SUBJECT: Missouri Department Of Social Services

DECISION

The Missouri Department of Social Services (Missouri) appealed a determination by the Administration for Children and Families (ACF) disallowing $5,866,644 in federal financial participation claimed under title IV-E of the Social Security Act (Act) and reported in the quarters ending September 30, 1999 and December 31, 1999. The claims were based on expenditures incurred by local public and non-profit agencies such as school districts, juvenile court offices, and private counseling centers for activities on behalf of children who were considered by these agencies to be candidates for foster care.

In its letter of June 14, 2000, ACF disallowed the claims on the following grounds: the definition of foster care candidacy used by the local agencies was overly broad and outside the parameters contemplated by title IV-E, the implementing regulations and policy issuances; Missouri failed to document the children's status as candidates for title IV-E in accordance with federal standards; Missouri impermissibly delegated, to the local agencies, the responsibility for determining title IV-E candidacy; some of the activities performed by the local agencies were not allowable title IV-E administrative activities under the statute and regulations; and Missouri impermissibly relied on its foster care penetration rate to determine the portion of the local agencies expenses which should be allocated to title IV-E.

For the reasons discussed below, we uphold this disallowance in full. We conclude that the definition of candidacy was overly broad, that Missouri failed to document candidacy pursuant to federal standards, that some activities conducted by local agencies were not authorized title IV-E administrative activities under the statute and regulations, and that Missouri failed to establish that use of its title IV-E foster care penetration rate was reasonable. We reaffirm our prior holdings that 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 been placed in foster care, and that ACF has reasonably restricted allowable administrative costs to expenses incurred on behalf of children a state is trying to place in foster care or children for whom foster care is the planned arrangement absent effective preventive services.

In view of our conclusions above, we need not address the remaining grounds relied upon by ACF for the disallowance including additional issues raised during the development of the appeal.

Below, we review the relevant law and the factual background and then explain why we conclude that these expenses should be disallowed.

I. Background

• Relevant statutory and regulatory provisions and Board decisions.

Title IV-E was originally enacted as part of the Adoption Assistance and Child Welfare Act of 1980, Public Law No. 96-272 (Child Welfare Act). Title IV-E authorizes appropriations to enable states to provide, in appropriate cases, foster care for children who would otherwise be eligible for assistance under the former Aid to Families with Dependent Children program (AFDC) of title IV-A of the Act and adoption assistance for children with special needs.⁽¹⁾

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)), data collection systems (sections 474(a)(3)(C) and (D)), and other administrative expenditures (section 474(a)(3)(E)). The expenses at issue in this case were claimed as administrative expenditures pursuant to section 474(a)(3)(E).

The Board has repeatedly held that the primary purpose of the IV-E foster care program is to provide funding for foster care maintenance payments and that the program's role in funding administrative activities is limited. New York State Office of Children and Family Services, DAB No. 1701, at 9 (1999); New York State Dept. of Social Services, DAB No. 1610, at 13 (1997); Illinois Dept. of Children and Family Services, DAB No. 1530, at 27 (1995); New York State Dept. of Social Services, DAB No. 1428, at 14 (1993), affirmed at New York v. Shalala, 1998 WL 150955 (S.D. N.Y. Apr. 1, 1998); Missouri Dept. of Social Services, DAB No. 844, at 17 (1987).

In reaching this conclusion, the Board has relied on the following factors:

• Title IV-E was enacted as 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. That Act included complementary federal programs with funding caps, such as title IV-B, whose purpose is to fund family preservation programs which will prevent children from being placed in foster care or from becoming candidates for foster care.⁽²⁾
  

• The title IV-E statement of purpose in section 470 of the Act refers only to the provision of a foster care program "for children who otherwise would be eligible for assistance under . . . part A and adoption assistance for children with special needs . . . ." The "assistance" available under part A of title IV was financial assistance to meet basic needs. Section 401. Thus, title IV-E is intended to provide financial assistance on behalf of children who can no longer meet AFDC eligibility requirements because of their removal from their homes.⁽³⁾
  
  
• Beyond maintenance payments and adoption assistance, title IV-E provides only limited authorization for funding of administrative activities "found necessary by the Secretary for the provision of child placement services and for the proper and efficient administration of the State plan." Section 474(a)(3). ACF's implementing regulations set forth discrete activities which are necessary for the proper and efficient administration of the program. 45 C.F.R. § 1356.50(c); see also, New York, DAB No. 1701, at 11; New York State Dept. of Social Services, DAB No. 1630, at 9-12 (1997); New York, DAB No. 1428, at 10.

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).

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."⁽⁴⁾ Subparagraph (3) provides that "allowable 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."

States may claim administrative costs for expenses incurred for children who are put in foster care and become title IV-E recipients and for children who are candidates for title IV-E even if these candidates are not ultimately placed in foster care. ACYF-PA-87-05 (found at State Ex. O, unnumbered pp. 3-6); New York, DAB No. 1428, at 6; Missouri, DAB No. 844, at 8-10. During the relevant time period, Missouri's cost allocation plan (CAP) also provided for claiming title IV-E administrative costs for candidates for foster care. Missouri's CAP coded certain administrative activities as title IV-E if they were performed on behalf of a child "who is at-risk of out-of-home placement without such case management and/or other needed services." State Ex. 1, at IV-B-4.

In ACYF-PA-87-05, ACF addressed how to determine and document whether a child may be reasonably viewed as a title IV-E candidate.⁽⁵⁾ 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.

ACYF-PA-87-05, at 3.

