United States Government Accountability Office

GAO Report to the Chairman, Subcommittee 

on Human Resources, Committee on 

Ways and Means, House of 

Representatives 

FOSTER CARE AND 

ADOPTION 

ASSISTANCE 

Federal Oversight 

Needed to Safeguard 

Funds and Ensure 

Consistent Support for 

States’ Administrative 

Costs 

June 2006 

 

GAO-06-649 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

June 2006

FOSTER CARE AND ADOPTION 

ASSISTANCE 

Federal Oversight Needed To Safeguard 

Funds And Ensure Consistent Support 

For States' Administrative Costs 

Highlights of GAO-06-649, a report to the 

Honorable Wally Herger, Chairman

Subcommittee on Human Resources, 

Ways and Means Committee, House of 

Representatives 

Total federal expenditures to help states pay for the costs of administering 

their Foster Care and Adoption Assistance programs increased 7 percent 

between fiscal years 2000 and 2004 from approximately $2.5 to $2.6 billion, 

when adjusted for inflation. Over a third of states received increased federal 

assistance, but over 80 percent of the increase was limited to six states, as

shown in the figure below. Nearly all of the federal expenditures— 

89 percent in fiscal year 2004—were for costs related to child placement 

services. However, inconsistencies in how states tracked and reported data 

precluded analysis of the types of cost incurred within this category. 

Source: GAO analysis of HHS data.

States that accounted for 80% of the increase in claims from fiscal year 2000 to fiscal year 2004

(6 states)

Other states that accounted for 20% of the increase in claims from fiscal year 2000 to fiscal

year 2004

States with decreased administrative cost claims from fiscal year 2000 to fiscal year 2004

Our review of spending in 11 states between fiscal years 2000 and 2004 

showed that the methods states used to identify eligible children and related 

staff costs for serving them were two primary reasons for differences in IV-E 

spending within and among states. One state changed how it identified 

eligible children and calculated the proportion of eligible children, resulting 

in higher IV-E costs. Other states varied in their practice of claiming costs 

for serving children not yet removed from their homes or living in places 

ineligible for foster care payments. Because states use other funding sources 

to supplement or supplant IV-E, the effect of IV-E spending on program 

services is unclear. 

HHS has not implemented a strategic approach in its monitoring efforts to 

ensure adequate control over program spending. Oversight staff located in 

the regional offices are not correlated with the risk of states claiming 

inappropriate costs. Oversight is also hindered by inadequate guidance, 

including lack of a current financial review manual. While HHS clarified 

policies concerning whether certain expenditures are allowable in critical 

areas, policies were not uniformly applied across regions. 

Policymakers have expressed 

concern over how costs to 

administer the Foster Care and

Adoption Assistance programs are 

contributing to overall increased 

federal expenditures for these

programs, estimated by the 

Congressional Budget Office to rise

from about $6 billion in fiscal year

2003 to $8 billion in fiscal year 

2008. The purpose of these

programs is to provide financial 

support for the proper care of 

children who need placement 

outside their homes and find 

adoptive homes for children with

special needs. They are authorized

under Title IV-E of the Social 

Security Act and administered by

the Department of Health and 

Human Services’ Administration

for Children and Families (ACF). 

GAO was asked to address (1) how

the amounts and types of 

administrative costs changed from

FY 2000 to FY 2004; (2) the reasons 

for differences in and among states

in administrative spending and how 

these differences affect program 

services; and (3) whether HHS’s 

oversight of administrative costs 

provides adequate controls over 

program spending. 

What GAO Recommends

GAO recommends a number of 

actions for HHS to better safeguard 

federal resources and ensure

consistent federal support for state 

administration of foster care and

adoption assistance. HHS did not

explicitly agree or disagree with

the recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-06-649.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Cornelia M. 

Ashby at (202)-512-7215 or

ashbyc@gao.gov. 
Contents 

Letter 1

Results in Brief 4 

Background 6

Title IV-E Expenditures for Administrative Costs Have Increased, 

but Data Deficiencies Limit Analysis by Type of Cost 15 

State IV-E Spending Reflects Changes In Staffing, Children Served, 

and Cost Claiming Practices, but Impact On Services Is Unclear 20 

HHS Oversight of Program Spending Has Been Compromised by an 

Absence of Strategic Risk-Based Monitoring 33 

Conclusions 39

Recommendations for Executive Action 40 

Appendix I IV-E Expenditures for Administrative Costs by State 43 

Appendix II Comments from the Department of Health and 

Human Services 45 

Appendix III GAO Contact and Staff Acknowledgments 48 

Tables 

Table 1: Eligibility Criteria for the Foster Care and Adoption 

Assistance Programs 6 

Table 2: State Reporting Requirements and Federal Reimbursement 

Rates for Allowable Administrative Costs under the Foster 

Care and Adoption Assistance Programs 9 

Table 3: Major Reasons Cited by 8 States for Changes in IV-E 

Administrative Costs from Fiscal Years 2000 to 2004 23 

Table 4: Change in Penetration Rate between Fiscal Years 2000 and 

2004 25 

Table 5: Costs for Foster Care Candidates as an Approximate 

Percentage of Total Fiscal Year 2004 IV-E Foster Care 

Administrative Costs 26 

Table 6: Ineligible Facilities Used by Certain States to Claim IV- E 

Administrative Costs in Fiscal Year 2004 28 

Table 7: Foster Care Program Services Increased or Implemented 

Since Completion of CFSR Reviews for 11 States 31 

Page i GAO-06-649 Foster Care and Adoption Assistance
Figures 

Figure 1: HHS Entities Responsible for Oversight of IV-E 

Expenditures for Foster Care and Adoption Assistance 

Administrative Costs 14 

Figure 2: Change in Total Federal Expenditures for Foster Care 

and Adoption Assistance Administrative Costs 16 

Figure 3: Change in Federal Expenditures for Foster Care and

Adoption Assistance Administrative Costs between Fiscal 

Years 2000 and 2004 by State 17 

Figure 4: Foster Care and Adoption Assistance Administrative

Costs by Category for Fiscal Year 2004 18 

Figure 5: Changes in IV-E Administrative Expenditures for 11 

States, FY 2000- FY 2004 (Dollars in millions) 22 

Figure 6: Percentage of Fiscal Year 2004 Total Foster Care And 

Adoption Assistance Administrative Costs for States 

Located In HHS’s 10 Regional Offices 34 

Page ii GAO-06-649 Foster Care and Adoption Assistance
Abbreviations 

ACF Administration for Children and Families 

AFDC Aid to Families with Dependent Children 

CFSR Child and Family Services Review 

CMS Centers for Medicare & Medicaid Services 

DCA Division of Cost Allocation 

FFP Federal Financial Participation 

GATES Grants Application and Tracking and Evaluation System 

HHS Department of Health and Human Services 

OIG Office of Inspector General 

SACWIS Statewide Automated Child Welfare Information System 

SSBG Social Services Block Grant 

SSI Supplemental Security Income 

TANF Temporary Assistance to Needy Families 

TCM Targeted Case Management 

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Page iii GAO-06-649 Foster Care and Adoption Assistance
United States Government Accountability Office

Washington, DC 20548 

June 15, 2006 

The Honorable Wally Herger 

Chairman 

Subcommittee on Human Resources 

Committee on Ways and Means 

House of Representatives 

The Honorable Wally Herger 

Chairman 

Subcommittee on Human Resources 

Committee on Ways and Means 

House of Representatives 

Dear Mr. Chairman: 

Policymakers have expressed concern over how costs to administer the 

Foster Care and Adoption Assistance programs are contributing to overall

increased federal expenditures for these programs, estimated by the 

Congressional Budget Office to rise from about $6 billion in fiscal year 

2004 to $8 billion in fiscal year 2008. These programs, authorized under 

Title IV-E of the Social Security Act and administered by the Department 

of Health and Human Services’ Administration for Children and Families 

(ACF), help states provide care for eligible children who have been 

removed from their homes due to child abuse or neglect, and provide 

funds to adoptive parents of eligible special needs children. 

Policymakers have expressed concern over how costs to administer the 

Foster Care and Adoption Assistance programs are contributing to overall

increased federal expenditures for these programs, estimated by the 

Congressional Budget Office to rise from about $6 billion in fiscal year 

2004 to $8 billion in fiscal year 2008. These programs, authorized under 

Title IV-E of the Social Security Act and administered by the Department 

of Health and Human Services’ Administration for Children and Families 

(ACF), help states provide care for eligible children who have been 

removed from their homes due to child abuse or neglect, and provide 

funds to adoptive parents of eligible special needs children. 

Administrative costs for these programs include all expenditures on behalf

of Title IV-E eligible children other than payments to foster families and 

adoptive parents, such as case management. The federal government 

generally reimburses the states for 50 percent of eligible administrative 

costs with no limit. States also use funding from other federal sources 

such as Medicaid, which may provide a higher match rate for 

administrative costs.1

 States must document their use of program funds in 

Administrative costs for these programs include all expenditures on behalf

of Title IV-E eligible children other than payments to foster families and 

adoptive parents, such as case management. The federal government 

generally reimburses the states for 50 percent of eligible administrative 

costs with no limit. States also use funding from other federal sources 

such as Medicaid, which may provide a higher match rate for 

administrative costs.1

 States must document their use of program funds in 

Foster Care and A ster Care and Adoption Ass doption Assistance

 

649

 1

Medicaid is a federal-state program that finances medical and health services for eligible 

individuals and provides funds to states for targeted case management services that help 

low income individuals gain access to needed medical, social, educational, and other

services and coordinates individuals’ use of providers. Targeted case management enables

states to provide case management services to a defined group or groups of Medicaideligible individuals without providing the same service to all Medicaid beneficiaries

statewide, as normally required by Medicaid law. Groups are targeted primarily on the 

basis of shared characteristics, such as children placed in foster care. The federal 

government matches state Medicaid spending for medical assistance according to a 

formula based on each state’s per capita income. The federal share can range from $0.50 to 

$0.83 for every dollar spent; therefore, some states may receive a higher federal match rate

for administrative costs associated with foster care children if these costs are charged to

Medicaid rather than IV-E. 

Page 1 GAO-06-649
federally approved state plans. At the federal level, ACF approves IV-E 

state plans and the Centers for Medicare & Medicaid (CMS) are 

responsible for approval of state Medicaid plans. In addition, some states 

use block grant funds from programs, such as Temporary Assistance to 

Needy Families (TANF), that do not require states to match funds.2

Because Title IV-E only covers costs associated with IV-E eligible children, 

states use other federal funding sources to help pay for administrative 

costs related to children that do not meet the IV-E requirements. IV-E 

eligibility criteria include among other requirements, having been removed 

from the home pursuant to a judicial determination and being eligible for

the Aid to Families with Dependent Children Program as it was in effect in 

1996. 

In response to concerns about the growth of costs claimed under Title IVE, Congress enacted legislation as part of the Omnibus Budget 

Reconciliation Act of 19903

 that was intended to provide better 

information on the types of administrative costs states claim for federal 

reimbursement. As a result, HHS added separate categories to its reporting 

form that require states to distinguish costs related to placing a child in 

foster care from other program activities. In addition to reporting amounts 

for staff training and development of a statewide automated child welfare 

information system (SACWIS), HHS requires states to break out costs 

related to child placement and other activities into five types: (1) case 

management for children in foster care, (2) case management for children 

at risk of being placed into foster care, (3) eligibility determination, 

(4) information system operating costs and (5) other costs, such as 

licensing of foster homes. 

