Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
SUBJECT: New York State Department of Social Services
Docket Nos. A-93-137, A-93-179,
A-93-221, A-94-27, A-94-66,
A-94-139, A-94-176, A-95-25,
A-95-60, A-95-93, A-95-139,
A-95-205, A-96-80, A-96-109,
A-96-128, A-96-153, A-96-154,
A-97-7, A-97-8 and A-97-64
Decision No. 1630
DATE: September 18, 1997
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 (Act). The
disallowed costs were incurred for administrative
activities of caseworkers who provided pre-placement
protective and preventive services to children and their
families. 1/ New York claimed the costs as
administrative costs of the IV-E foster care program
pursuant to a proposed amendment to New York's cost
allocation plan (CAP). While some of the appeals were
pending before the Board, the Department of Health and
Human Services (DHHS) Division of Cost Allocation (DCA)
disapproved the proposed CAP amendment. 2/ New York
then appealed DCA's determination to the Board as well.
Since the appeals of the disallowances of both protective
and preventive services costs and the appeal of the
disapproval of the proposed CAP amendment present common
issues and were briefed jointly by the parties, we
consider them together in this decision.
DCA disapproved the proposed CAP on the grounds that (1)
the CAP would have resulted in charging to IV-E the costs
of some activities which were not IV-E activities; (2)
the CAP permitted costs incurred for children who were
not reasonably viewed as candidates for foster care
placement under the IV-E program to be charged to IV-E;
and (3) the CAP allocated to IV-E costs incurred for
children who would not be eligible for IV-E payments if
they were placed in foster care. ACF disallowed the
protective and preventive services costs on essentially
the same grounds. 3/
As discussed in detail below, we conclude that both the
disapproval of the proposed CAP amendment and the
disallowances were proper. The primary purpose of the
IV-E program is to provide funding for foster care
maintenance payments for children who have been placed in
foster care and otherwise would be eligible for Aid to
Families with Dependent Children (AFDC) payments under
title IV-A of the Act. The Act and the regulations
contemplate only very limited funding under the IV-E
program for administrative activities on behalf of
children who have not yet been placed in foster care. In
order for the costs of an activity involving pre-
placement protective or preventive services to be
properly charged to the IV-E program, that activity must
be listed in the regulations as an allowable IV-E
activity or must be of a type which is closely related to
one of the listed activities. ACF properly disallowed
the costs of those activities identified in New York's
proposed CAP amendment that were neither listed in the
regulations nor closely related to a listed activity, and
properly determined that New York's proposed CAP
amendment incorrectly allocated the costs of such
activities to IV-E.
Moreover, even where pre-placement protective or
preventive services qualify as IV-E activities of the
type authorized by the regulations, the Act and the
regulations only authorize funding for activities
provided on behalf of children who will be placed in
foster care if preventive services are not effective and
who have the requisite degree of prior eligibility under
the AFDC program. The Agency properly allowed only the
costs of IV-E activities that were provided on behalf of
such children, and properly determined that New York's
proposed CAP amendment incorrectly allocated costs
incurred for other children to IV-E.
This decision is based on the parties' written briefing
and documentary submissions, including selected portions
of the record from New York State Dept. of Social
Services, DAB No. 1428 (1993), appeal docketed, No. 96-
8464 (S.D. New York, November 12, 1996).
Below, we review the cost allocation process, relevant
provisions of title IV-E and the implementing
regulations, and the factual background of the appeals.
We then explain our holdings with respect to each of the
three issues presented here.
The Cost Allocation Process
A state participating in the various public assistance
programs under the Act, including the title IV-E program,
is required to make determinations as to the amount of
commonly incurred expenditures that are allocable to each
program the state administers. A state is required to
submit a plan for cost allocation to the Director, DCA,
in the appropriate DHHS regional office. 45 C.F.R. §
95.507(a). This plan, or CAP, 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.
If DCA disapproves a CAP or CAP amendment, a state may
seek reconsideration of the DCA decision by the DHHS
Regional Director. 45 C.F.R. § 95.513(b) and 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). 4/
Once approved by DCA, a CAP may continue in effect
indefinitely if the state submits an annual statement to
DCA certifying that the CAP is not outdated. 45 C.F.R. §
95.509(b). The circumstances under which a CAP amendment
is required are specified in 45 C.F.R. § 95.509(a). The
effective date of a CAP amendment is generally the first
day of the calendar quarter following the event that
required the amendment. 45 C.F.R. § 95.515.
In determining whether to approve a proposed CAP or CAP
amendment, the DCA Director applies Office of Management
and Budget (OMB) Circular A-87 and "other pertinent
Department regulations and instructions," such as those
governing title IV-E. 45 C.F.R. § 95.507(a)(2). OMB
Circular A-87 sets forth general cost principles which
govern the administration of DHHS grants to states. It
is made applicable to such grants by 45 C.F.R. § 74.27(a)
(1994) (which is specifically made applicable to title
IV-E by 45 C.F.R. § 1355.30(b)). The relevant provisions
of OMB Circular A-87 are identified later in this
decision.
Title IV-E
Title IV-E was originally enacted as part of the Adoption
Assistance and Child Welfare Act of 1980, Public Law No.
96-272. This title authorizes appropriations to enable
states to provide, "in appropriate cases, foster care . .
. for children who otherwise would be eligible for
assistance" under the AFDC program. 5/ Section 470 of
the Act. Section 472 of the Act requires states to "make
foster care maintenance payments . . . with respect to a
child who would meet the [AFDC eligibility] requirements
. . . but for his removal from the home of a relative . .
