Illinois Department of Children and Family Services, DAB No. 1516 (1995) Department of Health and Human Services DEPARTMENTAL APPEALS BOARD Appellate Division SUBJECT: Illinois Department of DATE: May 4, 1995 Children and Family Services Docket No. A-93-206 Decision No. 1516 DECISION The Illinois Department of Children and Family Services (Illinois) appealed a determination by the Administration for Children and Families (ACF) that Illinois was ineligible to receive $5,634,432 in federal incentive funds for fiscal year (FY) 1991 under section 427 of title IV-B of the Social Security Act (Act). Section 427 provides that a state may receive additional funds for child welfare services, beyond the amount available under section 420 of the Act, if the state meets the specified requirements for protecting children in foster care. ACF has established a two-stage process for evaluating states' eligibility for section 427 funds. First, ACF conducts an administrative procedures review to determine whether a state has established policies or procedures for implementing the section 427 requirements. Second, ACF reviews a sample of case records to determine whether these policies or procedures are operational. If a state fails to establish a requirement as a matter of policy, or does not comply with the applicable requirements in a certain percentage of the cases as determined through a case sample, ACF requires the return of the section 427 funds. Here ACF found, based on the results of a case record survey for FY 1991 conducted in May 1992, that Illinois was well below the 90% compliance level required for that year. ACF therefore determined to disallow Illinois' section 427 incentive funding for FY 1991. Illinois attacked the disallowance on several different grounds. Illinois argued: (1) ACF violated its own policies in reviewing Illinois' performance for FY 1991; (2) ACF was precluded by various moratoria and other congressional actions from either performing the review or taking this disallowance and pursuing this appeal; (3) the failed cases generally should not have been found to have failed since Illinois was unable to determine what actions and documentation were necessary to meet the requirements; (4) ACF improperly included some cases in the sample and improperly failed or disqualified successful cases; and (5) individual cases cited by ACF as having failed the review should have passed. For the reasons discussed below, we affirm the disallowance. We conclude: ACF's review of Illinois' performance for FY 1991 was proper; congressional moratoria and other actions did not preclude ACF from reviewing Illinois' FY 1991 program or from pursuing these appeal proceedings in support of the finding of ineligibility; Illinois had sufficient notice of the nature of the section 427 requirements, including the requirement that it be able to document its compliance with section 427 requirements; the sample here was properly constructed; and arguments concerning Illinois' compliance in individual cases lack merit. It is important to note that what is at stake here is incentive funding over and above what a state would ordinarily obtain and that there are important statutory requirements that a state must establish it complied with in order to be eligible for these funds. Here, the evidence is overwhelming that Illinois did not meet these statutory requirements for its foster care children. Although Illinois raised a number of technical, legal arguments about why ACF could not conduct a 427 review and find it out of compliance, those arguments are simply not persuasive. Illinois does not have an absolute right to obtain this additional incentive funding with no federal oversight or accountability concerning whether it complied with basic statutory requirements. Below, we first give the background to this appeal and then discuss each of the arguments advanced by Illinois. As part of that discussion, we examine the failed cases from the first 50 cases in the case record survey to determine if ACF's findings were correct. Based on the review methodology applied by ACF, Illinois actually reached the failure point for the case record survey after ACF completed its review of Case No. 12 of the sample, since Illinois had failed eight cases in the first 12 reviewed. Although it is therefore not necessary for the Board to review more than the first eight failed cases, we have reviewed all failed cases within the first 50 sample cases to provide an extra degree of certainty concerning the results of this review and in response to certain arguments raised by Illinois concerning the review methodology. Overall, ACF found that Illinois had failed 52 cases out of 107 sample cases read. Statutory Provisions The Adoption Assistance and Child Welfare Act of 1980, Public Law No. 96-272, amended the program of child welfare services under title IV-B of the Act by adding a new section 427, and also established a new title IV-E authorizing funding for foster care maintenance and adoption assistance payments. These amendments were precipitated by studies which showed that the public child welfare system had become a holding system for children living away from parents, rather than a system assisting parents in carrying out their roles and responsibilities and providing for alternative permanent placement for children who cannot return to their own homes. Thus, one of the goals of Public Law No. 96-272 was to ensure that children do not remain adrift in the foster care system. See 48 Fed. Reg. 23,104 (May 23, 1983) (preamble to regulations implementing section 427). Section 427 provides that states may obtain additional funding for child welfare services if they have implemented case plan and case review procedures that periodically assess the appropriateness of a child's placement in foster care and reevaluate the services provided to assist the child and the family. Moreover, a state must comply with all of the requirements of section 427 in order to be eligible for title IV-E funds for children in voluntary placements. Section 472(d). As pertinent here, section 427(a)(2)(B) requires as a condition for receipt of section 427 funds that a state have implemented and be operating "to the satisfaction of the Secretary" -- a case review system (as defined in section 475(5)) for each child receiving foster care under the supervision of the State . . . . Section 475(5) of title IV-E provides that -- The term "case review system" means a procedure for assuring that -- (A) each child has a case plan designed to achieve placement in the least restrictive (most family like) setting available and in close proximity to the parents' home, consistent with the best interest and special needs of the child, (B) the status of each child is reviewed periodically but no less frequently than once every six months by either a court or by administrative review (as defined in paragraph (6)) in order to determine the continuing necessity for and appropriateness of the placement, the extent of compliance with the case plan, and the extent of progress which has been made toward alleviating or mitigating the causes necessitating placement in foster care, and to project a likely date by which the child may be returned to the home or placed for adoption or legal guardianship, and (C) . . . procedural safeguards will be applied, among other things, to assure each child in foster care under the supervision of the State of a dispositional hearing to be held, in a family or juvenile court or another court . . . of competent jurisdiction, or by an administrative body appointed or approved by the court, no later than eighteen months after the original placement (and periodically thereafter during the continuation of foster care), which hearing shall determine the future status of the child (including, but not limited to, whether the child should be returned to the parent, should be continued in foster care for a specified period, should be placed for adoption, or should (because of the child's special needs or circumstances) be continued in foster care on a permanent or long-term basis) . . . . Thus in order to qualify for section 427 incentive funding, a state must implement a case review system with three components: a case plan for each child, a periodic review (at least every six months) of the child's status, and timely dispositional hearings to determine the future status of the child. 