GAO

United States General Accounting Office

Report to the Chairman and Ranking

Minority Member, Committee on

Governmental Affairs, U.S. Senate

September 2000 BENEFIT AND LOAN

PROGRAMS

Improved Data

Sharing Could

Enhance Program

Integrity

GAO/HEHS-00-119

Page 1 GAO/HEHS-00-119 Benefit and Loan Programs

Contents

Letter 3

Appendixes Appendix I: Comments From the Administration for Children and

Families 50

Appendix II: Comments From the Department of Education 57

Appendix III: Comments From the Department of Housing and

Urban Development 58

Appendix IV: Comments From the Internal Revenue Service 60

Appendix V: Comments From the Office of Management and

Budget 64

Appendix VI: Comments From the Department of the Treasury 66

Appendix VII: Major Contributors to This Report 69

Tables Table 1: Potential Sources of Data for the Three Programs in Our

Review 14

Table 2: Some Major Federal, State, and Private Data Sources 16
Contents

Page 2 GAO/HEHS-00-119 Benefit and Loan Programs

Abbreviations

ACF Administration for Children and Families

AFDC Aid to Families with Dependent Children

BSRT Benefit Systems Review Team

CMPPA Computer Matching and Privacy Protection Act

DMDC Defense Manpower Data Center

DMV Department of Motor Vehicles

FAFSA Free Application for Federal Student Aid

HEA Higher Education Amendments of 1998

HHS Department of Health and Human Services

HUD Department of Housing and Urban Development

IEVS Income and Eligibility Verification System

IRC Internal Revenue Code

IRS Internal Revenue Service

OASDI Old Age, Survivors, and Disability Insurance

OCSE Office of Child Support Enforcement

OIG Office of Inspector General

OMB Office of Management and Budget

PARIS Public Assistance Reporting Information System

PHA public housing authority

PMO priority management objective

PRWORA Personal Responsibility and Work Opportunity Reconciliation

Act of 1996

QHWRA Quality Housing and Work Responsibility Act of 1998

REAC Real Estate Assessment Center

SAVE Systematic Alien Verification for Entitlement

SESA state employment security agency

SSA Social Security Administration

SSI Supplemental Security Income

TANF Temporary Assistance for Needy Families
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United States General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-283206 Letr

September 13, 2000

The Honorable Fred Thompson

Chairman, Committee on Governmental Affairs

United States Senate

The Honorable Joseph Lieberman

Ranking Minority Member, Committee on Governmental Affairs

United States Senate

Many federally funded benefit and loan programs rely on applicants and

current recipients to accurately report their own important information,

such as the amount of income they earn, that affects their eligibility for

assistance. To the extent that such information is underreported or not

reported at all, the federal government overpays benefits or provides loans

to individuals who are ineligible. In recent years, reviews that we have

conducted and that offices of inspectors general (OIG) and others have

conducted demonstrate that federally funded benefit and loan programs

such as housing and higher education assistance have made hundreds of

millions of dollars in improper payments.1 Some of these payments were

made improperly because the federal, state, and local entities that

administer the programs sometimes lacked adequate, timely data needed to

determine applicants’ and current recipients’ eligibility for assistance. Our

previous work has demonstrated that improper payments can be avoided

or detected more quickly by using data from other programs, or maintained

for other purposes, to verify self-reported information. For example, we

estimated that direct on-line connections between the Social Security

Administration’s (SSA) computers and databases maintained by state

agencies containing information on wages, welfare benefits,

unemployment insurance, and workers’ compensation benefits could have

prevented or more quickly detected $131 million in Supplemental Security

1

Financial Management: Increased Attention Needed to Prevent Billions in Improper

Payments (GAO/AIMD-00-10, Oct. 1999). See also OIG, Department of Housing and Urban

Development, U.S. Department of Housing and Urban Development: Attempt to Audit the

Fiscal Year 1999 Financial Statements, 00-FO-177-0003 (Washington, D.C.: n.d.), and OIG,

Department of Education, Accuracy of Student Aid Awards Can Be Improved by Obtaining

Income Data From the Internal Revenue Service, ACN: 11-50001 (Washington, D.C.: Jan. 29,

1997).
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Income (SSI) overpayments in one 12-month period.2 We also estimated

that about $648 million in SSI overpayments that occurred in one year

could have been avoided or more quickly detected if SSA had had access to

the Office of Child Support Enforcement’s (OCSE) National Directory of

New Hires, as well as financial institution data.3

Data sharing, as we use the term in this report, means obtaining and

disclosing information on individuals from independent, third-party

sources such as federal and state government agencies or private

organizations to determine their eligibility for federally funded benefit and

loan programs. Commonly used data sources include tax return

information from the Internal Revenue Service (IRS), earnings information

maintained by SSA, and unemployment insurance data maintained by state

employment security agencies. You asked us to study whether improved

data sharing among federally funded benefit and loan programs could help

them make more accurate initial and continuing eligibility determinations.

Specifically, you asked us to determine (1) the data that selected benefit

and loan programs use to verify self-reported, eligibility-related

information; (2) whether additional data sharing with federal, state, and

local governments, or private entities, could avoid some improper

payments; and (3) the legal or other barriers to enhanced data sharing.

2

SSI is the nation’s largest cash assistance program for the poor. In 1999, it paid about 6.6

million aged, blind, and disabled recipients more than $28 billion in benefits. See

Supplemental Security Income: Administrative and Program Savings Possible by Directly

Accessing State Data (GAO/HEHS-96-163, Aug. 29, 1996).

3

Supplemental Security Income: Opportunities Exist for Improving Payment Accuracy

(GAO/HEHS-98-75, Mar. 27, 1998).
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To respond to your request, we examined three federally funded benefit

and loan programs:4 (1) the Department of Housing and Urban

Development’s (HUD) Public Housing and Tenant-based Section 8

programs, (2) the Department of Health and Human Services’ (HHS)

Temporary Assistance for Needy Families (TANF) program, and (3) the

Department of Education’s Student Financial Assistance programs. These

programs represent three different modes of program administration:

direct federal administration (Student Financial Assistance), block grants

with state and local administration (TANF), and local agency

administration with some federal involvement (HUD housing assistance).

We interviewed federal officials from each of these programs as well as

from other federal agencies.5 We also interviewed state and local officials

who administer the three programs in eight locations: Sacramento and San

Francisco, California; Miami and Tallahassee, Florida; Baltimore, Maryland;

Newark, New Jersey; Albany and New York City, New York. In addition, we

collected available data from federal, state, and local governments on

improper payments and cost savings related to the use of data sharing. We

also cosponsored a symposium on data sharing with the Senate Committee

on Governmental Affairs in June 2000. This conference examined a number

of different issues related to data sharing, including its benefits for program

integrity, the role of technology, and challenges to enhanced data sharing,

as well as privacy and information security issues. Numerous

representatives attended the conference from federal agencies, as well as

state and local governments and private sector organizations.6 We

performed our work between June 1999 and June 2000 in accordance with

generally accepted government auditing standards.

Results in Brief Federally funded benefit and loan programs require similar types of

information about individuals to correctly determine their eligibility for

assistance. Such information includes their identity (name, Social Security

number, date of birth), earned income (wages) and unearned income (food

stamps), assets (bank accounts, automobiles), citizenship status, and

4

We use “programs” to refer to individual programs as well as groups of closely related

programs. For example, Student Financial Assistance is a group of several loan and grant

programs including Pell Grants, Stafford Loans, Direct Loans, PLUS Loans, and others.

5

The Office of Management and Budget (OMB), SSA, OCSE, Food and Nutrition Services,

the Department of Labor, and the Department of Treasury, including IRS.

6

We will issue a separate report on the symposium in fall 2000.
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household composition. While numerous factors can affect an individual’s

eligibility for benefits, income is generally one of the most important and

most prone to error or inaccurate reporting. Some programs obtain

information from independent, third-party sources such as federal and

state agencies, including IRS or state unemployment insurance programs,

or private companies such as credit bureaus to verify the accuracy of selfreported data. For example, some of the public housing agencies we visited

obtained information from national credit bureaus such as Equifax to verify

applicants’ and recipients’ financial resources. Matching automated

computer files and accessing online databases are two methods by which

federally funded benefit and loan programs obtain and share eligibility

information. In our earlier reviews of the SSI and Food Stamp programs,

we noted the efficacy of using federal and state data sources to verify selfreported information and control improper program payments.

The three programs we reviewed could use enhanced data sharing to make

more timely and accurate eligibility determinations. While each of the

programs uses varying degrees of computer matching and other methods to

verify the information that applicants and current recipients provide, the

programs could benefit from access to additional data sources. For

example,

• HUD estimates that the lack of adequate information on applicants’ and

tenants’ income contributed to $935 million of excess rental subsidies in

1998.7 While federal HUD officials have access to data from various

computer matches (such as those conducted with IRS taxpayer data),

under current law they are not permitted to share federal tax

information with public housing agencies and private owners who

administer HUD’s rental assistance programs.8

• The Department of Education’s OIG estimates that underreported

income contributed to roughly $109 million in excess Pell Grant awards

in 1995-96. Access to IRS taxpayer information could have helped

Education prevent some of these overpayments.

7

This figure includes improper payments (as reported in the fiscal year 1999 financial

statements) for HUD’s project-based and tenant-based housing programs. We did not,

however, include the project-based housing programs in our review.

8

HUD is permitted, however, to disclose to public housing agencies and private owners the

identity of individuals who have potential income discrepancies. See 42 U.S.C. 3554(c)(2)

(A)(ii).
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• The Administration for Children and Families (ACF) within HHS

estimates that program savings of about $100 million could be realized

in the TANF program if all states participated in the Public Assistance

Reporting Information System (PARIS) match.9

An example of an information source that many program administrators

cite as being beneficial is OCSE’s National Directory of New Hires. Access

to this source would provide these programs with the most timely and

comprehensive source of state wage, unemployment insurance, and new

hire data available. However, current law requires OCSE to establish and

implement safeguards designed to restrict access to confidential

information to authorized persons for authorized purposes and does not

permit the three programs we examined to obtain information from the

directory for purposes of verifying applicants’ eligibility for benefits or

loans.10

Other legal restrictions, as well as management, administrative, and

technological challenges, limit the ability of federally funded benefit and

loan programs to effectively share information with one another. A number

of laws have been enacted over the past 25 years that limit access to

sensitive data sources (or restrict how such data may be used) in an effort

to protect individual privacy and the confidentiality of sensitive

information or to address concerns about taxpayer compliance with tax

laws. These statutes include section 6103 of the Internal Revenue Code

(IRC), which governs the disclosure of taxpayer information; provisions in

the Social Security Act that restrict access to OCSE’s National Directory of

New Hires; and the Privacy Act (including the Computer Matching and

Privacy Protection Act amendments of 1988, or CMPPA), which balances

the government’s need to collect and maintain sensitive information about

individuals against their right to privacy. Providing more federally funded

programs access to restricted data sources (such as the National Directory

of New Hires) and the ability to share this information with state and local

agencies that administer various benefit and loan programs often requires

amending federal laws governing the use of the data.11 However, increasing

the access to sensitive data for benefit and loan programs can be balanced

9

This estimate was derived from cost-benefit analysis on the PARIS project performed by

ACF.

10See 42 U.S.C. 653(m).

11Providing such access may also require amending state laws.
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with the need for personal privacy, confidentiality, and tax compliance. For

example, providing access to restricted data sources in this context does

not mean that personal information on citizens will be available in the

public domain or that the confidentiality of sensitive data will not be

protected from unauthorized disclosure. Rather, only agencies or their

representatives with the need to view the information for purposes of

determining eligibility for individuals who apply for benefits and loans

should have access to such data and would be responsible for protecting

them from unauthorized disclosure. In addition to legal restrictions, other

issues complicate the ability of benefit and loan programs to share

information. For example, the lack of a system through which the states

can share data to detect individuals who have obtained TANF benefits in

more than one state makes it difficult for states to ensure that only eligible

individuals and families receive benefits. This type of challenge will likely

require federal facilitation to address the management, administrative, and

technological issues that are involved. We are suggesting to the Congress

and the heads of the Office of Management and Budget (OMB), HHS, and

HUD actions that will help address some of these issues.

