Foster Care and Adoption Assistance: Federal Oversight Needed to 
Safeguard Funds and Ensure Consistent Support for States'	 
Administrative Costs (15-JUN-06, GAO-06-649).			 
                                                                 
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.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-649 					        
    ACCNO:   A55564						        
  TITLE:     Foster Care and Adoption Assistance: Federal Oversight   
Needed to Safeguard Funds and Ensure Consistent Support for	 
States' Administrative Costs					 
     DATE:   06/15/2006 
  SUBJECT:   Administrative costs				 
	     Child adoption					 
	     Child care programs				 
	     Comparative analysis				 
	     Cost analysis					 
	     Federal/state relations				 
	     Foster children					 
	     Foster Care Program				 
	     Adoption Assistance Program			 

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GAO-06-649

     

     * Results in Brief
     * Background
          * Program Funding and Costs
          * The Deficit Reduction Act
          * Organization Structure and Oversight Activities
     * Title IV-E Expenditures for Administrative Costs Have Increa
          * Federal expenditures have increased 7 percent from fiscal ye
          * Inconsistencies in state reported data limit analysis of how
     * State IV-E Spending Reflects Changes in Staffing, Children S
          * State IV-E claims changed due to rising staff costs and chan
               * Changes in Allocation, State Share of Spending, and Staffing
               * Changes in the Proportion of IV-E Eligible Children
               * Cost Claims for Candidates and Children Served by the Juveni
               * Claims for Children in Ineligible Facilities
               * Differences in Federal Funding Sources
          * States Implemented Initiatives to Improve Services, but the
     * HHS Oversight of Program Spending Has Been Compromised by an
          * HHS has not targeted its resources to high-risk regions
          * Lack of standard guidance and absence of information sharing
     * Conclusions
     * Recommendations for Executive Action
     * Agency Comments and Our Evaluation
     * GAO Contact
     * Staff Acknowledgments
     * GAO's Mission
     * Obtaining Copies of GAO Reports and Testimony
          * Order by Mail or Phone
     * To Report Fraud, Waste, and Abuse in Federal Programs
     * Congressional Relations
     * Public Affairs

Report to the Chairman, Subcommittee on Human Resources, Committee on Ways
and Means, House of Representatives

United States Government Accountability Office

GAO

June 2006

FOSTER CARE AND ADOPTION ASSISTANCE

Federal Oversight Needed to Safeguard Funds and Ensure Consistent Support
for States' Administrative Costs

GAO-06-649

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

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

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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United States Government Accountability Office

Washington, DC 20548

June 15, 2006 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: 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 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.

1Medicaid 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 Medicaid-eligible 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.

In response to concerns about the growth of costs claimed under Title
IV-E, 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.

2However, 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.

3Pub. L. No. 101-508 (1990).

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
as 6 of HHS's 10 regional offices primarily responsible for oversight of
expenditures.

4There 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.

We conducted our work from June 2005 through June 2006 in accordance with
generally accepted government auditing standards.

                                Results in Brief

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.

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
"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.

5These 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.

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.

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.

                                   Background

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.

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

Foster Care Program               Adoption Assistance Program              
A judicial determination has been Children must have a special need that   
made that conditions in the home  is defined as the state determining that 
from which the child was removed  a child should not or could not be       
were contrary to the child's      returned to the home of his or her       
welfare and reasonable efforts    parents, and certain factors, such as    
were made to prevent removal;     age; membership in a sibling unit or     
                                     minority group; or emotional, mental, or 
A judicial determination has been physical conditions that would make      
made that the state has           finding an appropriate adoptive home     
documentation that it made        difficult.                               
reasonable efforts to finalize a                                           
permanency plan;                  Special needs children must also meet at 
                                     least one criterion from the following   
A judicial determination has been list:                                    
made that the state has                                                    
responsibility for placement and  (a) the child is a dependent child who   
care of the child;                would have been eligible for AFDC, as it 
                                     existed in 1996;                         
But for the removal from the                                               
home, the child would have        (b) the child is eligible for            
qualified for the Aid to Families Supplemental Security Income (SSI);      
with Dependent Children (AFDC)                                             
program as it was in effect on    (c) the child is a child of a minor      
July 16, 1996; and                parent who is in foster care already and 
                                     receiving foster care maintenance        
The state has verification of     payments under Title IV-E; or            
provider safety requirements.                                              
                                     (d) the child received adoption          
If removal is the result of a     assistance previously, but the adoption  
voluntary placement agreement, a  dissolved or the adoptive parents died.  
state must obtain a judicial      
determination that continued      
placement is in the child's best  
interest.                         

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 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.

6Training costs are the exception and reimbursed at 75 percent.

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

7On 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.

8Pub. L. No. 101-508 (1990).

9Costs for SACWIS Development are charged only to the Foster Care program.

