New York State Department of Social Services, DAB No. 1428 (1993)


  Department of Health and Human Services

        DEPARTMENTAL APPEALS BOARD

     Appellate Division

SUBJECT:  New York State            DATE:  July 21, 1993 Department of
     Social Services Docket Nos. 91-98, 91-99 A-92-045, A-92-187,
        A-92-188, A-92-228, A-93-116 Decision No. 1428

   DECISION

The New York State Department of Social Services (New York) appealed a
series of disallowances by the Administration for Children and Families
(ACF) under title IV-E of the Social Security Act. 1/  Title IV-E funds
foster care maintenance payments on behalf of children who would
otherwise be eligible for title IV-A (Aid to Families with Dependent
Children).  New York here claimed reimbursement for title IV-E
administrative costs pursuant to a proposed amendment to its cost
allocation plan (CAP).  While the disallowances were pending, the
Department of Health and Human Services (HHS) Division of Cost
Allocation (DCA) partially disapproved the CAP amendment.  New York then
appealed DCA's determination to the Board as well (docketed as DAB No.
A-92-228).  This decision encompasses both New York's appeal of ACF's
disallowances and its appeal of DCA's partial disapproval of its CAP
amendment.

The CAP amendment at issue covers costs incurred for the activities of
Child Protective Services (CPS) workers who provide services to children
for whom there is reasonable cause to suspect abuse or maltreatment.
With its CAP amendment, New York sought reimbursement for ten categories
of activities performed by CPS workers.  DCA determined that four of the
activities were not allowable title IV-E activities under the applicable
regulations.  As to the remaining six activities, DCA determined that
they were allocable to title IV-E only if they were performed on behalf
of children who were candidates for title IV-E.  DCA deferred to ACF for
a determination as to which children should be considered candidates.
ACF consistently maintained in the disallowances and before the Board
that only activities performed on behalf of candidates as documented in
a manner consistent with its policy announcement, ACYF-PA-87-05, would
be allowable and that New York could not consider all children for whom
there was reasonable cause to suspect abuse or maltreatment to be
candidates for title IV-E.

We conclude that DCA and ACF's positions are fully consistent with title
IV-E, its implementing regulations, and ACYF-PA-87-05.  New York's
position, on the other hand, is inconsistent with the applicable
authorities and unreasonable in light of the purposes of the IV-E
program.  As discussed in the three sections of our analysis:

 o  The four activities disapproved by DCA are not allowable
 title IV-E activities because they are not identified in the
 regulations as allowable administrative activities and are not
 activities which are unique to title IV-E or which further its
 specific, limited purposes.

 o  As to the six activities DCA approved, the standard which New
 York used to determine which children were candidates for title
 IV-E services is not consistent with title IV-E, the regulations
 and ACYF-PA-87-05.

 o  None of the ten activities are part of New York's title IV-E
 eligibility determination process.

The administrative activities for which New York seeks reimbursement in
this appeal contrast sharply with the limited purposes of title IV-E.
The activities include those taken at the first stages of a child abuse
prevention system:  investigating, assessing, and documenting the
circumstances of the child.  Further, the vast majority of children for
whom these activities are performed will never be placed in foster care
and almost two-thirds will be found not to have been abused or
maltreated.  Thus, New York seeks reimbursement for activities which
precede any determination that a child may have to be placed in foster
care and which are undertaken on behalf of many children who are
ultimately determined to be at no risk of foster care.

Below we review the CAP process, title IV-E, and the factual background
of this case.  We then explain why we uphold DCA's determination
concerning New York's CAP amendment and why we uphold ACF's
disallowances in principle.  ACF agreed that, in the event the Board
upheld its disallowances, it would be willing to reduce the
disallowances by the amount of costs that New York can document in a
manner consistent with DCA's decision and the requirements of applicable
authorities including ACYF-PA-87-05.  We therefore remand this case to
ACF to make that determination.

The Cost Allocation Plan Process

A state participating in the various public assistance programs under
the Act, including title IV-E, is required to make determinations as to
the amount of commonly incurred expenditures, such as staff time, that
are attributable to each program that the state administers.  A state is
required to submit a plan for cost allocation to the Director, DCA, in
the appropriate HHS regional office.  45 C.F.R. . 95.507(a).  This cost
allocation plan is defined as "a narrative description of the procedures
that the State agency will use in identifying, measuring, and allocating
all State agency costs incurred in support of all programs administered
by the State agency."  45 C.F.R. . 95.505.  The CAP must contain
sufficient information to permit the DCA Director to make an informed
judgment on the correctness and fairness of the state's procedures for
identifying, measuring, and allocating all costs to each of the programs
administered by the state agency.  45 C.F.R. . 95.507(a)(4).

Amendments to a CAP must be submitted to DCA (45 C.F.R. . 95.509), and,
if DCA disapproves the amendment, a state may seek reconsideration of
the DCA decision by the HHS Regional Director, 45 C.F.R. . 75.5.  A
Regional Director's negative determination may be appealed to the Board.
45 C.F.R. . 75.6(c).  Pending DCA's action on an amendment, a state may
claim federal financial participation (FFP) pursuant to the amendment
unless otherwise advised by DCA.  45 C.F.R. . 95.517.  . Title IV-E

Title IV-E, originally enacted by the Adoption Assistance and Child
Welfare Act of 1980, Public Law No. 96-272, authorizes appropriations to
enable states "to provide, in appropriate cases, foster care . . . for
children who otherwise would be eligible for assistance" under a state's
title IV-A program. 2/  Section 470 of the Act.

Because Congress wanted to encourage states to prevent improper foster
care placements and to ensure that children remained in substitute care
only when necessary, it imposed the following conditions on the receipt
of title IV-E foster care maintenance payments.  First, the state must
make reasonable efforts prior to the placement of a child in foster care
to prevent or eliminate the need for removal of the child from his home.
Section 471(a)(15)(A).  Second, the removal must be pursuant to a
judicial determination with specific findings concerning the child's
welfare and reasonable efforts or pursuant to a voluntary agreement.
Section 472(a)(1).  Third, each child in foster care must have a case
plan.  Section 471(a)(16).

Section 474 of the Act establishes several categories of title IV-E
expenditures including foster care maintenance payments, adoption
assistance payments, training expenses, and administrative expenses.  As
to administrative expenses, section 474(a)(3)(C) provides funding for
expenditures "found necessary by the Secretary . . . for the proper and
efficient administration of the State plan . . . ."