Background Federally funded benefit and loan programs provide cash or in-kind

assistance to individuals who meet specified eligibility criteria. TANF, SSI,

Food Stamps, housing assistance, and student loans are representative of

such programs. Some are administered centrally by federal agencies (such

as SSI), while states and localities are involved in the administration of

others (such as TANF). Many of these programs rely on applicants and

current recipients to self-report important information that can affect their

eligibility for benefits, such as the amount of income they earn. Because

many benefit and loan programs require the same information, it is more

efficient for them to share the necessary data with one another rather than

requiring each program to independently verify similar data. Sharing

important eligibility-related information across programs can also reduce

the burden on individual applicants and recipients, businesses, and other

entities for repeatedly supplying it. These programs may verify selfreported information by comparing their records with independent, thirdparty data sources from other federal or state agencies as well as private

organizations.

Data Sharing Concepts Benefit and loan programs can compare large amounts of information on

applicants and recipients by using computers to match automated records.

Electronic transmission of data and online access to agencies’ databases
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are additional tools program administrators can use to share important

information on applicants and recipients in a timely, efficient manner. If

used consistently, they can help program administrators check the

accuracy of individuals’ self-reported statements, as well as identify

information relevant to eligibility that the applicants and recipients

themselves have not provided.

We discuss two types of accuracy checks related to data sharing in this

report: positive verification, or confirming the accuracy of information that

an applicant or recipient has voluntarily reported, and negative verification,

or checking independent, third-party data sources to detect information

that may not have been reported. The following example illustrates the

difference between the two concepts. To confirm the amount of earned

income that an applicant reports at an eligibility interview, a public

assistance program administrator sends a letter to an employer the

applicant cited and requests the employer to certify the applicant’s wages.

This is a form of “positive verification” because the administrator is able to

confirm only employment and wage information that is voluntarily

provided. “Negative verification” in this example could consist of the

program administrator’s accessing the central state wage database and

checking all the wages reported to the state by all employers on behalf of

the applicant. This type of verification is superior because it allows

program administrators to identify more relevant earned income

information for an individual, including information that is not volunteered

on an application.12 Moreover, sharing important data across benefit and

loan programs with similar information needs may result in more efficient

program administration, including more timely and accurate eligibility

determinations.

12However, this type of verification cannot identify wages individuals receive that employers

do not report.
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Key Aspects of Programs

Reviewed

HUD funds and regulates the Public Housing and Tenant-based Section 8

programs, both of which local public housing agencies administer under

contract to HUD.13 The Public Housing Program provides subsidies to

nearly 3,200 public housing authorities (PHA) to help them pay a large

portion of the cost of operating and maintaining public housing units. In

fiscal year 1998, this program spent about $8 billion to subsidize 1.3 million

public housing units.14 The Section 8 Rental Assistance Program subsidizes

low-income families’ choice to live in privately owned housing by providing

rental assistance payments to landlords on behalf of families. In fiscal year

1998, HUD spent about $8.3 billion to help about 1.6 million families obtain

affordable, private housing. In general, tenants are required to pay 30

percent of their anticipated income toward rent, with HUD paying the

balance of the rental amount. The PHAs are responsible for verifying the

information applicants and current tenants provide that may affect their

eligibility for assistance. In contrast to entitlement program benefits, which

generally go to all who qualify, the benefits of HUD’s housing assistance

programs are limited by budgetary constraints to about one-fourth of the

households that are eligible.

TANF was created by the Personal Responsibility and Work Opportunity

Reconciliation Act of 1996 (PRWORA) and replaced the federal entitlement

awarded to eligible families under the Aid to Families with Dependent

Children (AFDC) program with temporary benefits contingent on

successful completion of work and education requirements. TANF has

been implemented in the form of a block grant to states, designed to help

low-income families with children reduce their reliance on welfare and

move toward economic independence. The annual block grant to states is

$16.5 billion. In fiscal year 1999, states spent a total of $11.2 billion of

federal funds and $11.3 billion of their own funds on this program.15 While

HHS oversees TANF at the federal level, states have much greater

flexibility than under AFDC to design and implement programs to meet

state and local needs and to establish eligibility requirements. However,

among its other provisions, PRWORA requires that states impose work

13HUD funds both tenant-based and project-based rental assistance programs. Our review

focused exclusively on the tenant-based programs administered by public housing agencies.

14This figure includes expenditures for the operating fund, capital fund, debt service, drug

elimination fund, and HOPE VI.

15The states may carry forward funds that are not spent to meet program needs in future

years.
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requirements for adults, meet specified requirements for the percentage of

adults who participate in work activities, and enforce a 5-year lifetime limit

on receiving TANF benefits. States and localities are also responsible for

verifying the accuracy of information that applicants and TANF recipients

provide.

The Department of Education’s Office of Student Financial Assistance for

higher education provides federal student aid in the form of grants and

loans to eligible applicants based on key financial and student status

information. The grant and loan programs include Pell Grants, the Federal

Family Education Loan Program, and the Federal Direct Loan Program.

Applicants report pertinent information on the Free Application for Federal

Student Aid (FAFSA) form. In general, Education relies on institutions

(such as universities) to verify the accuracy of this information. It also

conducts various internal and external computer edits to detect errors on

applications. Education currently oversees a total of about $51 billion in

federal student aid grants and loans to nearly 8.4 million students and

parents.

Laws Governing Data

Sharing and Privacy

A number of different laws and regulations govern the ability of benefit and

loan programs to obtain access to and share sensitive information such as

the Social Security numbers of and income data on applicants and

recipients. Among the most important of these are the Privacy Act,

including the Computer Matching and Privacy Protection Act amendments

of 1988 (CMPPA) and 1990, and IRC section 6103.

The Privacy Act (5 U.S.C. section 552a) is intended to balance the

government’s need to collect and maintain information about individuals

against their right to be protected against unwarranted invasions of their

privacy resulting from federal agencies’ collections and use of information

about them. The act addresses four basic policy objectives: (1) restricting

the disclosure of records that contain personal identifiers maintained by

agencies; (2) providing individuals the right of access to agency records

about them; (3) granting individuals the right to seek amendment of agency

records on them if they can show that such records are not accurate,

relevant, timely, or complete; and (4) establishing a code of fair information

practices that requires agencies to comply with statutory norms for

collecting, maintaining, using, and disseminating records. During the June

2000 data sharing symposium, some observers stated that the act was

primarily designed to address privacy concerns in a paper environment. As

such, it is not well suited to addressing some of the issues that arise from
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the widespread use of computerized records and electronic dissemination

of information and may need to be updated.

CMPPA permits federal agencies to conduct matches with one another,

subject to various provisions. In general, all matching agreements must

include the purpose and legal authority for a match, anticipated results, a

cost-benefit analysis, procedures to notify applicants and recipients who

are identified in a match, and procedures for verifying the information to be

produced. In addition, CMPPA (see 5 U.S.C. §§ 552a(o), (r), and (u))

requires agencies to publish matching agreements in the Federal Register,

report matching programs to the Congress and OMB, and establish internal

data integrity boards to review and approve matching programs. An initial

matching agreement may be in force for 18 months, which may be followed

by a 12-month renewal period. To continue a match beyond 30 months, a

new agreement must be negotiated between the agencies, even if the

provisions of the matching agreement remain the same.

Under IRC section 6103, federal, state, and local agencies may receive IRS

taxpayer information only for certain specified purposes, including

administering state tax programs and verifying eligibility for various

welfare and public assistance programs (such as public housing).16

According to the Department of the Treasury, this section of IRC was

enacted to limit the instances in which other agencies used tax data for

nontax purposes to cases in which the need for the information outweighs

the related concerns of taxpayer privacy and continued compliance with

tax laws. Section 6103(l)(7) specifies that taxpayer information may be

disclosed to federal, state, or local agencies administering any of nine

program categories, such as unemployment compensation or housing

assistance.17 Agencies are also required to protect the confidentiality of the

information they receive and to implement safeguards that are designed to

prevent unauthorized access, disclosure, and use. Unauthorized disclosure

or access may result in criminal penalties (section 7213) or civil damages

(section 7431). Individual taxpayers may also authorize IRS to disclose

16Taxpayer information may consist of an individual’s name, Social Security number,

address, wages, self-reported earnings, unearned income from interest and dividends, tax

returns, and miscellaneous income statements as well as other things. For a full description

of IRC section 6103 and related issues, see Taxpayer Confidentiality: Federal, State, and

Local Agencies Receiving Taxpayer Information (GAO/GGD-99-164, Aug. 30, 1999).

17See Joint Committee on Taxation, Study of Present-Law Taxpayer Confidentiality and

Disclosure Provisions as Required by Section 3802 of the Internal Revenue Service

Restructuring and Reform Act of 1998 (Washington, D.C.: Jan. 28, 2000), p.46.
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their tax return information to specified entities by providing a written

consent (IRC section 6103(c)). However, such disclosures are not subject

to the same safeguards or penalties that exist for disclosures to specified

agencies under IRC section 6103.

Benefit and Loan

Programs Have Similar

Data Needs

Many federally funded benefit and loan programs (including the three

programs in our review) require common information on applicants and

recipients to accurately determine their eligibility for benefits. These data

include a person’s identity (name, date of birth, Social Security number),

address, income (both earned and unearned), assets (such as bank

accounts), household composition (including number of dependents),

citizenship status, incarceration status, and whether the person has died.18

Applicants’ and recipients’ income are the most vital pieces of information

in making an accurate decision, because income is often a main

requirement for an individual’s (or family’s) eligibility. In addition, assets

such as bank accounts can affect applicants’ and current recipients’

eligibility for assistance. In many instances, program administrators rely on

applicants and recipients to self-report important information, such as

income, which can be subject to error and abuse. Administrators of some

benefit and loan programs may gain access to records maintained by other

federal, state, or local agencies by means of computer matching or on-line

access to “live” databases to verify the accuracy of self-reported

statements. However, they do not consistently use such sources to make

timely and accurate eligibility determinations. Table 1 shows potential

sources for some commonly required types of data, including federal, state,

local, and private entities.

18TANF administrators require additional information to accurately determine applicants’

and recipients’ eligibility for assistance, including interstate receipt of benefits, program

disqualifications, and benefit time limits.
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Table 1: Potential Sources of Data for the Three Programs in Our Review

Note: The data and sources are not exhaustive but illustrate some of the more common types of data

needed, as well as some of their potential sources.

a

Although no single source of data is generally available to verify household composition, program

administrators may use a combination of sources that may provide limited information, including state

bureaus of vital statistics, local marriage license data, prison match data from SSA, and local school

attendance forms.

b

PRWORA required states to set up databases of new hires to help locate individuals involved in child

support cases and to verify eligibility for certain programs. See 42 U.S.C. 653(h).

c

Federal departments and agencies that maintain information on unearned income, such as public

assistance benefits, include HUD, IRS, SSA, and the Veterans Administration.

Type of data needed Federal State Local Private

Identity (name, Social

Security number, birth

date)

SSA

Citizenship status —Immigration and

Naturalization Service

—SSA

Address —IRS

—OCSE, National

Directory of New Hires

—SSA

—Department of motor

vehicles (DMV)

—State directory of new

hires

Credit bureaus

Household compositiona

Earned income (wages) —IRS

—OCSE, National

Directory of New Hires

—SSA

—State employment

security agency (SESA)

—Department of labor

—State directory of new

hiresb

Unearned income (public

assistance benefits,

pensions, interest)

Various departments and

agenciesc

—Department of human

services or the equivalent

—Department of labor or

the equivalent

—SESA

Various agencies (such

as housing authorities)

administering federal and

state programs

Financial institutions

Assets (bank accounts,

automobiles)

IRS —DMV

—Lottery agencies

Various agencies

maintaining property

records

—Credit bureaus

—Data vendors

—Financial institutions

Incarceration status and

criminal history

—Department of Justice

—SSA

Prisons and criminal

justice agencies

Jails Data vendors

Death information SSA Bureau of vital statistics Data vendors
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A relatively small number of federal and state agencies as well as private

companies maintain substantial information that is required by many

federally funded benefit and loan programs. For example, IRS is a main

source for taxpayer information on earned and unearned income, including

wages, interest from bank accounts, and investment income.19 OCSE’s

National Directory of New Hires also contains important information for all

50 states. The directory includes centralized sources of state wage data,

unemployment insurance, and new hires data that could help benefit and

loan programs make more timely, accurate eligibility determinations.

