Background

Within USDA, FNS has overall responsibility for overseeing the school- meals programs, which includes promulgating regulations to implement  authorizing legislation, setting nationwide eligibility criteria, and issuing  guidance. School-meals programs are administered at the state level by a  designated state agency that issues policy guidance and other  instructions to school districts providing the meals to ensure awareness of  federal and state requirements. School districts are responsible for  completing application, certification, and verification activities for the  school-meals programs, and for providing children with nutritionally  balanced meals each school day. The designated state agency conducts  periodic reviews of the school districts to determine whether the program  requirements are being met. Schools and households that participate in  free or reduced-price meal programs may be eligible for additional federal  and state benefits.
Household income levels determine whether children qualify for free or  reduced-price meals. Children from families with incomes at or below 130  percent of the federal poverty level are eligible for free meals; the income  threshold for a family of four was $28,665 in the 2010–2011 school year.  Those with incomes between 130 percent and 185 percent of the federal  poverty level are eligible for reduced-price meals. Income is any money  received on a recurring basis—including, but not limited to, gross  earnings from work, welfare, child support, alimony, retirement, and  disability benefits—unless specifically excluded by statute.
In addition, students who are in households receiving benefits under  certain public-assistance programs—specifically, SNAP, Temporary  Assistance for Needy Families (TANF), or Food Distribution Program on  Indian Reservations (FDPIR)—or meet certain approved designations  (such as students who are designated as homeless, runaway, or migrant;  or who are foster children) are eligible for free school meals regardless of  income.

	USDA Has Taken Steps to Help Identify and Prevent Ineligible Participants from Receiving Benefits

In May 2014, we reported that USDA had taken several steps to  implement or enhance controls to identify and prevent ineligible  beneficiaries from receiving school-meals benefits.
USDA worked with Congress to develop legislation to automatically  enroll students who receive SNAP benefits for free school meals;  SNAP has a more-detailed certification process than the school-meals  program. For our May 2014 report, USDA officials told us that they  were emphasizing the use of direct certification, because, in their  opinion, it helps prevent certification errors without compromising  access. Direct certification reduces the administrative burden on  SNAP households, as they do not need to submit a separate school- meals application. It also reduces the number of applications school  districts must review. The number of school districts directly certifying  SNAP-participant children increased from the 2008 through 2013  school years. For example, during the 2008–2009 school year, 78  percent of school districts directly certified students, and by the 2012– 2013 school year, this percentage had grown to 91 percent of school  districts, bringing the estimated percentage of SNAP-participant  children directly certified for free school meals to 89 percent. USDA  was also conducting demonstration projects in selected states and  school districts to explore the feasibility of directly certifying children  that participate in the Medicaid program.
USDA requires state agencies that administer school-meals programs  to conduct regular, on-site reviews—referred to as “administrative  reviews”—to evaluate school districts that participate in the school- meals programs. Starting in the 2013–2014 school year, USDA  increased the frequency with which state agencies complete  administrative reviews from every 5 years to every 3 years. As part of  this process, state agencies are to conduct on-site reviews of school  districts to help ensure that applications are complete and that the  correct eligibility determinations were made based on applicant  information. School districts that have adverse findings in their  administrative reviews are to submit a corrective-action plan to the  state agency, and the state agency is to follow up to determine  whether the issue has been resolved.
In February 2012, USDA distributed guidance to state administrators  to clarify that school districts have the authority to review approved  applications for free or reduced-price meals for school-district  employees when known or available information indicates school- district employees may have misrepresented their incomes on their  applications.

	USDA Could Explore Options to Enhance the Verification Process to Further Strengthen Integrity While Ensuring Legitimate Access

In our May 2014 report, we identified opportunities to strengthen oversight  of the school-meals programs while ensuring legitimate access, including  clarifying use of for-cause verification, studying the feasibility of electronic  data matching to verify income, and verifying a sample of households that  are categorically eligible for assistance.

		For-Cause Verification

As described in USDA’s eligibility manual for school meals, school  districts are obligated to verify applications if they deem them to be  questionable, which is referred to as for-cause verification.
We reported in May 2014 that officials from 11 of the 25 school districts  we examined told us that they conduct for-cause verification. These  officials provided examples of how they would identify suspicious  applications, such as when a household submits a modified application— changing income or household members—after being denied, or when  different households include identical public-assistance benefit numbers  (e.g., if different households provide identical SNAP numbers). However,  officials from 9 of the 25 school districts we examined told us that they did  not conduct any for-cause verification. For example, one school-district  official explained that the school district accepts applications at face  value. Additionally, officials from 5 of the 25 school districts told us they  only conduct for-cause verification if someone (such as a member of the  public or a state agency) informs them of the need to do so on a  household. Although not generalizable, responses from these school  districts provide insights about whether and under what conditions school  districts conduct for-cause verifications.
In April 2013, USDA issued a memorandum stating that, effective for the  2013–2014 school year, all school districts must specifically report the  total number of applications that were verified for cause. However, the  outcomes of those verifications would be grouped with the outcomes of  applications that have undergone standard verification. As a result, we  reported in May 2014 that USDA would not have information on specific  outcomes, which it may need to assess the effectiveness of for-cause  verifications and to determine what actions, if any, are needed to improve  program integrity. While USDA had issued guidance specific to school- district employees and instructs school districts to verify questionable  applications in its school-meals eligibility manual, we found that the  guidance did not provide possible indicators or describe scenarios that  could assist school districts in identifying questionable applications.
Hence, in May 2014, we recommended that USDA evaluate the data  collected on for-cause verifications for the 2013–2014 school year to  determine whether for-cause verification outcomes should be reported  separately and, if appropriate, develop and disseminate additional  guidance for conducting for-cause verification that includes criteria for  identifying possible indicators of questionable or ineligible applications.  USDA concurred with this recommendation and in January 2015 told us  that FNS would analyze the 2013–2014 school year data to determine  whether capturing the results of for-cause verification separately from the  results of standard verification would assist the agency’s efforts to  improve integrity and oversight. USDA also said that FNS would consider  developing and disseminating additional guidance, as we recommended.

