United States Government Accountability Office 

GAO Report to Congressional Committees

OFFSHORING IN SIX 

HUMAN SERVICES 

PROGRAMS 

Offshoring Occurs in 

Most States, Primarily 

in Customer Service 

and Software 

Development 

March 2006 

 

This report was revised on May 25, 2006, to correct errors in 

data reported to us on the occurrence of offshoring in two 

state programs and make resulting corrections to certain 

summary information on the occurrence of offshoring. See 

page iii for a list of data changes. 

GAO-06-342 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

March 2006

OFFSHORING IN SIX HUMAN SERVICES 

PROGRAMS 

Offshoring Occurs in Most States, 

Primarily in Customer Service and 

Software Development 

Highlights of GAO-06-342, a report to 

congressional committees 

As states and the federal

government have sought to

streamline and improve 

administrative processes and take 

advantage of technological

advances, both have outsourced 

certain functions to private firms.

In some cases, these firms have

used offshore resources to perform

these functions. As a result, 

questions have been raised about

the prevalence of offshoring in

federal human services programs. 

In response to widespread 

congressional interest, we

conducted work under the 

Comptroller General’s authority to 

determine (1) the occurrence and 

nature of offshoring, (2) the 

benefits state agencies have 

achieved through offshoring and 

problems they have encountered, 

and (3) the actions, if any, states

and the federal government have

taken to limit offshoring and why.

We examined four federally-funded 

state-administered programs—

Child Support Enforcement, Food 

Stamp, Temporary Assistance for 

Needy Families (TANF), and 

Unemployment Insurance—and 

two federally-administered 

programs that provide student 

financial aid—Pell Grant and

Federal Family Education Loan

(FFEL). 

The Departments of Agriculture,

Education, Health and Human

Services, and Labor did not have 

comments on this report. 

Some work is performed offshore in the majority of states for the four stateadministered programs we reviewed, but no work is performed offshore for the 

two federally-administered student aid programs. Offshoring occurred in one or 

more programs in 43 of 50 states and the District of Columbia, most frequently in 

the Food Stamp and TANF programs. However, expenditures for services 

performed offshore in the four state-administered programs appear to be

relatively small. The services states most frequently reported as being performed 

offshore in the Food Stamp and TANF programs were functions related to 

customer service, such as call centers, and in the Unemployment Insurance and 

Child Support Enforcement programs functions were related to software

development. India was the most prevalent offshore location, followed by 

Mexico. We did not find any occurrences of offshoring in the Pell Grant and 

FFEL programs and the Department of Education’s U.S. residency requirement

for contractors performing high-risk work has the effect of limiting offshoring.

State officials reported that lower costs are a benefit of having services 

performed offshore and few officials identified problems with offshore service 

providers in their contracts. Fifteen state program directors reported having

performed cost comparisons for their current contracts, based on differences in

the location of services, and all reported that they would achieve cost savings if

some of the work were performed offshore. On average, these comparisons

showed that with some services performed offshore, contract costs would be 

between 0.3 and 24 percent less than if all the services in the contracts were to 

be performed in the United States. The few state officials that reported any 

problems with the quality of services provided by offshore contractors said that 

they involved difficulties in understanding the English of software programmers

or customer service representatives. 

While numerous actions have been proposed at the state and federal levels to

limit offshoring by government agencies, few restrictions exist with respect to 

the six programs we reviewed. Two states—New Jersey and Arizona—have

prohibited offshoring in state contracts. Some states have also taken other

actions, such as requiring state agencies to disclose when state-contracted work 

is performed offshore or to report on the implications of offshoring. The federal 

government does not have regulations specifically related to the offshoring of

services in the six programs we reviewed. 

Number of States in Which State Program Directors or Contractors Reported Offshoring 

Programs

Number of states

Source: GAO survey.

0 5 10 15 20 25 30 35

Unemployment insurance

Child support enforcement

TANF

Food stamp 32

12

8

16

www.gao.gov/cgi-bin/getrpt?GAO-06-342.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Sigurd Nilsen at 

(202) 512-7215 or nilsens@gao.gov. 
Contents 

Letter 1

Results in Brief 3 

Background 5

Most States Perform Some Functions Offshore in Four StateAdministered Programs, but No Offshoring Is Occurring in Two 

Federally-Administered Student Aid Programs 10 

State Officials Cited Cost Savings as a Benefit of Contracting with 

Companies That Offshore Services and Few Officials Reported 

Any Problems with Offshored Services 25 

Few States Have Taken Actions to Ban Offshoring and No Federal 

Provisions Specifically Restrict Offshoring of Services in the Six 

Human Services Programs We Reviewed 29 

Concluding Observations 32 

Agency Comments and Our Evaluation 32 

Appendix I Objectives, Scope and Methodology 36 

Appendix II GAO Contacts and Staff Acknowledgments 39 

GAO Related Products 40 

Tables 

Table 1: State and Federal Programs Included in GAO’s Review of 

Offshoring 7

Table 2: Percent Cost Savings Represented by States’ Contracts 

with Some Offshored Services 26 

Figures 

Figure 1: Offshoring in Four State-Administered Programs in 2005, 

as Reported by State Program Directors and Contractors 12 

Figure 2: Estimated Spending in 2005 on Contracts with Some

Offshored Services in the Four State-Administered 

Programs, Relative to Spending on Outsourced State 

Contracts and Total Administrative Spending 15 

Page i GAO-06-342 Offshoring in Six Human Services Programs 
Figure 3: Estimated Spending in 2005 on Contracts with Some

Offshored Services in Each State-Administered Program, 

Relative to Spending on Outsourced State Contracts and 

Total Administrative Spending 16 

Figure 4: Typical Services Included in EBT Systems Contracts and 

Extent to Which the Services Are Performed Offshore in 

the Food Stamp and TANF Programs 18 

Figure 5: Offshore Locations Most Frequently Reported by State 

Officials and Contractors in the Four State-Administered 

Programs 22

Abbreviations 

EBT electronic benefits transfer 

FFEL Federal Family Education Loan 

PRWORA Personal Responsibility and Work Opportunity 

 Reconciliation Act 

TANF Temporary Assistance for Needy Families 

TPP Third Party Processor 

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Page ii GAO-06-342 Offshoring in Six Human Services Programs 
This report was revised to correct data on the occurrence of offshoring in 

two state programs due to an error made by a contractor in its survey 

response to GAO. There was no reported offshoring in the Illinois 

Unemployment Insurance and New York Child Support Enforcement 

programs. As a result of these corrections, the report is also being revised 

to correct certain summary information on the occurrence of offshoring. 

In the figure on the Highlights page, “9” for the Unemployment Insurance

program should read “8” and “13” for the Child Support Enforcement 

program should read “12.” 

On page 3, in lines 9 and 12 of the last paragraph, the expenditures for 

contracts with some offshored services should read “$335” million. 

On page 4, in line 7 of the first paragraph, the “9” should read “8.” 

On page 4, in line 8 of the first paragraph, the “13” should read “12.” 

On page 10, in line 6 of the last paragraph, the “13” should read “12.” 

On page 10, in line 7 of the last paragraph, the “9 should read “8.” 

On page 12, in line 14 of Figure 1, the triangle should be deleted for the 

Illinois Unemployment Insurance program. 

On page 13, in line 4 of Figure 1, the triangle should be deleted for the New 

York Child Support Enforcement program. 

On page 13, in the total line of Figure 1, the “9” should read “8” under 

Unemployment Insurance and the “13” should read “12” under Child 

Support Enforcement. 

On page 14, in line 7, “85” should read “83.” 

On page 14, in line 8, “$339” should read “$335.”

On page 14, in line 14, “$339” should read “$335.” 

On page 15, in Figure 2, “$339” should read “$335” and “85” should read 

“83.” 

On page 16, in Figure 3, for the graphic representing Child Support 

Enforcement, the “$159” should read “$158.” 

On page 22, in figure 5, “56” should read “55” for India and “28” should read 

“27” for Mexico. 

Page iii GAO-06-342 Offshoring in Six Human Services Programs 
United States Government Accountability Office

Washington, DC 20548 

March 28, 2006 

Congressional Committees 

Advances in information technology and communications, coupled with a 

large pool of educated workers in some countries, have allowed private 

companies to move services work outside of the United States in such 

areas as call centers, back-office functions, and software programming. 

While some maintain that the services offshoring phenomenon is 

widespread, others say that the extent is limited. Media reports in 2004

that call centers providing customer service to Food Stamp recipients 

were based in India inspired proposals at the federal and state levels to 

restrict “offshoring” in public programs or the practice of performing 

contracted work outside of the United States. Offshoring generally refers 

to the import from abroad of goods or services that were previously 

produced domestically. As states and the federal government have sought

to streamline and improve administrative processes and take advantage of

technological advances, both have outsourced certain functions to private 

firms. In some cases, these firms have used offshore resources to perform 

these functions. Questions have been raised about the prevalence of 

offshoring and the potential consequences when federally-funded human 

services programs procure services from companies that offshore. 