During the data sharing symposium we cosponsored in June 2000, several

representatives from federal, state, and local government agencies inquired

about how they could obtain access to information contained in the

directory. However, provisions in the Social Security Act specify that in

addition to OCSE, only three agencies (IRS, SSA, and the Department of

Education) may use information maintained in the directory, and they may

use it only for specific purposes. The data in the directory are not legally

accessible to most benefit and loan programs.

At the state level, one of the main sources of information for data sharing is

the Income and Eligibility Verification System (IEVS).20 IEVS draws on

numerous federal and state data sources, including IRS Form 1099 data and

Social Security benefits and earnings information, as well as state wage and

unemployment insurance data. PRWORA also required states to continue

using IEVS in administering their TANF programs.

Another source of valuable information (particularly for verifying

applicants’ or recipients’ assets) is private financial institutions such as

banks. However, only two federal agencies that administer benefit or loan

programs (OCSE and SSA) currently have legislative authority to request

data from financial institutions.21 For example, the Foster Care

Independence Act of 1999 authorizes SSA to require applicants and current

recipients of SSI benefits to provide SSA with the authority to check the

records of all financial institutions as part of its eligibility determination

19See Taxpayer Confidentiality: Federal, State, and Local Agencies Receiving Taxpayer

Information (GAO/GGD-99-164, Aug. 30, 1999).

20IEVS was originally created by the Deficit Reduction of Act of 1984 and was built on earlier

state data sharing activities in the 1970s that used state wage data to control welfare

payments.

21See section 353 of PRWORA and section 213 of the Foster Care Independence Act of 1999,

Pub. L. No. 106-169.
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process. However, most federally funded benefit and loan programs do not

have this type of authority. Table 2 describes some of the types of data that

may be available from some selected federal, state, and private sources.

Table 2: Some Major Federal, State, and Private Data Sources

Note: Access to some of these data sources, including but not limited to IRS taxpayer data and

information contained in the National Directory of New Hires, is restricted to agencies specified in

current law.

Data Sharing in Three

Federal Program Areas

Could Be Improved

While each of the three programs we examined (HUD assisted housing,

Education’s Student Financial Assistance loans and grants, and TANF) use

some data sharing to control their payments, weaknesses still exist. HUD’s

housing assistance programs rely heavily on applicants and current tenants

to self-report important information, such as income that affects their

eligibility for assistance. This is particularly true during the initial

application process, yet little is done to check independent data sources for

information that applicants may omit or overlook. Inaccurate reporting in

these programs contributed to several hundred million dollars in excess

rental subsidies in 1998. Similarly, the Department of Education relies on

applicants for student financial aid to accurately report their income and

other important information. Excess awards of more than $100 million

Source Description

Federal agencies

and systems

IRS Individual Master File and related

databases

Federal taxpayer information, including individual income tax, Form

W-2 (wage statements received from SSA), Form 1099 (unearned

income), taxpayer name, mailing address, and marital and tax filing

status.

OCSE, National Directory of New Hires Quarterly state wage data, new hires data, and unemployment

information from all 50 states and the District of Columbia.

SSA databases Form W-2 (wage statements); Social Security number verification;

Old Age, Survivors, and Disability Insurance data; SSI data; death

information; and prisoner data from states and localities.

State agencies and

systems

IEVS States use this mechanism to compare data that applicants and

recipients of welfare programs (TANF, Food Stamps, and Medicaid)

supply with various federal data sources.

State directory of new hires New hires data from states.

Employment security agencies Quarterly wage data, unemployment information.

Bureaus of vital statistics Births, deaths, marriages, and divorces.

DMV Address, asset information (such as automobiles).

Private companies Private data vendors, financial institutions,

and credit bureaus

Credit history, address information, assets.
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have been documented in the Pell Grant program as a result of applicants’

underreporting their income. States we visited that are administering the

TANF program use numerous data sources to verify applicants’ and

recipients’ eligibility for benefits. However, state and local officials told us

that they currently lack a comprehensive, reliable source of data to track

duplicate receipt by recipients, program disqualifications, and time limits

imposed by welfare reform across state lines.

Housing Programs: Some

Areas Use Data Sharing to

Improve the Accuracy of

Eligibility Determinations

Despite HUD’s improvements in the scope of its computer matching

activities to verify important information such as income, the Public

Housing and Tenant-based Section 8 programs still lack adequate

information for making accurate and timely eligibility determinations for

applicants and recipients. For example, in its fiscal year 1999 financial

statements, HUD reported $935 million in subsidy overpayments for

calendar year 1998. 22 These improper payments are largely attributed to

tenants’ unreported or underreported income. Given that the population

that uses housing assistance is a low-income population, it is unlikely that

more than a small fraction of these improper payments will be recovered.

Moreover, subsidy overpayments to some tenants may result in other

eligible low-income families not being served because of the limited

availability of public housing units and rental vouchers. Although HUD

uses negative verification to verify Social Security and SSI information for

its rental assistance programs, it could make more accurate and timely

eligibility determinations by using the wage, unemployment insurance, and

new hire data maintained in OCSE’s National Directory of New Hires.

However, current law does not permit HUD to access this information

source.

22The estimate includes HUD’s project-based housing programs for calendar year 1998 and is

statistically projected at the 95 percent confidence level, plus or minus $133 million.
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PHAs that administer the Public Housing and Tenant-based Section 8

programs at the local level often do not have access to the third-party data

sources they need to make accurate eligibility decisions. For example,

restrictions in IRC section 6103 do not permit HUD to provide applicants’

or tenants’ tax information to PHAs.23 Instead, the PHAs we visited rely

extensively on applicants and current tenants to self-report information

vital to their eligibility determination, such as income, assets, and

household composition.24 Most of the PHAs perform some form of positive

verification by following up with third parties to verify data reported by the

applicant or tenant. In general, applicants and tenants are required to have

employers or program administrators from other public assistance

programs (such as TANF) sign verification forms confirming the wages or

benefits they reported to the PHA. For example, the San Francisco PHA

obtains signatures from employers, financial institutions, and SSA

representatives, confirming income that applicants or tenants reported.

Housing eligibility workers may also telephone such entities if they suspect

that the information provided is incorrect. Officials in this and other PHAs

told us that the current process is helpful for verifying the accuracy of

information that is volunteered but cannot detect wages, bank accounts, or

other vital pieces of information that are intentionally concealed or

overlooked by applicants and tenants. For example, PHAs do not have

independent access to potentially helpful sources of asset information,

such as financial institutions. In addition, staff at most of the PHAs we

visited said that they do not have a reliable source of data to verify an

applicant’s previous address or rent history. This information can be

important for determining a family’s eligibility for housing assistance,

because public housing and Section 8 tenants sometimes vacate their

apartments once they are notified of an income discrepancy during an

23HUD matches its Multifamily Tenant Characteristics System against IRS taxpayer

information. However, it cannot provide federal tax data to PHAs because they are not

considered officers or employees of HUD. Section 6103 generally restricts access to

taxpayer information to officers or employees of agencies permitted to receive the

information.

24San Francisco,California; Hialeah and Miami-Dade, Florida; Baltimore, Maryland; Newark,

New Jersey; New York, New York.
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annual recertification rather than repay rent retroactively. 25 If such a family

applies for housing assistance at a PHA in another jurisdiction and does not

disclose its previous address or landlord, that PHA may not be able to

accurately determine the family’s eligibility for assistance.

Some of the PHAs we visited have limited access to independent, thirdparty databases for identifying unreported income or assets. For example,

the Baltimore, Hialeah, Newark, and San Francisco PHAs use national

credit bureaus such as Equifax to obtain information on applicants’ and

tenants’ assets and outstanding loans (which can provide additional

information about the financial resources the applicants have access to for

their own support).26 The Newark PHA also recently began implementing a

new system that provides access to state wage data over the Internet. A

PHA official demonstrated how this on-line system, once fully

implemented, would provide eligibility workers with real-time access to

individual applicants’ wage histories and employers for several preceding

quarters. In addition, the Newark PHA has already used the new system to

identify tenants who have failed to report or who have underreported their

income. For example, in a recent sample of 161 families that claimed to

have no income, the PHA found 76 (47 percent) with unreported income.27

The total amount of unreported wages for these 76 cases was about $1.2

million during calendar years 1998 and 1999 and resulted in about $350,000

in back rent owed to the PHA. PHA officials told us that they intend to use

the system to verify earned income for all applicants and current tenants.

25PHAs are generally required to check all tenants’ continued eligibility for assistance

annually or more often if circumstances warrant. An income discrepancy report may result

from one of HUD’s periodic computer matches with IRS or SSA. Moreover, failure to pay

retroactive rent could result in future ineligibility for housing assistance benefits. However,

the Quality Housing and Work Responsibility Act of 1998 (QHWRA) allows PHAs to provide

“flat rents” to tenants who meet certain qualifications. Under QHWRA, PHAs may have to

perform eligibility recertifications on tenants with flat rents only once every 3 years rather

than annually.

26The Hialeah PHA uses credit bureau reports only for current tenants at recertification.

27According to PHA officials, this sample was judgmentally selected to focus only on

families that reported having no source of income. Thus, the sample was not random or

statistically projectable.
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Overall, PHA and HUD officials we interviewed emphasized the importance

of using timely, third-party data sources to verify applicants’ and current

tenants’ eligibility. In an effort to improve its ability to verify unreported

and underreported income, HUD has taken various steps to improve its

data sharing capabilities in recent years.28 For example, in 1999 HUD’s Real

Estate Assessment Center (REAC) started to conduct its first large-scale

computer match using Form 1099 data provided by IRS and W-2 data

provided by SSA. 29 Of the 2.1 million households included in the match,

REAC has identified about 280,000 with potential income discrepancies.

HUD also conducts regular matches with SSA to identify tenants who

receive unearned income from old age, disability, or SSI benefits.

Discrepancy reports may be sent to PHAs to alert them to inconsistencies

found as a result of the computer matches.

Although HUD’s computer matches are useful for verifying the eligibility of

current tenants, HUD officials concede that HUD lacks the ability to

adequately verify important information, such as income, for applicants

during their initial certification for assistance. Moreover, several HUD and

PHA officials we interviewed acknowledged that given the difficulty of

recovering improper payments, accurately verifying individuals’ eligibility

during initial application becomes even more important for controlling

program payments. In addition, some HUD and PHA officials told us that

certain QHWRA provisions will likely make accurate initial eligibility

determinations even more important. For example, section 523 of the act

specifies that PHAs may provide qualified public housing tenants with flat

rents (as opposed to standard rents indexed to the family’s income) that

remain fixed for up to 3 years. Further, the act only requires the

recertification of families who select the flat rent option once every 3 years

(as opposed to annually). Thus, with longer periods between eligibility

checks for some tenants, the need to make accurate decisions during the

initial application phase is even more important.

28HUD has also taken other steps to improve its ability to verify tenants’ and applicants’

eligibility, such as encouraging the states to share automated wage data with public housing

agencies.

