-E foster care funds. 

This inspection was conducted in accordance with the Quality 

Standar s for Inspecti d ons issued by the President’s Council on Integrity 

and Efficiency. 

 O E I - 0 5 - 0 3 - 0 0 0 6 1 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT 5 
FINDINGS ∆ PROGRAM OVERSIGHT 


In all six States, onsite visits are used to 

monitor subgrantees. In three States, 

monitoring mechanisms are not 

implemented as intended. 

In all six selected States, 

subgrantees’ provision of 

services is primarily evaluated 

through onsite visits. In three 

States, these monitoring 

mechanisms are not operating 

as intended. 

Onsite foster care licensing visits and program site visits are the primary 

mechanisms used to monitor subgrantees. 

All six selected States rely on onsite monitoring to oversee subgrantees’ 

provision of services. Onsite monitoring may include case file reviews, 

interviews with children and staff, a review of staff training and 

qualifications, and observation of the condition and appropriateness of 

the facility. 

Table 1: Types of Program Monitoring Mechanisms Used in Six States 

State A State B State C State D State E State F 

Licensing Visits 

Comprehensive Program 

Site Visits 

Targeted Program Site 

Visits 

X X 

X 

X 

X 

X 

X X 

X 

X 

X 

X 

Source: OEI State Site Visit Data 

In all six States, monitoring includes licensing site visits. As seen in Table 1, 

all six of our selected States use routine licensing visits to monitor 

foster care subgrantees. Subgrantees are licensed annually in three 

States, and every 2 years in the other three States. Licensing is fairly 

similar across States; visits focus on compliance with regulations, and 

are usually conducted by a State licensing department separate from 

the foster care department. Licensing site visits may include assessing 

compliance with regulations related to safety and protection of civil 

rights, as well as a review of numerous program issues, such as case 

record documentation, service planning process, health and treatment 

services, and discipline. 

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PROGRAM OVERSIGHT PROGRAM OVERSIGHT 

In four States, monitoring also includes program site visits. In addition to 

licensing visits, comprehensive program site visits are used in four 

States to ensure program accountability. In two of these States, 

subgrantees receive more than one type of program site visit. They 

receive both a comprehensive program visit and a more targeted 

program site visit. These targeted visits review such things as service 

utilization and outcomes or are geared toward identifying issues in need 

of technical assistance. (See Table 1.) 

While comprehensive program site visits and licensing site visits are 

generally similar in that they both tend to use the same methods (policy 

and record reviews, interviews, and observation) and have some overlap 

in content, there are some key distinctions. The purpose of licensing 

site visits is to assess compliance with laws and regulations, while the 

purpose of program site visits is to ensure that children receive quality 

services. Program site visits may also include a technical assistance 

component. Further, in county-administered States, such as State C 

and State E, licensing visits are conducted by State staff and cover 

subgrantees across the State, and program site visits are conducted by 

county staff and may vary by county. 

Monitoring staff in licensing and program departments in four States 

reported that they communicate with each other and coordinate their 

monitoring efforts to some extent. In a fifth State, staff indicated that 

program and licensing departments do not coordinate and cited this lack 

of coordination as one of the barriers they face in trying to monitor 

subgrantees effectively. 

In three States, program or licensing visits are conducted less frequently than 

annually. Three States’ onsite visits are conducted at least annually; 

however, visits in the remaining three States are less frequent. State B 

only requires licensing visits to its subgrantees every 2 years and 

program site visits every 12 to 18 months. In State D, all subgrantees 

receive one licensing visit every other year and no program site visit. 

Program monitoring staff in this State rely heavily on a network of 

State and local oversight entities to provide referrals for any 

programmatic problems, rather than establishing regular program site 

visits. In State A, most subgrantees are licensed only once every 

2 years. Some subgrantees in this State receive licensing site visits, but 

for some subgrantees, their biennial licensing only consists of a desk 

review of submitted materials. 

O E I - 0 5 - 0 3 - 0 0 0 6 1 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT 7 
PROGRAM OVERSIGHT 

In three States, onsite monitoring mechanisms are not implemented as 

intended. 

In three States, licensing or program monitoring is not implemented as 

intended. For example, in State C, licensing is designed to include 

annual site visits for all subgrantees, but less than half of the selected 

subgrantees actually received this annual licensing visit. In one county 

in this State, licensing is the only program monitoring mechanism for 

nearly all child placement agencies. In this county, half of the 

subgrantees we reviewed did not receive a site visit and thus had not 

been relicensed, resulting in foster children being cared for by 

unlicensed providers. State licensing staff indicate that they have 

limited resources and thus give priority to investigating complaints or 

problems over conducting their annual licensing visits. 

Program monitoring is not implemented as intended in State B, where 

staff were unable to provide documentation of program visits for more 

than half of the subgrantees selected. This State also indicated that 

they lack resources and have lost significant staff recently. 

Finally, our review found that one county in State E did not meet its’ 

own program site visit goals, although county staff actually visited all 

selected subgrantees at least annually. County staff intended to visit 

all subgrantees quarterly; however, we found that only half of the 

selected subgrantees were visited quarterly. 

Five of the six selected States 

Outcomes-based monitoring has surfaced in demonstrated at least some 

some monitoring systems. movement toward an outcomesbased model of monitoring. In 

each of these States, the collection of outcomes data has augmented, not 

replaced, more traditional monitoring mechanisms, such as site visits. 