1/ Factual Background A. Illinois' prior section 427 reviews. The year involved in the current dispute is not the first year for which Illinois has undergone a section 427 review. In 1982 ACF conducted its first review of Illinois' compliance with the section 427 requirements. This review covered both FYs 1981 and 1982, with ACF finding that Illinois had complied with the requirements in the requisite percentage of cases. In 1986 ACF conducted what it considered to be a triennial review for Illinois, which covered FY 1984. ACF found that Illinois had failed the case record survey, thus making Illinois ineligible for section 427 funding for that year. Illinois appealed ACF's decision to this Board, which sustained ACF's determination in Illinois Dept. of Children and Family Services, DAB No. 1037 (1989). Illinois appealed the Board's decision to the United States District Court, which, as we discuss below, remanded the case to the Board for further proceedings. In Illinois Department of Children and Family Services v. Sullivan, C.A. No. 89-1730 (D.D.C., September 12, 1990), Illinois challenged the Board's rejection of its argument that six children whom ACF found did not receive the protections of the case review system were not in "foster care" within the meaning of section 427(a)(1)(B) of the Act and should not have been included in the universe for the case record survey. Illinois had asserted that the six children were placed in the homes of relatives ("approved only" homes) and were not in "foster family homes" within the meaning of the Act. The Board had found that the "approved only" homes met state licensing standards for foster family homes and that the six children were therefore in foster care. Before the district court Illinois also challenged the Board's rejection of Illinois' contention that the 90 percent compliance standard used by ACF in the case record survey was arbitrary, capricious, or an abuse of discretion. The district court found that the Board erred in finding that the "approved only" homes met licensing standards. The district court remanded the case to the Board to address Illinois' contention that the term "foster care" in section 427 applies only to children in foster family homes as defined in section 472(c) of the Act. The district court did not rule on the merits of Illinois' objections to the 90 percent compliance standard on the ground that the Board's decision on remand might render that issue moot. In Illinois Dept. of Children and Family Services, DAB No. 1335 (1992), the Board concluded that ACF erred in finding that Illinois was ineligible for section 427 funds for FY 1984 based on a case record survey which included children in "approved only" homes. The Board directed ACF to conduct a case record survey which did not include any children in "approved only" homes to determine Illinois' eligibility for section 427 funds. In DAB No. 1335 the Board also reaffirmed its holding that the 90 percent compliance standard was proper. As of the date of this decision, there has been no revised determination from ACF regarding Illinois' review performance for FY 1984 funds. In 1992 ACF also conducted a review of Illinois' case records for FY 1985, but the results of that review have not yet been finalized. There has been no review of Illinois' case records for section 427 compliance for any year from FY 1986 through FY 1990. B. The FY 1991 section 427 review at issue. In order to determine a state's rate of compliance in individual cases, ACF employs a special type of sampling procedure known as "sequential sampling." In this type of sampling, although a sample of a fixed size is drawn, all of the cases in the sample may not be reviewed. Instead, the number of cases reviewed is determined during the course of the case record survey based on the results in individual cases. A "decision table" prescribes how many cases of the number sampled at each point must have been out of compliance, or "failed," in order to conclude without further review that a state is ineligible for section 427 funds, as well as how many cases must have "passed" in order to conclude without further review that a state is eligible for section 427 funds. 2/ ACF conducted the FY 1991 section 427 review in May 1992 with both federal and state reviewers. ACF issued a report on its findings on September 9, 1992. Illinois Ex. 23, "Section 427 Report on State Eligibility" (Report). ACF found that eight of the first 12 cases were not in compliance with the section 427 requirements, and based on the decision table, concluded that Illinois did not meet the 90% compliance standard. According to ACF, seven of the cases failed the requirement for dispositional hearings, five failed the requirement for periodic reviews, and some cases failed both the requirements. The case record survey continued until 107 cases had been reviewed. Upon completion of the review in May 1992, ACF determined that 60 of the cases failed to meet at least one of the section 427 statutory requirements. Illinois failed the dispositional hearing requirement in 52 of the 107 cases, and the periodic review requirement in 44 of the 107 cases. During the course of Board proceedings, Illinois submitted additional documentation in several cases which was accepted by ACF (none involving the first 12 cases in the sample), with the result that ACF now considers 52 cases to have failed. ACF Post Argument Br. at 5. C. Congressional moratoria on the collection of section 427 funds. After ACF conducted its section 427 review for Illinois for FY 1991, Congress enacted a moratorium precluding any section 427 funding sanctions during FY 1994. The moratorium was established by section 13716 of the Omnibus Budget Reconciliation Act (OBRA) of 1993, Public Law No. 103-66. 3/ Section 13716 is captioned "Moratorium on Collection of Disallowances," and provides in pertinent part that the Secretary shall not, before October 1, 1994, "reduce any payment to, withhold any payment from, or seek any repayment from any State under part B or E of title IV of the Social Security Act by reason of a determination made in connection with a review of State compliance with section 427 of such Act for any Federal fiscal year before fiscal year 1995 . . . ." In a December 3, 1993 ruling, the Board denied Illinois' request for a stay of proceedings in this appeal based on the moratorium. Illinois had argued that the moratorium precluded litigation of this appeal before the Board because ACF's sole purpose in participating in such litigation would be to seek repayment of the funds within the meaning of section 13716. The Board noted that it was indisputable that the moratorium prohibited ACF from recovering the funds at issue prior to October 1, 1994 (the beginning of federal FY 1995). The Board held, however, that the plain language of section 13716 precludes the Secretary only from collecting disallowed funds. The Board declared that -- the conduct of proceedings before the Board does not constitute the collection of disallowed funds. Indeed, it is part of the review process leading to a determination on whether funds should be disallowed, a process which is necessary in order for the Secretary to carry out her fundamental responsibility to monitor a state's performance under the section 427 program. At 3. The Board further noted that it had reviewed and issued decisions in other cases that were subject to the various moratoria on the collection of section 427 funds. See West Virginia Dept. of Health and Human resources, DAB No. 1437 (1993), and Connecticut Dept. of Children and Youth Services, DAB No. 952 (1988), aff'd 788 F. Supp. 573 (D.D.C. 1992), 9 F.3d 981 (D.C. Cir. 1993). The moratorium imposed by OBRA '93 expired on October 1, 1994, and Congress did not reinstate the moratorium. Discussion On appeal before the