However, as we reported in 2004, no comprehensive data or studies show 

the extent of services offshoring by state governments and data for the 

federal government are limited.1

In response to widespread congressional interest in this area, we 

conducted work under the Comptroller General’s authority to determine 

the occurrence and nature of offshoring in six federally-funded human 

services programs. Specifically, we examined (1) the occurrence and

nature of offshoring in each of these six programs, (2) the benefits 

government agencies have achieved through offshoring in these programs 

and the problems they encountered in offshoring work, and (3) the 

actions, if any, states and the federal government have taken to limit 

offshoring in these programs and why. The six federally-funded programs 

we examined include four state-administered human services programs—

 1

GAO, International Trade: Current Government Data Provide Limited Insight into 

Offshoring of Services, GAO-04-932 (Washington, D.C.: Sept. 22, 2004).

Page 1 GAO-06-342 Offshoring in Six Human Services Programs 
Child Support Enforcement, Food Stamp, Temporary Assistance for Needy 

Families (TANF), and Unemployment Insurance—and two federallyadministered programs that provide student financial aid—Pell Grant and 

Federal Family Education Loan (FFEL). We selected these programs 

because they receive a substantial amount of federal funding for program 

administration, contract out some administrative functions, and are not 

administered solely at the local level. 2

To determine the occurrence and nature of offshoring in the four stateadministered programs, we administered two separate Web-based surveys: 

• First, we surveyed directors of the Child Support Enforcement, Food 

Stamp, TANF, and Unemployment Insurance programs in all 50 states and 

the District of Columbia—a total of 204 directors. We asked each program 

director to provide information on up to three contracts held by the 

program: the contracts with known offshoring or, if there were fewer than 

three contracts with offshoring or no offshoring, the largest contracts (in 

dollars). We also requested information from each program director on the 

total number of contracts and total spending on contracted-out services. In

addition, we reviewed contracts from state officials that reported no 

offshoring. We obtained a 93 percent response rate to our survey of state 

program directors. 

• To supplement the survey of state officials, we surveyed the contractors 

whose names were provided by state officials to obtain additional 

information on the types of services provided to state programs and where 

these services are performed. We obtained a 54 percent response rate to 

our survey of contractors. 

It is likely that our two surveys did not identify all instances of offshoring 

in the four state-administered programs. Therefore, the figures we cite for 

the four programs on the number of contracts in which some services 

were offshored and the total expenditures for these contracts should be 

viewed as minimum levels. To further understand the nature of 

contracting in these programs, we conducted site visits to Florida, Utah, 

and New York. We selected these states based on the presence of 

offshoring in multiple programs or in multiple contracts within a program. 

 2

In some states, TANF is administered at the local level. Because we did not examine local 

TANF contracting, this report does not provide information about the occurrence of 

offshoring by local TANF administrators. 

Page 2 GAO-06-342 Offshoring in Six Human Services Programs 
At these site visits, we interviewed state program officials and reviewed 

contract-related documents. 

To determine whether any services are performed outside of the United 

States in the two federal student aid programs, we interviewed officials 

from the U.S. Department of Education’s Office of Federal Student Aid 

(Student Aid) and reviewed departmental directives and contracting 

documents. While the Department of Education is responsible for overall 

administration of the Federal Family Education Loan program, loans are 

financed by commercial lenders such as banks and credit unions and nonprofit lenders such as postsecondary institutions. State and national nonprofit guaranty agencies administer the federal insurance that protects 

these lenders against losses and perform a variety of administrative 

functions. We did not include commercial and non-profit lenders or the 

guaranty agencies in this review. Rather, we focused on cases in which the 

Department of Education entered into direct contracts for services related

to program administration. 

To determine what actions states and the federal government have taken 

to limit offshore work in these programs, we reviewed laws, policies, and

executive actions, including those identified through our state survey. 

Appendix I provides further details about our scope and methodology. Our 

work was conducted between January 2005 and February 2006 in 

accordance with generally accepted government auditing standards. 

Some work is performed offshore in the majority of states for the four 

federally-funded state-administered programs we reviewed, but no work is 

performed offshore for the two federally-administered student aid 

programs. Offshoring occurred in one or more programs in 43 of 50 states 

and the District of Columbia, most frequently in the Food Stamp and 

TANF programs. However, expenditures for services performed offshore 

in the four state-administered programs appear to be relatively small. 

Expenditures for contracts with some offshored services totaled at least 

$335 million—or about 18 percent—of the $1.8 billion in expenditures for 

all the state contracts in the four programs. Moreover, the magnitude of 

actual spending on the offshored services we identified is likely 

considerably lower than $335 million because for many of the contracts 

with some offshoring, the bulk of services are performed in the United 

States. For example, the U.S. company that holds the majority of state 

contracts with some offshoring in the Food Stamp and TANF programs 

estimated that services performed offshore constituted less than 3 percent

of the total services provided through these contracts. We could not 

Results in Brief 

Page 3 GAO-06-342 Offshoring in Six Human Services Programs 
determine the specific amounts of spending on offshored services for 

several reasons, including that contractors generally do not provide states 

with the itemized cost of each service that is bundled in their contracts. 

The services states most frequently reported as being performed offshore 

in 31 states in the Food Stamp program and 16 states in the TANF program 

were functions related to customer service, such as call centers. In 

contrast, offshored services reported in 8 states in the Unemployment 

Insurance program and 12 states in the Child Support Enforcement 

program did not involve direct contact with program recipients but were 

functions related to software development. Offshoring in the four 

programs rarely involved state government agencies contracting directly

with foreign companies; rather, it involved U.S. contractors using 

subcontractors that performed work offshore. India was by far the most 

prevalent offshore location, followed by Mexico, but some offshore work 

was also performed in Canada, Ireland, and Poland. We did not find any 

occurrences of offshoring in the contracts for administration of the Pell 

Grant and FFEL programs. Prior to initiating a security screening, 

Education requires that contractor employees who will work on high-risk 

department contracts, including those for the Pell and FFEL programs, be 

U.S. citizens or lawful permanent residents who have resided in the United

States for at least 3 years. While this requirement is intended to facilitate 

the required background investigations and ensure that contractor 

employees are legally permitted to work in the United States, it limits the 

extent to which Education can enter into contracts with companies that 

perform services offshore. In contrast, federal agencies have not 

established such a requirement for state contractors in any of the four 

state-administered programs we reviewed. 

State officials reported that lower costs are a benefit of having services 

performed offshore and few officials identified any problems with offshore 

service providers in their contracts. All 15 state program directors that 

reported having performed cost comparisons for their contracts based on 

differences in the location of services, reported that there are cost savings 

associated with having some of the work performed offshore. These 

comparisons showed that their contracts, with some services performed 

offshore, would cost from 0.3 percent to 24 percent less than if all the 

services in these contracts were to be performed in the United States. The 

few state officials that reported any problems with the quality of services 

provided by offshore contractors said that they involved difficulties in 

understanding the English of software programmers or customer service 

representatives. However, it is unclear how much these reports reflect the 

actual extent of performance problems with offshore providers in these 

programs. While some state officials may be knowledgeable of the 

Page 4 GAO-06-342 Offshoring in Six Human Services Programs 
performance of their offshore subcontractors, other officials rely on their

primary contractors to monitor the subcontractors. 

While numerous actions have been proposed at the state and federal levels 

to limit offshoring by government agencies, few restrictions exist with 

respect to the six programs we reviewed. Two states—New Jersey and 

Arizona—have prohibited offshoring in state contracts. Reasons cited for 

these prohibitions include concern over a potential increase in local 

unemployment rates and a potential risk to the protection of private 

information. At least five states have also taken other actions, such as 

requiring state agencies to disclose when state-contracted work is 

performed offshore or to report on the implications of offshoring. As a 

result of actions taken by some states and concerns by state governments, 

eight states have relocated previously offshored Food Stamp or TANF call 

center services to the United States and one state—North Carolina—has 

converted a previously offshored service into a state-run operation. The 

federal government does not have regulations specifically related to the 

offshoring of services in the programs we reviewed. 

We do not make recommendations in this report. The Departments of 

Agriculture, Education, Health and Human Services, and Labor did not 

have comments on this report. The Departments of Education and Labor 

provided technical comments that have been incorporated as appropriate. 

