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entitled 'Foster Care and Adoption Assistance: Federal Oversight Needed 
to Safeguard Funds and Ensure Consistent Support for States' 
Administrative Costs' which was released on June 15, 2006. 

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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: 

GAO Highlights: 

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

Why GAO Did This Study: 

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 Found: 

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. 

Figure: 

[See PDF for Image] 

Source: GAO analysis of HHS data. 

[End of Figure] 

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. 

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. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-649]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Cornelia M. Ashby at 
(202)-512-7215 or ashbyc@gao.gov. 

[End of Section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

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

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

HHS Oversight of Program Spending Has Been Compromised by an Absence of 
Strategic Risk-Based Monitoring: 

Conclusions: 

Recommendations for Executive Action: 

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

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

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

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

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

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

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

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

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

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

Figures: 

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

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

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

Figure 4: Foster Care and Adoption Assistance Administrative Costs by 
Category for Fiscal Year 2004: 

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

Figure 6: Percentage of Fiscal Year 2004 Total Foster Care And Adoption 
Assistance Administrative Costs for States Located In HHS's 10 Regional 
Offices: 

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: 

United States Government Accountability Office: 

Washington, DC 20548: 

June 15, 2006: 

The Honorable Wally Herger: 
Chairman: 
Subcommittee on Human Resources: 
Committee on Ways and Means: 
House of Representatives: 

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. 

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.[Footnote 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.[Footnote 2] Because Title IV-E only covers costs 
associated with IV-E eligible children, states use other federal 
funding sources to help pay for administrative costs related to 
children that do not meet the IV-E requirements. IV-E eligibility 
criteria include among other requirements, having been removed from the 
home pursuant to a judicial determination and being eligible for the 
Aid to Families with Dependent Children Program as it was in effect in 
1996. 

In response to concerns about the growth of costs claimed under Title 
IV-E, Congress enacted legislation as part of the Omnibus Budget 
Reconciliation Act of 1990[Footnote 3] 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. 

To determine how federal expenditures for administrative costs changed 
during fiscal years 2000 to 2004, we analyzed state claims for 
expenditures provided by ACF.[Footnote 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. 

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[Footnote 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. 

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: A judicial determination has been made that 
conditions in the home from which the child was removed were contrary 
to the child's welfare and reasonable efforts were made to prevent 
removal; 

A judicial determination has been made that the state has documentation 
that it made reasonable efforts to finalize a permanency plan; 

A judicial determination has been made that the state has 
responsibility for placement and care of the child; 

But for the removal from the home, the child would have qualified for 
the Aid to Families with Dependent Children (AFDC) program as it was in 
effect on July 16, 1996; and; 

The state has verification of provider safety requirements; 

If removal is the result of a voluntary placement agreement, a state 
must obtain a judicial determination that continued placement is in the 
child's best interest; 

Adoption Assistance Program: Children must have a special need that is 
defined as the state determining that a child should not or could not 
be returned to the home of his or her parents, and certain factors, 
such as age; membership in a sibling unit or minority group; or 
emotional, mental, or physical conditions that would make finding an 
appropriate adoptive home difficult; Special needs children must also 
meet at least one criterion from the following list: 
(a) the child is a dependent child who would have been eligible for 
AFDC, as it existed in 1996; 
(b) the child is eligible for Supplemental Security Income (SSI); 
(c) the child is a child of a minor parent who is in foster care 
already and receiving foster care maintenance payments under Title IV-
E; or; 
(d) the child received adoption assistance previously, but the adoption 
dissolved or the adoptive parents died. 

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

[End of table] 

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.[Footnote 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. 

States report their administrative costs to ACF in three main 
categories: child placement services and other administrative 
activities,[Footnote 7] training, and development of statewide 
automated child welfare information systems (SACWIS development). The 
Omnibus Budget Reconciliation Act of 1990[Footnote 8] 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.[Footnote 9] 

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

General reporting requirements: 
* Child Placement Services; 
* Case management for children in foster care; 
* Case management for children at risk of placement into foster 
care[A]; 
* Eligibility determination; 
* Statewide Automated Child Welfare Information Systems (SACWIS) 
operation; 
* Other administration; 
Federal reimbursement rate: 50%; 
Title IV-E allowable activities: 
* Development, review, or revision of case plans or the supervision or 
management of cases, including preparation for and participation in 
judicial proceedings, as well as referral to services for children 
placed in foster care; 
* Development, review, or revision of case plans or the supervision or 
management of cases, including preparation for and participation in 
judicial proceedings, as well as referral to services for children 
still living at home; 
* Verification and documentation of eligibility; 
* Operation of statewide automated child welfare information systems; 
* Other costs not mentioned above that are related to running the 
program such as setting the rates paid to foster care institutions, 
recruitment and licensing of homes, and issuing payments to families. 

General reporting requirements: SACWIS development costs; 
Federal reimbursement rate: 50%; 
Title IV-E allowable activities: Establishing states' automated child 
welfare information systems[B]. 

General reporting requirements: State and local training; 
Federal reimbursement rate: 75%; 
Title IV-E allowable activities: Training of personnel employed by 
state or county agencies administering the program and training current 
and prospective foster parents. 

General reporting requirements: Adoption Assistance Program; 
Federal reimbursement rate: [Empty]; 
Title IV-E allowable activities: [Empty]. 

General reporting requirements: Child placement services; 
Federal reimbursement rate: 50%; 
Title IV-E allowable activities: All costs related to running the 
program such as conducting adoptive home studies, recruiting adoptive 
homes, placement of a child into a home, and the negotiation and review 
of adoption agreements. 

General reporting requirements: State and local training; 
Federal reimbursement rate: 75%; 
Title IV-E allowable activities: Training of personnel employed by 
state or county agencies administering the program and training current 
and prospective adoptive parents. 

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

[A] On ACF Form IV-E-1, these costs are entitled "Pre-Placement." In 
order for a child to be considered at risk of placement, or a 
"candidate" for foster care as they are commonly referred to, states 
must have one of the following documentation: (1) case plan that 
identifies foster care as the goal absent preventative services, (2) 
eligibility form used to document the child's eligibility for Title IV- 
E, or (3) evidence of court proceedings related to the child's removal 
from the home. 

[B] To qualify for federal funding for SACWIS, states must prepare and 
submit an advance planning document (APD) to the Children's Bureau, in 
which they describe the state's plan for managing the design, 
development, and operation of a SACWIS that meets federal requirements 
and state needs in an efficient, comprehensive, and cost-effective 
manner. 

[End of table] 

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.[Footnote 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.[Footnote 11] 

The Deficit Reduction Act: 

The Deficit Reduction Act[Footnote 12] incorporated many of the 
provisions outlined in ACF guidance. The act specified the 
administrative costs that can be claimed for children who meet all 
eligibility criteria except placement in a licensed foster care 
setting.[Footnote 13] It also clarified the specific case management 
services permitted for Medicaid reimbursement including: 

* assessment of an eligible individual to determine service needs by 
taking a client history, identifying an individual's needs, and 
gathering information to form a complete assessment; 

* development of a specific care plan based on the information 
collected through an assessment that specifies the goals and action to 
address the medical, social, educational, and other services needed by 
the individual; 

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

* monitoring and follow-up activities, including activities and 
contacts to ensure the care plan is effectively implemented and 
adequately addresses the individual's needs. 