The Board has upheld ACYF-PA-87-05 as a reasonable interpretation of the regulations and title IV-E and as consistent with the fundamental requirement of allocability that applies to public assistance programs such as title IV-E. New York, DAB No. 1428, at 19. In New York, DAB No. 1428, the Board reasoned:

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.

New York, DAB No. 1428, at 19-20.

A state participating in the public assistance programs under the Act, including the title IV-E program, is required to determine the amount of commonly incurred expenditures that are allocable to each program the state administers. In order to do this, a state is required to submit a cost allocation plan to DCA for its approval. 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. Because all states run state-only foster care programs for children who are not eligible for title IV-E and child welfare programs funded with state and non-IV-E federal contributions, CAPs play a particularly important role in allocation of title IV-E administrative costs. The centrality of Caps in managing a title IV-E program is reflected in the regulation concerning title IV-E administrative expenses. Section 1356.60(c) of 45 C.F.R. expressly provides:

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.

B. Factual background

In the early 1990s, Missouri determined that its child protection system would be more effective if it worked in partnership with local community organizations, such as courts, schools, and nonprofit agencies, that were already providing an array of services to children. To that end, Missouri created "Caring Communities Partnerships" which are nonprofit local governance bodies dedicated to linking the State=s human services departments (such as Social Services, Mental Health, Education, and Corrections) with public and private community organizations which seek to strengthen families and neighborhoods. State Ex. S, at ¶¶ 3, 4. The State funds provided to these partnership organizations have enabled them to raise additional private funds for support of their programs. Id., at ¶ 5.

Subsequently, Missouri decided that many of the activities conducted by the Caring Communities Partnerships were administrative activities of the sort allowable for FFP under title IV-E. For example, Missouri represented that workers in these local organizations engage in referrals for children, serve as case managers, develop and monitor case plans, and prepare for and participate in judicial activities related to a child's removal (or non-removal) from home. Id., at ¶ 8.

In order to claim IV-E reimbursement for these activities, in 1997 Missouri entered into contracts with two of the Community Caring Partnerships B the Local Investment Commission of Greater Kansas City (LINC) and the Area Resources for Community and Human Services of St. Louis (ARCHS). Pursuant to these contracts, LINC and ARCHS (the contractors) billed Missouri on a quarterly basis for activities performed by community organizations with which LINC and ARCHS had subcontracts (the subcontractors). Missouri in turn claimed these expenses as reimbursable title IV-E administrative expenses.

The amount the contractors billed Missouri was determined pursuant to a quarterly time study conducted by the subcontractor. The time study was designed and approved by Missouri. State Ex. U at ¶¶ 6-8. The time study operated as follows. The subcontractors= case workers kept a log of their activities during a designated five-day period each quarter. Each case worker used time study code letters that identified the primary type of activity in which he or she engaged for each 15-minute segment of the workday. State Ex. V at B-1 - B-19. Pursuant to the coding system, the case workers distinguished between work performed on behalf of children they regarded as "at-risk" children (and therefore as title IV-E candidates) and work on behalf of children they did not regard as at-risk. The study results were used to determine the subcontractors' costs for certain services to at-risk children, for outreach services to all children, and for a proportionate share of overhead. These costs were submitted to LINC and ARCHS, which applied Missouri's statewide ratio of IV-E to non-IV-E foster care cases (the penetration rate) and billed the result to Missouri. Missouri then claimed title IV-E reimbursement for this amount.

The contracts and subcontracts provided that the federal reimbursement was to be distributed as follows: Missouri retained 10% of the reimbursement for its administrative expenses, ARCHS and LINC received 10% for administration and 40% for program costs, and the subcontractors received the remainder, or 40%. State Ex. D, attached Ex. C.

In December 1999, ACF began questioning the claims based on the contracts with ARCHS and LINC. ACF issued a series of deferral letters and finally a disallowance letter on June 14, 2000.

In previously considering the limits on allowable title IV-E administrative activities under the statute and regulations, the Board has looked closely at the purpose of title IV-E and at the circumscribed authorization in the statute and the regulations for funding for administrative activities. Title IV-E is primarily a financial assistance program for children who can no longer meet AFDC eligibility requirements because they have been removed from their homes and placed in foster care. New York, DAB No. 1701, at 9; New York, DAB No. 1630, at 13; Illinois, DAB No. 1530, at 28; New York, DAB No. 1428, at 14; Missouri, DAB No. 844, at 17. As ACF stated, the purpose of title IV-E is "to provide assistance for the maintenance of AFDC-eligible children who cannot remain safely in their own homes." 65 Fed. Reg 4020, 4064 (January 25, 2000). Although the Board has concluded that the statute and regulations authorized payment for administrative activities occurring prior to a child's foster care placement, these activities are associated with the child's removal and placement (including the judicial proceeding leading to removal) or with efforts to retain the child within the family after the state has made a decision that foster care is the planned arrangement for the child absent effective preventive services. New York, DAB No. 1630, at 10; Illinois, DAB No. 1530, at 27; New York, DAB No. 1428, at 15; Missouri, DAB No. 844, at 17. 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.

New York, DAB No. 1630, at 2.

The Board has moreover recognized that the title IV-E program was not designed to fund social services generally nor was it designed to provide administrative support for children who may have been abused or neglected but for whom no decision had been made that they should be placed in foster care absent effective preventive services. New York, DAB No. 1630, at 16; Illinois, DAB No. 1530, at 38; New York, DAB No. 1428, at 12 n. 9; and at 20-23. At the same time that Congress enacted title IV-E, it also enacted other programs with funding caps that assisted states in providing a wide array of social services and administrative activities for families with abused or neglected children. Adoption Assistance and Child Welfare Act of 1980, Public Law No. 96-272. In applying ACF's policies in ACYF-PA-87-05 to the activities at issue in this case, we necessarily must be mindful of the purpose of the IV-E program and the limited authorization in the statute and regulations for title IV-E funding for administrative activities on behalf of children prior to their actual placement in foster care.