No commonly accepted definition of offshoring currently exists, and the 

term includes a wide range of business activities. Generally, services 

offshoring is used to describe the replacement of domestically supplied 

service functions with imported services produced offshore. This 

definition focuses on a business’s decision to contract out: should it 

produce the services internally, contract with a company located in the 

United States (outsourcing), or contract out with companies based 

offshore? Offshoring has also been used to describe the movement of 

domestic production (and the related jobs) offshore. In this case, the 

definition focuses not on imports of services from abroad, but on U.S. 

companies investing offshore. Business and professional services such as 

accounting, bookkeeping, and software programming and design do not 

have to be performed on site, and, therefore, can be outsourced offshore 

to any location. For example, a U.S.-based company can stop producing 

certain services in-house and instead purchase them from a company with 

Background 

Page 5 GAO-06-342 Offshoring in Six Human Services Programs 
foreign-based staff or a state government could contract out its software

programming to a company with foreign-based staff.3

While limited, U.S. government data provide some insight into trends in 

offshoring of services.4

 Trade data from the Department of Commerce 

show that, generally, imports of services associated with offshoring are 

growing. Federal procurement data show that the total dollar value of the 

federal government’s services contracts with offshoring increased 

between 1997 and 2002. However, when compared to all federal contracts 

with services, the proportion showed little change during that time. 

The federal government provides benefits (for example, food, child care, 

or income subsidies) through human services programs. Table 1 provides 

information on the state and federal human services programs we 

examined. The four state-administered programs spent about $15.7 billion 

dollars in state and federal funds on program administration in fiscal year 

2004 (the most recent year for which expenditure data were available for 

all four of the programs). 

State and Federal 

Programs We Examined 

 3

For a detailed discussion of the various types of business activities associated with 

offshoring, see GAO-04-932. 

4

These data do not encompass all of the various business activities associated with 

offshoring. See GAO-04-932 for further discussion of what government data indicate about

services offshoring. 

Page 6 GAO-06-342 Offshoring in Six Human Services Programs 
Table 1: State and Federal Programs Included in GAO’s Review of Offshoring

Dollars in billions 

Expenditures for Program Administration 

Program 

Program 

purpose Federal agency

Federal 

administrative

expenditures 

for FY 2005

Federal 

administrative

expenditures 

for FY 2004 

State 

administrative

expenditures 

for FY 2004 

Total

administrative

expenditures 

for FY 2004

Programs administered by state governments 

Child Support 

Enforcement 

To help locate 

non-custodial 

parents, establish 

paternity when 

necessary, 

establish orders

for support, and 

collect and 

distribute child 

support 

payments. 

Department of 

Health and 

Human Services, 

Administration for 

Children and 

Families 

$3.6 $3.5 $1.8 $5.3

Unemployment

Insurance 

To provide 

unemployment

benefits to eligible 

workers who are 

unemployed, 

through no fault of 

their own, and 

meet other 

requirements of

state law. 

Department of 

Labor, 

Employment and 

Training 

Administration

2.7 2.7 0.3 3.0

Food Stamp To provide basic 

nutrition to lowincome 

individuals and

families. 

Department of 

Agriculture, Food 

and Nutrition 

Service 

2.4 2.5 2.6 5.1

TANF To provide time 

limited assistance 

and work 

opportunities to 

needy families. 

Department of 

Health and 

Human Services, 

Administration for 

Children and 

Families 

Not currently 

available

1.5a0.8 2.3

Page 7 GAO-06-342 Offshoring in Six Human Services Programs 
Dollars in billions 

Expenditures for Program Administration 

Program 

Program 

purpose Federal agency

Federal 

administrative

expenditures 

for FY 2005

Federal 

administrative

expenditures 

for FY 2004 

State 

administrative

expenditures 

for FY 2004 

Total

administrative

expenditures 

for FY 2004

Programs administered by the federal government

 FFEL To provide belowmarket, variableinterest-rate, longterm loans to 

defray tuition 

costs for students 

enrolled in 

participating 

postsecondary 

schools. 

U.S. Department 

of Education, 

Office of Federal 

Student Aid 

0.2b

0.2 Not applicable 0.2

Pell Grant To provide grants 

(not required to

be repaid) for 

undergraduate 

students. 

U.S. Department 

of Education, 

Office of Federal 

Student Aid 

0.3c0.3cNot applicable 0.3

Source: Departments of Health and Human Services, Agriculture, Labor, and Education; and Office of Management and Budget. 

Note: Total expenditures may not equal sum of federal and state expenditures due to rounding. 

a

Federal law allows states to spend up to 15 percent of their TANF block grants on administrative 

functions, which do not include spending on systems. The amount presented here represents the 

total spending for administrative functions and spending on systems. The most recent available data 

are from 2004. 

b

In addition to this amount, the Office of Federal Student Aid paid $549 million in administrative funds

to guaranty agencies for the FFEL program in 2005 and $613 million in 2004. 

c

This figure represents administrative payments to institutions. In 2004, the Office for Federal Student 

Aid spent a total of $117 million for the administration of all student aid programs and a total of 

$719 million in 2005 for the administration of all student aid programs. 

Federal Mandates May 

Influence Outsourcing 

The federal government and some states have outsourced in response to 

federal mandates to automate or centralize certain functions of human 

services programs. For example, the Personal Responsibility and Work 

Opportunity Reconciliation Act (PRWORA) of 1996 required states to 

establish a central unit for receipt and disbursement of child support 

payments from non-custodial parents and employers. According to data

reported by the federal program office in March 2005, 27 state programs 

for child support enforcement have contracted with private companies to 

handle all or some of these functions. The federal government provides a 

66 percent match to state spending for most of the administration of child 

support enforcement. 

Page 8 GAO-06-342 Offshoring in Six Human Services Programs 
PRWORA also required states to implement electronic benefits transfer 

(EBT) systems for the reimbursement of food stamp benefits. EBT allows 

food stamp recipients to use a plastic card, much like a debit card, to pay 

for their food from authorized retailers and have the benefit deducted 

from the household’s allocation. EBT contracts generally include a range 

of programs and support functions, including customer service. It is this 

complete group of services, often referred to as “bundled,” that are 

included under the term “EBT” and for which states contract out. All 

50 states and the District of Columbia provide Food Stamp benefits 

through EBT. Forty-eight states and the District of Columbia have 

contracts with private companies to provide all or some of these EBT 

services. The federal government provides a 50 percent match for most 

EBT and other administrative functions for states. Some states combine 

the distribution of benefits for Food Stamps with cash assistance under 

TANF. As such, some states spend TANF funds for the administration of 

their EBT systems. Thirty-six states distribute TANF benefits via EBT in 

combination with Food Stamps and other programs. While not mandated

to do so, some Unemployment Insurance programs are redesigning their 

benefits systems to provide efficient and cost-effective services to 

unemployment insurance customers through electronic submission of 

applications and wage and tax data. Through federal unemployment taxes, 

the federal government provides all of the funding for the administration 

of Unemployment Insurance programs at the state level. 

The 1998 reauthorization of the Higher Education Act of 1965 mandated 

the Office of Federal Student Aid (Student Aid) to integrate its separate 

computer systems, improve service to its customers and employees, and 

reduce its operational costs. Through the use of contractors, Student Aid 

is replacing these separate computer systems that aid the office in 

performing business operations such as determining eligibility, processing 

aid applications, and disbursing grants and loans with integrated computer

systems. Through integrated computer systems, Student Aid will be able to 

streamline data sharing among schools, lenders, and its offices and 

eliminate system redundancies. The Higher Education Act also requires 

Student Aid to establish appropriate administrative, technical, and 

physical safeguards to ensure the security and confidentiality of privacyprotected information used in these systems. In 2004 and 2005, Student 

Aid spent about $500 million annually on information technology related 

to its programs. 

Page 9 GAO-06-342 Offshoring in Six Human Services Programs 
In the four state-administered programs we reviewed, 43 of 50 states and 

the District of Columbia have offshoring in one or more programs, but we 

did not find occurrences of offshoring in the two federally-administered 

programs. Offshoring occurs most often in the Food Stamp and TANF 

programs. We also found offshoring in Unemployment Insurance and

Child Support Enforcement programs, but in fewer states. While the 

magnitude of expenditures on offshored services appears to be relatively 

small, we could not determine the specific amount of these expenditures 

for several reasons. Services most frequently reported as being performed 

offshore include customer service for the Food Stamp and TANF 

programs, and software development for the Unemployment Insurance 

and Child Support Enforcement programs. In all four programs, state 

officials rarely contracted directly with foreign companies to perform 

these services. Rather, state officials used U.S. contractors that either used 

subcontractors that performed the work offshore or used their own 

workers located offshore. In the federal student aid programs we 

examined—the Pell Grant and FFEL—we found no occurrence of 

offshoring. Education’s efforts to safeguard high-risk work in these 

programs, through security screenings for contractor employees, has the 

effect of limiting the extent to which services can be performed offshore.

