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CASE | DECISION | ANALYSIS | JUDGE | FOOTNOTES

Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
IN THE CASE OF  


SUBJECT: New York State Office of Children and Family Services

DATE: July 1, 2005
          

 


 

Docket No. A-05-11
Decision No. 1984
DECISION
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DECISION

The New York State Office of Children and Family Services (New York) appeals in part the disallowance determination of the Administration for Children and Families (ACF) dated June 2, 2003. ACF's determination was based on an initial primary review of payments claimed by New York for the period April 1 through September 30, 2002. The purpose of the review was to determine whether the payments were made on behalf of eligible children to eligible foster care providers. ACF initially identified as "error cases" 31 sample cases for which ACF found New York had claimed a total of $806,811 of federal funds for foster care maintenance payments and administrative costs under title IV-E (foster care) of the Social Security Act (Act).

New York disputes ACF's finding that 20 sample cases were ineligible for IV-E because they did not meet the requirements in 45 C.F.R. § 1356.21(b)(2) for a judicial determination of reasonable efforts to finalize a permanency plan. New York acknowledges that it failed to comply with section 1356.21(b)(2). New York takes the position, however, that the Board should reverse the disallowance for these cases on the basis that the regulation conflicts with the IV-E statute and, therefore, is not an applicable regulation by which the Board is bound.

New York also argues that the disallowance of administrative costs associated with any ineligible sample cases should be reversed or reduced because the methodology used to calculate these costs was flawed. (1)

As explained below, we conclude that section 1356.21(b)(2) applies and that there is no conflict between that regulation and the IV-E statute, so that ACF properly found the 20 sample cases ineligible based on New York's admitted failure to comply with that regulation. We further conclude that New York has failed to show that the method used by ACF to calculate the administrative costs associated with ineligible sample cases was precluded by the regulations or was not reliable evidence of the amount of unallowable costs. We therefore uphold the disallowance, as later reduced by ACF to $693,348, in full.

IV-E Statute and Relevant Regulations

Title IV-E was originally enacted as part of the Adoption Assistance and Child Welfare Act of 1980, Public Law No. 96-272. (2) Under section 472(a) of title IV-E, as amended by the Adoption and Safe Families Act of 1997 (ASFA), Public Law No. 105-89, federal matching of state foster care maintenance payments is available for a child in foster care who would have been eligible for Aid to Families with Dependent Children under title IV-A as in effect as of June 1, 1995 -

but for his removal from the home of a relative
. . . if-

(1) the removal from the home occurred pursuant to a voluntary placement agreement entered into by the child's parent or legal guardian, or was the result of a judicial determination to the effect that continuation therein would be contrary to the welfare of such child and (effective October 1, 1983) that reasonable efforts of the type described in section 471(a)(15) for a child have been made[.]

Prior to ASFA, section 471(a)(15) required that a state plan under title IV-E must provide "that, in each case, reasonable efforts will be made (A) prior to the placement of a child in foster care, to prevent or eliminate the need for removal of the child from his home, and (B) to make it possible for the child to return to his home[.]"

ASFA redesignated section 471(a)(15)(A) and (B) as section 471(a)(15)(B)(i) and (ii). (3) Redesignated section 471(a)(15)(B) requires that a state plan under title IV-E must (subject to certain exceptions in subparagraph (D)) provide that "reasonable efforts shall be made to preserve and reunify families-"

(i) prior to the placement of a child in foster care, to prevent or eliminate the need for removing the child from the child's home; and

(ii) to make it possible for a child to safely return to the child's home[.]

ASFA also added section 471(a)(15)(C), which requires that a State plan must provide that-

[i]f continuation of reasonable efforts of the type described in subparagraph (B) is determined to be inconsistent with the permanency plan for the child, reasonable efforts shall be made to place the child in a timely manner in accordance with the permanency plan, and to complete whatever steps are necessary to finalize the permanent placement of the child[.]

Revised regulations implementing ASFA were effective March 27, 2000. 65 Fed. Reg. 4020 (Jan. 25, 2000). Section 1356.21 of 45 C.F.R. is expressly based on section 472 of the Act (see section 1356.21(a)) and states in pertinent part:

(a) Statutory and regulatory requirements of the Federal foster care program. To implement the foster care maintenance payments program provisions of the title IV-E State plan and to be eligible to receive Federal financial participation (FFP) for foster care maintenance payments under this part, a State must meet the requirements of this section . . . .
(b) Reasonable efforts. The State must make reasonable efforts . . . to make and finalize alternate permanency plans in a timely manner when reunification is not appropriate or possible. In order to satisfy the "reasonable efforts" requirements of section 471(a)(15) (as implemented through section 472(a)(1) of the Act), the State must meet the requirements of paragraphs (b) and (d) of this section. . . .

* * * * * *

(2) Judicial determination of reasonable efforts to finalize a permanency plan.
(i) The State agency must obtain a judicial determination that it has made reasonable efforts to finalize the permanency plan that is in effect . . . within twelve months of the date the child is considered to have entered foster care in accordance with the definition at § 1355.20 . . . and at least once every twelve months thereafter . . . .