ACF's regulations implementing title IV-E are codified at 45 C.F.R. Part
1356 (1983).  Section 1356.60(c) concerns allowable administrative
costs. 3/  It provides for reimbursement of state administrative
expenses incurred to fulfill the unique requirements of title IV-E.  For
example, section 1356.60(c)(2) provides for reimbursement for referral
to services, preparation for and participation in judicial
determinations, and development of the case plan.  Additionally, the
regulations recognize that the state must engage in a range of
administrative activities customarily required by maintenance payment
programs.  Therefore, sections 1356.60(c)(1) and (2) provide
reimbursement for eligibility determinations, case management and
supervision, and case reviews.

ACF provided guidance to states concerning title IV-E administrative
expenses in ACYF-PA-87-05 (which was issued in 1987).  ACF Exhibit (Ex.)
1.  ACYF-PA-87-05 identifies two main categories of title IV-E
administrative costs: costs for eligibility determinations and other
allowable costs.  ACYF-PA-87-05 provides that the costs of determining
and redetermining eligibility are reimbursable even for negative
eligibility determinations.  As to other allowable costs, ACYF-PA-87-05
states that FFP is available for the administrative costs listed at 45
C.F.R. . 1356.60(c) but is limited to "those individuals the State
reasonably views as candidates for title IV-E foster care maintenance
payments."  (Emphasis added.)  It also sets forth ways in which a state
can document that a child is a candidate for title IV-E.

Factual Background

On March 28, 1989, New York submitted a proposed amendment to its CAP to
DCA.  With this amendment, New York sought to claim under title IV-E
certain administrative costs incurred for protective services.

The CAP amendment concerned the activities performed by State employees
responsible for investigating complaints of child abuse or maltreatment.
In New York, such complaints are first received by the State Central
Registry of Child Abuse and Maltreatment (SCR) and are screened by
trained SCR personnel.  If the SCR interviewer determines there is
reasonable cause to suspect abuse or maltreatment as defined by 18 New
York Code of Rules and Regulations (N.Y.C.R.R.) . 432.1(a) and (b), the
interviewer prepares an SCR report which is immediately transmitted to
the Child Protective Services (CPS) unit of the appropriate Local Social
Services District.  The responsibilities of a CPS unit are set forth in
18 N.Y.C.R.R . 432.2.  New York Ex. 1.  They include receiving suspected
abuse reports; commencing an investigation of the report within 24 hours
of receipt; determining, within 90 days (within 60 days as of January 1,
1992), whether the report is "indicated" or "unfounded"; 4/ taking a
child into protective custody; providing or arranging for other services
to the family or child; placing a child in foster care; initiating a
family court proceeding; and either operating as the primary service
provider in preventive services or foster care cases or monitoring such
cases.

With this CAP amendment, New York is seeking to recover costs incurred
for certain activities of CPS workers.  The CAP does not involve New
York's costs for the activities of its SCR workers.

New York proposed to allocate these costs to title IV-E pursuant to a
Random Moment Study (RMS) which measures the amount of time CPS workers
spend performing different activities. 5/  The activities for which New
York sought reimbursement were divided into ten categories of activities
typically performed by CPS workers.  New York took the position that all
children who were subject to an SCR report and who had not been
determined to be ineligible for title IV-E should be considered
candidates for title IV-E.  New York's CAP amendment allocated all costs
of the ten activities performed by CPS workers on behalf of such
children to title IV-E.  (The CAP amendment also sought to allocate
costs which were not reimbursable under title IV-E to the Emergency
Assistance to Families (EAF) program under title IV-A of the Act.  DCA
has not yet made a determination as to the EAF portion of the CAP
amendment.)

Pending DCA's action on the amendment, New York claimed these
administrative expenses pursuant to its proposed amendment.  See 45
C.F.R. . 95.517.  ACF disallowed New York's claims even though New York
had a pending CAP amendment because ACF concluded that the claims
covered costs for activities that were clearly unallowable under the
program.  Additionally, ACF concluded New York could not reasonably
categorize all children subject to an SCR report as candidates for title
IV-E.  While ACF acknowledged that New York's claims may include
allowable expenses as well, it maintained that, from the data supplied
by New York, it could not identify what portion of the claims was
allowable.  New York appealed these disallowances to the Board.

On February 5, 1992, DCA issued its decision on New York's proposed
amendment.  New York Ex. 25.  DCA determined that four of the ten
categories of activities performed by CPS workers were not allowable
administrative expenses under title IV-E:  processing State Central
Registry forms; determining the nature, extent, and cause of injuries;
risk assessment; and arranging for other services.  DCA determined that
the remaining six categories involved the type of activity that would be
allowable under the regulations for those children considered candidates
for title IV-E.  These six categories were:  arranging for foster care;
supervisory consultation/conference; family court proceedings; preparing
and maintaining Welfare Management System (WMS)/Child Care Review
Service (CCRS) documentation; preparing and maintaining case record
documentation; and case management/monitoring services.  New York
appealed DCA's decision to the HHS Region II Director.  New York Ex. 26.
On July 23, 1992, the Regional Director affirmed DCA's decision.  New
York appealed the Regional Director's decision to the Board.

The Board consolidated the CAP amendment appeal with New York's appeals
of ACF's disallowances of the claims New York made pursuant to the CAP
amendment.  During Board proceedings, ACF and DCA have consistently
stated that only those costs recognized by the approved CAP would be
allowable administrative costs under title IV-E.  Further, although ACF
asked us to uphold the disallowances, it has agreed to reduce the
disallowances to the extent that New York can document the claims in a
manner consistent with the approved CAP and with ACYF-PA-87-05.  See
Letter from Counsel for Respondents dated February 21, 1992.

Analysis

Below, we discuss our conclusions that (1) DCA reasonably determined
that four of New York's RMS activity categories involved costs which are
not allowable as title IV-E administrative expenses; (2) as to the six
allowable categories, New York could not reasonably categorize all
children subject to an SCR report as candidates for title IV-E; and (3)
the costs associated with all ten categories of the RMS were not
allowable under 45 C.F.R. . 1356.60(c)(1) as costs of determining
eligibility for title IV-E.  We conclude that ACF and DCA's positions
with respect to these issues are fully supported by the Act, the
regulations, and applicable policy guidance.  The positions are also
entirely consistent with the purposes behind the title IV-E program.
New York's position, on the other hand, is inconsistent with the
applicable authorities and unreasonable in light of the limited purposes
of the IV-E program.  .       1.  Four of New York's RMS activity
categories are not reimbursable under title IV-E for any children.

