SUBJECT: California Department of Social Services

DECISION

The California Department of Social Services (California) requested Board review of determinations by the Administration for Children and Families (ACF) disallowing federal financial participation (FFP) claimed by California under title IV-E of the Social Security Act (Act). ACF disallowed $13,423,685 for the first quarter of calendar year 2002, $12,416,566 for the second quarter, $10,566,585 for the third quarter, and $8,785,450 for the fourth quarter. The disallowances involved maintenance payments to foster family homes in which children were placed with relatives. ACF concluded these homes were not eligible foster care providers because they had been "approved" as foster family homes without determining that they met the same standards California applied in "licensing" foster family homes.

As explained below, we uphold this disallowance, subject only to possible reduction based on information California presented in this appeal concerning the eligibility of some foster family homes during December 2002.

Applicable Authority

Title IV-E was originally enacted as part of the Adoption Assistance and Child Welfare Act of 1980, Public Law No. 96-272. ⁽¹⁾ 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 children in foster family homes or child-care institutions if certain conditions are met.

Section 472(c) of the Act defines "foster family home" as --

a foster family home for children which is licensed by the State in which it is situated or has been approved, by the agency of such State having responsibility for licensing homes of this type, as meeting the standards established for such licensing.

In January 2000, ACF amended its definition of foster family home at 45 C.F.R. § 1355.20. 65 Fed. Reg. 4076 (Jan. 25, 2000). With this change, ACF stated in a regulation that it construes section 472(c) to require foster family homes caring for children placed with relatives (relative homes) to meet the same standards as non-relative foster family homes. ACF refers to this requirement as the "same standards" requirement. ACF Br. at 4. Section 1355.20 of 45 C.F.R. now provides:

Foster family home means, for the purposes of title IV-E eligibility, the home of an individual or family licensed or approved as meeting the standards established by the State licensing or approval authority(ies) . . . that provide 24 hour out-of-home care for children . . . . Foster family homes that are approved must be held to the same standards as foster family homes that are licensed. Anything less than full licensure or approval is insufficient for meeting title IV-E eligibility requirements.

(Emphasis added.)

In response to commenters who objected to the proposed version of the rule, ACF stated:

We have given considerable thought to these comments and have tried to balance the integrity of the requirement, the safety of the child and existing State licensing practices. We did not change the requirements: (1) That approved foster family homes must meet the same standards as licensed foster family homes; or (2) that relatives must meet the same licensing/approval standards as nonrelative foster family homes for the reasons below.

Section 471(a)(10) of the Act requires that a State's title IV-E plan provide for the establishment or designation of a State authority that is responsible for establishing and maintaining standards for foster family homes and child care institutions. This section also requires that the title IV-E State plan provide for the application of these standards to "any" foster family home or child care institution receiving either title IV-B or title IV-E funds. Further, the statutory definition of "foster family home" in section 472(c) of the Act states that a foster family home is a home ". . . which is licensed by the State in which it is situated or has been approved (by the State licensing authority) as meeting the standards established for such licensing." Clearly, the statute did not intend that there be separate standards for licensing and approval.
The plain language of the statute requires that, to be considered a foster family home for the purpose of title IV-E eligibility, the home must be either licensed or approved as meeting State licensing standards. It also is clear from the language in section 471(a)(10) of the Act that the State licensing standards must be applied to "any" foster family home that receives funding under titles IV-E or IV-B. The licensing provisions of the Act make no exceptions for different categories of foster care providers, including relative caretakers.

* * *

[G]iven the emphasis in ASFA on child safety, and the plain language of the statute with respect to the licensing requirements, we believe that it is incumbent upon us, as part of our oversight responsibilities, to fully implement the licensing and safety requirements specified in the statute by requiring that foster care homes, whether relative or nonrelative, be fully licensed by the State.