. ." Section 472(a)(4) specifies that the child must
have received AFDC payments at the time a voluntary
placement agreement was entered into or court proceedings
leading to the removal of the child from home were
initiated, or have been eligible to receive AFDC payments
if application had been made for such payments at that
time or at any time during the preceding six months when
the child was living with a specified relative.
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 conditions on the receipt of title IV-E
funding for 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 home. Section
471(a)(15)(A) of the Act. 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: foster care maintenance payments
(474(a)(1)), adoption assistance payments (474(a)(2)),
and expenditures "found necessary by the Secretary for
the provision of child placement services and for the
proper and efficient administration of the State plan"
(474(a)(3)). The latter expenditures are further
subdivided into training expenditures (sections
474(a)(3)(A) and 474(a)(3)(B)) and other administrative
expenditures (section 474(a)(3)(C)). 6/
The regulations implementing title IV-E are codified at
45 C.F.R. Part 1356. Section 1356.60(c) concerns
allowable administrative costs. Subparagraph (1)
specifies certain costs (actually activities) which are
"directly related only to the administration of the
foster care program under this part" and which "may not
be claimed under any other section or Federal program."
Subparagraph (2) lists "examples of allowable
administrative costs necessary for the administration of
the foster care program." Subparagraph (3) provides that
"[a]llowable administrative costs do not include the
costs of social services . . . which provide counseling
or treatment to ameliorate or remedy personal problems,
behaviors or home conditions."
Factual Background
On March 28, 1989, New York submitted a proposed CAP
amendment to DCA. The proposed CAP amendment provided
for allocating to title IV-E costs attributable to the
time spent on ten activities by local social services
district caseworkers responsible for protective services
cases. 7/ The ten activities were: 01. Processing SCR
Forms; 02. Determining Nature, Extent, and Cause of
Injuries; 03. Risk Assessment; 04. Arranging for Foster
Care; 05. Arranging for Other Services; 06. Supervisory
consultation/conference; 07. Family Court Proceedings;
08. Preparing and Maintaining WMS/CCRS [Welfare
Management System/Child Care Review System]
documentation; 09. Preparing and maintaining case record
documentation; and 10. Case management/monitoring
services. (The plan also provided for allocating to
title XX of the Act the costs of two additional
activities which New York apparently considered to be
excluded from administrative costs under section
1356.60(c)(3): 11. Direct Provision of Social Services,
and 12. Working with Investigative Services.) The ten
activities were performed on behalf of children for whom
the caseworkers had received a report of suspected child
abuse or maltreatment. In New York, complaints of child
abuse or maltreatment 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 that there is reasonable cause to
suspect abuse or maltreatment, the interviewer prepares
an SCR report which is immediately transmitted to the
Child Protective Services (CPS) unit of the appropriate
local social services district. 8/ The CPS unit must
commence an investigation of a suspected abuse report
within 24 hours of receipt and determine, within 90 days
(within 60 days as of January 1, 1992), whether the
report is founded ("indicated") or unfounded. State law
defines an indicated report as a report made in which an
investigation determines that some credible evidence of
the alleged abuse or maltreatment exists.
This proposed CAP amendment was disapproved in part by
DCA, which found that four of the activities were not IV-
E activities: Processing SCR Forms; Determining Nature,
Extent, and Cause of Injuries; Risk Assessment; and
Arranging for Other Services. With respect to the
remaining activities, DCA found that only costs
pertaining to children who were documented as candidates
for IV-E were allowable IV-E costs. DCA's determination
was upheld by the Regional Director pursuant to 45 C.F.R.
Part 75, and then by the Board in DAB No. 1428.
On March 30, 1992, while DCA's disapproval of the 1989
proposed CAP amendment was on appeal to the Regional
Director, New York submitted another version of that
amendment to DCA which was applicable to the activities
of caseworkers responsible for preventive services cases
as well as those responsible for protective services
cases. Protective and preventive activities were
classified into four claiming categories: protective-pre-
determination, referring to protective services provided
prior to a determination whether an SCR report was
founded; protective-post-determination, referring to
protective services provided following a determination
that an SCR report was founded; preventive-mandated,
referring to preventive services provided for those
clients the local social services district was required
to serve; and preventive-nonmandated, referring to
preventive services provided for those clients the local
social services district was not required to serve. The
two protective services claiming categories each included
all of the activities in the 1989 proposed CAP amendment
which were at issue in DAB No. 1428 except for the
activity Arranging for Other Services, which was replaced
by Referral for Services. (In addition, the category
Arranging for Foster Care was renamed Placement of
Child.) The two preventive services claiming categories
each included several of the same activities listed as
protective services. 9/ New York proposed to allocate
these activities solely to the IV-E program. 10/ This
allocation methodology was identified as the "Title IV-E
Primary Program Option."
The 1992 proposed CAP amendment also contained an
alternative allocation methodology, known as the "EAF
[Emergency Assistance to Families] Option," which
allocated the costs of the activities in question among
programs other than or in addition to the IV-E program
using a case count allocation methodology. On December
29, 1994, DCA disapproved the former option and approved
the latter option (as revised July 8, 1994) with an
effective date of April 1, 1992. 11/ This
determination was upheld by the Regional Director on
April 19, 1996. New York's appeal of the Regional
Director's decision is presently before us, as are
disallowances of protective and preventive services costs
claimed by New York in accordance with the Title IV-E
Primary Program Option.
Analysis
The costs of protective services involving the activities
of processing reports of suspected abuse or maltreatment,
determining the nature, extent and cause of injuries, and
risk assessment may not properly be claimed under title
IV-E because these activities are not IV-E activities.
