a

GAO

United States General Accounting Office

Report to Congressional Requesters

June 2004 TANF AND CHILD 

CARE PROGRAMS

HHS Lacks Adequate 

Information to Assess 

Risk and Assist States 

in Managing Improper 

Payments

GAO-04-723
www.gao.gov/cgi-bin/getrpt?GAO-04-723.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Linda Calbom 

at (202) 512-9508 or calboml@gao.gov. 

Highlights of GAO-04-723, a report to the 

Chairman, Committee on Finance, U.S 

Senate, and Chairman, Subcommittee on 

Human Resources, Committee on Ways 

and Means, House of Representatives 

June 2004

TANF AND CHILD CARE PROGRAMS

HHS Lacks Adequate Information to 

Assess Risk and Assist States in 

Managing Improper Payments 

The 16 states in GAO’s review reported using various strategies and tools to 

manage improper payments, but their efforts were uneven. Almost all the 

states in the review reported that they performed some activities to assess 

whether their programs were at risk of improper payments. These activities, 

however, did not always cover all payments that could be at risk, focusing, 

for instance, on cash welfare payments but not on payments for services, 

which were more than half of all TANF payments in certain states. As a 

result, the assessments do not provide a comprehensive picture of the level 

of risk in these state programs, which would be useful to HHS as it takes 

steps to address requirements under the Improper Payments Act. States also 

reported using a variety of prevention and detection tools to protect against 

improper payments, but states reported fewer tools in place for CCDF than 

for TANF, particularly in the area of data sharing to verify eligibility. 

Although the states in GAO’s review recognized the importance of 

addressing improper payments, they cited competing demands for staff 

attention and resource limitations that constrained their efforts. While 

addressing improper payments does involve costs, comprehensively 

assessing risks can help focus prevention and detection efforts on areas at 

greatest risk. 

HHS reported using information from its monitoring activities, including 

single audits and state financial expenditure reporting to determine if the 

TANF and CCDF programs are at risk of improper payments. We found 

however, that these activities do not capture information about the various 

strategies and tools that states have in place for managing improper 

payments, such as those we observed in our review. In the absence of such 

information, HHS cannot determine if the TANF and CCDF programs are 

susceptible to significant improper payments, as required under the 

Improper Payments Act. HHS officials acknowledged that they needed more 

information to be in a position to carry out their responsibilities under the 

act and therefore recently initiated several projects to gain a better 

understanding of state control activities. However, HHS’s projects do not 

provide mechanisms to gather information on a recurring basis. The 

absence of such mechanisms hinders HHS’s ability to adequately assess the 

risk of improper payments and assist states in managing improper payments 

in these multibillion dollar programs on an ongoing basis. Given the 

statutory framework of the TANF program, GAO recognizes that HHS may 

determine that it needs legislative action to direct states to provide the 

information it needs to take this approach. 

Minimizing improper payments is 

important given the dollar 

magnitude of the Temporary 

Assistance for Needy Families 

(TANF) and Child Care and 

Development Fund (CCDF) 

programs—about $34 billion in 

federal and state funds expended 

annually. These block grants 

support millions of low-income 

families with cash assistance, child 

care, and other services aimed at 

reducing their dependence on the 

government. At the federal level, 

the Department of Health and 

Human Services (HHS) oversees 

TANF and CCDF. Within states, 

many public and private entities 

administer these programs and 

share responsibility for financial 

integrity. GAO looked at (1) what 

selected states have done to 

manage improper payments in 

TANF and CCDF and (2) what HHS 

has done to assess risk and assist 

states in managing improper 

payments in these programs. To 

address these questions, GAO 

judgmentally selected states that 

varied in geographic location and 

program size. GAO used a survey to 

collect consistent information from 

11 states and visited 5 states. 

GAO recommends that HHS do 

more to gather information on state 

internal control systems and to 

partner with states to address 

improper payments. In response, 

HHS said that its current plans are 

adequate, given the legislative 

restrictions on its ability to regulate 

state TANF programs. 
Page i GAO-04-723 TANF and Child Care Programs

Contents

Letter 1

Results in Brief 4

Background 6

States’ Efforts To Manage Improper Payments Are Uneven 17

HHS Has Limited Information on the Risk of Improper Payments, 

but Has Efforts Under Way to Improve Monitoring Activities and 

Assistance to States 36

Conclusions 46

Recommendations for Executive Action 47

Agency Comments and Our Evaluation 47

Appendixes

Appendix I: Objectives, Scope, and Methodology 50

Information on Selected States 50

Survey of State TANF Directors and Child Care Administrators 54

State Site Visits 56

Review of Federal Role 56

Appendix II: Comparison of Data-Sharing Sources in TANF and CCDF 

Programs Among Surveyed States 57

Appendix III: Comments from the Administration for Children and 

Families 58

Appendix IV: GAO Contacts and Staff Acknowledgments 63

GAO Contacts 63

Staff Acknowledgments 63

Related GAO Products 64

Tables Table 1: Examples of Risk Assessment Activities from States 

Surveyed and Visited 19

Table 2: Types of TANF Payments Covered by States’ Assessment 

of Risks as Reported by Surveyed States 20

Table 3: Extent to Which Surveyed States Reported Estimating an 

Amount of Improper Payments and the Methods Used 21

Table 4: Factors That Have Contributed to Improper Payments over 

the Past 2 Fiscal Years for the TANF Program as Identified 

by Surveyed States 25
Contents

Page ii GAO-04-723 TANF and Child Care Programs

Table 5: Factors That Have Contributed to Improper Payments over 

the Past 2 Fiscal Years for the Child Care Subsidy Program 

as Identified by Surveyed States 26

Table 6: Strategies Used to Prevent and Detect Improper Payments 

as Identified by the Surveyed States 28

Table 7: Activities Reported by Surveyed States to Prevent and 

Detect Improper Payments 29

Table 8: Most Frequently Cited Factors That Make It Difficult to 

Address Improper Payments as Reported by Surveyed 

States 34

Table 9: TANF Expenditures by State and as a Percentage of the 

U.S. Total, Fiscal Year 2002 51

Table 10: Families Receiving TANF Monthly Cash Assistance and 

Percentage of Expenditures Spent on Cash Assistance for 

Fiscal Year 2002 and the Amount of Cash Assistance 

Benefits in January 2003 (in the 16 States) 52

Table 11: CCDF Expenditures by State and as a Percentage of the 

U.S. Total, from Fiscal Year 2002 Appropriation as 

Expended Through September 30, 2002 53

Table 12: Number of Providers Receiving CCDF Subsidies for 

Selected States and Extent of Use of Providers Operating 

Legally without Regulation, Fiscal Year 2001 54

Figures Figure 1: Expenditures of TANF Funds in Fiscal Years 1997 and 

2002 (in percentages) 9

Figure 2: Broad Array of Services and Providers Involved in TANF 

Payment Processes 10

Figure 3: Child Care Payment Process 12

Figure 4: ACF’s Organizational Structure 13

Figure 5: Extent to Which Improper Payments Are a Problem, 

Based on Surveyed States’ Reported Assessment or 

Analysis of Risk 24

Figure 6: Reported Extent of Assistance from HHS on Improper 

Payments from Surveyed States 43

Figure 7: Types of Assistance Surveyed States Said They Would 

Like from HHS 45
Contents

Page iii GAO-04-723 TANF and Child Care Programs

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reproduce this material separately.

Abbreviations

ACF Administration for Children and Families

AFDC Aid to Families With Dependent Children

APHSA American Public Human Services Association

CCDF Child Care and Development Fund

DCI Data Collection Instrument

HHS U.S. Department of Health and Human Services

IEVS Income and Eligibility Verification System

NCCIC National Child Care Information Center

NCSHS National Council of Human Services Administrators

OFA Office of Family Assistance

PARIS Public Assistance Reporting Information System

PRWORA Personal Responsibility and Work Opportunity Reconciliation 

Act of 1996

SSI Supplemental Security Insurance Benefits

SSN Social Security Number

TANF Temporary Assistance for Needy Families

UCOWF United Council on Welfare Fraud
Page 1 GAO-04-723 TANF and Child Care Programs

United States General Accounting Office

Washington, D.C. 20548

A

June 18, 2004 Letr

The Honorable Charles Grassley

Chairman

Committee on Finance

United States Senate

The Honorable Wally Herger

Chairman

Subcommittee on Human Resources

Committee on Ways and Means

House of Representatives

Both the federal government and states have a strong financial interest in 

minimizing improper payments in the Temporary Assistance for Needy 

Families (TANF) and Child Care and Development Fund (CCDF) programs. 

Through these two block grant programs, states receive a fixed amount of 

federal funds each year to design and operate their own programs for 

assisting families with children. For fiscal year 2002, federal and state 

TANF and CCDF expenditures totaled about $34 billion, most of it federal 

funds. States use these funds to design and implement their own 

programs—within federal guidelines—to support millions of 

predominantly low income families with cash assistance, employment, 

child care, and other services aimed at reducing their dependence on the 

government and promoting employment. At the federal level, the 

Department of Health and Human Services (HHS) oversees states’ TANF 

and CCDF programs. Within states, numerous public and private sector 

entities help administer these programs and share responsibility for 

protecting the financial integrity of TANF and CCDF programs. 

Improper payments in TANF and CCDF can include those made to 

individuals who are not eligible, as well as payments made to providers for 

services that are not covered by program rules or services that were billed 

and paid for but never actually provided. Improper payments can also 

result from inadvertent errors—due in part to clerical errors or a 

misunderstanding of program rules—as well as from fraud—an intentional 

act to deceive for gain. 
Page 2 GAO-04-723 TANF and Child Care Programs

Because improper payments in government programs are a long-standing, 

widespread, and significant problem, Congress enacted the Improper 

Payments Information Act of 2002 (the Improper Payments Act).1

 The act 

requires federal managers to review all agency programs and activities; 

identify those that may be susceptible to significant improper payments; 

and take actions to mitigate the risks identified, including actions to 

estimate the amount of improper payments. Like other federal agencies, 

HHS must comply with the Improper Payments Act for all of its programs 

including TANF and CCDF. 

Assessing the risks of improper payments in TANF and CCDF is 

particularly important given changes initiated by the Personal 

Responsibility and Work Opportunity Reconciliation Act of 1996 

(PRWORA).2

 This statute led to states broadening the range and number of 

services and service providers involved in program administration, 

heightening the importance of understanding what steps the states and the 

federal government have taken to address improper payments in these 

programs. In light of the financial resources at stake and the importance of 

TANF and CCDF programs to millions of American families, you asked us 

to determine (1) what selected states have done to manage improper 

payments in the TANF and CCDF programs and (2) what HHS has done to 

assess risk and assist states in managing improper payments in these 

programs. 

To guide our work, we used the Standards for Internal Control in the 

Federal Government and The Executive Guide on Strategies to Manage 

Improper Payments: Learning from Public and Private Sector 

Organizations as a basis to obtain information about each state’s internal 

control structure—control environment, risk assessment procedures, 

control activities, information and communications, and monitoring efforts 

for the TANF and CCDF programs.3

1

Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002).

2

Pub. L. No. 104-193, 110 Stat. 2105 (Aug. 21, 1996).

3

Internal controls are an integral component of an organization’s management that provides 

reasonable assurance that the organization achieves its objectives of (1) effective and 

efficient operations, (2) reliable financial reporting, and (3) compliance with laws and 

regulations. For more information on internal controls see U.S. General Accounting Office, 

Strategies to Manage Improper Payments, GAO-02-69G (Washington, D.C.: October 2001), 

and Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999).
Page 3 GAO-04-723 TANF and Child Care Programs

To determine what selected states have done to manage improper 

payments in these programs, we visited 5 states and surveyed 11 other 

states.4

 We chose these states on the basis of geographic location, level of 

program expenditures, and type of program administration. These states’ 

TANF and CCDF expenditures totaled almost 60 percent of annual national 

expenditures for these two programs.5

 In our five site visits, we gathered 

information on steps taken to identify and address improper payments, 

including interviewing TANF and CCDF program officials, fraud officials, 

and state auditors and reviewing audit reports and other relevant studies. 