Board, Illinois disputed ACF's right to take a disallowance under the particular circumstances presented by this appeal. First, Illinois contended that the FY 1991 review was contrary to stated ACF policy. Illinois also argued that ACF's action violated the congressional moratoria. In the oral argument held in this appeal Illinois made a parallel argument that it is currently the intent of Congress that no actions be taken by ACF to penalize states for failing to meet the section 427 requirements. Illinois further contended that cases should not have been failed in the review merely because documentation was lacking or the dispositional hearing was not held due to reasons beyond Illinois' control. Illinois also argued that the sample of cases was improperly constructed and that successful cases, such as cases where children were adopted or returned to their parents, should have been considered passed by the reviewers rather than eliminated from the sample and replaced with other cases from the oversample. Illinois additionally challenged ACF's findings in regard to particular cases in the sample. We will discuss each of these arguments in turn. I. ACF's conduct of a section 427 review for FY 1991 was proper. Illinois contended that ACF failed to follow its stated policy with respect to the timing of section 427 triennial reviews and the conduct of reviews while litigation is pending relating to a prior year's review. Illinois argued that ACF's policy, as enunciated in the Section 427 Review Handbook issued in August 1988, is that it conducts triennial reviews every third year. Illinois Ex. 1, at 2. Illinois reasoned that if ACF had adhered to this policy, it would have reviewed Illinois for FYs 1987 and 1990, since ACF had conducted a triennial review for FY 1984. However, ACF conducted no such reviews. Illinois also argued that ACF had another policy of not conducting a section 427 review when litigation was still pending in regard to the results of a prior year's review. Illinois Ex. 13. Illinois asserted that during FY 1991, Illinois and ACF were engaged in litigation over the FY 1984 review. This litigation was not resolved, according to Illinois, until the Board issued DAB No. 1335 on June 1, 1992, which was after the review for FY 1991 had been conducted. Illinois argued that it was unfair for ACF to proceed with the FY 1991 review at a time when Illinois did not have a resolution of the definition of "foster care" or of the appropriate compliance standard. While not disputing ACF's right to change its policy, Illinois argued that ACF should not be permitted to discard established policies in order to conduct a case record survey for Illinois in FY 1991 (outside the alleged triennial review cycle and during the pendency of litigation), without a reasoned explanation for doing so. Contrary to Illinois' arguments, we find no evidence of any ACF policy that would have prohibited the section 427 review at issue. The Section 427 Review Handbook, cited by Illinois for the proposition that a triennial review is conducted only every third year, states: If a State meets the Initial Review requirements, a Subsequent Review is conducted for the following fiscal year. States that meet the requirements of the Subsequent Review will be reviewed for the third fiscal year following the fiscal year for which the Subsequent Review was conducted. This is known as the Triennial Review. If a State does not meet the established standards for any review for the year under review, the review is conducted each succeeding year (unless the State withdraws) until eligibility is established. Illinois Ex. 1, at 2 (emphasis added). The Handbook thus contemplates that a triennial review occurs for the third year only if a state can establish that it has successfully met the program requirements in the initial and subsequent reviews. 4/ Illinois was found to have met these requirements in the initial review, FY 1981, and the subsequent review, FY 1982. For the review of FY 1984, however, Illinois was found not to have met the requirements. As discussed above, although there have been two Board decisions and a district court decision over the FY 1984 review, the results of that review have not yet been finalized. It has not therefore been established that Illinois met the requirements for the review for FY 1984. Under the provisions of the Handbook, ACF could have conducted a review every fiscal year until Illinois established its eligibility. The fact that ACF decided, for whatever reason, not to conduct annual reviews in particular intervening years should not be a bar to ACF's decision to conduct a review for FY 1991. Moreover, the Handbook does not in any way imply that if ACF chooses to delay a review for a year or more it may only perform a review according to an earlier triennial review schedule. Rather, the state presumably would be subject to a review for any succeeding year after the year that should otherwise have been the scheduled review year. Thus, we can find no basis in the Handbook or in the statute or regulations for Illinois' argument that the review of FY 1991 was contrary to ACF's stated policy on triennial reviews. 5/ As its source for its allegation that ACF policy precluded ACF from conducting a review while litigation was pending over a previous year's review, Illinois referred to a January 9, 1992 letter from the ACF Regional Administrator to the Director of the Illinois Department of Children and Family Services. This letter states, in part: Illinois' most recent review covered . . . FY 1984, and subsequent reviews were held in abeyance during the intervening years due to our agency's past practice to not review a State which had appealed the Section 427 decision to the Departmental Appeals Board, and later, due to a statutory prohibition barring reviews while litigation was pending. This statutory prohibition was not extended in [OBRA '90], thereby allowing resumption of the periodic reviews. Illinois Ex. 13, at 1. According to Illinois, this wording in the letter is evidence of an ACF policy that no further section 427 reviews will be conducted while a prior year's review is being litigated. Illinois concluded that ACF violated this policy when it conducted a review for FY 1991 when the review for FY 1984 was still being contested. ACF responded that it had never issued any written policy precluding reviews while litigation was pending. ACF argued that it had legitimate reasons to conduct a review for FY 1991 under its statutory and regulatory mandate and exercised that discretion appropriately. ACF referred to Connecticut, supra, which involved a section 427 review conducted by ACF for the years 1986-1991 despite continued litigation over the review for FY 1985. ACF asserted that nothing in that decision suggested that ACF did not have the authority to use its discretion in administering the section 427 program to conduct further reviews even while litigation over a prior review continued. While the letter quoted above referred to a past "practice" by ACF to forego reviews in limited circumstances, ACF never issued any regulation or program policy transmittal that required it to forego reviews. Under these circumstances, we see no basis for concluding that ACF could not relinquish its practice as the letter implied it already had. No formal process would be required for ACF to do so since the practice had never been adopted as a binding policy to begin with. Moreover, even if ACF had concluded that the moratorium in OBRA '90 was a basis for foregoing reviews, that moratorium subsequently expired and no longer had any bearing on ACF's discretion to conduct section 427 reviews. Thus, we conclude that no past practice on ACF's part in any way limited its discretion to conduct the FY 1991 program review at issue here. Moreover, the conduct here of Illinois's FY 1991 review, even while a prior year's review was still being litigated, has a sound program basis. To prohibit ACF from conducting a review for an indefinite period of time while a previous year's review is in litigation would allow a state to receive potentially millions of dollars