The Agency found that three of the protective services
activities identified in the 1992 proposed CAP amendment
as chargeable to IV-E were not IV-E activities:
Processing SCR reports, Determining the Nature, Extent
and Cause of Injuries, and Risk Assessment. New York
maintained that these activities were IV-E activities,
the costs of which are allowable under the IV-E foster
care program.
The disposition of this matter is squarely controlled by
DAB No. 1428. Other than the fact that a fourth
activity--Arranging for Other Services--was deleted from
the 1992 proposed CAP amendment and that the
disallowances here are for later quarters, the facts and
issues presented here are identical to those in DAB No.
1428.
In DAB No. 1428, the Board upheld the disallowance of
costs incurred for these activities and also upheld the
disapproval of New York's proposed CAP amendment to the
extent that it identified the costs of these activities
as properly charged to IV-E. As a basis for its
conclusion, the Board stated that --
[u]nless an activity is specifically listed or is
closely related to a [cost listed in 45 C.F.R. §
1356.60(c)(2) as an example of allowable
administrative costs], 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.
DAB No. 1428, at 10. The Board found that the activities
in question "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" since they "differ in both function and
purpose from the activities listed in section
1356.60(c)(2)." Id. at 10-11. In addition, the Board
rejected New York's argument that the activities should
be considered IV-E activities because they were necessary
to comply with the title IV-E requirement for a judicial
determination that continuation in the home is contrary
to the child's welfare and that reasonable efforts were
made to prevent the child's removal from home as well as
the requirement that the state develop a case plan for
each child. The Board found that the activities in
question "are not unique to the title IV-E program and do
not further the specific limited goals that program was
designed to meet." Id. at 14. The Board's specific
reasons included that --
o States retain primary responsibility for the
safety and welfare of the children who live within
their jurisdictions, and thus fund and administer a
range of child welfare services which include these
activities (which thus would have occurred even if
title IV-E did not exist).
o Title IV-E is a program of limited purposes, its
primary component being funding maintenance payments
for children in foster care who otherwise would be
eligible under title IV-A. There was no indication
that Congress intended title IV-E to participate in
the costs of the initial stages of a state's child
abuse prevention system.
o The disposition statistics on SCR reports
indicate how remote these activities are from the
purpose of title IV-E, since the overwhelming
majority of the 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.
o The title IV-E regulations limit federal
financial participation primarily to costs which are
incurred after a decision has been made that the
child should be placed in foster care.
New York attempted to distinguish the cases now before us
from DAB No. 1428 on the ground that DAB No. 1428
involved only pre-determination protective services costs
(incurred prior to a determination whether an SCR report
was founded) and not post-determination protective
services costs (incurred following a determination that
an SCR report was founded). 12/ However, even if DAB
No. 1428 did not specifically address post-determination
activities as such, it provided an extensive rationale
for why the three activities in question are not of the
type covered by the regulation. 13/
New York also took the position that DAB No. 1428 was
wrongly decided. However, as discussed below, New York
did not provide any basis for reaching a different result
here.
New York argued specifically that the Board erred in
concluding that, in order for administrative costs to be
covered by IV-E, the activities for which they are
incurred must be closely related to the activities listed
in section 1356.60(c)(2). According to New York, the
allowability of the activities in question depends solely
on whether they are reasonable and necessary. In New
York's view, Congress gave the states responsibility for
determining what activities meet these criteria. New
York argued specifically that Congress gave the states
responsibility for determining what cases were
"appropriate cases" for the provision of foster care
within the meaning of section 470 of the Act. However,
this view is contrary to the plain language of section
474(a)(3) of the Act, which expressly vests the
responsibility for determining what costs are necessary
for the proper and efficient administration of the IV-E
program in the Secretary. New York's argument confuses
this authority of the Secretary with a state's authority
to determine how to implement the IV-E program. The
latter does not entitle a state to IV-E funding for any
activities of its choosing.
New York also argued that there is no regulatory history
to suggest that the activities specified in the
regulation are anything other than a set of suggested
activities for the guidance of the states. New York is
correct that IV-E activities are not limited to those
listed in the regulation. However, as the Board stated
in New York State Dept. of Social Services, DAB No. 1588
(1996), "[s]ince 45 C.F.R. § 1356.60(c)(2) lists examples
of allowable administrative cost activities, a state
could not reasonably conclude 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), unless the activity
is one of the nine activities specifically listed in the
regulations or is closely related to one of the listed
activities." DAB No. 1588, at 10.
New York argued in addition that the "closely related"
test is inconsistent with the data reporting requirements
of the Statewide Automated Child Welfare Information
System (SACWIS). New York asserted that the SACWIS
regulations, which require the gathering of data
retrieved through the activities of Assessing Risk and
Determining the Nature, Extent and Cause of Injuries,
reflect the importance of these activities. However,
there is no indication that Congress intended to fund the
activities a state must engage in to generate the
required data. Instead, section 1356.60(e) restricts the
costs of the SACWIS system in which the federal
government will share to costs incurred in planning,
designing, developing, installing and operating the
system.
New York argued in the alternative that the activities in
question are in fact closely related and integral to some
of the activities listed in section 1356.60(c)(2).
According to New York, the activities in question are
linked to preparation for judicial determinations
(section 1356.60(c)(2)(ii)), development of case plans
(section 1356.60(c)(2)(iv)), and referral to services
(section 1356.60(c)(2)(i)). 14/ However, as the Board
stated in Illinois Dept. of Children and Family Services,
DAB No. 1530 (1995), "[a] close relationship means that
the activities are similar in nature, not simply that
some connection between them can be made." At 33-34.