Section 1356.71 of 45 C.F.R. describes a process for "Federal review of the eligibility of children in foster care and the eligibility of foster care providers in title IV-E programs." Pursuant to this regulation, ACF conducts primary reviews every three years based on a randomly drawn sample of 80 cases. ACF reviews these cases to determine whether title IV-E payments were made (1) on behalf of eligible children and (2) to eligible foster family homes and child care institutions. If a state's ineligible cases in the sample exceed eight in the initial primary review, a state is found to be in noncompliance. Section 1356.71(j)(2) provides that "[s]tates which are found to be in noncompliance during the primary review will have disallowances determined on the basis of individual cases reviewed and found to be in error." In addition, a program improvement plan is required, and the state is thereafter subject to a secondary review of 150 randomly drawn cases. If both case and dollar error rates in this secondary review exceed 10 percent, a disallowance is taken, based on an extrapolation from the sample to the universe of claims paid.

Section 1356.71(j)(4) of 45 C.F.R. provides that "States may appeal any disallowance actions taken by ACF to the HHS Departmental Appeals Board in accordance with regulations at 45 CFR Part 16." Part 16 contains the requirements and procedures of the Board applicable to certain disputes arising under Department of Health and Human Services programs, including appeals of disallowances under title IV-E. 45 C.F.R. § 16.1 and Appendix A, ¶ B(a)(1). Section 16.14, captioned "How Board review is limited," provides that "[t]he Board shall be bound by all applicable laws and regulations."

Factual Background

During an initial primary review of New York's foster care program for the period April 1 to September 30, 2002, ACF determined that 31 sample cases were not eligible for IV-E funding. ACF advised New York that it was assessing a disallowance of $806,811 in federal financial participation (FFP) "for the period of time that these sample cases were determined to be in error through the end of the period under review for foster care maintenance payments and administrative costs." Letter from Higgins to Johnson dated 6/2/03, at 7 (Docket No. A-03-83). ACF stated that the administrative costs "were identified based upon actual average monthly per child title IV-E claimed costs for applicable periods . . . ." Id. at 8. ACF subsequently reduced the disallowance to $693,348 after determining that a portion of the FFP disallowed with respect to seven of the 31 sample cases, and all of the FFP disallowed with respect to two sample cases, was in fact allowable. Letter from Higgins to Johnson dated 4/12/04 (Docket No. A-03-83).

Of the remaining sample cases found by ACF to be ineligible, New York contests 20 sample cases found ineligible on the basis that New York failed to comply with the requirements of 45 C.F.R. § 1356.21(b)(2). See New York letter to Board dated 4/26/04 and Board letter dated 4/30/04 (Docket No. A-03-83). ACF reviewed New York's compliance with section 1356.21(b)(2) using a question on the review instrument which asks whether a judicial determination regarding reasonable efforts to finalize the permanency plan is due during the period under review and if so, the date of the judicial determination. (This appeared as question 16 in the 2003 review instrument, but as question 17 on earlier versions of the review instrument. See New York Exs. 2, 7 and 9. (4)) ACF found that for the period April 1 through September 30, 2002, there were 20 sample cases for which a judicial determination was due and for which "1) the case record did not contain the court order and a determination could not be made regarding reasonable efforts to finalize the permanency plan; or 2) the judicial determination was not made in a timely manner; or 3) the court order did not contain a reasonable efforts determination." Letter from Higgins to Johnson dated 6/2/03, attached review report at 5.

ANALYSIS
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Analysis (5)

I. ACF properly determined that 20 sample cases were ineligible for IV-E payments because they did not meet the requirements in 45 C.F.R. § 1356.21(b)(2) for a judicial determination of reasonable efforts to finalize a permanency plan.

New York does not dispute that section 1356.21(b)(2) was properly promulgated in accordance with the requirements of the Administrative Procedure Act, that the regulation was in effect during the time period in question, that the judicial determination required by this regulation was absent in each of the 20 sample cases and that it consequently failed to comply with the regulation. Nevertheless, New York argues that the Board should find that the sample cases at issue are IV-E eligible on the basis that section 1356.21(b)(2) conflicts with the IV-E statute and, therefore, is not an applicable regulation by which the Board is bound.

As discussed below, we conclude that New York failed to establish that ACF's interpretation in section 1356.21(b)(2) conflicts with the IV-E statute. Accordingly, we conclude that ACF properly found these cases ineligible for IV-E maintenance payments. (6)

A. The IV-E statute makes a judicial determination of reasonable efforts pursuant to section 471(a)(15)(C) a condition of eligibility for continued IV-E funding.

It is undisputed that section 1356.21(b)(2) conditions a child's continued eligibility for IV-E payments on a state's documenting that there was a judicial determination that reasonable efforts have been made to finalize a child's permanency plan within the time specified therein. (7) New York argues that, contrary to what the regulation provides, section 472(a)(1) does not make such a judicial determination a condition of eligibility for continued IV-E funding. Specifically, New York maintains that the requirement in section 471(a)(15)(C) for reasonable efforts to finalize the child's permanency plan is not incorporated by reference in the conditions of eligibility at section 472(a)(1). (8)

As indicated above, section 472(a)(1) provides in relevant part for IV-E payments on behalf of a child who is financially eligible and whose removal from the home-

was the result of a judicial determination to the effect that continuation therein would be contrary to the welfare of such child and (effective October 1, 1983) that reasonable efforts of the type described in section 471(a)(15) for a child have been made.