In light of more available information and the continued rise in 

administrative costs, you asked us to determine (1) how the amounts and 

types of federal expenditures for Foster Care and Adoption Assistance 

administrative costs changed between fiscal years 2000 and 2004; (2) the 

reasons for differences in and among states in administrative spending and 

how these differences affect program services; and (3) whether HHS’s 

oversight of administrative expenditures provides adequate controls over 

program spending. 

 2

However, states are required to maintain a significant portion of their own historic 

financial commitment to their welfare programs as a condition of receiving their full TANF

allotments. 

3

Pub. L. No. 101-508 (1990). 

Page 2 GAO-06-649 Foster Care and Adoption Assistance
To determine how federal expenditures for administrative costs changed 

during fiscal years 2000 to 2004, we analyzed state claims for expenditures 

provided by ACF.4

 These data distinguished expenditures by type of costs 

such as child placement services, training, and development of state 

automated systems. We determined the data were sufficiently reliable for 

this purpose. To determine the reasons for differences in and among states

in administrative spending and how these differences affect program 

services, we (1) conducted site visits to five states—California, Kansas, 

Pennsylvania, South Carolina, and Washington; (2) conducted phone 

interviews with state officials responsible for program and fiscal 

operations in six additional states—Illinois, Maryland, Michigan, New 

York, Texas, and Wisconsin; and (3) obtained financial data and 

perspectives from these 11 states through a structured data collection 

instrument. These 11 states accounted for about 64 percent of fiscal year 

2004 federal administrative costs and represented diversity in the change 

in administrative costs, total spending on foster care and adoption 

assistance programs, geographic location, and also provided examples of 

state and county operated programs. While we did not fully assess the 

reliability of the data the state agencies reported on the instrument, we 

reviewed the data to determine that the responses were complete and

reasonable and found the data to be sufficiently reliable for the purposes 

of this report. We also analyzed state allocation plans and financial 

reports. To assess HHS oversight of administrative expenditures, we 

reviewed Title IV of the Social Security Act, related regulations on 

allowable expenditures, guidance issued by ACF, and audit reports from 

HHS’s Office of Inspector General. We also interviewed officials in HHS’s 

Division of Cost Allocation, Office of Grants Management, and Centers for 

Medicare & Medicaid Services, and Office of the Inspector General, as well 

 4

There are some limitations in the data we used for our analysis. The data ACF provided

represent states’ claims for reimbursement rather than actual IV-E expenditures and reflect 

when the states made the claims to the federal government rather than when the costs 

were incurred. States may make corrections to claims within 2 years of their original filing.

When they make such corrections, these are attributed to the year the corrected claim is 

made, rather than the year the claim was incurred. Therefore, ACF data can include prior

quarter claims for costs incurred over the past 2 years and not previously reported. Prior 

quarter claims made up about 7 percent of 2000, 2001, and 2002 claims;17 percent of 2003

claims; and 10 percent of 2004 claims. Claims data will differ from federal reimbursement 

reported in two ways. First, claims data includes payments that may have been deferred

and possibly denied by HHS and reports them in the year they are claimed, rather than the 

year they are paid. Secondly, claims data includes claims that HHS has disallowed and will, 

therefore, never be paid; however, according to officials, this represents a very small 

portion of states’ claims. 

Page 3 GAO-06-649 Foster Care and Adoption Assistance
as 6 of HHS’s 10 regional offices primarily responsible for oversight of 

expenditures. 

We conducted our work from June 2005 through June 2006 in accordance 

with generally accepted government auditing standards. 

Total federal expenditures to help states pay for the costs of administering 

the Foster Care and Adoption Assistance Programs increased 7 percent 

from fiscal years 2000 to 2004, from approximately $2.5 to $2.6 billion,5

 but 

analysis of changes in the types of costs incurred was limited due to 

inconsistencies in how states tracked and reported data over time. While 

over a third of the states received greater federal reimbursements of 

administrative costs in fiscal year 2004 than in fiscal year 2000, six states

accounted for over 80 percent of the increase. California alone was 

responsible for approximately 31 percent of the total increase. Nearly all 

of the federal expenditures—89 percent in fiscal year 2004—were for costs 

related to child placement services such as managing cases as children 

progress through the child welfare system and finding appropriate foster 

and adoptive homes. We were unable to use the data to analyze changes at 

a more detailed level because not all states complied with the criteria for 

reporting costs or interpreted the criteria the same. For example, at least 

one region did not require states to report costs as instructed on the 

reporting form. Some federal and state officials told us, however, that

caseworker costs such as developing and reviewing case plans accounted

for the bulk of the increase during this time period and were primarily 

associated with the salaries and benefits of caseworkers. 

Results in Brief 

Our review of state IV-E spending in 11 states between fiscal years 2000 

and 2004 showed that methods states used to identify eligible children and 

the related staff costs for serving them were two primary reasons for 

differences in federal expenditures within and among states; but it is 

unclear how these differences affected services to children. Washington 

more than doubled its costs charged to IV-E between fiscal years 2000 and 

2004 by changing the formula used to calculate the number of eligible

children and by changing methods to determine a child’s eligibility. More 

significant for some states is the extent that they claim costs for serving 

children not yet removed from their homes—known as foster care 

 5

These numbers have been adjusted for inflation in fiscal year 2000 dollars. The nominal 

increase was 17 percent, from approximately $2.5 billion to $2.9 billion. 

Page 4 GAO-06-649 Foster Care and Adoption Assistance
“candidates.” Wisconsin, for example, reported that about half of its total 

fiscal year 2004 IV-E administrative costs were for candidates, while 

Michigan reported candidate costs of only 1 percent. States also differed in

the extent that they used other federal programs instead of IV-E for 

administrative costs or had increases or decreases in their state budgets 

for social services. For example, while most states charged IV-E for all 

eligible foster care case management costs, a majority of South Carolina’s 

case management costs were charged to Medicaid. Officials in all 11 states

reported taking action to improve services, such as reducing ratios of 

caseworkers to children by hiring or reallocating staff, and collaborating 

with the court system to improve the legal processes and reduce the time 

that children spend in foster care. However, the effect of IV-E

expenditures on program services is unclear because states use various 

funding sources and a change in IV-E funding does not necessarily result 

in a change in the funding of child welfare services. 

HHS’s oversight of state claims is insufficient to provide adequate control 

over program spending. According to HHS officials, because of 

retirements and restructuring efforts, staff do not always have the 

qualifications or experience to fulfill oversight responsibilities. HHS has 

not redistributed its staff commensurate with the risk of states claiming 

inappropriate costs. Consistent oversight is also hindered by inadequate 

guidance, including lack of a current financial review manual. Regional 

offices have developed their own protocols for reviewing states’ quarterly 

claims for reimbursement, which has resulted in inconsistent oversight of 

state costs. In addition, while HHS clarified policies on the allowability of 

certain expenditures—including costs for candidates and the use of 

Medicaid funding for services for children in foster care—policies were 

not uniformly applied across regions. For example, two states located in 

two regions, charged certain foster care costs to Medicaid instead of Title

IV-E, while HHS officials from a third region required a state to 

discontinue this practice. Further, questionable claiming practices have

not been systematically addressed. For example, although two regions and 

HHS headquarters officials cited problems with how states are 

documenting and allocating costs for candidates, HHS’s Division of Cost 

Allocation has not systematically reviewed state allocation procedures to 

address this problem. 

In this report, we are recommending that the Secretary of Health and 

Human Services direct the Assistant Secretary for the Administration for 

Children and Families to take action to better safeguard federal resources 

and ensure consistent federal support for states’ administration of foster 

care and adoption assistance programs. 

Page 5 GAO-06-649 Foster Care and Adoption Assistance
In this report, we are recommending that the Secretary of Health and 

Human Services direct the Assistant Secretary for the Administration for 

Children and Families to take several actions to better safeguard federal 

resources and ensure consistent federal support for states’ administration 

of foster care and adoption assistance programs. In its written comments 

on a draft of this report, HHS did not explicitly agree or disagree with our 

five recommendations, but stated that it would implement or consider 

implementing four of them in whole or in part. A copy of the written 

comments from the Department of Health and Human Services is in 

appendix II.

Title IV-E of the Social Security Act authorizes funds to states to help 

cover the costs of operating their Foster Care and Adoption Assistance 

programs. These programs primarily provide financial support for the care 

of eligible children who have been removed from their home due to abuse 

or neglect, as well as to families who adopt eligible children with special 

needs from the foster care system. Table 1 illustrates the eligibility criteria 

for the Foster Care and Adoption Assistance Programs. 

Background 

Table 1: Eligibility Criteria for the Foster Care and Adoption Assistance Programs 

Foster Care Program Adoption Assistance Program 

A judicial determination has been made that conditions in the 

home from which the child was removed were contrary to the 

child’s welfare and reasonable efforts were made to prevent 

removal; 

A judicial determination has been made that the state has 

documentation that it made reasonable efforts to finalize a 

permanency plan; 

A judicial determination has been made that the state has 

responsibility for placement and care of the child; 

But for the removal from the home, the child would have qualified 

for the Aid to Families with Dependent Children (AFDC) program 

as it was in effect on July 16, 1996; and 

The state has verification of provider safety requirements. 

If removal is the result of a voluntary placement agreement, a 

state must obtain a judicial determination that continued 

placement is in the child’s best interest. 

Children must have a special need that is defined as the state 

determining that a child should not or could not be returned to the 

home of his or her parents, and certain factors, such as age;

membership in a sibling unit or minority group; or emotional, 

mental, or physical conditions that would make finding an 

appropriate adoptive home difficult. 

Special needs children must also meet at least one criterion from 

the following list: 

(a) the child is a dependent child who would have been eligible for 

AFDC, as it existed in 1996; 

(b) the child is eligible for Supplemental Security Income (SSI); 

(c) the child is a child of a minor parent who is in foster care

already and receiving foster care maintenance payments under 

Title IV-E; or 

(d) the child received adoption assistance previously, but the 

adoption dissolved or the adoptive parents died. 

Source: Title IV-E of the Social Security Act.

Although most foster care funds support children who have been placed 

outside of the home due to abuse or neglect, they may also be used to 

support placing a child in a child care institution, such as a juvenile justice 

facility not operated primarily for detention, pursuant to voluntary 

Page 6 GAO-06-649 Foster Care and Adoption Assistance
agreements or decisions made by the courts that stipulate removal from 

the home is in the best interests of the child. Title IV-E also authorizes 

financial support to states to help defray the costs of administering the 

programs. Administrative costs cover expenses states incur to identify 

eligible children, refer them for services, and plan for permanent 

placement, including administrative costs to facilitate the adoption of 

special needs children, the training of staff, and the development and 

operation of a statewide automated child welfare information system that 

helps states manage their child welfare cases as well as report child abuse 

and neglect, foster care, and adoption information to the federal 

government.