The act asserts that Medicaid can be charged when "there are no other 
third parties liable to pay for such services," including a medical, 
social, educational or other program that provides reimbursement. It 
also specifies that targeted case management services for children in 
foster 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. 

Organization Structure and Oversight Activities: 

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. 

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

[See PDF for image] 

Source: GAO analysis of HHS information

[End of figure] 

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.[Footnote 
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.[Footnote 15] 

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

[See PDF for image] 

Source: GAO analysis of HHS data. 

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

[End of figure] 

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: 

[See PDF for image] 

Source: GAO analysis of HHS data. 

[End of figure] 

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: 

[See PDF for image] 

Source: GAO analysis of HHS data. 

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

[End of figure] 

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.[Footnote 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: 

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

* Case management costs for a child in foster care. 

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

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

* Other administrative costs not falling in the other categories. 

There are three primary reasons for variation among states in reporting 
child placement services by these types. 

* Not all states complied with the reporting instructions for costs 
associated with foster care child placement services. Some states 
reported their costs by just one or two types. For example, 
Pennsylvania did not begin reporting costs among the five types until 
fiscal year 2004 after being directed to do so by its cognizant ACF 
regional office in March of 2003. Pennsylvania had reported nearly all 
costs before that time as "other administration." Therefore, the 
substantial increase in case management costs reported by Pennsylvania 
may have been primarily due to compliance with the reporting 
requirements in fiscal year 2004 rather than actual changes in costs 
incurred. Over the last several years at least two regions have 
required states to report their child placement services costs by the 
five types. 

* States interpreted the reporting instructions differently. Kansas, 
Texas, and New York use private contractors for a large portion of case 
management activities. Kansas and Texas reported these costs as "other 
administration," whereas New York reported them as "case management." 
States also vary in how they reported overhead and other costs not 
directly related to assisting a specific child. For example, Illinois 
reported costs for negotiating and setting the rates they pay foster 
care institutions as case management costs, while other states reported 
this cost as "other administration." 

* States differed in how they claimed costs between the Foster Care and 
Adoption Assistance programs. For example, Kansas charged 
administrative costs such as case management for children who are 
eligible for adoption, the recruitment and study of adoptive homes, and 
licensing of adoptive homes to the Foster Care program while 
Washington, charged these activities to the Adoption Assistance 
program. 

Despite the data limitations, state officials reported that costs 
related to the salaries and benefits of staff performing foster care 
case management activities accounted for the majority of foster care 
administrative costs ranging from 50 to 96 percent of total program 
costs. In addition, some state and federal officials we interviewed 
indicated that costs for case management activities drove the increase 
in overall administrative costs between fiscal years 2000 and 2004. 

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

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. 

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: 

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. 

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

[See PDF for image] 

Source: GAO analysis of HHS data. 

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

[End of figure] 

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: 

States with overall increased costs: California; 
Revised allocation of staff costs: [Empty]; 
Change in proportion of IV-E eligible children: [Empty]; 
Costs claimed for children identified as candidates with overall 
increased costs: Increased; 
State spending: Increased; 
Use of other federal funding source with overall increased costs: 
[Empty]. 

States with overall increased costs: Pennsylvania; 
Revised allocation of staff costs with overall increased costs: 
[Empty]; 
Change in proportion of IV-E eligible children with overall increased 
costs: [Empty]; 
Costs claimed for children identified as candidates with overall 
increased costs: Increased; 
State spending: [Empty]; 
Use of other federal funding source with overall increased costs: 
[Empty]. 

States with overall increased costs: New York; 
Revised allocation of staff costs with overall increased costs: 
Increased; 
Change in proportion of IV-E eligible children with overall increased 
costs: Decreased; 
Costs claimed for children identified as candidates with overall 
increased costs: Increased; State spending: Increased; 
Use of other federal funding source with overall increased costs: 
[Empty]. 

States with overall increased costs: Washington; 
Revised allocation of staff costs with overall increased costs: 
Increased; 
Change in proportion of IV-E eligible children with overall increased 
costs: Increased; 
Costs claimed for children identified as candidates with overall 
increased costs: [Empty]; 
State spending: [Empty]; 
Use of other federal funding source with overall increased costs: 
Decreased. 

States with overall increased costs: Texas; 
Revised allocation of staff costs with overall increased costs: 
[Empty]; 
Change in proportion of IV-E eligible children with overall increased 
costs: Increased; 
Costs claimed for children identified as candidates with overall 
increased costs: Increased; 
State spending: [Empty]; 
Use of other federal funding source with overall increased costs: 
[Empty].  

States with overall decreased costs: South Carolina; 
Revised allocation of staff costs with overall increased costs: 
Increased; 
Change in proportion of IV-E eligible children with overall increased 
costs: [Empty]; 
Costs claimed for children identified as candidates with overall 
increased costs: Increased; 
State spending: Decreased; 
Use of other federal funding source with overall increased costs: 
[Empty]. 

States with overall decreased costs: Kansas; 
Revised allocation of staff costs with overall increased costs: 
[Empty]; 
Change in proportion of IV-E eligible children with overall increased 
costs: [Empty]; 
Costs claimed for children identified as candidates with overall 
increased costs: Increased; 
State spending: Decreased; 
Use of other federal funding source with overall increased costs: 
[Empty]. 

States with overall decreased costs: Michigan; 
Revised allocation of staff costs with overall increased costs: 
[Empty]; 
Change in proportion of IV-E eligible children with overall increased 
costs: Decreased; 
Costs claimed for children identified as candidates with overall 
increased costs: Decreased; 
State spending: [Empty]; 
Use of other federal funding source with overall increased costs: 
Increased.  

Source: State officials. 

[End of table]

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.[Footnote 17],[Footnote 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. 

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

State: Washington; 
Penetration rate in 2000: 37%; 
Penetration rate in 2004: 68%; 
Percentage point change in penetration rate between 2000 and 2004: 31%; 
Reason cited for change greater than 5%: 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. 

State: Texas; 
Penetration rate in 2000: 60%; 
Penetration rate in 2004: 67%; 
Percentage point change in penetration rate between 2000 and 2004: 7%; 
Reason cited for change greater than 5%: 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. 

State: Michigan[A]; 
Penetration rate in 2000: 56%; 
Penetration rate in 2004: 61%; 
Percentage point change in penetration rate between 2000 and 2004: 5%; 
Reason cited for change greater than 5%: Not applicable (N/A). 