DCA determined that the following activities performed by the CPS
workers were not reimbursable as title IV-E administrative expenses. 6/

 01.  Processing SCR Forms.  Activities attributable to
 processing State Central Register report forms.  Includes
 receiving, assigning, and/or completing forms--both initial and
 subsequent reports.

 02.  Determining Nature, Extent, and Cause of Injuries.
 Activities attributable to reviewing allegations of child abuse,
 neglect, and/or maltreatment.  Includes assessment of the
 nature, extent, and cause of conditions that constitute abuse or
 maltreatment.

 03.  Risk Assessment.  An evaluation of the environment of the
 child named in the report and any other children in the home and
 a determination of the risk to such children if they continue to
 remain in the existing home environment.  Includes foster care
 case planning activities.

 05.  Arranging for Other Services.  Activities attributable to
 determining other (than placement) service needs and
 identifying, utilizing, and coordinating services available in
 the community or provided by the local district to assist in the
 amelioration of personal problems, behavior or home conditions.
 Includes case planning activities for other services.

In reaching this conclusion, DCA relied on 45 C.F.R.  . 1356.60(c)(2),
which sets forth examples of allowable administrative expenses.  It
provides in pertinent part:

   (2) The following are examples of allowable administrative
   costs necessary for the administration of the foster care
   program: (i) Referral to services; (ii) Preparation for and
  participation in judicial determinations; (iii)
  Placement of the child; (iv) Development of the case
  plan; (v) Case reviews; (vi) Case management and
  supervision;

    *  *  *

DCA argued that the costs of these four disputed CAP activities were
unallowable because they were neither listed in the regulation as
allowable costs nor closely related to a listed allowable cost.

New York argued that the costs of these activities were allowable
because (1) the activities were part of its eligibility determination
process and (2) the activities were necessary to comply with the
mandates of title IV-E, i.e., that the state make reasonable efforts to
prevent the removal of the child, that the state develop a case plan for
each child, and that the state obtain judicial determinations that
continuation in the home would be contrary to the welfare of the child.
Also, as to "arranging for other services," New York argued that this
activity was essentially the same as the activity of "referral to
services" listed in 45 C.F.R.  . 1356.60(c)(2)(i).

We conclude that New York's arguments lack merit for several reasons.
First, these activities are not specifically listed in 45 C.F.R. .
1356.60(c) as allowable costs, nor are they closely related to a listed
activity.  Second, the activities are not unique to the title IV-E
program and do not further the specific, limited purposes of the title
IV-E program.  Third, as discussed in the last section of the decision,
these activities are not part of New York's eligibility determination
process for title IV-E.

The regulation at 45 C.F.R. . 1356.60(c)(2) lists nine examples of
allowable administrative costs.  Unless an activity is specifically
listed or is closely related to a listed cost, New York could not
reasonably consider an activity to be one which had been "found
necessary by the Secretary . . . for the proper and efficient
administration" of title IV-E, as required under section 474(a)(3)(C) of
the Act.  See Missouri Dept. of Social Services, DAB No. 844, at 17
(1987).  New York's activity categories of determining the nature,
extent and cause of injuries; risk assessment; processing investigation
forms; and arranging for other services are not identified in section
1356.60(c)(2) as allowable administrative costs, nor are they closely
related to activities that are identified in the regulation.  Thus, New
York could not reasonably consider any of the disputed activities to be
reimbursable under the regulations.

New York's disputed activities differ in both function and purpose from
the activities listed in section 1356.60(c)(2).  Two of the disputed
activities (determining the nature, extent and cause of injuries; and
risk assessment) necessarily occur at the initial stages of an
investigation of alleged abuse or maltreatment.  Their function is to
gather and assess information concerning possible abuse or maltreatment
and the need for foster care placement.  In contrast to those
activities, section 1356.60(c) lists activities which the state must
engage in after its investigation and risk assessment. 7/  Their
function is to assist children who have been placed in foster care or
who have been identified as candidates for foster care.

The activity of processing SCR forms involves documenting the worker's
investigation and ultimate determination in New York's child abuse
tracking system.  The activity most closely related to maintenance of
documentation listed in 45 C.F.R. . 1356(c)(2)(iv) is "development of
the case plan."  The primary function of a foster care case plan is to
ensure that children are not needlessly removed to or needlessly held in
foster care.  In contrast, the primary function of an SCR form is to
allow New York to operate a central tracking system on abused or
neglected children. 8/  DCA approved the type of documentation activity
listed in 45 C.F.R. . 1356.60(c)(2)(iv) by approving two other CAP
amendment categories, i.e., maintenance of WMS/CCRS documentation and
maintenance of case record documentation).

While New York argued that "arranging for other services" was equivalent
to "referral to services," as listed in section 1356.60(c)(2)(i), we
conclude that ACF reasonably distinguished between "arranging for" and
"referring to" services.  As pointed out by ACF, "arranging" and
"referring" are two different activities.  Transcript (Tr.) of hearing
conducted March 4, 1993 in this appeal at 158-159; 183-188.  Referring
could reasonably be read as limited to providing information to the
individual so that the individual can obtain the services.  Arranging
for services might reasonably involve many different kinds of activities
on behalf of an individual.  At its broader reaches, "arranging" for
social services could become a social service in itself.  Expanding
"referring" to the types of activities that could be considered
"arranging" would open the program up to a variety of expenses that are
difficult to define and that exceed the parameters of a referral. 9/

A review of the CAP amendment description of "arranging" supports DCA's
conclusion that the CPS workers are engaged in more than simply
providing information to individuals.  The CAP amendment describes this
category as "Activities attributable to determining other (than
placement) service needs and identifying, utilizing, and coordinating
services . . . ."  Further, in cases in which the CPS workers are the
primary service providers, 18 N.Y.C.R.R. . 432.2(b)(4)(viii) charges CPS
workers with "identifying, utilizing and coordinating other services"
and mandates that the CPS workers "shall ensure that the roles,
responsibilities and tasks of all service providers are clearly defined
and that the established plan of service is being implemented."  These
functions clearly go beyond what would ordinarily be thought of as a
"referral." 10/

Accordingly, we conclude that funding for these four categories of
activities is clearly not authorized by section 1356.60(c).  New York
also argued, however, that the activities should be covered because they
were necessary to comply with the mandates of title IV-E, i.e., that the
state make reasonable efforts to prevent the removal of the child, that
the state develop a case plan for each child, and that the state obtain
judicial determinations that continuation in the home would be contrary
to the welfare of the child.  New York asserted that the information,
risk assessment, and documentation generated by these activities were
the basis for the worker's decision about removal and the basis for the
case plan if the child was removed.  New York argued that these
activities therefore constituted the necessary developmental foundation
for reasonable preventive efforts, for an effective case plan, and for
ensuring that children were removed from their homes only when
continuation in the home was contrary to their welfare.