Program Funding and 

Costs 

Title IV-E provides an open-ended entitlement for administrative costs on 

behalf of children who meet certain federal eligibility criteria. The federal

government shares the cost of administration 50-50 with states.

6

 Total 

federal expenditures, including administrative costs, for the Title IV-E 

Foster Care and Adoption Assistance programs were $6 billion in fiscal 

year 2004 and estimated to rise to $8 billion in fiscal year 2008, according 

to the Congressional Budget Office. Of the $6 billion, $2.9 billion was for 

the cost of administering these programs with approximately 90 percent 

going towards administering the Foster Care Program. 

Title IV-E is one of many funding sources states use to provide child 

welfare services. Title IV-B of the Social Security Act authorizes funds to 

states for a broad range of services, including child protection, family 

preservation, other support services, and adoption services. The Child 

Abuse Prevention and Treatment Act authorize grants and research funds 

designed to improve child protective services, offer services aimed at 

preventing abuse and neglect, and increase the knowledge about ways to 

prevent child maltreatment. Additionally, states may use federal funds 

from other programs with a focus much broader than child welfare, such 

as Title XX’s Social Services Block Grant (SSBG), Medicaid, and TANF to 

provide some support for child welfare services. 

 6

Training costs are the exception and reimbursed at 75 percent. 

Page 7 GAO-06-649 Foster Care and Adoption Assistance
States report their administrative costs to ACF in three main categories: 

child placement services and other administrative activities,7

 training, and 

development of statewide automated child welfare information systems 

(SACWIS development). The Omnibus Budget Reconciliation Act of 19908

required that certain foster care costs be further categorized to provide 

better information about reimbursement for administrative costs. HHS’s 

current reporting form requires states to distinguish among five types of 

costs related to child placement as shown in table 2. Because this 

requirement does not apply to the Adoption Assistance program, adoption 

assistance administrative costs are only reported in two categories, child

placement services and training.9

 7

On Form ACF IV-E-1, Title IV-E Foster Care and Adoption Assistance Financial Report: 

State Quarterly Report of Expenditures and Estimates, this category is titled “State and 

Local Administration.” For simplification and purposes of our review, we use the term,

“child placement services,” to refer to case management services for children placed in 

foster care and at risk of being placed in foster care as well as other administrative costs 

such as eligibility determination and SACWIS operating costs.

8

Pub. L. No. 101-508 (1990). 

9

Costs for SACWIS Development are charged only to the Foster Care program. 

Page 8 GAO-06-649 Foster Care and Adoption Assistance
Table 2: State Reporting Requirements and Federal Reimbursement Rates for Allowable Administrative Costs under the 

Foster Care and Adoption Assistance Programs 

General reporting

requirements

Federal 

reimbursement

rate Title IV-E allowable activities 

• Child Placement Services 

• Case management for 

children in foster care 

• Case management for 

children at risk of placement 

into foster carea

• Eligibility determination 

• Statewide Automated Child 

Welfare Information 

Systems (SACWIS) 

operation 

• Other administration 50% 

• • Development, review, or revision of case plans or the supervision or 

management of cases, including preparation for and participation in judicial

proceedings, as well as referral to services for children placed in foster care

• Development, review, or revision of case plans or the supervision or 

management of cases, including preparation for and participation in judicial

proceedings, as well as referral to services for children still living at home 

• Verification and documentation of eligibility 

• Operation of statewide automated child welfare information systems 

• Other costs not mentioned above that are related to running the program 

such as setting the rates paid to foster care institutions, recruitment and 

licensing of homes, and issuing payments to families 

SACWIS development costs 50% Establishing states’ automated child welfare information systemsb

State and local training 

75% 

Training of personnel employed by state or county agencies administering the 

program and training current and prospective foster parents 

Adoption Assistance Program

Child placement services 

50% 

All costs related to running the program such as conducting adoptive home 

studies, recruiting adoptive homes, placement of a child into a home, and the 

negotiation and review of adoption agreements. 

State and local training 

75% 

Training of personnel employed by state or county agencies administering the 

program and training current and prospective adoptive parents 

Source: ACF Form IV-E-1 and HHS regulations. 

a

On ACF Form IV-E-1, these costs are entitled “Pre-Placement.” In order for a child to be considered

at risk of placement, or a “candidate” for foster care as they are commonly referred to, states must 

have one of the following documentation: (1) case plan that identifies foster care as the goal absent 

preventative services, (2) eligibility form used to document the child’s eligibility for Title IV-E, or 

(3) evidence of court proceedings related to the child’s removal from the home. 

b

To qualify for federal funding for SACWIS, states must prepare and submit an advance planning 

document (APD) to the Children’s Bureau, in which they describe the state’s plan for managing the 

design, development, and operation of a SACWIS that meets federal requirements and state needs in 

an efficient, comprehensive, and cost-effective manner. 

States report quarterly the costs of administering their Foster Care and 

Adoption Assistance programs to ACF in accordance with cost allocation

plans they developed and ACF approved. These cost allocation plans 

describe how the state will identify, measure, and allocate administrative 

costs across federal programs such as Title IV-E, Medicaid, and TANF that 

may serve overlapping populations with overlapping state resources. 

States use a variety of methods to allocate costs among programs such as 

(1) the direct charge of costs to a specific program based on the number of 

full-time employees, or (2) use of a time study to identify how workers 

Page 9 GAO-06-649 Foster Care and Adoption Assistance
involved in multiple programs are spending their time. Most states employ

a random moment time study, a statistical tool for estimating the amount 

of time employees spend performing specific activities, such as case 

management. By collecting a relatively few representative moments of 

employee time, an agency is able to estimate the total distribution of 

employee time statewide. This information is used to document and 

support claims for federal matching funds by program. 

In addition, states generate an eligibility statistic—often referred to as a 

penetration rate—that represents the proportion of IV-E eligible children 

(numerator) relative to all children served by the state foster care or 

adoption assistance programs (denominator). States then apply this rate to 

all IV-E allowable costs to determine how much of these costs are eligible

for federal reimbursement.10

The following is a simplified illustration of a state’s claiming process: 

A state randomly surveys caseworkers throughout the quarter and find that they spend 

40% of their time conducting case management work for children placed in foster care. 

The caseworker costs—salary, benefits, and a portion of overhead—is $200,000 for 

the quarter. Then 40 percent of the $200,000, or $80,000, might be chargeable as IV-E 

case management costs. However, the caseworkers are assisting both IV-E eligible 

and non-eligible children; only the costs for assisting the eligible children can be 

claimed. To calculate the portion of the $80,000 that can be charged to IV-E, the state 

multiples $80,000 by the eligibility statistic. If the eligibility statistic is 70% (70% of the 

children served are IV-E eligible) then the case management cost that can be charged 

to Title IV-E for that quarter are $80,000 times .7=$56,000. The state subsequently 

receives 50 percent of that amount, or $28,000, in reimbursement for those case 

management costs. 

In addition to claiming costs for IV-E eligible children who have been 

placed in foster care, states are permitted to also claim costs for IV-E 

eligible children who are at serious risk of removal from the home. States 

can demonstrate children are candidates for foster care by either seeking

to remove the child from the home or determining that absent effective 

preventive services, the child would be placed in foster care. In order to 

claim costs for foster care candidates, states can either determine whether 

or not the candidates are actually IV-E eligible or use a cost allocation 

approach based on both determination of foster care candidacy and 

potential IV-E eligibility. Because states interpreted policy regarding 

 10The penetration rate is not applied to eligibility determination costs because costs related 

to determining whether a child is eligible for Title IV-E reimbursement are allowable 

regardless of whether the child is found to be eligible or not. 

Page 10 GAO-06-649 Foster Care and Adoption Assistance
candidates differently, HHS issued formal guidance in 2001 designed to 

clarify at what point a child is considered a candidate, who has the 

authority to make such a determination, and the types of costs allowed. In 

addition, the guidance stipulated that states were no longer able to claim 

administrative costs for children in unlicensed facilities under the guise 

they were candidates for foster care.11

The Deficit Reduction Act The Deficit Reduction Act

12 incorporated many of the provisions outlined 

in ACF guidance. The act specified the administrative costs that can be 

claimed for children who meet all eligibility criteria except placement in a 

licensed foster care setting.13 It also clarified the specific case management 

services permitted for Medicaid reimbursement including: 

• assessment of an eligible individual to determine service needs by taking a 

client history, identifying an individual’s needs, and gathering information 

to form a complete assessment; 

• development of a specific care plan based on the information collected 

through an assessment that specifies the goals and action to address the 

medical, social, educational, and other services needed by the individual; 

• referral and related activities to help an individual obtain needed services; 

and 

• monitoring and follow-up activities, including activities and contacts to 

ensure the care plan is effectively implemented and adequately addresses 

the individual’s needs. 

The act asserts that Medicaid can be charged when “there are no other 

third parties liable to pay for such services,” including a medical, social, 

educational or other program that provides reimbursement. It also 

specifies that targeted case management services for children in foster 

 11While this guidance was issued in 2001, due to objections from states and other interested 

parties that HHS did not allow for public comment, HHS sought to codify the guidance and 

issued a notice of proposed rulemaking in January 2005.

12Pub. L. No. 109-171 (2006). 

13The Deficit Reduction Act also effectively nullified the 9th Circuit U.S. Court of Appeals 

decision of Rosales v. Thompson, 321 F. 3rd 835 (2003), which allowed a state to determine

in some instances whether a foster child would have met the AFDC portion of the Title IVE eligibility requirements while living in the home of a relative like a grandmother. 

Page 11 GAO-06-649 Foster Care and Adoption Assistance
care would not cover activities including but not limited to the completion

of required foster care documentation, assessing adoption placement, and

recruiting potential foster care parents. 

ACF is responsible for the administration and oversight of Title IV-E 

funding to states. HHS headquarters staff develop policies and procedures 

for states to obtain and use federal funds, while staff—financial operations 

specialists—in HHS’s 10 regional offices perform frontline activities to 

oversee financial internal control processes. One key oversight activity

includes verifying the accuracy and appropriateness of the costs states 

claim for federal reimbursement on their quarterly expenditure reports. 

Depending on resources, regional offices may conduct on-site reviews 

related to expenditure claims. Regional offices are also responsible for 

resolving any findings from the Office of Management and Budget Circular 

A-133 audit which requires non-federal entities that spend more than 

$500,000 of federal funds each year to obtain an audit of its financial 

statements that includes verification of compliance with federal rules. 

ACF also monitors state compliance with federal child welfare laws and 

performance through (1) Title IV-E Eligibility Reviews and (2) Child and 

Family Services Reviews (CFSR). The Title IV-E Reviews ensure that 

states are properly determining the eligibility of children for federal foster

care support and making correct claims for reimbursement. Passage of the 

Adoption and Safe Families Act helped spur the creation of the CFSR by 

emphasizing the outcomes of safety, permanency, and well-being for 

children. Based on a review of statewide data, interviews with community 

stakeholders and some families receiving services, and a review of a 

sample of 50 child welfare cases, HHS determines whether a state 

achieved substantial conformity with: (1) outcomes related to safety, 

permanency, and well-being, such as keeping children protected from 

abuse and neglect and achieving permanent, stable living situations for 

children; and (2) key systemic factors, such as having an adequate case 

review system and an adequate array of services. States are required to 

develop program improvement plans to address identified shortcomings. 