65 Fed. Reg. 4020, at 4032-4033 (Jan. 25, 2000).

ACF required states using different standards for the two types of homes to use the same standards by September 28, 2000. 65 Fed. Reg. 4020, at 4033.

Summary of Facts

Historically, California applied different licensing and approval standards to relative and non-relative foster homes and continues to believe that states should not be subject to the same standards requirement. California Br. at 2-4, 5-7; Kersey Decl. at ¶ 3. In the federal rulemaking process, California filed comments opposing the adoption of the same standards requirement. ACF Ex. A. After the amendment was promulgated, California tried to preserve its existing system by arguing to ACF that its standards for relative home approvals were "comparable" to the standards applied to non-relative licensed homes, and that it was therefore in "substantial compliance." ⁽²⁾ The correspondence and meetings between California and ACF on this topic continued throughout 2000 and 2001. See ACF Ex. B.

In 2002, in order to address California's failure to implement the same standards requirement, ACF began deferring California's title IV-E claims pursuant to 45 C.F.R. § 210.15. Kersey Decl. at ¶ 4. After California submitted its foster care maintenance claim for the first quarter of calendar year 2002, ACF notified California that it was deferring payment of $18,700,000 in FFP pending receipt and analysis of further information demonstrating that the claim was allowable. ACF Ex. C at 44. ACF asked for a variety of documentation including documentation concerning payments to relative foster family care homes. Subsequently, on March 19, 2003, ACF disallowed $13,423,685 in FFP for the first quarter of 2002 on the ground that this FFP was related to payments to relative foster family homes that were ineligible for title IV-E reimbursement. ACF Ex. C at 1. On October 11, 2002, ACF deferred payment for the second quarter of 2002, and subsequently disallowed $12,416,566 on the same ground. ACF Ex. D, at 1 and 29. The same deferral process was followed as to the third and fourth quarters of calendar year 2002 and disallowances of $10,566,585 and $8,785,450 followed for these quarters. ACF Exs. E at 1 and 3, and F at 1 and 3.

California appealed these four disallowances to the Board.

California raises four arguments on appeal. First, California argues that the Board should find invalid the same standards requirement, i.e., the requirement set forth at 45 C.F.R. § 1355.20(a) that standards for approved and licensed foster family homes should be the same. Second, California argues that ACF, consistent with the federal compliance monitoring system set forth at 45 C.F.R. § 1356.71, should have allowed California an opportunity to implement a program improvement plan (PIP) and conducted a second review of its payments prior to imposing a disallowance. Third, California argues that, since ACF's section 1357.71 review of 2002 cases found California to be in "substantial compliance," the disallowances at issue here are a form of "double jeopardy." Fourth, California argues that a subsequent state review shows that, in January 2003, a percentage of foster homes met the same standards requirement, that this percentage should be applied to reduce the fourth quarter 2002 disallowance, or that this information merits a remand to ACF for further review. ⁽³⁾

Below we explain why we conclude that all of these arguments are without merit.

1. The substantive validity of 45 C.F.R. § 1355.20(a)

California argues that the same standards requirement is arbitrary and capricious and, therefore, "must be invalidated by the Board." California Br. at 7, see also California Br. at 1-4, and 5-7. California also argues the regulation is invalid because it exceeds ACF's authority under title IV-E. Id. at 7-8.