A. The subcontractors' standard for determining candidacy for title IV-E was overly broad and not in accordance with ACYF-PA-87-05.

Under ACYF-PA-87-05, candidacy for title IV-E may be documented in one of three ways. This case concerns whether a child had "a defined case plan which clearly indicates that, absent effective preventive services, foster care is the planned arrangement for the child." ACYF-PA-87-05, at 3.

In disallowing the costs questioned here, ACF asserted that under ACYF-PA-87-05 and Board decisions, a child is not reasonably viewed as a candidate for IV-E services until activities occur at the point when the state has initiated efforts to actually remove the child from his or her home or at the point the state has made the decision that the child should be placed in foster care unless preventative services are effective.

Disallowance Letter, State Ex. L, at 3. (emphasis added).

While Missouri stated that it accepted the definition of candidacy set forth in ACYF-PA-87-05 (Missouri Reply Br. at 3, n. 1), Missouri argued that ACF had impermissibly narrowed the requirements for candidacy "to activities undertaken . . . after the decision has been made to place the child in foster care if preventative efforts are not successful." State Br. at 24. Missouri asserted that "candidacy determinations do not address whether the child should be removed from the home" State Reply Br. at 5. Rather, Missouri's guidelines stated that candidacy determinations turned on whether "there may be cause for removal from the home if needed services are not provided, the current situation deteriorates, or unforeseen circumstances occur." State Ex. V, at attached Ex. D.

We conclude that, for children who are not subject to judicial removal proceedings or for whom no eligibility determination form has been completed, ACF has reasonably limited candidacy to cases in which a decision has been made that a child should be placed in foster care if preventive efforts are not effective. We reject Missouri's assertion that ACF has impermissibly narrowed the standard for IV-E candidacy under ACYF-PA-87-05 for the following reasons.

• ACF's interpretation is consistent with the purpose of title IV-E which is to provide assistance for the maintenance of AFDC-eligible children who cannot remain safely in their own home.
  
  
• ACF's interpretation is consistent with the requirements of title IV-E that a child's involuntary removal from his/her family must be pursuant to a judicial determination that continuation in the home would be contrary to the welfare of the child and that reasonable efforts have been made to maintain the child in the family. A "planned arrangement" for title IV-E foster care necessarily assumes a plan which reflects those requirements, i.e., that the circumstances of the child require and justify actual placement in foster care absent effective preventive services.
  

• ACF's interpretation is consistent with the obvious meaning of "a defined case plan which clearly indicates that, absent effective preventive services, foster care is the planned arrangement for the child."
  
  
• ACF's interpretation is consistent with the limited range of administrative activities determined to be reasonable and necessary by the Secretary pursuant to section 474(a)(3) of title IV-E.
  
  
• ACF's interpretation has been articulated and supported by prior Board decisions. New York, DAB No. 1630, at 10; Illinois Dept. of Children and Family Services, DAB No. 1530, at 38; New York, DAB No. 1428, at 19-20; affirmed at New York v. Shalala, 1998 WL 150955 (SD NY Apr. 1, 1998).
  

Missouri's interpretation, on the other hand, is much broader than the standard in the policy announcement. Missouri's interpretation only requires the subcontractor to conclude that there "may be" (not "would be") cause for the removal of the child from the child's family if "unforeseen circumstances occur" or if the "current situation deteriorates." State Ex. V, at attached Ex. D. The title IV-E program, however, was designed to address the needs of a much smaller subgroup of children who face the most serious of family circumstances. Contrary to what Missouri argued, the concept of candidacy, as described by ACYF-87-05, encompasses cases in which the services offered are services designed to prevent removal and the state has decided that if those services are not effective the next step will be removal. Thus, we conclude that ACF's application of ACYF-87-05 does not impermissibly narrow the scope of IV-E candidacy.

Having concluded that ACF here properly interpreted and applied the definition of candidacy in the policy announcement, we now explain why the standard used by the Missouri subcontractors to determine and document candidacy was impermissibly broader than the federal standard.

Missouri provided subcontractors with at least two written references to use to determine whether children should be classified as title IV-E candidates: the time study instructions and a "quick reference card."⁽⁶⁾

In the subcontractors' time study instructions, a child was defined as "at-risk" and therefore coded by the subcontractors as a title IV-E candidate if the child met the following standard:

Person 17 or younger who is living outside the parental home . . . OR has one of the following: (a) a case plan which indicates that the child is a candidate for out-of-home placement if needed services are not provided, (b) court proceedings in relation to the removal of the child from the home or (c) a completed Title IV-E eligibility determination (DSS only).

State Ex. B.⁽⁷⁾

Under this language, subcontractors could consider a child a title IV-E candidate if the child was living outside the home. As ACF pointed out, this would not necessarily be a child for whom foster care was "the planned arrangement absent effective preventive services." Rather, the child could be living with a relative or neighbor in a stable living situation so there would be no need to make foster care the planned arrangement even though that child's parental home might be presently unsuitable.

Missouri responded that its standard required the subcontractor to also analyze whether the child was at-risk of out-of-home placement if needed services were not provided. Missouri Reply Br. at 14. However, for a child who is living outside the parental home, such an analysis is not required by the plain language of the standard. Thus, we cannot reasonably assume that subcontractors would understand that such an analysis was always required.⁽⁸⁾

Missouri also argued that a child living outside the home because of various risk factors, such as parental alcoholism, was more likely to be placed in foster care. Id. This argument is not persuasive. First, even if it may be true that such risk factors increase the likelihood of foster care placement, the standard Missouri used did not limit classification to children with those factors. Second, a child may have a suitable and stable living alternative even though she or he has an unsuitable immediate family. Such a child does not meet the requirements to be considered a candidate for title IV-E.