Since fiscal year 2000, all 50 states have undergone at least one IV-E 

Eligibility Review, and some have had a second. ACF completed its first 

round of on-site reviews for the CFSR in all 50 states, District of Columbia, 

and Puerto Rico in March of 2004. 

Other HHS agencies have responsibility for reviewing the financial 

management of state programs and ensuring claims for expenditure are 

allowable and allocable in accordance with federal regulations and 

Organization Structure and 

Oversight Activities 

Page 12 GAO-06-649 Foster Care and Adoption Assistance
guidelines. HHS’s Division of Cost Allocation (DCA) is responsible for 

reviewing states’ public assistance cost allocation plans, resolving audits 

that involve cost allocation issues, and providing technical assistance and

guidance to federal departments and agencies. DCA and ACF work 

together to review state cost allocation methods to ensure the cost 

distribution to the federal government is appropriate and accurate, in 

accordance with Office of Management and Budget guidelines. HHS’s 

Office of Inspector General (OIG), Office of Audit Services, provides all 

auditing services for HHS. OIG audits examine the performance of HHS 

programs and/or its grantees and contractors 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 HHS. Figure 1 illustrates the entities responsible for oversight 

of expenditures for foster care and adoption assistance administrative 

costs. 

Page 13 GAO-06-649 Foster Care and Adoption Assistance
Figure 1: HHS Entities Responsible for Oversight of IV-E Expenditures for Foster Care and Adoption Assistance 

Administrative Costs 

U.S. Department of Health and Human Services

The Secretary

Deputy Secretary

Assistant Secretary

Administration and Management

Program Support Center

Division of

Cost Allocation

Division of

Payment

Management

Assistant Secretary

Administration for Children

and Families

Administration on 

Children, Youth

and Families

Office of

Regional 

Operations

Office of

Grants

Management

Children’s

Bureau

Region I

Boston

Region II

New York

Region III

Philadelphia

Region IV

Atlanta

Region V

Chicago

Region VI

Dallas

Region VII

Kansas City

Region VIII

Denver

Region IX

San Francisco

Region X

Seattle

Office of

the Deputy

Assistant Secretary

for Administration

Inspector General

Source: GAO analysis of HHS information.

Page 14 GAO-06-649 Foster Care and Adoption Assistance
Federal expenditures to states for administering the Foster Care and 

Adoption Assistance programs increased between fiscal years 2000 to 

2004, but data limitations prevent a determination of how the types of 

federal expenditures changed. While federal expenditures increased in a 

little over a third of the states during this period, changes in a few states 

drove the nationwide increase and federal expenditures declined in fiscal 

year 2004. States reported incurring almost all foster care costs in one 

category: child placement services. Nationwide changes in the five types of 

costs within this category could not be analyzed, however, because states

did not always adhere to the federal reporting criteria or interpreted the 

criteria differently. Despite the data deficiencies, some state and federal 

officials said that staff costs related to case management were primarily 

responsible for the increase in overall administrative expenditures. 

Federal expenditures to all states for administering the Foster Care and 

Adoption Assistance programs increased by $173 million (7 percent) from 

fiscal years 2000 to 2004, after adjusting for inflation.14 However, a steady 

increase in expenditures over the first 3 years was followed by a decrease

in the final year as shown in figure 2.

15

Title IV-E

Expenditures for 

Administrative Costs 

Have Increased, but 

Data Deficiencies 

Limit Analysis by 

Type of Cost 

Federal expenditures have 

increased 7 percent from 

fiscal years 2000 to 2004 

primarily due to changes in 

a few states 

 14The inflation adjustment was made using 2000 as the base year. Without adjusting for 

inflation, the increase was 17 percent, or $409 million.

15This decline may be in part due to a decline in the foster care caseload eligible for IV-E 

due to program rules that rely on 1996 income standards to determine eligibility. CBO 

projects a steady decline for nearly 10 years. 

Page 15 GAO-06-649 Foster Care and Adoption Assistance
Figure 2: Change in Total Federal Expenditures for Foster Care and Adoption 

Assistance Administrative Costs 

0

2350

2,400

2,450

2,500

2,550

2,600

2,650

2,700

2,750

2000 2001 2002xx 2003xx 2004 xx

Dollars in millions

Source: GAO analysis of HHS data.

Year

Note: Figure based on data adjusted for inflation in fiscal year 2000 dollars. 

The $173 million overall increase in federal expenditures resulted from 

increases totaling $318 million in 21 states, including the District of 

Columbia, offset by decreases totaling $145 million in the remaining states. 

Among the 21 states with increased federal expenditures, 6 states 

accounted for the majority of the increase, over 80 percent, as shown in 

figure 3. California alone was responsible for 31 percent of the total 

increase in federal expenditures. Among the 30 states reporting a decrease 

in administrative costs, the change was distributed more evenly, with 

13 states accounting for 81 percent of the decrease. (See app.I for detailed 

information on the amount of administrative costs by state for fiscal years

2000 and 2004.) 

Page 16 GAO-06-649 Foster Care and Adoption Assistance
Figure 3: Change in Federal Expenditures for Foster Care and Adoption Assistance Administrative Costs between Fiscal 

Years 2000 and 2004 by State 

Vt.

Idaho

Other states that accounted for 20% of the increase in claims from fiscal year 2000 to fiscal year 2004

N.H.

Mass.

R.I.

Conn.

N.J.

Del.

Md.

D.C.

Alaska

Hawaii

Ala.

Ark.

Colo.

Ga.

Ill. Ind.

Iowa

Kans.

La.

Maine

Mich.

Minn.

Mo.

Mont.

Nev. Nebr.

N.Mex.

N.Y.

N.Dak.

Okla.

Oreg.

Pa.

S.Dak.

Tenn.

Tex.

Utah

Wash.

Wisc.

Wyo.

Fla.

Ariz.

Miss.

S.C.

N.C.

Va.

Ky.

W.Va.

Ohio

Source: GAO analysis of HHS data.

$34M

Calif.

$99M

$32M

$14M

$42M

$33M

States that accounted for 80% of the increase in claims from fiscal year 2000 to fiscal year 2004

(6 states)

States with decreased administrative cost claims from fiscal year 2000 to fiscal year 2004

Page 17 GAO-06-649 Foster Care and Adoption Assistance
Among the three broad reporting categories of administrative costs for the 

Foster Care and Adoption Assistance programs, costs for child placement

services accounted for nearly all of the federal expenditures—89 percent 

in fiscal year 2004, followed by costs for staff training and development of 

child welfare data systems, as shown in figure 4.

Figure 4: Foster Care and Adoption Assistance Administrative Costs by Category

for Fiscal Year 2004 

2% ($56M)

9%

89%

Source: GAO analysis of HHS data.

Child Placement Services

SACWIS Development

Training

($271M)

 ($2,557M)

Note: Figure based on data adjusted for inflation in fiscal year 2000 dollars. 

Page 18 GAO-06-649 Foster Care and Adoption Assistance
Child placement costs drove the increase in overall administrative 

expenditures between fiscal years 2000 and 2004, for a total increase of 

$173 million, while costs related to the development of SACWIS increased 

by $10 million and staff training costs decreased by a similar amount.16

Foster Care and Adoption Assistance

States have not consistently reported foster care costs by type within one

of the three broad categories of administrative costs—the child placement 

services category—precluding a detailed analysis of how these types of 

costs have changed over time. 

ACF provides instruction to states on how to report costs. States are to 

report foster care child placement services costs by five different types: 

• Costs to determine a child’s eligibility for coverage under the Title IV-E 

Foster Care program. 

Inconsistencies in state 

reported data limit analysis 

of how types of costs have 

changed, but according to 

officials case management 

services accounted for the 

majority of increased 

expenditures 

• Case management costs for a child in foster care.

• Case management costs for a child at risk of placement into foster care. 

• Costs to operate the Statewide Automated Child Welfare Information 

System. 

• Other administrative costs not falling in the other categories. 

There are three primary reasons for variation among states in reporting 

child placement services by these types. 

• Not all states complied with the reporting instructions for costs associated 

with foster care child placement services. Some states reported their costs 

by just one or two types. For example, Pennsylvania did not begin 

reporting costs among the five types until fiscal year 2004 after being 

directed to do so by its cognizant ACF regional office in March of 2003. 

Pennsylvania had reported nearly all costs before that time as “other 

administration.” Therefore, the substantial increase in case management 

costs reported by Pennsylvania may have been primarily due to 

compliance with the reporting requirements in fiscal year 2004 rather than

 16Using nominal numbers all three categories had increased costs: child placement services 

costs increased by $383 million, costs related to the development of SACWIS increased by

$15 million, and staff training costs increased by $11 million. 

Page 19 GAO-06-649
actual changes in costs incurred. Over the last several years at least two 

regions have required states to report their child placement services costs 

by the five types. 

• States interpreted the reporting instructions differently. Kansas, Texas, 

and New York use private contractors for a large portion of case 

management activities. Kansas and Texas reported these costs as “other 

administration,” whereas New York reported them as “case management.” 

States also vary in how they reported overhead and other costs not 

directly related to assisting a specific child. For example, Illinois reported 

costs for negotiating and setting the rates they pay foster care institutions 

as case management costs, while other states reported this cost as “other 

administration.” 

• States differed in how they claimed costs between the Foster Care and 

Adoption Assistance programs. For example, Kansas charged 

administrative costs such as case management for children who are 

eligible for adoption, the recruitment and study of adoptive homes, and 

licensing of adoptive homes to the Foster Care program while Washington, 

charged these activities to the Adoption Assistance program. 

Despite the data limitations, state officials reported that costs related to 

the salaries and benefits of staff performing foster care case management 

activities accounted for the majority of foster care administrative costs 

ranging from 50 to 96 percent of total program costs. In addition, some 

state and federal officials we interviewed indicated that costs for case 

management activities drove the increase in overall administrative costs 

between fiscal years 2000 and 2004. 

Our review of 11 states between fiscal years 2000 and 2004 showed that 

state Foster Care and Adoption Assistance spending within and among 

states reflected differences in methods used to identify eligible children 

and related staff costs, but these changes could not be linked to children’s

services. Among states with increased spending, four states hired more 

caseworkers, increased their salaries, and/or changed how caseworker 

time is allocated among foster care and other programs. In states with 

decreased spending, there were declines in the number of children for 

whom states could claim costs and state budget cuts. States differed in the 

extent that they included case management costs for children who are in

facilities that are ineligible for foster care maintenance payments, or the 

extent that they used other funding sources to pay for administrative costs 

that could be charged to IV-E. All 11 states reported expanding or 

State IV-E Spending 

Reflects Changes in 

Staffing, Children 

Served, and Cost

Claiming Practices, 

but Impact on 

Services Is Unclear 

Page 20 GAO-06-649 Foster Care and Adoption Assistance
implementing initiatives to improve services to children; however, the 

effects of IV-E funding cannot be separated from those of other funding 

sources or initiatives. 