29In 1999, HUD transferred the income verification function from the Office of Public and

Indian Housing to REAC, which is primarily responsible for the development, maintenance,

and operation of systems used in computer matching. It is also responsible for the

administrative and technical compliance of those systems within legal and regulatory

requirements concerning individual privacy.
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The current lack of adequate data sharing and payment controls may be

attributed to a number of factors, including a lack of adequate resources,

time constraints, legal restrictions, and technological limitations. In

particular, staff at the PHAs we visited cited inadequate staffing levels,

insufficient computer resources, and the inability to access third-party data

sources as their most significant challenges. For example, officials at the

New York City PHA told us that they rely heavily on applicants to selfreport eligibility-related information, because they do not have adequate

staff or time to verify the data that are provided. They also emphasized that

the housing authority has few computers that can access the Internet or

that are linked with independent sources of data such as New York’s

Welfare Management System.30 In addition, HUD and the PHAs do not have

the authority to independently match applicants and recipients of housing

assistance against data from all financial institutions, such as the authority

recently granted to SSA.31 Therefore, PHAs must rely on self-reported

information. Staff at one PHA also said that they were unaware that

sources of data such as state wage information existed and therefore had

not taken steps to obtain them. In other instances, some PHA staff

identified the need for a system that links the PHAs together to better share

information on applicants’ address and rent histories. However, a

comprehensive, national system to track such information does not

currently exist.

30This system contains individual-level information from various programs such as TANF

and SSI, as well as state wage information.

31See section 213 of the Foster Care Independence Act of 1999, Pub. L. No. 106-169.
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Student Financial

Assistance Programs Lack

Access to IRS Taxpayer

Information

To obtain student financial assistance, applicants must provide various

pieces of information on the FAFSA, including their Social Security

number, adjusted gross income, assets, federal taxes paid, and citizenship

status.32 Applications are processed by Education’s Central Processing

System, in which a number of consistency tests are conducted to determine

whether the information on the applications is accurate. These tests

include computer matches to verify information (such as citizenship) that

can affect the applicants’ eligibility for student aid.33 Following the

matches, eligibility reports are sent to the individual institutions, such as

colleges and universities, where financial aid packages are determined.

However, neither Education nor the institutions have access to third-party

data sources to independently verify most applicants’ or parents’ income

before disbursing loan and grant payments. Insufficient data are available

to precisely document the extent to which student aid applicants do not

report or underreport their income and related information. However,

some studies suggest that the problem could be substantial. For example, a

1997 Education OIG report found that at least 102,000 students were

awarded approximately $109 million in excess Pell Grant funds because

they either failed to report or underreported their income.34 More than 300

of these grant recipients underreported their adjusted gross income by

more than $100,000.

While Education’s verification procedures (such as computer matching

edits to identify error-prone applications) are reasonable for detecting and

correcting mistakes on applications, they cannot identify students who

intentionally underreport their income. Federal regulations require

institutions to verify certain information for at least 30 percent of

theapplications they receive annually.35 However, this process is generally

32Adjusted gross income is a figure reported on IRS forms 1040, 1040A, and 1040EZ.

33One such match is a comparison between the Central Processing System file of applicant

records and SSA data to verify the accuracy of Social Security numbers; another matches up

data with the National Student Loan Data System to determine whether an applicant is in

default on a federal loan.

34OIG, Department of Education, Accuracy of Student Aid Awards Can Be Improved by

Obtaining Income Data From the Internal Revenue Service, ACN:11-50001 (Washington,

D.C.: Jan. 29, 1997).

3534 C.F.R. 668.54(a)(2)(i) requires that institutions participating in the title IV student aid

programs verify key eligibility information for at least 30 percent of the federal student aid

applicants in attendance.
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limited to requiring applicants to produce additional self-reported

information, such as copies of tax returns, in some instances Form W-2

(wages reported to SSA), or other tax-related forms. The process provides

the institutions with documentation from which verification can be

conducted, but there is no way for institutions or Education to verify that

the applicants provide accurate copies of the forms they send to IRS.

The weakness in this process was documented by Education’s OIG, which

traced a sample of adjusted gross income data from applications that

institutions had verified. Although the results from the institutions’

verification procedures indicated that 99.5 percent of the cases were

accurate or within Education-specified tolerances, IRS records revealed

significantly higher income for all the cases they examined. To address this

type of problem, institutions can request applicants selected for

verification to sign an IRS Form 4506, consenting to have copies of their tax

returns released to the institutions as a means of independently verifying

income information provided on applications.36 However, this process can

be time-consuming and cumbersome and may be impractical for large-scale

use with millions of applications.

While a match between Education application data and IRS taxpayer

information could be a more efficient method of verifying applicants’

adjusted gross income, such a match may not be timely enough for initial

eligibility verification purposes. Education and university officials told us

that the student aid packages are processed before IRS has complete

taxpayer data for the prior year available for matching. However, because

student loan and grant payments are typically not made until late August or

September, it may be possible to conduct a match with IRS using fairly

complete taxpayer data, before making such payments. This would allow

Education to verify the information on more students’ financial aid

applications than under current procedures.

Although section 483(e) of the Higher Education Amendments of 1998

(HEA) was apparently aimed at giving Education access to specific IRS

taxpayer information, IRS had not granted Education permission to receive

taxpayer information for use in verifying data provided on FAFSAs as of

36IRS Form 4506 can be used to give an applicant’s consent to sending a transcript of a tax

return to a third party that the applicant designates. Each return sent costs the applicant

$23.
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June 2000.37 IRS officials told us that the language of the 1998 amendments

was not sufficient to grant Education access to taxpayer data because the

HEA provision did not expressly override the general prohibition on

disclosure of those data found in IRC section 6103(a). Because section

6103(a) permits exceptions to section 6103’s general rule of confidentiality

only as provided in title 26, an amendment to section 6103 is necessary to

effectuate IRS’s disclosure authority for the purposes contemplated in

HEA. Education believes, however, that it needs not only authority to

obtain the taxpayer data from IRS but also the authority to redisclose the

data to contractors and schools in order to effectively determine

applicants’ eligibility for assistance. One alternative would be for

Education to request that every student aid applicant sign an IRS Form

4506. But, as noted above, both Education and IRS have suggested that this

consent-based approach could be administratively cumbersome, given the

large number of applications that are received annually for student aid.38

Moreover, Treasury and IRS officials told us that a large-scale consentbased approach would release a substantial amount of taxpayer data from

the protections of IRC 6103, an approach that Treasury and IRS generally

do not support.

Education and IRS are conducting two statistical pilot matches that would

involve summary information, but not individual-level taxpayer data, to

determine how effective a full-scale match would be. The first pilot

involves matching the Social Security numbers of 50,000 student aid

applicants against IRS taxpayer data. The second pilot expands on the first

by including the Social Security numbers of parents for applicants who are

dependents. According to Education officials, this step is important

because it will allow Education to more effectively gauge a family’s true

37HEA’s section 484(q) authorizes the Secretary of Education, in cooperation with the

Secretary of the Treasury, to confirm with IRS the adjusted gross income, federal income

taxes paid, filing status, and exemptions applicants and their parents report on their federal

income tax returns for the purpose of verifying the information they report on student

financial aid applications. Education, IRS, and OMB were negotiating how to grant

Education limited access to taxpayer data when we completed this report. The 1998

amendments reference IRC section 6103(l)(13) as a source of authority for the release of tax

return information to “officers or employees of the Department of Education.” According to

Education officials, if they were to perform an IRS match using FAFSA data, tax return

information would have to be released to Education contractors and to individual schools.

38IRS and Education are studying the feasibility of developing a system that would enable

financial aid applicants, on a pilot basis, to electronically transmit consent forms to IRS over

the Internet using electronic signatures. However, such a system may not be available until

at least 2001.
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ability to pay for higher education, independent of self-reported

information on the FAFSA. At the time of our work, Education did not yet

have the results from these pilot matches.

TANF Programs in Selected

States Use Data Sharing

PRWORA significantly changed the federal role in ensuring that states have

access to accurate and timely data on the eligibility of their clients for

TANF-funded benefits and services. PRWORA contains an explicit

limitation on federal regulation and enforcement and provides specific,

limited responsibilities for the federal government. The TANF block grants

are fixed, and the states receive the funds regardless of the number of

clients who are eligible for benefits. Block grants present unique challenges

to providing adequate accountability for federal funds. Block grants give

states flexibility to adapt funded activities to fit state and local needs, and

they devolve responsibilities to the states themselves to oversee their

TANF programs. For example, under PRWORA the states establish their

own program eligibility requirements. In addition, any savings achieved as

a result of cost avoidance and eligibility disqualification accrue only to the

state. The federal government does, however, have an interest in ensuring

that certain eligibility requirements are met that require the states to share

client data. For example, PRWORA prohibits families that include an adult

from receiving federal TANF-funded assistance for more than 5 years.

Without the ability to verify interstate historical data on an individual’s

receipt of TANF-funded benefits and services, states cannot ensure

compliance with the time limits.

The agencies that administer TANF in the states we visited (California,

Florida, Maryland, and New York) make fairly extensive use of data sharing

to determine applicants’ and current recipients’ eligibility for benefits and

verify self-reported information. Most of their data sharing activities are

focused on obtaining information on individuals’ income, assets, household

composition, and other factors that frequently have an effect on eligibility,

such as citizenship, incarceration, and recipients’ death. However, less is

done to identify information across states that can affect eligibility, such as

duplicate receipt of benefits, TANF disqualifications, and time limits. State

TANF officials estimated that improper payments related to unreported or

underreported income may account for between 40 percent and 70 percent

of all payment errors. Household composition and unreported assets are

also sources of payment error, according to officials, although to a

somewhat lesser degree than unreported and underreported income.
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Quarterly state wage data are generally viewed as the most valuable source

for verifying earned income in each of the states we visited. They are also a

relatively timely source of information; state officials said that the data are

generally between 4 and 6 months old by the time they are available to

TANF eligibility workers. Employers are required to provide wage

information to the state in order to facilitate the administration of the

unemployment insurance programs. Access to these data may also result in

significant savings or cost avoidance for a program. For example, New

York estimated that its use of state wage data resulted in about $72 million

in cost avoidance between January and September 1999.39 Some but not all

state TANF programs can also draw on the recently created state

directories of new hires to detect unreported or underreported household

income.40 While these databases do not contain wage information, they can

show eligibility workers that applicants or recipients (or other household

members) were recently employed as indicated by a new hire record. New

hire data are generally about a month old when they are available to TANF

eligibility workers.41 In this regard, such data sources are useful in

detecting unreported or underreported income during the initial

application process. Maryland officials reported that using the new hire

data has dramatically reduced the opportunity for TANF applicants and

recipients to misreport or fail to disclose income during the application

process. However, officials at ACF confirmed that not all state TANF

programs have access to their state’s directory of new hires data, because

they have not completed an agreement to obtain access to the database.

Unearned income, such as benefits from other public assistance programs,

can also affect individuals’ eligibility for TANF benefits. Information that an

applicant or recipient does not report may be obtained from various federal

or state agencies. For example, New York City reported that between July

1993 and June 1999, its computer matching programs identified cost

savings of about $66 million from unreported unemployment insurance

benefits, $28 million from Old Age, Survivors, and Disability Insurance

(OASDI), and $69 million from SSI. Other relevant sources of unearned

39Savings from data sharing activities in state TANF programs do not translate into direct

savings for the federal government, because the funds have already been block-granted to

the states.

40PRWORA required the states to establish state directories of new hires to assist in locating

noncustodial parents for child support enforcement purposes.

41Florida officials reported that new hire data there are less timely, from 4 to 7 months old.
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income such as veterans’ benefits and workers compensation benefits are

not routinely checked in the states we visited. Access to such data sources

could result in additional cost savings for the states. For example,

Maryland reported $500,000 in savings from a 1997 match with veterans’

benefit data, and New York reported about $600,000 in savings from a

workers compensation match between 1993 and 1999.42

Data sources for other information that affects eligibility for benefits such

as assets, household composition, and citizenship status are not always

timely and may not be available at all. For example, the primary data

source for assets is matches with IRS unearned income (Form 1099) data.43

Because of the annual nature of tax reporting, IRS Form 1099 data may be

18 to 24 months old by the time match results are available to eligibility

workers. However, IRS is currently the only centralized source for Form

1099 data, which leaves program administrators with few other options.