State: Illinois[A]; 
Penetration rate in 2000: 74%; 
Penetration rate in 2004: 73.5%; 
Percentage point change in penetration rate between 2000 and 2004: 
(0.5)%; 
Reason cited for change greater than 5%: N/A. 

State: Maryland[A]; 
Penetration rate in 2000: 70%; 
Penetration rate in 2004: 66%; 
Percentage point change in penetration rate between 2000 and 2004: 
(4)%; 
Reason cited for change greater than 5%: N/A. 

State: Kansas[A]; 
Penetration rate in 2000: 58%; 
Penetration rate in 2004: 54%; 
Percentage point change in penetration rate between 2000 and 2004: 
(4)%; 
Reason cited for change greater than 5%: N/A. 

State: California[A,B]; 
Penetration rate in 2000: 80%; 
Penetration rate in 2004: 75%; 
Percentage point change in penetration rate between 2000 and 2004: 
(5)%; 
Reason cited for change greater than 5%: N/A. 

State: Wisconsin; 
Penetration rate in 2000: 79%; 
Penetration rate in 2004: 71%; 
Percentage point change in penetration rate between 2000 and 2004: 
(8%); 
Reason cited for change greater than 5%: Fewer eligible children due to 
1996 income standards; State enforcement of stricter eligibility issued 
in 2000.[C]. 

State: New York[D]; 
Penetration rate in 2000: 63%; 
Penetration rate in 2004: 53%; 
Percentage point change in penetration rate between 2000 and 2004: 
(10)%; 
Reason cited for change greater than 5%: Fewer eligible children due to 
1996 income standards. 

State: South Carolina; 
Penetration rate in 2000: 55%; 
Penetration rate in 2004: 24%; 
Percentage point change in penetration rate between 2000 and 2004: 
(31)%; 
Reason cited for change greater than 5%: Technical problems with 
SACWIS; Issues concerning administrative costs for cases where 
maintenance payments are funded from Supplemental Security Income 
instead of IV-E.[E].  

Source: State officials. 

Note: Pennsylvania did not provide changes in the penetration rate 
because counties calculate their own rates for IV-E reimbursement; 
however, state officials reported that the statewide rate had not 
changed over the past few years. 

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

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

[C] The federal IV-E rules issued in January 2000 created stricter 
requirements for the state to prove that it is contrary to the welfare 
of a child to remain in their home and that the state had made 
reasonable efforts to prevent removal. 

[D] New York provided two rates--one for upstate counties and one for 
New York City; both rates decreased about 10 percent. The rates shown 
in the table are for the upstate counties. 

[E] If a child is eligible for IV-E and receives Supplemental Security 
Income (SSI), the state has the choice to fund the family's maintenance 
payments from SSI rather than IV-E funds. However, the state may claim 
federal financial participation under IV-E for administrative 
activities performed on behalf of that child. 

[End of table]

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: 

State[A]: South Carolina; 
Percentage of IV-E administrative costs that were for foster care 
candidates in FY 2004[B]: 73[C]. 

State[A]: Wisconsin; 
Percentage of IV-E administrative costs that were for foster care 
candidates in FY 2004[B]: 50. 

State[A]: Texas; 
Percentage of IV-E administrative costs that were for foster care 
candidates in FY 2004[B]: 46[C]. 

State[A]: New York; 
Percentage of IV-E administrative costs that were for foster care 
candidates in FY 2004[B]: 25[D]. 

State[A]: Illinois; 
Percentage of IV-E administrative costs that were for foster care 
candidates in FY 2004[B]: 9. 

State[A]: Washington; 
Percentage of IV-E administrative costs that were for foster care 
candidates in FY 2004[B]: 7. 

State[A]: Kansas; 
Percentage of IV-E administrative costs that were for foster care 
candidates in FY 2004[B]: 2. 

State[A]: Michigan; 
Percentage of IV-E administrative costs that were for foster care 
candidates in FY 2004[B]: 1[E]. 

Source: State officials. 

[A] Data for California, Pennsylvania, and Maryland were not available 
at the state level. However, Sacramento County in California, reported 
that about 27 percent of costs were for such children and Delaware 
County in Pennsylvania reported that about 40 percent of costs were for 
candidates. 

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

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

[D] New York reported that this was for local district costs. 

[E] Michigan used some Social Service Block Grant (SSBG) and TANF funds 
for case management costs for candidates. 

[End of table] 

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.[Footnote 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: 

State: California; 
Unlicensed relative care: [Empty]; 
Psychiatric or medical hospitals: check; 
Detention centers: [Empty]; 
Public institutions that accommodate more than 25 children: [Empty]; 
Facilities operated primarily for children determined to be delinquent: 
check; 
Other: [Empty]. 

State: Illinois; 
Unlicensed relative care: check; 
Psychiatric or medical hospitals: [Empty]; 
Detention centers: [Empty]; 
Public institutions that accommodate more than 25 children: [Empty]; 
Facilities operated primarily for children determined to be delinquent: 
[Empty]; 
Other: [Empty]. 

State: Kansas; 
Unlicensed relative care: check; 
Psychiatric or medical hospitals: check; 
Detention centers: check; 
Public institutions that accommodate more than 25 children: check; 
Facilities operated primarily for children determined to be delinquent: 
check; 
Other: check[B]. 

State: Maryland; 
Unlicensed relative care: check; 
Psychiatric or medical hospitals: [Empty]; 
Detention centers: [Empty]; 
Public institutions that accommodate more than 25 children: [Empty]; 
Facilities operated primarily for children determined to be delinquent: 
[Empty]; 
Other: [Empty]. 

State: Michigan; 
Unlicensed relative care: [Empty]; 
Psychiatric or medical hospitals: [Empty]; 
Detention centers: [Empty]; 
Public institutions that accommodate more than 25 children: [Empty]; 
Facilities operated primarily for children determined to be delinquent: 
[Empty]; 
Other: [Empty]. 

State: New York[C]; 
Unlicensed relative care: [Empty]; 
Psychiatric or medical hospitals: [Empty]; 
Detention centers: [Empty]; 
Public institutions that accommodate more than 25 children: [Empty]; 
Facilities operated primarily for children determined to be delinquent: 
[Empty]; 
Other: [Empty]. 

State: Pennsylvania; 
Unlicensed relative care: check[D]; 
Psychiatric or medical hospitals: [Empty]; 
Detention centers: [Empty]; 
Public institutions that accommodate more than 25 children: [Empty]; 
Facilities operated primarily for children determined to be delinquent: 
[Empty]; 
Other: [Empty]. 

State: South Carolina; 
Unlicensed relative care: [Empty]; 
Psychiatric or medical hospitals: [Empty]; 
Detention centers: [Empty]; 
Public institutions that accommodate more than 25 children: [Empty]; 
Facilities operated primarily for children determined to be delinquent: 
[Empty]; 
Other: [Empty]. 