Traditionally, States have paid subgrantees based on the services they 

provide and have monitored their processes. In an outcomes-based 

system, States monitor the outcomes of these processes. Thus, States 

encourage subgrantees to focus more on outcomes and less on processes. 

States may take additional steps to reinforce a focus on outcomes by 

offering incentive payments for positive performance or structuring 

reimbursement around performance, as in performance-based 

contracting. 

 O E I - 0 5 - 0 3 - 0 0 0 6 1 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT 8 
PROGRAM OVERSIGHT 

In three States, performance-based contracting is used on a limited 

basis. In all three States, subgrantees under these contracts are paid a 

relatively low monthly fee per foster child, with the understanding that 

they will receive additional funding once they meet specified 

performance outcomes. These outcomes may include successfully 

transitioning clients to a less restrictive level of care, sustaining a child 

in a placement for a certain length of time, and successfully moving a 

child into adoption. Subgrantees under performance-based contracts 

are typically penalized for negative outcomes, namely when a foster 

child is returned to the system from an unsuccessful placement. In this 

situation, the subgrantee shoulders the burden of finding an alternate 

placement for the child without any additional monthly payments from 

the State. 

In three States, monitoring staff have started to collect outcomes but do 

not use or analyze the information they collect. For instance, State F 

determines the number of positive and negative outcomes each 

subgrantee has per year. State F plans to expand the number and types 

of outcomes it collects and move to a performance-based contracting 

system by FY 2006. State D uses performance-based contracting for 

some subgrantees and has started to collect outcomes for all others, but 

does not plan to use them until the next contract cycle. In addition, one 

county in State C collects specific outcomes information related to 

education and independent living skills. The county does not currently 

have plans to hold subgrantees accountable for their outcomes. 

 O E I - 0 5 - 0 3 - 0 0 0 6 1 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT 9 
In all six States, fiscal monitoring is minimal. . In five selected States, fiscal

monitoring consists of only one

primary mechanism. In four

States, an annual independent audit is the only systemic means of

monitoring the fiscal functioning of their subgrantees. A fih State

minimally supplements its annual independent audits with additional

internal financial audits of approximately 10 residential care facilities

each year. Finally, a sixth State's fiscal monitoring consists of an

annual review of subgrantees' financial information, such as fiancial

statements, billngs and budgets, and an onsite review of selected

financial records for some subgrantees.

Of the five States that rely on independent audits, two States use a

traditional fiscal audit as opposed to the more comprehensive Single

Audit. These States have classifed their foster care sub 

grantees as

vendors " which exempts them from Single Audit requirements. By not

employing the Single Audit, these States limit their financial oversight

of Title IV-E funds to a review of the basic financial controlsofthe

sub grantee provided by a fiancial audit. States are not provided with

the more specifc review of sub grantees' use of program funds that

would be conducted in a Single Audit.

Three States use the Single Audit to monitor sub grantees fiscally;

however, two States' use of the Single Audit is very liinited. State B

only requires that a Single Audit be performed on subgrantees for their

fist yeaI\ providing servces.9 Of the 19 subgrantees we reviewed from

this State, the Single Audit was only required for 4 subgrantees. State

D does not correctly identif the grant as Title IV-E funds. Instead, it

identifies foster care funds as Social Services Block Grant funds.

Because ofthis error, auditors review the sub grantee s compliance with

Social Services Block Grant requirements and not Title IV-E

requirements. Only State E uses the Single Audit for all subgrantees

and for Title IV-E funds. Both State D and one county in State E

supplement the Single Audit by requiring additional auditor opinions

and subgrantee. financial statements.

In some States, fiscal monitoring mechanisms do not apply to all

subgrantees or are not functioning as intended.

Two States' fiscal monitoring abilities are limited due to the fa:c that

they do not require an audit or onsite fiscal review of all of their

ubgrantees. In one State, subgrantees providing mental health

OEI.05. 03- 00061 STATES ' MONITORING OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT
FISCAL OVERSIGHT 

services are not subject to an audit or any other fiscal review related to 

their Title IV-E funds. Of the 16 subgrantee files we reviewed in this 

State, 6 subgrantees were not required to submit audits. In the other 

State, whether or not a subgrantee’s finances are reviewed onsite and 

the extent of that review is based on an assessment of the subgrantee’s 

risk. All high- and medium-risk subgrantees receive a site visit, while 

2 percent of low-risk subgrantees are selected for a site visit. All other 

subgrantees receive a desk review of submitted financial information. 

Of the 16 subgrantees that we selected, 6 subgrantees did not receive an 

onsite fiscal review. 

We also found that two States’ fiscal monitoring is not functioning as 

intended. In one State, we found that many selected subgrantee files 

did not include an audit. Further, staff in both of these States perform 

only a cursory review of submitted audits, limiting the usefulness of the 

audit as an oversight mechanism. One State has program staff review 

the audit to make sure “the numbers make sense,” even though the staff 

have not received any financial training. Our review of 16 subgrantee 

files in this State found no evidence that audits had been reviewed even 

minimally. The other State only reviews audits to detect severe 

problems with a subgrantee, such as bankruptcy. 

Staffing and resources are not being invested in fiscal oversight. 

In the face of States’ budget crises, States have drastically reduced 

fiscal monitoring staff. Four States reported severe limitations in fiscal 

monitoring due to lack of staff. 