Access to other, more timely sources of asset information could be helpful.

For example, New York City supplements IRS Form 1099 data with a match

that uses data from large banks doing business in the city, such as Astoria

Federal Savings and Apple Bank.44 New York City attributed about $8.7

million in cost savings to the identification of unreported assets through

the bank match from 1993 to 1999.45 With regard to household composition,

no sources of information directly or adequately measure this variable.

Citizenship status may be confirmed with the Systematic Alien Verification

for Entitlement (SAVE) system that the Immigration and Naturalization

Service administers under section 1137 of the Social Security Act. However,

the states we visited reported that this system is not always reliable or

timely, particularly for making initial eligibility decisions.

42Information on veterans’ benefits is generally available to states from the Veterans

Administration. However, workers compensation data may be less complete, because some

states do not have data for self-insured employers and benefits paid by insurance

companies.

43Some states also make use of other data sources that can provide information on assets,

such as DMVs or credit bureaus.

44Not all banks doing business in the city participate. Additionally, the bank match is not

statewide, although certain large districts (counties) outside New York City conduct their

own bank matches.

45New York City also uses local sources to obtain a variety of other kinds of asset data, such

as estates and liens, stocks and bonds, real property, and legal settlements and awards.
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In addition to the problems with data sharing operations just described,

officials in the states we visited consistently pointed to the need for more

timely sources of information suitable for timely and accurate initial

eligibility decisions. Access to more timely data is important because

overpayments are difficult to recover. States generally rely on computer

matches whose results may not be available until after an applicant has

begun to receive benefits. Local eligibility workers reported that fewer

overpayments would occur if more timely data were available during the

application process. For example, fraud units in Florida have access to

more online sources than do eligibility workers. One district’s fraud unit

reported cost savings of about $200,000 during November 1999.

Additionally, Maryland, New York, and eight other states are participating

in a pilot project that permits online access to SSA benefit data to help

them better control TANF payments.46

State officials also emphasized that the TANF programs they administer

lack a comprehensive data source to track interstate receipt of benefits,

TANF disqualifications, and benefit time limits across all states.47

Traditionally, states have tried to address the problem of interstate receipt

of benefits by negotiating matches with neighboring states. Florida,

Maryland, and New York reported conducting such matches. However,

state officials explained that in their experience, the surrounding states do

not always agree to participate in a match, thereby limiting its coverage and

effectiveness. In 1997, HHS submitted a report to the Congress that

outlined the status of automated data processing systems operated by the

states and noted that, among other findings, virtually no state agency could

identify duplicate TANF cases or implement the TANF time limit across

state boundaries.48 The report defined five alternative systems for a

46The initial pilot, known as the State Online Query, includes Illinois, Kentucky, Montana,

North Carolina, Tennessee, Utah, Washington, and Wisconsin. The pilot also allows states to

verify applicants’ and recipients’ Social Security numbers. In return, SSA will access state

data useful for controlling payments in the SSI program.

47Under PRWORA, states can disqualify recipients from receiving benefits, temporarily or

permanently, for certain violations of program rules, such as welfare fraud. PRWORA also

set a maximum 5-year time limit on the receipt of TANF benefits and allowed states to set

shorter time limits. However, the law did not establish a nationwide database of time limits

that would allow states to determine the number of benefit months remaining for clients

who have recently moved in from another state.

48ACF, Report to Congress on Data Processing and Case Tracking in the Temporary

Assistance for Needy Families (TANF): Report of Data Processing (Washington, D.C.: Dec.

1997).
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centralized national client database that would address this type of

weakness in the states’ systems. In 1999, the Department of Agriculture

produced a supplemental report that assessed the current state agency

efforts to identify interstate, duplicate receipt of benefits, as well as state

agency capabilities to participate in a national client database. This report

built on the findings in the HHS report and concluded that a national

database system would be feasible and cost-effective if it were configured

in a specified manner and encompassed both the TANF and Food Stamp

programs.49

In a recent report on welfare reform, we also found that five of six states

we reviewed reported that they do not collect data on recipients’ prior

receipt of TANF in other states or that they rely on recipients to disclose

this information.50 ACF initiated a project in 1993 that may be useful in

addressing this problem. Its Office of State Systems created the Public

Assistance Reporting Information System (PARIS) with the computer

operations support of the Defense Manpower Data Center (DMDC) facility

in Monterey, California. This system uses the facility’s computer matching

capabilities to compare various state and federal program databases.51

Although the number of states participating in PARIS has been limited, the

project has identified significant potential cost savings.52 For example,

Pennsylvania has estimated its annual cost savings at $2.8 million from the

PARIS interstate match. In addition, ACF estimates that the August 1999

PARIS match with the DMDC databases identified potential cost savings of

about $28.6 million. Increased savings and cost avoidance estimated at

more than $100 million could be realized if the match were conducted

nationally with all states participating. In addition, ACF estimates that cost

savings of $15.3 million could have been achieved in 1999 from matching

Veterans Administration data with 16 states and the District of Columbia.

As discussed previously, the savings resulting from PARIS benefit the

states; the federal government does not realize any direct savings from this

49See Department of Agriculture, Options for a National Database to Track Participation in

Federal Means-Tested Public Assistance Programs: Report to Congress (Washington, D.C .:

Nov. 1999), p. xii.

50See Welfare Reform: Improving State Automated Systems Requires Coordinated Federal

Effort (GAO/HEHS-00-48, Apr. 27, 2000).

51The four states we visited had participated in PARIS.

52A total of 11 states and the District of Columbia participated in the August 1999 PARIS

match.
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activity. In addition, while the PARIS project demonstrates the efficacy of

cross-state data sharing, the computer matches it uses are primarily

targeted at posteligibility verification (once benefits have already been

dispensed to recipients). A more efficient approach would be to help states

obtain eligibility information on new applicants, before benefits are paid,

and to track time limits and disqualifications across state lines. However, a

nationwide system with these capabilities does not currently exist.

We recently reported that action at the federal level could better facilitate

states’ efforts to improve their automated systems in four areas. Among

these were addressing the need for states to have access to cross-state

information on individuals’ TANF receipt to enable the enforcement of the

5-year TANF time limit. We also recommended that the Secretary of HHS

establish an interagency group to identify, and develop implementation

plans for, federal actions that would facilitate states’ efforts to improve

their automated systems for federal programs that serve low-income

families.53

Privacy and Security

Requirements Limit

Data Sharing

Several legal as well as management, administrative, and technical

challenges limit the ability of benefit and loan programs to use data sharing

to control their payments. Central to some of these challenges are concerns

about protecting individuals’ privacy, the confidentiality of sensitive data

and taxpayer compliance with tax laws, and balancing such concerns with

the government’s need for certain information to provide financial

stewardship for its programs. Legal issues closely tied to privacy,

confidentiality, and tax compliance concerns include (1) IRC section 6103

governing the disclosure and use of taxpayer data, (2) some provisions of

the Social Security Act that limit access to important data sources such as

OCSE’s National Directory of New Hires, and (3) provisions of CMPPA that

limit the amount of time during which initial matching agreements and

renewals may be in effect. Management and administrative challenges

include balancing the objective of providing flexibility for the states and

localities to administer programs such as TANF against the need for

accountability and program performance information and the need for a

more comprehensive management approach by OMB to coordinate and

support data sharing activities across federal agencies. Technical issues

include the need for more timely and accurate data, as well as the need for

53GAO/HEHS-00-48.
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consistent eligibility criteria and data formats across programs. Balancing

the competing objectives of privacy, data security, and tax compliance with

the need for program integrity and efficiency involves some trade-offs. For

example, individuals who seek public benefits or loans may have to be

willing to provide sensitive information to the government so that their

eligibility for benefits can be accurately verified. The experience of

agencies such as SSA demonstrates, however, that maintaining and sharing

sensitive data is possible while maintaining the protections afforded by the

Privacy Act and related statutes.

The Internal Revenue Code

Limits the Disclosure of

Taxpayer Data

IRC section 6103 is one of the main statutes that limits more extensive data

sharing among federally funded benefit and loan programs. To protect the

confidentiality of taxpayer information and ensure compliance with tax

laws, IRS is prohibited from disclosing taxpayer information to other

federal departments and agencies without specific statutory authorization

in IRC section 6103. Moreover, even in cases in which a federal department

is authorized to obtain protected information, it may be prohibited from

sharing that information with state and local entities that are involved in

administering programs that the department or agency funds. For example,

IRC section 6103(l)(7)(D)(ix) authorizes SSA and IRS to disclose income

information to HUD in order to verify applicants’ and recipients’ income.

However, only officers or employees of HUD may use the information. This

restriction precludes HUD from redisclosing the data to housing authority

administrators at the local level who need the information to accurately

verify individuals’ income.54 Similar issues have surfaced with regard to

other federal agencies’ use of private contractors to administer their

programs, such as in the case of Education, discussed earlier.

IRS officials told us that limitations on the dissemination of taxpayer

information are intentionally restrictive because of the risk of unauthorized

access when use is widespread. As a general rule, they stated, the further

that taxpayer information is disclosed from centralized protections and

controls, the more risk there is of improper disclosures, intentional or

otherwise. These officials were also skeptical of agencies’ ability to police

themselves in terms of adequately protecting taxpayer data. Allowing state

or local entities (such as private contractors) access to sensitive taxpayer

54The Public Housing Tenant Integrity Act of 1997, a bill introduced in January 1997, would

have modified section 6103(l)(7) so that HUD could redisclose federal tax return data to

public housing agencies, but the bill was never passed.
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data would be even more problematic, in their view. The Joint Committee

on Taxation reiterated this viewpoint in its January 2000 report when it

recommended that “present-law disclosure rules for using contractors for

nontax administration purposes should not be expanded.”55

One solution to these restrictions, according to IRS officials, is for federal

agencies to verify data they receive from IRS through an independent party,

such as an employer or bank. Any corroborated data the agency obtains are

not subject to the restrictions in IRC section 6103 and therefore may be

disclosed to the state and local entities (although the agency would have to

then delete the remaining IRS information from its databases). Another

alternative is for agencies to use a consent-based approach, in which

applicants and recipients provide written consent for IRS to release their

information to a designated third party. However, IRS and Treasury officials

are concerned about the widespread use of consent-based disclosures

because of the potential administrative problems as well as their inability

to protect the confidentiality of the data.

Access to the National

Directory of New Hires Is

Limited

Section 453(l) of the Social Security Act, as amended, restricts access to

the National Directory of New Hires to particular agencies for specified

purposes. For example, Treasury (including IRS) has access to its database

to administer federal tax laws, as well as to verify claims for the Earned

Income Tax Credit. SSA also has access to the National Directory of New

Hires data to help it administer the SSI and OASDI programs. More

recently, Education was granted access for purposes of obtaining the

addresses of individuals who have defaulted on student loans or who owe

grant repayments to Education.

According to OCSE officials, numerous federal agencies and departments

have requested access to the National Directory of New Hires to help them

administer their programs. In most cases, such requests have been denied

because there was no statutory authority in the Social Security Act to allow

release of the data. OCSE officials told us of a variety of concerns regarding

how the National Directory of New Hires data are used and what entities

have access to them. For example, they emphasized that the directory was

designed primarily to help OCSE administer its responsibilities for

55See Joint Committee on Taxation, Study of Present-Law Taxpayer Confidentiality and

Disclosure Provisions as Required by Section 3802 of the Internal Revenue Service

Restructuring and Reform Act of 1998 (Washington, D.C.: Jan. 28, 2000), p. 9.
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enforcing child support. In their view, opening the database to widespread

data sharing could reduce support for the database among important

groups, such as employers. In addition, they expressed concern about the

security of the data in the directory if they were to become more widely

accessible. Moreover, these officials told us that wider access would likely

raise additional questions about the privacy and confidentiality of the

information contained in the database.