The Board has no authority to invalidate this rule. Generally, an agency is legally bound to follow its own regulations as long as they are in force. See Vitarelli v. Seaton, 359 U.S. 535, 539-40, 79 S.Ct. 968 (1959); Service v. Dulles, 354 U.S. 363, 383-89, 77 S.Ct. 1152 (1957); and U.S. ex rel. Accardi v. Shaughnessy, 347 U.S. 260, 265-68, 74 S.Ct. 499 (1954); see also Pennsylvania v. United States Dept. of Health and Human Svcs., 80 F. 3d. 796, 803-804 (3d Cir. 1996) (holding that the Board's powers are restricted and remain subject to the power of the Secretary); Salt Lake Community Action Program v. Shalala, 11 F. 3d. 1084, 1087 (D.C. Cir. 1993) (noting that the Board historically has not entertained challenges to the validity of a regulation because it is bound by the Department's regulations). Specifically, the Board's governing regulations provide that "the Board shall be bound by all applicable laws and regulations." 45 C.F.R. § 16.14.The Board has consistently held that it is bound to apply the duly promulgated regulations of the Secretary. See California Dept. of Health Services, DAB No. 1732 (2000) ("[T]he Board is bound by the applicable Medicaid regulations," citing 45 C.F.R. § 16.14); and New Mexico Human Services Dept., DAB No. 1325 (1992) ("We are, of course, bound by the Department's regulations, even if invalid under a constitutional analysis, if those regulations are applicable.")

Even if we had authority to review the regulation, we would not find it to be arbitrary and capricious. The regulation codifies ACF's longstanding interpretation of section 472(c), an interpretation that has been reflected in several Board decisions over the years. Illinois Dept. of Public Aid, DAB Nos. 378 (1983), 478 (1983), 532 (1984); and New Jersey Dept. of Human Services, DAB No. 1797 (2001). The regulation sets forth a facially valid interpretation of the statutory language of section 472(c) of the Act, which specifically provides that "approved" but non-licensed foster family homes must be determined "as meeting the standards established for ... licensing." This statutory language clearly supports the interpretation that states must apply the same standards for approved homes as they apply for licensed homes (and consequently, homes that are approved based on other standards do not meet the statutory definition of a "foster family home").

2. Applicability of 45 C.F.R. § 1356.71 to this disallowance and double jeopardy

The disallowances at issue were issued pursuant to the deferral process set forth at 45 C.F.R. § 201.15. Section 201.15 authorizes the Regional Administrator to defer payment of title IV-E costs claimed on a state's Quarterly Payment of Expenditures when he or she "believes the claim or a specific portion of the claim is of questionable allowability." 45 C.F.R. § 201.15(c)(1). The deferral is taken "pending the receipt and analysis of further information relating to the allowability of the claim." 45 C.F.R. § 201.15(b)(1). If the state subsequently fails to meet its burden to establish the allowability of the claim, the deferred claim is disallowed. 45 C.F.R. §§ 201.15(c)(8)-(10).

California argues ACF was required to use the process set forth at 45 C.F.R. § 1356.71 rather than the deferral/disallowance process set forth at 45 C.F.R. § 201.15. California Br. at 8-10. 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 the 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 (2) to eligible foster family homes and child care institutions. If a state's ineligible cases in the sample do not exceed eight in the first cycle of primary reviews, a state's program is deemed in "substantial compliance," and the state is not subject to another primary review for three years. A disallowance is assessed for ineligible payments and administrative costs associated with specific error cases found in the sample. If the number of ineligible cases in the sample exceeds eight, the state's program is deemed not in substantial compliance, a program improvement plan (PIP) 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, an additional disallowance is taken, based on an extrapolation from the sample to the universe of claims paid. ⁽⁴⁾

California further asserts that the section 1356.71 substantial compliance standard should have been applied to this action, that California should have been given the opportunity to develop and implement a section 1356.71 PIP, and that ACF should have conducted a subsequent secondary review prior to imposing a disallowance. California Br. at 8-10. California argues that "[i]t is only where the State is determined to be out of substantial compliance as a result of a secondary review, that is conducted after the PIP completion date, that [ACF] is authorized to apply a disallowance of Federal Funds against a State based on an extrapolation from the sample of reviewed cases to the universe of claims paid by [ACF]." California Br. at 8. According to California, applying such a standard, a disallowance would be proper only for the eight cases found ineligible in the 2003 ACF review. Id at 9. California complains that the disallowance is a "form of double jeopardy [that] is fundamentally irrational and unfair to this State which has on the one hand demonstrated its conformity with Federal Title IV-E eligibility requirements and on the other hand is being penalized for allegedly being out of compliance with Federal Title IV-E eligibility requirements." Id. at 10.