New York did not make any showing that the activities in
question were similar in nature to the activities in
section 1356.60(c) which it identified. New York also
asserted that the information gathered on SCR forms is
essential for determining eligibility for IV-E
maintenance payments. To the extent that this
constitutes an argument that the activities in question
constituted determinations of eligibility, the costs of
which are allowable under section 1356.60(c)(1), we note
that the Board considered this argument at length in DAB
No. 1428 and rejected it. See DAB No. 1428, at 25-27.
New York also disputed the Board's conclusion in DAB No.
1428 that an activity must be "unique" to title IV-E in
order to be chargeable to IV-E. New York asserted that
such a test is contrary to congressional intent that IV-E
funds be made available to assist and supplement existing
state-operated foster care and adoption programs, as well
as contrary to the notion of cooperative federalism
generally. New York also asserted that the denial of IV-
E funds for the activities in question penalizes states
which took the initiative to devise pre-placement
preventive services programs prior to the enactment of
title IV-E. Contrary to what this argument suggests,
however, the Board did not hold that an activity must be
one which would not have occurred but for the IV-E
program in order to be eligible for IV-E funding, but
rather that an activity must be one which carries out the
purposes of the IV-E program. As noted above, Congress
made IV-E funds available primarily for the limited
purpose of making foster care maintenance payments.
Thus, to the extent that the activities relate to other
aspects of a state's foster care program, they cannot
properly be considered IV-E activities unless the
Secretary has determined that they are necessary for the
proper and efficient administration of the program.
Finally, New York challenged the Board's premise in DAB
No. 1428 that title IV-E is intended primarily as a
program to fund foster care maintenance payments. This
premise is directly supported by the fact that the Act
expressly authorizes funding for such payments and only
secondarily mentions funding for administrative costs,
which is left to the discretion of the Secretary.
Moreover, the overall statutory scheme supports this
premise. As the Board pointed out in DAB No. 1428, the
title IV-E 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.
DAB No. 1428, at 15, n.11. In addition, "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." Id. at 14. That there are
other sources of funding which are available for the
costs of complying with the requirements which New York
cited indicates that the purpose of title IV-E is more
narrow than New York maintained. Moreover, as the Board
stated in DAB No. 1588 --
[t]he fact that the Act conditions the availability
of title IV-E maintenance or adoption assistance
payments for children on a state meeting certain
requirements relating to child welfare generally is
not a basis for finding that funding is available
under title IV-E for any and all activities related
to these conditions; rather, a state obliges itself
to comply with certain requirements when it
voluntarily undertakes a title IV-E program.
DAB No. 1588, at 10; see also DAB No. 1530, at 30. New
York did not provide any support for its contrary
position, nor did it explain why the factors relied on by
the Board were not persuasive. 15/
We therefore conclude that the activities of Processing
SCR Reports, Determining the Nature, Extent and Cause of
Injuries, and Risk Assessment are not IV-E activities
and, accordingly, may not properly be claimed under title
IV-E.
The costs of protective and preventive services which
involve IV-E activities but are provided for children who
are not reasonably viewed as candidates for foster care
placement under the IV-E program must be allocated to
programs other than IV-E.
There is no dispute that the remaining protective and
preventive services involved IV-E activities. However, a
determination that a cost is incurred for a IV-E activity
of the type authorized by the IV-E regulations does not
necessarily mean that it may be charged to title IV-E,
since the cost principles further require that "to [be]
allowable under a grant program," costs must "be
allocable thereto." OMB Circular A-87, Attachment A,
C.1.a. (1981). 16/ The nature of the required
allocation is dictated by the purpose of the program, as
reflected by the authorizing statute and the implementing
regulations.
The Agency determined that the costs of the remaining
services should be allocated to programs other than title
IV-E if they are incurred for children who are not
reasonably viewed as candidates for foster care placement
under the IV-E program. In the Agency's view, only those
children whom a state has determined need to be placed in
foster care absent effective preventive services are
reasonably considered candidates for foster care
placement. The Agency stated that here such children
included (1) children receiving mandated preventive
services and (2) children receiving protective services
for whom the SCR report has been determined to be founded
and for whom a mandated preventive services case plan has
been developed designating foster care as the planned
arrangement for the child. 17/
New York took the position that the Agency's view of who
is a foster care candidate is too narrow. In New York's
view, all children in receipt of pre-placement protective
and preventive services as a result of an SCR report are
at imminent risk of placement and are foster care
candidates until determined otherwise by social service
district staff. 18/
The Board addressed this issue in DAB No. 1428, holding
that New York could not reasonably consider all children
who are the subject of an SCR report to be foster care
candidates, and that ACF reasonably defined foster care
candidates in ACYF-PA-87-05 as those children for whom
there is--
(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.
DAB No. 1428, at 19, quoting ACYF-PA-87-05. The Board
stated that this "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." Id. Specifically, the Board found that --
o ACF's restriction of allowable expenses to
children whom a state is trying to place in foster
care or concludes should be placed in foster care
absent effective preventive services is consistent
with title IV-E's limited purpose of funding foster
care maintenance and adoption assistance payments;
o 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 as IV-E activities;
and
o ACYF-PA-87-05 is a reasonable implementation of
the fundamental requirement in public assistance
programs that administrative costs charged to a
program be allocable to that program.
See DAB No. 1428, at 20.