in section 427 funds without any accountability for the funds. A delay under these circumstances might reasonably be viewed as conflicting with the Secretary's responsibility under section 427 to monitor the performance of states under this program. There would be no way to determine if a state's foster care program was the type of "holding system" for foster children that Public Law No. 96-272 sought to end. In the case of Illinois, the section 427 review for FY 1984 still has not been resolved. Under Illinois' theory, all the succeeding years would be unreviewable because of the lack of a resolution for the FY 1984 review. We also note that it appears that the review for FY 1991 was undertaken only with Illinois' explicit consent. The letter quoted above continues, "We are pleased that [Illinois] has agreed to allow us to conduct three (3) triennial Section 427 reviews [for FYs 1985, 1991, and a year to be determined] in Chicago during FY 1992." Id. The letter specifically details that one of the reviews agreed to will be for FY 1991. Id. Finally, we conclude that Illinois did not establish that it was in any way prejudiced by ACF's resumption of reviews before all issues pertaining to the FY 1984 review were finally resolved. Illinois could raise here any issue that it believed remained unresolved from the earlier review. We therefore conclude that it was entirely proper for ACF to conduct the section 427 review for FY 1991. II. ACF's section 427 review for FY 1991 was not prohibited by the moratorium contained in OBRA '90, nor is the Board's review of ACF's determination of ineligibility prohibited by the moratorium contained in OBRA '93. Illinois argued that ACF should not have conducted a section 427 review for FY 1991 because that year was unreviewable as a matter of law. Illinois contended that the moratorium contained in OBRA '90 was in effect during all of FY 1991. Section 5072 of OBRA '90 amended section 10406 of OBRA '89 so that the language pertinent to this appeal read: The Secretary of Health and Human Services shall not, before October 1, 1991, reduce any payment to, withhold any payment from, or seek any repayment from, any State under part B or E of title IV of the Social Security Act, by reason of a determination made in connection with any triennial review of state compliance with the foster care protections of section 427 of such Act for any Federal fiscal year preceding fiscal year 1992. Illinois maintained that this language makes FY 1991 unreviewable for purposes of determining a state's eligibility for section 427 funds for that year. Illinois' position concerning the effect of the moratorium contained in OBRA '90 is contrary to the plain language of the moratorium. The moratorium did not make FY 1991 permanently unreviewable nor did it ever preclude ACF from performing a review of Illinois' FY 1991 performance under section 427. Rather, the moratorium merely precluded the Secretary from taking certain adverse payment actions before October 1, 1991. The moratorium expired as of October 1, 1991 and does not now bar any adverse payment actions. Moreover, the various arguments made by Illinois concerning the legislative purpose behind this moratorium (and subsequent ones) are highly speculative and fail to address the effect of the plain language of the moratoria statutes themselves. The moratoria simply cannot be viewed as having any greater effect than the express statutory language would indicate. Closely related to its argument concerning the OBRA '91 moratorium, Illinois argued that the language of the moratorium in OBRA '93 prohibited ACF from participating in appeal proceedings in furtherance of its disallowance of section 427 funds to Illinois. Section 13716 of OBRA '93 repeats the language of the moratorium in OBRA '90, with the only changes being the dates ("October 1, 1994" for "October 1, 1991" and "fiscal year 1995" for "fiscal year 1992"). This issue was addressed by the Board in its December 3, 1993 Ruling on Illinois' Motion for Stay. As discussed above, the Board denied Illinois' request for a stay of proceedings in this appeal. In that Ruling, which we incorporate by reference here, the Board found that the plain language of the moratorium prohibited ACF only from collecting disallowed section 427 funds, not from conducting a review of a state's compliance with the section 427 requirements. Illinois has not provided any new arguments in the briefing that followed the Ruling that persuade us that the Board's reasoning in the Ruling was incorrect. Moreover, since the Board issued its ruling, the moratorium in OBRA '93, like the moratorium in OBRA '91, has expired, and the Department is no longer precluded from taking adverse payment actions based on the provisions of the moratorium. III. Recent congressional actions do not prohibit the disallowance at issue. Illinois pointed to the passage of the Social Security Act Amendments of 1994, Public Law No. 103-432, as confirmation of congressional intent, first evidenced by the various moratoria, that states not be punished for any alleged failure to meet the section 427 requirements. The 1994 amendments contain the following provisions affecting the IV-B program: section 427 is repealed, effective with fiscal years beginning after April 1, 1996; a IV-B state plan must provide assurances that the state is operating a case review system for each child receiving foster care; and the Secretary is to promulgate regulations by July 1, 1995, to be effective April 1, 1996, for the review of a state's IV-B program to determine whether the program is in substantial conformity with state plan requirements, the implementing regulations, and the approved state plan. According to Illinois, the 1994 amendments and recent testimony before Congress in an oversight hearing on the section 427 program (Illinois Exs. 28 - 30) are evidence of congressional support for Illinois' position that section 427 reviews are inconsistent with the purpose of the Adoption Assistance and Child Welfare Act and are unfair to the states. Illinois argued that the fact that Congress directed the Secretary to promulgate regulations for the IV-B review system specifying the requirements subject to review and the criteria to be used to measure conformity with such requirements corroborates Illinois' position that, in the absence of promulgated regulations, it was impossible for states during the time period at issue to determine what actions and supporting documentation ACF considered necessary for periodic reviews and dispositional hearings under the section 427 review process. Illinois' argument that the Board should take notice of Congress' concerns with the section 427 review process (as expressed in legislative histories of provisions relating to the process) would require the Board to ignore the actual terms of the existing law. As discussed previously, there are no moratoria now in effect that would preclude the repayment of section 427 funds required as a result of a review of a state's compliance with the section 427 requirements. Moreover, the Social Security Act Amendments of 1994 that eliminate section 427 do not take effect until April 1, 1996. The Board is bound by all applicable laws and regulations. 