As discussed below, we conclude that California's arguments are not persuasive.

First, we do not agree with California that it has been subject to multiple enforcement actions on this issue. These disallowances are the only ACF action on the issue of California's failure to document that placements in approved relative homes met the same standards as licensed foster family homes. In the 2003 section 1356.71 review, ACF did not review California's compliance with the same standards requirement and determined California's error rate without regard to California's compliance with that standard. Kersey Decl. at 4. This is not a situation in which one federal review found California in compliance with a specific requirement while another found it in noncompliance. Therefore, even disregarding the fact that double jeopardy is a principle that applies to criminal rather than civil proceedings, California is not being subject to any "form of double jeopardy."

Second, California offers no authority for the proposition that section 1356.71 establishes an exclusive mechanism for disallowing federal funds paid to ineligible title IV-E providers. In fact, ACF stated in the regulatory history of section 1356.71 that it is not an exclusive mechanism and does not preclude other types of reviews as to the allowability of a state's claims. The preamble to the regulation states:

Comment: One commenter indicated that reviews should be conducted annually, as opposed to at three-year intervals. Another commenter recommended that we conduct monthly audits. A third commenter suggested reviews at five-year instead of three-year intervals after a State completes its primary review.
Response: The frequency of the title IV-E reviews is not statutorily mandated. We decided that three years was a reasonable time frame, considering that some States may be required to develop a PIP after their primary review. For some States, the PIP will be effective for as long as one year. Furthermore, the title IV-E review is not the sole mechanism in place to assure the propriety and accuracy of State's claiming procedures, since the ACF Regional Offices review the quarterly claims submitted by the States. For these reasons, and because States will be undergoing an intensive child and family services review following the publication of the final rule, we have made no modification to this section.

65 Fed. Reg. 4020, at 4072 (2000) (emphasis added).

ACF's interpretation was also clearly set forth in a Program Instruction stating that section 1356.71 --

does not, and was not intended to, replace other types of eligibility reviews, audits or monitoring processes that may be conducted by the Federal Government. This includes, but is not limited to, monitoring processes conducted by the Office of the Inspector General (OIG), the General Accounting Office (GAO), or those that arise out of ACF Regional Office quarterly review of title IV-E financial claims filed by State agencies. Thus, the regulations at 45 C.F.R. § 1356 do not affect the federal government's traditional authority to conduct audits and take disallowances.

* * *

To determine whether expenditures claimed contain costs that are allowable, ACF may examine any of the State agency's documents, papers and specific recipient records pertinent to the title IV-E foster care program. Said examinations may occur at any time pursuant to a review of a State's title IV-E financial report (Form ACF-IV-E-1) ⁽⁵⁾, a discrete process that is authorized under regulations at 45 C.F.R. § 74.53, and is not subject to the procedural requirements outlined in 45 C.F.R. § 1356.71. Eligibility issues outside the context of periodic reviews will continue to be addressed in ACF or OIG audits or other reviews.

ACYF-CB-PI-02-06 (July 12, 2002) at ACF Ex. 2 (emphasis added).

In the Program Instruction, ACF explained further that it viewed section 1356.71 reviews "primarily as a means of managing the program in accordance with statutorily mandated eligibility provisions and secondarily as a tool for fiscal accountability." Id. While the remedy resulting from reviews could be a disallowance, the more important consideration involved "ensuring State adherence to requirements that impact the child's welfare, e.g., judicial determinations of contrary to the welfare and reasonable efforts." Id. ACF noted that the section 1356.71 management purpose is evident from the fact that "it is generally inoperative in two years out of every three." ACF reminded states of its independent obligation to maintain the fiscal integrity of title IV-E, writing that ACF "must be able to monitor foster care payments at all times, in order to remain fiscally accountable for the appropriated funds which it manages." Id.