Additionally, the interpretation of the term "at-risk" in these instructions is substantially more inclusive than what was contemplated by ACYF-PA-87-05. Missouri authorized the subcontractors to use the term "at-risk" to include children who, because of their problems or family circumstances may, some day need to be removed from their families if "the current situation deteriorates, or unforeseen circumstances occur." State Ex. V, at attached Ex. D. ACF's policy issuance, on the other hand, describes a child at the other end of the "at-risk" spectrum, i.e., a child who is at serious risk of foster care placement, a child for whom a decision has been made that she/he will be placed in foster care unless the services that are being offered are effective to prevent removal. New York, DAB No. 1630, at 17; New York, DAB No. 1428, at 20-23.

Missouri's overly broad interpretation of the concept of "at-risk" is demonstrated by the "quick reference card" provided by Missouri "for local organizations' employees to use that explains the definition of an at-risk child." State Ex. V, at ¶ 10 and attached Ex. D. That card stated:

A Title IV-E At-Risk child is either already living outside the parental home, has court proceedings in relation to removal, or has a case plan or service plan which indicates that there may be cause for removal from the home if needed services are not provided, the current situation deteriorates, or unforeseen circumstances occur.

State Ex. V, at attached Ex. D (emphasis in original).

Under this guidance, a subcontractor could consider a child a title IV-E candidate if the case plan indicated there "may" be cause for removal if the situation deteriorates or if unforeseen circumstances occur. However, a title IV-E candidate is a child whose circumstances are such that foster care is the planned arrangement unless services are effective to prevent removal, in other words unless the services are sufficiently effective to change the decision concerning the need for removal as the next step in the case plan. ACF pointed out that, pursuant to the quick reference card, any child in Missouri could be regarded as a candidate for title IV-E since any child may be subject to a deteriorating situation or unforeseen circumstances. Certainly the definition of at-risk on the quick reference card used by subcontractors encompassed far more children than those with "a defined case plan which clearly indicates that, absent effective preventive services, foster care is the planned arrangement for the child."

The card also listed "indicators of risk" which subcontractors were instructed to include in the case plan to demonstrate a child's at-risk status. Included in the indicators were domestic violence, teen pregnancy or birth, mental or physical illness, disability, and unemployment. While these indicators may be associated with a child who needs to be removed to foster care absent effective preventive services, they are also easily associated with children who do not need to be removed from their families. The use of such risk factors in conjunction with the misinformation on the card could result in classifying a child as at-risk when the child is far from being a child with "a defined case plan which clearly indicates that, absent effective preventive services, foster care is the planned arrangement for the child."

The overly broad approach to candidacy used by the subcontractors appears to be confirmed by Missouri's admissions concerning the relationship between its construction of candidacy and the operation of its mandated reporter statute. Missouri law defines a range of people, such as medical personnel, social workers, juvenile officers, and school personnel, as "mandated reporters." Missouri statutes require that a mandated reporter, who has "reasonable cause to suspect that a child has been or may be subject to abuse or neglect or observes a child being subjected to conditions or circumstances which would reasonably result in abuse or neglect . . . shall immediately report or cause a report to be made" to Missouri's statewide child protection system on behalf of such child. Mo. Stat. § 210.115. (Emphasis added.)

Missouri conceded that most, if not all, of the subcontractor personnel would be considered mandated reporters. Missouri also conceded that there was no reason to assume that the subcontractor personnel filed reports on children they considered to be at-risk of abuse and neglect and therefore title IV-E candidates. Missouri argued that, since the statute was "silent about the severity of the abuse that mandates a report", the "statute leaves considerable room for interpretation over whether a given child's circumstances require reporting." State Response to Request to Develop the Record at 11.

While the mandated reporting statute may leave room for interpretation over whether a given child's circumstances require reporting, the issue here is whether children who are merely thought to be "at risk" for abuse or neglect but for whom reporting is not required may reasonably be considered candidates for IV-E foster care. The mandated reporter statute encompasses children where there is reasonable cause to suspect that a child "may be" subject to abuse or neglect or observation of conditions or circumstances "which could reasonably result in abuse or neglect." This description necessarily includes both children whose circumstances will be determined to justify foster care placement and whose circumstances will be determined to not justify foster care placement. However, children's circumstances which do not even precipitate mandated reports would not, as a general rule, seem to be the type of circumstances which would be grounds for considering foster care placement as the next step absent effective preventive services. Yet, Missouri did not deny that the standard it used for candidacy could include children whom the subcontractors judged to be "at risk" for abuse or neglect but not to meet the reporting requirement. Thus, Missouri here fails to persuade us that it may reasonably view foster care as the "planned arrangement" absent effective services for such unreported children and that it may reasonably consider subcontractor "plans" for such children to be the type of case plans contemplated in ACYF-PA-87-05.

We also disagree with Missouri's assertion that the intent of title IV-E is to fund help for at-risk children before they require a section 210.115 report. The intent of Missouri's Caring Communities Partnership programs is to help at-risk children before they require a section 210.115 report. However, Congress did not enact title IV-E as an uncapped entitlement program to fund case planning and other administrative services to children from troubled families who can benefit from working with school counselors, mental health professionals, and court officers, but whose circumstances were not so serious that foster care would be the planned arrangement if the services were not effective. Missouri confuses the purpose of title IV-E with the broader purposes of the Adoption Assistance and Child Welfare Act of 1980.