Among the 11 states we reviewed, 6 increased their IV-E administrative 

cost claims for the Foster Care and Adoption Assistance Programs 

between fiscal years 2000 and 2004, with increases ranging from 3 percent 

in Wisconsin to 142 percent in Washington; another 5 states had decreased 

costs ranging from 2 percent in Illinois to 24 percent in South Carolina, as 

shown in figure 5. 

State IV-E claims changed 

due to rising staff costs 

and changes in eligible 

children and state budgets; 

states differ in cost 

claiming practices and use 

of alternative funding 

Page 21 GAO-06-649 Foster Care and Adoption Assistance
Figure 5: Changes in IV-E Administrative Expenditures for 11 States, FY 2000-2004 (Dollars in millions) 

Percentage change in expenditures

0

20

40

60

80

100

120

140

160

180

South Carolina

Kansas

Michigan

Maryland

Illinois

Wisconsin

New York

California

Pennsylvania

Texas

Washington

Source: GAO analysis of HHS data.

State

$8

$14

$4

$34

$32

$42

$33 $99

$2

$2 $2

-40

-20

Note: Figure based on data adjusted for inflation in fiscal year 2000 dollars. 

States provided various reasons for the increase or decrease in total 

administrative costs. For those eight states that had greater than a 5

percent change in costs, reasons cited most frequently as contributing to 

these changes included the amount of costs claimed for candidates, 

changes in staff allocation methods, and changes in the proportion of IV-E 

eligible children, as shown in table 3. 

Page 22 GAO-06-649 Foster Care and Adoption Assistance
Table 3: Major Reasons Cited by 8 States for Changes in IV-E Administrative Costs from Fiscal Years 2000 to 2004 

Revised

allocation of 

staff costs 

Change in 

proportion of IV-E 

eligible children 

Costs claimed for 

children identified

as candidates

State 

spending 

Use of other federal 

funding source 

States with overall increased costs 

California Ç Ç

Pennsylvania Ç

New York Ç È Ç Ç

Washington Ç Ç È

Texas Ç Ç

States with overall decreased costs 

South Carolina Ç Ç È

Kansas Ç È

Michigan È È Ç

Source: State officials.

A common reason cited for increased administrative costs were changes 

states made to the methodology used for measuring and allocating 

caseworker time, which resulted in identifying more costs eligible for IV-E

reimbursement. Two states—New York and Washington—reported 

making various changes in their time studies that significantly increased 

the amount of IV-E expenditures claimed from fiscal years 2000 to 2004. 

For example, Washington reported that in fiscal years 2003 and 2004, time 

studies were developed and implemented for contractors providing 

specialized IV-E allowable case management services, which enabled the

state to claim federal funding for these activities. New York officials also

reported that an update of their time studies for private, nonprofit 

agencies serving children in New York City lead to better identification of

costs eligible for IV-E reimbursement and increased its amount of 

administrative costs. California officials highlighted efforts to ensure that 

staff were adequately trained resulting in an increase of its training costs 

by more than a third over this time period. California requires that all new 

and existing county program staff be trained to a standard statewide 

curriculum. 

Changes in Allocation, State 

Share of Spending, and Staffing 

State budget changes between fiscal years 2000 and 2004 were reported to

also affect IV-E claims in several of the states we reviewed. For example, 

New York highlighted increases in state funding to pay for staff and 

programs to improve services, that in turn increase federal expenditures. 

However, two states—Kansas and South Carolina—reported significant 

decreases in IV-E expenditures as a result of cuts in state budgets and 

Page 23 GAO-06-649 Foster Care and Adoption Assistance
spending. South Carolina, for example, reported that the severe budget 

crisis between fiscal years 1998 and 2003 resulted in a more than 

40 percent decrease in state funding from approximately $140 million to 

$80 million for the Department of Social Services, and an associated 

reduction in IV-E expenditures.17,18 Michigan also reported decreased state 

spending for foster care, but attributed the change to fewer children in the 

overall foster care system. 

Most states reported a change in the proportion of IV-E eligible children—

penetration rate—between fiscal years 2000 and 2004 that contributed to 

changes in IV-E administrative costs. Washington substantially increased

its rate by excluding children from the calculation that the federal 

government does not require be included, such as children in the custody 

of a Native American tribe or whose eligibility had not yet been 

determined. On the other hand, South Carolina’s rate decreased by more 

than half in part due to problems with its SACWIS, according to officials. 

The remaining states reported a change of 10 percentage points or less, as 

shown in table 4. 

Changes in the Proportion of 

IV-E Eligible Children 

 17 In addition to foster care and adoption assistance, other programs impacted by the

budget cuts included child and adult protective services, child care, food assistance, 

domestic violence prevention, and welfare. 

18 These state funding amounts were not adjusted for inflation. 

Page 24 GAO-06-649 Foster Care and Adoption Assistance
Table 4: Change in Penetration Rate between Fiscal Years 2000 and 2004 

State 

Penetration 

rate in 2000 

Penetration 

rate in 2004 

Percentage point 

change in

penetration rate 

between 2000 and

2004 Reason cited for change greater than 5%

Washington 37% 68% 31 Clarified which children could be used in calculating 

the rate. 

Revised and automated the IV-E eligibility guide and 

initiated focused training and audits for IV-E eligibility 

staff. 

Worked with state attorney general office to 

standardize state court order language. 

Texas 60% 67% 7 Focused training on documenting certain eligibility 

criteria. 

Developed policy guidance for the eligibility staff. 

Upgraded the SACWIS system with an enhanced IVE eligibility function. 

Michigana56% 61% 5 Not applicable (N/A)

Illinoisa74% 73.5% (0.5) N/A

Marylanda70% 66% (4) N/A

Kansasa58% 54% (4) N/A

Californiaa,b 80% 75% (5) N/A

Wisconsin 79% 71% (8) Fewer eligible children due to 1996 income 

standards. 

State enforcement of stricter eligibility issued in 

2000.c

New Yorkd63% 53% (10) Fewer eligible children due to 1996 income 

standards. 

South Carolina 55% 24% (31) Technical problems with SACWIS. 

Issues concerning administrative costs for cases 

where maintenance payments are funded from

Supplemental Security Income instead of IV-E.e

Source: State officials.

Note: Pennsylvania did not provide changes in the penetration rate because counties calculate their 

own rates for IV-E reimbursement; however, state officials reported that the statewide rate had not 

changed over the past few years.

a

Illinois, Maryland, Michigan, Kansas, and California reported a change of 5 percent or less, for which

we did not request an explanation. 

b

In California, the statewide rate is used for budgeting purposes; counties calculate their own rate for 

IV-E reimbursement. 

c

The federal IV-E rules issued in January 2000 created stricter requirements for the state to prove that 

it is contrary to the welfare of a child to remain in their home and that the state had made reasonable 

efforts to prevent removal. 

Page 25 GAO-06-649 Foster Care and Adoption Assistance
d

New York provided two rates—one for upstate counties and one for New York City; both rates 

decreased about 10 percent. The rates shown in the table are for the upstate counties. 

e

If a child is eligible for IV-E and receives Supplemental Security Income (SSI), the state has the 

choice to fund the family’s maintenance payments from SSI rather than IV-E funds. However, the 

state may claim federal financial participation under IV-E for administrative activities performed on 

behalf of that child. 

The portion of total administrative costs states spend on behalf of 

candidates results in spending differences among states. Eight states 

reported that candidates were responsible for administrative costs ranging 

from 1 percent in Michigan to 73 percent in South Carolina, as shown in 

table 5. Claiming costs for candidates can help states offset declines in 

their IV-E eligible population. For example, while New York’s eligible 

population decreased by almost 44 percent between fiscal years 2000 and

2004, the costs charged for candidates more than doubled during this time 

period. In addition, South Carolina, which had an overall decline in IV-E

administrative costs between fiscal years 2000 and 2004, reported that IV-E 

reimbursement for candidates increased from about $965,000 in fiscal year 

2000, to more than $3.7 million in fiscal year 2004. 

Cost Claims for Candidates and 

Children Served by the Juvenile 

Justice System 

Table 5: Costs for Foster Care Candidates as an Approximate Percentage of Total 

Fiscal Year 2004 IV-E Foster Care Administrative Costs

Statea

Percentage of IV-E administrative costs that 

were for foster care candidates in FY 2004b

South Carolina 73c

Wisconsin 50

Texas 46c

New York 25d

Illinois 9

Washington 7

Kansas 2

Michigan 1e

Source: State officials.

a

Data for California, Pennsylvania, and Maryland were not available at the state level. However, 

Sacramento County in California, reported that about 27 percent of costs were for such children and 

Delaware County in Pennsylvania reported that about 40 percent of costs were for candidates. 

b

These percentages represent the proportion of IV-E costs only and do not include the amount for 

costs charged to other sources such as Medicaid. 

c

South Carolina and Texas charged some case management costs to Medicaid. 

d

New York reported that this was for local district costs. 

e

Michigan used some Social Service Block Grant (SSBG) and TANF funds for case management 

costs for candidates. 

Page 26 GAO-06-649 Foster Care and Adoption Assistance
According to an ACF official, state claims for candidates vary because 

states differ in their interpretation of regulations regarding reimbursement 

of costs for these children and some states are more aggressive in their 

candidate claiming practices. Pennsylvania officials told us that Region III 

had disallowed claims related to candidates because the state had not 

appropriately applied a penetration rate to the pool of costs, as required by

HHS. State officials commented that it had used the same approved 

allocation method since it began claiming costs for candidates in the last 

10 to 15 years and was not told until recently that the method was not in 

accordance with HHS cost allocation principles. In addition, in 2005, the 

HHS Office of Inspector General and ACF regional staff recommended 

large disallowances of costs claimed for candidates in Delaware and 

Virginia respectively. Delaware was denied almost $6 million of claims for 

quarters from December 1999 through June 2003 for also not applying a 

penetration rate to candidate costs. For Virginia, more than $28 million 

was denied for 8 quarters in fiscal year 2003 through fiscal year 2005 for 

absence of a methodology for allocating costs for candidates, charging for 

unallowable activities, failure to demonstrate that the children were 

eligible, and other problems with documentation. Michigan officials told 

us they reduced the amount of costs claimed on behalf of candidates 

because they did not want to risk the region denying reimbursement for 

certain claims based on insufficient documentation of caseworker effort 

or candidacy status. 

States may also receive reimbursement for administrative claims for IV-E 

eligible children that receive services through the juvenile justice system, 

both children receiving services as candidates and those in placement 

settings that are not operated primarily for detention. Three states—

California, Pennsylvania, and Texas—reported increases in IV-E claims for 

children receiving services in the juvenile justice system. Pennsylvania 

officials said that the state had reviewed the activities of juvenile justice 

workers and determined that they were conducting case management 

activities comparable to child welfare workers, such as developing a case

plan and providing services to keep those children in their home. 