In addition, we observed and spoke with program officials in local TANF 

and CCDF offices. We surveyed the other 11 states to obtain similar 

information from TANF and CCDF program officials. In addition, we spoke 

with representatives of national professional associations to discuss state 

program integrity issues and their views on efforts to measure improper 

payments.

To determine what HHS has done to assess risk and assist states in 

managing improper payments in the TANF and CCDF programs, we 

identified and reviewed guidance and policies that described HHS’s 

oversight activities; observed key oversight activities at an HHS regional 

office; reviewed documents, plans, and strategies for identifying improper 

payments; and interviewed HHS finance and program officials. We also 

reviewed results of audits conducted under Office of Management and 

Budget (OMB) Circular No. A-133 and the Single Audit Act.6

 For additional 

details of our scope and methodology, see appendix I. We provided a draft 

of this report to HHS and to the American Public Human Services 

Association (APHSA), the professional organization of state welfare 

officials; HHS’s comments are included in an appendix and technical 

comments from HHS and APHSA were incorporated as appropriate. Our 

4

We visited Georgia, Illinois, Texas, Virginia, and Washington and sent surveys to California, 

Colorado, Florida, Idaho, Kansas, Maryland, Michigan, New Mexico, New York, Ohio, and 

Pennsylvania. 

5

 The 16 states represented 69 percent of TANF expenditures and about 57 percent of CCDF 

expenditures nationwide for fiscal year 2002, the most recent year for which data were 

available. Due to state reporting time frames and time required for HHS’s review of statereported data, fiscal year 2003 data are not yet available. 

6

 31 U.S.C. §§ 7501-7507. Under the act and implementing guidance, independent auditors 

audit federal awards to state and local governments and nonprofit organizations to assess 

compliance with federal financial requirements, including those for TANF and CCDF. 

Organizations are required to have single audits if they expend at least $300,000 in federal 

funds for fiscal years before December 31, 2003 and $500,000 for years after. 
Page 4 GAO-04-723 TANF and Child Care Programs

work was conducted from April 2003 through May 2004 in accordance with 

generally accepted government auditing standards.

Results in Brief The states in our review reported having various strategies and tools in 

place for managing improper payments although these efforts were 

uneven. With the flexibility provided under TANF and CCDF, states 

generally retain responsibility for determining the types and extent of 

internal controls to put in place, with few federal regulations and limited 

guidance in this area. Of the 16 states, almost all reported that they have 

performed some activities to assess the extent to which their programs 

were at risk of improper payments, including reviewing samples of cases, 

conducting fraud investigations, and measuring the amount of improper 

payments in their programs. These assessment activities, however, often 

did not cover all payments that could be at risk. For example, some state 

TANF programs’ risk assessments focused on cash welfare payments but 

did not cover other TANF payments for services, even though such 

payments accounted for more than half of all TANF payments. As a result, 

while these assessments provide useful information, they do not provide a 

comprehensive picture of the level of risks in these states’ programs, which 

would be useful to HHS as it takes steps to address requirements under the 

Improper Payments Act. The 16 states also reported using a variety of 

prevention and detection tools to protect against improper payments, 

although states reported fewer tools in place for CCDF than for TANF, 

particularly in the area of data sharing to verify eligibility. While the states 

we reviewed recognized the importance of addressing improper payments, 

they cited competing demands for attention and resource limitations that 

constrained their efforts. Although addressing improper payments does 

involve costs, comprehensively assessing risks can help focus prevention 

and detection efforts on areas at greatest risk. This in turn can help to 

minimize improper payments and maximize resources that can be directed 

to families in need of program services. The unevenness of the risk 

assessments and other control activities in place may mean there are 

missed opportunities for states to better prevent and detect improper 

payments. 

HHS reported having monitoring activities in place, such as single audits 

and state financial expenditure reporting, that they rely on to determine if 

the TANF and CCDF programs are at risk of improper payments. However, 

we found that these monitoring activities do not capture information about 

the various strategies and tools that states have in place for managing 

improper payments, such as those we observed in our review. Under the 
Page 5 GAO-04-723 TANF and Child Care Programs

Improper Payments Act, HHS is required to determine if the TANF and 

CCDF programs are susceptible to significant improper payments and 

annually report to Congress on its determination. To do so, HHS needs 

information on states’ internal control systems to determine the extent to 

which they are sufficient to protect these programs from significant 

improper payments. HHS has attempted to assess the risk of improper 

payments in these programs using information from its monitoring 

activities, but because this information is limited, the true risk of improper 

payments in these programs has yet to be determined. Recognizing these 

limitations, HHS recently initiated several projects to gain a better 

understanding of state control activities. HHS has also initiated several 

projects to provide additional assistance to states in managing improper 

payments. Many states we surveyed reported not having received 

assistance from HHS specifically related to managing improper payments 

and several reported that they would like assistance in identifying effective 

practices in this area. The projects that HHS has initiated should help 

develop a baseline of information on the various controls that states have 

in place for managing improper payments and thus improve HHS’s ability to 

determine if the TANF and CCDF programs are susceptible to significant 

improper payments. However, HHS’s projects do not provide mechanisms 

to gather information from states on a recurring basis. The absence of such 

mechanisms hinders HHS’s ability to adequately assess the risk of improper 

payments and assist states in managing improper payments in these 

multibillion dollar programs on an ongoing basis. 

To address these issues, this report makes recommendations to HHS to 

develop mechanisms for gathering more information on state internal 

control systems and to partner with states to address improper payments. 

Given the statutory framework of the TANF program, we recognize that 

HHS may determine it needs legislative action to direct states to provide 

the information it needs to implement these recommendations. In 

commenting on a draft of our report, HHS provided clarification and 

expanded views on several issues. In particular, HHS commented that its 

current plan for acquiring additional information and assessing risk is 

adequate in the statutory context of the TANF program. While its efforts to 

gather information are important, they must be expanded if they are to 

provide the detail HHS needs on a recurring basis to ensure it has the 

relevant information to assess risk. HHS also commented that we had not 

addressed its recent initiatives with the states. We disagree. Our draft 

clearly depicts the initiatives planned and underway as described to us by 

HHS officials and in documents we reviewed during our fieldwork. HHS 
Page 6 GAO-04-723 TANF and Child Care Programs

also provided us with technical comments, which we have incorporated as 

appropriate.

Background The TANF and CCDF programs are two of the nation’s key federal 

programs for assisting needy families with children and are an important 

component of states’ social services networks. These two programs each 

consist of more than 50 distinct state-level programs—one for each state, 

the District of Columbia, four territories, and numerous tribal entities. 

Annually, the federal government makes available to each state a portion of 

the (1) $16.5 billion TANF block grant that was established by PRWORA 

and (2) $4.8 billion from CCDF for child care subsidies and other related 

activities. Within HHS, the Administration for Children and Families (ACF) 

oversees states’ TANF and CCDF programs. 

Changes under PRWORA—

TANF

Congress created TANF in 1996 to replace the decades-old Aid to Families 

With Dependent Children (AFDC) program that entitled eligible needy 

families to monthly cash assistance payments. PRWORA made sweeping 

changes to federal welfare policy, including ending individuals’ entitlement 

to aid, imposing time limits on the receipt of aid, and imposing work 

requirements on most adults receiving aid. This federal framework gives 

states the flexibility to design their own programs; define who will be 

eligible; establish what benefits and services will be available; and develop 

their own strategies for achieving program goals, including how to help 

recipients move into the workforce.

PRWORA provides states substantial authority to use TANF funds in any 

way that is reasonably calculated to meet the goals of the program. As 

specified by PRWORA, TANF’s goals include ending the dependence of 

needy families on government benefits by promoting job preparation, 

work, and marriage; preventing and reducing the incidence of nonmarital 

pregnancies; and encouraging two-parent families. These broad goals 

represent a significantly broader scope than AFDC. PRWORA also 

expanded the scope of services that could potentially be contracted out, 

such as determining eligibility for TANF, which had traditionally been done 

by government employees.
Page 7 GAO-04-723 TANF and Child Care Programs

In addition to these programmatic changes, PRWORA dramatically 

changed the fiscal structure of the program and shifted significant fiscal 

responsibility for the program to states.7

 Each year, the federal 

government makes a fixed amount of TANF funds available to each state, 

and a state may reserve some of these funds for use in the future. This 

represents a significant departure from past policy, under which the 

amount of federal funds received was linked to the size of each state’s 

welfare caseload. To receive their federal TANF funds, states must spend a 

specified amount of their own funds each year, referred to as state 

maintenance of effort.

Along with granting states significant flexibility, PRWORA redefined HHS’s 

role in administration of the nation’s welfare system, limiting its regulatory 

and enforcement authority and reducing its staff level for administering 

TANF. Specifically, the law states: “No officer or employee of the Federal 

Government may regulate the conduct of States under this part or enforce 

any provision of this part, except to the extent expressly provided in this 

part.”8

 The law also eliminated the quality control system that HHS used to 

measure payment accuracy of monthly welfare payments under AFDC. 

Under that system, states were required to statistically select a sample of 

cash assistance cases and determine the level of erroneous (improper) 

payments; if a state’s improper payment rate exceeded the targeted error 

rate, it faced a financial penalty.

HHS states in the preamble to TANF regulations that PRWORA reflects the 

principle that the federal government should focus less attention on 

eligibility determinations and place more emphasis on program results.9

 To 

that end, PRWORA gave HHS new responsibilities for tracking state 

performance, including a set of financial penalties for states that fail to 

comply with program requirements and a bonus program for states that 

perform well in meeting certain program goals. Several of these penalties 

reflect new expectations for states to assist recipients in making the 

transition to employment. For example, states face financial penalties if 

7

 See U.S. General Accounting Office, Welfare Reform: Challenges in Maintaining a 

Federal-State Fiscal Partnership, GAO-01-838 (Washington, D.C.: Aug. 24, 2001).

8

42 U.S.C. § 617. For more information on HHS’s changed responsibilities under PRWORA, 

see U.S. General Accounting Office, Welfare Reform: HHS’ Progress in Implementing Its 

Responsibilities, GAO/HEHS-98-44 (Washington, D.C.: Feb. 2, 1998).

9

64 Fed. Reg. 17720, 17722 (Apr. 12, 1999).
Page 8 GAO-04-723 TANF and Child Care Programs

they do not place a minimum specified percentage of adult TANF recipients 

in work or work-related activities each year and if they provide federal 

TANF funds to families who have reached the TANF time limits on receipt 

of aid—60 months over a lifetime. The bonus program was to reward 

states for high performance toward achieving program goals, such as 

moving welfare recipients into jobs and reducing out-of-wedlock births. 

At the same time, Congress, through PRWORA, emphasized the importance 

of sound fiscal management for state TANF programs. One part of the new 

penalty system focused on penalties for states that use funds in violation of 

PRWORA, as identified through audits conducted under the Single Audit 

Act. In addition, the law stated that states are to include in the TANF plans 

that they file with HHS a certification that procedures are in place to 

combat fraud and abuse, although the law does not require the states to 

describe these procedures. Moreover, states are required to continue 

participating in the Income and Eligibility Verification System (IEVS) that 

provides information from various sources to help verify eligibility 

information.

As state TANF programs have evolved since implementation, the nation’s 

welfare system now looks quite different than it did under AFDC, posing 

some challenges for defining and measuring improper payments. As our 

previous work has shown,10 welfare agencies now operate more like job 

centers, taking steps to move recipients into work and providing aid to help 

families avoid welfare. States now spend most TANF funds on a broad 

array of services for families rather than on monthly cash assistance, as 

shown in figure 1. These services include employment services, case 

management services, support services such as child care and 

transportation, and pregnancy prevention among others. In addition, states 

offer various services to other low-income families not receiving welfare, 

including child care and employment and training services.

10For more information on GAO’s work on welfare agencies, see U.S. General Accounting 

Office, Welfare Reform: Improving State Automated Systems Requires Coordinated 

Federal Effort, GAO/HEHS-00-48 (Washington D.C.: Apr. 27, 2000). 
Page 9 GAO-04-723 TANF and Child Care Programs

Figure 1: Expenditures of TANF Funds in Fiscal Years 1997 and 2002 (in percentages)

Sources: HHS and Congressional Research Service.