In New York, DAB No. 1428, the Board held that the fact a child had been reported to the state child abuse authorities as abused or neglected does not alone make the child a foster care candidate. Here Missouri has pushed the boundary of candidacy beyond the one the Board rejected in New York.⁽⁹⁾ Missouri is seeking administrative expenses for children allegedly at risk of abuse or neglect whose circumstances do not even mandate a report. Missouri's position that title IV-E candidacy includes abuse and neglect cases which do not require a section 210.115 report from a mandated reporter underscores Missouri's misuse of the concept of title IV-E candidate. Missouri has drawn the candidacy line for these subcontractors far beyond what ACF has defined as appropriate.

Finally, Missouri pointed repeatedly to an arrangement approved by the Chicago Regional Office involving a title IV-E "local collaborative time study" in Minnesota. State Ex. 1. This exhibit does not provide persuasive support for Missouri's position for the following reasons. First, from the documents in the record, we cannot tell exactly how Minnesota's program is designed to operate: we do not know who the local collaboratives are, we do not know which of the federally approved codes are used for title IV-E claiming, and we do not know how candidacy is determined or documented. Therefore, we do not know whether the Minnesota program would present the problems that we find in the Missouri program. Second, this exhibit is an example of how a state can work in partnership with ACF when developing new programs which may have a significant impact on title IV-E claiming. Minnesota worked with the Regional Office to develop "federally approved codes and definitions." State Ex. 1, at A-1. In contrast, Missouri instituted a novel program and claiming strategy apparently without ever consulting the ACF Regional Office.⁽¹⁰⁾

• Missouri failed to adequately document these children's status as title IV-E candidates.
  

In its disallowance letter, ACF took the position that Missouri had failed to document its claims properly. ACF referenced the documentation problem both in regard to the nature of the administrative activities and the status of the children as candidates. State Ex. L at 3. In its briefs, ACF concentrated on the problem with documentation of candidacy.

Missouri responded that ACF was requiring it to submit individual case plans for all candidates and that this level of documentation was "not [ACF's] policy with respect to submission of administrative claims generally . . . ." State Reply Br. at 10. Missouri complained that claims "that rely on [State] employees to perform IV-E administrative activities are not required to submit documentation of candidacy on a case-by-case basis to support their claims for FFP." Id.

We reject Missouri's arguments. As ACF concluded, since Missouri has used an overly broad standard for candidacy, there is no basis for a presumption that Missouri could provide the requisite documentation for candidacy in these cases. Even if Missouri could show that its subcontractors documented their determination that a child was "at-risk" in a case plan, this would not be sufficient since the subcontractors' definition of "at-risk" is not comparable to what is required by ACYF-PA-87-05 to document title IV-E candidacy. Thus, in order for a claim to be allowable, Missouri would have to document that there was "a defined case plan which clearly indicates that, absent effective preventive services, foster care is the planned arrangement for the child."

Further, we do not find it unreasonable in this situation for ACF to request documentation which it does not routinely review in title IV-E claims based on activities of state workers. Missouri's claims for state worker activities are made pursuant to a federally approved random moment study (RMS) which is administered by the title IV-E single state agency. In contrast, the claims in question here are based on a state created system for which no federal review was sought and which is administered by a wide range and number of public and private agencies.⁽¹¹⁾

A cursory comparison of the two systems shows how dissimilar they are and why ACF could place confidence in the RMS while requesting further documentation as to the subcontractor time study system.

• Missouri's RMS is designed "to measure unbiasedly the proportion of time spent in activities of long or short duration, which occur frequently, irregularly or rarely in the period." State Ex. 1, at VI-B-9. It is based on negotiated and federally approved activity descriptions and sampling methodology. The RMS is designed to operate within a high level of statistical accuracy. The workers to be sampled and the moments to be sampled are selected to be statistically representative. Id., at VI-B-9 - VI-B-10. The workers are required to record the activity they are performing at the moment of sample.
  
  
• In contrast, the subcontractor time study system required participants complete a "Five-Day Time Study Log" each calendar quarter. On this log, they were to record the activity code "which most nearly reflects what they did during each 15-minute segment of the work day . . . . If multiple activities are conducted during a single 15-minute segment, participants should select the single activity which occupied the largest portion of that time segment." State Ex. V, at B-17. Therefore, the precision with which activities are recorded is necessarily uncertain since participants would be recording the code which "most nearly reflect[ed]" the work for that 15 minutes.
  
  
• Further, there is reason to question how reliably the Five-day Time Study Log was actually completed. Subcontractors were instructed:

  Generally, it is best practice to record activities frequently during the day, rather than waiting until the end of the day to complete the time study form. Workers should be strongly encouraged to complete the time study form no less frequently than daily - i.e., it is not acceptable for a worker to wait until the last day to complete the entire time study form.

State Ex. V, at B-11.

One can see how even an end-of-the-day recapitulation could be inaccurate. Further, while workers were to be strongly encouraged to complete the forms daily, the only practice that was prohibited was completing the five-day form on the fifth day.

Therefore, these were two dramatically different systems and ACF may reasonably review the resulting claims pursuant to different documentation standards.⁽¹²⁾

• Some of the activities for which subcontractors claimed reimbursement were not reimbursable as title IV-E administrative activities under 45 C.F.R. § 1356.60(c).

As for allowable administrative costs, 45 C.F.R. § 1356.60(c)(2) provides:

(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;
(vii) Recruitment and licensing of foster homes and institutions;
(viii) Rate setting; and
(ix) A proportionate share of related agency overhead.
(x) Costs related to data collection and reporting.