Some CMPPA Provisions

Are Viewed as Too

Cumbersome

We interviewed officials from various agencies who expressed frustration

with some of the provisions of CMPPA and who viewed the current renewal

procedures as unnecessarily burdensome. In particular, several officials

argued that the current 18-month and 12-month periods in which,

respectively, initial matching agreements and renewals may be in effect are

too short. Because the processes for getting new agreements approved and

existing contracts renewed are often lengthy and cumbersome, agreements

that are currently in force may lapse before new ones can be approved and

implemented. This can be disruptive to both agency operations and

relationships with other federal and state entities that are parties to a

match. Various officials familiar with the process of instituting matching

agreements suggested lengthening these time periods. Some officials told

us that extending agreement periods would not adversely affect the

intended confidentiality or due process rights that CMPPA was created to

protect. This is particularly true for routine matching agreements that do

not change substantively from year to year.

During the symposium on data sharing among federally funded benefit and

loan programs that we and the Senate Governmental Affairs Committee

sponsored in June 2000, representatives of various federal agencies stated

that the current time periods for implementing new matches and renewing

existing matches are unnecessarily burdensome. They emphasized that

they are committed to the privacy and data confidentiality protections that

CMPPA was created to protect and believe that longer time periods could

be instituted while maintaining such protections. Overall, these officials

were uniform in their assessment that the time limits on new and existing

matching agreements in CMPPA need to be lengthened. One agency official

stated that a legislative proposal is being considered that would extend the

current time limits for new agreements to 5 years and 3 years for

extensions.

In 1997, the Benefit Systems Review Team (BSRT) led by OMB also found

that the procedures for renegotiating matching agreements was
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burdensome to the agencies that conducted computer matches and could

be significantly streamlined.56 BSRT concluded that agencies’

administrative burden could be reduced by amending the computer

matching sections of the Privacy Act to allow for interagency agreements

that would be effective for 3 years initially and for an unlimited number of

2-year extensions. In addition, BSRT concluded that such changes could be

implemented without degrading the protections intended by the Privacy

Act. Finally, BSRT also recommended that OMB work with the agencies to

obtain an amendment to the Privacy Act to permit the extensions to the

time periods through which initial agreements and renewals could be in

force.

Balancing Program

Flexibility With the Need for

Accountability

Welfare reform gave states and local governments additional flexibility to

design and administer public assistance programs such as TANF in a

manner that fits their needs. As state welfare agencies implement their

plans, they are drawing on numerous federal and state programs—often

administered by separate agencies—to provide a wide array of services

such as child care, food stamps, and employment training. These changes

have had implications for the states’ information needs. For example, in the

new welfare environment, information systems to support expanded

functions are necessary in three key areas: case management, including

eligibility determination; service planning; and program oversight, with a

new emphasis on outcomes and results. In addition, the increased

devolution of responsibility for program operation and performance to

states and localities increases the need for information systems that can

respond to the multiple needs of users at all levels of government. We have

found that shortcomings in some of the automated systems that state and

local officials use to administer TANF have resulted in insufficient data to

ensure some aspects of program integrity, such as enforcement of the 5-

year time limit.57 In this regard, the lack of adequate data to ensure program

integrity in some states may affect their ability to ensure that taxpayer

dollars are spent only on families who qualify for benefits. However,

improved automated systems coupled with an enhanced emphasis on data

sharing activities may improve the ability of local, state, and federal

56BSRT included information systems and program experts from the major benefit programs

in numerous federal departments, including Agriculture, the Department of Defense, the

Department of Labor, the Department of the Treasury (including IRS), HHS, the Office of

Personnel Management, SSA, and the Veterans Administration.

57GAO/HEHS-00-48.
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programs to effectively communicate with one another. Such

improvements could benefit the ability of states to track and assess the

performance of service delivery, as well as help provide greater program

accountability by ensuring that the intended goals and requirements of

programs such as TANF (for example, the 5-year time limit) are met. It is

likely that additional federal assistance may also be necessary to help

states develop systems capable of performing these varied tasks. While

PRWORA reduced the role of HHS in overseeing systems funded solely

with TANF funds, HHS and other agencies (such as Agriculture and Labor)

still play a key role in funding and overseeing states’ information systems

for social programs. The federal government could further facilitate states’

automated systems initiatives.

Greater Coordination

Across Federal Programs

Could Facilitate Access to

Data

OMB is responsible for providing overall leadership and coordination of

federal information resources management within the executive branch.58

OMB also has the core responsibility for managing federal computer

security and information technology, including data sharing among

federally funded benefit and loan programs. In our earlier work, we found

that mission fragmentation and program overlap are widespread in the

federal government and that crosscutting program efforts are not well

coordinated.59 Without adequate coordination, scarce funds are wasted,

program customers are confused and frustrated, and the overall

effectiveness of the federal effort is limited. We have found that OMB needs

to take more initiative in setting the agenda for this type of

governmentwide issue. In particular, we have called for a more decisive

and assertive OMB role in defining the problems, developing appropriate

management strategies, and overseeing progress.

OMB has pursued such an approach in the past, as evidenced by the BSRT

report in 1997.60 Initiated by OMB in February 1995, this interagency effort

suggested numerous actions for improving data sharing among federally

58See OMB Circular A-130, sec. 9(h)(1), which provides governmentwide information

resources management policies as required by the Paperwork Reduction Act of 1995, as

amended.

59See Office of Management and Budget: Future Challenges to Management (GAO/TGGD/AIMD-00-141, Apr. 7, 2000).

60OMB Benefit Systems Review Team, Strategies for Efficiency: Improving the Coordination

of Government Information Resources (Washington, D.C.: Jan. 1997).
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funded benefit and loan programs, including moving from a “pay and

chase” mode to a more proactive and efficient approach (such as using data

sharing to prevent improper payments before they are made).61 Various

pilots and data sharing initiatives have been started by a number of federal

agencies since the inception of BSRT.

However, during our review, several federal officials we spoke with said

that more recently, OMB has not provided adequate leadership and

coordination to facilitate the efficiency and effectiveness of data sharing

throughout the federal government. Representatives of various federal

agencies indicated that federal data sharing efforts lack the necessary

coordination and leadership to maximize the efficiency of data sharing

activities. OMB activities appear to be largely geared toward resolving

problems case by case, without a more systematic, governmentwide

approach to these issues. As a result, some federal officials told us that

federal data sharing operations are not as effective or efficient as they

could be and suggested that OMB should take a more proactive, strategic

approach to federal data sharing issues. In light of the concerns about data

security, privacy, and confidentiality that proposals for improved data

sharing raise, it is even more important for OMB to demonstrate strong

leadership that emphasizes coordination and communication among all

federal agencies.

OMB has recently indicated that it is taking a number of steps to improve

coordination across federal agencies, as well as the priority it is placing on

data sharing activities. For example, during our data sharing symposium in

June 2000, an OMB official said that the agency is preparing to issue new

guidance to all federal agencies that will focus on the interagency sharing

of sensitive data within the existing constraints of the Privacy Act. In

addition, OMB officials point to one of the 24 priority management

objectives (PMO) contained in the U.S. budget for fiscal year 2001 as

evidence of their commitment to managing data sharing activities.62 PMO

61“Pay and chase” refers to the labor-intensive and time-consuming practice of trying to

recover overpayments once they have already been made rather than preventing erroneous

payments in the first place.

62According to the fiscal year 2001 budget document, OMB coordinates PMOs with

assistance from the National Partnership for Reinventing Government and interagency

working groups. Managers in the agencies have the primary responsibility for achieving the

objectives by implementing detailed action plans, periodic reporting, and corrective action

during the year.
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10 emphasizes the administration’s focus on ensuring that administrative

and program payments to recipients are made accurately up front.63

Data Are Often Not Timely

and Their Definitions Vary

State and local officials we interviewed in the three programs we examined

told us that their inability to obtain timely data from independent sources is

a major problem. A common complaint was that some data derived from

the IEVS were not timely. For example, IRS Form 1099 data were usually

too old to be useful, particularly for making timely eligibility decisions at

the point of application. State officials generally agreed that the lack of

timely income data from IRS makes access to alternative sources of income

information, such as the National Directory of New Hires or state wage

data, even more important. In addition to concerns about the timeliness of

various data sources, some officials questioned the reliability of the data

they receive. Two commonly cited examples of data that were sometimes

unreliable included SSA prisoner data and citizenship status data from INS’

SAVE system.

Some officials also said that varying data formats and eligibility criteria can

make efficient data sharing among public assistance programs difficult.

One state official told us that differing definitions of an “active” TANF case

in different states has made it more difficult to determine the accuracy of

match hits and complicates the follow-up required. For example, while

some states consider only a family that is receiving cash benefits an

“active” case, other states also include families whose applications are

pending or who have been suspended. Another example is the complexity

that is introduced to data sharing operations from nonuniform definitions

of “income” in various public assistance programs. Although some

programs such as SSI use a definition of income that is fairly broad and

includes in-kind support such as food and shelter provided by family or

friends, other programs have more restrictive definitions. Some officials

told us that such variations can make it difficult to share data across

programs. In addition, one official noted that different data formats across

numerous programs and systems for a commonly required variable such as

an individual’s address complicates data sharing activities.

63See Budget of the United States Government, Fiscal Year 2001 (Washington D.C.: 2000), p.

298.
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Options for Enhanced Data

Sharing

The objective of individual privacy can be compatible with the objectives of

program efficiency and integrity but may involve some trade-offs. For

example, individuals who wish to obtain public assistance or loans may

have to be willing to give administrators of benefit and loan programs

access to sensitive data. However, it is possible to improve access to

important data sources in a manner that is consistent with protections in

the Privacy Act, the Computer Matching Act amendments, and other

privacy statutes. One potential solution might include providing OCSE with

the authority to share data from the National Directory of New Hires with

benefit and loan programs such as HUD housing under controlled

conditions within the limits of the Privacy Act. For instance, periodic

computer matches between benefit programs’ applicants and current

recipients and the directory could specify the type and amount of data that

are shared and which federal, state, or local entities could have access to

the data. Moreover, federal, state, or local agencies that have access to

sensitive information could be required to demonstrate adequate data

security environments before receiving match results.

SSA is an example of an agency that has significant experience in balancing

privacy with program integrity and efficiency. In recent years, SSA has

increased its use of data sharing as a tool to protect the integrity of the SSI

program. For example, SSA is expanding its use of on-line state data to

obtain more real-time applicant and recipient information. SSA is

conducting a pilot that gives selected field offices (that are responsible for

determining applicants and recipients’ eligibility for SSI benefits) on-line

access to wage data, new-hire data, and unemployment insurance data that

SSA obtains from OCSE’s National Directory of New Hires.64 To protect the

security of sensitive data in the directory and ensure that individual privacy

is maintained to the maximum degree possible, SSA is working to

strengthen a number of safeguards to limit access to the database, as well

as maintaining an audit trail that identifies the employees who have used

the database.65

64Supplemental Security Income: Action Needed on Long-Standing Problems Affecting

Program Integrity (GAO/HEHS-98-158, Sept. 14, 1998).

65An independent auditor has found serious computer security weaknesses in SSA’s systems.

SSA has put together a corrective action plan and is working to address these deficiencies.

See Financial Management: Agencies Face Many Challenges in Meeting the Goals of the

Federal Financial Management Improvement Act (GAO/T-AIMD-00-178, June 6, 2000).
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SSA is also working on obtaining access to other important data sources.