State: Texas; 
Unlicensed relative care: check; 
Psychiatric or medical hospitals: [Empty]; 
Detention centers: [Empty]; 
Public institutions that accommodate more than 25 children: [Empty]; 
Facilities operated primarily for children determined to be delinquent: 
[Empty]; 
Other: [Empty]. 

State: Washington; 
Unlicensed relative care: [Empty]; 
Psychiatric or medical hospitals: [Empty]; 
Detention centers: [Empty]; 
Public institutions that accommodate more than 25 children: [Empty]; 
Facilities operated primarily for children determined to be delinquent: 
[Empty]; 
Other: check[E]. 

State: Wisconsin; 
Unlicensed relative care: check; 
Psychiatric or medical hospitals: [Empty]; 
Detention centers: [Empty]; 
Public institutions that accommodate more than 25 children: [Empty]; 
Facilities operated primarily for children determined to be delinquent: 
[Empty]; 
Other: [Empty].  

Source: State officials. 

[A] These kinds of facilities may provide services to foster care 
children but are ineligible for foster care maintenance payments. 

[B] Kansas also charged for secure care facilities. 

[C] New York charges for the listed facilities when a child spends at 
least 1 day of the month of the time study in the above IV-E setting. 

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

[E] Washington claims costs for "for profit foster homes." 

[End of table]

The Deficit Reduction Act of 2005,[Footnote 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.[Footnote 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. 

* South Carolina officials reported using TANF emergency assistance 
funds to cover most costs associated with a child in foster care for 
the first 12 months; using TANF eliminated the need of a state match. 
They said that IV-E program funds are used primarily for costs 
associated with preparing and participating in judicial proceedings, 
eligibility determination, licensing and home studies. 

* Michigan officials said that their IV-E claims decreased when they 
began charging activities they thought would be challenged by the ACF 
regional office to another funding source, such as SSBG or TANF. For 
example, Michigan began charging about 60 percent of foster care 
training costs to SSBG because of disagreements with ACF in developing 
their allocation methodology. 

* Washington officials said that prior to 2001, Medicaid was used to 
fund some case management services for all children that were eligible 
for Medicaid, including those that were IV-E eligible. However, the 
Center for Medicare and Medicaid Services (CMS) objected and negotiated 
with the state to no longer use Medicaid for these services. This 
change resulted in additional charges to IV-E and contributed to the 27 
percent increase in the amount of case management claims from fiscal 
year 2000 to fiscal year 2001. 

States Implemented Initiatives to Improve Services, but the Extent That 
Improvements Are Related to Changes in IV-E Expenditures Is Unclear: 

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). 
[Footnote 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. 

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

State: California; 
Recruit foster families: check; 
Training foster care parents: check; 
Licensing activities: check; 
Increase family and support services: check; 
Increase in-person contact with child: check; 
More outreach to biological parents: [Empty]; 
Increase monitoring of contract provided services: [Empty]; 
Increase use of private contractors: [Empty]; 
Collaborate with courts: check; 
Other: check; 

State: Illinois; 
Recruit foster families: [Empty]; 
Training foster care parents: check; 
Licensing activities: [Empty]; 
Increase family and support services: check; 
Increase in-person contact with child: [Empty]; 
More outreach to biological parents: check; 
Increase monitoring of contract provided services: [Empty]; 
Increase use of private contractors: check; 
Collaborate with courts: check; 
Other: check; 

State: Kansas; 
Recruit foster families: [Empty]; 
Training foster care parents: [Empty]; 
Licensing activities: [Empty]; 
Increase family and support services: check; 
Increase in-person contact with child: [Empty]; 
More outreach to biological parents: [Empty]; 
Increase monitoring of contract provided services: [Empty]; 
Increase use of private contractors: [Empty]; 
Collaborate with courts: [Empty]; 
Other: check; 

State: Maryland; 
Recruit foster families: check; 
Training foster care parents: check; 
Licensing activities: check; 
Increase family and support services: [Empty]; 
Increase in-person contact with child: [Empty]; 
More outreach to biological parents: [Empty]; 
Increase monitoring of contract provided services: check; 
Increase use of private contractors: check; 
Collaborate with courts: check; 
Other: [Empty]. 

State: Michigan; 
Recruit foster families: [Empty]; 
Training foster care parents: check; 
Licensing activities: [Empty]; 
Increase family and support services: [Empty]; 
Increase in-person contact with child: [Empty]; 
More outreach to biological parents: check; 
Increase monitoring of contract provided services: [Empty]; 
Increase use of private contractors: [Empty]; 
Collaborate with courts: check; 
Other: check; 

State: New York; 
Recruit foster families: [Empty]; 
Training foster care parents: check; 
Licensing activities: check; 
Increase family and support services: check; 
Increase in-person contact with child: [Empty]; 
More outreach to biological parents: check; 
Increase monitoring of contract provided services: [Empty]; 
Increase use of private contractors: [Empty]; 
Collaborate with courts: check; 
Other: check; 

State: Pennsylvania; 
Recruit foster families: [Empty]; 
Training foster care parents: [Empty]; 
Licensing activities: [Empty]; 
Increase family and support services: [Empty]; 
Increase in-person contact with child: [Empty]; 
More outreach to biological parents: [Empty]; 
Increase monitoring of contract provided services: [Empty]; 
Increase use of private contractors: [Empty]; 
Collaborate with courts: check; 
Other: check; 

State: South Carolina; 
Recruit foster families: check; 
Training foster care parents: check; 
Licensing activities: [Empty]; 
Increase family and support services: check; 
Increase in-person contact with child: check; 
More outreach to biological parents: check; 
Increase monitoring of contract provided services: check; 
Increase use of private contractors: [Empty]; 
Collaborate with courts: check; 
Other: [Empty]. 

State: Texas; 
Recruit foster families: check; 
Training foster care parents: [Empty]; 
Licensing activities: check; 
Increase family and support services: check; 
Increase in-person contact with child: check; 
More outreach to biological parents: check; 
Increase monitoring of contract provided services: [Empty]; 
Increase use of private contractors: [Empty]; 
Collaborate with courts: check; 
Other: [Empty]. 

State: Washington; 
Recruit foster families: [Empty]; 
Training foster care parents: check; 
Licensing activities: [Empty]; 
Increase family and support services: [Empty]; 
Increase in-person contact with child: check; 
More outreach to biological parents: [Empty]; 
Increase monitoring of contract provided services: check; 
Increase use of private contractors: [Empty]; 
Collaborate with courts: check; 
Other: [Empty]. 

State: Wisconsin; 
Recruit foster families: check; 
Training foster care parents: check; 
Licensing activities: check; 
Increase family and support services: check; 
Increase in-person contact with child: check;
More outreach to biological parents: check; 
Increase monitoring of contract provided services: [Empty]; 
Increase use of private contractors: [Empty]; 
Collaborate with courts: check; 
Other: check; 

Source: State officials. 