		Income Verification

In addition to for-cause verification, school districts are required to  annually verify a sample of household applications approved for free or  reduced-price school-meals benefits to determine whether the household  has been certified to receive the correct level of benefits—we refer to this  process as “standard verification.”limited to approved applications considered “error-prone.” Error-prone is  statutorily defined as approved applications in which stated income is  within $100 of the monthly or $1,200 of the annual applicable income- eligibility guideline. Households with reported incomes that are more than  $1,200 above or below the free-meals eligibility threshold and more than  $1,200 below the reduced-price threshold would generally not be subject  to this verification process.
In a nongeneralizable review of 25 approved civilian federal-employee  household applications for our May 2014 report, we found that 9 of 19  households that self-reported household income and size information  were not eligible for free or reduced-price-meal benefits they were  receiving because their income exceeded eligibility guidelines. Two of  these 9 households stated in their applications annualized incomes that  were within $1,200 of the eligibility guidelines and, therefore, could have  been selected for standard verification as part of the sample by the  district; however, we determined that they were not selected or verified.  The remaining 7 of 9 households stated annualized incomes that fell  below $1,200 of the eligibility guidelines and thus would not have been  subject to standard verification.
For example, one household we reviewed submitted a school-meals  application for the 2010–2011 school year seeking school-meals benefits  for two children. The household stated an annual income of  approximately $26,000 per year, and the school district appropriately  certified the household to receive reduced-price-meal benefits based on  the information on the application. However, we reviewed payroll records  and determined that the adult applicant’s income at the time of the  application was approximately $52,000—making the household ineligible  for benefits. This household also applied for and received reduced-meal  benefits for the 2011–2012 and 2012–2013 school years by understating  its income. Its 2012–2013 annualized income was understated by about  $45,000.
Because the income stated on the application during these school years  was not within $1,200 per year of the income-eligibility requirements, the  application was not deemed error-prone and was not subject to standard  verification. Had this application been subjected to verification, a valid pay  stub would have indicated the household was ineligible.
One method to identify potentially ineligible applicants and effectively  enforce program-eligibility requirements is by independently verifying  income information with an external source, such as state payroll data.  States or school districts, through data matching, could identify  households that have income greater than the eligibility limits and follow  up further. Such a risk-based approach would allow school districts to  focus on potentially ineligible families while not interrupting program  access to other participants. Electronic verification of a sample of  applicants (beyond those that are statutorily defined as error-prone)  through computer matching by school districts or state agencies with  other sources of information—such as state income databases or public- assistance databases—could help effectively identify potentially ineligible  applicants.
In May 2014, we recommended that USDA develop and assess a pilot  program to explore the feasibility of computer matching school-meal  participants with other sources of household income, such as state  income databases, to identify potentially ineligible households—those  with income exceeding program-eligibility thresholds—for verification. We  also recommended that, if the pilot program shows promise in identifying  ineligible households, the agency should develop a legislative proposal to  expand the statutorily defined verification process to include this  independent electronic verification for a sample of all school-meals  applications. USDA concurred with our recommendations and told us in  January 2015 that direct-verification computer matching is technologically  feasible with data from means-tested programs, and that data from SNAP  and other programs are suitable for school-meals program verification in  many states. USDA said that FNS would explore the feasibility of using  other income-reporting systems for program verification without  negatively affecting program access for eligible students or violating  statutory requirements. Depending on the results of the pilot program,  USDA said that FNS would consider submitting a legislative proposal to  expand the statutorily defined verification process, as we recommended.