Most States Perform 

Some Functions 

Offshore in Four 

State-Administered 

Programs, but No 

Offshoring Is 

Occurring in Two 

FederallyAdministered Student 

Aid Programs 

Most Offshoring Occurs in 

the Food Stamp and TANF 

Programs 

Forty-three of 50 states and the District of Columbia have offshoring in 

one or more of the four state-administered programs. Offshoring was most 

often cited by state program directors and contractors in the Food Stamp 

(31 of 51) and TANF programs (16 of 51). Occurrences of offshoring were 

less frequently reported by state program directors and contractors in the 

Child Support Enforcement (12 of 51) and Unemployment Insurance 

programs (8 of 51). Of the state program directors we surveyed, most 

reported that they knew where services are performed and reported no 

offshoring in their contracts, but several state officials said they were 

uncertain about offshoring in their contracts. State officials most 

frequently reported that there was no offshoring in their contracts because

they closely monitor contracts and know where the services are 

performed. However, our survey of contractors uncovered additional 

occurrences of offshoring in all four programs in some contracts for which 

state officials had reported either that no offshoring was occurring or that 

they were uncertain whether offshoring was occurring. In 16 states, we 

found offshoring in certain contracts where state officials had reported 

Page 10 GAO-06-342 Offshoring in Six Human Services Programs 
that the contractor performed all services within the United States.5

 Figure 

1 shows the states and programs in which state officials and contractors 

reported offshoring in one or more contracts (including the 16 states) and 

also provides information on the total number of reported occurrences of

offshoring in each of the four programs. 

 5

We also found offshoring in one of these states in which a state official was uncertain 

about the location where contracted work was performed. 

Page 11 GAO-06-342 Offshoring in Six Human Services Programs 
Figure 1: Offshoring in Four State-Administered Programs in 2005, as Reported by

State Program Directors and Contractors 

Alabama

Alaska

Arizona

Arkansas

California

Colorado 

Connecticut 

Delaware 

District of Columbia

Florida

Georgia

Hawaii 

Idaho 

Illinois

Indiana

Iowa

Kansas

Kentucky 

Louisiana

Maine 

Maryland 

Massachusetts

Michigan 

Minnesota

Mississippi 

Missouri 

Montana

Nebraska

Nevada

TANF

Food

Stamp

Unemployment

Insurance

Child 

Support

Enforcement

Page 12 GAO-06-342 Offshoring in Six Human Services Programs 
Programs with at least one contract with offshoring

Programs that did not provide a survey response

Source: GAO survey.

TANF

Ohio 

Oklahoma

Oregon 

Pennsylvania

Rhode Island 

South Carolina

South Dakota

Tennessee 

Texas

Utah 

Vermont 

Virginia

Washington 

West Virginia

Wisconsin 

Wyom

Totala 12 31 8 16

ing 

Food 

Stamp

Unemployment 

Insurance

Child 

Support 

Enforcement

New Hampshire 

New Jersey 

New Mexico 

New York 

North Carolina

North Dakota

a

The sum of the totals for the four state-administered programs exceeds 51 (50 states plus D.C.) 

because offshoring was reported in more than one program in some states. 

Page 13 GAO-06-342 Offshoring in Six Human Services Programs 
The magnitude of spending on offshored services in the four stateadministered programs appears to be relatively small with respect to total 

spending on outsourced services, but is difficult to quantify. In total, 

administrative spending across the four programs was about $15.7 billion 

in fiscal year 2004. At the time of our review, the four programs had about 

5,606 contracts valued at approximately $1.8 billion (or 12 percent of total 

administrative spending).6

 The total value of the 83 contracts where some 

offshoring occurred was at least $335 million. For nine of these contracts, 

state officials did not report total contract costs. The contracts with 

reported offshoring comprised 2 percent of the total number of contracts 

and about 18 percent of the total spending for all contracted-out services 

across the four programs. However, the magnitude of actual spending on 

the offshored services we identified is likely considerably lower than 

$335 million because for many of the contracts with some offshoring, the 

bulk of services are performed in the United States. For example, the U.S. 

company that holds the majority of state contracts with some offshoring in 

the Food Stamp and TANF programs estimated that services performed 

offshore constituted less than 3 percent of the total services provided 

through these contracts. Similarly, a contractor providing services to 

several child support enforcement programs stated that offshored 

computer software programming comprised less than 1 percent of the 

total package of services provided to states. Figure 2 shows the estimated 

spending on contracts with some offshoring out of the total spending on 

administration across the four state-administered programs. 

Magnitude of Spending on 

Offshored Services 

Appears to Be Relatively 

Small, but Is Difficult to 

Determine 

 6

There were an additional 201 contracts (for a total of 5,807) for which we did not receive

values. 

Page 14 GAO-06-342 Offshoring in Six Human Services Programs 
Figure 2: Estimated Spending in 2005 on Contracts with Some Offshored Services

in the Four State-Administered Programs, Relative to Spending on Outsourced 

State Contracts and Total Administrative Spending

$1.8 billion

5,606 

outsourced

contracts

$335 million

83 contracts

with some

offshored 

services

12%

18%

Estimated spending on contracts with offshoring

$15.7 billion 

Total administrative spending FY 2004

Source: Departments of Health and Human Services, Agriculture, and Labor; Office of Management and Budget ; and GAO survey.

The level of spending on contracts with some offshored services varies 

considerably among the four state-administered programs. As shown in 

figure 3, spending on contracts with some offshored services constituted 

30 percent or more of total spending on outsourced contracts in the Food 

Stamp and Child Support Enforcement programs. The comparable 

percentages for the TANF and Unemployment Insurance programs are 

considerably lower. 

Page 15 GAO-06-342 Offshoring in Six Human Services Programs 
Figure 3: Estimated Spending in 2005 on Contracts with Some Offshored Services in Each State-Administered Program, 

Relative to Spending on Outsourced State Contracts and Total Administrative Spending 

Food Stamps

$394 million

outsourced 

contracts

$160 million

in contracts

with some 

offshored 

services

8%

41%

$5.1 billion 

Total administrative spending FY 2004

Child Support Enforcement

$527 million

outsourced 

contracts

$158 million

in contracts

with some 

offshored 

services

10%

30%

$5.3 billion 

Total administrative spending FY 2004

Unemployment Insurance

$194 million

outsourced 

contracts

6%

$3.0 billion 

Total administrative spending FY 2004

TANFa

$725 million

outsourced 

contracts

$18 million

in contracts

with some 

offshored 

services

32%

3%

$1.3 million

in contracts

with some 

offshored 

services

1%

$2.3 billion 

Total administrative spending FY 2004

Source: Departments of Health and Human Services, Agriculture, and Labor; Office of Management and Budget; and GAO survey.

a

Because of data limitations, the TANF figures for outsourced contracts and contracts with some 

offshored services are understated to some extent. In some cases, EBT contracts were jointly funded

with Food Stamp and TANF dollars, but we were unable to disaggregate the amount of funds 

provided by each program. In such cases, we allocated the entire annual contract amount to the Food

Stamp program.

State officials in seven states provided estimates for their Food Stamp or 

TANF contracts of the percent of contract spending represented by 

offshore services and these estimates ranged from 3 to 39 percent of the 

total expenditures for each contract. However, it is unclear whether this 

range of estimates reflects levels of offshore spending in the other 

contracts with offshoring. The state officials who provided these spending 

Page 16 GAO-06-342 Offshoring in Six Human Services Programs 
estimates did not report expenditure data for each service in their 

contracts. For example, officials in New York told us that they do not 

receive itemized lists of costs for each service from their contractors who, 

in some cases, consider the information proprietary. The contractors 

providing services to states also reported that prices were not itemized, 

that companies sometimes use the same resources for many states or for 

private clients, and that the costs for specific services cannot be calculated 

for any one contract. 

Services Most Frequently 

Reported as Being 

Performed Offshore 

Include Customer Service 

and Software Development 

In the Food Stamp and TANF programs, state officials reported that 

contractors most frequently offshored certain customer service functions 

related to EBT systems. EBT systems encompass a wide a range of 

services and state officials reported that call centers with human operators 

and staff help desks were the services EBT contractors most frequently 

performed offshore. EBT call centers were offshored in 24 states. 

Typically, the offshoring scenario for call centers is when a food stamp 

recipient calls into the automated system to report a lost or stolen EBT 

card, inquire about balances, or obtain other assistance for example. The 

recipient can choose an option to be connected to a customer service 

representative. The telephone call is then routed to an offshore location, 

such as India if they are an English speaker or Mexico if they wish to 

speak to someone in Spanish, where a person in a call center handles the 

call. Staff help desks work much like call centers with human operators, 

but are typically available to help state program staff solve administrative 

problems such as accessing data from the EBT system. Staff help desks 

were offshored in 10 states. Figure 4 provides more details on the extent to 

which various types of EBT system services are performed offshore. 