Internal audit departments have been especially affected by budget 

cuts. One State completely cut its internal audit division due to budget 

issues. Audit offices in three States have only enough resources to 

perform internal audits in response to complaints or problems, but not 

enough resources to proactively monitor subgrantees. Funding cuts in 

two States have left audit divisions without enough staff to provide even 

reactive internal audits for the Title IV-E program. 

In all six States, rate setting is used to manage One way States can manage their 

foster care expenditures is to use 

rate setting to establish 

reasonable rates of payment for subgrantees. Another way States can 

manage their expenditures is through a cost-based system of 

reimbursement. Under this system, States reimburse each subgrantee 

foster care expenditures. 

 O E I - 0 5 - 0 3 - 0 0 0 6 1 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT 11 
FISCAL OVERSIGHT 

for their actual costs based on itemized invoices that subgrantees 

submit to the State. 

In all six of our selected States, the majority of subgrantees are funded 

through a rate-setting system of payment rather than a cost-based 

system of reimbursement. Two of the six States also use a cost-based 

system of reimbursement for a small minority of their subgrantees. 

These States use cost-based reimbursement in cases where it is 

particularly difficult to establish rates, such as for new subgrantees, 

subgrantees providing new services, or for services with unpredictable 

costs. 

Under a rate-setting system, the State pays subgrantees based on a 

specific rate they have established prior to the award period, rather 

than retrospectively reimbursing them based on subgrantees’ reported 

expenses. The State typically determines a per diem/per child rate for 

the package of services subgrantees will be contracted to provide. For 

example, the State’s rate for residential facilities would encompass the 

expenses associated with shelter, food, and administrative overhead. To 

pay a particular subgrantee, the State would multiply this set rate by 

the number of children served and by the number of days for which care 

was provided. 

Rate-setting processes vary by State, but are used to manage foster care 

expenditures. 

While the rate-setting process differs considerably by State, the goal is 

the same: to establish a fair, but economical payment that only reflects 

allowable Title IV-E costs. Rate-setting systems in the six selected 

States appear to vary along a continuum in their level of sophistication. 

At one end of the spectrum are certain rates set using only the most 

minimal data. In one of the selected States, rates for certain 

subgrantees are based solely on the amount of funding the State has 

available. This State does not take into account the costs associated 

with caring for children in foster care when setting these rates. In 

another State, rates for certain subgrantees are based solely on 

childcare costs as reported by the U. S. Department of Agriculture. 

However, both of these States use more complex methodologies for 

setting other rates; for example, rates for subgrantees serving children 

whose needs require advanced levels of care. 

At the other end of the spectrum are certain rates set using 

sophisticated approaches. Three of the selected States base their rates 

on more complex estimations of actual cost. States review annual or 

 O E I - 0 5 - 0 3 - 0 0 0 6 1 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT 12 
FISCAL OVERSIGHT 

biennial cost reports submitted by their subgrantees. These reports 

itemize foster care and administrative costs in great detail. In addition, 

some States require supplemental documentation, such as independent 

audit statements and time studies assessing staff time spent on 

allowable foster care activities. 

Once States estimate costs, three States establish a general set of rates 

for all subgrantees based on the intensity of care provided by the 

subgrantee or the age of the child. Alternately, rates in two States are 

set for each individual subgrantee. 

In several States, final rates are determined by cost and budget 

considerations and may not reflect subgrantees’ estimated expenses. 

For instance, one State imposes a cap on individual rates that no 

individual facility rate may exceed, regardless of its expenses. Another 

State requires new subgrantees to estimate costs up front in order to set 

a rate. The subgrantee is held to that rate, even if its actual expenses 

exceed the estimated rate. Finally, in three of the six States, the State 

legislature makes the final rate determination based on the State’s 

available funding. 

The rate-setting process may present vulnerabilities. 

While all six States have a significant interest in establishing accurate 

rates and some dedicate significant resources to doing so, vulnerabilities 

may still exist. 

Rates may be set inaccurately. When States attempt to estimate 

subgrantees’ expenses to provide a basis for the State rate, they run the 

risk that cost reports do not accurately reflect reasonable, actual costs. 

For instance, cost reports may be falsified or enhanced by subgrantees 

seeking to hide unallowable costs or excess funds. Cost reports could 

also reflect unreasonable costs spent by subgrantees who are poor fiscal 

managers or subgrantees who failed to obtain a fair purchase price for 

goods or services, paying more than necessary. 

Although States typically use cost estimates to develop rates, it can be 

difficult to ensure that the rates set by States appropriately reflect 

accurate, reasonable expenses. One reason for this is that costs are 

likely to vary across subgrantees. Larger subgrantees may be better 

able to reduce costs by purchasing in large quantities than small 

subgrantees. Subgrantees in urban areas may pay considerably higher 

fixed costs than subgrantees in rural areas. Further, external factors, 

such as State budget shortfalls and limits imposed by State legislatures, 

 O E I - 0 5 - 0 3 - 0 0 0 6 1 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT 13 
FISCAL OVERSIGHT FISCAL OVERSIGHT 

may require that rate-setting staff impose arbitrary caps on rates, thus 

overriding efforts to reflect reasonable, allowable costs in their rates. 

To mitigate some of these vulnerabilities, some of the six selected States 

use traditional fiscal monitoring mechanisms as part of their ratesetting processes. For instance, two States use audits to ensure the 

accuracy of cost reports. One of these audits verifies cost report data 

line item by line item. 

Rate setting does not typically address excess funds and/or unallowable costs. 