(Emphasis added.) On its face, this provision incorporates section 471(a)(15) without making any distinction between the reasonable efforts required by section 471(a)(15)(B) and those required by section 471(a)(15)(C).

New York takes the position, however, that section 471(a)(15)(C) is not incorporated in section 472(a)(1) because section 471(a)(15)(C) was not in existence when section 472(a)(1) was first enacted. According to New York, this result is dictated by a rule of statutory construction that a statute does not incorporate by reference a subsequent amendment to the law. However, in the principal case cited by New York, the Supreme Court did not treat the "rule" on which New York relies here as dispositive, noting that "canons of construction" are "an aid in ascertaining the intent of the Legislature." Hassett v. Welch, 303 U.S. 303, 313 (1938). (9) In the case before us, the legislative history tends to support ACF's view that Congress intended to create a new condition of eligibility. The House Report on the amendment that added section 471(a)(15)(C) shows that Congress recognized that, under existing law, the reasonable efforts required by section 471(a)(15) were a condition of IV-E funding. See H.Rep. 105-77, reprinted in 1997 U.S.C.C.A.N. 2739, at 2743 (New York Ex. 20, at 5). If Congress did not intend to treat section 471(a)(15)(C) in the same fashion, it presumably would have amended section 472(a)(1) to distinguish the reasonable efforts required by section 471(a)(15)(C) at the same time it made another amendment to that section. Thus, it is reasonable to conclude that the language in section 472(a)(1) incorporates section 471(a)(15) in its entirety notwithstanding the "rule" for which New York claims Hassett stands.

New York also argues that section 472(a)(1) does not incorporate section 471(a)(15)(C) because the language "removal from the home" in section 472(a)(1) indicates that this section "addresses court requirements at the time the child is removed from home" and not "after the child has been in foster care for 12 months and every 12 months thereafter." New York Reply Br. dated 3/19/05, at 1. According to New York, only former sections 471(a)(15)(A) and (B) (redesignated as sections 471(a)(15)(B)(i) and (ii)) "address actions required to be taken by a State agency either prior to or contemporaneous with the child's removal from home . . . ." Id. at 12, n.6, citing New York Ex. 16 (Affidavit of Jamie Greenberg). Contrary to what New York argues, however, the reasonable efforts to return the child home required by former section 471(a)(15)(B) would ordinarily be made after the child's removal from home. See, e.g., Pennsylvania Dept. of Public Welfare, DAB No. 1508, at 10-11 (1995) (indicating that ACF's policy prior to ASFA permitted a state to satisfy the requirement in section 472(a)(1) for a reasonable efforts determination with "either a determination made prior to placement that reasonable efforts were made to prevent the child's removal . . . , or a later determination that reasonable efforts were made to return the child home (i.e., to reunify the family)"). Since ACF has always viewed the reasonable efforts required by former section 471(a)(15)(B) as including reasonable efforts that take place after the initial placement of a child into foster care, ACF reasonably read the language "removal from home" as referring to the child's continued removal from home for purposes of the reasonable efforts required by section 471(a)(15)(C) as well.

New York also argues in the alternative that section 472(a)(1) refers in the singular to only one type of reasonable efforts and cannot be read as incorporating the additional reasonable efforts required by section 471(a)(15)(C). New York's argument is undercut by the fact that, prior to the addition of section 471(a)(15)(C), section 471(a)(15) consisted of a two-part requirement for reasonable efforts even though section 472(a)(1) referred to the "type" of reasonable efforts described in section 471(a)(15). Thus, in requiring a judicial determination that reasonable efforts "of the type described in section 471(a)(15)" were made, section 472(a)(1) may simply reflect the fact that section 471(a)(15) does not describe specifically what reasonable efforts are required, but only the general kind, or type, of reasonable efforts. Moreover, ACF could reasonably read the phrase "reasonable efforts of the type described in section 471(a)(15)" as referring to whichever kind of reasonable efforts described in section 471(a)(15) is appropriate for a particular child at any given time, depending on the status of the child and what the goal is for that child at the time in question.

New York argues further that ACF's treatment of section 471(a)(15)(C) as a condition of eligibility for IV-E funding is inconsistent with section 475(5)(C) of the Act. The latter section defines the "case review system" required by section 422(b)(10)(B)(ii) of the Act as a procedure for assuring that, among other things, a court (or administrative body approved by the court) holds a hearing every 12 months "to determine the permanency plan for the child." In New York's view, section 475(5)(C) precludes treating section 471(a)(15)(C) as a condition of eligibility because section 475(5)(C) "describe[s] the court's activities in reviewing the child's welfare and permanency plan as a procedural safeguard and not as a condition of eligibility." New York Br. dated 10/19/04, at 31. It is certainly true that ACF has not treated section 475(5)(C) as imposing a condition of eligibility. Indeed, the regulation implementing section 475(5)(C) makes the requirements in section 471(a)(15) regarding reasonable efforts part of the criteria for determining a state's substantial conformity with title IV-E State plan requirements. 45 C.F.R. § 1355.34(b)(iii)(G). However, section 472(a)(1) provides separate statutory authority for making a judicial determination of the reasonable efforts described in section 471(a)(15)(C) a condition of eligibility. Nothing in section 475(5)(C) limits this authority.