Based on the preceding authority, we conclude that ACF had the authority to defer and disallow these funds pursuant to the process set forth at 45 C.F.R. § 201.15. The need for such a process is made particularly evident by cases like this one in which a state has resisted, for over a year, ACF's efforts to implement ACF's explicit interpretation of the Act. ⁽⁶⁾

3. Application of California's monitoring report on January 2003 cases to the disallowance for the fourth quarter of 2002

California asserts that it conducted a monitoring review in 2003 that documents that a certain additional percent of relative foster family homes met the same standards requirement in the month of January 2003. California Br. at 10-16. California indicated that the 2003 monitoring was part of a comprehensive monitoring plan initiated to determine county compliance with the same standards requirement and related state law. Id. at 11. ⁽⁷⁾ In its January 2003 monitoring review, California reviewed a statistical sample of all children placed with relative or non-related extended family members in each county as of the last day of the review month. Counties were required to adjust their claims for non-compliant cases in the sample. Jones Decl. at ¶ 2. Twenty-two out of 58 counties were evaluated in year-one for the month of January 2003. Id. at ¶ 8. The compliance percentages ranged from 100 percent to 0 percent; over 70 percent of the counties had compliance rates of over 50 percent. Id.

California argues that the 2002 fourth quarter disallowance should be reduced by the percent of relative foster family homes found to have met the same standards requirement in the month of January 2003, which would reduce the disallowance by $1,454,542. California Br. at 11-16. Alternatively, California asserts that "it would not oppose a decision by the Board remanding this matter . . . so that [ACF] could consider this information, and as appropriate, recalculate the disallowance amount based on this information." Id. at 16.

ACF responds that "[i]n principle, [ACF] would not be adverse to a remand or other mechanism to consider additional information, if such information genuinely appears relevant and substantial." ACF Br. at 10. However, ACF argues that California "has not provided enough information for either the Board or the Agency to make that determination, and it does not appear that Appellant's 'new information' is even relevant to any year 2002 disallowance." Id.

While we agree with ACF that California has shown no basis for "extrapolating January 2003 data back to the entire fourth quarter of 2002" (ACF Br. at 10), we conclude California has presented a possible basis for adjusting the disallowance of claims for December 2002. California's Chief of the Operations Bureau of the Children and Family Services Division, stated that --

the data obtained for cases reviewed [in January 2003] was data in existence thirty-one days prior to the end of the review month. Therefore, the data obtained for these twenty-two counties was data in existence no later than December 31, 2002.

California Ex. 3, at ¶ 5.

In the preamble to the Notice of Proposed Rule Making for standards regarding eligibility reviews of foster family homes, ACF stated that "[i]n determining the period of ineligibility, any foster care home or facility that is licensed for a portion of a month will be considered to have been licensed that entire month." 63 Fed. Reg. 50058, at 50081 (1998). This statement raises the question of whether documentation existing as of December 31, 2002 would make the home eligible for title IV-E reimbursement for the month of December 2002.

Therefore, ACF should review whether California can show that some portion of the homes in its January 2003 review met the same standards requirement as of December 31, 2002, whether this fact establishes that the homes were eligible for title IV-E reimbursement for December 2002, and whether the disallowance should be reduced to reflect this eligibility. ACF is free, but not required, to look at California's data to determine whether the data would support a finding that some additional percentage of cases was in compliance with the same standards requirement in October and November of 2002 and a reduction of the disallowance.

If California is dissatisfied with ACF's determination regarding a reduction of the disallowance for December 2002, it may appeal the determination to the Board within 30 days of ACF's issuance of the determination.

Conclusion

Based on the preceding analysis, we uphold this disallowance subject to ACF's assessment of a possible reduction of the disallowance as described above.

Judith A. Ballard

Donald F. Garrett

Daniel Aibel
Presiding Board Member

1. 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.