While rate setting is used to ensure that rates are reasonable, and 

therefore, grant funds are expended economically, it does not function to 

ensure that funds are actually expended only for reasonable and 

allowable costs. Subgrantees could potentially spend funds on items or 

services that are unallowable under Title IV-E statute or other Federal 

regulations. Further, Federal grants management regulations prohibit 

profit,10 yet subgrantees may receive excess funding if rates exceed 

subgrantees’ actual costs. This may be unavoidable when paying 

various subgrantees the same rate, since some subgrantees’ costs are 

likely to exceed the rate, while others’ costs are likely to fall short of the 

rate. 

Despite this potential vulnerability, three of our six States’ rate-setting 

processes are not designed to recoup inappropriately spent or excess 

funds. If these States identify that subgrantees have received excess 

funds, the only action they take is to readjust the rate during the next 

cycle of rate setting. Even when States specifically identify subgrantees 

that did not provide services commensurate with their established 

rates, States typically do not recoup excess funds; they simply adjust 

the rate when problems are discovered. 

In three States, rate setting includes a mechanism designed to recoup 

funds; however, only one county in one of these States has a mechanism 

that applies to more than a small subset of subgrantees. This county 

requires subgrantees to submit an auditor’s statement calculating the 

amount by which funding exceeded or fell short of subgrantees’ 

expenditures. If auditors identify excess funds, county fiscal staff can 

require subgrantees to repay this amount. Two other States have some 

mechanism for recoupment, but only for subgrantees in the first year of 

a new contract, or for a small sample of subgrantees selected for a 

targeted audit each year. 

While the extent of this vulnerability is unknown, subgrantees in at 

least three States have been identified as using foster care funds 

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FISCAL OVERSIGHT 

inappropriately. In two of the six selected States, anonymous 

allegations of misspending led States to discover that some subgrantees 

spent hundreds of thousands of dollars on items that were unallowable 

under State and Federal regulations. In addition to these cases, in 

2000, the Ohio Auditor of State found that more than $9 million in 

foster care funds had been misspent by private agencies on housing and 

automobile leases, private jet fuel, and other egregious purchases. 

Notably, these abuses of funds were discovered through special 

inquiries, not through the States’ rate-setting process or routine fiscal 

monitoring tools. 

Rate setting may impact the quality of foster care services. One vulnerability 

inherent in a rate-setting system is a reduction in the quality of foster 

care services. Because subgrantees are reimbursed based on the 

number of children they serve and not on the amount of resources they 

expend, there is a financial incentive for subgrantees to serve the 

greatest number of children for the least amount of money. In addition, 

if States establish rates that are too low, subgrantees may legitimately 

not have enough money to provide children with quality services. To 

mitigate this vulnerability, States must rely on program monitoring to 

ensure that subgrantees are providing quality services at a level 

commensurate with their assigned rate. 

Staff in two States mentioned the impact poor fiscal performance could 

have on the quality of services. For example, staff in one county 

identified a situation where children were missing crucial 

appointments, such as court and doctor visits, because the facility’s van 

broke down, and there were no funds available to repair it. 

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OEI. 05- 03- 00061

In some States, program and fical monitorig is limited. In these

cases, monitoring either covers a limited number of subgrantees

consists of only one monitoring mechanism, or isn t functioning as

intended. Without quality monitoring, States and ACF have no

assurance that sub grantees are providing appropriate, quality services

to children in a fiscally responsible manner- The States and counties we

selected funded more than 1 500 foster care sub grantees in their most

recent fical year. Given the extent that sub grantees are used to carr

out fundamental foster care servces, lax monitoring can have a

signifcant impactTo improve their oversight of subgrantees, States with limited

monitoring could bolster their program and fical monitoring

mechanisms by ensuring that all subgrantees are routinely and

comprehensively monitored to ensure a high quality of care and the

appropriate expenditure of foster care funds. Additionally, these States

could add a means to recoup funds to their current rate-setting systems

to address any subgrantees that use Federal funds for unallowable costs

or retain excess funds.

States could benefit from learning about each other s monitoring

systems and oversight strategies. We found that some States have

noteworthy aspects within their subgrailtee oversight systems. Some

States have sophisticated program-monitoring mechanisms that include

outcomes-based monitoring through performance-based contracting.

Alo, some States combine intricate rate-setting methodologies with

traditional fiscal-monitoring mechanisms to reduce vulnerabilties

inherent in the rate setting process.

We encourage ACF to assist States by providing guidance and

facilitating communication between States on subgrantee monitoring

and rate setting. Further information and guidance on good rate setting

and subgrantee monitoring practices would provide much needed

direction to struggling States. We encourage ACF to consider

developing expertise at the regional level on these practices

particularly those related to outcomes monitoring, including

performance-based contracting, and rate setting. Further, ACF could

consider holding regional or interregional conference calls to discuss

existing and emerging practices, and encouraging States to utilze

STATES ' MONITORINO OF FOSTER CARE SUBGRANTEES: A DESCRIPTIVE REPORT
CONCLUSION 

National Resource Centers, such as the Center on Organizational 

Improvement, for technical assistance. 

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OEI.05. 03. 00061

METHODOLOGY: SELECTION OF STATES AND

SUBGRANTEES

To understand States' monitoring of subgrantees we conducted site visits

in six States. This appendix provides greater detail regarding our

selection of States and subgrantees.