New York again took the position that DAB No. 1428 was
wrongly decided. New York relied for the most part on
evidence concerning its SCR system and the training given
SCR screeners, which indicated that only children for
whom there was reasonable cause to suspect abuse or
maltreatment were referred to CPS workers. However, in
DAB No. 1428, the Board found such evidence unavailing
since "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." Id. at 21. Specifically,
the Board noted that 1991 figures indicated that only
approximately 6.7% of children named in SCR reports are
actually placed in foster care, and only a subset of
these children will be determined eligible for title IV-
E. Id. at 22. In the current proceedings, New York also
cited recent statistics showing that well over half of
annual foster care admissions originated from
investigation of SCR reports. However, this does not
necessarily mean that the majority of children who were
the subject of SCR reports entered foster care.
New York also argued that it had provided acceptable
documentation of IV-E candidacy for all children who were
the subject of SCR reports. New York asserted that the
data on the SCR reports, together with the individual
case records and case progress notes completed by CPS
caseworkers, were sufficient to document IV-E candidacy.
While this is not the type of documentation specified in
ACYF-PA-87-05, the Board noted in DAB No. 1428 that ACF
had represented that it would permit methods of
documenting candidacy that were equivalent to those in
ACYF-PA-87-05. 19/ However, as the Board pointed out
in DAB No. 1428:
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.
Id. at 19. New York did not contend that its
documentation was necessarily produced by activities
occurring at either of these points.
New York argued in addition that, although State law
provided for a 60 (later 90) day period to make a
determination as to whether an SCR report was founded or
unfounded, the State could have made this determination
at any time within this period. New York asserted that
the Agency thus acted arbitrarily in not considering a
child a foster care candidate until after this
determination is made. However, a substantial number of
SCR reports are determined to be unfounded. Therefore, a
determination is essential before a child can be found to
be in need of foster care placement absent effective
preventive services.
New York argued further that just as the costs of
determining IV-E eligibility are allowable regardless of
whether the eligibility determination is positive or
negative, the costs of determining whether SCR reports
are founded or unfounded should be allowable regardless
of the result. In response to a similar argument made by
New York in DAB No. 1428, the Board noted that the
activities which are reimbursable in the former case
occur after the point at which it has been determined
that the child needs to be removed from home absent
effective intervention and are required by the Act to
qualify an otherwise eligible child for foster care
benefits. At issue here, however, are activities
performed for children for whom that determination has
yet to be made or even for whom it has yet to be
determined whether there is credible evidence of abuse or
maltreatment. There is simply no basis for using funds
intended primarily for foster care maintenance payments
to reimburse the costs of these activities.
Finally, New York asserted that ACYF-PA-87-05 did not
give states notice that not all protective and preventive
services costs may properly be charged to IV-E, since
this issuance identified only costs not directly related
to the eligibility of children, such as recruitment,
licensing of foster homes, and training, as costs to be
proportionately allocated. New York further argued that
ACYF-PA-87-05 was an invalid legislative rule because it
was issued without notice and comment rulemaking as
required by the Administrative Procedure Act. However,
the Board held in DAB No. 1428 that "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." DAB
No. 1428, at 25. Thus, it is irrelevant whether ACYF-PA-
87-05 gave adequate notice of the Agency's policies or
was properly promulgated. 20/ (We note in any event
that DAB No. 1428 held that the provisions of ACYF-PA-87-
05 are interpretative rules, which did not have to be
published in order to be effective, because they
interpret "the scope of section 474(a)(3) of the Act and
45 C.F.R. § 1356.60(c) by defining the children with
respect to whom administrative expenses are
reimbursable." DAB No. 1428, at 24.)
Accordingly, we conclude that the Agency reasonably
determined that the costs of protective and preventive
services which involve IV-E activities but are provided
for children who are not reasonably viewed as candidates
for foster care placement under the IV-E program should
be allocated to programs other than IV-E.
The costs of protective and preventive services which
involve IV-E activities but are provided for candidates
for foster care placement under the IV-E program who have
not been determined to be otherwise eligible for AFDC
must be allocated among all benefitting programs,
including IV-E. 21/
The Agency determined that the costs of protective and
preventive services which involve IV-E activities but are
provided for foster care candidates who have not been
determined to be otherwise eligible for AFDC must be
allocated among all benefitting programs, including IV-E,
based on a case count allocation methodology. 22/ New
York took the position that all costs incurred for
protective and preventive services may properly be
charged wholly to title IV-E because the services are
provided on behalf of foster care candidates. 23/ As
discussed previously, however, there is no basis for
either New York's contention that all such services
involve IV-E activities or its contention that all
children who are the subject of an SCR report are foster
care candidates. Thus, the question remaining here is
whether costs incurred for IV-E activities provided for
children whom the Agency determined were foster care
candidates may properly be allocated wholly to IV-E where
no determination has been made that the children are
otherwise eligible for AFDC.
The Agency acknowledged that some of the costs which it
required to be allocated "are incurred on behalf of
children ACF recognizes as candidates for foster care . .
. ." Agency Br. at 32. However, the Agency argued that
the imposition of an allocation factor based on caseload
statistics was necessary "since the State does not
identify which of these individuals are potentially IV-E
eligible." Agency Br. at 32.
In support of its position, the Agency relied on sections
470 and 472 of the Act, which provide that foster care
maintenance payments may be made only on behalf of a
child who otherwise would be eligible for AFDC payments
under title IV-A of the Act. The Agency argued that
since IV-E payments are authorized only for such
children, the costs of administering the IV-E program
must be similarly restricted. The Agency also cited the
requirement in the IV-E regulation on administrative
costs that "the State's cost allocation plan shall
identify which costs are allocated and claimed under this
program." 45 C.F.R. § 1356.60(c). In addition, the
Agency cited the cost principles for state and local
governments at OMB Circular A-87 which require that a
cost be allocable to a grant in order to be allowable and
state that "[a] cost is allocable to a particular cost
objective to the extent of the benefits received by such
objective." OMB Circular A-87, Attachment A, C.1.a. and
C.2.a. (1981).