Note: HHS data from TANF Annual Report for fiscal year 2002. 

a

This category includes spending for a variety of services, such as transportation, pregnancy 

prevention, and promoting family stability and child welfare.

In addition to the broad range of services provided by TANF programs, 

more entities receive and administer TANF program funds than before, 

posing additional challenges for states in managing improper payments. In 

many states, county or local governments receive TANF funds and are the 

key TANF administrative agencies, sometimes establishing their own 

policies and programs. States may also distribute TANF funds to several 

different state agencies to provide services. States and localities also may 

contract with a multitude of nonprofit and for-profit organizations. In our 

2002 report on TANF contracting, our survey to states identified more than 

5,000 TANF contracts with nongovernmental organizations at the state 

level and at least 1,500 contracts at the local level.11 We also found that in 

2001, about a quarter of states contracted out 20 percent or more of TANF 

funds expended for services in fiscal year 2000, ranging up to 74 percent. 

Figure 2 shows the broad range of services for which TANF payments are 

made and the entities involved in the TANF payment processes. 

Basic cash assistance

11

Systems and administration

11 Work-related activities

Child care

11

Othera

29

38

Basic cash assistance

Systems and administration

Work-related activities

Othera 4

8

10

78

1997 2002

11The survey instrument used in this report did not cover all counties in the states examined; 

therefore, the total number of TANF-funded contracts may be understated. For more 

information on TANF contracting, see U.S. General Accounting Office, Welfare Reform: 

Federal Oversight of State and Local Contracting Can Be Strengthened, GAO-02-661

(Washington, D.C.: June 11, 2002).
Page 10 GAO-04-723 TANF and Child Care Programs

Figure 2: Broad Array of Services and Providers Involved in TANF Payment Processes

a

 States, and in some cases localities, also contribute funds.

b This category includes spending for a variety of services, such as transportation, pregnancy 

prevention, and promoting family stability and child welfare.

State

government

Federal

government

Other state

and local

public entities

Nonprofit

organizations

For profit

organizations

State and

local welfare

agencies

End dependence of

needy parents by

promoting job

preparation, work,

and marriage

Prevent and reduce

out-of-wedlock

pregnancies

Encourage the

formation and

maintenance of

two-parent families

Provide assistance

to needy families

Basic cash

assistance

Child

care

Work-related

activities Otherb Administration

and information

technology

Funds are disbursed to organizations

Funds are

disbursed to states

Funds are disbursed to organizations

Many different entities

receive TANF fundsa

To provide a wide array of

services and activities

To meet these broad

TANF goals

Source: GAO.
Page 11 GAO-04-723 TANF and Child Care Programs

Changes under PRWORA—

CCDF

PRWORA also combined several existing child care programs into one 

program designed to provide states with more flexible funding for 

subsidizing the child care needs of low-income families who are working or 

preparing for work. CCDF provides states funds to subsidize child care 

assistance for families with incomes up to 85 percent of state median 

income who are working or in education or training. Under CCDF rules, 

eligible participants are to be allowed parental choice of child care 

providers, including center-based, home-based, or relative care. In 

addition, families are required to contribute to the cost of care, in the form 

of a copayment, unless states exempt families below the poverty level from 

this requirement. CCDF rules also provide some guidance on establishing 

reimbursement rates for child care providers and requires that a specified 

portion of funds be set aside for activities designed to enhance child care 

quality.12

Within this framework, states establish their own income eligibility criteria 

and determine how the program will be administered. Like TANF, CCDF is 

administered through multiple agencies, including county and local 

governments and nonproft and for-profit organizations. This decentralized 

system can create challenges for determining what constitutes an improper 

payment. Figure 3 illustrates the steps often involved in making child care 

payments.13 In recent years, federal and state CCDF expenditures have 

increased more than 100 percent—from $4.0 billion in 1997 to $8.6 billion in 

2002, the most recent year for which data are available.

12For Regulations on CCDF, see 45 C.F.R. Pt. 98 (2004).

13Under CCDF regulations, state or local CCDF agencies may provide payments directly to 

child care providers or to parents. Payments to parents may be in the form of a child care 

certificate (a check or other disbursement) that may only be used as payment or deposit for 

child care services.
Page 12 GAO-04-723 TANF and Child Care Programs

Figure 3: Child Care Payment Process

HHS’s Administrative 

Structure and Oversight

At the federal level, ACF’s Office of Family Assistance (OFA) is responsible 

for overseeing TANF, and the Child Care Bureau is responsible for 

overseeing CCDF. Staff in the 10 ACF regional offices and the Office of 

Financial Services also assist in overseeing aspects of state TANF and 

CCDF programs. Figure 4 shows ACF’s organizational structure.

State agency

Determines eligibility and child 

care benefit amount, and pays 

family or provider.

Family

Receives child care benefit 

amount from the state, and 

pays provider.

Source: GAO.

Child care

provider

Receives child care benefit 

amount from family or state 

and supplies family with child 

care.
Page 13 GAO-04-723 TANF and Child Care Programs

Figure 4: ACF’s Organizational Structure

OFA is responsible for overseeing TANF and coordinating HHS efforts to 

assist states in managing improper payments in the TANF program. 

Specifically, the office is responsible for (1) developing and implementing 

strategies to assist grantees in implementing and designing programs to 

Assistant

Secretary

Office of

Refugee

Resettlement

Administration on

Children, Youth

and Families

Head Start

Bureau

Family and

Youth Services Bureau

Children's

Bureau

Child Care

Bureau

Office of

Regional

Operations

Administration

on

Developmental Disibilities

Administration

for Native

Americans

Office of

Community

Services

Office of

Legislative

Affairs and

Budget

Deputy

Assistant

Secretary for

Policy and

External

Affairs

President's

Committee

for People with

Intellectual

Disabilities

Office of

Child

Support

Enforcement

Office of

Family

Assistance

Office of

Public

Affairs

Office of

Planning

Research

and Evaluation

Deputy Assistant

Secretary for

Administration

Office of

Financial

Services

Director

Deputy Director

Division of

State TANF

Policy

Division of

State and

Territory

TANF Management

Division of

Data Collection

and Information

Network

Division of

Tribal

TANF

Management

Immediate

Office/

Administration

Program

Operations

Division

Policy

Division

Technical

Assistance

Division

Source: GAO.

10 Regional Offices

Offices responsible for overseeing TANF and CCDF programs
Page 14 GAO-04-723 TANF and Child Care Programs

meet TANF purposes; (2) ensuring compliance with federal laws and 

regulations; (3) implementing national policy and developing regulations to 

implement new laws; (4) developing regulations to implement data 

collection requirements; (5) implementing and maintaining systems for the 

collection and analysis of data, including participation rate information, 

recipient characteristics, financial and administrative data, state 

expenditures on families, work activities of noncustodial parents, 

transitional services, and data used in the assessment of state performance; 

and (6) identifying best practices and sharing information through 

conferences, publications, and other means. 

The Child Care Bureau is responsible for overseeing CCDF programs and 

coordinating HHS efforts to assist states in managing improper payments in 

the CCDF program. The Bureau’s responsibilities include (1) tracking 

grantee program implementation by collecting and analyzing information 

that states are required to report through CCDF plans, financial 

expenditure reports, and administrative data reports; (2) providing 

technical assistance to grantees concerning CCDF through the Child Care 

Technical Assistance Network where the Bureau sponsors national and 

regional conferences and meetings and support the development of 

Technical Assistance materials and websites; (3) developing program 

policy guidance to grantees on the administration of CCDF, including 

questions related to what expenditures are allowable under the program; 

and (4) supporting research to disseminate findings that document 

emerging trends in the child care field. 

OFA and the Child Care Bureau share fiscal oversight responsibility with 

the 10 regional offices that are responsible for reviewing financial 

expenditure reports that states are required to submit as well as assisting in 

other program responsibilities. The Office of Financial Services is the 

HHS-designated lead unit for coordinating reporting on the agency’s efforts 

to manage improper payments in the TANF and CCDF programs. 
Page 15 GAO-04-723 TANF and Child Care Programs

Improper Payments Act In November 2002, Congress passed the Improper Payments Act. The act 

requires the head of each agency to annually review all programs and 

activities that the agency administers and identify all such programs and 

activities that may be susceptible to significant improper payments. For 

each program and activity identified, the agency is required to estimate the 

annual amount of improper payments and submit those estimates to 

Congress before March 31 of the following applicable year. The act further 

requires that for any agency program or activity with estimated improper 

payments exceeding $10 million and 2.5 percent of program payments, the 

head of the agency shall provide a report on the actions the agency is taking 

to reduce those payments.14 

The Improper Payments Act also required the Director of OMB to prescribe 

guidance to implement its requirements. OMB issued guidance on May 21, 

2003, that provides instructions for estimating improper payment rates, and 

requires agencies to set target rates for future reductions in improper 

payments, identify the types and causes of improper payments, and 

highlight variances from targets or goals established. Significantly, the May 

2003 guidance also required 15 agencies to publicly report improper 

payment information for 46 programs identified in OMB Circular No. A-11 

in the agencies’ fiscal year 2003 Performance and Accountability Reports. 

According to OMB, the programs were selected primarily because of their 

large dollar volumes ($2 billion dollars or more in outlays). The TANF and 

CCDF programs are included in the 46 programs. 

Internal Control Framework In most cases, the cause of improper payments can be traced to a lack of or 

breakdown in internal control. Our Standards for Internal Control in the 

Federal Government provides a road map for entities to establish control 

for all aspects of their operations and a basis against which entities’ control 

structures can be evaluated. Also, our Executive Guide on Strategies to 

Manage Improper Payments: Learning from Public and Private Sector

14 OMB guidance for implementing the act added the additional 2.5 percent requirement. 

See OMB Memorandum M-03-13. Improper Payments Information Act of 2002, Pub. L. No. 

107-300 (May 21, 2003).
Page 16 GAO-04-723 TANF and Child Care Programs

Organizations focuses on the internal control standards as they relate to 

reducing improper payments.15 

The five components of internal control—control environment, risk 

assessment, control activities, information and communication, and 

monitoring—are defined in the Executive Guide in relation to improper 

payments as follows:

• Control environment—creating a culture of accountability by 

establishing a positive and supportive attitude toward the achievement 

of established program outcomes.

• Risk assessment—analyzing program operations to determine where 

risks of improper payments exist, what those risks are, and the potential 

or actual impact of those risks on program operations. 

• Control activities—taking actions to address identified risk areas and 

help ensure that management’s decisions and plans are carried out and 

program objectives are met.

• Information and communication—using and sharing relevant, reliable, 

and timely financial and non-financial information in managing activities 

related to improper payments.

• Monitoring—tracking improvement initiatives over time, and identifying 

additional actions needed to further improve program efficiency and 

effectiveness.

15Internal controls are an integral component of an organization’s management that provides 

reasonable assurance that the organization achieves its objectives of (1) effective and 

efficient operations, (2) reliable financial reporting, and (3) compliance with laws and 

regulations. For more information on internal controls, see GAO-02-69G and

GAO/AIMD-00-21.3.1.
Page 17 GAO-04-723 TANF and Child Care Programs

Improper payments in the TANF program can occur in all of the TANF 

payment types: ongoing monthly cash assistance payments to individuals 

or families; one-time payments to individuals or families; and payments 

made to a range of for-profits, non-profits, state agencies, and contractors. 

HHS has instructed states that they should recover any overpayments by 

recouping them from the recipients as a reduction in future TANF cash 

payments or by collecting cash repayments. It also states that the full 

amount of recovered overpayments made after October 1, 1996—PRWORA 

was signed into law in August 1996—is to be retained by the state and used 

for TANF program costs.16 Improper payments in the CCDF program can 

occur in all payment types: payments to child care providers or families. 