New York also argues that it is inconsistent with section 472(h)(1) of the Act to read section 472(a)(1) as making the determination of reasonable efforts required by section 471(a)(15)(C) a condition of eligibility for IV-E funding. New York notes that section 472(h)(1) confers "automatic Medicaid eligibility" when a child becomes IV-E eligible, and argues that this provision does not anticipate that a child will later lose Medicaid eligibility based on the absence of a judicial determination of the reasonable efforts required by section 471(a)(15)(C). New York Br. dated 10/19/04, at 32. New York's argument fails to recognize, however, that section 472(h)(1) applies to a "child with respect to whom foster care maintenance payments are made," making Medicaid eligibility dependent on a child's continued receipt of IV-E payments. Thus, we see no inconsistency between this provision and ACF's reading of section 472(a)(1). (10)

Further, New York asserts, and ACF does not dispute, that the requirement for reasonable efforts in both section 472(a)(1) and section 1356.21(b)(2) applies only to children who are placed in foster care pursuant to a judicial determination and not to children who are placed in foster care pursuant to a voluntary placement agreement. According to New York, Congress could not have intended to create a new condition of eligibility for IV-E funding that is applicable solely to the former children "since all foster care children are equally in need of having their permanency plan finalized." New York Reply Br. dated 3/19/05, at 14. However, there are differences in the circumstances of these two groups of children which might have led Congress to determine that greater oversight of children placed pursuant to a judicial determination was needed. Thus, the different treatment of these two groups does not show that ACF's interpretation of the statute is not a permissible one.

Finally, New York claims that the legislative history supports its view that Congress never intended to make a judicial determination of the reasonable efforts described in section 471(a)(15)(C) a condition of eligibility for IV-E funding. New York relies primarily on the absence in the legislative history of an express statement that this is a condition of eligibility. Congress need not have restated in the legislative history what it believed to be required by the statute, however. Moreover, as indicated earlier, it is reasonable to presume that Congress would have further amended section 472(a)(1) to incorporate only parts of section 471(a)(15) if it did not intend that the reasonable efforts required by section 471(a)(15)(C), like the reasonable efforts already required by the statute, be treated as a condition of eligibility. (11)

B. The Act requires a judicial determination that the reasonable efforts required by section 471(a)(15)(C) were made and authorizes the Department to set a time limit for such a determination.

New York argues that the regulation exceeds the authority in section 471(a)(15)(C) in requiring a judicial determination of reasonable efforts and in requiring that such a determination be made within 12 months. According to New York, section 471(a)(15)(C) "provides for steps necessary to finalize the permanent placement of the child" but "does not create a duty on the state judiciary to monitor those steps." New York Br. dated 10/19/04, at 36. New York also points out that "section 471(a)(15)(C) does not specify when the review of the steps necessary to finalize the permanent placement of the child is to be conducted." Id. at 34-35. New York continues:

In fact, the wording of the statute precludes any particular mandated time period for the activity and leaves the timing of the required actions to be determined on an individual child basis. Because the required actions are to be undertaken after a determination that reunification is not going to occur, and because this event varies on an individual child basis, there is no gap left by Congress in the statute for the agency to fill by way of rulemaking and interpretation.

Id. at 35.

Contrary to what New York suggests, however, the requirement in section 1356.21(b)(2) for a judicial determination merely implements the statutory provision. New York's argument ignores the express requirement in section 472(a)(1) for a judicial determination that the reasonable efforts required by section 471(a)(15) have been made. Since, as we have previously concluded, section 472(a)(1) incorporates section 471(a)(15)(C), the statute itself requires a judicial determination of reasonable efforts to finalize the child's permanency plan. (12)

Moreover, this Department was clearly acting within its authority in requiring a judicial determination of reasonable efforts to finalize the child's permanency plan within 12 months of the date the child entered foster care. Section 471(a)(15)(C) provides in relevant part that "reasonable efforts shall be made to place the child in a timely manner in accordance with the permanency plan . . ." (emphasis added). This language clearly contemplates some limit on the time a state agency has to move in good faith towards finalizing a child's permanency plan. The authority to determine what constitutes "a timely manner" is also implicit in the authority conferred on the Secretary by section 1102 of the Act to make such rules as may be necessary to the efficient administration of the IV-E program. Furthermore, the preamble to the proposed regulations articulated a reasonable basis for the 12-month period set by section 1356.21(b)(2), i.e., that the 12-month period for making judicial determinations of reasonable efforts to finalize the permanency plan coincides with the time for holding a permanency hearing. See 63 Fed. Reg. 50,058, 50,074 (Sept. 18, 1998).

New York nevertheless asserts that the 12-month period set by the regulation is unreasonable because the state agency may not be able to make "a decision on reunification" within 12 months of the child entering foster care. New York Br. dated 10/19/04, at 36. This argument assumes that a decision that reunification is not appropriate must be made before the state agency can take steps to finalize the child's permanency plan. However, the regulations expressly permit a permanency plan to include reunification. See 45 C.F.R. § 1356.21(b)(2)(i).