Page 17 GAO-06-342 Offshoring in Six Human Services Programs 
Figure 4: Typical Services Included in EBT Systems Contracts and Extent to Which

the Services Are Performed Offshore in the Food Stamp and TANF Programs 

Services most frequently offshored

 Live customer service representatives available 24 hours a day, 

 7 days a week for clients and merchants 

 Help Desk for state and local staff

Services sometimes offshored

 Card issuance and personal identification number (PIN) selection

 Electronic benefits transfer (EBT) system software development

 Back-up training for EBT-only retailers

Services rarely or never offshored

 Project and contract management 

 Project and system documentation

 EBT system hardware 

 Online state/local office access to the EBT system

 Training materials for state, client, and EBT only retailers

 EBT account set-up and maintenance

 EBT transaction processing

 Daily settlement and reconciliation 

 Daily and monthly reporting

 Installation of EBT machines and training for merchants 

 Providing access to the EBT network for Third Party Processors (TPP) such as banks

 Maintaining systems that allow benefit recipients to use EBT cards across states 

Source: GAO surveys of and interviews with state officials and contractors.

EBT contracts include a range of programs and support functions. EBT 

contractors told us that customer service is considered a support function. 

Contractors also said that certain other services may be performed 

offshore, including claims investigations when an EBT cardholder 

suspects a problem, supplemental software programming, and data entry. 

Contractors that provide some EBT services offshore said that even when 

the majority of a service is performed in the United States, backup 

services can operate offshore. For example, an offshore call center can 

assume the overflow workload of a U.S.-based call center in responding to 

benefit recipients. 

Page 18 GAO-06-342 Offshoring in Six Human Services Programs 
In the Unemployment Insurance and Child Support Enforcement 

programs, the services most frequently performed offshore are software 

development and related services.7

 The services contractors performed 

offshore for Unemployment Insurance fell into three general areas: 

development of software for a computer system (e.g., a case management 

system), development of Web-interfaces (the actual systems the public 

would use), and computer system maintenance.8

 In four of the five states 

in which program directors reported offshoring in the Unemployment 

Insurance program, the offshoring occurred in contracts to convert all or 

some of a mainframe computer system to a Web-based system. In child 

support enforcement programs, the service contractors most often 

performed offshore was software development.9

 State program directors 

provided examples of services performed offshore in their contracts in the 

areas of software programming, Web development, and computer 

maintenance. The following examples illustrate the services that particular 

states have offshored in these programs: 

• Software Programming: In South Carolina, the contractor hired to 

update the state’s system for managing employer taxes is using software 

programmers in India to develop the new system. In Wisconsin, while the 

actual software programming was conducted in the United States, the 

contractors used an offshore help desk to obtain technical assistance in 

conducting software programming services. In several child support 

enforcement programs, the software designed for payment machines used

in handling the receipt and disbursement of child support payments was 

created offshore. While the payment machines are housed and operated 

 7

Across the four programs, state officials less frequently cited services such as document 

management, Web site development, and interpretation and translation as being performed 

offshore. 

8

Indiana has created an electronic payment card that Unemployment Insurance recipients 

can use for making purchases and withdrawing cash and will outsource this service to a

private company. This new service suggests that Unemployment Insurance programs may 

be moving toward contracting out for services beyond software programming. 

9

We obtained this information from our survey of contractors. State officials that 

responded to our survey did not report software programming as being performed

offshore. One child support enforcement official reported offshoring in genetic testing. 

While all states conduct genetic testing as part of child support enforcement, only one state 

official indicated that genetic testing was performed offshore. This official explained that 

genetic testing could be performed anywhere within the United States or outside of the

United States, depending on where the non-custodial parent resides. As such, the company 

with which the state contracts could subcontract with foreign private physicians or 

companies to perform these tests if the non-custodial parent resided outside the United

States. 

Page 19 GAO-06-342 Offshoring in Six Human Services Programs 
within the United States, the company that produces the software that 

runs a part of the machine’s operating system creates the software in 

India. 

• Web Development: In New Mexico the contractor performed Web 

development services in India as part of the development of the front-end

system to allow the public to file on-line claims. 

• Maintenance: Contractors for Washington and Montana offshored the 

periodic maintenance work required when the state needs assistance with 

a particular machine or for periodic testing on a system. Contractors for 

Washington conducted the offshored maintenance work from a variety of 

locations depending on the time of day the request was initiated. 

Contractors for Montana conducted the maintenance work in Poland for 

any upgrades to the system. 

Offshoring in the four state-administered programs almost always 

occurred when U.S. companies subcontracted with companies that 

performed work offshore. Generally, states did not directly contract with 

foreign companies.10 As such, contractors, not state officials, made the 

decision to offshore in delivering the services the state requires. In 

addition, some contractors that use offshore subcontractors provide 

services to a large number of states. For example, one company holds the

EBT contracts with offshoring in 28 of the 31 states where we identified 

offshoring in the Food Stamp and TANF programs. In 11 of the 31 states, 

the Food Stamp and TANF programs were covered under the same EBT 

contract that state officials or contractors identified as having some 

services performed offshore. 

In the states where we identified offshoring, offshored services were most 

often performed by subcontractors. Offshore subcontractors provided 

services for states on both a continual and intermittent basis. In some 

cases such as EBT call centers, the subcontractor performed a variety of 

services on a consistent basis over the life of the contract, including the 

operation of the call center. In other cases, subcontractors work on an asneeded basis. For example, a contractor building a new computer system 

may use software or hardware from various companies. The 

subcontractors would be the companies that produced these various 

Contractors Most Often 

Perform Offshore Services 

through Subcontractors 

that Operate in India and 

Mexico 

 10For three of the contracts with offshoring, states had contracted with foreign companies 

that had offices and employees in the United States as well as offshore operations. 

Page 20 GAO-06-342 Offshoring in Six Human Services Programs 
software and hardware parts and would be called upon as needed to 

provide maintenance or assist in resolving problems with their products. 

In certain cases, services are performed offshore within short time frames 

or in response to unexpected deadlines. For example, an EBT contractor

told us that during a peak period in the company’s workload, it may use an

overseas source to expedite the development of Internet-based 

information portals used by state officials. 

India and Mexico were the most frequently cited locations where 

contractors and subcontractors performed offshored services in the four 

state-administered programs, as shown in figure 5. Other locations where 

services were offshored include Canada, France, Ireland, and Poland. In 

the Food Stamp and TANF programs, EBT call centers operated in India 

for English-speaking callers and Mexico for Spanish-speaking callers. In 

the Unemployment Insurance and Child Support Enforcement programs, 

most contractors performed services related to software programming in 

India. We also found examples of software programming work in France 

and Poland. State officials in Washington, while unable to identify the 

countries where services were performed, said contractors offshored so 

that customers can reach a customer service representative or technician

24 hours a day, 7 days a week. 

Page 21 GAO-06-342 Offshoring in Six Human Services Programs 
Figure 5: Offshore Locations Most Frequently Reported by State Officials and

Contractors in the Four State-Administered Programs 

Education officials did not report—and we did not find—any occurrences 

of offshoring in the two contracts for Information Technology (IT) 

development and 21 contracts for debt collection services for the FFEL 

and Pell Grant programs.11 Education officials in the Office of Federal 

Student Aid (Student Aid), the office within Education that administers the 

FFEL and Pell Grant programs, reported that the locations where 

contractors and subcontractors performed work were all within the 

United States and that some contractors worked on-site at Education 

facilities. Student Aid officials told us that they are certain about the 

location where contracted services are performed because in some cases 

contractors provide the information and in other cases they require all

0

5

10

15

20

25

30

35

40

45

50

55

60

Poland

Chili

Arg

S

entina

pain

Mexico

Canada

Ireland

France

India

Number of times the location was mentioned

Source: GAO survey.

Offshored location 

55

27

2 2 2 1 1 1 1

Mandatory Security 

Screenings of Contractors 

Limit Offshoring in the 

FFEL and Pell Grant 

Programs 

 11Federal Family Education Loan loans are financed by commercial lenders such as banks

and credit unions and non-profit lenders such as postsecondary institutions. State and 

national non-profit guaranty agencies administer the federal insurance that protects these

lenders against losses and perform a variety of administrative functions. We did not include

commercial or non-profit lenders or guaranty agencies in our review. Education officials

told us that these private lenders most likely offshore some services. 

Page 22 GAO-06-342 Offshoring in Six Human Services Programs 
contractors to disclose the locations where they will perform all 

contracted services. However, with the exception of debt collection 

contracts, Student Aid does not have specific requirements to monitor 

whether contractors are performing work within the United States or 

offshore after the contract is signed. Student Aid officials stated that 

contracting officials monitor the location where contractors perform 

services for the programs through the office’s general contract monitoring 

efforts. These efforts include reviewing financial and performance audits, 

inspecting agreed-upon products, reviewing invoices, and conducting site

visits. For debt collection contracts, Student Aid requires contractors and 

their subcontractors to provide bi-annual updates of the locations where 

they perform services. 