We reject New York's arguments on program purpose because we conclude
that the disputed activities are not unique to the title IV-E program
and do not further the specific limited goals that program was designed
to meet.  Our specific reasons are as follows:

 o  While the federal government participates in funding many
 different types of child welfare programs, states retain primary
 responsibility for the safety and welfare of the children who
 live within their jurisdictions.  Staff of House Comm. on Ways
 and Means, 102d Cong., 2d Sess., Overview of Entitlement
 Programs 839 (Comm. Print 1992).  To that end, states fund and
 administer a range of child welfare services including child
 abuse reporting systems, child abuse investigation systems,
 protective services, preventive services, foster care, and
 adoption services.

 o  Title IV-E is a program of limited purposes; its primary
 component involves funding maintenance payments for children in
 foster care who would otherwise be eligible under title IV-A.
 It is at the far end of a continuum of government programs which
 seek to ensure that children are not abused or maltreated. 11/
 New York did not identify any authority to indicate that
 Congress intended title IV-E to participate in the costs of the
 initial stages of a state's child abuse prevention system, i.e.,
 the process of identifying children who had been subjected to
 abuse or maltreatment.  These activities are integral to New
 York's child welfare services system and would have occurred
 even if title IV-E did not exist.

 o  The disposition statistics on SCR reports indicate how remote
 these activities are from the purpose of title IV-E.  The
 overwhelming majority of children on whose behalf New York
 conducts SCR investigations are never placed in foster care and
 approximately two-thirds of the SCR reports are determined to be
 unfounded, i.e., the worker determines that there is no credible
 evidence that abuse or maltreatment exists.  (See the discussion
 of the SCR report disposition statistics at page 20-22 of our
 decision.)

 o  The title IV-E regulations limit FFP primarily to costs which
 are incurred after a decision has been made that the child
 should be placed in foster care.  For example, preparation for
 and participation in judicial determinations; placement of the
 child; development of the foster care case plan; case reviews;
 case management and supervision (all listed in the regulations
 as allowable title IV-E activities) are all activities that are
 related to placement in foster care.  Had ACF considered initial
 investigative activities to be part of title IV-E, they would
 presumably have been identified in the regulations.

Accordingly, we conclude that DCA properly determined that these four
categories of activities were not allowable administrative expenses and
should not be allocated to title IV-E under the CAP.  While, as we
indicated in footnotes 7 and 10, there may be discrete activities within
two categories that perhaps may be allowable under section
1356.60(c)(2), New York here proposed categories of activities in its
RMS system that were either clearly over broad or completely
unauthorized.  In a previous Board decision, which New York cited
extensively in this appeal, we emphasized that descriptions of allowable
title IV-E administrative activities in a state's CAP must be as clear
and as detailed as necessary to ensure that only those activities
authorized by regulation are allocated to the IV-E program.  See
Missouri, DAB No. 844, at 14-19.

 2.  The remaining six categories at issue here are allowable
 under title IV-E only if performed on behalf of title IV-E
 candidates.  Moreover, New York could not reasonably consider
 all children who are the subject of an SCR report to be
 candidates.

DCA determined that, for those children considered candidates for title
IV-E, six of the RMS categories involved allowable administrative
activities under title IV-E.  As to the question of which children
should be considered candidates, DCA deferred to ACF.  Relying on
ACYF-PA-87-05, ACF concluded that an SCR report did not constitute
documentation of title IV-E candidacy under ACYF-PA-87-05, and New York
could not reasonably consider all children who were the subject of an
SCR report as candidates.

The six categories of activities which DCA approved if performed on
behalf of title IV-E candidates were:

 04.  Arranging for foster care.  Activities attributable to
 removing the child from his home and making arrangement for
 placement--both emergency and non-emergency care.  Includes
 discussion with parents, agencies, and foster parents regarding
 the need for and availability of placement.

 06.  Supervisory consultation/conference.  Activities
 attributable to supervisory review of child protective service
 worker case work decisions.  Activities can include worker
 participation in supervisory/case management reviews of case
 service plans.

 07.  Family Court Proceedings.  Activities related to Family
 Court proceedings including preparing Court petitions, other
 documents, and Court-ordered studies and participating in Court
 proceedings.

 08.  Preparing and Maintaining WMS/CCRS [Welfare Management
 System/Child Care Review Service] documentation.  Activities
 attributable to the preparation and maintenance of applications,
 authorizations or any other WMS/CCRS required documentation.

 09.  Preparing and maintaining case record documentation.
 Activities attributable to the preparation and maintenance of
 case record documentation (other than Code 08).  Includes
 preparation and maintenance of UCR forms, progress notes, memos,
 letters or other documentation pertaining to the case.

 10.  Case management/monitoring services.  Activities which are
 attributable to the management/monitoring of services provided
 to or on behalf of protected children when the worker is not the
 primary service provider for the case.  Activities include steps
 taken by the case manager/monitor to insure that the case
 service plans are adequately established and implemented in
 accordance with service requirements.

New York argued the definition of candidate set forth in ACYF-PA-87-05
was contrary to the Act and the regulations as interpreted in Missouri,
and excluded activities a state must engage in whether or not these
children become title IV-E recipients.  As an alternative to the
candidacy standards set forth in ACYF-PA-87-05, New York took the
position that every child who is the subject of an SCR report and who
has not been determined to be ineligible for title IV-E is a candidate.