In our view, these authorities fully support the Agency's
position. The cost principles require that costs be
allocated based on benefit. The Act clearly establishes
that title IV-E is intended to benefit only children who
would be eligible for AFDC if they were not removed from
home. Thus, it is consistent with both the purpose of
the Act and general principles of allocability to limit
IV-E reimbursement of the costs of protective and
preventive services to costs incurred for such
children. 24/
The Agency's position is also supported by Missouri Dept.
of Social Services, DAB No. 844 (1987). In that case,
Missouri's proposed CAP amendment sought to allocate
wholly to title IV-E administrative costs incurred prior
to the placement of a child in foster care. The Agency
rejected this proposal on the ground that the only
administrative costs reimbursable under title IV-E are
those which relate to children who go on to become
recipients of IV-E benefits. The Board disagreed with
the Agency, finding that the activities at issue--
development of the case plan, preparation for and
participation in judicial determinations, and referral to
services--"would be proper administrative costs for
program candidates" even if they never become recipients.
DAB No. 844, at 8. In the Board's view, these
activities --
are administrative steps taken by the State under
its program to bring about foster care placement and
hence eligibility for cash benefits. Consequently,
where the State performs one of these activities in
anticipation of qualifying an otherwise eligible
child for foster care benefits, the State should
receive reimbursement for the activities as a
necessary administrative cost. The program required
the State to take the actions irrespective of
whether the child subsequently is determined
eligible for IV-E benefits or not.
Id. This decision holds, therefore, that a state may
charge allowable administrative costs wholly to IV-E
where the child is a "program candidate," i.e.,
"otherwise eligible . . . for foster care benefits." As
the Board noted in a subsequent decision, this refers to
a child "who could meet title IV-A eligibility
requirements. . .," since "the purpose of the IV-E
program as set out in section 470 is to fund maintenance
assistance for children in foster care who would
otherwise be eligible for title IV-A." DAB No. 1428, at
23, n.15.
Accordingly, the Agency is correct that, absent a showing
that a child otherwise would be eligible for AFDC, the
costs of protective or preventive services involving IV-E
activities must be allocated among all benefitting
programs based on a case count allocation methodology.
The case count allocation methodology is designed to
determine with a reasonable degree of precision the
number of foster care candidates who otherwise would be
eligible for AFDC where the state has not specifically
identified such children. 25/ New York did not
propose any alternative methodology for making this
determination.
New York nevertheless relied on the fact that the
Agency's definition of "program candidate" in ACYF-PA-87-
05 does not require any showing that the child would
otherwise be eligible for AFDC. This reliance is
misplaced. ACYF-PA-87-05 states that "[IV-E]
reimbursement is limited to those individuals the State
reasonably views as candidates for title IV-E foster care
maintenance payments." New York Ex. 29, at 2 (emphasis
added). This clearly indicates that, in order for the
costs of IV-E activities to be allocated to IV-E, the
child must not only be under current consideration for
placement in foster care but must also qualify for IV-E
payments if the child were placed in foster care. As
discussed in the previous section, ACYF-PA-87-05 then
proceeds to focus on three methods for documenting who is
a candidate for foster care placement. However, New York
could not reasonably rely on this issuance as permitting
the costs of IV-E activities to be allocated wholly to
IV-E regardless of whether the "candidates" for whom the
costs were incurred could qualify for IV-E payments if
placed in foster care. As we stated earlier in this
section of our decision, the requirement that a foster
care candidate for whom IV-E activities are undertaken be
able to establish eligibility for AFDC follows directly
from the statutory requirements for IV-E eligibility, the
basic design of the IV-E program, and the requirements on
allocability in the cost principles, all of which must be
applied together with the provisions in the policy
announcement on the definition of candidate. The IV-E
program is simply not designed to fund activities for
children who could never become eligible for IV-E
payments because they lacked the requisite degree of
eligibility in the AFDC program. Such funding would be
contrary to both the Act and the regulations.
New York also argued that the costs in question were
wholly allocable to IV-E because these costs are
necessary to comply with the IV-E requirement for a
judicial determination that continuation in the home is
contrary to the child's welfare and that reasonable
efforts were made to prevent the child's removal from
home as well as the requirement for development of case
plans. In response to a similar argument in DAB No. 844,
the Board agreed that the activities in question were
performed to carry out these requirements and found that
because the State "provides the activities in question
not knowing whether a child will be removed. . .," the
State "should not lose reimbursement simply because a
child is not removed." DAB No. 844, at 8. However, as
indicated above, DAB No. 844 and subsequent decisions
were based on the assumption that any child who was a
candidate for the IV-E foster care program could meet the
eligibility requirements for IV-E. Even if the child
could meet the judicial determination and case plan
requirements, the child would not be eligible for IV-E
payments if the child otherwise would not be eligible for
AFDC. 26/
Similarly unavailing is New York's argument that the
allocation of the costs in question to programs in
addition to IV-E made the reasonable efforts requirement
an unfunded mandate, contrary to the holding in Pennhurst
State School and Hospital v. Halderman, 451 U.S. 1
(1981), as well as the Unfunded Mandates Reform Act of
1995, Public Law No. 104-4. Under the approved EAF
Option, the Agency would reimburse all protective and
preventive services costs involving IV-E activities as
long as the children are foster care candidates who would
otherwise be eligible for AFDC. Thus, contrary to what
New York argued, the reasonable efforts mandate is fully
funded for any allowable activity since funding is
available for services for all foster care candidates who
potentially may be eligible for IV-E payments. New York
cannot reasonably claim that title IV-E also mandates
funding for services for children who could never qualify
for IV-E funding even if placed in foster care.