Student Aid officials told us that a departmental requirement for 

contractor employees to be U.S. citizens or lawful permanent residents has 

the effect of preventing contractors from performing some services 

offshore in the FFEL and Pell Grant programs. Education has varying 

levels of security screenings for contractors based on the risk level 

associated with the work being performed. Before proceeding with 

appropriate security screenings for contractor employees working in high

risk positions, Education requires employees to be either U.S. citizens or 

lawful permanent residents who have resided continuously in the United

States for a minimum of 3 years.12 The residency requirement is associated 

with the security screening and it was not established to limit offshoring; 

however, it has the effect of ensuring that departmental contractors are in 

fact performing their services in the United States. The residency 

requirement applies to all high-risk contractor employees, including those 

working on the FFEL and Pell Grant contracts. We did not find anything in

the department’s policy that restricted U.S. citizens from performing 

contracted work offshore. 

Similar to Education, the federal agencies that administer the TANF, Child 

Support Enforcement, Food Stamp, and Unemployment Insurance 

programs also have processes for ensuring that federal contractors 

undergo the appropriate OPM background investigations. Like the 

 12High-risk positions include those with access to Education’s IT systems that allow for the

bypass of security controls or access. Such high-risk positions include firewall 

administrators, data entry team leaders, Web server administrators, and security 

administrators. The Department of Education’s policy states that “every effort must be 

made to minimize and where possible eliminate, the number of non-U.S. citizens employed 

in High Risk level positions; this applies to all contractors and sub-contractors.” 

Page 23 GAO-06-342 Offshoring in Six Human Services Programs 
Department of Education, they have department-level requirements that 

contractor employees be U.S. citizens or legally permitted to work in the 

United States in order to perform high-risk work. However, these agencies

have not established any requirements that would mandate either U.S. 

citizenship or a minimum period of residence in the United States (for 

lawful permanent residents) for state governments that are employing 

contractors for state administration of the TANF, Child Support 

Enforcement, Food Stamp, and Unemployment Insurance programs. 

While the federal agencies have established requirements for the four 

state-administered programs to protect private information and 

information systems, states determine how to implement the protections 

and can establish their own policies and requirements. In some cases, such 

as in New Jersey and Arizona, state requirements are stricter than those 

passed down from the federal offices.13 For example, the federal office that

administers the Food Stamp program requires that states ensure the 

privacy of household data and provide benefit and data security in state 

EBT systems. The federal office does not prescribe the specific measures 

states should take in protecting private information and states can take a 

range of measures including encryption, password protection, physical 

security measures, and requiring contractors to sign confidentiality 

statements. 

The federal Office of Child Support Enforcement requires states to apply a 

range of minimum physical and system security measures concerning their 

child support enforcement systems. New York, for example, also requires 

subcontractors working on child support enforcement contracts to sign 

confidentiality statements. In addition, New York also requires contractors 

and subcontractors to complete a background questionnaire that asks 

questions related to criminal or civil investigations, adherence to labor 

laws and other regulations, and the number of employees based outside of

the United States. 

 13New Jersey and Arizona have banned offshoring in state contracts for services. We 

discuss these bans in more detail in our section of the report on what actions states and the

federal government have taken to limit offshoring. 

Page 24 GAO-06-342 Offshoring in Six Human Services Programs 
State Officials Cited 

Cost Savings as a 

Benefit of Contracting 

with Companies That 

Offshore Services and 

Few Officials 

Reported Any 

Problems with 

Offshored Services 

State officials reported that contracts with some services performed 

offshore cost less than contracts with all services performed within the 

United States and the magnitude of cost savings varied across states. The 

cost savings associated with their contracts with offshoring tend to be 

higher when the alternative is performing all the contracted services 

within their own state, versus somewhere within the United States. While 

state program directors recognized lower costs as a benefit of contracts 

with some offshoring, most program officials we interviewed did not 

report any problems with the quality of services performed by offshore 

providers. 

All 15 state program directors that reported having performed cost 

comparisons for their contracts, based on differences in the location of 

services, reported that cost savings are associated with having some of the 

work performed offshore.14 The cost savings associated with their 

contracts that have some offshored services tend to be higher when the 

alternative is performing all the contracted services within their own state, 

versus somewhere within the United States. For example, these 

comparisons showed that their contracts, with some services performed 

offshore, would cost from about 15 to 32 percent less than if all the 

services in these contracts were to be performed in-state. Their contracts, 

with some services performed offshore, would cost from about 0.3 to 

24 percent less than if all the services in these contracts were to be 

performed somewhere within the United States. State program directors 

obtained these comparative cost data from contractors through bids or 

through the process of relocating or considering the relocation of an 

offshored service to the United States. The contract prices across the 

states varied, in part, because of differences in the contracts themselves or 

the different companies that provided services. 15 These cost savings 

Magnitude of Cost Savings 

for Contracts in Which 

Some Services Are 

Performed Offshore Varies 

by State 

 14India was the offshore location in all but one of these cost comparisons. 

15For EBT contracts in the Food Stamp and TANF programs, caseloads could also impact

the total contract price because EBT pricing is based on the number of cases in the

contractors’ systems. EBT contracts are priced by a unit known as the cost per case month. 

Companies charge states a cost for each case in the EBT system. This price fluctuates as 

the total caseload increases or decreases. Typically, the larger the caseload, the lower the 

cost per case month price will be. Therefore, for some TANF cases the prices are higher

than for Food Stamps, because the TANF caseloads are relatively small. 

Page 25 GAO-06-342 Offshoring in Six Human Services Programs 
figures likely understate the cost savings associated with performing a 

specific service offshore versus in the United States because the figures 

represent savings in the cost of a total contract, and we know that in many 

cases only a few services are offshored in these contracts. Table 2 

provides more detailed information by state and program for the cost 

comparisons.16

Table 2: Percent Cost Savings Represented by States’ Contracts with Some Offshored Services

Food Stamp TANF

Unemployment 

insurance 

Type of contract for

which the comparison

was made

Approximate annual 

contract valuea

Percent Cost Savings for Contracts with Offshoring When Compared to Performing All Contracted Services In-State 

Missouri 15 28 b EBT b 

Mississippi b b32 Software programming $1,200,000

Percent Cost Savings for Contracts with Offshoring When Compared to Performing All Contracted Services Somewhere in

the U.S. 

Alabama 8 10 b EBT 3,721,332 

Alaska 18 b bEBT 554,000

Arizona b 16 b EBT 6,287,000

Arkansas 3 3 b EBT 2,913,905

Idaho 18 b bEBT 1,159,343

Kansas 5 5 b EBT 852,251

Nebraska 13 b bEBT 2,027,256

New York 0.3 0.3 b EBT 24,000,000

Oregon 12 12 b EBT 2,760,000

Pennsylvania 3.6 3.6 b EBT –

Utah 5 5 b EBT 1,720,000

West Virginia 9 b bEBT 4,200,000

Wisconsin 24 b bEBT 3,000,000 

 Source: GAO analysis of survey and interview data from state officials. 

a

The percentages for TANF and Food Stamps are for the same EBT contract. We did not receive 

contract values from Missouri and Pennsylvania. 

b

In cases where we did not list a percentage, the programs did not provide estimates of cost savings.

The contractors we interviewed confirmed that performing services 

offshore would typically cost states less than performing services within 

 16State officials did not report performing any cost comparisons for the child support 

enforcement program. 

Page 26 GAO-06-342 Offshoring in Six Human Services Programs 
the United States or within a specific state, and the average cost savings 

figures they provided mirrored those reported by state officials.17

Contractors providing EBT services, for example, said that reasons for 

offshoring call centers to India were to reduce operating costs, improve 

the quality of customer service, and find people who were willing to work 

overnight. Contractors we interviewed also told us that they consider 

multiple factors, including state requirements, volume of work, and 

competitive pricing, in pricing services performed within and outside of 

the United States. These contractors also consider the methods for 

determining a price to be a trade secret. When calculating the price 

increase to move services from an offshore location to the United States,

contractors generally take into account the planning of resources to 

manage the transition, install equipment, train staff, evaluate the need for 

subcontracting, and manage quality assurance. 

Few State Officials 

Identified Problems 

Associated with Offshoring 

Most state officials we interviewed did not report any problems with the 

quality of services by offshore contractors. However, it is unclear how 

much these reports reflect the actual extent of performance problems of 

offshore providers in these programs. While some state officials may be 

knowledgeable of the performance of their offshore subcontractors, 

others may rely on their primary contractors to monitor these 

subcontractors. 

Few of the 38 state program directors with either current contracts with 

offshoring or contracts where services were recently performed offshore 

but were relocated to the United States identified any problems with 

offshore service providers. The three officials that indicated problems with 

offshored services in their contracts said that those problems were related

to difficulties in understanding the English of software programmers and

customer service representatives in India. Other state officials offered 

positive reactions to the work of their offshore service providers. For 

example, six officials with contracts where EBT call centers were located

in India said that the offshore call centers posed no challenges and 

reported specifically that customer service representatives performed 

well. Two of these six officials said that the call centers were of high 

 17According to several business studies, the primary reasons that organizations engage in

offshoring are to reduce costs and to gain access to a workforce in another country that

can enable them to work around the clock to meet worldwide customer needs. For more 

discussion on the incentives for offshoring see GAO, Offshoring of Services: An Overview

of the Issues, GAO-06-5 (Washington, D.C.: Nov. 28, 2005). 