In support of its position, New York presented at the hearing in this
appeal extensive evidence concerning its SCR system and the training
given SCR screeners.  Under this system, an SCR report is not
transmitted to a local district CPS for investigation unless an SCR
interviewer determines that there is reasonable cause to suspect abuse
or maltreatment of a child.  Further, the majority of SCR reports are
filed by "mandated reporters," i.e., teachers, doctors, and others who
are trained to recognize and required by law to report suspicions of
child abuse.  New York's position was that any child for whom there is
reasonable cause to suspect abuse or maltreatment is at risk of
placement in foster care.  Therefore, New York argued that it could
reasonably view these children as candidates for title IV-E and that
costs incurred for protective services provided to such children should
be title IV-E administrative expenses whether or not the children
satisfied the candidate documentation standards set forth in
ACYF-PA-87-05.

We conclude that ACF properly determined that an SCR report did not
constitute documentation that a child was a candidate for title IV-E
assistance as specified in ACYF-PA-87-05 and was not, in any event, a
reasonable basis upon which to allocate all of these costs to title
IV-E.  Below, we explain ACYF-PA-87-05's standards for documenting
candidacy.  We then discuss why such standards are consistent with the
Act, the regulations and the Missouri decision and why New York's
position that all SCR report children are candidates is unreasonable.
We also discuss why New York is bound by ACYF-PA-87-05 although it was
not promulgated as a regulation.

As noted previously, section 474(a)(3)(c) of the Act authorizes
administrative expenses "as found necessary by the Secretary . . . for
the proper and efficient administration of the [title IV-E] State plan."
(Emphasis added.)  The regulations at 45 C.F.R. . 1356.60(c) set forth a
series of administrative activities which are allowable title IV-E
costs.  Both the Act and the regulation are silent as to the population
of children on whose behalf administrative activities are to be
reimbursed.  Originally in its administration of the program, ACF took
the position in PA-ACYF-85-01 that these activities were reimbursable
only for children who were placed in foster care and qualified for title
IV-E benefits.  In ACYF-PA-87-05, ACF expanded the population of
children for whom a state could claim administrative expenses to include
"candidates" for title IV-E.  . In ACYF-PA-87-05, ACF described the
following "acceptable methods of documentation indicating a child is a
candidate for foster care benefits":

 (1) a defined case plan which clearly indicates that, absent
 effective preventive services, foster care is the planned
 arrangement for the child,

 (2) an eligibility determination form which has been completed
 to establish the child's eligibility under title IV-E, or

 (3) evidence of court proceedings in relation to the removal of
 the child from the home, in the form of a petition to the court,
 a court order or a transcript of the court's proceedings.

The methods of documenting candidacy in ACYF-PA-87-05 involve activities
which occur at a point when the state has initiated efforts to actually
remove a child from his or her home or at the point the state has made a
decision that the child should be placed in foster care unless
preventive services are effective. 12/

For the following reasons, we conclude that ACF's definition of a
"candidate" is clearly a reasonable interpretation of the regulations
and title IV-E, and is also consistent with the fundamental requirement
of allocability that applies to public assistance programs such as title
IV-E.

Since the title IV-E regulations identify allowable administrative
activities but do not identify the population of children for whom a
state may claim these activities, the policy announcement interprets the
scope of the regulations and serves as guidance for the type of costs
the Secretary has determined would be "necessary" for the proper and
efficient administration of the program.  The scope of allowable
administrative expenses must be determined in light of title IV-E's
basic purpose:  to fund maintenance payments for title IV-A eligible
children who have to be placed in foster care.  ACF's restriction of
allowable expenses to children whom a state is trying to place in foster
care or who a state concludes should be placed in foster care absent
effective preventive services is consistent with title IV-E's limited
purpose.

Moreover, the specific activities identified in the regulations as
allowable are activities which typically occur after a state has made a
determination that a child has been abused and maltreated and is at risk
of being placed in foster care.  Thus, ACYF-PA-87-05's focus on children
whom the state has determined need to be placed in foster care absent
effective preventive services reasonably coincides with the nature of
the activities identified in the regulations.

ACYF-PA-87-05 is also a reasonable implementation of the fundamental
requirement in public assistance programs that administrative costs
charged to the program be allocable to the program.  Office of
Management and Budget (OMB) Circular A-87, Attachment A, C.1.a. states
that only costs which are allocable to a grant are allowable charges to
that grant.  Moreover, "a cost is allocable to a particular cost
objective to the extent of the benefits received by such objective."
(OMB Circular A-87 is expressly made applicable to grants to state and
local governments by 45 C.F.R. . 74.171.)  As we discussed above, the
definition of candidacy in the policy announcement is consistent with
the limited purposes of the IV-E program and promotes the funding of
costs that are directly related to program objectives.    New York's
position, on the other hand, violates the requirement of allocability
because it would result in the funding of costs that are not directly
related to program objectives.  New York argued that all children who
are the subject of an SCR report should be presumed to be at risk of
foster care and hence should be considered program candidates until the
CPS worker determines otherwise.  That position is clearly at odds with
the purposes of title IV-E.  The primary purpose of the IV-E program is
to provide assistance payments on behalf of children in foster care who
would otherwise be eligible for title IV-A.  In fulfilling this primary
purpose, states are required to undertake certain administrative
activities as a means of qualifying children for payments.  The policy
announcement provides funding for these activities when they are
provided for children who may reasonably be viewed as being at serious
risk of foster care placement.  In contrast, the function of an SCR
report is to precipitate an investigation into allegations of child
abuse or maltreatment.  The fact that a child is the subject of an SCR
report falls far short of establishing that the child is at serious risk
of placement in foster care and thus of becoming eligible for IV-E
assistance.