Submitting claims for administrative costs for these children in

accordance with the state’s approved cost allocation plan had resulted in 

significant increases in IV-E reimbursement. Texas officials reported that

165 of the state’s 254 counties had agreements with the state to pass along 

a portion of their juvenile justice costs for IV-E reimbursement. California 

officials reported that their counties also had such agreements; Los 

Angeles County Probation Department officials reported that expenditures 

for these children increased from about $22 million in fiscal year 2001 to 

Page 27 GAO-06-649 Foster Care and Adoption Assistance
more than $40 million in fiscal year 2005—an increase of nearly 

85 percent.19

Most of the states we reviewed reported increasing their IV-E

reimbursement by charging for costs related to eligible children placed in 

certain types of settings ineligible for foster care maintenance payments. 

The most commonly used ineligible setting in fiscal year 2004 was the 

home of unlicensed relatives, utilized by 6 of 11 states responding to this 

question as shown in table 6. Kansas charged costs for children in six 

different types of ineligible facilities, such as hospitals and detention 

centers. Two states, Michigan and South Carolina, reported that they did 

not charge IV-E for children in any ineligible facility. 

Claims for Children in 

Ineligible Facilities 

Table 6: Ineligible Facilities Used by Certain States to Claim IV-E Administrative Costs in Fiscal Year 2004a

State 

Unlicensed

relative care 

Psychiatric or

medical 

hospitals

Detention 

centers

Public institutions that 

accommodate more than

25 children

Facilities operated primarily 

for children determined to

be delinquent Other

California 3 3

Illinois 3

Kansas 3 3 3 3 3 3b

Maryland 3

Michigan

New Yorkc

Pennsylvania 3d

South Carolina

Texas 3

Washington 3e

Wisconsin 3

Source: State officials.

a

These kinds of facilities may provide services to foster care children but are ineligible for foster care 

maintenance payments. 

b

Kansas also charged for secure care facilities.

c

New York charges for the listed facilities when a child spends at least 1 day of the month of the time

study in the above IV-E setting. 

d

Pennsylvania only places a child in unlicensed relative care if ordered by a judge. 

e

Washington claims costs for “for profit foster homes.” 

 19 These figures were not adjusted for inflation. 

Page 28 GAO-06-649 Foster Care and Adoption Assistance
The Deficit Reduction Act of 2005,20 limiting states’ ability to claim 

administrative costs for children in unlicensed foster homes or ineligible 

facilities will decrease federal expenditures to most of these states. 

Effective retroactively to October 1, 2005, states are prohibited from 

charging administrative costs for children in these facilities with one 

exception—they may charge these costs to IV-E for eligible children 

residing in an unlicensed relative home, but only for 12 months or for the 

average amount of time it takes the state to license the home, whichever is 

shorter.21 Kansas officials estimated that as a result of this rule, their 

claims could be reduced by as much as $10 million a year and Texas 

officials estimated that their claims would decrease by about $3 million 

annually. 

State IV-E administrative costs differ among states based on the extent 

that states charge other federal programs instead of IV-E. Three of the 

11 states reported using one or more federal funding sources in fiscal year 

2004 to fund some services for costs reimbursable by IV-E. They used 

block grant funding under programs such as TANF and SSBG to reduce 

their overall share of costs because they do not require a match of state 

funds, and there is less restriction on their use. Additionally, two of the 

three states charged costs to Medicaid that required a state match of less 

than 50 percent. 

Differences in Federal Funding 

Sources 

• South Carolina officials reported using TANF emergency assistance funds 

to cover most costs associated with a child in foster care for the first 

12 months; using TANF eliminated the need of a state match. They said 

that IV-E program funds are used primarily for costs associated with 

preparing and participating in judicial proceedings, eligibility 

determination, licensing and home studies. 

• Michigan officials said that their IV-E claims decreased when they began 

charging activities they thought would be challenged by the ACF regional 

office to another funding source, such as SSBG or TANF. For example, 

Michigan began charging about 60 percent of foster care training costs to 

 20 Deficit Reduction Act of 2005, Pub. L. No. 109-171 (2006). 

21 States may charge administrative costs for children in unlicensed homes only for as long 

as the length of the time it normally takes to license a home or up to 12 months—

whichever is shorter. For children placed in other ineligible facilities, such as psychiatric or 

medical hospitals, claims may be made but only for 1 calendar month and only if they are 

subsequently moved back to an eligible setting. 

Page 29 GAO-06-649 Foster Care and Adoption Assistance
SSBG because of disagreements with ACF in developing their allocation

methodology. 

• Washington officials said that prior to 2001, Medicaid was used to fund 

some case management services for all children that were eligible for 

Medicaid, including those that were IV-E eligible. However, the Center for 

Medicare and Medicaid Services (CMS) objected and negotiated with the 

state to no longer use Medicaid for these services. This change resulted in

additional charges to IV-E and contributed to the 27 percent increase in 

the amount of case management claims from fiscal year 2000 to fiscal year 

2001. 

Officials in all 11 states reported initiating efforts to improve services to 

children in their foster care and adoption assistance programs to address 

findings from federal reviews, state studies, or lawsuits; however, an 

increase or decrease in IV-E spending cannot be linked to changes in 

services for children. One reason is that spending may go up or down 

unrelated to services. For example, while hiring more staff has shown to 

improve services, changing methods used to track staff time and costs may 

have little or no effect on services. In addition, because states make 

extensive use of non-IV-E funding sources, the change in IV-E

expenditures does not necessarily reflect changes in the overall funding of

states’ child welfare systems. 

All states reported taking action to improve services to children in their 

foster care programs, using funding from IV-E and other sources. Between 

fiscal years 2001 and 2004, ACF evaluated all 50 state child welfare 

programs through the Child and Family Services Review (CFSR). 22 These 

reviews evaluated states on outcomes for children related to safety, 

permanency, and well-being and on systemic factors such as the statewide 

information, case review, and quality assurance systems. In response to 

any identified deficiencies, states developed a program improvement plan

(PIP) to document planned corrective actions, which was reviewed and 

approved by ACF. The most common initiatives were those to expedite 

permanency planning, increase staff and training, and collaborate with 

States Implemented 

Initiatives to Improve 

Services, but the Extent 

That Improvements Are 

Related to Changes in IV-E

Expenditures Is Unclear 

 22 The CFSR is a results-oriented, comprehensive monitoring review system designed to 

assist states in improving outcomes for children and families who come into contact with 

the nation’s public child welfare systems. It was developed and implemented by HHS in

response to the mandate of the Social Security Amendments of 1994 to promulgate 

regulations for reviews of states’ child and family services. 

Page 30 GAO-06-649 Foster Care and Adoption Assistance
courts to facilitate a child’s permanent placement and improve services as

shown in table 7. 

Table 7: Foster Care Program Services Increased or Implemented Since Completion of CFSR Reviews for 11 States 

State 

Recruit 

foster 

families 

Training

foster 

care 

parents 

Licensing

activities 

Increase 

family 

and 

support 

services 

Increase 

in-person

contact 

with child

More 

outreach

to 

biological

parents 

Increase 

monitoring

of contract 

provided

services 

Increase 

use of

private 

contractors 

Collaborate 

with courts Other

California 3 3 3 3 3 3 3

Illinois 3 3 3 3 3 3

Kansas 3 3

Maryland 3 3 3 3 3 3

Michigan 3 3 3 3

New York 3 3 3 3 3 3

Pennsylvania 3 3

South 

Carolina 

3 3 3 3 3 3 3

Texas 3 3 3 3 3 3

Washington 3 3 3 3

Wisconsin 3 3 3 3 3 3 3 3

Source: State officials.

While all 11 states made changes to program services in response to CFSR 

findings, some also had other reasons: the Maryland legislature provided 

resources to reduce the ratios of caseworkers to children in response to 

concerns about program deficiencies due to staff shortages, and 

Washington made changes as part of a settlement in a lawsuit. The actions 

states took to achieve program improvements varied. For example, 

• Expediting permanency planning. Most states we studied reported an 

increased emphasis on family preservation and support services and more 

outreach to biological parents in an effort to either maintain children in 

their homes or to expedite reunification if the child is in foster care. Some

states have implemented “Concurrent Planning” programs in which at the

same time that efforts are being made for reunification, other permanency 

goals, such as adoption, are pursued should reunification fail. 23 For 

 23 The Adoption and Safe Families Act of 1997, Pub. L. No. 105-89, encourages the use of

Concurrent Planning, and it requires that states make reasonable efforts to find 

permanency for children who cannot return to their biological parents.

Page 31 GAO-06-649 Foster Care and Adoption Assistance
example, in California, Los Angeles County officials reported positive 

results with their concurrent planning program. Between fiscal years 2003 

and 2005, reunification of children with their families within 12 months or 

less increased from about 36 percent to 45 percent. In addition, during this

same time period, adoptions within 23 months or less increased from 

about 9 percent to 15 percent. 

• Increased collaboration with courts to remove barriers and improve 

services. Ten states reported increased coordination or collaboration with 

the courts to improve services provided by either their foster care or 

adoption assistance programs or both. For example, Pennsylvania officials 

reported establishing a statewide Legal Services Initiative in which 

paralegals work with caseworkers to move cases through the system 

faster and reduce the time that a child is in foster care. Officials in one 

county said that this initiative had helped to reduce a child’s time in foster 

care from an average 38 months to about 27 to 28 months between fiscal 

years 2000 and 2005. 

Some states provided new resources or reallocated existing resources for 

their PIP to address the deficiencies identified in their CFSR and one state

reported that state budget limitations made it difficult to develop or 

implement their PIP. For example, the California legislature approved 

more than $13 million to develop the California Child and Family Service 

Review System. This system, a part of the state PIP, requires California’s 

counties to conduct self-assessments, improvement plans, peer quality 

case reviews, and data integrity improvements. Wisconsin and Texas 

reported reallocating existing resources for new staff position to 

implement program improvement strategies. On the other hand budget 

limitations in Kansas made it difficult to maintain progress in all areas that 

were identified as needing improvement and lead the state agency to 

renegotiate their program improvement goals with ACF. 

Page 32 GAO-06-649 Foster Care and Adoption Assistance
HHS has not implemented a strategic approach in its monitoring efforts to 

ensure adequate control over program spending. The number and skills of 

financial specialists located in the regional offices are not correlated with 

the risk of states claiming inappropriate costs. In addition, according to 

officials, HHS does not have a current financial review manual, and 

regional offices have developed their own protocols resulting in 

inconsistent review of claims across states. HHS did clarify policies in 

several critical areas that affect spending—including the use of Medicaid 

funding for case management services--but these policies were not 

consistently applied across regions. 

Staffing levels and the financial expertise of regional office staff reviewing 

states’ claims for reimbursement of their administrative costs have 

decreased over time, and HHS has not shifted or targeted its remaining 

resources to high-risk areas or states. Financial specialists in HHS’s 

10 regional offices are tasked with a variety of financial oversight 

responsibilities including: 

HHS Oversight of 

Program Spending 

Has Been 

Compromised by an 

Absence of Strategic 

Risk-Based 

Monitoring 

HHS has not targeted its 

resources to high-risk 

regions 

• Review quarterly expenditures. 

• Provide technical assistance to states regarding fiscal policy and cost 

allocation issues. 

• Review and resolve findings from the Single Audit.

• Review cost allocation amendments and make recommendations to the 

Division of Cost Allocation. 