States’ Efforts To 

Manage Improper 

Payments Are Uneven

Almost all states we surveyed and visited reported taking some steps to 

assess whether their TANF and CCDF programs were at risk for improper 

payments or to measure the extent of improper payments. However, these 

efforts were uneven--not all states had assessed risks, risk assessments 

often did not cover all program payment types, and states’ measures of the 

amounts of improper payments did not always rely on rigorous 

methodologies. While these assessments provide some valuable 

information, they do not provide a comprehensive picture of the nature and 

extent of improper payments in TANF and CCDF programs among the 16 

states. In addition, while the states reported they have various strategies 

and tools in place to help prevent and detect improper payments, these 

efforts were also uneven. While states understand the importance of 

addressing improper payments, they cited several factors that make it 

difficult for them to adequately manage improper payments. The 

unevenness of internal controls among states may result in missed 

opportunities to further address improper payments. 

16ACF Program Instruction for TANF, Transmittal No. TANF-ACF-PI-2000-2.
Page 18 GAO-04-723 TANF and Child Care Programs

Almost All States Reported 

Some Risk Assessment 

Activities

Almost all the states we surveyed and visited reported performing some 

activities to assess whether their TANF and CCDF programs were at risk of 

improper payments. We defined a risk assessment as a formal or informal 

review and analysis of program operations. The purpose of a risk 

assessment is to determine where risks of improper payments exist, what 

those risks are, and the potential or actual impact of those risks on 

program operations.17 Conducting risk assessments helps to ensure that 

public funds are used appropriately and clients receive the proper benefits. 

Improper payments, including fraud,18 may occur in several different ways 

in the TANF and CCDF programs, involving clients, providers, and agency 

personnel. For example, an inadvertent error may result in an 

overpayment or underpayment when

• a client mistakenly fails to report some income,

• a provider accidentally receives payment due to a billing error, or

• a caseworker incorrectly records some information or makes an error in 

calculating a benefit amount.

Improper payments due to fraudulent activity may occur, for example, 

when

• a client files for and receives benefits in two jurisdictions concurrently,

• a provider claims payment for services not rendered, or

• an agency employee creates a fictitious case and collects the benefit.

In addition, a broad range of state entities may be involved in identifying 

improper payments and measuring the extent to which they occur. For 

17 Risk assessments may include assessing program policies and procedures to identify 

those most at risk of resulting in improper payments; assessing the likelihood that improper 

payments are occurring; and calculating the amount of any improper payments made, for 

example, through a Quality Control system or program.

18For the purposes of this report, we defined a fraudulent payment, considered a subset of 

improper payments, as a payment made based on a participating household, recipient, 

provider, or employee intentionally providing incorrect or insufficient information on which 

eligibility and benefit determinations were made. (A full accounting of an amount of 

improper payments would include those identified as fraudulently obtained.)
Page 19 GAO-04-723 TANF and Child Care Programs

overpayments and underpayments, these state entities may include 

frontline workers, quality control staff, or management staff. State entities 

involved in preventing and detecting fraud may include the state inspectors 

general offices, state fraud units, and state auditors. 

The 16 states we surveyed and visited reported a mix of risk assessment 

activities. These activities include state studies conducted under the Single 

Audit Act and other studies by state auditors, fraud units, and inspectors 

general. States also identified other activities, including reviews of 

program policies, one-time studies or pilots, and regular reviews of client 

cases. States generally reported more activities for TANF than CCDF 

programs. More specifically, TANF-related activities were more likely to 

include regular quality control reviews than CCDF activities, as might be 

expected given the requirements for the previous AFDC program. Table 1 

provides some examples of states’ risk assessment activities.

Table 1: Examples of Risk Assessment Activities from States Surveyed and Visited 

Source: GAO surveys and site visit information. 

State Description of Actions

Colorado CCDF officials conducted a study to determine the extent to which child care 

assistance payments were supported by adequate documentation and records. 

Of these payments to providers, officials determined that 14.7 percent were 

either errors or exceptions to payment. The study included site visits and data 

collection activities in 32 of Colorado’s 64 counties. The study recommended, 

among other things, that additional auditing controls of provider records and 

case files were needed at the local level to ensure that child care was 

appropriately provided and that families were eligible for assistance. 

Illinois Officials conducted an analysis of program risk by identifying ways that 

improper payments occurred in the child care program and examining current 

state policies to identify risk areas that could be addressed. In order to mitigate 

program risk, the study recommended several ways to improve its policies, 

including developing procedures and forms to establish repayment schedules 

for improper payments and providing stronger prevention mechanisms, 

including more sharing of data through computers at initial application. 

Texas TANF officials established work groups that assessed the risk of new policy 

initiatives and considered methods to better manage these risks. One method 

of risk management included developing bulletins that alert program staff to 

new and revised policies to better ensure proper implementation and reduce 

improper payments.

Florida TANF officials reported that quality assurance staff regularly conduct case 

reviews to determine where risks exists. These reviews result in formal reports 

and require district offices to prepare corrective action plans to address the 

findings.
Page 20 GAO-04-723 TANF and Child Care Programs

While states reported performing some risk assessment activities, these 

activities did not appear to be uniformly comprehensive in their coverage 

of all types of program payments. As shown in table 2, many of the states 

we surveyed said they had performed some type of an assessment or 

analysis of risk for three primary types of TANF payments, while others did 

not cover all of these payment types. Three states said they had assessed 

risks for monthly cash payments only. Data from HHS for fiscal year 2002 

showed that in these three states, the percentage of TANF expenditures for 

cash assistance ranged from about 25 percent to more than 50 percent. 

(See app. I for each state’s percentage of TANF expenditures for cash 

assistance.) While fewer states reported assessing risk in payments to 

service providers, states typically have procedures in place to monitor 

these contracting activities, as we reported in our previous work.19

Table 2: Types of TANF Payments Covered by States’ Assessment of Risks as 

Reported by Surveyed States

Source: GAO.

Notes: Based on surveys of state TANF administrators in 11 states. One state did not respond to this 

question.

Most of the states we surveyed and visited reported taking steps to 

measure the extent of improper payments in their TANF and CCDF 

programs as part of their risk assessment activities, although the extent of 

these efforts was mixed. As shown in table 3, the surveyed states reported 

relying on a variety of methods to calculate their measures of improper 

payments. For the TANF program, four of the surveyed states (California, 

Maryland, Michigan, and Pennsylvania) as well as one site visit state 

(Texas) reported that they relied on a statistically representative sample to 

estimate an amount of improper payments, although these generally 

covered TANF monthly cash assistance payments only. Among the 

19 See U.S. General Accounting Office, Welfare Reform: Federal Oversight of State and 

Local Contracting Can Be Strengthened, GAO-02-661 (Washington, D.C.: June 11, 2002).

Number of states

Monthly cash 

assistance 

payments

Payments for other 

benefits or 

services

Payments to 

service providers

6 ✔ ✔ ✔

1 ✔ ✔

3 ✔
Page 21 GAO-04-723 TANF and Child Care Programs

surveyed states, fewer reported estimating an amount of improper 

payments for the CCDF program than for the TANF program. Compared 

with TANF, CCDF measures of improper payments generally occurred on a 

more ad hoc basis, such as a one-time study or pilot effort that covered one 

jurisdiction of a state, and were less likely to result from regular reviews of 

cases. In one state we visited, child care officials said they estimated the 

amount of improper payments for the largest subsidized child care program 

but not the other three programs also supported with CCDF funds. 

Table 3: Extent to Which Surveyed States Reported Estimating an Amount of Improper Payments and the Methods Used 

Methods Used by States to Estimate Improper Payments

State

Has 

estimated 

the amount 

of improper 

payments

Findings 

from 

State’s 

Single 

Audits

Findings 

from other 

state or 

local 

auditors

Findings 

from state 

or local 

fraud units

Reviews of 

service 

provider or 

contractor

Reviews of 

sampled cases 

(not statistically 

representative of 

all payments)

Statistically 

representative 

sample of 

cash 

payments Othera

TANF

California Yes ✔ ✔

Colorado No

Florida Yes ✔ ✔

Idaho Yes ✔ ✔ ✔ ✔

Kansas Yes ✔

Maryland Yes ✔ ✔

Michigan Yes ✔ ✔ ✔

New Mexico Yes ✔ ✔ ✔ ✔

New York No

Ohio Nob

Pennsylvania Yes ✔

CCDF 

California No

Colorado Yes ✔ ✔ ✔ ✔ ✔

Florida Nob

Idaho Yes ✔ ✔

Kansas Yes ✔

Marlyand Yes ✔

Michigan No

New Mexico Yesc

New York No
Page 22 GAO-04-723 TANF and Child Care Programs

Source: GAO.

Note: Based on surveys of state TANF and CCDF administrators in 11 states. 

a

Other methods that states identified included annual independent program audits, self-reviews 

coordinated by counties, and gathering information from a state’s automated eligibility system. States’ 

automated systems can help identify improper payments through programmed edits and checks on 

data entered and on benefit calculations, for example. 

b

Although the state reponded that it did not calculate an amount, it provided some information on the 

amount of improper payments recovered. 

c

Did not provide information on methods used.

Many of the states we visited and surveyed provided us data on the amount 

of improper payments in their TANF and CCDF programs, but these data 

do not provide a complete picture of the amount of payments in these 

states’ programs and cannot be used for comparisons among states. Too 

often, states’ assessment activities did not measure the amount of improper 

payments among all types of TANF payments, and therefore do not present 

a complete picture of improper payments. In addition, some state data 

included amounts based on overpayments to clients only while others also 

included underpayments to clients based on agency errors. In other cases, 

the amount included only those payments identified as fraudulent but not 

other types of improper payments based on inadvertent mistakes. As a 

result, data were not comparable across states.

However, data on the amount of improper payments, can play an important 

role in states’ program management, helping them to identify program 

areas at risk so they can be addressed and to recover funds when possible. 

The following are some examples of these types of activities from the 

states we visited.20 

Ohio No

Pennsylvania Yes ✔ ✔

(Continued From Previous Page)

Methods Used by States to Estimate Improper Payments

State

Has 

estimated 

the amount 

of improper 

payments

Findings 

from 

State’s 

Single 

Audits

Findings 

from other 

state or 

local 

auditors

Findings 

from state 

or local 

fraud units

Reviews of 

service 

provider or 

contractor

Reviews of 

sampled cases 

(not statistically 

representative of 

all payments)

Statistically 

representative 

sample of 

cash 

payments Othera

20We did not independently verify the data provided by states.
Page 23 GAO-04-723 TANF and Child Care Programs

• In Texas, TANF program officials stated that the quality control unit and 

the fraud unit estimate the amount of improper payments, which include 

client error, agency error, and fraud. The quality control unit uses a 

statistically representative sample of cash payments to calculate 

improper payments and the fraud unit uses all claims established in the 

investigation system to estimate improper payments. Based on these 

methods, Texas officials estimated the amount of improper payments to 

be $6.3 million for the TANF program during fiscal year 2002.21 

Furthermore, officials estimated that $5.7 million in improper payments 

were recovered that same year.22

• In Illinois, child care program officials stated that suspected fraud cases 

are sent to the state Bureau of Investigations to be examined. In 2002, 

the Illinois Office of Inspector General completed 114 CCDF 

investigations, which identified $1,172,293 in overpayments. The office 

cited several examples of fraudulently received child care benefits, 

including the following:

• A client falsified her payroll information to qualify for child care 

assistance. The alleged overpayment was $27,203.

• A client falsified payroll information to qualify for child care and 

failed to report her true earnings. The child care overpayment 

totaled $45,174.

• In Virginia, child care program officials told us that they conducted a 

pilot study to assess the extent of fraud in the child care subsidy 

program. The pilot focused on 3 of the state’s 121 local social service 

offices. During the year-long pilot, a total of 28 fraudulent claims were 

identified, and based on these findings, officials determined that the 

savings that would accrue to the state would justify the costs of fraud 

monitoring. Child care officials identified several examples of 

fraudulent activity, including the following:

• A client failed to report income from a second job, that she was living 

with the child’s father, and the father’s earnings; the total household 

21As reported to HHS for fiscal year 2002, Texas had TANF expenditures of about $741 

million, with about 28 percent of these expenditures for cash assistance.

22 The amount of improper payments recovered in fiscal year 2002 may include some 

overpayments made in previous years.
Page 24 GAO-04-723 TANF and Child Care Programs

income made them ineligible for assistance. The total overpayment 

was $8,944.

• A provider submitted invoices for five siblings for child care provided 

during periods when the provider was not providing care and was not 

living near the children. The total overpayment was $14,931. 