State Selection

We selected the six study States based on the following factors:

(1) maximizing coverage of Title IV-E funds; (2) representing both Stateadminitered and county-administered States; (3) maximizing coverage of

ACF regions; and (4) avoiding States participating in Child and Famiy

Servces Reviews or in the OIG region VII's case study of eight States

foster care programs. In our final selection of States, we included 3 of the

11 States that have a county-administered system.

Our six States include three State-administered systems: Texas

Michigan, and Massachusetts; and three county-adminitered systems:

California, Pennsylvania, and North Carolina. In our county.

administered States, we selected the two largest counties based on the

number of Title IV-E children served. In California, we selected Los

Angeles and San Diego counties, and in Pennsylvania, we selected

Philadelphia and Allegheny counties. We did not select any counties in

North Carolina due to the State s exclusive role in monitoring

subgrantees. Even though the counties in North Carolina are responsible

for administering the foster care program, they are not responsible for

monitoring the foster care subgrantees.

Subgrantee Selection

Due to the intensity of our case fie review, we limited the number of

sub grantee files selected. We estimated that we could complete between

15 to 20 case file reviews in each State. We used the following procedure

to ensure that our selection of subgrantees included representation of

both child placement agencies and residential facilities, and included

sub grantees that served a high volume of Title IV- E children, as well as

those that served a low volume of Title IV-E children. Our pre-inspection

research indicated that States' monitoring practices might vary between

these diferent types of subgrantees.

From each State and county selected, we requested a list of all foster care

sub grantees providing child placement or residential care to Title IV-E

children in State FY 2003. To select subgrantees we stratified each

subgrantee list, first by type of subgrantee (i. , child placement agencies

STATES ' MONITORING OF FOSTER CARE SUB GRANTEES: A DESCRIPTIVE REPORT
APPENDIX~A 

and residential facilities) and then by the number of Title IV-E children 

served. To stratify by number of children served, we calculated the 

average number of children served, and then designated subgrantees as 

low or high volume, according to where they fell in relation to the average. 

We then randomly selected subgrantees from each of the four groups: 

low-volume child placement agencies, high-volume child placement 

agencies, low-volume residential facilities, and high-volume residential 

facilities. 

In each State we randomly selected 16 foster care subgrantees. In countyrun States, we randomly selected eight subgrantee files in each of the two 

selected counties. In State D, one subgrantee did not fit our sampling 

criteria and was discarded in our analysis. In State B, a few selected 

subgrantees had more than 1 contract with the State, bringing the total 

number of files reviewed up to 19. (See Table 2.) 

Table 2: Sample and Universe of Subgrantees 

Serving Title IV-E Eligible Children During States' 

Fiscal Year 2003 

State/County Sample Universe 

State A 16 472 

State B 19 132 

State C, County 1 8 224 

State C, County 2 8 68 

State D 15 172 

State E, County 1 8 132 

State E, County 2 8 49 

State F 16 263 

Total Subgrantees 98 1,512 

Although State D is primarily State-administered, a portion of the foster 

care program is privately administered. For the purposes of this study, 

we focused only on the portion of State D’s program that is Stateadministered. State D contracts with subgrantees through a central office 

and through local offices and regional offices. Our file review included 

subgrantees hired by all three types of entities. The vast majority of the 

subgrantees were selected from the State’s central office, as this entity 

has significantly more subgrantees than any of the regional or area 

offices. 

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∆ APPENDIX ~ B 

CHARACTERISTICS OF MONITORING SYSTEMS IN SIX STATES 

To provide a more complete description of monitoring systems used by 

each State or county, this appendix describes routine monitoring 

mechanisms used in each State to ensure program and fiscal integrity. 

Each table contains three descriptive elements: intended coverage, 

intended frequency, and actual utilization. 

First, int nded e e cov rage indicates the set of subgrantees for which the 

mechanism is supposed to be used. In some cases this will be “all,” as 

some mechanisms apply to all subgrantees. However, some States use 

different monitoring mechanisms for certain subsets of subgrantees 

depending on subgrantee characteristics, such as type of services 

provided. 

The second column indicates the int nded e frequency at which the

monitoring mechanism is supposed to be used. 

The actual utilization column describes whether the mechanism is 

meeting its i tended cov rage n e and intended frequency listed in the first 

two columns. The numerator is the number of selected subgrantees that 

were actually monitored using the mechanism at the int nded frequency e .

The denominator is the number of subgrantees that were intended to be 

monitored using the mechanism at the intended frequency. 

Example: 

We selected 16 subgrantees in State X. 

Intended Coverage: State X intends to conduct program site visits 

for residential facilities only. We selected eight residential facilities. 

Intended Frequency: State X intends to conduct program site visits 

annually. 

Actual Utilization: Only four residential facilities actually received 

a site visit annually. Thus, for this mechanism the utilization 

column would read 4/8. (Four residential facilities actually received 

a site visit when eight were supposed to receive a site visit.) 

An empty space means the State does not use the mechanism. 

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A P P E N D I X ~ B S T A T E A 

State A: Characteristics of Program and Fiscal Monitoring Mechanisms 

Monitoring Mechanism Intended Coverage Intended 

Frequency 

Actual 

Utilization 

Program Monitoring 

Licensing Site Visit CPA Every 2 years 8/8 

Non-Mental Health RF Annual 2/2 

Desk Review/Site Visit Mental Health RF Every 2 years 6/6 

Program Site Visit 

Additional Site Visit 

Fiscal Monitoring 

Single Audit 

Independent Financial Audit CPA Every 2 years 8/8 

Non-Mental Health RF Annual 2/2 

Internal Fiscal Review 

CPA=Child Placement Agency Total Number of Sampled Subgrantees = 16 

RF=Residential Facility 

Important Characteristics of State A 

In State A, monitoring varies depending on subgrantee characteristics. All child placement 

agencies are monitored by one department. This department also monitors residential facilities 

with no mental health services. A second department monitors residential facilities with mental 

health services. 