45 C.F.R.  16.14. Thus, the Board is required to apply section 427 as it was in effect during FY 1991 (and as it remains in effect at the present time) to the facts of this case. Despite whatever reasons caused Congress to amend the section 427 review process, Congress did not elect, when it clearly had the opportunity to do so, to impose a temporary or a permanent moratorium on the repayment of funds arising from a finding of non-compliance with the section 427 requirements for any fiscal year prior to the effective date of the amendments. Similarly, Congress did not include in the 1994 amendments any language prohibiting ACF from monitoring or enforcing the current section 427 requirements. The fact that Congress chose to make significant changes affecting foster care incentive funding to be effective at some future date does not relieve states of the obligations of the existing law. We therefore conclude that neither the 1994 amendments to the Social Security Act nor the recent testimony in oversight hearings cited by Illinois bar ACF from requiring repayment of section 427 incentive funds claimed by Illinois for the 1991 fiscal year. IV. Illinois has the burden to provide adequate documentation that it met the section 427 requirements. Illinois argued that the number of failed cases found by the review is misleading. (ACF originally found that 60 out of 107 cases failed. After Illinois had the opportunity to submit additional documentation during Board proceedings, ACF still found 52 out of 107 cases failed.) Illinois attributed the failure of many cases to meet the periodic review and dispositional hearing requirements to a lack of documentation. Illinois referred to the Report, which in discussing the 44 cases that were originally found not to have met the periodic review requirement, stated: Many of the cases did not have acceptable documentation of periodic reviews. It was difficult to tell if reviews actually were late, did not occur, or whether information was just missing from the files. Report at 10. Similarly, in regard to the 52 cases which were originally found to have failed the dispositional hearing requirement, Illinois referred to the Report's finding that "[m]issing or incomplete case record material" affected the dispositional hearing requirements. Id. at 9. While acknowledging that it was not possible to say precisely how many cases failed due to some defect of documentation, as opposed to an actual failure to hold a review or hearing on time, Illinois contended that the Report contained enough information to suggest that lack of documentation might have been the primary cause of Illinois' failing the section 427 review. Illinois estimated that up to 42 of the dispositional hearing failures and up to 31 of the periodic review failures were due to a lack of documentation rather than an actual failure to hold a hearing or review on time. Illinois argued that these concerns over documentation highlight a "troubling" aspect of the section 427 review process, namely the lack of any rules specifying what documentation a state must produce to establish the adequacy and timeliness of periodic reviews and dispositional hearings. Illinois declared that ACF has not provided the states with any detailed guidelines as to what constitutes acceptable documentation and pointed out that ACF's 1988 Handbook refers only to "critical" documentation without defining the term. Illinois argued that this lack of guidance over what is acceptable documentation may result in the Secretary's statutory determination of whether a state is operating its case review system in an acceptable manner depending more on the state's record-keeping capabilities than on whether periodic reviews and dispositional hearings are actually being held and whether children are being protected from foster care drift. Illinois contended that the lack of established rules governing section 427 reviews means that the reviews are essentially arbitrary in terms of documenting the periodic review and dispositional requirements; individual case reviewers may fail cases for different reasons, leaving open the possibility of inconsistency among the reviewers on a particular team or inconsistency among reviews conducted from state to state. Illinois declared that, in the absence of more specific rules, the section 427 review should take into account a broader range of documentation as establishing the conduct of periodic reviews and dispositional hearings. Illinois requested that, since it is unclear what standards were applied in its FY 1991 review, the review be remanded to ACF to be conducted using the full range of evidence of such reviews and hearings. Illinois' arguments are completely unpersuasive. For purposes of establishing a state's compliance with the section 427 requirements, there is no basis for distinguishing between cases where it is acknowledged that no timely dispositional hearings were held and cases where it is claimed that hearings were held but there is no way of documenting the existence of those hearings. Indeed, the production and retention of basic documentation evidencing the holding of dispositional hearings and periodic reviews is not merely a technical requirement but is critical for the success of the state's section 427 program. The value of the hearings and reviews for the children in foster care may be largely negated if a state has no record of what actually transpired or even that the hearings or reviews ever took place. Moreover, Illinois cannot here reasonably claim that it was unaware that it would have to provide documentation that dispositional hearings were held and periodic reviews were conducted, particularly in view of the fact that it had already been subject to several previous reviews of compliance with the section 427 requirements, including the review for FY 1984. The Board has long and consistently held that a state must be able to document its eligibility for the federal grant funding it receives. See, e.g., Missouri Dept. of Social Services, DAB No. 395 (1983); Connecticut, supra. This is particularly true in the case of an incentive program such as that authorized by section 427. The whole purpose of the program is for the federal funding to serve as an incentive for the state to provide additional safeguards for children in foster care. If a state cannot demonstrate that it provided the safeguards, it simply is not entitled to the incentive funding. In this case, Illinois is seeking over $5 million in federal incentive funds without proof that it did the things the funds were supposed to encourage. As we discuss in detail below, Illinois has clearly not met its burden here to document for individual cases considered in the case record survey that it complied with the requirements of the section 427 program for FY 1991. We consider below the documentation provided by Illinois concerning every failed case out of the first 50 cases of the 107 sample cases read. Four of the 22 failed cases were not contested. For 14 of 18 contested cases, Illinois provided no documentation whatsoever that it met either the dispositional hearing or the periodic review requirement (or both). Illinois cannot reasonably argue that, in the absence of any documentation, it complied with the statutory and regulatory requirements in these cases or that it was treated by ACF in an arbitrary fashion. For the remaining four cases where documentation was provided, we carefully consider each document submitted and conclude below that there is simply no reasonable basis for finding that any of these cases should have passed. Illinois' position that ACF has been somehow remiss by not specifying the documentation needed to show that periodic reviews were conducted and dispositional hearings were held is completely undercut by ACF's assertion that it is willing to accept any type of documentation that clearly shows that a particular requirement has been met. For example, ACF stated that it would accept the following documents to show that a dispositional hearing had been held: transcripts of court proceedings, court docket sheets, judicial orders, bench notes, or any other type of judicial documents that indicate that parents or guardians were present or notified and that the future placement of a child was considered at a hearing. ACF Br. at 10-11. ACF has not demanded that each child's file must contain a certain type of document showing that there was a review and a hearing. Rather, ACF agreed to accept a wide range of documentation. 