Accordingly, we conclude that ACF properly determined that the 20 sample cases in question were ineligible for IV-E maintenance payments.

II. New York has failed to show that the method used by ACF to calculate the administrative costs associated with ineligible sample cases was precluded by the regulations or was not reliable evidence of the amount of unallowable costs.

In calculating the amount of the disallowance for administrative costs associated with ineligible cases for New York, ACF used a method it referred to as its "uniform method." Transcript of 8/24/04 oral argument (Tr.) at 88-89 (Docket No. A-03-83). That methodology is described in a declaration by Jane Eichelberg, a Financial Management Specialist in ACF's Children's Bureau, Implementation Division, and an accompanying attachment. New York Ex. 1. Essentially, that method uses the calendar year (CY) total costs from two categories on a state's quarterly expenditure reports: "case planning and management" (line 5a) and "other administration" (line 5e) and divides that amount by 12 to obtain an average monthly administrative cost. (13) From the state's IV-E reports, ACF determines the CY average monthly number of children, and then divides the average monthly cost by the average monthly number of children to derive the average monthly cost per child for the CY. That amount is multiplied by the number of error months in that CY to determine the unallowable administrative costs in the federal fiscal year (FFY) to which that calendar year is relevant. For error months in prior FFYs, ACF reduces the amount by a deflation percentage to account for prior year inflation. The resulting amount is adjusted to recover only the 50 percent federal share of the costs.

New York made a number of different arguments about the ACF methodology, relying on various affidavits from state employees. For the following reasons, we conclude that none of the evidence or arguments on which New York relies provides a basis for reversing the administrative costs disallowance, or for reducing the amount of that disallowance.

New York first argues that since 45 C.F.R. § 1356.71(j)(2) refers to disallowances "determined on the basis of individual cases reviewed and found to be in error," the disallowance cannot stand because ACF by its own admission used the average monthly cost per child method. According to New York, the regulation "clearly envisions a disallowance based on an actual cost per individual child basis," rather than an average cost or estimated cost. States' Br. dated 3/25/04, at 52-53 (Docket No. A-03-83). Nothing in the regulation refers to actual costs, however. ACF did "base" the disallowance of administrative costs on the individual cases reviewed and found to be in error because it used those individual cases to determine the number of months of ineligibility that it multiplied by the average adjusted monthly cost per child in order to obtain the disallowance amount. In our view, it is unreasonable to read the regulation to preclude ACF from determining the disallowance amount on anything other than an actual cost basis. New York (like other states) does not track administrative costs to particular children. Instead, New York itself generates its claims by using estimation techniques. Accordingly, there is no way of determining the actual amount of administrative costs New York claimed under title IV-E that were associated with the individual children ACF determined to be ineligible during the months when New York erroneously treated the children as eligible. ACF necessarily had to use a technique that relied on determining the average per child per month administrative cost since New York did not make available actual administrative cost figures for the individual children for the particular months they were found to be ineligible. New York's argument that ACF should determine the disallowance on an actual cost basis is thus inconsistent with the fundamental principle of grants management that a grantee is required to document its costs, and that the burden of demonstrating the allowability of costs for which funding was received under a grant rests with the grantee. See, e.g., New Jersey Dept. of Human Services, DAB No. 1797 (2001), and cases cited therein; see also 45 C.F.R. §§ 74.50-74.53 (1994).

In evaluating such estimation techniques, moreover, the Board has not required absolute precision, but has considered whether the estimation technique is reasonable under the particular circumstances and produces reliable evidence of the amount of unallowable costs improperly charged to a program. New York State Dept. of Social Services, DAB No. 1358, at 54 (1992). Furthermore, courts have stated that "mathematical and statistical methods are well recognized as reliable and acceptable evidence in determining adjudicative facts." Georgia Dep't of Human Resources v. Califano, 446 F.Supp. 404, 409 (D.Ga. 1977) (citations omitted).

To support the reasonableness and reliability of its calculation here, ACF presented the declaration of Paul Kirisitz, Director, Division of Program Implementation, Children's Bureau, ACF. Mr. Kirisitz explained how ACF developed its uniform method, working with its statistician, policy, and financial management staff, and why ACF had decided to eliminate all but two of the five categories in which states report administrative costs on their quarterly reports. ACF also presented the declaration of its statistical expert, John Gaudiosi. Mr. Gaudiosi attested that the ACF uniform method is a "statistically valid estimation technique, because it is based on the arithmetic mean monthly adjusted administrative cost per eligible child." He further stated that the "average is the most important and most frequently used statistical measure of central tendency" (one of the four categories of statistical measure) and that "the mean is often multiplied by a frequency to determine an estimate for the total amount that can be attributed to that frequency count." Gaudiosi Declaration (Decl.) at ¶ 5 (attachment to ACF Br. dated 5/17/04, Docket No. A-03-83).