States generally rely on information from risk assessment activities to 

identify the extent of program risks and to highlight problem areas. 

Officials in the states we surveyed responded that on the basis of their risk 

assessments, they did not perceive improper payments to be a great 

problem in either the TANF or CCDF programs. However, some CCDF 

officials reported improper payments as a moderate problem while none of 

the TANF officials did so, as shown in figure 5. 

Figure 5: Extent to Which Improper Payments Are a Problem, Based on Surveyed 

States’ Reported Assessment or Analysis of Risk 

Notes: Based on surveys of state TANF and CCDF administrators in 11 states. One state did not 

respond to this question for the TANF program; two states did not respond to this question for the 

CCDF program.

No

Number of States

TANF

Child Care

Source: GAO.

0

1

2

3

4

5

6

Very

great

Great Moderate Some Little Don't 

know
Page 25 GAO-04-723 TANF and Child Care Programs

As discussed previously, the nature and extent of states’ reported risk 

assessments varied greatly, and often did not cover all payment types. This 

suggests their overall program risk assessments were based on a limited 

perspective. While state officials did not see improper payments as a great 

problem, they had identified factors that contributed to improper payments 

in their programs, as shown in table 4. TANF respondents most often 

identified inaccurate information on income, earnings, and assets and 

clients not meeting participation requirements as factors contributing to 

improper payments. Inaccurate information on income, earning, and 

assets can occur, for example, when clients do not report income from 

employment or changes in earnings that they are required to report and 

that may affect the amount of their payments or basic eligibility for aid. 

Table 4: Factors That Have Contributed to Improper Payments over the Past 2 Fiscal 

Years for the TANF Program as Identified by Surveyed States 

Source: GAO. 

Notes: Based on surveys of state TANF administrators in 11 states. Eleven states responded to the 

survey, but not all answered each question or item.

a

 To be eligible for aid, individuals must meet certain citizenship or legal immigrant conditions. 

Number of states responding

Factors contributing to improper 

payments

Great 

extent

Moderate 

extent

Little 

extent 

No 

extent

Don’t 

know

Related to clients

Nonreporting/underreporting of 

income 4 5 1

Client receiving payment in more than 

one state 6 3 1

Incorrect reporting of assets 2 4 3 1

Incorrect reporting of household size 5 4 1

Incorrect citizenship or immigration 

statusa 5 4 1

Incorrect information on client’s 

compliance with program 

requirements, such as participating in 

required activity 3 3 2 2

Other 

Related to providers

Overstating performance 2 3 3

Claiming for services not rendered 3 3 2

Other 2
Page 26 GAO-04-723 TANF and Child Care Programs

For states’ child care programs, the surveyed officials identified factors 

associated with both clients and child care providers as contributing most 

frequently to improper payments, as shown in table 5. Officials in the 

states we visited identified examples of client- and provider-related 

problems. For example, Virginia CCDF officials identified several cases in 

which clients were no longer working or looking for work and therefore no 

longer eligible for a child care subsidy. Illinois officials cited several cases 

in which the provider gave inaccurate information on the amount of child 

care received. In one case, the provider billed the state for children she had 

stopped caring for, and in another case the provider billed the state for 

watching children during hours when the provider was actually working at 

another job. 

Table 5: Factors That Have Contributed to Improper Payments over the Past 2 Fiscal 

Years for the Child Care Subsidy Program as Identified by Surveyed States 

Number of states responding

Factors contributing to improper 

payments

Great 

extent

Moderate 

extent

Little 

extent

No 

extent

Don’t 

know

Related to clients

Nonreporting/underreporting of 

income 5 1 3

Client receiving payment in more than 

one state 1 3 4

Incorrect reporting of household size 2 4 2

Incorrect citizenship or immigration 

status of child a 4 3

Incorrect information on client’s 

compliance with employment or 

education and training requirements 2 2 1 2

Claiming subsidy for child care not 

received 2 4 3

Other 1

Related to providers

Receiving subsidies for more children 

than served 1 6 3

Receiving subsidies for more hours of 

care than actually provided 4 3 3

Receiving subsidies when not 

meeting any existing licensing 

requirements 2 4 2
Page 27 GAO-04-723 TANF and Child Care Programs

Source: GAO. 

Notes: Based on surveys of state CCDF administrators in 11 states. Eleven states responded to the 

survey, but not all answered each question or item.

a

 To be eligible for aid, individuals must meet certain citizenship or legal immigrant conditions. 

Other: Colorado identified excessive absences of children that the provider billed for and was paid.

States More Likely to Use 

Prevention and Detection 

Tools in TANF Than in 

CCDF

In addition to assessing a program’s risk of improper payments, states 

reported using other key aspects of an internal control system, including 

emphasizing accountability and using tools to prevent and detect fraud, 

although the extent of use varied among the states and was less widespread 

among CCDF programs. For example, states we surveyed sometimes used 

performance goals to instill a culture of accountability by working toward 

improvement and achievement of established program outcomes. Although 

improper payment estimates were incomplete (as noted in the previous 

section), table 6 shows that a majority of TANF programs and two CCDF 

programs surveyed had established goals for reducing improper payments. 

In addition, some states were required to generate reports on improper 

payments to senior government officials. This was also the case in one of 

the states we visited. Texas officials told us they have established 

statewide performance goals for reducing the TANF rate of improper 

payments and hold regional offices accountable for performance 

objectives. If regions fail to meet their objectives, they must draft and 

implement performance improvement plans, which are then monitored by 

state officials. 

Receiving subsidies when no services 

rendered 3 5 2

Other 1 1

(Continued From Previous Page)

Number of states responding

Factors contributing to improper 

payments

Great 

extent

Moderate 

extent

Little 

extent

No 

extent

Don’t 

know
Page 28 GAO-04-723 TANF and Child Care Programs

Table 6: Strategies Used to Prevent and Detect Improper Payments as Identified by 

the Surveyed States

Source: GAO. 

Note: Based on surveys of state TANF and CCDF program administrators in 11 states. One state did 

not respond to part of this question for the CCDF program. 

Greater emphasis on reducing improper payments in state TANF programs 

likely stems from states’ experience under the former AFDC program in 

which the federal government had more guidance and requirements 

specifically related to improper payment levels. In contrast, state CCDF 

assistance programs do not share that history and generally do not have the 

same formal internal control elements in place as in TANF. For example, 

officials in Virginia told us TANF fraud is more under control than child 

care fraud because there are more institutional processes in place to 

manage improper payments. They noted these processes are holdovers 

from the old AFDC program, and pointed out that eligibility workers are 

more aware of improper payment activities in TANF because of the training 

they received under AFDC. Along these lines, CCDF officials in Virginia 

told us they do not have any performance goals or measures for reducing 

improper payments, and pointed out that internal controls aimed at 

reducing fraud for the CCDF program are relatively new.23

In addition to performance goals and reporting requirements, each TANF 

and CCDF program reviewed reported performing a variety of activities to 

verify the accuracy of information to determine client eligibility and the 

proper payment amount, as shown in table 7. For example, Illinois officials 

told us they verify among other things: income, assets, residency, 

relationship of members in household, age, school attendance, and child 

Number of states 

reporting using strategy

Strategy TANF CCDF

Has established goals for reducing improper payments and 

is required to report on improper payments to other 

government entities 2 0

Has only established goals 6 2

Has only a reporting requirement 1 0

Neither strategy in place 2 8

23 Although state programs that administer CCDF and TANF funds may go by different 

names, we refer to them as CCDF and TANF programs in this report.
Page 29 GAO-04-723 TANF and Child Care Programs

support payments, for all appropriate household members to determine 

TANF eligibility. In addition, any caseworker or member of the public who 

is suspicious of welfare fraud is encouraged to complete a one-page on-line 

form that is submitted to Illinois’ Office of Inspector General. Fraud 

investigations are then initiated, if warranted. 

Table 7: Activities Reported by Surveyed States to Prevent and Detect Improper 

Payments

Source: GAO. 

Note: Based on surveys of state TANF and CCDF program administrators in 11 states. NA refers to 

“not applicable.”

As the list of activities in table 7 demonstrates, many CCDF programs 

report that they verify the accuracy of payments to providers as well as 

clients, although this occurs in a variety of ways given the flexibility 

provided to states under CCDF.24 All CCDF programs surveyed reported 

that they confirm the licensing status of regulated child care providers 

before payments are made and most conduct background checks for 

providers. For example, in Texas, CCDF funds are monitored in a two-tier 

system. CCDF funds are distributed by the state to 28 local boards that 

Number of states that report 

listed activity

Activity TANF CCDF

Require documentation from client 11 11

Match automated computer files 11 10

Initiate a fraud investigation if warranted 10 11

Conduct telephone, fax, or e-mail contacts 10 10

Access online databases 9 8

Conduct program integrity or quality control review 7 8

Child care only:

 Confirm licensing status of providers, if warranted NA 11

 Conduct background checks of providers NA 10

 Conduct visits to providers NA 8

24This flexibility allows states to choose how to structure their program, and payment 

controls vary based on the structure developed. Regardless of the program structure, state 

administrators are responsible for general oversight of providers, including safety standards 

and appropriate licensing.
Page 30 GAO-04-723 TANF and Child Care Programs

contract out the CCDF program. Contract monitors at the state level 

identify questionable costs from the boards, while contractors monitor the 

individual providers’ contracts at the local level. 

Some child care providers are not required to be licensed, and some CCDF 

officials reported having a more difficult time monitoring payments to 

these types of providers.25 These legal provider arrangements (referred to 

as unregulated or unlicensed providers) are generally established by 

parents and frequently involve care by a family member. Under CCDF, 

states are to allow parents to make their own decisions on the type of child 

care used, as long as they choose a legally operating provider. CCDF 

officials in Virginia told us there might be more potential for fraud among 

unregulated providers because the officials have little knowledge about 

unregulated providers, and do not feel they have enough tools in place to 

monitor the legitimacy of all unregulated providers. 

In addition to activities taken by states to help ensure initial eligibility, all 

states surveyed reported requiring additional check-ins with clients to 

ensure that their eligibility status has not changed (often referred to as a 

redetermination). Most states surveyed said that they require a 

redetermination at least once every 12 months for both programs, although 

the method of check-in is generally more flexible for the CCDF program. 

For example, the majority of TANF programs require clients to visit the 

TANF office in order to continue receiving benefits. Conversely, most 

CCDF programs allow clients to check in by phone, fax, e-mail, or mail. 

This difference may be explained by state welfare programs’ long history of 

requiring periodic office visits for families to continue receiving monthly 

checks. In contrast, the newer CCDF program can be characterized as an 

important support for working families not associated with traditional 

welfare and the welfare office. Virginia CCDF officials told us 

redetermination methods stem from the philosophy that clients should not 

have excessive requirements to meet agency representatives face-to-face. 

A CCDF official in Washington echoed this sentiment when she told us 

benefit interviews are never meant to interfere with a client’s work or 

training schedule. These views are consistent with CCDF’s objective to 

assist parents with child care so that they can enter or remain in the 

workforce. 

25The licensing and regulating of child care providers is determined at the state level rather 

than the federal level. Under CCDF, any care subsidized must meet the health and safety 

requirements in place in each state.
Page 31 GAO-04-723 TANF and Child Care Programs

One specific activity all the states reported relying on to help identify 

accurate eligibility information was data sharing, although the extent of use 

varied. Data sharing, a key control activity, allows comparison of 

information from different sources to confirm initial and continuing client 

or provider eligibility. All states reported performing at least one data 

sharing activity; however, the amount of data sharing varies greatly 

between the TANF and CCDF programs. Among the states we surveyed, 

while the majority of TANF programs reported data matching with at least 

10 sources, the CCDF programs reported data matching with significantly 

fewer sources. For example, while all of the TANF programs we surveyed 

reported sharing data with the state department of labor or employment 

security to ensure that clients are correctly reporting their income levels,26

only 3 of 11 CCDF programs reported doing the same. Appendix II 

summarizes data matching results from all surveyed states.