The Foster Care Independence Act of 1999 (Pub. L. No. 106-169) includes

provisions that give SSA the authority to require SSI applicants and current

recipients to authorize SSA to obtain financial records from any and all

financial institutions by conducting periodic data matches. This new

authority should allow SSA to more effectively verify the assets of SSI

applicants and recipients, such as bank accounts. The Congressional

Budget Office estimates that this provision will reduce spending on SSI

benefits by $70 million from 2000 through 2004.66

Other federal agencies could benefit from the experience of agencies such

as SSA in terms of balancing privacy interests with the need for more

timely, accurate sources of eligibility information. For example, allowing

HUD to match applicants and current recipients of housing assistance

programs against the state wage, unemployment, and new hire data in

OCSE’s National Directory of New Hires would provide HUD with the most

timely, comprehensive information available for verifying wages and

unemployment compensation. Such an arrangement could permit routine

computer matches that OCSE could administer and would not necessarily

entail direct access to the sensitive directory databases for HUD. Any

matching agreement between HUD and OCSE could specify what pieces of

information would be matched and that only information on individuals

identified in a match could be provided to state or local program

administrators, such as public housing agencies. In addition, HUD and

individual housing agencies would be responsible for ensuring that the

privacy of individuals identified in a match is adequately protected. HUD

and public housing agencies could also be required to demonstrate that

they have sufficient data security protections in place before receiving any

data from OCSE.67 However, providing access to this data source would

require making changes to existing laws, because HUD does not have

access to the National Directory of New Hires, and providing taxpayer data

to local public housing agencies is not permitted. Moreover, it would

require HUD and numerous housing agencies to institute adequate data

protections in consultation with IRS and OCSE.

66See Congressional Budget Office, Congressional Budget Office Cost Estimate: H.R. 1802,

Foster Care Independence Act of 1999 (Washington, D.C.: June 9, 1999).

67IRS sets the standards for ensuring the security and confidentiality of taxpayer information

in Publication 1075.
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In addition, while programs like TANF rely on the initiative of state and

local program administrators to obtain some of the information they need

to make eligibility decisions (such as the activities in New York City to

obtain bank account information from local financial institutions), it may

not be the most efficient or comprehensive arrangement for obtaining such

information. Access to information sources such as financial institutions

through a more consolidated source (perhaps with the facilitation of a

federal agency such as HHS) could provide a more efficient method for

obtaining asset information across multiple states. However, most federal

agencies do not have authority to independently obtain asset information

from financial institutions (similar to the authority granted to OCSE and

SSA).

As the steward of taxpayer dollars, the federal government has the

responsibility to ensure that public assistance benefits and loans go only to

the persons who are eligible to receive them. When ineligible individuals or

families receive benefits, those who are eligible may not receive assistance,

and the public’s confidence in the government may be undermined. To

ensure privacy and the confidentiality of personal information, access to

sensitive data and systems must be controlled so that only authorized

individuals are able to view specific pieces of information. Audit trails are

also necessary to track which individuals have accessed sensitive

databases. Thus, with adequate protections for privacy and data security in

place, it may be reasonable for applicants and recipients of benefits and

loans to provide the government with access to sensitive, private

information (as well as the authority to share such information with other

benefit and loan programs) in exchange for assistance. However, an

ongoing dialogue involving the Congress, OMB, other federal agencies, the

states, and the public will be required to reach consensus on how best to

balance personal privacy and data security with the objectives of program

integrity and efficiency.

Conclusions Data sharing among federal, state, and local governments is a powerful

internal control tool that helps benefit and loan programs make more

accurate initial and continuing eligibility decisions. The three federally

funded benefit and loan programs we examined all use data sharing to

substantial but varying degrees to verify information that applicants and

current benefit recipients provide. The weaknesses in these programs’

eligibility determination processes could be mitigated if additional data

sources were available for sharing. The continued reliance on self-reported

information from applicants and recipients leaves these programs at risk
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for improper payments. In recent years, federal departments such as HUD

and Education have attempted to improve their access to important data

sources. For instance, Education has repeatedly sought access to IRS

taxpayer information to help it administer its student loan and grant

programs. However, legal and other restrictions have impeded its ability to

obtain the information it needs. The programs we reviewed could all use

access to additional data sources to control their payments. For example,

allowing TANF and HUD’s housing assistance programs to require

applicants and recipients to authorize them to obtain data from all financial

institutions (similar to the authority recently granted to SSA in the Foster

Care Independence Act) would provide useful tools for verifying selfreported information that affects individuals’ and families’ eligibility.

Federal leadership could also be helpful in addressing the lack of a

mechanism to share some eligibility information across states (such as

duplicate benefit receipt and time limits on TANF usage), which hampers

the ability of program administrators to obtain some information they

require to make accurate eligibility decisions. Federal action to facilitate

improved data sharing and program coordination—particularly across

states—while protecting the confidentiality of sensitive data may be

needed. Federal departments that have primary oversight responsibility for

benefit and loan programs administered at the state and local levels—such

as HHS (TANF), HUD (housing assistance), and Agriculture (Food

Stamps)—are candidates for facilitating improved data sharing.68

Moreover, additional leadership and coordination from OMB, contributing

to a governmentwide dialogue on data sharing issues, could further

facilitate greater efficiency and effectiveness in data sharing activities

among federal programs. OMB could draw upon the expertise and

resources of interagency groups such as the Chief Information Officers

Council to achieve this objective. Because of OMB’s ability to look across

agencies and mediate competing demands or concerns, it is the appropriate

federal entity to provide the leadership and coordination necessary for

enhanced data sharing. Its PMO 10, which emphasizes verifying the

accuracy of benefit payments (as articulated in the fiscal year 2001 budget)

is a positive development, but additional actions are needed.

68In a recent report, we recommended that the Secretary of HHS establish an interagency

group to identify, and develop implementation plans for, federal actions that would facilitate

states’ efforts to improve their automated systems for federal programs that serve lowincome families (GAO/HEHS-00-48). Such a system could also be used to enhance data

sharing for more accurate eligibility determinations.
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The programs we reviewed are making progress in expanding the range of

information they use to control their payments but could also benefit from

access to more timely and comprehensive sources of information for

making eligibility determinations, such as OCSE’s National Directory of

New Hires. Enhanced front-end data sharing would help avoid some

overpayments and allow programs to move away from a “pay and chase”

mode toward an approach that would prevent erroneous payments. For

example, providing HUD with access to the directory and permitting HUD

to redisclose specific, limited information to the public housing agencies

that administer the Public Housing and Tenant-based Section 8 programs

could help them make more accurate initial eligibility determinations and

avoid some of the nearly $1 billion in estimated annual subsidy

overpayments that have been identified in recent years. In addition,

providing Education with the ability to confirm information on applications

with IRS taxpayer information would help schools more accurately

determine applicants’ eligibility for loans and grants. However, the various

challenges we have outlined make such front-end data sharing problematic.

In particular, current laws (such as parts of IRC section 6103 and the Social

Security Act) prevent many benefit and loan programs from obtaining

access to important and timely data sources, such as the National Directory

of New Hires. Other challenges we highlighted, such as the burden placed

on federal agencies by the time limits on initial and renewed matching

agreements in CMPPA, could be addressed with relatively minor

modifications to existing law. The current time periods (18 months for

initial agreements and 12 months for renewed agreements) are too short to

allow efficient operation of the matches and do not permit sufficient time

to negotiate new or extended agreements. Many federal officials involved

in computer matching activities agree that the time limits on initial and

renewed matching agreements could be extended while maintaining

existing privacy protections.

When considering changes to existing privacy and confidentiality

provisions in current laws, the Congress must weigh the concerns about

sharing sensitive data against the government’s need for timely and

accurate information to ensure accurate payments in its benefit and loan

programs. In an age in which technological advances such as the Internet

have facilitated an increasingly free flow of information, the federal

government has the duty to protect the security and confidentiality of the

data with which it is entrusted. However, providing access to restricted

data sources does not mean that sensitive data become available in the

public domain or that existing data security protections are eliminated.

Rather, agencies or their representatives with the need to view certain
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information (such as income) for purposes of determining eligibility for

individuals who apply for benefits and loans would have access to such

data under controlled conditions and would be responsible for protecting

them from unauthorized disclosure.

Matters for

Congressional

Consideration

The Congress should consider how to improve the ability of federally

funded benefit and loan programs to obtain and share the information they

need to make timely and accurate eligibility determinations while

protecting personal privacy and the confidentiality of sensitive

information. Specifically, the Congress should consider

• Amending the Social Security Act to allow HUD’s Public Housing and

Tenant-based Section 8 programs to match applicants and current

recipients against OCSE’s National Directory of New Hires. To facilitate

accurate initial eligibility determinations, HUD would have to be

authorized to share the results of a match with the local agencies that

administer programs (such as public housing agencies). To maximize

privacy and data security protections, HUD could screen the results of

such a match to ensure that only data vital to determining eligibility for

individuals identified as having reported erroneous information would

be made available to state and local program administrators. The local

agencies should also be required to demonstrate that adequate privacy

and data security measures are in place.

• Amending section 6103(l) of the Internal Revenue Code to authorize IRS

to disclose certain taxpayer data to officers, employees, and contractors

or other agents (such as schools) of Education for purposes of verifying

information reported on applications for financial aid. Again, only the

minimum amount of information necessary to determine eligibility for

cases that are identified in a match would be provided to schools or

other entities, subject to agreed upon privacy, data security, and

safeguard measures.

Recommendation to

the Congress

To decrease the burden of initiating and renewing computer matching

agreements, the Congress should amend the Privacy Act’s computer

matching requirements by increasing the time limits under which initial

matching agreements and renewed agreements may be in force. The

appropriate time period through which initial and renewed agreements

should be in force is subject to debate. However, existing

recommendations from various entities (such as BSRT) range from
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doubling the existing limits (from 18 months and 12 months for initial and

renewed agreements, respectively, to 3 years and 2 years, respectively) to

as long as 5 years for initial agreements and 3 years for renewed

agreements.

Recommendation to

the Secretaries of HUD

and HHS

The Secretaries of HUD and HHS should develop a strategy for obtaining

access to automated data from financial institutions, determine the most

cost-effective, efficient method for obtaining such data, and report to the

Congress on any legislation that would be needed to implement this

strategy. HUD and HHS should also coordinate with SSA and OCSE to

determine what strategies are the most effective for obtaining this

information.

Recommendation to

the Secretary of HHS

The Secretary of HHS should facilitate the development of a system for

tracking duplicate benefit receipt, program disqualifications, and recipient

time limits across states in the TANF program. The Secretary should also

coordinate with other federal departments that oversee major public

assistance programs, such as Food Stamps, to ensure the compatibility and

cost-effectiveness of such a system.

Recommendation to

the Director of OMB

To facilitate more efficient data sharing and help federal agencies that

administer benefit and loan programs to control their payments, OMB

should lead an effort that involves key departments and agencies (such as

Agriculture, Education, HHS, IRS, and SSA) to develop an overall strategy

for improving data sharing operations across all benefit and loan programs.

Such a strategy should include actions for further defining the problems

agencies encounter in sharing data, developing appropriate management

strategies to address these problems, and overseeing progress. OMB could

draw on the resources and expertise of the Chief Information Officers

Council and other related organizations to coordinate the appropriate

officials and federal agencies to achieve this objective.

Agency Comments and

Our Evaluation

We provided the federal departments and agencies we reviewed—

Agriculture, Education, HHS (including ACF and OCSE), HUD, OMB, SSA,

and Treasury (including IRS)—with the opportunity to comment on this

report. Education supports our recommendations, and HHS, HUD, and
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OMB indicated that they generally support the direction and intent of our

recommendations, with some qualifications. Treasury noted that our report

provides a fair and balanced assessment of the challenges facing federally

funded benefit and loan programs in terms of making timely and accurate

eligibility determinations. However, Treasury and IRS also emphasized the

unique challenges to the tax system presented by the use of taxpayer data

to verify self-reported information, particularly with regard to taxpayer

compliance with tax laws. Formal comments from the agencies appear in

appendixes I-VI.

With regard to our first matter for congressional consideration, to allow

HUD’s Public Housing and Tenant-based Section 8 programs to match

applicants and current recipients against the National Directory of New

Hires, HUD is generally supportive. However, it suggested that this

recommendation be broadened to include HUD’s project-based programs.

OMB also agrees with the intent of this recommendation but noted that

responsible government must promote data sharing in a manner that is

consistent with strong privacy and data security safeguards. OMB told us

that it is currently examining whether the National Directory of New Hires

is an appropriate source of wage data but emphasized that in its view any

broad government or private sector access to the financial data maintained

in the directory could adversely affect individual privacy and

confidentiality. The other agencies did not provide specific comments.