[End of table] 

While all 11 states made changes to program services in response to 
CFSR findings, some also had other reasons: the Maryland legislature 
provided resources to reduce the ratios of caseworkers to children in 
response to concerns about program deficiencies due to staff shortages, 
and Washington made changes as part of a settlement in a lawsuit. The 
actions states took to achieve program improvements varied. For 
example, 

* Expediting permanency planning. Most states we studied reported an 
increased emphasis on family preservation and support services and more 
outreach to biological parents in an effort to either maintain children 
in their homes or to expedite reunification if the child is in foster 
care. Some states have implemented "Concurrent Planning" programs in 
which at the same time that efforts are being made for reunification, 
other permanency goals, such as adoption, are pursued should 
reunification fail. [Footnote 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. 

* 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 Oversight of Program Spending Has Been Compromised by an Absence of 
Strategic Risk-Based Monitoring: 

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. 

HHS has not targeted its resources to high-risk 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: 

* Review quarterly expenditures. 

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

* Review and resolve findings from the Single Audit. 

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

* Provide support for the IV-E Eligibility Reviews. 

* Provide support for HHS Inspector General's IV-E audits and 
inspections. 

According to officials, the number of financial specialists with the 
necessary expertise has declined since the early 1990s. This decline 
resulted primarily from retirements and a change in staff roles and 
responsibilities. Typically, the regions have 2-3 financial specialists 
for oversight of ACF programs. In region VII, three financial 
specialists review 3 percent of national IV-E administrative costs for 
4 states, while three financial specialists in region V review 17 
percent of national IV-E costs for 6 states. Additionally, one 
financial specialist with limited experience with the IV-E programs, 
reviewed costs for California that amounted to more than 30 percent of 
national administrative spending in fiscal year 2004. Figure 6 
illustrates the percentage of total administrative costs by HHS 
regional office. 

Figure 6: Percentage of Fiscal Year 2004 Total Foster Care and Adoption 
Assistance Administrative Costs for States Located In HHS's 10 Regional 
Offices: 

[See PDF for image] 

Source: GAO analysis of HHS data. 

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

[End of figure] 

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.[Footnote 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. [Footnote 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. 

Lack of standard guidance and absence of information sharing among HHS 
offices limit financial oversight: 

HHS does not have a current financial review guide to standardize 
oversight across regions, and oversight findings among various regional 
offices have not been shared to better ensure consistency and 
appropriateness of federal expenditures to states, according to 
regional and central officials we interviewed. HHS last issued a review 
guide over 15 years ago, and while staff in multiple regional offices 
have begun an effort to compile a current financial review guide 
consisting of best review practices, this guide is not expected to be 
completed for at least 3 years. In the interim, each region follows its 
own monitoring process and the level of oversight varies according to 
regional practice. 

* Triggers for review. Some regions review changes in cost claims of 
more than 5 percent by specific category such as case management, while 
at least one region only reviews changes of 5 percent for total claims, 
without determining whether there were larger cost changes within 
categories. One region took action to ensure states appropriately 
claimed their costs by category, but officials from another region told 
us they do not pay attention to how states categorize costs. 

* Claims analysis. Region IX officials said they recently started 
analyzing California's claims to compare the most recent 4 quarters of 
costs to the previous 4 quarters, while one method used in Region V is 
to compare costs from quarter to quarter using a ratio of 
administrative costs to the average number of children in foster care. 
Region IV officials told us they use a standard set of spreadsheets 
comparing claims across states in the region to analyze trends in 
expenditures and differences in states' claims. 

* On-site reviews. Region VII officials, who were responsible for 3 
percent of 2004 expenditures, indicated that financial specialists 
visit their respective states quarterly to trace state expenditures to 
original documents or review a selected sample of expenditures to 
ensure compliance with specific regulations. Region IV officials, 
responsible for 8 percent of expenditures, discontinued quarterly 
reviews due to a reduction in resources 5 years ago, and now have a 
goal for financial specialists to visit some of their assigned states 
once a year. Officials in Region V, responsible for 17 percent of 
fiscal year 2004 expenditures, noted that financial specialists rarely 
conduct on-site reviews. In addition to lack of standardization in 
review of claims, inadequate guidance from HHS headquarters has 
resulted in key differences in the approval of state claims. 

* Regions vary in the technical assistance provided to states. 
According to regional officials, states did not uniformly identify and 
adequately document their processes used to classify children as 
candidates. One state official noted that its region helped the state 
develop a document that would meet requirements to claim candidate 
costs appropriately; however, other states did not receive similar 
technical assistance. 

* Region officials allow states to treat children differently in 
calculating their penetration rate. A state in one region removed cases 
with pending eligibility from its total count of children, resulting in 
higher federal reimbursement, while this practice was disallowed for a 
state in a different region. 

* Officials from one region with oversight responsibility for the 
Medicaid program assert that there is a wide disparity in the amount of 
costs for case management activities states submit to the Medicaid 
program for children in foster care that some medical costs should be 
charged to the IV-E program.[Footnote 26] 

However, ACF took action in 2005 to standardize state claiming 
practices in three important areas that were subsequently included in 
the Deficit Reduction Act of 2005: 

* administrative costs claimed for children living in facilities that 
are not eligible for maintenance payments; 

* administrative costs claimed for children living in an unlicensed 
foster family home; and: 

* time frames for determining or re-determining a child's eligibility 
for IV-E programs. 

ACF and CMS jointly issued guidance in 2001 to clarify which foster 
care costs could be charged to Medicaid rather than IV-E, but according 
to CMS officials, this guidance contained errors that caused confusion 
regarding appropriate targeted case management (TCM) claims. Since 
2004, CMS policy regarding the use of TCM services for children in 
foster care has been based on a 2004 Administrator's decision that 
denied approval of a Medicaid state plan amendment requested by 
Maryland to provide TCM services to children in the state's foster care 
program because such services were available under the IV-E 
program.[Footnote 27] However, CMS has not consistently applied its 
policy for allowable TCM services.[Footnote 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. 

Conclusions: 

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. 

Recommendations for Executive Action: 

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: 

* Expedite the development of the financial review guide regions use to 
monitor state claims for federal reimbursement and develop an effective 
means of communicating current policy and oversight findings across 
regions and states. 

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

* Standardize the method states use to calculate the percentage of 
children served by foster care and adoption assistance programs that 
are eligible for federal reimbursement of administrative costs. 

* Through ACF regional offices, remind states that reporting 
administrative costs by certain categories is a requirement and provide 
technical assistance to help states comply with the requirement. 

* Assess the relative risk of improper federal expenditures to states 
for administrative costs and redistribute oversight staff accordingly. 

Agency Comments and Our Evaluation: 

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 
[Hyperlink, http://www.gao.gov]. 

If you have any questions about this report, please contact me at (202) 
512-7215 or ashbyc@gao.gov. Other contacts and acknowledgments are 
listed in appendix III. 

Sincerely yours, 

Signed by: 

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

[End of section] 

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

State: Washington; 
2000 IV-E administrative claims for expenditures: $23,974; 
2004 IV-E administrative claims for expenditures: $58,128; 
Change in claims for expenditures from FY 2000 - FY 2004: $34,154; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 
142.5. 