Table 2: State Reporting Requirements and Federal Reimbursement Rates for
Allowable Administrative Costs under the Foster Care and Adoption
Assistance Programs

                                Federal                                       
General reporting      reimbursement       
requirements                    rate       Title IV-E allowable activities
      o  Child Placement                   o     o  Development, review, or   
      Services                                   revision of case plans or    
      o  Case management                         the supervision or           
      for children in                            management of cases,         
      foster care                                including preparation for    
      o  Case management                         and participation in         
      for children at                            judicial proceedings, as     
      risk of placement                          well as referral to services 
      into foster carea                          for children placed in       
      o  Eligibility                             foster care                  
      determination                              o  Development, review, or   
      o  Statewide                               revision of case plans or    
      Automated Child                            the supervision or           
      Welfare Information                        management of cases,         
      Systems (SACWIS)                           including preparation for    
      operation                                  and participation in         
      o  Other                                   judicial proceedings, as     
      administration                             well as referral to services 
                                                 for children still living at 
                                                 home                         
                                                 o  Verification and          
                                                 documentation of eligibility 
                                                 o  Operation of statewide    
                                                 automated child welfare      
                                                 information systems          
                                                 o  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  
                                    50%          to families                  
SACWIS development                         Establishing states' automated  
costs                                      child welfare information       
                                    50%       systemsb                        
State and local                            Training of personnel employed  
training                                   by state or county agencies     
                                              administering the program and   
                                              training current and            
                                    75%       prospective foster parents      
Adoption Assistance                        
Program                                    
Child placement                            All costs related to running    
services                                   the program such as conducting  
                                              adoptive home studies,          
                                              recruiting adoptive homes,      
                                              placement of a child into a     
                                              home, and the negotiation and   
                                    50%       review of adoption agreements.  
State and local                            Training of personnel employed  
training                                   by state or county agencies     
                                              administering the program and   
                                              training current and            
                                    75%       prospective adoptive parents    

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

aOn 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.

bTo 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
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 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

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.

The Deficit Reduction Act

The Deficit Reduction Act12 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:

           o  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;

           o  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;

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

           o  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 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 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.

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 IV-E eligibility
requirements while living in the home of a relative like a grandmother.

Organization Structure and Oversight Activities

Figure 1: HHS Entities Responsible for Oversight of IV-E Expenditures for
Foster Care and Adoption Assistance Administrative Costs

Title IV-E Expenditures for Administrative Costs Have Increased, but Data
                  Deficiencies Limit Analysis by Type of Cost

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 have increased 7 percent from fiscal years 2000 to 2004
primarily due to changes in a few states

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

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.

Figure 2: Change in Total Federal Expenditures for Foster Care and
Adoption Assistance Administrative Costs

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.)

Figure 3: Change in Federal Expenditures for Foster Care and Adoption
Assistance Administrative Costs between Fiscal Years 2000 and 2004 by
State

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

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

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

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

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:

           o  Costs to determine a child's eligibility for coverage under the
           Title IV-E Foster Care program.

           o  Case management costs for a child in foster care.

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

           o  Costs to operate the Statewide Automated Child Welfare
           Information System.

           o  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.

           o  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 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.

           o  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."

           o  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 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.

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.

  State IV-E Spending Reflects Changes in Staffing, Children Served, and Cost
             Claiming Practices, but Impact on Services Is Unclear

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

Figure 5: Changes in IV-E Administrative Expenditures for 11 States, FY
2000-2004 (Dollars in millions)

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.

Table 3: Major Reasons Cited by 8 States for Changes in IV-E
Administrative Costs from Fiscal Years 2000 to 2004

                                Change in                             Use of  
                                proportion Costs claimed for          other   
                  Revised       of IV-E    children                   federal 
                  allocation of eligible   identified as     State    funding 
                  staff costs   children   candidates        spending source  
States with overall increased costs
California                                                         
Pennsylvania                                                       
New York                                                           
Washington                                                         
Texas                                                              
States with overall decreased costs
South Carolina                                                     
Kansas                                                             
Michigan                                                           

Source: State officials.

  Changes in Allocation, State Share of Spending, and Staffing

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.

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
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.

  Changes in the Proportion of IV-E Eligible Children

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.

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.

Table 4: Change in Penetration Rate between Fiscal Years 2000 and 2004

                                            Percentage                        
                                            point change                      
                                            in                                
                                            penetration   Reason cited for
                  Penetration  Penetration  rate between  change greater than
State          rate in 2000 rate in 2004 2000 and 2004 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 IV-E       
                                                          eligibility         
                                                          function.           
Michigana      56%          61%          5             Not applicable      
                                                          (N/A)               
Illinoisa      74%          73.5%        (0.5)         N/A                 
Marylanda      70%          66%          (4)           N/A                 
Kansasa        58%          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 Yorkd      63%          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.

aIllinois, Maryland, Michigan, Kansas, and California reported a change of
5 percent or less, for which we did not request an explanation.

bIn California, the statewide rate is used for budgeting purposes;
counties calculate their own rate for IV-E reimbursement.

cThe 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.

dNew 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.

eIf 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.