6/ We do not consider the production of such documentation to be an unreasonable burden upon Illinois or one which is not evident from the statute. Additionally, we find that there is nothing "vague" about what section 427 requires. The Board has previously held that "the basic statutory requirements for [the section 427] protections are clear on their face." West Virginia, supra, at 5. Furthermore, if Illinois found the section 427 requirements too vague to implement and document, then it presumably would not have elected to participate in the section 427 program or later certified that it met those requirements. Id. at 7. Nor do we find that Illinois was prejudiced by alleged inconsistent treatment compared with other states. On the contrary, as ACF argued, Illinois was unique in the nation for retaining section 427 funds for many years without any oversight. Oral Argument Transcript (Tr.) at 76. We therefore decline Illinois' request to remand the cases to ACF for further review. We find that Illinois was required to retain and make available for ACF's review documentation that periodic reviews and dispositional hearings were held and that ACF properly failed cases in which such documentation was lacking. V. Illinois is responsible for ensuring that dispositional hearings are held within the time limits prescribed by section 427. Illinois noted that 52 of the 107 cases sampled originally failed the dispositional hearing requirement. Illinois contended that the FY 1991 review was flawed because the reviewers failed to take into account the distinction between whether a failure to hold a dispositional hearing on time was a lapse on the part of Illinois or on the part of the court. Illinois contended that while section 427 requires "the State" to meet the section 427 requirements in order to be eligible for section 427 funds, ACF in its implementing regulations created an exception to that general rule in regard to dispositional hearings. Illinois cited 45 C.F.R.  1357.25(d): In meeting the requirements of section 427(a)(2)(B) of the Act for dispositional hearings the State agency must meet the requirements of section 475(5) of the Act and 45 CFR 1356.21(e). (Emphasis added by Illinois). 7/ Illinois interpreted this regulation as imposing the responsibility for meeting the dispositional hearing requirement on a state's title IV-B/IV-E agency and not the state as a whole. Illinois therefore argued that the state agency may meet the dispositional hearing requirement of the Act by having an adequate system in place for requiring dispositional hearings, even if the state's courts which must conduct the hearings are not actually holding those hearings within the prescribed time period. Illinois maintained that it schedules timely dispositional hearings by generating and filing a supplemental petition to the court for review. After the petition is set for hearing, the clerk of the court mails notices of the hearing to the interested parties. Illinois Br. at 29. Illinois contended that it has no further control over when the hearing is actually held; continuances may be granted either for the court's or the parties' convenience to dates making the hearings late under the section 427 requirements. Illinois maintained that it is not in a position to dictate to the courts when hearings are to be held and that it thus should not be penalized by its inability to direct the courts to act within the section 427 time parameters. Illinois insisted that it therefore met the responsibilities of a "State agency" set forth in 45 C.F.R.  1357.25(d) for dispositional hearings. Illinois requested that the case record review be remanded to ACF to be conducted again in accordance with the regulatory distinction between a state and a state agency. The Board has previously considered the question of whether a court's failure to set a dispositional hearing when requested by a state agency excuses the state from compliance with the section 427 requirements. In Arkansas Dept. of Human Services, DAB No. 553 (1984), the Board held: It is implicit in Section 427 that states must provide the resources necessary to implement the required safeguards and insure that courts understand their role in implementing these safeguards. To recognize a court's lack of resources or diligence as an excuse for non- compliance would defeat the purpose of the statute. At 8. The Board relied on the same rationale in Illinois Dept. of Children and Family Services, DAB No. 1037 (1989), where it rejected as an excuse for a failure to meet the dispositional hearing requirement a court's crowded calendar. Illinois' attempts to draw a distinction between the requirements imposed upon a "State" by the Act and those imposed upon a "State agency" by 45 C.F.R.  1357.25(d) are not persuasive. Illinois did not point to anything which indicates that the use of the term "State agency" in the regulation was intended to relieve Illinois of responsibility for failure to meet the dispositional hearing requirement. Furthermore, any such purported distinction overlooks the basic fact that the section 427 program is an incentive program. States do not have to participate in the program, but if they do, they must adhere to the program's requirements, including the criteria for timely dispositional hearings. As noted previously, if a state found the criteria too difficult to implement, it could elect not to participate in the program. Illinois, however, chose to participate and seek the funds offered by the program. Accordingly, Illinois is required to ensure that the dispositional hearings are held within the time frames mandated by section 427. Illinois, like all other states, was required to work cooperatively with its court system to ensure that dispositional hearings were held within the section 427 time frames. Finally, of the 22 failed cases out of the 50 cases in the sample considered by the Board below, Illinois failed to establish that any cases could reasonably be considered to have passed based on its argument that the delay should be viewed as being outside the responsibility of the state agency administering the section 427 program. Nor did Illinois demonstrate that any of the cases came within the scope of the continuance policy recognized by the Board in Idaho Dept. of Health and Welfare, DAB No. 1011 (1989). The Board there found that a periodic review or a dispositional hearing could be timely if it is scheduled for a date which is timely, begins, but then is continued until a later date, even if that later date is outside the section 427 time parameters. Idaho at 7-8. In the final section of this decision, we discuss those cases where Illinois argued that a dispositional hearing was timely based on a court's continuance and find that its evidence was unpersuasive in each instance. VI. The sample of cases properly included cases that were substitutions for cases that had been declared ineligible for the review. Illinois argued that numerous cases were declared ineligible for review by the reviewers, and these cases were then dropped from the sample and replaced with substituted cases from the oversample. 8/ Illinois alleged that these "ineligible" cases were comprised of cases where children were returned to their parents or adopted or had reached the age of majority prior to or during the period under review. According to Illinois, there were 15 cases of this type or 14% of the review sample. Illinois contended that these cases should not have been in the sample in the first place and that replacing them with other cases had two adverse consequences for Illinois: 1) the inclusion of ineligible cases in the original sample had the effect of displacing eligible ones from the sample and may therefore have affected the validity of the sample and the outcome of the review; and 2) because the sample cases were not read in their original order Illinois reached the failure point after Case No. 12 had been read rather than after Case No. 30. Alternatively, Illinois argued that such cases as adoption and return to parents, rather than being declared ineligible by the reviewers and dropped from the sample, should be considered successes of the foster care program and should therefore be passed in the review. Illinois pointed to two such adoption cases, Nos. 56 and 74, which were disqualified from the sample and replaced by two substitute cases that were then failed. Illinois' arguments concerning the substitution of cases are unpersuasive. The purpose of a section 427 review is to determine whether a state provided the requisite section 427 protections in each foster care case. Cases that involve children no longer in the foster care system -- whether through adoption, return to parents, or reaching the age of majority -- should reasonably not be included in a survey designed for the purpose of determining how a state is treating children in the foster care system. Moreover, once a case is eliminated from the sample on these grounds it is reasonable that it be replaced in order to preserve the integrity of the sample. Although in this particular review, ACF's policy of substitution may have caused Illinois to reach the failure point sooner than it would have otherwise, the same policy in another review might have just the opposite result. The substituted cases from the oversample presumably have no greater chance of failing than would the very next case in the original sample. We question whether Illinois would have challenged the use of substituted cases here on appeal if more of the oversample cases had passed rather than failed. 