A related argument advanced by New York was that if
Congress had intended for the costs associated with the
provision of reasonable efforts to be allocated among
benefitting programs, it would have so specified. 27/
As noted above, however, all IV-E activities involving
reasonable efforts on behalf of foster care candidates
who would qualify for IV-E payments if removed from home
are funded by IV-E. Clearly, Congress need not
specifically state the obvious fact that IV-E funding is
not available for children who would not qualify for IV-E
payments if removed from home.
New York argued in addition that the Agency was in effect
requiring that New York implement a pre-placement
eligibility determination process in order to obtain full
funding under title IV-E for the services in question.
This argument has no merit. The number of children who
would otherwise be eligible for AFDC can be determined
with relative precision by using a case count allocation
methodology. Thus, to the extent that New York is unable
to individually determine AFDC eligibility prior to
placement, it can reasonably approximate all of the
funding to which it is entitled using this methodology.
Accordingly, we conclude the Agency properly determined
that costs of protective and preventive services which
involve IV-E activities provided on behalf of candidates
for foster care placement must be allocated among all
benefitting programs based on a case count allocation
methodology if no determination has been made as to
whether the child would otherwise be eligible for AFDC.
Conclusion
For the foregoing reasons, we uphold the disallowances of
protective and preventive services costs and the
disapproval of the Title IV-E Primary Program Option of
New York's proposed CAP amendment.
___________________________
M. Terry Johnson
____________________________
Norval D. (John) Settle
____________________________
Donald F. Garrett
Presiding Board Member
* * * Footnotes * * *
1. The disallowances covered by this decision
total nearly $110 million ($109,933,706,000) for the
period 4/1/92 through 3/31/96. This amount includes
increases in the original disallowance amounts for the
first ten cases docketed, of which New York was notified
by letters from ACF dated May 5, 1995 and July 25, 1995.
During the proceedings before the Board, New York
withdrew its appeal as to $13,252,382 related to
disallowed claims for non-mandated preventive services
costs. New York Br. at 2. New York also withdrew its
appeal as to $1,013,120 related to prior quarter
adjustments of preventive services costs. Id.; see also
Docket No. A-96-109, letter dated 6/12/96.
2. The Board stayed proceedings in several of
the disallowance appeals, for more than three years in
the case of the oldest appeal, until DCA made a decision
on the proposed CAP amendment.
3. We refer below to both DCA and ACF as "the
Agency."
4. The Part 75 appeals process has been
eliminated, so that the disapproval of a proposed CAP by
the DCA Director is appealable directly to the Board. 62
Fed. Reg. 38217 (July 17, 1997).
5. The Personal Responsibility and Work
Opportunity Reconciliation Act of 1996, Public Law No.
104-193, repealed the title IV-A program and amended
title IV-E so that it refers to certain provisions of
former title IV-A as they were in effect on June 1, 1995.
6. Subparagraph (C) of section 474(a)(3) was
redesignated subparagraph (E) effective October 1, 1993.
Pub. L. No. 103-66, § 13713(a)(1).
7. The time spent on each activity was to be
measured by a Random Moment Study.
8. The proposed CAP did not involve New York's
costs for the activities of its SCR workers.
9. The distinction between protective and
preventive services is thus somewhat blurred. Indeed,
New York asserted in prior briefing that "[p]reventive
services . . . can be provided as child protective
administrative activities." New York Br. dated 2/4/93,
at 22 (in record for DAB No. 1428). This is consistent
with the testimony of a New York official at the hearing
in the proceedings leading to DAB No. 1428. The witness
characterized the purpose of protective services as "to
determine the level of risk to [the] child and the need
for intervention" (Tr. at 62) and further stated that
"[i]f the [protective services] case worker determines at
any point that there is a risk of foster care placement,
the services that would be provided at that point would
be preventive services . . . " (Tr. at 63-64). The
witness also stated that the preventive services
furnished in this situation are mandated by New York's
social services law, although there are other situations
in which preventive services may be provided. Tr. at 76.
10. There is no dispute as to whether certain
other activities in these claiming categories which were
added by the 1992 proposed CAP amendment were IV-E
activities. The 1992 proposed CAP amendment also
established other claiming categories which are not at
issue here.
11. The EAF Option was approved with a major
condition which the Regional Director later determined
was satisfied by New York.
12. New York initially requested that the
Board issue a summary decision based on DAB No. 1428 with
respect to the disallowed pre-determination protective
services costs. However, New York later took the
position that IV-E activities were involved whether the
costs in question were for pre-determination protective
services, post-determination protective services, or
mandated preventive services. In fact, the proposed CAP
amendment classified the three activities in question
only in the first two claiming categories.
13. New York argued in addition that the
regulation on which the Board relied in DAB No. 1428 (45
C.F.R. § 1356.60(c)(2)) did not apply to pre-placement
services for foster care candidates. New York cited the
testimony of an Agency official to the effect that the
Agency did not contemplate that pre-placement activities
(other than those relating to eligibility determinations)
were allowable under IV-E when it issued the regulation.
However, that testimony is not at all supportive of New
York's position here since the effect of the testimony is
that there is no authority under the program for funding
any pre-placement activities. In any event, the only
conceivable source for funding these activities would
have to be section 1356.60(c)(2).
14. New York asserted that DAB No. 1428
indicated that the activity of risk assessment would be
allowable as case planning if performed on behalf of
children for whom the SCR report was determined to be
founded. However, the Board merely stated that if risk
assessment involves development of a case plan (as New
York's ambiguous description in its proposed CAP
amendment indicated it might), New York could create a
separate category in the RMS for case planning (if
performed for foster care candidates).