New York's own statistics demonstrate that the fact that a child is the
subject of an SCR report does not necessarily mean that such a child is
at serious risk of placement in foster care.

 o  About two-thirds of SCR reports receive "unfounded"
 determinations after the CPS investigation.  This means that the
 CPS worker determined that there was no credible evidence that
 abuse or maltreatment of the child existed.  For example, in
 calendar year 1991, 31.7% of the SCR reports were determined by
 CPS units to be indicated but 68.3% were determined to be
 unfounded.  Similarly, in calendar year 1990, 34.2% were
 indicated but 65.8% were unfounded.  New York Enclosure C for
 submission of April 27, 1993.

 o  New York estimated that only slightly over half "of the
 estimated total number of children under 18 years of age in
 `indicated' CPS cases entered either the foster care or
 preventive services program via child protective activities
 provided on behalf of children named in SCR reports" during the
 calendar years of 1989, 1990, and 1991.  Affidavit of April 23,
 1993 of Larry G. Brown, Director, Performance Monitoring and
 Analysis Unit, at 6 (emphasis added).

 o  New York did not discuss what percent of the children with
 indicated determinations went into foster care as opposed to the
 preventive services program.  However, from the figures New York
 provided in this case, it appears that in 1991 approximately 21%
 of children in indicated SCR reports were actually placed in
 foster care. 13/

Thus, the disparity between the number of children subject to SCR
reports and the number of children placed in a preventive services or
foster care program is substantial: only about a third of the SCR
reports are indicated and only 50% of the children in the indicated
reports enter a preventive services or foster care program.  Further,
the gulf between the number of children subject to SCR reports and the
number who are ultimately placed in foster care is even wider.  Using
the figures for 1991 provided in this case, only approximately 6.7% of
children named in SCR reports are actually placed in foster care (21% of
the 31.7% of indicated cases) and only a subset of these children will
be determined eligible for title IV-E.

Accordingly, we conclude that New York's definition of candidate is
clearly over broad and would violate the fundamental requirement of
allocability that applies to the IV-E program.  New York's position
would cause the program to fund activities on behalf of a much larger
group of children than could reasonably be viewed as program candidates
at the time the activities were provided.  ACYF-PA-87-05 would enable
New York to receive funding for a subset of these children who are at
serious risk of foster care placement at the time they received the
activities.

We also reject New York's argument that ACYF-PA-87-05 misinterpreted the
regulations because it misapplied the concept of candidate as set forth
in Missouri.  In Missouri, the Board concluded that, since the purpose
of many of the administrative activities was to prevent unnecessary
foster care placements, states were entitled to reimbursement for
allowable administrative activities performed on behalf of candidates
for title IV-E whether or not the candidates ultimately received title
IV-E benefits.   However, Missouri cannot be read to support the
proposition that protective services activities performed on behalf of
children for whom there is reasonable cause to suspect abuse or
maltreatment are reimbursable.  Rather, Missouri looked to activities
required by the Act which a state performs "in anticipation of
qualifying an otherwise eligible child for foster care benefits,"
concluding that these limited activities were reimbursable.  Missouri,
DAB No. 844, at 8.  As the circumstances discussed by the Board in
Missouri indicated, the activities described in the Missouri CAP
involved actions after the point at which Missouri had determined that
the child needed to be removed from his or her home absent effective
intervention. 14/

Therefore, we conclude that ACF was reasonable in refusing to allow New
York to consider every child who is the subject of an SCR report to be a
candidate for title IV-E.  Rather, the fact that ACYF-PA-87-05 limits
allowable expenses to those incurred for children who are at serious
risk of foster care placement appropriately reflects the extent of
benefits received by title IV-E in light of its limited purposes and is
consistent with the principle of allocability which is applicable to all
public assistance programs. 15/

Finally, we do not agree with New York that ACYF-PA-87-05 constitutes a
legislative rule and should have been promulgated as a regulation
pursuant to the Administrative Procedure Act (APA).  The APA requires
publication of proposed legislative rules followed by an opportunity for
public comment.  5 U.S.C. . 553(b),(c).  However, agencies' interpretive
rules are not subject to the notice and comment requirement.  5 U.S.C. .
553(b).  Although the courts have found the distinction between
legislative and interpretive rules to be "tenuous," "fuzzy," or
"baffling" and to require a case-by-case analysis, interpretive rules
are generally regarded as interpreting the scope of a statute or a rule
an agency administers.  See the discussion in New Mexico Human Services
Dept., DAB No. 1224, at 13-16 (1991).

We conclude that the provisions of ACYF-PA-87-05 are interpretive rules
which did not have to be published under 5 U.S.C. . 553 in order to be
effective. 16/  This policy announcement interpreted the scope of
section 474(a)(3)(C) of the Act and 45 C.F.R. . 1356.60(c) by defining
the children with respect to whom administrative expenses are
reimbursable.  Therefore, in ACYF-PA-87-05, ACF engaged in the classic
interpretive function typically performed by federal agencies.
Moreover, the subject matter of ACYF-87-05 is particularly within the
discretion of the Secretary because the Act provides funding only for
administrative activities found necessary "by the Secretary" for proper
and efficient administration.  Because we find that ACYF-PA-87-05 is a
reasonable interpretation of the Act and because New York had timely
notice of ACF's policy, approximately a year and a half prior to
incurring the costs at issue and submitting the CAP amendment under
appeal, we conclude that New York is bound by it.

Further, even if we were to conclude that ACYF-PA-87-05 was somehow not
binding on New York, New York would not be free to adopt an unreasonable
interpretation of the regulations that identify allowable administrative
activities or that permit only allocable costs to be charged to the IV-E
program.  Rather, as we previously discussed, New York's position that
all children subject to SCR reports were title IV-E candidates would
clearly extend the scope of the program beyond its intended purposes and
would therefore be unreasonable even in the absence of ACYF-PA-87-05.

For the foregoing reasons, we conclude that ACF properly determined that
an SCR report did not constitute documentation that a child was a
candidate for title IV-E assistance as specified in ACYF-PA-87-05 and
was not a reasonable basis upon which to allocate all of the costs
associated with the six categories in question to title IV-E.

 3.  None of the activities in question are title IV-E
     eligibility determination activities.

The regulation at 45 C.F.R. . 1356.60(c)(1) provides that determination
of eligibility is an allowable administrative cost.  ACYF-PA-87-05
provides that allowable eligibility determination costs "may include
negative as well as positive eligibility determinations."  However,
ACYF-PA-87-05 also provides that "reimbursement for eligibility
determination activities is limited to costs involved in actual
verification and documentation of eligibility and may not include the
cost of other activities such as judicial determinations, placement of
the child or periodic court reviews."

