(1) To establish and administer a program designed to assist the juvenile courts and other public and private agencies, on their request, in the diagnosis and study of juvenile delinquents and of children with mental or behavioral problems, and to recommend to them the most appropriate disposition for the rehabilitation and treatment of such children; this program shall be based on review of local studies of the children but when local studies indicate the need, or when it is requested, may include residential study of the children in centers which the department is hereby authorized to establish and operate.

(2) To accept custody of children committed by the juvenile courts for study, and on the basis of its review of local studies of each child and any additional residential studies as are deemed necessary, to recommend to the court that the child be placed in an appropriate public or voluntary institution, or to recommend any other placement or treatment which may be indicated. The department may recommend that the court transfer any child from one type of care to another or return him to his home for trial periods. Notice of any transfer shall be sent by the department promptly to the parents, guardian or nearest relative of the child. The department may also recommend the discharge of a child from its custody but any decision with respect thereto shall remain the sole responsibility of the committing court.