9/ In any event, Illinois conceded that even without the effect of the substitution policy, it would still have reached the failure point at Case No. 30. Thus, there is no question that ACF's policy of substitution did not cause Illinois to fail the case record survey when it otherwise would have passed. Illinois would still have reached the failure point at a relatively early stage in the survey of the original sample of 107. Additionally, Illinois' argument that cases where children are adopted or returned to their parents should be considered successes and therefore passed in a section 427 review is not persuasive. While adoption or the return of the child to the family indisputably achieves the goal of removing the child from the foster care program, the fact that a child may ultimately be adopted does not relieve a state of its responsibilities of meeting the section 427 requirements in the interim. ACF apparently failed only those cases where Illinois had failed to comply with program requirements during the review period prior to the adoption or return to parents. ACF properly disqualified those cases where the adoption or return prevented the possibility of compliance during the period under review. Finally, Illinois has not argued that the manner in which ACF used cases from the oversample in this review was unexpected. A letter from Illinois to ACF prior to the review reveals Illinois' understanding that the mere removal of the ineligible or invalid cases without replacing them with other cases would result in an "inadequate number of valid sample cases"; the need for an oversample of cases was recognized, as was the need for additional time to prepare these cases for review. Illinois Ex. 18. Illinois failed to object to the use of cases from an oversample prior to or during the performance of the review when such objections could be more easily and readily addressed by ACF. VII. Our review of the first 50 cases in the sample shows conclusively that Illinois failed to meet the 90% compliance standard. As discussed above, Illinois failed the sequential sample at Case No. 12, at which point eight cases had failed one or more of the section 427 requirements. Under the sequential sampling methodology used in section 427 reviews, no further examination of additional cases was needed to determine that Illinois had failed to meet the required 90% compliance standard. However, in order to eliminate any possible remaining doubt about Illinois' compliance, we have looked at the first 50 cases in the sample. Under the decision table, the failure point at the 50th case is 13 failures. We find that at the 50th case in the survey, Illinois had failed 22 cases, exceeding the failure point by nine and proving very convincingly that Illinois failed to meet the 90% compliance standard. The findings of ineligibility largely result from Illinois' failure to document compliance with the section 427 requirements such as the dispositional hearing and periodic review requirements. As we previously discussed, Illinois has the burden to document its compliance with each of the requirements. As noted above, ACF found that of the first 50 cases in the sample, Illinois failed 22. Of these 22 failed cases, four were not contested and 14 were cases in which Illinois submitted no documentation of compliance with either the dispositional hearing or the periodic review requirements (case numbers are noted in parentheses) 10/: -- Illinois did not contest its compliance with either of the requirements in three of the first 50 cases (14, 17, 48); -- Illinois did not contest its compliance with the dispositional hearing requirement in one case (43); -- Illinois did not present any documentation in support of a dispositional hearing in eight cases (1/164, 4, 11, 12, 24/167, 33, 36, 38, 50); -- Illinois alleged that it had evidence of a dispositional hearing in three cases, but did not submit any such evidence (3/165, 9, 30); -- Illinois did not present any documentation in support of a periodic review in one case (40); and -- Illinois alleged that it had evidence of a periodic review in one case, but did not submit any such evidence (2). In the absence of any documentation in 14 cases that either the dispositional hearing or the periodic review requirement had been met, we must affirm ACF's findings that these cases failed. The dispositional hearing and the periodic review requirements are critical section 427 requirements, and as we stated previously, Illinois has the burden to document compliance with each requirement. Illinois clearly has not met that burden in the absence of any documentation in support of a requirement. Furthermore, although Illinois seemed to argue that a case should pass if it could document compliance with only one of these two requirements, the statute and regulations clearly require compliance with each requirement. We discuss in detail below the four remaining cases of the 22 failed cases (8, 28, 35, 45) where some documentation of compliance with these requirements was provided. In each one of these cases the issue is whether Illinois provided a dispositional hearing within 18 months of the last dispositional hearing or the child's placement in foster care. Case No. 8: ACF found that the due date for a dispositional hearing was December 30, 1990, but that a hearing was never held. Illinois submitted a court information sheet of the Illinois Department of Children and Family Services specifying the "date of hearing" as January 11, 1991 and indicating that a hearing to consider adoption or private guardianship had been scheduled for March 8, 1991 for "calendar 70." Illinois Ex. 27. Illinois also submitted a court docket sheet which it argued demonstrated that the hearing held on January 11, 1991 was continued for a new administrative case review by order of the court. Illinois June 16, 1994 Submission. Illinois thus contended that the court took some action on January 11, 1991 because the court made an entry on the docket sheet. However, Illinois admitted that it was not possible to ascertain who was present at the proceeding or what the judge decided or on what basis he decided anything. Illinois claimed in any event that a hearing was scheduled two months in the future. Tr. at 55-56. Illinois contended that it was thereby fulfilling its obligation to ensure that the child was not lost in the foster care system. The court information sheet and the court docket sheet submitted here in no way establish that a section 427 dispositional hearing was held on January 11, 1991, since neither substantiates what type of proceeding was held on that date. Moreover, Illinois submitted no further documents to establish that any form of hearing was ever held on March 8, 1991. Therefore, even if it were possible to consider a March 8, 1991 proceeding to have been timely based on a January 11, 1991 continuance, we simply have no documentation that a March 8, 1991 hearing was ever held. In fact, the court docket sheet submitted by Illinois indicates that the proceeding for March 8, 1991 was further continued to May 1991 and there is no clear disposition indicated for any May 1991 proceeding. We therefore sustain