New York argued that all ten of the RMS activity categories for which it
seeks reimbursement were part of its eligibility determination process.
It contended that these activities were essential to determine whether a
child needed foster care and to comply with the title IV-E eligibility
criteria set forth in section 472(a)(1) of the Act, i.e., that the
child's removal be pursuant to a voluntary agreement or a result of a
judicial determination that continuation in the home was contrary to the
welfare of the child and that reasonable efforts were made to prevent
removal.  . For the following reasons, we conclude that none of the RMS
activities for which New York seeks reimbursement involved determining
eligibility for title IV-E.

 o  Section 1356.60(c) of the regulation distinguishes between
 eligibility determinations and other types of administrative
 activities.  Subsection 1356.60(c)(1) deems eligibility
 determinations to be allowable administrative activities and
 specifies that they may not be claimed under any other federal
 program.  Subsection 1356.60(c)(2) then authorizes reimbursement
 for other types of administrative costs such as the six RMS
 categories of activities that DCA determined were allowable
 administrative activities for candidates.  Obviously, the
 regulation did not intend the activities listed in subsection
 (2) to be considered subsection (1) eligibility determination
 activities.

 o  ACYF-PA-87-05 specifically limits eligibility determination
 to actual verification and documentation and expressly states
 that it does not include the cost of other activities.  The
 activities involved in the RMS categories clearly go beyond
 verification and documentation.

 o  In considering what constitutes an eligibility determination
 activity in title IV-E, it is necessary to distinguish between
 the process of determining eligibility and the process of
 engaging in activities that can lead to making a child eligible
 (e.g., engaging in reasonable efforts to prevent placement,
 obtaining judicial determinations).  Eligibility determination
 involves reviewing the results of the activities involved in the
 latter process to determine if standards of title IV-E
 eligibility have been met.  Tr. at 150-154.

 o  New York fails to distinguish between the process of making
 the child eligible through reasonable efforts to prevent
 placement and through participation in judicial determinations
 and its review of whether those title IV-E standards have been
 satisfied.  Rather, New York's construction of the term
 "eligibility determination" would unreasonably encompass
 virtually all title IV-E preplacement administrative activity.

 o  In ACYF-PA-87-05, ACF distinguished between eligibility
 determination activities and other allowable administrative
 activities.  As to the second category, ACF imposed the
 candidacy standards.  The fact that ACF did not also impose the
 candidacy standards on eligibility determinations supports our
 construction that by eligibility determination, ACF meant the
 narrow process of reviewing whether eligibility factors were
 met, not the broader process of initiating activities that may
 lead to a child's eligibility.

 o  Finally, as explained in section 1 of the decision, four of
 the activities at issue were not title IV-E administrative
 activities at all, but rather activities New York engaged in to
 fulfill its own responsibility of protecting children living
 within its jurisdiction.

Accordingly, we reject New York's argument that any of the disputed
activities could be considered eligibility determination activities.


Conclusion

On the basis of the foregoing, we uphold DCA's decision concerning New
York's CAP amendment and remand the disallowances to ACF so that it can
determine which portion of New York's claims can be documented in a
manner consistent with DCA's decision and the requirements of applicable
authorities including ACYF-PA-87-05.  If New York is dissatisfied with
ACF's determination as to allowable administrative expenses, New York
may appeal ACF's determination to the Board within 30 days of its
issuance.

 

      __________________________
      Judith A. Ballard

 

      ___________________________
      Norval D. (John) Settle

 

      ___________________________
      Donald F. Garrett
      Presiding Board Member

1.     The amounts of the disallowances and associated docket numbers
are as follows:  $25,020,441 (DAB No. 91-98); $24,648,766 (DAB No.
91-99); $100,805,371 (DAB No. A-92-045); $23,645,783 (DAB No. A-92-187);
$21,924,396 (DAB No. A-92-188); $79,912,366 (DAB No. A-93-116).  The
disallowances concern expenditures incurred by New York between January
1, 1989 and December 31, 1991.  See Appellant's Brief filed November 6,
1992, at 17 for a statement of the amounts claimed, the period of
expenditures, and the related quarterly expenditure reports.

2.     Title IV-E also funds adoption assistance for special needs
children.  However, since this case involves only the foster care
component of title IV-E, we will not include further references to the
adoption assistance component in this decision.

3.     The full text of the relevant part of section 1356.60(c)(1)-(3)
is as follows:

   (c) Federal matching funds for other State and local
   administrative expenditures for foster care and adoption
   assistance under title IV-E.  Federal financial participation
   is available at the rate of fifty percent (50%) for
   administrative expenditures necessary for the proper and
   efficient administration of the title IV-E State plan.  The
   State's cost allocation plan shall identify which costs are
   allocated and claimed under this program.  (1) The
   determination and redetermination of eligibility, fair
   hearings and appeals, rate setting and other costs directly
   related only to the administration of the foster care program
   under this part are deemed allowable administrative costs
   under this paragraph.  They may not be claimed under any other
   section or Federal program.  (2) The following are examples of
   allowable administrative costs necessary for the
   administration of the foster care program: (i) Referral to
   services; (ii) Preparation for and participation in
   judicialdeterminations; (iii) Placement of the child; (iv)
   Development of the case plan; (v) Case reviews; (vi) Case
   management and supervision; (vii) Recruitment and licensing of
   foster homes and institutions; (viii) Rate setting; and (ix) A
   proportionate share of related agency  overhead.  (3)
   Allowable administrative costs do not include the costs of
   social services provided to the child, and the child's family
   or foster family which provide counseling or treatment to
   ameliorate or remedy personal problems, behaviors or home
   conditions.

4.     The provision at 18 N.Y.C.R.R. . 432.1(f) defines an unfounded
report as any report made, unless an investigation determines that some
credible evidence of the alleged abuse or maltreatment exists; 18
N.Y.C.R.R. . 432.1(g) defines an indicated report as a report made in
which an investigation determines that some credible evidence of the
alleged abuse or maltreatment exists.

5.     In the RMS, randomly selected CPS workers were asked to identify
the category of activity in which they were engaged at randomly selected
times using one of several codes.  The results of the study were
compiled to determine the portion of CPS workers' time which was
attributable to these activity categories.

6.     Included with each category is the description of the activities
in that category submitted by New York in its CAP amendment.  See Title
IV-E Random Moment Study Definitions, Attachment to New York letter of
March 28, 1989, proposing the RMS for allocation of costs to title IV-E,
New York Ex. 5.

 

7.     In defining "risk assessment," the CAP proposal ambiguously
refers to "foster care case planning activities."  To the extent that
such activities are consistent with the regulatory activity of
"development of the case plan," New York could create a separate
category in an RMS system for these discrete activities (if provided for
title IV-E candidates only) or include the activities under one of the
categories discussed under part 2 below.  See also in this respect
footnote 10.