• Provide support for the IV-E Eligibility Reviews. 

• Provide support for HHS Inspector General’s IV-E audits and inspections.

According to officials, the number of financial specialists with the 

necessary expertise has declined since the early 1990s. This decline 

resulted primarily from retirements and a change in staff roles and 

responsibilities. Typically, the regions have 2-3 financial specialists for 

oversight of ACF programs. In region VII, three financial specialists review 

3 percent of national IV-E administrative costs for 4 states, while three 

financial specialists in region V review 17 percent of national IV-E costs for 

6 states. Additionally, one financial specialist with limited experience with

the IV-E programs, reviewed costs for California that amounted to more 

than 30 percent of national administrative spending in fiscal year 2004. 

Page 33 GAO-06-649 Foster Care and Adoption Assistance
Figure 6 illustrates the percentage of total administrative costs by HHS 

regional office. 

Figure 6: Percentage of Fiscal Year 2004 Total Foster Care and Adoption Assistance Administrative Costs for States Located 

In HHS’s 10 Regional Offices 

Note: Percentages add to more than 100 due to rounding. 

Financial specialist positions across the country have increasingly been 

filled with staff that have a programmatic rather than a financial 

background, a concern shared by headquarters and regional staff. For 

example, one regional grants manager told us that the IV-E programs in his 

region are particularly vulnerable to unallowable state claims because, in 

addition to a significant workload, two financial specialists have little 

experience and lack the financial skills to review claims in accordance 

with cost allocation plans. In addition, officials from two regions cited 

Page 34 GAO-06-649 Foster Care and Adoption Assistance
inadequate training resources. According to ACF central office officials, 

degrees in accounting or finance are no longer required for these 

positions. 

Cognizant ACF officials cited an increased workload and competing 

responsibilities as obstacles to oversight of program spending. For 

example, due to time staff spent on quarterly expenditure reviews and 

Title IV-E eligibility reviews, according an official in one region, the 

resolution of Single Audit findings were not always accomplished in the 

required 6-month time frame and, as a result, questioned costs were not 

always promptly recovered. In addition, officials from two regions noted 

that they suspect states are not claiming training costs correctly, but cited 

a lack of resources to effectively address the problem. Of the six regions 

we spoke with, officials from three reported 0 dollars disallowed during 

fiscal years 2000 to 2004 while officials from the other three reported 

disallowances ranging from about $18 to $24 million.24

Although ACF is aware of problematic claiming practices in some states, 

ACF has not taken a strategic approach to assess risk and target its 

resources accordingly. Effective agency control structures depend on 

assessing risk and implementing oversight activities to address those areas 

identified at greatest risk. 25 However ACF’s ability to provide strategic 

oversight is complicated by regional structures that differ. In some 

regions, staff are assigned oversight responsibility by state and review 

multiple ACF programs, while in other regions, staff are assigned oversight 

responsibility by program and review multiple states. An additional 

complication is the absence of direct authority over regional financial 

 24 This figure excludes disallowances that resulted from the Title IV-E Eligibility Reviews.

25 See GAO 05-176. The five components of internal controls are (1) control environment—

creating a culture of accountability within the entire organization—program offices, 

financial services, and regional offices--by establishing a positive and supportive attitude 

toward improvement and the achievement of established program outcomes; (2) risk

assessment—identifying and analyzing relevant problems that might prevent the program 

from achieving its objectives. Developing processes that can be used to form a basis for

measuring actual or potential effects of these problems and manage their risks; (3) control

activities—establishing and implementing oversight processes to address risk areas and 

help ensure that management’s decisions—especially about how to measure and manage

risks—are carried out and program objectives are met; (4) information and 

communication—using and sharing relevant, reliable, and timely information on programspecific and general financial risks. Such information surfaces as a result of the

processes—or control activities—used to measure and address risks; and (5) monitoring—

tracking improvement initiatives over time, and identifying additional actions needed to

further improve program efficiency and effectiveness. 

Page 35 GAO-06-649 Foster Care and Adoption Assistance
specialists. In most regions, financial specialists are supervised by 

Program Office Managers who report to the Regional Administrator rather 

than the Office of Grants Management, the entity responsible for 

approving federal expenditures to states. ACF has a restructuring effort 

underway to ensure more consistent policy administration of ACF 

programs that may address this issue. The estimated completion date is 

the end of fiscal year 2006. 

Lack of standard guidance 

and absence of 

information sharing among 

HHS offices limit financial 

oversight 

HHS does not have a current financial review guide to standardize 

oversight across regions, and oversight findings among various regional 

offices have not been shared to better ensure consistency and 

appropriateness of federal expenditures to states, according to regional 

and central officials we interviewed. HHS last issued a review guide over 

15 years ago, and while staff in multiple regional offices have begun an

effort to compile a current financial review guide consisting of best review

practices, this guide is not expected to be completed for at least 3 years. In 

the interim, each region follows its own monitoring process and the level 

of oversight varies according to regional practice.

• Triggers for review. Some regions review changes in cost claims of more 

than 5 percent by specific category such as case management, while at 

least one region only reviews changes of 5 percent for total claims, 

without determining whether there were larger cost changes within 

categories. One region took action to ensure states appropriately claimed 

their costs by category, but officials from another region told us they do 

not pay attention to how states categorize costs. 

• Claims analysis. Region IX officials said they recently started analyzing

California’s claims to compare the most recent 4 quarters of costs to the 

previous 4 quarters, while one method used in Region V is to compare 

costs from quarter to quarter using a ratio of administrative costs to the 

average number of children in foster care. Region IV officials told us they

use a standard set of spreadsheets comparing claims across states in the 

region to analyze trends in expenditures and differences in states’ claims. 

• On-site reviews. Region VII officials, who were responsible for 3 percent 

of 2004 expenditures, indicated that financial specialists visit their 

respective states quarterly to trace state expenditures to original 

documents or review a selected sample of expenditures to ensure 

compliance with specific regulations. Region IV officials, responsible for 8 

percent of expenditures, discontinued quarterly reviews due to a reduction

in resources 5 years ago, and now have a goal for financial specialists to 

Page 36 GAO-06-649 Foster Care and Adoption Assistance
visit some of their assigned states once a year. Officials in Region V, 

responsible for 17 percent of fiscal year 2004 expenditures, noted that 

financial specialists rarely conduct on-site reviews. In addition to lack of 

standardization in review of claims, inadequate guidance from HHS 

headquarters has resulted in key differences in the approval of state 

claims. 

• Regions vary in the technical assistance provided to states. According to

regional officials, states did not uniformly identify and adequately 

document their processes used to classify children as candidates. One 

state official noted that its region helped the state develop a document that

would meet requirements to claim candidate costs appropriately; however, 

other states did not receive similar technical assistance. 

• Region officials allow states to treat children differently in calculating 

their penetration rate. A state in one region removed cases with pending 

eligibility from its total count of children, resulting in higher federal 

reimbursement, while this practice was disallowed for a state in a different

region. 

• Officials from one region with oversight responsibility for the Medicaid 

program assert that there is a wide disparity in the amount of costs for 

case management activities states submit to the Medicaid program for 

children in foster care that some medical costs should be charged to the 

IV-E program.26

However, ACF took action in 2005 to standardize state claiming practices 

in three important areas that were subsequently included in the Deficit 

Reduction Act of 2005: 

• administrative costs claimed for children living in facilities that are not 

eligible for maintenance payments; 

 26 In June 2005, GAO reported that Georgia and Massachusetts were charging Medicaid for 

costs that appeared to be unallowable under CMS policy. Specifically the claims were for 

services that appeared to be integral components of non-Medicaid programs. CMS has

denied claims for similar programs in other states. In fiscal year 2002, for example, CMS 

denied a state plan amendment proposal to cover TCM services in Illinois, and in fiscal year 

2004 it found TCM claims in Texas unallowable, in part because the TCM services claimed 

for reimbursement were considered integral to other state programs. In Texas, such 

children were served by the state’s child welfare and foster care system. See GAO,

Medicaid Financing: States’ Use of Contingency-Fee Consultants to Maximize Federal 

Reimbursements Highlights Need for Improved Federal Oversight, GAO-05-748 

(Washington, D.C.: June 2005).

Page 37 GAO-06-649 Foster Care and Adoption Assistance
• administrative costs claimed for children living in an unlicensed foster 

family home; and 

• time frames for determining or re-determining a child’s eligibility for IV-E 

programs. 

ACF and CMS jointly issued guidance in 2001 to clarify which foster care 

costs could be charged to Medicaid rather than IV-E, but according to CMS 

officials, this guidance contained errors that caused confusion regarding 

appropriate targeted case management (TCM) claims. Since 2004, CMS 

policy regarding the use of TCM services for children in foster care has 

been based on a 2004 Administrator’s decision that denied approval of a 

Medicaid state plan amendment requested by Maryland to provide TCM 

services to children in the state’s foster care program because such 

services were available under the IV-E program.27 However, CMS has not 

consistently applied its policy for allowable TCM services.28 The Deficit 

Reduction Act superseded previous policy clarifications and defined TCM 

services as well as activities that are not permitted for children in foster 

care such as assessing adoption placements. 

The lack of information sharing among regions further compromises 

oversight. According to central and regional officials, financial specialists 

do not routinely communicate with other regions or headquarters to 

discuss issues related to state claiming practices. Quarterly conference 

calls to discuss financial oversight were discontinued due to scheduling 

difficulties about 2 years ago according to officials in one region. While 

there is a monthly call between headquarter and regional staff regarding 

the IV-E programs, these calls focus primarily on programmatic rather 

than fiscal concerns. Additionally, while information on the amount of 

expenditures deferred and disallowed as well as the reason for each 

quarter is collected through ACF’s Grants Application Tracking System, 

this information is not summarized and shared across regions. ACF central 

 27 See CMS, Disapproval of Maryland State Plan Amendment No. 02-05, Docket No. 2003-

02 (Aug. 27, 2004). The Administrator’s decision was based in part on a statement in the 

legislative history accompanying the legislation authorizing coverage for TCM services that 

payment for TCM services must not duplicate payments to public agencies or private

entities under other program authorities. See H.R. Rep. No. 99-453, at 546 (1985). We did 

not evaluate the bases for CMS’s policy as part of this review. 

28 In June 2005, GAO recommended that CMS clarify and communicate its policies on TCM 

and ensure policies were consistently applied across states. See GAO, Medicaid 

Financing: States’ Use of Contingency-Fee Consultants to Maximize Federal 

Reimbursements Highlights Need for Improved Federal Oversight, GAO-05-748 

(Washington, D.C.: June 2005).

Page 38 GAO-06-649 Foster Care and Adoption Assistance
office officials told us they could not provide reliable data on the amount 

of claims that are disallowed each year. Further, one official noted that 

financial specialists are not held accountable for updating the final 

amounts disallowed following resolution between ACF and the states. 