2. ACF Exhibit B contains six pieces of correspondence between California and ACF on this point: (1) California's letter of February 18, 2000 (at 1), providing a side by side comparison of licensure and relative homes approval requirements, asserting that "the two are comparable" and thus consistent with the "intent" of the regulation; (2) ACF's letter of May 31, 2000 (at 14), stating that information provided by the State reflects "separate and different requirements" applied to licensure and relative homes approval, concluding that "this approach does not appear to satisfy the requirement that relative and non-relative foster family homes be held to the same standards . . ."; (3) California's letter of March 30, 2001 (at 16), asserting that legislative and regulatory changes would be required in order to comply with the "same standards" regulation; (4) ACF's letter of April 24, 2001 (at 17), advising California that its quarterly claims for title IV-E payments should not include claims for relative homes that have not been approved in accordance with the same standards requirement; (5) California's letter in response dated June 15, 2001 (at 19), asserting that "we do not believe that our claims need to be adjusted as we are in substantial compliance with ASFA law;" and (6) ACF's responding letter of November 13, 2001 (at 22), stating that California is out of compliance because relative homes are not being held to the same standards as licensed homes.

3. ACF asserts that California "conceded that the disallowance amounts for all four quarters in year 2002 were appropriate in its letter of June 13, 2003." ACF Br. at 5 citing ACF Ex. G at 1. We do not agree with ACF's reading of this letter, which appears to primarily address the treatment of claims for periods after the disallowance period at issue here. We agree with ACF, however, that, except for its argument based on the January 2003 review, California did not raise issues in this appeal related to the calculation of the disallowance amounts but instead challenged the overall validity of the disallowances.

It is evident that ACF adjusted the deferred amounts after discussions with California officials as to "the total amount claimed for foster care costs of relative placements." Peacher Second Decl. at ¶ 2. For example, ACF agreed with California that some payments made by San Bernardino and Riverside counties to relative foster family homes were eligible for FFP. Id. Additionally, ACF did not include claims from Amador county in at least the fourth quarter disallowance. Jones Decl. at ¶ 8. Further, ACF allowed "credit for all initial cases placed in 2002 submitted by [certain counties] for federal reimbursement." Peacher First Decl. at ¶ 2.; see also California Ex. A; and ACF Exs. C and D.

4. ACF conducted a primary eligibility review of California's system in June of 2003 (2003 review) based on samples drawn from the second and third quarters of 2002, a time period covered by disallowances appealed here. Because ACF had issued (or was about to issue) these disallowances prior to the start of the 2003 review, ACF did not review California's compliance with the same standards requirement in the 2003 review and no errors were cited for that reason. Kersey Decl. at ¶ 8. California met the minimum threshold of substantial compliance for the remaining eligibility standards for children and foster care providers. ACF Ex. H.

5. Part 1 of ACF-IV-E-1 is the "Quarterly Report of Expenditures and Estimates" pursuant to which states claim title IV-E funds. See California Ex. A at unnumbered 41. The Regional Administrator initiated these disallowances based on his review of the Quarterly Report of Expenditures and Estimates filed by California for the quarters ending March 2002, June 2002, September 2002 and December 2002.

6. ACF gave California ample notice and opportunity to come into compliance prior to taking a disallowance. In 1998, ACF proposed to amend the definition of foster family home in section 1355.20. 63 Fed. Reg. 50,058 (1998). ACF promulgated the rule amending the definition January 2000. 65 Fed. Reg. 4020 (2000). ACF allowed states until September 2000 to come into compliance with the amendment. Id. at 4020, 4033. ACF began disallowing California's claims as of January 2002.

7. In October 2001, the California legislature enacted AB 1695, Chapter 653, which addressed approval/licensing standards for foster family homes. California Ex. 1. In December 2001, California issued All-County Letter 01-85 to provide direction to counties for implementing AB 1695 and the same standards requirement. California Ex. A.