ACF's finding that this case failed. Case No. 28: ACF found that the child had been placed in foster care on August 27, 1986, but that Illinois failed to establish through any court record that a dispositional hearing was ever subsequently held. Although Illinois initially conceded that no timely dispositional hearing had been held, it later submitted court docket sheets that, according to Illinois, demonstrated that the child was placed on the Guardianship calendar on November 7, 1989 and that a dispositional hearing was held on May 23, 1991. Illinois June 16, 1994 Submission. Illinois contended that the dispositional hearing was timely (within 18 months of the last dispositional hearing) apparently on the premise that the action taken on November 7, 1989 also qualified as a dispositional hearing. We find that Illinois failed to establish that a dispositional hearing had been held on either November 7, 1989 or May 23, 1991. The mere reference on the docket sheets to the child's placement on the Guardianship calendar on November 7, 1989 does not qualify as substantiation of a prior dispositional hearing. Moreover, the court docket sheets submitted in support of the May 23, 1991 proceedings do not demonstrate that any resolution of placement status was accomplished during those proceedings. We therefore sustain ACF's finding that this case failed. Case No. 35: ACF found that the due date for a dispositional hearing was March 7, 1990, but that a hearing was not held until March 27, 1991. Illinois argued a dispositional hearing had been held on July 9, 1990, which meant that no dispositional hearing was due during FY 1991. Illinois declared that state re- reviewers found that this case passed (even though ACF reviewers continued to find that it had not) and that court records indicated the courts were actively reviewing this case. Illinois stated that numerous court orders were entered during the period 1989 through 1991 and a court docket sheet indicated that on March 27, 1991 the child was permanently placed with the paternal grandmother, eliminating the requirement for further dispositional hearings. We conclude that none of the documentation submitted by Illinois establishes that a dispositional hearing was held on July 9, 1990. In particular, Illinois failed to demonstrate how the cryptic references on the court docket sheet, which apparently seem to be addressing periodic reviews, substantiate that a dispositional hearing considering the future status of the child was held on that date. Moreover, the March 27, 1991 proceedings would not be a timely dispositional hearing for purposes of this review if Illinois could not establish that a dispositional hearing had been held on July 9, 1990. We therefore sustain ACF's finding that this case failed. Case No. 45: ACF found that the last verified dispositional hearing had been held on October 12, 1988, and that the next dispositional hearing would therefore have been due on October 1, 1990, but that a hearing was not held until June 8, 1991. Illinois supplied court information sheets which, according to Illinois, indicate that hearings were held on December 8, 1989, May 3, 1991, and August 23, 1991. Illinois also submitted a court docket sheet from the Clerk of the Circuit Court of Cook County. This court docket sheet contains the notation "B/A 1/18/90 1:30 C- 7BP2" for December 8, 1989. ACF interpreted this entry as transferring the child to the guardianship calendar 70 on January 18, 1990. We find no support in the documents before us that a section 427 dispositional hearing was actually held in this case by the October 1, 1990 due date. The court information sheets and the court docket sheet submitted by Illinois fail to establish that a dispositional hearing which considered the future status of the child and with the necessary procedural safeguards was actually held on December 8, 1989. While the court information sheet and court docket sheet contain notations to a date of next hearing as "January 18, 1990," those references alone do not establish that a dispositional hearing was actually held on that date either. We therefore sustain ACF's finding that this case failed. Conclusion For the reasons discussed above, we sustain the disallowance of $5,634,432 in section 427 incentive funds. __________________________ Cecilia Sparks Ford __________________________ M. Terry Johnson __________________________ Donald F. Garrett Presiding Board Member 1. Additionally, each case plan must be reviewed for 18 other remaining section 427 protections. Illinois Exhibit (Ex.) 1, Section 427 Review Handbook, at 1. In order for a case to pass a triennial review, the type of review at issue here, 15 of the 18 protections must be verified. Id. at 2. None of the sample cases in the instant review failed solely on this basis, however. Because neither party addressed any arguments to these protections, we do not consider them further in this decision. 2. The Board has upheld ACF's sequential sampling procedures in prior decisions. See Connecticut Dept. of Children and Youth Services, DAB No. 952 (1988), aff'd 788 F. Supp. 573 (D.D.C.1992), 9 F.3d 981 (D.C. Cir. 1993). Aside from objecting to ACF's practice of substituting cases from the oversample for those identified as ineligible, Illinois did not here challenge the sequential sampling procedure used by ACF in the FY 1991 section 427 review. 3. This moratorium was the latest of a series of moratoria concerning section 427 funding dating from FY 1990. See section 10406 of Pub. L. No. 101-239 (OBRA '89) for FY 1990; section 5072 of Pub. L. No. 101-508 (OBRA '90) for FY 1991; and section 215 of Pub. L. No. 102-170 (Health and Human Services Appropriations Act of 1992) for FY 1992. All of the moratorium provisions contained essentially the same language preventing the Secretary from reducing any payment to, withholding any payment from or seeking any repayment from a state under the section 427 program. 4. The Handbook does not address circumstances where ACF learns during an intervening year about serious deficiencies in a state's foster care program. We question whether ACF could comply with its statutory and regulatory mandate under these circumstances by delaying its review until a triennial year. The section 427 program nowhere contemplates that states should be able to let their performance lapse during intervening years between ACF reviews. 5. Nor can we find any support in the statute, regulations or Handbook for the position that Illinois was entitled to advance notice prior to the start of FY 1991 that ACF intended to conduct a review for that year. On the contrary, Illinois was on notice by the very nature of this incentive payment program and the statutory provisions establishing it, that Illinois had to comply with program requirements for every year of participation. 6. Here, for example, ACF reversed its initial findings that Case Nos. 60 and 63 failed the dispositional hearing requirement when Illinois produced Dispositional Orders signed by a judge. For the periodic review requirement, ACF accepted Form 351, "Administrative Case Review and Case Activity and Progress Log" or Form 1420, a computer printout signed by a third party uninvolved in the case, which included information on the permanency goal, time frame for achievement, evaluation for progress, and the parties present at the review. 7. ACF defines "state agency" as "the State agency administering or supervising the administration of the title IV-E and title IV-B State plans." 45 C.F.R.  1355.20(a). 8. Substituted cases are represented in the sample as a number with a slash followed by another number, e.g., 1/164. This means that Case No. 1 was found ineligible for review, and Case No. 164 was substituted for it in the sample. 9. Not all of the oversample cases were in fact failures; some of them passed. 10. Many of the cases may have failed both requirements. We focus here on the requirement for which documentation was altogether lacking, since such failing in our view was conclusive. Several of the contested cases in addition failed the case plan and "18 remaining protections"