		Verification of Categorical Eligibility

In May 2014, we found that ineligible households may be receiving free  school-meals benefits by submitting applications that falsely state that a  household member is categorically eligible for the program due to  participating in certain public-assistance programs—such as SNAP—or  meeting an approved designation—such as foster child or homeless. Of  the 25 civilian federal-employee household applications we reviewed, 6  were approved for free school-meals benefits based on categorical  eligibility. We found that 2 of the 6 were not eligible for free or reduced- price meals and 1 was not eligible for free meals, although that household  may have been eligible for reduced-price meals.
For example, one household applied for benefits during the 2010–2011  school year—providing a public-assistance benefit number—and was  approved for free-meal benefits. However, when we verified the  information with the state, we learned that the number was for medical- assistance benefits—a program that is not included in categorical  eligibility for the school-meals programs. On the basis of our review of  payroll records, this household’s annualized income of at least $59,000  during 2010 would not have qualified the household for free or reduced- price-meal benefits. This household applied for school-meals benefits  during the 2011–2012 and 2012–2013 school years, again indicating the  same public-assistance benefit number—and was approved for free-meal  benefits.
Figure 1 shows the results of our review.
Because applications that indicate categorical eligibility are generally not  subject to standard verification, these ineligible households would likely  not be identified unless they were selected for for-cause verification or as  part of the administrative review process, even though they contained  inaccurate information. These cases underscore the potential benefits  that could be realized by verifying beneficiaries with categorical eligibility.  In May 2014, we recommended that USDA explore the feasibility of  verifying the eligibility of a sample of applications that indicate categorical  eligibility for program benefits and are therefore not subject to standard  verification. USDA concurred with this recommendation and told us in  January 2015 that FNS would explore technological solutions to assess  state and local agency capacity to verify eligibility of a sample of  applications that indicate categorical eligibility for school-meals-program  benefits. In addition, USDA said that FNS would clarify to states and local  agencies the procedures for confirming and verifying the application’s  status as categorically eligible, including for those who reapply after being  denied program benefits as a result of verification.
Chairman Roberts, Ranking Member Stabenow, and Members of the  Committee, this concludes my prepared remarks. I look forward to  answering any questions that you may have at this time.

	GAO Contacts and Staff Acknowledgments

For further information on this testimony, please contact Stephen Lord at  (202) 512-6722 or lords@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this statement. Individuals making key contributions to this testimony  include Jessica Lucas-Judy, Assistant Director; Marcus Corbin; Ranya  Elias; Gabrielle Fagan; Colin Fallon; Kathryn Larin; Olivia Lopez; Maria  McMullen; and Daniel Silva.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.

Summary:
Why GAO Did This Study

In fiscal year 2014, 30.4 million children participated in the National School Lunch Program and 13.6 million children participated in the School Breakfast Program, partly funded by $15.1 billion from USDA. In May 2014, GAO issued a report on (1) steps taken to help identify and prevent ineligible beneficiaries from receiving benefits in school-meal programs and (2) opportunities to strengthen USDA's oversight of the programs.
This testimony summarizes GAO's May 2014 report ( GAO-14-262 ) and January 2015 updates from USDA. For the May 2014 report, GAO reviewed federal school-meals program policies, interviewed program officials, and randomly selected a nongeneralizable sample that included 25 approved applications from civilian federal-employee households out of 7.7 million total approved applications in 25 of 1,520 school districts in the Dallas, Texas, and Washington, D.C., regions. GAO performed limited eligibility testing using civilian federal-employee payroll data from 2010 through 2013 due to the unavailability of other data sources containing nonfederal-employee income. GAO also conducted interviews with households. GAO referred potentially ineligible households to the USDA Inspector General.
In its 2014 report, GAO recommended that USDA explore the feasibility of (1) using computer matching to identify households with income that exceeds program-eligibility thresholds for verification and (2) verifying a sample of categorically eligible households. USDA generally agreed with the recommendations and has actions under way to address them.

What GAO Found

In May 2014, GAO reported that the U.S. Department of Agriculture (USDA) had taken several steps to implement or enhance controls to identify and prevent ineligible beneficiaries from receiving school-meals benefits. For example:
USDA worked with Congress to develop legislation to automatically enroll students who receive Supplemental Nutritional Assistance Program benefits for free school meals; this program has a more-detailed certification process than the school-meals program.
Starting in the 2013–2014 school year, USDA increased the frequency with which state agencies complete administrative reviews of school districts from every 5 years to every 3 years. As part of this process, state agencies review applications to determine whether eligibility determinations were correctly made.
In its May 2014 report, GAO identified opportunities to strengthen oversight of the school-meals programs while ensuring legitimate access, such as the following:
If feasible, computer matching income data from external sources with participant information could help identify households whose income exceeds eligibility thresholds. As of May 2014, school districts verified a sample of approved applications deemed “error-prone”—statutorily defined as those with reported income within $1,200 of the annual eligibility guidelines—to determine whether the household is receiving the correct level of benefits (referred to as standard verification in this testimony). In a nongeneralizable review of 25 approved applications from civilian federal households, GAO found that 9 of 19 households that self-reported household income and size information were ineligible and only 2 could have been subject to standard verification.
Verifying a sample of categorically eligible applications could help identify ineligible households. GAO reported that school-meal applicants who indicate categorical eligibility (that is, participating in certain public-assistance programs or meeting an approved designation, such as foster children) were eligible for free meals and were generally not subject to standard verification. In a nongeneralizable review of 25 approved applications, 6 households indicated categorical eligibility, but GAO found 2 were ineligible.