Page 27 GAO-06-342 Offshoring in Six Human Services Programs 
quality based on their monitoring of calls between customer service 

representatives in India and benefit recipients in the United States. One 

official said that a benefit of having software programming contractors 

based in Poland was that the contractors conducted work overnight and 

had products ready for state staff the next day. 

All but four18 state officials that reported some services in their contracts 

were offshored also reported that the contracted services had never been

performed by state employees. In some cases, such as with EBT, the 

services were new to states, while in other cases, the services were not 

new but had previously been outsourced. In some contracts with 

offshoring, state officials reported that the decision to outsource services 

stemmed, in part, from a lack of state employees with the needed 

expertise. For example, officials in New York stated that they had 

difficulty finding persons with the skill set for a certain software 

programming language. The salaries offered by the state government could 

not meet the higher salaries demanded by persons with the required skills, 

according to state officials. 

 18The circumstances varied in these four states—Connecticut, District of Columbia, 

Florida, and Montana. For example, in Florida, state employees gradually moved out of the 

software programming positions through downsizing, transfers to employment with the

contractor, or general attrition over a 10-year period. In Montana, contractors were not

replacing the state employees, according to a Montana state official. In Connecticut, state 

employees had previously performed some of the services that were outsourced but not the 

specific service that was offshored—maintenance on an automated response system. 

Page 28 GAO-06-342 Offshoring in Six Human Services Programs 
While numerous actions have been proposed at the state and federal levels 

to limit offshoring by government agencies, few restrictions have been 

enacted—and only at the state level—with respect to the six programs we 

reviewed. In addition, eight state programs have required contractors to 

relocate previously offshored services to U.S. locations. There are no 

federal prohibitions specifically relating to the offshoring of services in the 

six programs we reviewed.19

Few States Have 

Taken Actions to Ban 

Offshoring and No 

Federal Provisions 

Specifically Restrict 

Offshoring of Services 

in the Six Human 

Services Programs We

Reviewed 

State Actions Affecting 

Offshoring Vary from Bans 

to Reporting Requirements 

Actions have been proposed in many states to limit offshoring but few 

states have actually taken actions to limit offshoring. State actions 

pertaining to offshoring range from outright bans on offshoring, to 

requirements for contractors to disclose the locations where they will 

perform work, to requirements for state officials to report periodically on 

the extent of offshoring. These actions have been taken through various 

mechanisms, including executive orders, state laws, and agency rules. 

Two states—New Jersey and Arizona—have banned offshoring in state 

contracts. Through a state law, New Jersey has prohibited offshoring in all 

state contracts for services. In a procurement agency directive, Arizona 

prohibited offshoring in state contracts and required state agencies to 

include a specific clause in contracts and future requests for proposals 

that specifies that work must be performed in the United States. Arizona’s 

prohibition does not apply to indirect services, back up services, or 

services deemed incidental to the performance of the contract. Kansas 

prohibited offshoring related to its EBT services and work performed by 

one agency for a limited time in a state appropriations act, but as of June 

2005, this provision was no longer in effect. 

 19The Trade Agreements Act of 1979 (19 U.S.C. 2511) allows the U.S. government to procure 

products and services from entities in designated countries (generally those with which the 

United States maintains certain trade agreements). However, it prohibits procurement from 

entities in countries that are not “designated countries.” (19 U.S.C. 2512.) Neither this act 

nor the Buy American Act (41 U.S.C. 10a) nor their implementing regulations expressly 

mention procurement of services from contractors whose employees are located outside 

the United States. 

Page 29 GAO-06-342 Offshoring in Six Human Services Programs 
At least five states—Alaska, Colorado, Illinois, Minnesota, and Missouri—

have taken actions that do not directly limit offshoring but require that 

information be provided on the location where contracted work is 

performed. For example, Missouri requires contractors to provide 

information in bids for state contracts about the location where work will 

be performed. Missouri allows offshoring if the contractor or 

subcontractor has what the state considers a significant business presence 

in the state and performs a small portion of work under the contract 

outside of the United States or the cost is significantly lower than what it 

would cost to have all of the services provided within the United States. In

Illinois, contractors are required to disclose the location where services 

will be performed prior to signing a contract. Illinois also allows the state 

to make the requirement for disclosure a part of an agency’s request for 

proposals and gives the chief procurement officer authority to consider 

the location where services will be performed in making award decisions. 

In addition to requiring contractors to disclose where they will perform 

work, Minnesota and Illinois also require periodic reports on the extent of

offshoring in state contracts. 

Varied perspectives on the potential effects of services offshoring have

influenced states’ decisions about offshoring.20 For example, executive

orders requiring disclosures by prospective contractors in Alaska, 

Minnesota, and Missouri cited concerns over aggravating unemployment, 

the possible detriment to state economies, and a potential reduction in 

protections for private and personal information. In contrast, legislators 

and elected officials in other states have expressed concerns about 

legislation that would seek to restrict contracting outside the United 

States. For example, in vetoing a bill seeking to prohibit offshoring in 2004, 

California’s governor cited a possible increase in prices paid by the state 

for goods and services and the potential violation of international trade 

agreements. Other concerns expressed by states that did not pass 

proposed legislation restricting offshoring include increased

administrative costs for agencies required to enforce the restrictions, 

added layers of contract approval processes, and the impediment of 

missions of certain agencies, such as tourism boards and economic 

development agencies. 

 20For an overview of expert views of the positive and negative impacts of services 

offshoring on the U.S. standard of living, employment and job loss, income distribution,

and security and privacy, as well as the types of policies that have been proposed in 

response to offshoring, see GAO, Offshoring of Services: An Overview of the Issues, 

GAO-06-5 (Washington, D.C.: Nov. 28, 2005). 

Page 30 GAO-06-342 Offshoring in Six Human Services Programs 
State Actions on 

Offshoring Include 

Relocating Offshored 

Services to the United 

States 

State actions on offshoring also include the relocation of services to the 

United States from their previously offshored locations in some cases. For 

example, in the four state-administered programs we examined, eight 

states have relocated offshored EBT call center services to U.S locations.21

State program directors said that these moves were not required because 

of problems associated with the quality of the services performed 

offshore. Rather, the moves were undertaken by state governments to 

promote local employment and because of concerns raised about 

protections of private client information. One of these states—North 

Carolina—converted the EBT call center into a state-run operation and 

hired local residents to work as customer service representatives. These 

moves often mean that the states will incur increased costs. For example, 

North Carolina now pays an additional $1 million per year to operate its 

own EBT call center. A state official in Arizona estimated that it costs an 

additional $1.2 million annually to have its EBT call center operated within 

the United States; and state officials in some other states indicated that, 

while certain services are currently performed offshore, there were plans 

for relocating these services to the United States. Three states—Nebraska, 

Utah, and West Virginia—chose not to relocate offshored services because

of the increased costs that they would have incurred. 

No Specific Federal

Restrictions Exist on

Offshoring of Services in 

the Six Programs We

Reviewed 

Actions have been proposed at the federal level to restrict offshoring in 

government programs, but there are no current federal restrictions on 

offshoring in the six programs we reviewed. Federal proposals to limit 

offshoring have targeted the Food Stamp and TANF programs. For 

example, proposed legislation to restrict federal funding in a 2004 

appropriations bill would have withheld the federal Food Stamp funding 

match for any state with offshoring in its Food Stamp program, but the 

provision was not passed. Similarly, the House version of the Deficit 

Reduction Act of 2005 would have prohibited the use of federal TANF 

funds for contracts with companies that offshore directly or through 

subcontractors, but this prohibition was also not enacted. 

 21These states are Alaska, Connecticut, Missouri, New Jersey, North Carolina, Oregon,

Pennsylvania, and Wisconsin. This is current as of October 2005 when we completed our

data gathering. 

Page 31 GAO-06-342 Offshoring in Six Human Services Programs 
Our work provides insights into the occurrence and nature of offshoring in 

six human services programs. Despite the widespread media attention, our 

findings show that offshoring of services in state level contracts is not a 

major practice in the four state-administered programs we reviewed. 

Looking forward, there are various factors that could influence offshoring 

in these state programs. As some state legislatures move to restrict 

offshoring, the private sector continues to increase the use of offshore 

resources—often seen as a good business practice. Tighter budgets have 

demanded that states find ways to effectively and efficiently perform their 

administrative work for lower costs. As such, some states will continue to

see a need to outsource program functions to companies that offshore in 

order to achieve such savings. Other states, concerned about the impact of

offshoring on their local economies or workforce, will see a need to 

restrict the occurrence of offshoring in state contracts. Differences in 

federal agencies’ security-related policies for contractors also have 

implications for offshoring in federal human services programs. As we 

have seen, Education’s security-related policies for contractors in the 

FFEL and Pell Grant programs restrict the ability to perform work 

offshore in these programs, whereas the security-related policies of the 

federal agencies for the state-administered programs we examined do not 

have this effect on state-level contracting. Such differences in policies may 

stimulate further debate about the most appropriate balance of policies 

pertaining to security and offshoring in various federal human services 

programs. 