State: New Hampshire; 
2000 IV-E administrative claims for expenditures: 3,860; 
2004 IV-E administrative claims for expenditures: 9,182; 
Change in claims for expenditures from FY 2000 - FY 2004: 5,322; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 
137.9. 

State: Texas; 
2000 IV-E administrative claims for expenditures: 37,327; 
2004 IV-E administrative claims for expenditures: 69,313; 
Change in claims for expenditures from FY 2000 - FY 2004: $31,986; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 85.7. 

State: Wyoming; 
2000 IV-E administrative claims for expenditures: 828; 
2004 IV-E administrative claims for expenditures: 1,370; 
Change in claims for expenditures from FY 2000 - FY 2004: $542; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 65.5. 

State: Alaska; 
2000 IV-E administrative claims for expenditures: 8,083; 
2004 IV-E administrative claims for expenditures: 13,121; 
Change in claims for expenditures from FY 2000 - FY 2004: 5,038; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 62.3. 

State: Indiana; 
2000 IV-E administrative claims for expenditures: 11,352; 
2004 IV-E administrative claims for expenditures: 18,360; 
Change in claims for expenditures from FY 2000 - FY 2004: 7,008; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 61.7. 

State: West Virginia; 
2000 IV-E administrative claims for expenditures: 6,215; 
2004 IV-E administrative claims for expenditures: 9,841; 
Change in claims for expenditures from FY 2000 - FY 2004: 3,626; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 58.3. 

State: Oregon; 
2000 IV-E administrative claims for expenditures: 18,945; 
2004 IV-E administrative claims for expenditures: 26,619; 
Change in claims for expenditures from FY 2000 - FY 2004: 7,674; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 40.5. 

State: Virginia; 
2000 IV-E administrative claims for expenditures: 36,627; 
2004 IV-E administrative claims for expenditures: 50,859; 
Change in claims for expenditures from FY 2000 - FY 2004: 14,232; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 38.9. 

State: New Jersey; 
2000 IV-E administrative claims for expenditures: 30,928; 
2004 IV-E administrative claims for expenditures: 42,320; 
Change in claims for expenditures from FY 2000 - FY 2004: 11,392; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 36.8. 

State: Pennsylvania; 
2000 IV-E administrative claims for expenditures: 149,289; 
2004 IV-E administrative claims for expenditures: 191,708; 
Change in claims for expenditures from FY 2000 - FY 2004: 42,419; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 28.4. 

State: Arkansas; 
2000 IV-E administrative claims for expenditures: 18,412; 
2004 IV-E administrative claims for expenditures: 23,595; 
Change in claims for expenditures from FY 2000 - FY 2004: 5,183; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 28.2. 

State: New York; 
2000 IV-E administrative claims for expenditures: 178,104; 
2004 IV-E administrative claims for expenditures: 210,775; 
Change in claims for expenditures from FY 2000 - FY 2004: 32,671; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 18.3. 

State: California; 
2000 IV-E administrative claims for expenditures: 713,090; 
2004 IV-E administrative claims for expenditures: 812,000; 
Change in claims for expenditures from FY 2000 - FY 2004: 98,910; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 13.9. 

State: Louisiana; 
2000 IV-E administrative claims for expenditures: 32,787; 
2004 IV-E administrative claims for expenditures: 37,024; 
Change in claims for expenditures from FY 2000 - FY 2004: 4,237; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 12.9. 

State: Vermont; 
2000 IV-E administrative claims for expenditures: 5,192; 
2004 IV-E administrative claims for expenditures: 5,765; 
Change in claims for expenditures from FY 2000 - FY 2004: 573; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 11.0. 

State: Alabama; 
2000 IV-E administrative claims for expenditures: 14,972; 
2004 IV-E administrative claims for expenditures: 16,544; 
Change in claims for expenditures from FY 2000 - FY 2004: 1,572; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 10.5. 

State: Ohio; 
2000 IV-E administrative claims for expenditures: 129,198; 
2004 IV-E administrative claims for expenditures: 138,244; 
Change in claims for expenditures from FY 2000 - FY 2004: 9,046; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 7.0. 

State: Montana; 
2000 IV-E administrative claims for expenditures: 6,165; 
2004 IV-E administrative claims for expenditures: 6,416; 
Change in claims for expenditures from FY 2000 - FY 2004: 251; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 4.1. 

State: Wisconsin; 
2000 IV-E administrative claims for expenditures: 67,738; 
2004 IV-E administrative claims for expenditures: 69,558; 
Change in claims for expenditures from FY 2000 - FY 2004: 1,820; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 2.7. 

State: Colorado; 
2000 IV-E administrative claims for expenditures: 27,380; 
2004 IV-E administrative claims for expenditures: 27,503; 
Change in claims for expenditures from FY 2000 - FY 2004: 123; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 0.4. 

State: Total increase of 21 states: 
2000 IV-E administrative claims for expenditures: [Empty]; 
2004 IV-E administrative claims for expenditures: [Empty]; 
Change in claims for expenditures from FY 2000 - FY 2004: $317,779; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 
[Empty]. 

State: Tennessee; 
2000 IV-E administrative claims for expenditures: 14,281; 
2004 IV-E administrative claims for expenditures: 5,900; 
Change in claims for expenditures from FY 2000 - FY 2004: (8,381); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -
58.7. 

State: Delaware; 
2000 IV-E administrative claims for expenditures: 10,388; 
2004 IV-E administrative claims for expenditures: 5,443; 
Change in claims for expenditures from FY 2000 - FY 2004: (4,945); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -
47.6. 

State: Mississippi; 
2000 IV-E administrative claims for expenditures: 10,655; 
2004 IV-E administrative claims for expenditures: 6,414; 
Change in claims for expenditures from FY 2000 - FY 2004: (4,241); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -
39.8. 

State: D.C; 
2000 IV-E administrative claims for expenditures: 18,869; 
2004 IV-E administrative claims for expenditures: 12,225; 
Change in claims for expenditures from FY 2000 - FY 2004: (6,644); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -
35.2. 

State: South Carolina; 
2000 IV-E administrative claims for expenditures: 12,556; 
2004 IV-E administrative claims for expenditures: 8,706; 
Change in claims for expenditures from FY 2000 - FY 2004: (3,850); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -
30.7. 

State: Kentucky; 
2000 IV-E administrative claims for expenditures: 29,420; 
2004 IV-E administrative claims for expenditures: 20,757; 
Change in claims for expenditures from FY 2000 - FY 2004: (8,663); 
Percent change in claims for expenditures from FY 2000 - FY 2004: - 
29.4. 

State: Oklahoma; 
2000 IV-E administrative claims for expenditures: 22,672; 
2004 IV-E administrative claims for expenditures: 16,203; 
Change in claims for expenditures from FY 2000 - FY 2004: (6,469); 
Percent change in claims for expenditures from FY 2000 - FY 2004: - 
28.5. 