The extent to which states reported using data sharing capabilities in TANF 

and CCDF programs varied by program, in part because state TANF 

programs are more likely to have automated information systems that can 

help them analyze large amounts of data from other sources. Some 

possible explanations for this difference may be the greater maturity of the 

TANF program and the existence of data sharing requirements for TANF 

that do not exist for CCDF.27 Additionally, under TANF’s predecessor 

(AFDC), the federal government funded a large portion of state-run 

automated computer system costs in earlier years. Recognizing the 

importance of automated systems in efficiently and accurately determining 

eligibility, Congress acted to encourage states to develop automated 

systems for the AFDC program by authorizing ACF to reimburse states for 

a significant proportion of their total costs to develop and operate 

automated eligibility determination systems that met federal

26State administrators may check with the state department of labor or employment security 

to ensure a client has correctly reported the income level on his or her eligibility 

documentation and is consequently receiving the proper benefit amount.

27 The Social Security Act requires state TANF programs to match with IEVS (see 42 U.S.C. 

§1320b-7). Using IEVS, states routinely match TANF applicant- and recipient-supplied 

information against several data sources including (1) Internal Revenue Service data on 

interest, dividends, and other types of unearned income; (2) Social Security Administration 

data (Retirement, Survivors, and Disability Insurance benefits, Supplemental Security 

Insurance Benefits (SSI), and annual earnings); and (3) state quarterly wage reports and 

unemployment insurance benefits. All TANF survey respondents said they perform this 

match.
Page 32 GAO-04-723 TANF and Child Care Programs

requirements.28 Under PRWORA, states may use their TANF or CCDF 

funds for their automated system needs, although no specific federal 

requirements exist for these systems. 

The level of sophistication of data sharing practices varied in the states we 

visited. For example, CCDF officials in Washington have implemented a 

complex automated system that allows them to find duplicate payments. 

Another automated data sharing resource frequently used with TANF 

programs is the Public Assistance Reporting Information System (PARIS). 

PARIS helps states voluntarily share information on public assistance 

programs to identify individuals or families who may be receiving benefit 

payments in more than one state simultaneously.29 Almost half of the TANF 

programs surveyed participate in PARIS. No CCDF programs surveyed 

participated in PARIS because the project was designed especially for 

Medicaid, food stamps, and TANF. ACF officials said they are considering 

the possibilities of PARIS for the CCDF program. 

Not all data matching is done with automated systems however. Georgia 

CCDF officials told us they had conducted a match with Head Start to 

ensure that families are not being paid twice for child care.30 To conduct 

this match Head Start program officials provided CCDF administrators 

with a printed list of enrolled children, and officials cross-referenced the 

list to look for duplication. Officials noted that the process would have 

been more efficient if it were automated, but speculated that a lack of 

funding or on-going partnership may be reasons the process was not 

computerized. 

28For more information on state automated systems under welfare reform, see GAO/HEHS00-48.

29PARIS was initially an informal project begun by an ACF staff person, joined voluntarily by 

some states, and relying on computer services provided at no cost by Defense Manpower 

Data Center. Participating states sign a uniform agreement that governs the interstate 

exchange of data. Recipient lists for all participating states are matched with one another 

quarterly at a central location, using individuals’ SSNs. Each state subsequently receives a 

list of individuals who may be receiving duplicate TANF, Medicaid, and food stamp benefits 

in other states. For additional information on the PARIS project, see the PARIS Internet site 

at www.acf.hhs.gov/paris and the U.S. General Accounting Office, Public Assistance: PARIS 

Project Can Help States Reduce Improper Benefit Payments, GAO-01-935 (Washington, 

D.C.: Sept. 6, 2001).

30For example, a child may be in Head Start 4 hours a day, and receiving 8 hours of child care 

(for a total of 12 hours of care). If the parent only works 8 hours a day, the family is receiving 

4 hours of benefits to which it is not entitled. Data matching helps ensure the proper amount 

of care is being provided.
Page 33 GAO-04-723 TANF and Child Care Programs

While states reported having implemented many prevention and detection 

tools to manage improper payments, it is difficult to determine the relative 

effectiveness of these efforts. If states routinely performed comprehensive 

risk assessments or rigorously measured improper payments, it would be 

easier to understand the effect of these efforts. Without such strategies, 

success of these initiatives cannot be quantitatively determined, and the 

return on investment is unknown.

States Cited Factors That 

Make It Difficult to 

Adequately Address 

Improper Payments 

While the states visited and surveyed understand the importance of 

addressing improper payments, many cited factors that make it difficult for 

them to address improper payments. Table 8 highlights the most frequently 

cited factors and demonstrates that many concerns were similar for the 

TANF and CCDF programs. Factors frequently cited in both programs 

include competing demands for staff attention and the lack of staff working 

specifically on improper payments. Based on their survey responses, one 

reason states often face competing demands is because they place their 

greatest focus on key mission goals, such as moving TANF clients into 

employment and meeting clients’ child care needs. This is consistent with 

the transformation in the federal welfare program from a cash welfare 

entitlement program to an employment program. Officials in some of our 

site visit states noted that the shift from AFDC to TANF changed the focus 

of the program. For example, Washington state officials said the TANF 

program emphasizes assisting the recipient with the tools needed to obtain 

and maintain employment. Illinois state officials also identified activities 

other than payment accuracy as their primary focus in meeting TANF 

program goals, such as providing income supports including child care 

assistance and transportation. Related to these factors are states’ concerns 

about insufficient funding, with about half of the states citing this as a 

factor for TANF and CCDF. We also heard this concern from some of the 

state auditors we spoke with in site visit states; the auditor general in one 

state said that his office has not conducted any reviews of the TANF and 

CCDF programs outside of the single audit within the past few years, in 

part due to resource limitations and the loss of staff within the department. 
Page 34 GAO-04-723 TANF and Child Care Programs

Table 8: Most Frequently Cited Factors That Make It Difficult to Address Improper 

Payments as Reported by Surveyed States

Source: GAO.

Note: Based on surveys of state TANF and CCDF program administrators in 11 states.

Among CCDF officials, survey respondents were also less likely to have 

focused on managing improper payments and more likely to have focused 

on other aspects of their program, such as matching clients with providers. 

For example, Kansas CCDF officials were concerned that policies and 

monitoring activities developed to prevent improper payments and fraud 

could become overly burdensome, thereby possibly limiting the quality of 

services they provide to the children and families they serve. Officials also 

cited a lack of staff dedicated solely to addressing improper payments as 

problematic for both the TANF and CCDF programs. For example, Illinois 

officials said they have fraud cases that are not investigated due to small 

staff ratios per case or loss of staff. Likewise, Virginia officials stated that 

there is a lack of investigator staff to pursue fraud cases. 

Number of states that cited 

factor as a problem

Factors that make it difficult to address improper 

payments TANF CCDF

Insufficient policies, procedures, and regulations in place 1 4

Insufficient expertise available 4 3

Difficulty obtaining valid or reliable data 1 4

Difficulty obtaining data in time to be useful 4 4

Automated data systems do not provide needed data 2 5

Limited ability to use SSNs for data sharing 0 6

Insufficient funding 5 7

Limit on proportion of funds that can be spent on 

administration 4 3

Competing demands for eligibility caseworkers’ or 

management’s attention 9 7

Insufficient staff working specifically on improper 

payments 8 8

Concerns about “going after” families in need 5 4

Costs of pursuing improper payments perceived to 

outweigh potential benefits 5 7

Reluctance of law enforcement to prosecute 6 4
Page 35 GAO-04-723 TANF and Child Care Programs

States’ concerns about how best to use limited resources highlight the 

importance of risk assessment as a key element of sound internal control 

systems. Risk assessment activities allow an organization to focus often 

limited resources on the most significant problem areas and determine 

where risks exist, what those risks are, and what needs to be done to 

address the identified risks. This helps to ensure that public funds are used 

appropriately and clients receive the proper benefits, thereby helping meet 

the program’s mission and goals. 

Officials also cited problems that were more prevalent in one program than 

the other. In the TANF program, officials expressed more concern about 

the reluctance of law enforcement to prosecute low dollar value cases. For 

example, TANF officials in Virginia told us about law enforcement officials’ 

reluctance to prosecute improper payment cases unless they reach a 

certain dollar amount. The commonwealth attorney in each county 

determines the threshold for prosecuting these cases. 

On the other hand, CCDF officials frequently cited their limited ability to 

use SSNs for data sharing as a problem. While the Social Security Act and 

implementing regulations require SSNs as a condition of eligibility for the 

TANF program, no such law exists for the CCDF program. States may not 

require SSNs for the CCDF program without violating the Privacy Act of 

1974. States may request that applicants provide their SSNs but must make 

clear that supplying the numbers is not required as a condition of receiving 

services.31 HHS has told states they may use alternatives (such as a unique 

case identifier) to the SSN to verify non-applicant income and resources 

when determining eligibility and benefit levels of applicants. Regardless of 

HHS’s position on this issue, CCDF officials in Illinois reported that the 

inability to require SSNs presents the potential for fraudulent payments. 

Similarly, CCDF officials in Florida reported that they would like SSNs to 

be required at the federal level, because they believe the effectiveness of 

data sharing is limited when parents are allowed to report them voluntarily. 

On the other hand, at least one state we reviewed addressed this issue in its 

CCDF program by asking for SSNs, but noting that the provision of them is 

voluntary. This state said that clients provided SSNs in all but 2 percent of 

cases. 

In addition to the SSN issue, CCDF officials often cited insufficient funding 

as a factor that hinders their efforts to address improper payments. For 

31See section 7 of the Privacy Act of 1974, 5 U.S.C. § 552a note.
Page 36 GAO-04-723 TANF and Child Care Programs

example, Washington state CCDF officials said they do not have enough 

money to improve improper payment identifications and recoveries 

because CCDF rules cap administrative costs at 5 percent of the grant, and 

improper payment identification is a very labor-intensive process. Similarly, 

Virginia CCDF officials told us the reason they do not have enough staff 

dedicated to addressing improper payments is a result of the funding 

restrictions imposed by the CCDF’s administrative cap. While some states 

saw the administrative cap as a limitation, others did not. Nationwide, the 

average portion of total funds spent on administrative costs in the CCDF 

program is about 3 percent. In addition, states may structure their 

programs to use state maintenance of effort funds (required to receive a 

portion of their CCDF funds) for these costs because no administrative cap 

exists on these state funds.

ACF officials explained that some activities related to identifying and 

addressing improper payments may not be considered administrative 

activities to be included under the cap. For example, eligibility 

determination and redetermination, training of child care staff, and the 

establishment and maintenance of computerized child care information 

systems are not to be considered administrative activities, and these 

activities can play an important role in states’ efforts to combat improper 

payments. At the same time, CCDF regulations state that activities such as 

program monitoring; audit services, including coordinating the resolution 

of audit and monitoring findings; and program evaluation are considered 

administrative. States’ choices about how they design and structure their 

internal control activities affect the extent to which the administrative cap 

may limit their efforts. 

HHS Has Limited 

Information on the 

Risk of Improper 

Payments, but Has 

Efforts Under Way to 

Improve Monitoring 

Activities and 

Assistance to States

HHS relies on the single audit process and financial expenditure reporting 

to monitor state compliance with federal guidelines and oversee whether 

states expend federal funds properly. These mechanisms, however, do not 

capture information on the various strategies and tools that states have in 

place for managing improper payments. In the absence of such 

information, HHS cannot adequately determine if the TANF and CCDF 

programs are susceptible to significant improper payments, as required by 

the Improper Payments Act. HHS officials acknowledge that they will need 

information on state activities to manage improper payments if they are to 

comply with the Improper Payments Act. As a result, HHS recently started 

several projects to collect information from selected states. HHS also 

initiated several projects to encourage state use of certain tools in 

managing improper payments, such as data matching capabilities. Several 
Page 37 GAO-04-723 TANF and Child Care Programs

states in our review reported that they would like additional assistance 

from HHS in identifying effective practices for managing improper 

payments. While HHS’s projects are a good start, they do not provide 

mechanisms to gather information on state control activities on a recurring 

basis. The absence of such mechanisms could hinder HHS’s ability to 

assess the extent to which program payments may be at risk and comply 

with the Improper Payments Act. 