15. New York also argued that a policy
announcement issued by the Agency on October 22, 1987,
ACYF-PA-87-05, did not give adequate notice that the
three activities in question here were not IV-E
activities. However, the Board did not rely on ACYF-PA-
87-05 in concluding that these activities were not IV-E
activities.
16. OMB Circular A-87 was amended effective as
of state fiscal years beginning on or after September 1,
1995. 60 Fed. Reg. 26484 (May 17, 1995). A similar
provision now appears at Attachment A, C.1.b.
17. In light of the Agency's position that
children receiving pre-determination protective services
where a mandated preventive services case has not been
opened are not foster care candidates, it is not clear
why the Agency approved the provision of the EAF Option
allocating some costs incurred for these services to
title IV-E.
18. However, as indicated earlier, New York
withdrew its appeal with respect to non-mandated
preventive services. Since the Agency determined that
children in receipt of mandated preventive services were
foster care candidates, there is no issue in this case as
to whether the costs of preventive services which involve
IV-E activities are incurred for foster care candidates.
There is also no dispute that, where proceedings to
place a child in foster care have been initiated, the
child may reasonably be viewed as a foster care
candidate.
19. New York asserted that the documentation
associated with the SCR report "constitutes the initial
required case plan documentation for open active cases."
New York Reply Br. at 17. To the extent that this
constitutes an argument that this documentation
constituted a "defined case plan" within the meaning of
ACYF-PA-87-05, we reject that argument. ACYF-PA-87-05
requires that the plan "clearly [indicate] that, absent
effective preventive services, foster care is the planned
arrangement for the child." New York never asserted that
the documentation contained any such indication.
20. New York made the same argument with
respect to the question, discussed below, whether
protective and preventive services costs incurred for
children who are foster care candidates but who have not
been identified as otherwise eligible for AFDC must be
allocated to programs in addition to IV-E. As indicated
by our discussion, the Agency need not have relied on
ACYF-PA-87-05 as a basis for its determination with
respect to those costs either.
21. This refers to the situation where there
has been no determination regarding the child's AFDC
eligibility.
22. The proposed CAP amendment also provided
for the allocation among benefitting programs of
protective services costs for children placed in foster
care but for whom no determination of IV-E eligibility
has been made. New York initially disputed this
allocation (see New York Br. at 18), but later conceded
that a case count allocation methodology was
appropriately applied to such costs. New York Reply Br.
at 23-24.
23. However, as indicated earlier, New York
did not dispute the allocation among title IV-E and title
XX of non-mandated preventive services costs (presumably
because New York agreed that the costs were not incurred
for foster care candidates). In addition, a list of
disputed allocations in New York's brief did not include
the allocation to title XX of post-determination
protective services costs where no mandated preventive
services case has been opened, even though New York took
the position that such costs were incurred for foster
care candidates. See New York Br. at 17-18.
24. The Agency also cited ACYF-PA-87-05, which
states in relevant part that costs --
that are not linked directly to the eligibility of
children must be allocated to title IV-E, State
foster care and other State/Federal programs in such
a manner as to assure that each participating
program is charged its proportionate share of the
costs. The allocations may be determined by case
count of title IV-E eligible children in relation to
all children in foster care . . . or on some other
equitable basis.
New York Ex. 29, at 3-4. While this does not appear to
address the child-specific costs at issue here, it is
clear from the other authorities cited by the Agency that
the concept of allocability introduced here is generally
applicable to all types of costs.
25. The Agency stated that where it has been
specifically determined that a child would otherwise be
eligible for AFDC, the Agency would permit the full costs
of the services provided to the child to be allocated
wholly to title IV-E. See ACYF-PIQ-96-01, at 2. We
assume that, conversely, where it has been specifically
determined that a child would not otherwise be eligible
for AFDC, the Agency would require that all costs be
allocated to programs other than IV-E. It is not clear
that these costs could be separately allocated without
duplicating the IV-E costs identified by application of
the case count allocation methodology, however. Under
that methodology, the costs allocable to IV-E would
presumably be determined by applying the percentage of
children in New York's foster care caseload who are
eligible for IV-E payments to the allowable IV-E costs
incurred for foster care candidates.
26. New York also asserted that there is no
corresponding provision in New York law that mandates
reasonable efforts as part of determining a child's
eligibility for non-title IV-E foster care maintenance
payments, and argued that there was thus no basis for
allocating the costs of complying with the reasonable
efforts requirements to state programs. Under the
approved EAF Option, however, the only costs allocated
even in part to state-funded foster care programs are the
costs of post-determination protective services for
children placed in foster care but for whom no
determination of IV-E eligibility has been made. As
previously noted, New York did not dispute this
allocation. Moreover, even if New York was not required
to provide these services in its state-only funded
programs, that is not a basis to allocate them to IV-E
where they are not allocable to that program. Given
states' primary responsibility for the health and welfare
of their citizens, New York ultimately must bear the
responsibility for the costs of any protective and
preventive services it provides that are not allocable to
IV-E or any other federal program.
27. New York noted in this connection the
conclusion in a General Accounting Office (GAO) report on
IV-E training costs that "title IV-E does not discuss
cost allocation, and its language leaves room for more
than one interpretation concerning the allocation of
training costs." New York Reply Br. at 28-29, citing
GAO-HRD-94-7 (1993) (New York Ex. 34). However, the GAO
report is inapposite since training costs, unlike the
costs at issue here, are not child-specific costs.
(..continued)