Allowable administrative costs do not include the costs of social services provided to the child, the child's family or foster family which provide counseling or treatment to ameliorate or remedy personal problems, behaviors or home conditions. 45 C.F.R. § 1356.60(c)(3).

The Board has considered at length in previous decisions whether the costs of various activities are reimbursable as administrative costs under title IV-E. Illinois, DAB No. 1530; New York, DAB No. 1428; and Missouri, DAB No. 844. The Board determined that since 45 C.F.R. § 1356.60(c)(2) lists examples of allowable administrative cost activities, a state could not reasonably determine 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)(E) of the Act, unless the activity is one of the nine activities specifically listed in the regulation or is closely related to one of the listed activities. Illinois, DAB No. 1530, at 26; New York, DAB No. 1428, at 10. The Board has then examined whether the disputed activities were the same or different from both the function and purpose of the allowable activities listed in the regulation. Illinois, DAB No. 1530, at 26; New York, DAB No. 1428, at 11.

Missouri's subcontractors categorized their activities pursuant to six activity codes: Code A (title IV-E outreach, information, eligibility support); Code B (case management, case planning, and provider coordination for at-risk child or youth); Code C (casework for child or youth not at-risk); Code D (therapeutic counseling, medical treatment, invoiced services) Code E (education and other services); and Code F (general administration, training, paid leave). Codes A, B, and a proportionate share of F were allocated to title IV-E.

The activities in Code A were described as follows:

TITLE IV-E OUTREACH, INFORMATION, INTAKE, AND ELIGIBILITY SUPPORT: Informing individuals about the state's programs of Youth Services and of Child & Family Services, assisting them to identify and apply for needed services, and facilitating or supporting application and determination of eligibility for such programs.

State Ex. B.

Missouri argued that these services constituted or were related to 45 C.F.R. § 1356.60(c)(I), "referral to services." ACF responded that Code A activities constitute "arranging for" services - a much broader activity than simply referring.

The Board has upheld ACF's interpretation of "referral" as a more limited activity than "arranging" and that "arranging is not a title IV-E administrative activity." In New York, the Board concluded that "[r]eferring could reasonably be read as limited to providing information to the individual so the individual can obtain the services." New York, DAB No. 1428, at 12. The Board rejected New York's position that "arranging" was equivalent to "referring" and noted that arranging for social services could become a social service in itself. Id.

While "informing" individuals about state programs is consistent with the idea of referring, "assisting them to . . . apply" and "facilitating or supporting application and determination of eligibility for such programs" constitutes arranging, or at the very least, are sufficiently unclear that they might mislead subcontractors to include arranging activities. Therefore, the activities listed in Code A go beyond the concept of referring and encompass what should be considered arranging.

Missouri also argued that Code A was coextensive with Code 2 of its federally approved state employee's RMS, which was fully allocable to IV-E. Code 2 involved "CHILD WELFARE TITLE IV-E ELIGIBILITY DETERMINATION." State Ex. Y, at VI-B-3.

Code A of the subcontractor's time study and Code 2 of the state employee's RMS are not at all coextensive. Code 2 of the RMS involves qualifying children for title IV-E itself. It is the portion of Missouri's RMS used to recover eligibility determination costs which are expressly authorized by 45 C.F.R. § 1356.60(c)(1). Code A encompasses the subcontractors' work in qualifying children for all state child welfare services. Code A involves significantly more activities than Code 2.

Another problem with Code A is that it was not limited to children whom subcontractors regarded as "at-risk" and therefore candidates for title IV-E. Consequently, Code A is deficient because preplacement administrative activities, such as referral to services, are allowable only if performed on behalf of candidates.

Code B of the subcontractor's time study instructions provided:

CASE MANAGEMENT, CASE PLANNING, AND PROVIDER COORDINATION FOR AT-RISK CHILD OR YOUTH: Identifying children and youth at risk of neglect, abuse or out-of-home placement if needed services are not received. Identifying individual and family needs for care, services, and interventions including health care, locating resources to meet those needs, and arranging for client access to those resources. Identifying caseload social service needs and resources, recruiting and maintaining providers and services, focusing service resources on problems, and prioritizing service resources for efficiency and effectiveness. Preparation for and/or participation in judicial activities relating to a child's removal from or return to the child's family home, including monitoring case plans, recording progress and problems, completing case evaluations and occurrence notes, and advising families and youth on their cases.

State Ex. B.

As ACF pointed out, the activities described in this code present a number of problems. For example, "[i]dentifying children and youth at risk of neglect, abuse or out-of-home placement" is an activity which precedes and leads to the identification of a title IV-E candidate. As the Board has previously held, the investigatory stages of a state's child welfare system are not title IV-E administrative activities. New York, DAB No. 1630, at 8; New York, DAB No. 1428, at 11-16.

Missouri responded that these activities parallel those in Code 5 of its approved RMS. State Ex. Y, at VI-B-4. Code 5 concerns "CHILD WELFARE CASE MANAGEMENT & AMIN. - NON CUSTODY."

We disagree. The investigatory process of determining whether a child is abused or neglected is not a title IV-E administrative cost and is not captured as a title IV-E expense in Code 5 of Missouri's RMS. Rather than Code 5, Missouri captures its investigatory work in Code 1 under which Missouri recovered some federal participation in the costs of identifying abused and neglected children under the title IV-A Emergency Assistance Program. In contrast, Code 5 of Missouri's RMS involves activities on behalf of children who have been previously determined to be candidates by state workers.

Further, Code B of the subcontractor's time study also includes activities that merge into "arranging" for services such as "arranging for client access to resources", "recruiting and maintaining providers and services" and "focusing service resources on problems."