State: Kansas; 
2000 IV-E administrative claims for expenditures: 28,883; 
2004 IV-E administrative claims for expenditures: 21,066; 
Change in claims for expenditures from FY 2000 - FY 2004: (7,817); 
Percent change in claims for expenditures from FY 2000 - FY 2004: - 
27.1. 

State: Missouri; 
2000 IV-E administrative claims for expenditures: 45,378; 
2004 IV-E administrative claims for expenditures: 35,478; 
Change in claims for expenditures from FY 2000 - FY 2004: (9,900); 
Percent change in claims for expenditures from FY 2000 - FY 2004: - 
21.8. 

State: Connecticut; 
2000 IV-E administrative claims for expenditures: 63,860; 
2004 IV-E administrative claims for expenditures: 50,351; 
Change in claims for expenditures from FY 2000 - FY 2004: (13,509); 
Percent change in claims for expenditures from FY 2000 - FY 2004: - 
21.2. 

State: North Carolina; 
2000 IV-E administrative claims for expenditures: 36,934; 
2004 IV-E administrative claims for expenditures: 29,950; 
Change in claims for expenditures from FY 2000 - FY 2004: (6,984); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -
18.9. 

State: Michigan; 
2000 IV-E administrative claims for expenditures: 78,626; 
2004 IV-E administrative claims for expenditures: 65,005; 
Change in claims for expenditures from FY 2000 - FY 2004: (13,621); 
Percent change in claims for expenditures from FY 2000 - FY 2004: - 
17.3. 

State: Iowa; 
2000 IV-E administrative claims for expenditures: 16,068; 
2004 IV-E administrative claims for expenditures: 13,309; 
Change in claims for expenditures from FY 2000 - FY 2004: (2,759); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -
17.2. 

State: North Dakota; 
2000 IV-E administrative claims for expenditures: 7,656; 
2004 IV-E administrative claims for expenditures: 6,347; 
Change in claims for expenditures from FY 2000 - FY 2004: (1,309); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -
17.1. 

State: Idaho; 
2000 IV-E administrative claims for expenditures: 5,615; 
2004 IV-E administrative claims for expenditures: 4,741; 
Change in claims for expenditures from FY 2000 - FY 2004: (874); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -
15.6. 

State: Florida; 
2000 IV-E administrative claims for expenditures: 112,247; 
2004 IV-E administrative claims for expenditures: 94,854; 
Change in claims for expenditures from FY 2000 - FY 2004: (17,393); 
Percent change in claims for expenditures from FY 2000 - FY 2004: - 
15.5. 

State: Rhode Island; 
2000 IV-E administrative claims for expenditures: 9,640; 
2004 IV-E administrative claims for expenditures: 8,380; 
Change in claims for expenditures from FY 2000 - FY 2004: (1,260); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -
13.1. 

State: Massachusetts; 
2000 IV-E administrative claims for expenditures: 47,276; 
2004 IV-E administrative claims for expenditures: 41,114; 
Change in claims for expenditures from FY 2000 - FY 2004: (6,162); 
Percent change in claims for expenditures from FY 2000 - FY 2004: - 
13.0. 

State: Nebraska; 
2000 IV-E administrative claims for expenditures: 10,650; 2004 IV-E 
administrative claims for expenditures: 9,363; 
Change in claims for expenditures from FY 2000 - FY 2004: (1,287); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -
12.1. 

State: Minnesota; 
2000 IV-E administrative claims for expenditures: 58,293; 
2004 IV-E administrative claims for expenditures: 51,505; 
Change in claims for expenditures from FY 2000 - FY 2004: (6,788); 
Percent change in claims for expenditures from FY 2000 - FY 2004: - 
11.6. 

State: South Dakota; 
2000 IV-E administrative claims for expenditures: 3,052; 
2004 IV-E administrative claims for expenditures: 2,729; 
Change in claims for expenditures from FY 2000 - FY 2004: (323); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -
10.6. 

State: Arizona; 
2000 IV-E administrative claims for expenditures: 29,609; 
2004 IV-E administrative claims for expenditures: 26,662; 
Change in claims for expenditures from FY 2000 - FY 2004: (2,947); 
Percent change in claims for expenditures from FY 2000 - FY 2004: - 
10.0. 

State: New Mexico; 
2000 IV-E administrative claims for expenditures: 14,248; 
2004 IV-E administrative claims for expenditures: 13,105; 
Change in claims for expenditures from FY 2000 - FY 2004: (1,143); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -8.0. 

State: Georgia; 
2000 IV-E administrative claims for expenditures: 36,396; 
2004 IV-E administrative claims for expenditures: 34,145; 
Change in claims for expenditures from FY 2000 - FY 2004: (2,251); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -6.2. 

State: Nevada; 
2000 IV-E administrative claims for expenditures: 11,411; 
2004 IV-E administrative claims for expenditures: 10,780; 
Change in claims for expenditures from FY 2000 - FY 2004: (631); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -5.5. 

State: Utah; 
2000 IV-E administrative claims for expenditures: 17,097; 
2004 IV-E administrative claims for expenditures: 16,442; 
Change in claims for expenditures from FY 2000 - FY 2004: (655); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -3.8. 

State: Maryland; 
2000 IV-E administrative claims for expenditures: 64,909; 
2004 IV-E administrative claims for expenditures: 62,858; 
Change in claims for expenditures from FY 2000 - FY 2004: (2,051); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -3.2. 

State: Maine; 
2000 IV-E administrative claims for expenditures: 8,013; 
2004 IV-E administrative claims for expenditures: 7,879; 
Change in claims for expenditures from FY 2000 - FY 2004: (134); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -1.7. 

State: Illinois; 
2000 IV-E administrative claims for expenditures: 115,402; 
2004 IV-E administrative claims for expenditures: 113,541; 
Change in claims for expenditures from FY 2000 - FY 2004: (1,861); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -1.6. 

State: Hawaii; 
2000 IV-E administrative claims for expenditures: 14,521; 
2004 IV-E administrative claims for expenditures: 14,507; 
Change in claims for expenditures from FY 2000 - FY 2004: (14); 
Percent change in claims for expenditures from FY 2000 - FY 2004: -0.1. 

State: Total decrease of 30 states; 
2000 IV-E administrative claims for expenditures: [Empty]; 
2004 IV-E administrative claims for expenditures: [Empty; 
Change in claims for expenditures from FY 2000 - FY 2004: ($144,866); 
Percent change in claims for expenditures from FY 2000 - FY 2004: 
[Empty]. 

State: Total change in claims for expenditures;  
2000 IV-E administrative claims for expenditures: [Empty]; 
2004 IV-E administrative claims for expenditures: [Empty]; 
Change in claims for expenditures from FY 2000 - FY 2004: $172,913; 
Percent change in claims for expenditures from FY 2000 - FY 2004: 
[Empty]. 

Source: Analysis of HHS data. 

