A shortage of places has forced Eastern Health Board social workers to separate brothers and sisters after taking them into care, according to an internal review group report.
Social workers have also had to put children into hospital because they had nowhere else to send them, the report says.
The review group was made up of the board's senior managers and representatives of the trade union, IMPACT. It was set up last summer as part of a package designed to avert industrial action.
The creation of more foster care and residential places is one of the biggest needs facing the board, the report says.
But it is hard to get foster parents because they are not paid enough and fear being accused of abusing children in their care.
Voluntary organisations and religious orders have reduced the amount of residential care they provide.
Since 1992 there has been a 78 per cent increase in the number of cases of suspected child abuse reported to the board.
Eighty per cent of its £29 million child-care budget is spent on protecting children at risk of abuse or neglect, leaving only 20 per cent for preventive work.
But the report also suggests social workers have suffered from the absence of an overall policy on what they should be doing and how they should do it.
The report finds that the Eastern board spent £76 per child in 1996. The equivalent body spends £105 per child in Northern Ireland. The board would need an extra £11 million to bring its spending up to Northern levels.
At local level, "there is little direction or guidance given on the board's policy on child care," the report says. This means that families and children in different areas are not being treated equally, it says. More foster and residential care places are "essential to arrest the wholly undesirable practice of receiving children into care and accommodating them in hospital."
"In addition, a number of sibling groups are being received into care, a traumatic process which is then exacerbated by the board's inability to accommodate related children in one placement."
"This further break-up of family groups is not only bad practice but generates additional work on social workers who have to commit substantial time and effort to ensure the divided family group is reunited for access."