With respect to HUD’s response, we note that our review focused

exclusively on HUD’s tenant-based programs that are administered by

public housing agencies; we did not examine HUD’s project-based housing

programs. Therefore, its suggestion to broaden this recommendation to

include project-based housing programs administered by private owners is

beyond the scope of this report. With regard to OMB’s comments, we

recognize the sensitivity of the data maintained in the directory and the

need to carefully consider how the data could be made available to

departments such as HUD while preserving privacy and data security to the

maximum degree possible. As we discussed in the section on options for

enhanced data sharing, having OCSE perform a routine computer match

using HUD’s data on housing applicants and current tenants, and limiting

the data that public housing agencies receive from such a match, would

likely provide a greater degree of individual privacy and data security than

giving HUD online or direct access to the National Directory of New Hires

would afford. Moreover, requiring HUD and public housing agencies to

implement privacy and data security measures that are consistent with the

principles in the Privacy Act (and any additional guidelines that HHS or
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OCSE may stipulate) could help ensure that only authorized individuals

have access to sensitive information. Although computer matches are often

viewed as less timely than online access for purposes of making initial

eligibility determinations, in our view computer matching could still be

used effectively to reduce the incidence of unreported or underreported

income in HUD’s tenant-based housing programs, particularly if the

matches were performed at frequent intervals.

Education supports our second matter for congressional consideration, to

amend section 6103(l)(13) of IRC to authorize IRS to release certain

taxpayer data to Education’s contractors and schools. Although Treasury

did not address this recommendation directly, it emphasized that IRC

section 6103 was enacted to limit the instances in which agencies used tax

data for nontax purposes to cases in which the need for the information

outweighs the related concerns of taxpayer privacy and continued taxpayer

compliance. It noted that in the past, the Congress has provided narrowly

tailored exceptions to section 6103 when it has determined that the need

for taxpayer information outweighs the concerns about taxpayer privacy

and compliance. Treasury also argued that tying tax reporting to needsbased government benefits may lead some individuals to misreport their

income, thus undermining the integrity of the data provided to IRS and

diminishing the utility of the data for the very purpose for which they were

originally collected. Treasury believes that the integrity of the tax system

could be compromised and noted that a decrease of just 1 percentage point

in taxpayer compliance could cost the federal government more than $10

billion annually. Treasury further reiterated its opposition to using taxpayer

consent for large-scale income verification programs. However, Treasury

indicated that it is willing to allow the use of consent forms to permit the

disclosures contemplated in HEA on a limited scale, pending an

amendment to section 6103 and the outcome of the ongoing statistical pilot

matches between Education and IRS.

We acknowledge Treasury’s position that its primary responsibility is to

protect the fiscal integrity of the U.S. Treasury and ensure taxpayer

compliance with existing tax laws and regulations. However, there is little

evidence to suggest that allowing IRS to disclose limited taxpayer

information on specific individuals who apply for needs-based benefits or

loans would lead to a reduction in overall taxpayer compliance. Numerous

federal as well as state and local agencies already have (or have recently

had) access to IRS taxpayer information. For example, as we noted in our

recent report on taxpayer confidentiality, 37 federal and 215 state and local

agencies received, or maintained records containing, taxpayer information
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under provisions of section 6103 during 1997 or 1998.69 Moreover, these

agencies are required to protect the confidentiality of the information they

receive and to implement safeguards that are designed to prevent

unauthorized access, disclosure, and use. Although IRS safeguard reviews

have identified deficiencies in some agencies’ safeguard procedures, it has

recommended various corrections and has followed up to ensure that the

agencies have implemented acceptable solutions to these deficiencies.

Additional disclosures of taxpayer information such as those envisioned in

HEA always involve some degree of risk of unauthorized disclosure.

However, it is the responsibility of departments such as Education to

implement appropriate safeguards that comply with existing regulations to

ensure that privacy and data security are maintained. Pending any

amendment to section 6103, we encourage Treasury and IRS to continue

working with Education to study the feasibility of using consent on a

limited scale. It will also be helpful to examine the results of the ongoing

pilot matches between IRS and Education to obtain the most up-to-date

information on how widespread underreporting of income currently is

among applicants for student financial aid.

Both HHS and HUD generally agree with our recommendation that they

develop a strategy for obtaining access to automated data from financial

institutions. HHS agrees that a system to accomplish this objective would

be beneficial but noted that there are a number of confidentiality and data

security issues as well as technical issues that must be addressed. HHS said

that it will consider implementing the recommendation in the context of

existing operational, budget, and personnel constraints. HUD stated that

the recommendation should be broadened to include data from state wage

agencies and should involve Labor because Labor has responsibility for

overseeing state wage information.

We agree that various confidentiality and data security issues will have to

be addressed to implement this recommendation, and we reiterate the need

for HHS and HUD to coordinate with OCSE and SSA to address such issues

in the most timely and efficient manner. To the extent possible, HHS and

HUD should implement this recommendation within the framework of

existing privacy laws. HUD’s suggestion to broaden the recommendation to

include wage information is partly addressed in the first matter for

congressional consideration that suggests providing HUD with access to

data (including wage data) in OCSE’s National Directory of New Hires. We

69GAO/GGD-99-164.
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agree with HUD that state wage agencies are also a valuable source of wage

information and should not be overlooked as potential sources of these

data, but the recommendation is directed at information available at

financial institutions.

HHS generally agrees with our recommendation to develop a system for

tracking duplicate benefit receipt, program disqualifications, and recipient

time limits in the TANF program. It noted that the 1997 report to the

Congress on data processing (and the more recent Agriculture report that

supplemented it) identified a number of systems that could accomplish

these objectives.70 HHS also indicated, however, that additional program

authority and resources would be required to implement this objective.

Our recommendation envisions HHS taking the next step to facilitate the

development of such a system in cooperation with Agriculture and the

states. If additional legislative or program authority and resources are

required, we encourage the Secretary to seek congressional approval to

facilitate the development of such a system. Further, we continue to believe

that it is important for HHS to work closely with Agriculture to ensure that

any system that is developed integrates the Food Stamp program to

promote maximum efficiency and cost-effectiveness.

OMB supports the general thrust of our recommendation to develop an

overall strategy for improving data sharing across all benefit and loan

programs. It also emphasized the need to carefully consider the potential

implications that enhanced data sharing may have for individual privacy, as

well as the security of sensitive information. For example, OMB stated that

it is studying whether additional uses of the National Directory of New

Hires are appropriate as a source of wage data but noted that expanding

access to its data requires careful study of the potential effect on personal

privacy.

We agree that expanding access to data sources such as the directory,

whether through more traditional computer matches or online access,

requires careful consideration of the potential effect on personal privacy

and data security. We believe that OMB can help promote the necessary

balance between program integrity issues and privacy concerns by

implementing our recommendation and promoting an open, ongoing

dialogue on these issues with the Congress, federal agencies, states, private

70See our section above on TANF.
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Page 49 GAO/HEHS-00-119 Benefit and Loan Programs

organizations, and the public. The results of the OMB-led Benefit Systems

Review Team demonstrate that OMB (with the assistance of the Chief

Information Officers Council and other organizations) can facilitate this

discussion and can develop a strategy for improving data sharing among

federally funded benefit and loan programs.

A number of HUD’s comments requested that we add language to the report

to include private owners who administer HUD’s project-based housing

programs. HUD noted that about one-third of the total number of assisted

households receive rental assistance from the Office of Housing’s programs

that are generally administered by private owners. Our review focused

exclusively on HUD’s tenant-based programs (Tenant-based Section 8 and

Public Housing) that are administered by public housing agencies. Data

sharing with private owners was outside the scope of our work. Moreover,

providing private owners with access to sensitive information raises

additional privacy and data security issues that require careful

consideration before data sharing can be implemented.

Education, HHS, HUD, OMB, Treasury, and IRS also provided us with

technical comments that we have incorporated into our final report where

appropriate.

As we agreed with your offices, unless you publicly announce the contents

of this report earlier, we plan no further distribution of it until 30 days from

the date of this letter. We will then send copies to the federal agencies and

states we reviewed that have administrative or oversight responsibility for

the public assistance and loan programs we discussed, and we will make

copies available to others on request.

Please contact me at (202) 512-7215, or Sigurd Nilsen at (202) 512-7003, if

you have any questions concerning this report or need additional

information. Other contacts and contributors to this report are listed in

appendix VII.

Cynthia M. Fagnoni

Director, Education, Workforce,

and Income Security Issues
Page 50 GAO/HEHS-00-119 Benefit and Loan Programs

Appendix I

Comments From the Administration for Apendxies

Children and Families ApendxiI
Appendix I

Comments From the Administration for

Children and Families

Page 51 GAO/HEHS-00-119 Benefit and Loan Programs

Now page 7.

Now page 26.
Appendix I

Comments From the Administration for

Children and Families

Page 52 GAO/HEHS-00-119 Benefit and Loan Programs

Now page 31.

Now page 39.

Now page 8.
Appendix I

Comments From the Administration for

Children and Families

Page 53 GAO/HEHS-00-119 Benefit and Loan Programs

Now page 7.
Appendix I

Comments From the Administration for

Children and Families

Page 54 GAO/HEHS-00-119 Benefit and Loan Programs

Now page 7.

Now page 7.

Now pages 32-33.
Appendix I

Comments From the Administration for

Children and Families

Page 55 GAO/HEHS-00-119 Benefit and Loan Programs

Now page 7.

Now page 14.

Now footnote b.

Now page 15.

Now page 16.

Now row 5.

Now row 4.

Now page 25.
Appendix I

Comments From the Administration for

Children and Families

Page 56 GAO/HEHS-00-119 Benefit and Loan Programs

Now page 26.

Now page 33.

Now page 39, footnote 67.
Page 57 GAO/HEHS-00-119 Benefit and Loan Programs

Appendix II

Comments From the Department of

Education ApendxiI
Page 58 GAO/HEHS-00-119 Benefit and Loan Programs

Appendix III

Comments From the Department of Housing

and Urban Development ApendxiI
Appendix III

Comments From the Department of Housing

and Urban Development

Page 59 GAO/HEHS-00-119 Benefit and Loan Programs
Page 60 GAO/HEHS-00-119 Benefit and Loan Programs

Appendix IV

Comments From the Internal Revenue ServiceApendxiIV
Appendix IV

Comments From the Internal Revenue

Service

Page 61 GAO/HEHS-00-119 Benefit and Loan Programs
Appendix IV

Comments From the Internal Revenue

Service

Page 62 GAO/HEHS-00-119 Benefit and Loan Programs

Now page 12.

Now page 18, footnote 23.

Now page 24.

Now page 39, footnote 67.

Now page 44.
Appendix IV

Comments From the Internal Revenue

Service

Page 63 GAO/HEHS-00-119 Benefit and Loan Programs
Page 64 GAO/HEHS-00-119 Benefit and Loan Programs

Appendix V

Comments From the Office of Management

and Budget ApendxiV
Appendix V

Comments From the Office of Management

and Budget

Page 65 GAO/HEHS-00-119 Benefit and Loan Programs
Page 66 GAO/HEHS-00-119 Benefit and Loan Programs

Appendix VI

Comments From the Department of the

Treasury ApendxiVI

Now page 7.
Appendix VI

Comments From the Department of the

Treasury

Page 67 GAO/HEHS-00-119 Benefit and Loan Programs

Now page 7.

Now page 12.

Now page 11.

Now page 18, footnote 23.
Appendix VI

Comments From the Department of the

Treasury

Page 68 GAO/HEHS-00-119 Benefit and Loan Programs

Now page 44.
Page 69 GAO/HEHS-00-119 Benefit and Loan Programs

Appendix VII

Major Contributors to This Report ApendxiVI

Jeremy Cox, Evaluator-in-Charge, (202) 512-5717

Nancy Cosentino

James Lawson

Behn Miller

Roland Miller

Chris Morehouse

Sigurd Nilsen

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