New York points out that the random moment survey (RMS) system which New York used to generate most of its administrative claims for title IV-E involved selecting random moments of caseworkers' time from only nine of New York's 58 social services districts. (14) New York argues: "To the extent that the average IV-E administrative cost for the nine districts differs from those in the 49 districts that are not represented, [ACF's] estimate of the overpayment of IV-E administrative costs for the . . . error cases could be substantially greater or lesser than the actual overpayment." Tr. at 35-36. The validity of the RMS system as a cost allocation method, however, depends on an assumption that the nine sampled social services districts are representative of New York State as a whole. To suggest that ACF cannot reasonably rely on New York's allocated and reported expenditures to determine average per child per month administrative costs of the type reported would undercut the validity of New York's RMS system as a method for allocating those costs. New York cannot reasonably assert that its RMS method is valid as a basis for determining what total administrative costs may be claimed under title IV-E (and other federal programs), yet is not valid as a basis for determining average per child per month administrative costs. (15)

New York also challenges the use of data for ineligible children found in the review to determine the number of months in which the children were ineligible for title IV-E (but during which New York erroneously treated them as eligible), on the basis that the sample size (80 cases) is too small. New York bases this challenge on an affidavit by Susan Mitchell-Herzfeld, Director of Evaluation and Research for the New York State Office of Children and Family Services. As ACF's statistical expert, Mr. Gaudiosi (who has considerably more experience in statistics than Ms. Mitchell-Herzfeld), points out, however, her statements go to the issue of whether the 80-case review sample is sufficiently large to permit a high degree of confidence in any estimate made by extrapolation from that sample to the universe of children New York claimed as IV-E eligible. (16) ACF did not use the review sample to extrapolate to the universe, however. Instead, ACF used the actual months of ineligibility for the individual cases in the sample, as determined by the reviewers, as the frequency measure for how many months should be multiplied by the average per child per month administrative cost amount in order to estimate the total amount by which New York overclaimed administrative costs for those individual cases in the sample. Since the number of months of ineligibility was not an estimate determined by extrapolating to the universe, sample size is not a relevant consideration. (17)

Ms. Mitchell-Herzfeld also says that the average monthly administrative cost per child calculated by ACF is likely to deviate markedly from the true average monthly administrative cost for the children found to be ineligible because the ACF review sample was selected from a different population than the sample used by New York to estimate the administrative costs for the social services districts included in its cost reports. New York Ex. 5, at ¶ 6. Specifically, the RMS system sampled random moments of caseworkers' time, whereas the ACF reviewers did not. According to Mr. Gaudiosi, however, the "source of the frequency has no bearing on the statistical validity of the calculation" of the administrative costs, so it does not matter if the sampling populations were different. Gaudiosi Decl. at ¶¶ 5,7. Mr. Gaudiosi's assertion, besides being based on a higher degree of expertise in statistics, makes more sense. ACF was not, as Ms. Mitchell-Herzfeld appears to assume, attempting to use the RMS system to "derive the average monthly administrative costs for the . . . error cases." New York Ex. 5, at ¶ 6. Instead, ACF was assuming that the average monthly administrative costs for the error cases would be the same as the average determined by using New York's own figures for the total amount of administrative costs reported in the two relevant categories on New York's cost report. This assumption does not depend at all on the validity of the sampling method used in the ACF review, nor on whether the two sampling populations are the same.

Ms. Mitchell-Herzfeld further suggests, however, that the actual administrative costs for the ineligible children "are likely to differ from the amount determined by ACF" because "where the child is ineligible due to the omission of a required administrative activity, the administrative costs for the ineligible child are likely to be less in amount than the administrative costs for children where the activity was properly performed." New York Ex. 5, at ¶ 8. Mr. Gaudiosi responds that this statement is based on "supposition," and that Ms. Mitchell-Herzfeld "has not identified any statistically verifiable methodology supporting her statement." Gaudiosi Decl. at ¶ 10. According to Mr. Gaudiosi, since it is unknown what work will be involved for any particular case, it is therefore "just as likely that more administrative costs rather than less will be expended in ineligible cases." Id.

New York replies that it has raised sufficient questions about whether the average of eligible cases is the same as the average of ineligible cases and that ACF has the burden of showing that its methodology is accurate - a burden that it has not met. New York also presents an affidavit by John Murray, Director of the New York State Office of Children and Family Services Bureau of Financial Operations, asserting that the "cost of administration attributable to an individual child can vary greatly over a child's stay in foster care." New York Ex. 11, at ¶ 4. According to Mr. Murray, the administrative costs for a child are "higher upon the child's entry into foster care and at time of discharge when case planning is actively being pursued" and "at certain other times, for example when social service district employees are doing case work in preparation for the adoption of a child or freeing the child for adoption, and when the child is temporarily absent from the foster care setting." Id. (18)