Child placement agencies and non-mental health residential facilities receive regular licensing 

visits that focus on compliance but also incorporate some program site visit components. These 

licensing visits are conducted by program monitoring staff. Residential facilities with mental 

health services receive a licensing site visit initially and then every 2 years receive a desk review 

to renew their license. The row in the table marked “Desk Review/Site Visit” reflects this. 

As evidenced in the table, residential facilities with mental health services do not receive any 

form of fiscal monitoring for Title IV-E funds. As noted, these same subgrantees do not receive 

any licensing site visits after the initial visit. 

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A P P E N D I X ~ B S T A T E B 

State B: Characteristics of Program and Fiscal Monitoring Mechanisms 

Monitoring Mechanism Intended Coverage Intended 

Frequency 

Actual 

Utilization 

Program Monitoring 

Licensing Site Visit All Every 2 years 17/19 

Program Site Visit All Every 12-18 months 8/19 

Additional Site Visit 

Fiscal Monitoring 

Single Audit New Subgrantees Annual 4/4 

Independent Financial Audit Old* Subgrantees Annual 7/15 

Internal Fiscal Review 

* Subgrantees that have received grants Total Number of Sampled Subgrantees = 19 

from the State for over 1 year. 

Important Characteristics of State B 

For their first year of contracting with the State, subgrantees must submit a Single Audit. The 

State requires independent financial audits of all other subgrantees. State staff set rates for each 

new subgrantee using the subgrantee’s Single Audit. The State legislature has assumed the 

responsibility of setting any rate increases after the first year. This State also requires Single 

Audits for a handful of subgrantees whose rates are set by a competitive bidding process. These 

subgrantees offer certain difficult-to-provide services. 

Historically, the annual audit was an integral part of setting the rates the State paid for foster 

care services. However, ever since the State legislature decided to set State foster care rate 

increases, the rate-setting office has had little use for the audits. They continue to receive and 

track the submission of the audits due to historical precedence. They have also maintained the 

responsibility of reviewing the audits although they only do so to determine if there are basic 

solvency issues that would warrant contract termination. 

Although staff intends to conduct licensing visits every 2 years and program site visits every 12 to 

18 months, our review found that not all subgrantees received these visits. The State used to 

conduct visits annually but has begun to conduct them less frequently due to a reduction in staff. 

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A P P E N D I X ~ B S T A T E C 

State C, County 1: Characteristics of Program and Fiscal Monitoring Mechanisms 

Monitoring Mechanism Intended Coverage Intended 

Frequency 

Actual 

Utilization 

Program Monitoring 

State Licensing Site Visit All Annual 3/8 

County Program Site Visit CPA Full visit - every 3 years 4/4 Partial visit - annual 

RF Annual 4/4 

County Additional Site Visit RF Quarterly 4/4 

Fiscal Monitoring 

Single Audit 

State Independent Financial Audit All Annual 8/8 

State Internal Fiscal Review Randomly Selected RF Annual 0/0 

CPA = Child Placement Agencies RF = Residential Facilities Total Number of Sampled Subgrantees = 8 

State C, County 2: Characteristics of Program and Fiscal Monitoring Mechanisms 

Monitoring Mechanism Intended Coverage Intended 

Frequency 

Actual 

Utilization 

Program Monitoring 

State Licensing Site Visit All Annual 4/8 

County Program Site Visit Intensive Treatment CPA Quarterly 1/1 

RF Annual 4/4 

Additional Site Visit 

Fiscal Monitoring 

Single Audit 

State Independent Financial Audit All Annual 7/7 

State Internal Fiscal Review Randomly Selected RF Annual 0/0 

CPA = Child Placement Agencies RF = Residential Facilities Total Number of Sampled Subgrantees = 8 

Important Characteristics of State C 

According to staff in both counties, monitoring resources focus on residential facilities because of 

the direct, daily contact these facilities have with children in foster care. For County 1, this focus 

on residential facilities translates into annual comprehensive site visits, as well as quarterly site 

visits intended to provide both targeted monitoring and technical assistance. 

Although this State is county-administered, State staff retain primary responsibility for licensing 

and fiscal monitoring of all county subgrantees. We found evidence in both counties that State 

staff were not licensing all subgrantees in a timely manner. The State used independent financial 

audits to routinely monitor subgrantees’ fiscal performance, during the time period we reviewed. 

In 2003, this State began monitoring subgrantees through Single Audits rather than independent 

audits. The State also conducts internal fiscal reviews on a small number of randomly selected 

residential facilities to ensure that services are provided commensurate with their assigned rate. 

To supplement these reviews, County 1 conducts targeted fiscal audits on about a dozen poorly 

performing subgrantees a year. Because this mechanism is only used in response to identified 

problems, it is not reflected in the chart as one of the county’s primary monitoring mechanisms. 