  Cost Claims for Candidates and Children Served by the Juvenile Justice System

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.

Table 5: Costs for Foster Care Candidates as an Approximate Percentage of
Total Fiscal Year 2004 IV-E Foster Care Administrative Costs

                        Percentage of IV-E administrative costs that were for 
Statea                                  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.

aData 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.

bThese percentages represent the proportion of IV-E costs only and do not
include the amount for costs charged to other sources such as Medicaid.

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

dNew York reported that this was for local district costs.

eMichigan used some Social Service Block Grant (SSBG) and TANF funds for
case management costs for candidates.

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 more than $40 million in fiscal year 2005-an increase
of nearly 85 percent.19

  Claims for Children in Ineligible Facilities

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.

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

                                                              Facilities       
                                                              operated   
                                                 Public       primarily  
                                                 institutions for        
                                                 that         children   
                Unlicensed Psychiatric           accommodate  determined 
                relative   or medical  Detention more than 25 to be      
State        care       hospitals   centers   children     delinquent Other
California                                                            
Illinois                                                              
Kansas                                                                b     
Maryland                                                              
Michigan                                                              
New Yorkc                                                             
Pennsylvania d                                                        
South                                                                 
Carolina                                                              
Texas                                                                 
Washington                                                            e     
Wisconsin                                                             

Source: State officials.

aThese kinds of facilities may provide services to foster care children
but are ineligible for foster care maintenance payments.

bKansas also charged for secure care facilities.

cNew 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.

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

eWashington claims costs for "for profit foster homes."

19 These figures were not adjusted for inflation.

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.

  Differences in Federal Funding Sources

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.

           o  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.

           o  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 SSBG because of disagreements with
           ACF in developing their allocation methodology.

           o  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 courts to facilitate a child's permanent
           placement and improve services as shown in table 7.

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.

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.

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

                                                                        Increase                                 
                                          Increase Increase  More       monitoring                         
                      Training            family   in-person outreach   of         Increase                
             Recruit  foster              and      contact   to         contract   use of                  
             foster   care     Licensing  support  with      biological provided   private     Collaborate 
State        families parents  activities services child     parents    services   contractors with courts Other
California                                                                                                 
Illinois                                                                                                   
Kansas                                                                                                     
Maryland                                                                                                   
Michigan                                                                                                   
New York                                                                                                   
Pennsylvania                                                                                               
South                                                                                                      
Carolina                                                                                                   
Texas                                                                                                      
Washington                                                                                                 
Wisconsin                                                                                                  

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,

           o  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
           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.

           o  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.

           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:

           o  Review quarterly expenditures.

           o  Provide technical assistance to states regarding fiscal policy
           and cost allocation issues.

           o  Review and resolve findings from the Single Audit.

           o  Review cost allocation amendments and make recommendations to
           the Division of Cost Allocation.

           o  Provide support for the IV-E Eligibility Reviews.

           o  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. Figure 6 illustrates the percentage
           of total administrative costs by HHS regional office.

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.

    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

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
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 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.

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 program-specific 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.

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.

           o  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.

           o  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.

           o  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 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.

           o  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.

           o  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.

           o  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:

           o  administrative costs claimed for children living in facilities
           that are not eligible for maintenance payments;
           o  administrative costs claimed for children living in an
           unlicensed foster family home; and
           o  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 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.

           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:

           o  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.

           o  Coordinate with other HHS offices such as the Division of Cost
           Allocation and CMS to ensure consistent policy implementation
           across regions and states.

           o  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.

           o  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.

           o  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 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 [email protected] . Other contacts and
           acknowledgments are listed in appendix III.

           Sincerely yours,

           Cornelia M. Ashby Director, Education, Workforce and Income
           Security

           Source: Analysis of HHS data.

           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.

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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).

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).

                                  Conclusions

                      Recommendations for Executive Action

                       Agency Comments and Our Evaluation

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

                                                   Change in   Percent change 
                       2000 IV-E      2004 IV-E   claims for    in claims for 
                  administrative administrative expenditures     expenditures 
                      claims for     claims for from FY 2000   from FY 2000 - 
State            expenditures   expenditures    - FY 2004          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 
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 

Appendix II: Comments from the Department of Health and Human Services


Appendix III: GAO Contact and Staff Acknowledgments

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Highlights of GAO-06-649 , a report to the Honorable Wally Herger,
Chairman Subcommittee on Human Resources, Ways and Means Committee, House
of Representatives

June 2006

FOSTER CARE AND ADOPTION ASSISTANCE

Federal Oversight Needed To Safeguard Funds And Ensure Consistent Support
For States' Administrative Costs

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.

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.

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.
*** End of document. ***