HHS Monitoring Activities 

Do Not Provide Information 

That HHS Needs to 

Adequately Assess the Risk 

of Improper Payments 

HHS is required to annually review the TANF and CCDF programs to 

determine if they are susceptible to significant improper payments. The 

Improper Payments Act also requires agencies to estimate the amount of 

improper payments if a program is determined to be susceptible to 

significant improper payments. HHS needs information on the various 

controls that states have in place to minimize improper payments in order 

to adequately assess risk. In preparing its 2004 review of TANF and CCDF, 

HHS used findings from single audit reports, the key activity that HHS 

relies on to monitor state fiscal activities. 

Single audits assess whether states have complied with requirements in up 

to 14 managerial or financial areas, including allowable activities, allowable 

costs, cash management, eligibility, reporting, period of availability of 

funds, procurement and subrecipient monitoring.32 Audit findings in many 

of these areas often identify control weaknesses that can lead to improper 

payments. Based on an analysis of single audit findings, particularly 

findings related to eligibility and allowable cost, HHS concluded in its 

January 2004 review that there were no systemic problems or improper 

payment trends in the TANF and CCDF programs. HHS also concluded 

that only a very small percentage of program costs have been classified as 

misspent funds based on the rate of questioned costs included in the Single 

Audit reports, which according to HHS, has been less than .1 percent of 

program costs in recent years. While single audit findings as well as the 

amounts of unallowable or questioned costs that the audits identify are 

useful in determining the potential for improper payments in the TANF and 

CCDF programs, the audits are not designed to provided a complete 

32A previous GAO study on TANF contracting reported that single audits identified 

numerous findings on subrecipient monitoring, including inadequate fiscal and program 

monitoring of local workforce boards and the lack of state procedures to monitor activities 

of TANF subrecipients. Subrecipients for TANF are for-profit, nonprofit, and 

nongovernmental entities that states and localities contract with to provide services. See 

GAO-02-661.
Page 38 GAO-04-723 TANF and Child Care Programs

description of the methods and activities that the states use to minimize 

improper payments. Questioned costs identified in single audits are also 

not intended to provide an estimate of the total amount of improper 

payments, and the methods used to derive questioned costs are not 

consistent among state auditors. For example, we observed variation in 

the methods that auditors used to identify questioned costs when testing 

whether TANF payments are accurate according to states’ eligibility and 

payment criteria. In reviewing the fiscal year 2002 and 2001 single audit 

reports for the five states we visited, we noted that some samples were 

selected statistically so that any questioned costs could be projected to all 

TANF payments and others were not. Also, some auditors determined that 

payments were improper if case files were missing or incomplete while 

others identified improper payments based on the specific eligibility 

criteria that clients failed to meet.

HHS also reported that it considered information from its reviews of state 

expenditure reports in determining if TANF and CCDF payments were 

susceptible to significant improper payments. Federal guidelines require 

states to report on the expenditure of TANF and CCDF funds on a quarterly 

basis. HHS reported that its review of these reports helps to ensure that 

states are properly expending TANF and CCDF funds. However, regional 

office staff said that few resources are devoted to financial expenditure 

reviews and that the reviews are limited in identifying improper payments 

because expenditures are reported on a summary level and states are not 

required to submit detailed financial reports that they would need to 

identify improper payments. As a result, these reviews provide little useful 

information in assessing the risk of improper payments. 

Also, HHS reported that it gains access to information about state practices 

and activities from the TANF and CCDF plans that PRWORA requires states 

to submit to HHS, although this information is not used directly to monitor 

state fiscal activities. The state plans describe the practices that states use 

to meet the key objectives and federal requirements of the TANF and CCDF 

programs. Further for TANF plans, states are required to certify that they 

have procedures in place to combat fraud and abuse. However, states are 

not required to describe these procedures in their TANF plans. Similarly, 

CCDF plans do not require states to describe the procedures that they have 

in place to combat fraud and abuse but HHS officials report that they often 

gain an understanding of state procedures in reviewing and approving 

these plans. 
Page 39 GAO-04-723 TANF and Child Care Programs

HHS Has Some Efforts 

Under Way to Improve 

Monitoring Activities and 

Assistance to States 

HHS officials acknowledged that HHS’s monitoring activities do not 

provide enough information to determine if TANF and CCDF programs are 

susceptible to significant improper payments. In our most recent report on 

governmentwide improper payments initiatives, we reported that HHS did 

not include information on TANF and CCDF improper payments in its 

Performance and Accountability Reports for fiscal year 2003, as required 

by OMB guidance for implementing the Improper Payments Act.33 The 

TANF and CCDF programs are among the 46 programs that OMB required 

agencies to report the results of their improper payment efforts in the 

Management Discussion and Analysis section of their accountability 

reports for fiscal year 2003. Specifically, we reported that HHS did not 

report improper payment amounts, initiatives to prevent and reduce 

improper payments, or impediments to preventing or reducing them. 

HHS has started several initiatives intended to collect more information on 

state efforts to control TANF and CCDF improper payments. HHS has also 

started several initiatives to assist states in managing improper payments 

and to encourage state use of certain tools to minimize improper payments, 

such as data matching capabilities. These initiatives should help HHS 

begin to assess the risk of improper payments and send a strong signal to 

states that managing improper payments is an important issue. They 

should also help states understand that the information they provide HHS 

on the strategies and tools that they have in place to manage improper 

payments is critical to determining whether these programs are susceptible 

to significant improper payments. 

HHS’s initiatives to collect more information on state CCDF programs are 

under way, and HHS is already starting to compile the results. 

CCDF Initiative HHS officials developed the CCDF initiative in September 2003. The 

overall goals of the initiative are to improve monitoring and administration 

regarding improper payments and fraud, provide better definitions of child 

care errors and child care fraud, and gather documented “best practices.” 

HHS officials also expect to identify other technical assistance materials 

and any new information reporting needs for the states. As part of the 

CCDF initiative, HHS recruited a state agency official with experience in 

33U.S. General Accounting Office, Financial Management: Fiscal 2003 Performance and 

Accountability Reports Provide Limited Information on Governmentwide Improper 

Payments, GAO-04-631T (Washington, D.C.: Apr. 15, 2004).
Page 40 GAO-04-723 TANF and Child Care Programs

program integrity to help the Child Care Bureau oversee the initiative. 

According to HHS officials, key actions for completing the initiative 

include:

• Working with selected states to determine whether there is an effective 

and cost efficient approach or methodology for estimating improper 

payment amounts in the CCDF program. 

• Conducting visits to some of the selected states to observe the internal 

control and other activities they have in place to manage improper 

payments.

• Coordinating with the HHS Office of the Inspector General to provide 

training and technical assistance on improper payments and fraud to 

state CCDF officials. 

• Coordinating with the United Council on Welfare Fraud and the 

American Public Human Services Association to discuss child care 

fraud and other issues.

HHS is working with 11 states (Arkansas, Connecticut, Georgia, Indiana, 

Maryland, Ohio, Oklahoma, Oregon, South Carolina, Virginia, and 

Wisconsin) on the project. According to HHS officials, these 11 states 

provide experience in dealing with erroneous payments, knowledge of the 

capacity of their automated systems, and strong working relationships 

among key state agencies. In addition, both centralized and county-based 

organizational structures are represented in the 11 states. 

HHS held initial meetings with the 11 states during November 2003, in 

Washington, D.C. State officials such as child care administrators, fraud 

directors, quality assurance directors, auditors, and investigators 

participated in the meetings along with HHS Child Care Bureau and 

regional office staff. During the meetings, states discussed various 

approaches to controlling errors and fraud. In addition, the Child Care 

Bureau has conducted a number of conference calls with states, including 

one on PARIS.

Since the November meeting, HHS has completed site visits to two states, 

Connecticut and Arkansas, and plans to complete visits to three other 

states—Indiana, Ohio, and Oklahoma—by the end of June 2004. HHS 

officials told us that they would compile all of the information from their 

visits into a report to analyze and identify possible options for estimating 
Page 41 GAO-04-723 TANF and Child Care Programs

payment errors in the CCDF program and for improving program integrity. 

HHS expects to issue its report by September 2004.

TANF Initiatives HHS has developed plans to implement three projects aimed at improving 

its monitoring activities for TANF and assistance to states. HHS is actively 

working with OMB on its implementation plans for the TANF projects to 

ensure that they strike the right balance between the authority that HHS 

has to oversee TANF, as set forth by PRWORA, and the requirements of the 

Improper Payments Act. 

The first project involves asking two states to volunteer for an expanded 

single audit review of their TANF programs by state auditors. Auditors are 

expected to conduct more detailed examinations of certain state controls, 

such as those used to determine that payments are in accordance with 

eligibility criteria and those controls used to oversee payments to entities 

that states contract with to provide TANF services. While this project only 

includes two states, HHS hopes to gain detailed knowledge of the adequacy 

of controls that states have in place to identify improper payments in all 

payment types. HHS said it plans to evaluate the first-year results of the 

project, report the information to OMB, and then decide upon second-year 

initiatives based on the initial results. According to HHS, it must still secure 

funding for these audits and obtain agreement from state auditors to 

perform the additional work. HHS is working with its Office of Inspector 

General to identify states to participate in the pilot project. 

The second TANF project involves collecting and sharing information on 

state activities to address improper payments. HHS is drafting a letter to 

states asking them for information on their “best practices” for addressing 

improper payments. HHS says the letter will request that states describe 

how they define improper payments in the state, the process used to 

identify such payments, and what actions are taken to reduce improper 

payments. HHS noted that the letter will make clear that a state's 

submission is voluntary. HHS also said it is working with OMB to ensure 

that the letter is in accordance with the oversight authority that HHS has 

under PRWORA and requirements under the Paperwork Reduction Act of 

1995.34 According to HHS, it plans to establish a repository for the state 

submissions, which would be available to all states for viewing on an HHS 

Web site. 

34Pub. L. No. 104-13, 109 Stat. 163 (May 22, 1995).
Page 42 GAO-04-723 TANF and Child Care Programs

The third project involves encouraging more states to use PARIS. PARIS is 

the interstate match program that was initiated to help state public 

assistance agencies share information to identify individuals or families 

who may be receiving or may have duplicate payments improperly made on 

their behalf in more than one state. In 2001, we reported on the usefulness 

of PARIS in identifying improper payments in the TANF program along with 

other programs for low-income individuals, such as food stamps and 

Medicaid.35 Currently only 22 states participate in PARIS. Other states 

reported that they do not participate in PARIS for various reasons, 

including the lack of data showing that participating would produce 

savings for their state. 

ACF officials say they have promoted state awareness of PARIS at 

conferences and ACF staff currently participate as members of the PARIS 

board of directors. In addition, HHS’s proposed fiscal year 2005 budget 

includes $2 million for PARIS activities. HHS plans to use $500,000 of the 

$2 million for contractor support to conduct an evaluation of participant 

states' PARIS activities to (1) establish a valid and reliable method for 

calculating the costs and benefits of participating in PARIS and (2) 

disseminate data on cost and benefits to other states. HHS also plans to 

devote a full-time equivalent position to manage the PARIS project. 

In carrying out these projects for TANF and CCDF, HHS expects to also 

provide more assistance to states in managing improper payments. Several 

states that we surveyed said they would like additional assistance from 

HHS in this area. We specifically asked states the following: To what 

extent, if any, have you received assistance from HHS (regional or 

headquarters) regarding identifying and managing improper payments in 

your state’s TANF and CCDF programs--assistance such as responses to 

state queries, any written guidance, any Web-based HHS information, 

conference, presentation, etc.? 

35GAO-01-935.
Page 43 GAO-04-723 TANF and Child Care Programs

Many of the states we surveyed reported that they did not receive 

assistance from HHS regarding managing improper payments. As figure 7 

shows, states reported that HHS generally provided little to no assistance 

for the CCDF program and moderate to some assistance for the TANF 

program on this topic.36 

Figure 6: Reported Extent of Assistance from HHS on Improper Payments from 

Surveyed States

Notes: Based on surveys of state TANF and CCDF program administrators in 11 states. For the CCDF 

program, one state did not respond to this question.

36HHS reported that it provides guidance and technical assistance to the states on matters 

that affect the appropriateness of TANF expenditures such as income requirements for 

TANF eligibility.