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A P P E N D I X ~ B S T A T E D 

State D: Characteristics of Program and Fiscal Monitoring Mechanisms 

Monitoring Mechanism Intended Coverage Intended 

Frequency 

Actual 

Utilization 

Program Monitoring 

Licensing Site Visit All Every 2 years 15/15 

Program Site Visit 

Additional Site Visit 

Fiscal Monitoring 

Single Audit 

Independent Financial Audit All Annual 14/14 

Internal Fiscal Review 

Total Number of Sampled Subgrantees = 15 

Important Characteristics of State D 

State D’s fiscal monitoring includes Single Audits. However, since foster care funds are 

misidentified as Social Services Block Grant funds, auditors do not review subgrantees’ 

compliance with Title IV-E requirements. Due to this error, these subgrantees’ Single Audits do 

not provide a more comprehensive review of program funds than routine independent fiscal audits 

would. Thus, the table indicated that subgrantees receive an independent financial audit and not 

a Single Audit. This State supplements the financial audit by requiring auditors to submit 

additional schedules and opinions on subgrantees’ financial position. 

State D’s routine program monitoring consists solely of biennial licensing visits. Foster care 

program monitoring staff in this State rely on a complex network of other oversight entities (such 

as case workers, licensing staff, and fiscal monitoring staff) for referrals of problems with 

particular subgrantees. 

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APPENDIX~B S T A T E E 

State E, County 1: Characteristics of Program and Fiscal Monitoring Mechanisms 

Monitoring Mechanism Intended 

Coverage 

Intended 

Frequency 

Actual 

Utilization 

Program Monitoring 

State Licensing Site Visit All Annual 8/8 

County Program Site Visit All Annual 8/8 

Additional Site Visit 

County Reports PBC Subgrantees Monthly 2/2 

County Reports PBC Subgrantees Twice a year 2/2 

Fiscal Monitoring 

Subgrantees receiving 

County Single Audit $300,000 or more in Annual 1/1 

Federal funds 

County Independent Financial 

Audit 

Subgrantees receiving less 

than $300,000 in Federal 

funds 

Annual 7/7 

Internal Fiscal Review 

PBC Subgrantees = Subgrantees contracting under the County's Total Number of Sampled Subgrantees = 8 

Performance-Based Contracting System 

State E, County 2: Characteristics of Program and Fiscal Monitoring Mechanisms 

Monitoring Mechanism Intended 

Coverage 

Intended 

Frequency 

Actual 

Utilization 

Program Monitoring 

State Licensing Site Visit All Annual 8/8 

County Program Site Visit All Quarterly 4/8 

Additional Site Visit 

Fiscal Monitoring 

County Single Audit 

Subgrantees receiving 

$300,000 or more in 

Federal funds 

Annual 7/7 

Independent Financial Audit 

Internal Fiscal Review 

Total Number of Sampled Subgrantees = 8 

Important Characteristics of State E 

County 1 in State E uses performance-based contracting for child placement agencies that serve 

more than 50 children. In addition to the county’s routine program monitoring, these subgrantees 

must submit two reports related to their performance-based contracts. 

All subgrantees in State E are subject to requirements for Single Audits. According to these 

requirements, subgrantees receiving less than $300,000 in Federal funds are not required to 

submit a Single Audit. (Since our review, OMB has raised this threshold to $500,000.) For 

subgrantees subject to a Single Audit, County 1 requires auditors to submit additional schedules 

and opinions on subgrantees’ financial position. For subgrantees receiving less than $300,000 in 

Federal funds, County 1 requests that subgrantees submit a traditional independent fiscal audit. 

 O E I - 0 5 - 0 3 - 0 0 0 6 1 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT 25 
A P P E N D I X ~ B S T A T E F 

State F: Characteristics of Program and Fiscal Monitoring Mechanisms 

Monitoring Mechanism Intended Coverage Intended 

Frequency 

Actual 

Utilization 

Program Monitoring 

Licensing Site Visit All At least annual 13/16 

Desk Review/Site Visit All Annual 16/16 

Program Site Visit 

Additional Site Visit All except Emergency 

Shelters Annual 15/15 

Fiscal Monitoring 

Single Audit 

Independent Financial Audit 

Internal Fiscal Review All Annual 16/16 

Total Number of Sampled Subgrantees = 16 

Important Characteristics of State F 

State F has a unique approach to monitoring. The State uses one site visit that incorporates both 

program monitoring and an internal fiscal review. Also, State F systematically varies its 

monitoring practices based on an assessment of subgrantee risk. The State uses a risk-based 

approach for most fiscal and program monitoring and assigns subgrantees a separate risk 

designation for licensing site visits, program desk review/site visits, and internal fiscal reviews. 

This State assesses about 100 different factors using three instruments to determine subgrantees’ 

risk designations. These factors range from the subgrantee’s level of internal controls to the 

subgrantee’s history of noncompliance with requirements to the experience level of the 

subgrantee’s key management staff. For program desk reviews/site visits, risk factors are 

weighted according to their relative importance, and subgrantees are assigned risk designations 

based on the aggregation of weighted risk “points.” The frequency and intensity of each 

monitoring mechanism depends on a subgrantee’s risk designation. 

While State F utilizes program desk reviews/site visits and internal fiscal reviews at 100 percent, 

because the State uses a risk-based approach, not all selected subgrantees were actually visited. 

All selected subgrantees were evaluated, using the risk assessment instruments, to determine 

whether the subgrantee needed to be visited and the intensity of the monitoring during the visit. 