Moreover, the arguable similarity between some of the language cited by Missouri in the federally approved RMS and Missouri's subcontractor time study is not automatically dispositive of whether the costs of the subcontractor activity constituted title IV-E administrative expenses. The federally approved RMS was designed for state workers whose jobs were case management for children who had been reported to the State as abused or neglected. In contrast, subcontractor personnel included a vast array of different types of people -- school counselors, housing counselors, juvenile court officers, mental health counselors -- who do a range of things including providing social services. The two groups of workers are not necessarily comparable and descriptions of allowable administrative activities may need to be assessed in the context of the type of worker.⁽¹³⁾

We therefore conclude that Missouri's activity code descriptions included activities which were not title IV-E administrative activities. While some of the activities in each code, if performed on behalf of properly determined and documented candidates, might have been allowable title IV-E administrative activities, there is no way to identify the costs attributable to such activities. Therefore, the inclusion of the unallowable activities renders the whole claim unallowable.⁽¹⁴⁾

• Missouri failed to show that application of its title IV-E foster care penetration rate constituted an appropriate allocation methodology for determining what portion of the at-risk children should be considered title IV-E candidates.

States may individually determine which children are candidates for title IV-E foster care and claim 100% of the allowable administrative costs incurred on behalf of these title IV-E candidates. Alternatively, states may apply an allocation methodology to the costs incurred for all children who are candidates for foster care, whether state-only or title IV-E. ACYF-PIQ-96-01. In the latter situation, ACF has instructed states that "[u]sing a ratio of IV-E to non-IV-E cases is one acceptable means of allocation." Id. Missouri refers to this ratio as its IV-E penetration rate. Missouri applied this rate to subcontractors' expenses incurred on behalf of all children they determined to be at-risk.⁽¹⁵⁾

In this case, ACF concluded that use of the rate was inappropriate because Missouri failed to show that the population used to determine the rate (all children in foster care in Missouri) had demographic characteristics sufficiently similar to the population to which the rate was applied (all children determined by subcontractors to be at-risk.)

We agree with ACF for the following reasons. As the Board has repeatedly stated, a grantee of federal funds has the burden of documenting its claim for federal funds. 45 C.F.R. Part 74, Subpart C made applicable by 45 C.F.R. § 1355.30(c); New York State Dept. of Social Services, DAB No. 1666, at 19 (1998); Washington Dept. of Social and Health Services, DAB No. 1214, at 13 (1990). This would include the burden of demonstrating that its allocation methodology was reasonable.

As shown by Missouri's penetration rate in excess of 70%, foster care children are highly likely to be poor and from single parent families, two characteristics which are related to AFDC and therefore IV-E eligibility. ACYF-PIQ-96-01 authorizes states to assume that the cohort of children determined by state workers to be candidates for foster care reflects the same demographic characteristics as children actually placed in foster care. However, it does not follow (and the record contains no evidence) that the cohort of children determined to be at-risk by a range of public and private agencies had sufficiently similar economic and familial characteristics as foster care children as to make use of the penetration rate (based on children in foster care) appropriate. For example, there is no reason to assume that children whom school counselors determined to be "at-risk" had the same high correlation for poverty or single-parent families as foster care children. Consequently, Missouri failed to show that application of its title IV-E foster care "penetration rate" to the cohort of children determined to be at-risk by subcontractors was reasonable.

• Issues Which Are Not Resolved

In the disallowance letter and in the course of this proceeding, several issues were raised which we do not resolve in this decision. Specifically, these issues were: whether candidacy determinations for title IV-E may be delegated by the single state agency; whether the subcontractors were subject to OMB Circular A-87 or OMB Circular A-122; whether these costs must be included in Missouri's CAP; and whether the subcontractor time study had methodological integrity.

Since we uphold the disallowance in its entirety based on the grounds discussed above, we do not need to reach these issues to resolve whether these claims should have been disallowed.

Conclusion

For the preceding reasons, we conclude that Missouri used a standard for determining candidacy which was overly broad and inconsistent with ACYF-PA-87-05; that Missouri failed to document candidacy in accordance with ACYF-PA-87-05; that some of the activities described in the subcontractor's time study materials were not the type of administrative activities that may be allowable under title IV-E; and that Missouri failed to establish that the application of its title IV-E foster care penetration rate was reasonable. Therefore, we uphold the disallowance of these claims in full.

Judith A. Ballard

Cecilia Sparks Ford

Donald F. Garrett
Presiding Board Member

1. ¹ 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.

2. In 1993, title IV-B was amended to ensure that at least a portion of title IV-B funds is expended for family preservation services. The Omnibus Budget Reconciliation Act of 1993 (Public Law No. 103-66) created a new capped entitlement under title IV-B for a broad range of services to families termed "family preservation" and "family support" services. Prior to this amendment, states could use, but were not required to use, title IV-B funds for family preservation services.

3. In contrast to title IV-E, the purpose clause of title IV-B provides that it is to provide federal funds "to cooperate with State public welfare agencies in establishing, extending, and strengthening child welfare services" (section 420 of the Act). Additionally, the federal government funds title XX, a block grant whose purposes include "preventing or remedying neglect, abuse, or exploitation of children . . ., or preserving, rehabilitating or reuniting families" (section 2001 of the Act).

4. Section (2) sets forth the following activities as "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;
(vii) Recruitment and licensing of foster homes and institutions;
(viii) Rate setting; and
(ix) A proportionate share of related agency overhead.
(x) Costs related to data collection and reporting.