The Departments of Agriculture, Education, Health and Human Services, 

and Labor did not have comments on this report. The Departments of 

Education and Labor provided technical comments that have been 

incorporated as appropriate. 

Concluding 

Observations 

Agency Comments 

and Our Evaluation 

Copies of this report are being sent to the Departments of Agriculture, 

Education, HHS, and Labor; appropriate congressional committees; and 

other interested parties. Copies will be made available to others upon 

request. The report is also available at no charge on the GAO Web site at 

http://www.gao.gov. 

Page 32 GAO-06-342 Offshoring in Six Human Services Programs 
If you or your staff have any questions about this report, please contact me 

at (202) 512-7215 or at nilsens@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Other contacts and staff acknowledgments are listed in 

appendix III. 

Sigurd R. Nilsen 

Director, Education, Workforce, 

 and Income Security Issues 

Page 33 GAO-06-342 Offshoring in Six Human Services Programs 
List of Committees 

The Honorable Michael B. Enzi 

Chairman 

The Honorable Edward M. Kennedy 

Ranking Minority Member 

Committee on Health, Education, Labor, and Pensions 

United States Senate 

The Honorable Saxby Chambliss 

Chairman 

The Honorable Tom Harkin 

Ranking Democratic Member 

Committee on Agriculture, Nutrition and Forestry 

United States Senate 

The Honorable Susan M. Collins 

Chairman 

The Honorable Joseph I. Lieberman 

Ranking Minority Member 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

The Honorable Charles E. Grassley 

Chairman 

The Honorable Max Baucus 

Ranking Minority Member 

Committee on Finance 

United States Senate 

The Honorable Robert W. “Bob” Goodlatte 

Chairman 

The Honorable Collin C. Peterson 

Ranking Minority Member 

Committee on Agriculture 

House of Representatives 

The Honorable Howard P. “Buck” McKeon 

Chairman 

The Honorable George Miller 

Ranking Minority Member 

Committee on Education and the Workforce 

House of Representatives 

Page 34 GAO-06-342 Offshoring in Six Human Services Programs 
The Honorable William M. Thomas 

Chairman 

The Honorable Charles B. Rangel 

Ranking Minority Member 

Committee on Ways and Means 

House of Representatives 

The Honorable Tom Davis 

Chairman 

The Honorable Henry A. Waxman 

Ranking Minority Member 

Committee on Government Reform 

House of Representatives 

The Honorable Joe Barton 

Chairman 

The Honorable John D. Dingell 

Ranking Minority Member 

Committee on Energy and Commerce 

House of Representatives 

Page 35 GAO-06-342 Offshoring in Six Human Services Programs 
Appendix I: Objectives, Scope and 

Methodology 

Page 36 GAO-06-342 Offshoring in Six Human Services Programs 

Appendix I: Objectives, Scope and 

Methodology 

To obtain information to address our objectives for the four state 

programs, we administered two separate Web-based surveys. First, we 

surveyed 204 directors for the Child Support Enforcement, Food Stamp, 

Temporary Assistance for Needy Families, and Unemployment Insurance 

programs in all 50 states and the District of Columbia. We received

responses from 190 of the directors, for a 93 percent response rate. Five 

state directors of Unemployment Insurance programs, one state director 

of Child Support Enforcement programs, three state directors of Food 

Stamp programs, and five state directors of TANF programs did not 

respond to our survey. We asked the directors about contracting policies 

and practices, as well as work performed outside of the United States. We 

also asked each program director to provide us with information on up to

three contracts held by the program: the largest contracts with known 

offshoring or—if there were fewer than three contracts with offshoring, 

contracts where officials were uncertain, or there were no contracts with 

offshore—the largest contracts (in dollars). We then surveyed the 

contractors whose names were provided to determine the types of 

services provided to state programs and where these services are 

performed. Of the 469 contracts covered by the survey, contractors gave

responses for 251 of them, for a response rate of 54 percent. The survey 

data was collected from May 2005 to November 2005. 

We worked with social science survey specialists to develop the 

questionnaires. However, the practical difficulties of conducting any 

survey may introduce errors. For example, differences in how a particular 

question is interpreted, in the sources of information that are available to 

respondents, or how the data are entered into a database can introduce 

unwanted variability into the survey results. We took steps in the 

development of the questionnaires, the data collection, and the data 

analysis to minimize these errors. For example, prior to administering the 

survey, we tested the content and format of the questionnaires with 

several state officials and contractors to determine whether (1) the survey

questions were clear, (2) the terms used were precise, (3) respondents 

were able to provide the information we were seeking, and (4) the 

questions were unbiased. We made changes to the content and format of 

the final questionnaires based on the results of these tests. In that these 

were Web-based surveys whereby respondents entered their responses 

directly into our database, the possibility of data entry error was 

minimized. We also performed computer analyses to identify errors such 

as inconsistencies in responses and contacted survey respondents as 

needed to correct errors and verify responses. In addition, a second 

independent analyst verified that the computer programs used to analyze

the data were written correctly. 
Appendix I: Objectives, Scope and 

Methodology 

To further examine how state officials knew there was no offshoring in 

their contracts, we reviewed contracts. We selected contracts where state 

officials responded that there was no offshoring and that all services were 

listed in the contract. We requested 48 contracts. We contacted the state 

officials responsible for the contracts in our sample and requested a copy

of the contracts. We received all but 1 of the 48 contracts. 

To further understand the nature of contracting for these programs, we 

visited the states of Florida, Utah, and New York, where we interviewed 

state program officials and contractors and reviewed documents 

pertaining to program contracts. We selected these states because 

program directors stated that there were services offshored for at least 

two programs or multiple contracts with offshoring in one program. In 

addition, we conducted follow-up interviews with selected state program 

directors and contractors. 

To examine work performed outside of the United States in two federal 

student aid programs, we interviewed officials from the Office of Federal

Student Aid and the Office of Management at the U.S. Department of 

Education. We reviewed U.S. Department of Education departmental 

directives concerning contractor employee personnel security screenings 

and contract monitoring and contracting documents. We also examined 

previous GAO reports, Congressional Research Service reports, and 

reports from the Office of the Inspector General at the U.S. Department of 

Education. 

To determine what legal actions state governments have taken related to 

offshoring in these programs, we reviewed current laws and executive

orders identified by states through our survey. We also reviewed 

legislation proposed in 2005 and reports from legal experts and databases 

from policy and trade organizations. To determine what federal 

requirements exist that relate to offshoring, we reviewed applicable 

federal laws and regulations, including the Federal Acquisition Regulations 

and other policies and guidance. 

Our work was conducted between January 2005 and February 2006 in 

accordance with generally accepted government auditing standards. 

Information that we gathered through our surveys, on our site visits, and 

during our interviews represent only the conditions present in the states 

and with contractors at the time of our review. We cannot comment on 

any changes that may have occurred after our fieldwork was completed. 

Furthermore, our interviews and site visits focused on in-depth analysis of 

only a few selected states, contractors and contracts. Based on our 

Page 37 GAO-06-342 Offshoring in Six Human Services Programs 
Appendix I: Objectives, Scope and 

Methodology 

interviews, we cannot generalize our findings beyond the states and 

contractors we contacted. 

Page 38 GAO-06-342 Offshoring in Six Human Services Programs 
Appendix II: 

A

GAO Contacts and Staff 

cknowledgments 

Page 39 GAO-06-342 Offshoring in Six Human Services Programs 

Appendix II: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts Sigurd Nilsen (202) 512-7003 nilsens@gao.gov 

In addition to the contact named above, Andrew Sherrill, Assistant 

Director; Tahra Nichols, Analyst-in-Charge; Deborah Owolabi; Amy Sweet; 

Margaret Armen; Carolyn Boyce; Jay Smale; Robert Alarapon; and 

Tovah Rom made significant contributions to this report. 

Staff 

Acknowledgments 
GAO Related Products 

Page 40 GAO-06-342 Offshoring in Six Human Services Programs 

GAO Related Products 

International Trade: Current Government Data Provide Limited Insight 

into Offshoring of Services. GAO-04-932. Washington, D.C.: September 22, 

2004. 

Higher Education: Federal Science, Technology, Engineering, and 

Mathematics Programs and Related Trends. GAO-06-114. Washington, 

D.C.: Oct. 12, 2005. 

International Trade: U.S. and India Data on Offshoring Show 

Significant Differences. GAO-06-116. Washington, D.C.: October 27, 2005. 

Offshoring of Services: An Overview of the Issues. GAO-06-5. Washington, 

D.C.: November 28, 2005.

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