For example, the risk assessment determines whether the subgrantee needs to have a program 

site visit or a desk review. While all subgrantees’ risk levels were assessed, 10 subgrantees 

actually received a program site visit, and 8 actually received a site visit including an internal 

fiscal review. 

All subgrantees, except emergency shelters, also receive an additional site visit. This additional 

site visit determines the level of care a subgrantee is able to provide. The level of care the 

subgrantee is authorized to provide dictates the rate it will receive per child. 

 O E I - 0 5 - 0 3 - 0 0 0 6 1 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT 26 
∆ ACKNOWLEDGMENTS 


This report was prepared under the direction of William Moran, Regional 

Inspector General for Evaluation and Inspections in the Chicago regional 

office. Other principal Office of Evaluation and Inspections staff who 

contributed include: 

Susan Otter, Te ade am Le r 

Ann Maxwell, Team Leader 

Mara Siler-Price, Lead Analyst 

Anna Fleming, Program Analyst 

Laura Torres, Program Analyst 

Sara Zuiderveen, Intern 

Linda Hall, Program Specialist 

Elise Stein, Director, Public Health and Human Services Branch 

Technical Assistance 

Barbara Tedesco, Mathematical Statistician 

 O E I - 0 5 - 0 3 - 0 0 0 6 1 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT 27 
∆ END NOTES 


1 According to Administration for Children and Families (ACF) 

estimates, 810,000 children spent some time in Title IV-E foster care 

during Federal FY 2002. There were an estimated 534,000 children in 

Title IV-E foster care on September 30, 2002. Retrieved 

March 11, 2004 from: 

www.acf.hhs.gov/programs/cb/dis/afcars/publications/afcars.htm. 

2 We use the term “subgrantee,” as opposed to terms that are commonly 

used by States but have specific technical definitions in Federal grants 

management requirements, such as “contractor” or “subrecipient.” 

3 Task Force members include staff from: the Office of Management and 

Budget (OMB); the Departments of Health and Human Services (HHS), 

Transportation, Agriculture, Education, Justice, Labor, and the Navy; 

the Federal Emergency Management Agency; the National Science 

Foundation; and the States of Louisiana and Texas. 

4 A 2002 Government Accountability Office (GAO) study, “Welfare 

Reform: Federal Oversight of State and Local Contracting can be 

Strengthened,” GAO-02-661, 2002, examined State and local agency 

monitoring of subgrantees receiving Temporary Assistance for Needy 

Families funds, and found that ACF staff were not aware of monitoring 

problems identified in States’ Single Audit reports. These audit reports 

cited weaknesses in States’ monitoring, including inadequate fiscal and 

program monitoring of local contracting entities. 

Congress has also expressed concern that the Health Resources and 

Services Administration (HRSA) does not adequately monitor grantees’ 

oversight of their subgrantees. Consequently, in 2001, the Senate 

Finance Committee requested that the Office of Inspector General 

(OIG) review HRSA’s oversight of Ryan White CARE Act Title I and 

Title II grantees and grantees’ oversight of their subgrantees. 

5 The National Survey of Child and Adolescent Well-Being (NSCAW) 

found that at least 90 percent of States used subgrantees to provide 

child placement and residential care that specifically includes 

treatment. This study did not include other commonly used private 

residential facilities, such as group homes, residential schools, or 

OEI-05-03-00061 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT 28 
emergency shelters in their survey. Further, there has been little 

research into the extent to which States use subgrantees: whether 

States use subgrantees to serve a small subgroup of the State’s foster 

children or for the majority of foster children in the State. The NSCAW 

reports that 70 percent of States use subgrantees statewide to provide 

residential treatment services, and an additional 26 percent use 

subgrantees “in some counties.” The NSCAW local agency survey also 

found that using subgrantees to provide foster care services is more 

common in urban areas, larger counties, larger agencies, and Stateadministered foster care systems. Department of Health and Human 

Services, Administration for Children, Youth, and Families, “National 

Survey of Child and Adolescent Well-Being: State Child Welfare 

Agency Survey: Report” and “National Survey of Child and Adolescent 

Well-Being: Local Child Welfare Agency Survey: Report,” Washington, 

2001. 

6 “Petro Issues Montgomery County Foster Care Audit,” Ohio Auditor of 

State News Release. February 10, 2000. 

7 There are two sets of HHS regulations that provide Uniform 

Administrative Requirements: 45 CFR Part 74, which typically applies 

to awards to nongovernmental entities, and 45 CFR Part 92, which 

typically applies to awards to governmental entities. Until very 

recently, States receiving Title IV-E funds were subject to the 

requirements under 45 CFR Part 74, which are very similar to those 

under 45 CFR Part 92. Recently, HHS re-designated Title IV-E State 

grants to be subject to 45 CFR Part 92. 

8 OMB Circular A-133, §__.400(d) states that “. . . a pass-through entity 

shall perform the following for the Federal awards it makes: 

. . . (3) Monitor the activities of subrecipients as necessary to ensure 

that Federal awards are used for authorized purposes in compliance 

with laws, regulations, and the provisions of contracts or grant 

agreements and that performance goals are achieved.” 

9 This State also requires Single Audits for a handful of subgrantees that 

have their rates set by competitively bidding to provide certain 

difficult-to-provide services. 

10 45 CFR § 74.81. 

OEI-05-03-00061 S TATES ’ MONITORING OF F OSTER CARE S UBGRANTEES : A DESCRIPTIVE REPORT 29