In our view, ACF has made a case supporting the reliability of its method for calculating the unallowable costs sufficient to shift the burden to New York to show that the method resulted in overstating the unallowable costs and to what extent. Mr. Murray's statement is, however, merely a statement that the costs vary and contains no analysis of the individual error cases that would show that the months in which the children in error cases were ineligible would have been months of little or no administrative activity. That the administrative costs might vary over the period of time a child is in foster care does not necessarily show that use of the per month average here results in overstating the unallowable costs. Ms. Mitchell-Herzfeld's statement about the relatively lower amount of administrative costs, moreover, is limited to cases "where the child is ineligible due to the omission of a required administrative activity," and she provides no analysis of which of the individual error cases fit this description. In many of the individual error cases, the required judicial determination was merely delayed, not omitted altogether. Moreover, even if the amount of administrative activity was lower in some ineligible cases than the average, this would not definitively undercut use of the average since there is a possibility that this lower amount was offset by a correspondingly higher amount in other ineligible cases. In any event, neither affiant's statement provides a rational basis upon which we could determine exactly how the disallowance calculation might be adjusted to have it more accurately reflect the actual administrative costs associated with the ineligible cases. In other words, even accepting the statements of New York's affiants as true, they do not provide a basis for determining that we should reduce the amount of administrative costs disallowed or by how much, much less a basis for reversing the disallowance altogether.

Finally, we reject New York's attempt to undercut ACF's method by characterizing it as a "pro rata" method and citing to an earlier Board decision rejecting such a method. The method rejected in that decision, New York State Dept. of Social Services, DAB No. 1358, was based on an incorrect assumption that title IV-E administrative costs will increase proportionately to the amount of maintenance payments made. Here, the assumption that the average monthly administrative cost for the children found to be ineligible would be the same as for all children New York had identified as eligible has not been shown to be an unreasonable one. Moreover, unlike in the prior case, New York did not show (or even allege) here that ACF's method of calculating the disallowance conflicts with New York's approved cost allocation methods. (19)

We therefore conclude that the disallowance of the administrative costs associated with the ineligible sample cases was proper since New York has failed to show that the method used by ACF to calculate these costs was precluded by the regulations or was not reliable evidence of the amount of unallowable costs.

Conclusion

For the foregoing reasons, we uphold the disallowance of foster care maintenance payments and associated administrative costs for the sample cases found ineligible by ACF.

We note, however, that ACF stated that it would adjust the amount of the disallowance if, as New York alleges, the disallowance includes duplicate costs because certain administrative costs paid to voluntary agencies were used by ACF to calculate maintenance payments. See Tr. at 60-65. After New York provides any additional information required by ACF, ACF should advise New York in writing of its determination regarding any adjustment. If New York is dissatisfied with this determination, it may appeal this limited issue to the Board pursuant to 45 C.F.R. Part 16.

JUDGE
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Donald F. Garrett

Sheila Ann Hegy

Judith A. Ballard
Presiding Board Member

FOOTNOTES
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1. In a decision addressing the consolidated appeals of four states, including New York, the Board held that ACF was authorized to disallow the administrative costs associated with ineligible cases that were identified in a primary review. However, the decision left for resolution in separate proceedings questions as to the allowability of the specific foster care maintenance payments and the methodology used to calculate the associated administrative costs disallowed by ACF. DAB No. 1949, dated October 28, 2004. New York's appeal was originally assigned Docket No. A-03-83 but was redocketed for tracking purposes as No. A-05-11 when DAB No. 1949 was issued.

2. Social Security Act §§ 470 through 479A; 42 U.S.C.A. §§ 670 through 679b. The current version of the Social Security Act can be found at www.ssa.gov/OP_Home/ssact/comp-ssa.htm. Each section of the Act on that website contains a reference to the corresponding United States Code chapter and section. Also, a cross reference table for the Act and the United States Code can be found at 42 U.S.C.A. Ch. 7, Disp Table.

3. ASFA amended section 471(a)(15)(A) to state that "in determining reasonable efforts to be made with respect to a child, as described in this paragraph, and in making such reasonable efforts, the child's health and safety shall be the paramount concern[.]"

4. New York Exhibits 1-15 were filed under Docket No. A-03-83.

5. We have considered all of the arguments presented by New York although we do not specifically address them all. We do not consider alternative grounds raised in ACF's brief for its determination that the sample cases in question are ineligible since we conclude that the determination is properly based on section 1356.21(b)(2).

6. ACF takes the position that the Board should uphold the disallowance of the maintenance payments without considering New York's substantive arguments because New York is simply arguing that the regulation is invalid and the Board has "no jurisdiction" to consider whether a regulation is invalid. ACF Br. dated 2/4/05, at 1. We note that the Board clearly has jurisdiction under 45 C.F.R. § 1356.71(j)(4) to review the disallowance determination at issue here. See Wyoming Dept. of Family Services, DAB No. 1970 (2005). We need not address questions concerning the scope of the Board's review since we conclude that there is no conflict between the regulation and the IV-E statute.

7. Foster care maintenance payments would resume once the requisite judicial determination was made, even if that determination was untimely. New York Ex. 9, 2003 Title IV-E Foster Care Eligibility On-site Review Instrument and Instructions at 10; 45 C.F.R. § 1356.21(b)(2)(ii).

8. New York does not dispute that section 472(a)(1) sets out the conditions under which funding is available pursuant to section 474(a)(1) of the Act, which makes federal funds at the Federal medical assistance percentage defined in section 1905(b) of the Act available for amounts expended as foster care maintenance under section 472 for children in foster family homes or child-care institutions.