[End of table] 

[End of section] 

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

DEPARTMENT OF HEALTH & HUMAN SERVICES: 
Office of Inspector General: 

JUN 6 2006: 

Ms. Cornelia M. Ashby: 
Director, Education, Workforce, and Income Security Issues: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Ms. Ashby: 

Enclosed are the Department's comments on the U.S. Government 
Accountability Office's (GAO) draft report entitled, "FOSTER CARE AND 
ADOPTION ASSISTANCE: Federal Oversight Needed to Safeguard Funds and 
Ensure Consistent Support for States' Administrative Costs" (GAO-06- 
649). These comments represent the tentative position of the Department 
and are subject to reevaluation when the final version of this report 
is received. 

The Department appreciates the opportunity to comment on this draft 
report before its publication. 

Sincerely, 

Signed by:

Daniel R. Levinson: 
Inspector General: 

Enclosure: 

The Office of Inspector General (OIG) is transmitting the Department's 
response to this draft report in our capacity as the Department's 
designated focal point and coordinator for U.S. Government 
Accountability Office reports. OIG has not conducted an independent 
assessment of these comments and therefore expresses no opinion on 
them. 

Comments Of The Department Of Health And Human Services On The 
Government Accountability Office's Draft Report Entitled, "Foster Care 
And Adoption Assistance: Federal Oversight Needed To Safeguard Funds 
And Ensure Consistent Support For States' Administrative Costs" (GAO- 
06-649): 

The U.S. Department of Health and Human Services (HHS) appreciates the 
opportunity to comment on the draft report. We look forward to working 
with the Government Accountability Office (GAO) on this and other 
pertinent issues addressed in this report. 

GAO Recommendation: 

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: 

* Expedite the development of the financial review guide regions use to 
monitor State claims for Federal reimbursement and develop an effective 
means of communicating current policy and oversight findings across 
regions and States. 

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

* Standardize the method States use to calculate the percentage of 
children served by foster care and adoption assistance programs that 
are eligible for Federal reimbursement of administrative costs. 

* Through HHS 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. 

* Assess the relative risk of improper Federal expenditures to States 
for administrative costs and redistribute oversight staff accordingly. 

HHS Response: 

As indicated in the report, HHS's financial management staff in several 
regional offices has begun an effort to compile a current financial 
review guide consisting of best review practices. HHS has begun an 
organizational restructuring that will include both financial 
management and fiscal staff and anticipates completion by the end of 
fiscal year 2006. HHS should then be better able to determine its 
ability to expedite the development of the financial review guide, as 
well as implement a more effective means of sharing with regional staff 
oversight findings across regions and States. Until then, however, HHS 
will continue to use the Child Welfare Policy Manual and Program 
Instructions to communicate pertinent program policy to the regions and 
the States. 

HHS coordinates with the Division of Cost Allocation (DCA) on a regular 
basis since HHS is responsible for providing comments on cost 
allocation plans and amendments submitted to DCA by States. As noted in 
the report, in conjunction with DCA, HHS reviews State cost allocation 
methods to ensure that the cost distribution to the Department's 
programs is appropriate and accurate. HHS also continues communicating 
with CMS staff regarding current and proposed policy as it impacts the 
title IV-E foster care program, particularly around target case 
management and costs associated therewith. 

While GAO may have identified one inconsistency among the regions 
regarding calculation of a title IV-E penetration rate, HHS does not 
believe this is a widespread problem. As described in the report, the 
calculation of a penetration rate is straightforward. HHS will address 
this topic with regional staff to ascertain if there is a problem and 
how best to address it. 

HHS will issue written guidance to State agency staff reminding them of 
the need to complete all categories of administrative costs as required 
on States' title IV-E financial reports (form HHS-IV-E-1) regarding the 
availability of regional staff to provide technical assistance to 
States and regarding HHS's role in ensuring States' compliance. 

HHS will take this recommendation under advisement as we proceed with 
our organizational restructuring. HHS views this recommendation as 
impractical because it would require either relocating staff across the 
country or reassigning fiscal responsibilities to program staff (a 
strategy GAO documents in this report as inappropriate). HHS will 
continue to focus on areas where there is the greatest need for staff 
intervention. 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Cornelia M. Ashby (202) 512-7215: 

Staff Acknowledgments: 

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. 

FOOTNOTES 

[1] Medicaid is a federal-state program that finances medical and 
health services for eligible individuals and provides funds to states 
for targeted case management services that help low income individuals 
gain access to needed medical, social, educational, and other services 
and coordinates individuals' use of providers. Targeted case management 
enables states to provide case management services to a defined group 
or groups of 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. 

[2] However, states are required to maintain a significant portion of 
their own historic financial commitment to their welfare programs as a 
condition of receiving their full TANF allotments. 

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

[4] There are some limitations in the data we used for our analysis. 
The data ACF provided represent states' claims for reimbursement rather 
than actual IV-E expenditures and reflect when the states made the 
claims to the federal government rather than when the costs were 
incurred. States may make corrections to claims within 2 years of their 
original filing. When they make such corrections, these are attributed 
to the year the corrected claim is made, rather than the year the claim 
was incurred. Therefore, ACF data can include prior quarter claims for 
costs incurred over the past 2 years and not previously reported. Prior 
quarter claims made up about 7 percent of 2000, 2001, and 2002 
claims;17 percent of 2003 claims; and 10 percent of 2004 claims. Claims 
data will differ from federal reimbursement reported in two ways. 
First, claims data includes payments that may have been deferred and 
possibly denied by HHS and reports them in the year they are claimed, 
rather than the year they are paid. Secondly, claims data includes 
claims that HHS has disallowed and will, therefore, never be paid; 
however, according to officials, this represents a very small portion 
of states' claims. 

[5] These numbers have been adjusted for inflation in fiscal year 2000 
dollars. The nominal increase was 17 percent, from approximately $2.5 
billion to $2.9 billion. 

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

[7] On Form ACF IV-E-1, Title IV-E Foster Care and Adoption Assistance 
Financial Report: State Quarterly Report of Expenditures and Estimates, 
this category is titled "State and Local Administration." For 
simplification and purposes of our review, we use the term, "child 
placement services," to refer to case management services for children 
placed in foster care and at risk of being placed in foster care as 
well as other administrative costs such as eligibility determination 
and SACWIS operating costs. 

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

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

[10] The 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. 

[11] While 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. 

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

[13] The 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. 

[14] The inflation adjustment was made using 2000 as the base year. 
Without adjusting for inflation, the increase was 17 percent, or $409 
million. 

[15] This 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. 

[16] Using 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. 

[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. 

[19] These figures were not adjusted for inflation. 

[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. 

[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. 

[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. 

[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. 

[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' 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. Recheck; 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' Use of Contingency-Fee Consultants 
to Maximize Federal Reimbursements Highlights Need for Improved Federal 
Oversight, GAO-05-748 (Washington, D.C.: June 2005). 

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