Although ACF and DCA officials both conduct reviews of the foster care 

and adoption assistance programs’ administrative claiming practices, these 

offices do not routinely coordinate to share findings in order to prioritize 

areas for review in other states, according to officials in one region. For 

example, although officials in two regions and the HHS central office cited 

problems with how states have documented and allocated costs for 

candidates, according to one regional official, DCA has not systematically 

reviewed state allocation procedures to address this problem. Officials 

from two regional offices expressed frustration at the minimal level of 

involvement DCA has in terms of reviewing cost allocation practices. One 

official indicated that DCA often relied on ACF regional officials to 

address questions related to the technical aspects of claiming processes, 

though this was primarily the responsibility of DCA. According to HHS’s 

Office of Inspector General, in the past, DCA staff reviewed state cost 

allocation plans annually but this no longer occurs, due to a reduction in 

staff. 

OIG audits continue to find gaps in oversight of state cost allocation plans 

and program regulations. From October 2004 through April 2006, the OIG 

recommended disallowances of more than $20 million related to 

administrative costs in seven states. Audits found inappropriate training 

claims, claims made to cost centers not approved in the state’s cost 

allocation plan, and inappropriate methods used to calculate costs for 

children identified as candidates for foster care. As of April 2006, an 

additional eight audits were in progress. 

Federal spending to support state administration of the Foster Care and 

Adoption Assistance programs increased between fiscal years 2000 and 

2004, but a few states have accounted for most of this change. While 

federal expenditures under Title IV-E have reflected an increase in some 

states’ spending for child welfare systems over this time period, they also 

reflect more concerted efforts by states to identify costs in the child 

welfare system that are allowable for federal reimbursement. While we 

could not link IV-E spending to changes in services, states uniformly 

reported taking action to improve services in response to federal oversight

reviews of their overall child welfare system. 

Conclusions 

Page 39 GAO-06-649 Foster Care and Adoption Assistance
Ensuring that the oversight environment and monitoring activities for 

foster care and adoption assistance administrative costs are consistent 

across states is a critical aspect currently missing in federal efforts to 

support state administration of the Foster Care and Adoption Assistance 

programs while maintaining control over program spending. The lack of 

updated guidance and coordination among HHS’s oversight offices has 

resulted in disparate practices that may be causing HHS to miss 

opportunities for safeguarding federal funds and preventing HHS from 

providing consistent support for states efforts to serve Title IV-E eligible 

children. Requiring states to break out administrative costs into various 

categories was intended to provide more visibility to spending patterns, 

but this has not been achieved due to lack of enforcement by some ACF 

regional offices. Further, the absence of a risk-based approach in the 

allocation of oversight staff weakens ACF’s control over program 

spending. Without consistent and appropriate oversight and monitoring, 

HHS has little assurance that Title IV-E resources are being safeguarded to

serve eligible children. 

To better safeguard federal resources and ensure consistent federal 

support for state administration of foster care and adoption assistance, we 

recommend that the Secretary of the Department of Health and Human 

Services direct the Assistant Secretary for the Administration for Children 

and Families to take the following five actions: 

Recommendations for 

Executive Action 

• Expedite the development of the financial review guide regions use to 

monitor state claims for federal reimbursement and develop an effective 

means of communicating current policy and oversight findings across 

regions and states. 

• Coordinate with other HHS offices such as the Division of Cost Allocation 

and CMS to ensure consistent policy implementation across regions and 

states. 

• Standardize the method states use to calculate the percentage of children

served by foster care and adoption assistance programs that are eligible

for federal reimbursement of administrative costs. 

• Through ACF regional offices, remind states that reporting administrative 

costs by certain categories is a requirement and provide technical 

assistance to help states comply with the requirement. 

Page 40 GAO-06-649 Foster Care and Adoption Assistance
• Assess the relative risk of improper federal expenditures to states for 

administrative costs and redistribute oversight staff accordingly. 

We received written comments on a draft of this report from HHS that are 

reprinted in appendix II. HHS did not explicitly agree or disagree with our 

five recommendations, but stated that it would implement or consider 

implementing four of them in whole or in part. Specifically, HHS said that 

it would implement our recommendation to issue guidance to state agency

staff, reminding them of the need to comply with federal reporting 

requirements and the availability of regional office staff to provide 

technical assistance. Regarding our recommendation that HHS standardize 

the method states use to calculate the percentage of children served by 

foster care and adoption assistance programs that are eligible for federal 

reimbursement of administrative costs, HHS said that this calculation is 

straightforward and that it would discuss the issue of state inconsistencies 

with its regional staff to ascertain if there is a problem and how best to 

address it. HHS said that an ongoing organizational restructuring expected

to be completed by September 30, 2006, affected immediate 

implementation decisions for two recommendations. HHS said it would 

wait until after this restructuring to determine its ability to implement our 

recommendation to expedite the development of a financial review guide 

and implement a more effective means of sharing current policy and

oversight findings across regions. While HHS said it would take our 

recommendation to redistribute oversight staff under advisement as it 

proceeds with its restructuring effort, HHS viewed its implementation as 

impractical because it could require either relocating staff across the 

country or reassigning fiscal responsibility to program staff. However, 

HHS also said that it would continue to focus on areas where there is the 

greatest need for intervention. Regarding our recommendation on 

coordination among HHS’s offices, HHS described some existing 

coordination activities but did not indicate that it would ensure consistent 

policy implementation across regions and states. 

We do not believe organizational restructuring reduces HHS’s continual 

responsibility to safeguard federal resources and ensure consistent federal

support for state administration of foster care and adoption assistance 

programs. Therefore, we continue to recommend that HHS take action to 

ensure that its regional staff are providing consistent oversight of state 

implementation of federal policy and that the oversight results of its 

various offices are effectively coordinated to ensure consistent federal 

support for state administration of foster care and adoption assistance. 

Further, we do not believe that HHS’s inability to immediately physically

relocate staff among regional offices precludes redistributing oversight 

Agency Comments 

and Our Evaluation 

Page 41 GAO-06-649 Foster Care and Adoption Assistance
responsibility among regional staff, and we continue to recommend that 

HHS use a risk-based approach to do so. 

We will send copies of this report to congressional committees, the 

Secretary of Health and Human Services, and other interested parties. 

We will also make copies available to others on request. In addition, the 

report will be available at no charge on GAO’s Web site at 

http://www.gao.gov. 

If you have any questions about this report, please contact me at (202) 512-

7215 or ashbyc@gao.gov. Other contacts and acknowledgments are listed 

in appendix III. 

Sincerely yours, 

Cornelia M. Ashby 

Director, Education, Workforce 

 and Income Security 

Page 42 GAO-06-649 Foster Care and Adoption Assistance
Appendix I: IV-E Expenditures for 

Administrative Costs by State 

State 

2000 IV-E 

administrative

claims for 

expenditures

2004 IV-E 

administrative

claims for 

expenditures

Change in claims 

for expenditures 

from FY 2000 - FY

2004 

Percent change in

claims for 

expenditures from

FY 2000 – FY 2004

Washington $23,974 $58,128 $34,154 142.5

New Hampshire 3,860 9,182 5,322 137.9

Texas 37,327 69,313 $31,986 85.7

Wyoming 828 1,370 $542 65.5

Alaska 8,083 13,121 5,038 62.3

Indiana 11,352 18,360 7,008 61.7

West Virginia 6,215 9,841 3,626 58.3

Oregon 18,945 26,619 7,674 40.5

Virginia 36,627 50,859 14,232 38.9

New Jersey 30,928 42,320 11,392 36.8

Pennsylvania 149,289 191,708 42,419 28.4

Arkansas 18,412 23,595 5,183 28.2

New York 178,104 210,775 32,671 18.3

California 713,090 812,000 98,910 13.9

Louisiana 32,787 37,024 4,237 12.9

Vermont 5,192 5,765 573 11.0

Alabama 14,972 16,544 1,572 10.5

Ohio 129,198 138,244 9,046 7.0

Montana 6,165 6,416 251 4.1

Wisconsin 67,738 69,558 1,820 2.7

Colorado 27,380 27,503 123 0.4

Total increase of 21 states: $317,779 

Tennessee 14,281 5,900 (8,381) -58.7

Delaware 10,388 5,443 (4,945) -47.6

Mississippi 10,655 6,414 (4,241) -39.8

D.C. 18,869 12,225 (6,644) -35.2

South Carolina 12,556 8,706 (3,850) -30.7

Kentucky 29,420 20,757 (8,663) -29.4

Oklahoma 22,672 16,203 (6,469) -28.5

Kansas 28,883 21,066 (7,817) -27.1

Missouri 45,378 35,478 (9,900) -21.8

Connecticut 63,860 50,351 (13,509) -21.2

North Carolina 36,934 29,950 (6,984) -18.9

Michigan 78,626 65,005 (13,621) -17.3

Appendix I: IV-E Expenditures for 

Administrative Costs by State 

Page 43 GAO-06-649 Foster Care and Adoption Assistance
Appendix I: IV-E Expenditures for 

Administrative Costs by State 

State 

2000 IV-E 

administrative

claims for 

expenditures

2004 IV-E 

administrative

claims for 

expenditures

Change in claims 

for expenditures 

from FY 2000 - FY

2004 

Percent change in

claims for 

expenditures from

FY 2000 – FY 2004

Iowa 16,068 13,309 (2,759) -17.2

North Dakota 7,656 6,347 (1,309) -17.1

Idaho 5,615 4,741 (874) -15.6

Florida 112,247 94,854 (17,393) -15.5

Rhode Island 9,640 8,380 (1,260) -13.1

Massachusetts 47,276 41,114 (6,162) -13.0

Nebraska 10,650 9,363 (1,287) -12.1

Minnesota 58,293 51,505 (6,788) -11.6

South Dakota 3,052 2,729 (323) -10.6

Arizona 29,609 26,662 (2,947) -10.0

New Mexico 14,248 13,105 (1,143) -8.0

Georgia 36,396 34,145 (2,251) -6.2

Nevada 11,411 10,780 (631) -5.5

Utah 17,097 16,442 (655) -3.8

Maryland 64,909 62,858 (2,051) -3.2

Maine 8,013 7,879 (134) -1.7

Illinois 115,402 113,541 (1,861) -1.6

Hawaii 14,521 14,507 (14) -0.1

Total decrease of 30 states: ($144,866)

Total change in claims for expenditures: $172,913

Source: Analysis of HHS data. 

Page 44 GAO-06-649 Foster Care and Adoption Assistance
Appendix II: Comments from the Department Appendix II: Comments from the Department of Health and Human Services 

of Health and Human Services 

Page 45 GAO-06-649 Foster Care and Adoption Assistance
Appendix II: Comments from the Department 

of Health and Human Services 

Page 46 GAO-06-649 Foster Care and Adoption Assistance
Appendix II: Comments from the Department 

of Health and Human Services 

Page 47 GAO-06-649 Foster Care and Adoption Assistance
Appendix III: GAO

A

 Contact and Staff 

cknowledgments 

Page 48 GAO-06-649

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact Cornelia M. Ashby (202) 512-7215 

In addition to those named above, Lacinda Ayers, Assistant Director, 

Rebecca A. Christie (Analyst-in-Charge), Deirdre G. Brown, and 

Nancy Purvine made key contributions to this report. Jim Rebbe, 

Jerry Sandau, and Jay Smale also provided key technical assistance. 

Foster Care and Adoption Assistance

Staff 

Acknowledgments 

(130486) 
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