9. Hassett is also distinguishable because the construction the Court chose there was necessary in order to avoid an unfair retroactive application of tax consequences and because the statutory provision found not to incorporate the subsequent amendment was not itself amended. The other case New York cites, United States v. Griner, 358 F.3d 979 (8th Cir. 2004), is inapposite here because the court found that the provision in question was incorporated by reference in the statute as originally enacted.

10. New York is correct that ACF's interpretation makes a child's eligibility for IV-E payments contingent on factors outside the child's control. Since its inception, however, title IV-E has made federal funding contingent on state and court actions to ensure proper placement and oversight. Thus, the cases regarding eligibility requirements for other programs on which New York relies are inapposite.

11. New York also argues that, if Congress had viewed section 471(a)(15)(C) as a condition of eligibility, savings to the federal government from decreased payments would have been reflected in the cost analysis of the bill. This argument is entirely speculative since Congress could reasonably expect that states would fully comply with the new requirements.

12. New York also argues that the regulation's requirement for a judicial determination is contrary to the provision in section 472(a)(2) of the Act giving responsibility for the placement and care of a child who has been removed from the home to the state agency. See New York Br. dated 10/19/04, at 40. New York does not explain how the statute or the regulation could conceivably interfere with this responsibility, however.

13. According to ACF, the uniform method "included only those categories of administrative costs that would not include costs expended even in part on ineligible cases . . . ." Thus, ACF excluded the categories of eligibility determinations, pre-placement planning, and Statewide Automated Child Welfare Information System (SACWIS) operational costs because these costs are allowable not only if the activities are performed for IV-E-eligible children but also if they are performed for candidates for IV-E. ACF Br. dated 5/17/04, at 6-7 (Docket No. A-03-83).

14. New York used the RMS method for administrative costs its social service districts incurred, to determine how to allocate the costs between title IV-E and other programs. See New York Ex. 3 (Affidavit of Richard Radzyminski) and attachment, New York State Fiscal Manual, Vol. 3, Ch. 23. The amount allocated to title IV-E through the RMS method is then included on line 5a of New York's IV-E cost reports. The RMS is also used for allocating some of the costs included on line 5e. Other time studies are used to allocate the rates paid to certain authorized or voluntary agencies for foster care services between income maintenance and administrative costs (reported on line 5a) or for State-owned and operated childcare facilities (reported on line 5e). The method for allocating other line 5e costs to title IV-E depends on the nature of the costs. See New York Ex. 4 (Affidavit of Richard Lasky); New York Ex. 11 (Affidavit of John Murray).

15. That the mean administrative costs of the children in the ACF review sample might differ from the mean as determined by using the costs allocated to title IV-E by the RMS method is irrelevant. The issue is not what is the mean of all of the children in the ACF sample. Instead, the issue is whether the average per child per month administrative costs determined based on New York's administrative cost claims, which happened to have been generated in part using a different sampling methodology, is a reliable method of estimating what amount of claimed administrative costs was unallowable.

16. Mr. Gaudiosi's declaration states that he has worked as a mathematical statistician for ACF since 1990 and was employed by the Department of Health and Human Services from 1974 to 1990 as either a mathematician or mathematical statistician. He has also taught statistics as an adjunct professor at various colleges and universities for the past 31 years. Ms. Mitchell-Herzfeld's affidavit states that she has taken several courses in advanced statistical techniques and during the course of her employment has developed and implemented methodologies for selecting representative samples; however, she has never been employed as a statistician or mathematical statistician.

17. Mr. Gaudiosi also points out that the sample was randomly selected, which he describes as the only criterion that needed to be satisfied to assure statistical validity of the sample for the purpose for which ACF used it.

18. Mr. Murray also says that there are administrative costs incurred by New York's Social Services Districts, like the recruitment of foster and adoptive families, licensing, and rate-setting, that occur without regard to any specific child. New York Ex. 11, at ¶ 5. That such costs occur without regard to any specific child does not necessarily mean, however, that determining the average administrative monthly cost per child is not a reasonable method of determining how much more of those costs New York charged to title IV-E than it would have charged if it had not made eligibility errors. Indeed, for costs that are not specifically identifiable to a particular foster care child, states often allocate those costs according to a case count method, comparing children who have been determined IV-E eligible to the total number of benefitting children. What portion of its costs of this type New York allocated to IV-E is not entirely clear since New York's submission on its RMS does not specifically state how it allocated these costs, nor do any of New York's affiants specify this.

19. This case is distinguishable from Maryland Dept. of Human Resources, DAB No. 1886 (2003), where it was unclear whether the method ACF used to calculate the disallowed administrative costs was consistent with Maryland's approved cost allocation plan. In addition, the method, unlike the uniform method used for New York, did not take into account that administrative costs associated with determining eligibility for a child who is a IV-E candidate are allowable. Moreover, it appeared that two sample cases might fall within the ambit of an ACF policy to allow administrative costs incurred on behalf of otherwise eligible children placed in unlicensed foster family homes, while New York had no such sample cases. In light of these circumstances, the Board remanded Maryland to ACF to consider how to properly calculate the unallowable administrative costs associated with ineligible sample cases.

CASE | DECISION | ANALYSIS | JUDGE | FOOTNOTES