AT A TIME when the city is so cash-strapped that it's regularly late paying vendors, a new billing system imposed on the Department of Human Services by state officials has left the city more than $40 million short in reimbursements for services provided to abused and neglected kids.

Both city and state officials say that the city eventually will get the money, actually federal funds funneled through the state Welfare Department.

But the city is still waiting for millions it is owed for foster-care and group-home placements for which the city paid more than a year ago for troubled Philadelphia kids.

"We've spent a lot of time working through the glitches," said DHS Commissioner Ann Marie Ambrose, "and the [state] Department of Public Welfare has been very helpful. We're confident we're going to work this out."

Ambrose emphasized that the problems haven't delayed services to kids.

City Finance Director Rob Dubow acknowledged that getting that $40 million would be helpful as city officials struggle to decide which vendors it can pay now and which will have to wait.

But, Dubow said, the problem is manageable. "This is really a timing issue," he said. "There won't be any money lost."

The problem is just the kind of bureaucratic tangle that can occur when funding for something important like abused kids flows from federal officials to state government to the city to nonprofit providers, each of which has its own rules and record-keeping and institutional interests.

At issue is federal funding for services for troubled kids under Title IV-E of the Social Security Act. The city pays private and nonprofit groups to take care of kids, then sends the state Welfare Department a bill every three months to get reimbursed for Title IV-E eligible expenses.

The problem, state officials say, is that they have to account to the feds for how every penny is spent, and auditors haven't been happy with the documentation from Philadelphia DHS.

"We really didn't have a choice," State Welfare Department Budget Director BethAnn Smetak said of the changes imposed on Philadelphia and other counties. "This was done to comply with federal requirements and continue to draw down federal Title IV-E funding."

But some in the child-welfare community believe that state Deputy Welfare Secretary Richard Gold overreacted by imposing a new invoicing system that has created headaches for city and county administrators and for service providers.

A problem for the city is that the state's new billing system demands more information on every child getting services and will reject a multimillion-dollar three-month invoice if a single discrepancy exists.

"The system they set up requires a completely clean invoice," Ambrose said.

The system has also required the city to get more information on its invoices to the state. Services for each child has always been a separate line on every quarterly invoice, and a "location code" must be listed to indicate where a child is placed for foster or institutional care.

But the system now requires that for a large institution, like the Glen Mills Home, a separate location code must be listed for each cottage at the home.

"The accountability they're requesting we think is onerous," said William Haussmann, CEO of Tabor Children's Services, an established service provider. "The forms that have to be completed are far more than we had to in the past."

In addition, Smetak said, the new system checks every city invoice against other databases, to make sure that every service-provider listed has a valid contract on file with the state, for example.

If one doesn't, the invoice is a reject.

The result has been delay.

Philadelphia hasn't gotten a nickel in Title IV-E reimbursements for millions paid for foster-care and group-home placements since July 2008, although reimbursements have come for some other categories of spending.

City and state officials agree that the city is more than $40 million poorer than it would have been under the old system, although it seems that everyone believes that the kinks eventually will be worked out and the money paid.

While some may question the new billing system, there's little doubt that state officials were feeling heat from federal officials.

An audit of Philadelphia's Title IV-E reimbursements by the Office of Inspector General of the U.S. Department of Health and Human Services released last year was damning.

A sampling of 200 Philadelphia cases between 1997 and 2002 found that 15 percent of the time the city got federal reimbursement either for unallowable expenses or for services provided by an unlicensed provider.

A case-by-case response filed for the state by attorney Mark Aronchick challenged the findings and called the audit "both draconian and unprecedented."

If there's a bright side to the mess, it's that both city and state officials will eventually have more information and presumably tighter control over DHS spending. In the meantime, the city is struggling to comply with the new rules.

"We know there are growing pains," Smetak said. "But we're working with Philadelphia and the other counties so we can successfully draw down these federal funds."