5. On July 3, 2001, after the planned briefing in this case was complete, ACF issued ACYF-CB-PA-01-02. The policy announcement explains that its purpose is to clarify, not modify, the existing policy on IV-E candidacy issues. Both parties subsequently filed brief comments on the relevance of the policy announcement to this appeal. Missouri argued that the policy announcement "[embodied] a drastic narrowing of the scope of candidacy as it has been generally understood." Missouri letter of August 6, 2001, at 1. However, we conclude that the policy announcement is fully consistent with ACF's pre-existing positions on the issues we consider herein. Specifically, we find that ACF's position that candidacy begins at the point a decision has been made that the child should be placed in foster care unless preventive services are effective is fully supported by statutory, regulatory, policy and decisional authority which existed prior to the issuance of ACYF-CB-PA-01-02. We do not rely on the policy announcement in this decision, however, since it had not been issued during the period at issue for this disallowance.

6. Missouri contended that the "operative definition" of candidate was set forth in the language of the time study instructions rather than any language in Missouri's "various other communications to its community partners." State Reply Br. at 15, n. 4. However, Missouri also asserted that the "quick reference card" was provided as a "'desk reference' card to assist the LINC- and ARCHS-affiliated local organizations' workers in deciding whether a child met the definition of 'at-risk' for purposes of title IV-E." State Response to Request for Further Development of the Record at 6. Therefore, we conclude the "quick reference card" is also relevant to the issue of the subcontractors' evaluation of candidacy.

7. While Missouri cited this version of the standard in its brief before the Board, the record contained variations on this standard which were even more permissive. The attachment to the July 1, 1998 - June 20, 2000 contract between LINC and Platte County Juvenile Court provided:

"CHILD OR YOUTH AT RISK" Person 17 or younger who (a) is living outside the parental home . . ., or (b) is judged to be at risk of neglect, abuse, or parent-child separation if needed services are not provided. . . .

State Ex. E, at B-18.

Also, an affidavit executed for this case by the state official responsible for monitoring the work of LINC and ARCHS contained an attachment titled "Introduction to Administrative Claiming" which described a candidate as -

a child 17 or younger who (a) is living outside the parental home (other than for non-correctional, non-remedial education, e.g. away at college), or (b) is judged to be at risk of neglect, abuse, or parent-child separation if needed services are not received.

State Ex. V, at attached Ex. B at 1.

These statements do not require the subcontractor to determine whether the child is at risk of removal from his/her home. Rather, a child is defined as a title IV-E candidate if the child was living out of the home or the subcontractor considered the child at risk of neglect or abuse or parent-child separation. A child may well be at risk of some level of neglect or abuse without needing to be removed from their home and placed in foster care.

It is not clear from the record when Missouri amended the version of the candidacy standard appended to the subcontract or whether it has ever amended its "Introduction to Administrative Claiming." Since we find that the standard which Missouri cited was also deficient, we do not need to determine the effective dates of the other standards.

8. In fact, Missouri initially argued that a child living outside the home was, by definition, at-risk of foster care. State Br. at 24. Further, when Missouri conducted its own review of subcontractors' case files, it instructed the reviewers that a child was to be coded as at-risk if "he or she is living outside the parental home (for reasons other than boarding school or detention facility)." State Ex. V, ¶ 18.

9. Missouri stated that it did not seek to track the relationship between the number of children regarded as "at-risk" by the subcontractors and which of these children were ever placed in foster care. State Response to Request for Further Development of the Record at 14. In New York, DAB No. 1428, the Board noted that the vast disparity between the number of children New York sought to treat as candidates and the number of these children who were ultimately placed in foster care (only 6.7%) was indicative of how remote New York's administrative activities were from the purpose of title IV-E.

10. Missouri objected that this was not a novel program and claiming strategy. State Reply to ACF's Response to Request for Further Development of the Record at 2. We disagree. Missouri is seeking title IV-E administrative expenses for the work of a wide range of local governmental and private agencies on behalf of children whose circumstances fit an overly broad standard for foster care candidacy. At this time, Missouri is contracting with only two of its nine Caring Communities Partnerships for these services. However, the potential impact of this strategy includes claiming title IV-E administrative expenses for the work of every juvenile court system, every school district, and a wide range of non-profit service providers across the State.

11. Further, the record demonstrates how difficult a program composed of a multitude of different types of private and public organizations spread across the state would be to administer and why ACF would have concerns about the reliability of the claims. For example, the record contains an internal review of four subcontractors performed in November of 1999. State Ex. V, at attached Ex. C. The State reviewer found that one subcontractor's certified expenditures "in no way complies" with claiming instructions, a second contractor misunderstood how to calculate overhead costs, and that a third contractor was not following the "at-risk" standards.

12. Additionally, ACF would be entitled, if it believed appropriate, to review case plans written by state workers. 45 C.F.R. § 1355.30(c); § 74.53.

13. ACF also asserted that under Code B the subcontractors were claiming title IV-E for social services, the costs of which are prohibited by 45 C.F.R. § 1356.60(c)(3). Given the guidance to the subcontractors and the scope of the services offered by the subcontractors, we can see why ACF would be concerned. However, we cannot determine from the record whether claims were being made for social services.

14. Missouri cited an internal review that it conducted to demonstrate that these claims were made on behalf of candidates for activities described in its claiming instructions. However, since we conclude that Missouri's definition of candidate and its description of administrative activities were overly broad, this study is not persuasive evidence of the allowability of these claims.

15. Initially, Missouri asserted that it was not required to allocate expenses for candidates for foster care between title IV-E and the state-only foster care program. State Br. at 7, n. 3. This is not correct. The Board concluded that such allocation was required under sections 470 and 472 of the Act and applicable cost principles. New York, DAB No. 1630, at 19-26.