8.     The local CPS unit is required by law to provide extensive and
continuing documentation to the SCR concerning its investigation and
disposition of a report.  Within seven days of receipt of the initial
SCR report, the CPS unit must submit a DSS-2222 concerning its initial
investigation. N.Y. Social Service Law  (N.Y. Soc. Serv. Law) . 424.3.
Within 90 days (as of January 1, 1992 within 60 days), the CPS unit must
determine whether the report is indicated or unfounded.  N.Y. Soc. Serv.
Law . 424.7.  If the CPS unit determines that the case is unfounded and
the SCR accepts the determination, the report is closed in the SCR and
the record of the report is expunged.  N.Y. Soc. Serv. Law . 422.5.  If
the case is indicated, it remains open in the SCR until the CPS unit
documents compliance with certain statutory standards concerning the
well-being of the children.  N.Y. Soc. Serv. Law . 432.2(c).

9.     While a title IV-E state plan must provide that, in each case,
reasonable efforts will be made prior to placement to prevent or
eliminate the need for removal of the child from his home, section
1356.60(c)(3) specifically precludes funding of counseling or treatment
services as title IV-E administrative costs.  The preamble to the notice
of proposed rulemaking for this rule recognized that although the costs
of conducting the activities essential to fulfilling the plan
requirements under section 471 of the Act are considered necessary for
the proper and efficient administration of the plan, the "costs of
direct services to children, parents or foster parents to ameliorate
personal problems and which go beyond the activities specified in the
regulation are to be funded from other programs."  45 Fed. Reg. 86817,
86826 (Dec. 31, 1980).  The preamble thus noted that:  "The regulation
delineates such social service costs from those required to carry out
the provisions under title IV-E."  Id.

In response to commenters who opposed the prohibition on reimbursement
of administrative costs for social services, the preamble to the final
rule stated:

 We agree that treatment-oriented services, such as helping
 families be reunited . . . , are vital to the goals of Pub. L.
 96-272.  However, concurrently with the enactment of title IV-E,
 Congress enacted a revised title IV-B (Child Welfare Services
 Program) which provides for the delivery of these social
 services.  In addition, title XX of the Act, now the Social
 Services Block Grant, provides funds to States for services.
 Because other sources of Federal funds are available for the
 provision of these services, the Department has prohibited
 reimbursement from title IV-E funds for treatment-oriented
 services as inconsistent with the statutory concept of
 maintenance expenditures.  Funds for those purposes are the
 major focus of the service programs.  Therefore, the final
 regulation continues the NPRM requirement by prohibiting FFP
 under title IV-E for treatment-oriented services.

47 Fed. Reg. 30922, 30923 (July 15, 1982).

10.     Nevertheless, to the extent that New York intended to include
referral activities within the "arranging for services" category, it
could cover those discrete activities in a separate category in an RMS
system (if provided for title IV-E candidates only).

11.     It is important to remember that the title IV-E foster care
maintenance program is only one component of the Adoption Assistance and
Child Welfare Act of 1980, a broad federal attempt to assist states to
provide help to children whose welfare is threatened.  It is
complemented by several other federal programs to assist such children
including title IV-B, title XX, and title IV-A Emergency Assistance
Funds.  In fact, prior to this attempt to amend it CAP and shift these
administrative costs to title IV-E, New York claimed them as title XX
expenses.  Letter from John M. Sweeney of March 28, 1989, New York Ex. 5
at 1.  It is also possible that under New York's proposed CAP amendment
some of the disallowed funds in this case can be funded under EAF.  See
our discussion on page 6.

12.     ACF represented that it would permit other methods of
documenting candidacy that were equivalent to those set out in
ACYF-PA-87-05.  Transcript of hearing conducted on April 5, 1990 in DAB
Docket No. 89-161, Federal Ex. 6 at 84; Transcript of hearing conducted
March 4, 1993 in this appeal, at 128-129.  As explained above, we agree
with ACF that an SCR report does not constitute such equivalent
documentation.

13.     The figure of 21% is derived from New York's Enclosure C to its
Submission of April 27, 1993 and the Affidavit of Larry G. Brown, which
was included with that submission.  In that affidavit, Mr. Brown
explained that the New York derived its percent of children who entered
foster care or preventive services via child protective activities
provided on behalf of children named in SCR reports by comparing (1) the
estimated combined population of children newly admitted to foster care
and children for whom new preventive services cases have been opened and
who have remained out of foster care to (2) the estimated population of
children in indicated CPS cases, i.e., for the year 1991, 35,795
children of 70,633 children in indicated SCR reports equals 50.7%.  Of
the 35,795 children in indicated cases, New York's statistics
represented that 14,892 of the 35,795 children were placed in foster
care.  Therefore, 14,892 children of 70,633 children equals 21%.

14.     As the Board wrote:  "The State, however, provides the
activities in question not knowing whether a child will be removed and
should not lose reimbursement simply because a child is not removed.
(The reason a child is not removed, for example, may be that the case
plan led to a reassessment of the child's home situation or a court
refused to remove a child from its home in spite of the State's efforts
in judicial proceedings.)"  Missouri at 8.

15.     This decision does not address the issue of whether, pursuant to
ACYF-PA-87-05, OMB Circular A-87 or even statutory provisions such as
section 470 of the Act, ACF may require that title IV-E candidates be
able to meet title IV-A eligibility requirements.  However, as we
previously noted, the purpose of the title IV-E program as specifically
set out in section 470 is to fund maintenance assistance for children in
foster care who would otherwise be eligible for title IV-A.  Thus in
Missouri, when we referred to "an otherwise eligible child for foster
care benefits" or an individual the State reasonably views as a
"candidate," we were referring to a child who could meet title IV-A
eligibility requirements (but for whom the State was taking
administrative steps relating to foster care placement in anticipation
of qualifying the child for title IV-E maintenance payments).  Missouri,
DAB No. 844, at 8.

16.     While the APA provides that interpretive rules, procedural
rules, and statements of general policy be published in the Federal
Register, it does not render an unpublished interpretive rule of no
legal effect.  5 U.S.C. . 552(a)(1).  Rather, the APA provides that a
person (or state) may not be adversely affected by a rule which is not
so published, unless that person has actual and timely notice of the
rule.  Id.  Here, there is no dispute that New York had actual and
timely notice of ACYF-PA-87-05.  Further, we question whether the policy
announcement can be said to affect New York adversely since, as we
conclude in our analysis, New York's position is an unreasonable
interpretation of the regulations and statute irrespective of the policy