Number of states 

TANF

CCDF

Some

extent

Little

extent

No

extent

Very great

extent

Great

extent

Moderate

extent

Source: GAO.

0

1

2

3

4

5

6

Don't 

know
Page 44 GAO-04-723 TANF and Child Care Programs

Several states said they would like additional assistance from HHS in 

managing improper payments. We also asked states if they would like 

assistance from a variety of national organizations, recognizing that other 

organizations play an important role in advising states on how to operate 

their TANF and CCDF programs. TANF officials most frequently indicated 

they would like assistance from the National Council of State Human 

Services Administrators (NCSHS) and the United Council on Welfare Fraud 

(UCOWF), while the CCDF officials primarily wanted assistance from the 

National Child Care Information Center (NCCIC).37 Regarding assistance 

from HHS, most states indicated that they would like additional assistance 

identifying and disseminating promising practices for managing improper 

payments, as figure 8 illustrates. Additionally, most CCDF programs 

reported that they would like HHS to provide guidance on what the federal 

law requires and allows with respect to improper payments. 

37NCSHS represents state and local government, as well as territorial, public human service 

professionals and is associated with APHSA. UCOWF is an organization of investigators, 

administrators, prosecutors, eligibility workers, and claims writers from local, state, and 

federal agencies from the United States and Canada who fight fraud, waste, and abuse in 

social service programs. NCCIC, a project of HHS’s Child Care Bureau, is a national 

clearinghouse and technical assistance center that links parents, providers, policymakers, 

researchers, and the public to early care and education information.
Page 45 GAO-04-723 TANF and Child Care Programs

Figure 7: Types of Assistance Surveyed States Said They Would Like from HHS

Note: Based on surveys of state TANF and CCDF program administrators in 11 states.

The projects for TANF and CCDF should help improve HHS monitoring 

activities as well as assistance to states. If successfully implemented, the 

projects will begin to provide HHS with a baseline of information on the 

various controls that states have in place for managing improper payments 

and thus improve HHS’s ability to determine if the TANF and CCDF 

programs are susceptible to significant improper payments. However, HHS 

projects do not provide mechanisms to gather information on state control 

activities on a recurring basis. The absence of such mechanisms hinders 

HHS’s ability to adequately assess the risk of improper payments and assist 

states in managing improper payments in these multi-billion dollar 

programs on an ongoing basis.

012345678

TANF

CCDF

Guidance on calculating or estimating an error rate

Policies or procedures needed to identify and 

collect improper payments

Identifying and disseminating promising practices

in other states

Guidance on what the federal law requires

Guidance on what federal law allows

Assessing the risks of improper payments

Source: GAO.

Number of states
Page 46 GAO-04-723 TANF and Child Care Programs

Conclusions The extent to which the TANF and CCDF programs are vulnerable to 

improper payments cannot be determined given the information currently 

available nationwide and in the 16 states we reviewed. Given the dollar 

magnitude of these programs—about $34 billion in federal and state 

funds—and the nature of their activities, we know that potential risks exist. 

We also know—based on our review of the 16 states--that states have some 

prevention and detection tools in place and at least some understanding of 

the extent of program risks, although some unevenness exists among states 

and between the TANF and CCDF programs in these areas. 

What is not known, however, is the extent to which states’ internal control 

systems are sufficient to protect these programs against an unnecessarily 

high level of improper payments. While we acknowledge that states have a 

great deal of discretion in TANF and CCDF, HHS continues to have a 

fiduciary responsibility to ensure that states properly account for their use 

of federal funds and maintain adequate internal controls over the use of 

funds. In addition, it has requirements under the Improper Payments Act to 

assess the significance of risks for improper payments, which it cannot do 

with the information currently available. As a result, HHS needs 

mechanisms to gather information on state control activities on a recurring 

basis. 

HHS may determine that it needs legislative action in obtaining information 

from states. HHS may also require a shift in resources or additional 

resources to implement its efforts. It is essential that HHS move ahead 

with and expand its actions to better understand the internal control 

systems that states have in place and the extent to which program 

payments may be at risk. It can also play an important role in exploring the 

usefulness of expanding data sharing systems like PARIS to state CCDF 

programs.

In the short term, program funds lost to fraud and abuse or used to support 

ineligible families mean other needy families cannot be helped. In the 

longer term, it means that federal resources may not be used as effectively 

and efficiently as possible to meet important federal goals. Insufficient 

attention to addressing improper payments can erode public confidence in 

and support for these programs. As HHS moves forward, attention must be 

paid to carefully balancing the flexibility allowed states under law and the 

need for accountability for federal funds. 
Page 47 GAO-04-723 TANF and Child Care Programs

Recommendations for 

Executive Action

To better assist states in managing improper payments in the TANF and 

CCDF programs and comply with the Improper Payments Act, we 

recommend that the Secretary of Health and Human Services direct the 

Assistant Secretary of ACF to take the following four actions: 

• Develop mechanisms to gather information on a recurring basis from all 

states on their internal control systems for measuring and minimizing 

improper payments. 

• Follow through on efforts to identify practices that states think are 

effective in minimizing improper payments and facilitate sharing of 

these with other states.

• Where appropriate, partner with states to assess the cost-effectiveness 

of selected practices.

• Explore the feasibility of expanding PARIS to include CCDF, in addition 

to TANF, including a study of the cost-effectiveness of such a plan.

In recommending these approaches, we recognize that HHS may determine 

that it needs legislative action to direct states to provide the information. 

We also recognize that these approaches may require a shift in resources or 

additional resources.

Agency Comments and 

Our Evaluation

ACF provided written comments on a draft of this report; these comments 

appear in appendix III. It also provided technical comments that we 

incorporated as appropriate. We also provided a draft of the report to the 

American Public Human Services Association, the professional 

organization of state welfare officials, which provided technical comments 

that we also incorporated as appropriate. In its comments, ACF said that 

the report provides HHS with new and useful information. It also 

expressed concerns about our recommendation for collecting information 

on state internal controls as it relates to the TANF program and said we did 

not address its ongoing initiatives.

Regarding CCDF, ACF said it welcomed our examination of improper 

payments in CCDF and added that our work complements its ongoing 

initiative to examine state efforts to address improper payments. While it 

did not specifically state that it agreed with our recommendations as they 

pertain to CCDF, it noted that its new efforts to examine child care 
Page 48 GAO-04-723 TANF and Child Care Programs

improper payments are still in the early stages and it is committed to 

considering a wide range of options for possible next steps. ACF also 

noted that our findings on states' views about the level and usefulness of 

ACF technical assistance related to improper payments may not reflect its 

recent and growing level of effort it provides states in this area. We 

generally spoke with and surveyed states between December 2003 and 

February 2004. As a result, the time period of our review would not cover 

ACF's most recent efforts. 

Regarding TANF, ACF agreed that new and improved information from 

states would enable HHS to better help states address improper payments. 

It also stated, however, that it believed that the assessment of risk called 

for under the Improper Payments Act must be made within the statutory 

framework of the TANF program, which places constraints on ACF to 

regulate state TANF programs. Within this statutory framework, ACF 

thinks its plan for acquiring additional information and assessing risk is 

adequate. It also expressed concern that the draft report did not 

adequately portray the regulatory constraints, particularly in its summary 

sections. In the draft report, we clearly stated the regulatory restrictions 

and noted that HHS may need to pursue additional legislative authority to 

collect the information needed on state internal control systems to assess 

program risk levels. We have added more of this information to our 

summary sections. 

We also recognize, and discuss in the draft report, that ACF has plans to ask 

states to provide voluntarily more information on their efforts to address 

improper payments in order to share that information with all states. We 

agree that this is an important effort; we found that states in our review 

often reported wanting more assistance from HHS on identifying promising 

practices in this area. However, ACF will need to expand upon this effort 

or pursue additional strategies to ensure it has information of sufficient 

detail to gain an understanding of states' internal control systems. Its 

current data collection strategy is not likely to lead to information of 

sufficient detail to adequately assess the risk of improper payments on a 

recurring basis. 

In addition, ACF said the draft did not address the relevant initiatives it has 

undertaken or will undertake during fiscal years 2004 and 2005 and it 

provided information on these initiatives. We disagree. Our draft 

discussed all of the initiatives for the CCDF and TANF programs that ACF
Page 49 GAO-04-723 TANF and Child Care Programs

noted in its comments. We did, however, enhance portions of the 

discussion based on information provided by ACF in its comment letter.

As 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 its 

date. At that time, we will send copies of this report to the Secretary of 

Health and Human Services and others who are interested. In addition, this 

report will be available at no charge on GAO’s Web site at 

http://www.gao.gov. We will also make copies available to others upon 

request.

If you or your staff have any questions about this report, please contact 

Linda M. Calbom on (202) 512-9508 or Calboml@gao.gov or Cynthia M. 

Fagnoni on (202) 512-7215 or Fagnonic@gao.gov. Additional GAO contacts 

and acknowledgments are provided in appendix IV.

Linda M Calbom

Director, Financial Management and Assurance

Cynthia M. Fagnoni

Managing Director, Education, Workforce, and Income Security
Page 50 GAO-04-723 TANF and Child Care Programs

Appendix I

Objectives, Scope, and Methodology ApApenednxidexiIs

We designed our study to provide information on (1) what selected states 

have done to manage improper payments in the Temporary Assistance for 

Needy Families (TANF) and Child Care and Development Fund (CCDF) 

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

(HHS) has done to assess risk and assist states in managing improper 

payments in these programs. To obtain information about these objectives, 

we developed a data collection instrument for state TANF directors and a 

separate one for state CCDF administrators, conducted in-person 

interviews with state TANF and CCDF program officials and state fraud 

officials, conducted telephone interviews with state auditors, reviewed 

information from our prior work, and conducted work at the federal level. 

In addition, we interviewed or consulted officials with professional 

associations including the American Public Human Services Association 

and the United Council on Welfare Fraud. We provided a draft of this report 

to APHSA and HHS. HHS’s comments are included in appendix III and 

technical comments from HHS and APHSA were incorporated as 

appropriate.

We conducted our work from April 2003 through May 2004 in accordance 

with generally accepted government auditing standards. 

Information on 

Selected States 

To obtain information for this report, we judgmentally selected 16 states 

that reflect variations in the following characteristics: geographic location, 

level of TANF and CCDF program expenditures, and size of population. As 

part of our analysis, we sent data collection instruments to 11 states: 

California, Colorado, Florida, Idaho, Kansas, Maryland, Michigan, New 

Mexico, New York, Ohio, and Pennsylvania. We also visited 5 other states: 

Georgia, Illinois, Texas, Virginia, and Washington. Table 9 provides 

information on the amount of TANF expenditures for the 16 states in our 

review and each state’s TANF expenditure as a percentage of the U.S. total. 

The table also shows that together these states represent about 70 percent 

of total U.S. TANF expenditures.
Appendix I

Objectives, Scope, and Methodology

Page 51 GAO-04-723 TANF and Child Care Programs

Table 9: TANF Expenditures by State and as a Percentage of the U.S. Total, Fiscal 

Year 2002

Source: GAO analysis of HHS data.

Note: Information from HHS’s Administration for Children and Families. Numbers may not add to totals 

due to rounding. 

Table 10 provides information on the number of families and children 

served by the TANF program and the percentage of TANF expenditures 

attributed to cash assistance payments for the 16 states in our review. 

State

Total TANF expenditures

(dollars in millions)

State's TANF expenditures

as a percentage of U.S. total

California $ 5,477.3 21.6

Colorado 233.2 0.9

Florida 992.5 3.9

Georgia 510.7 2.0

Idaho 39.3 0.2

Illinois 971.2 3.8

Kansas 137.1 0.5

Maryland 427.7 1.7

Michigan 1,266.8 5.0

New Mexico 123.1 0.5

New York 3,851.5 15.2

Ohio 901.1 3.5

Pennsylvania 1,062.9 4.2

Texas 740.8 2.9

Virginia 264.4 1.0

Washington 627.9 2.5

Total for the states $17,628.1 69.40

Nationwide total $25,414.3 100
Appendix I

Objectives, Scope, and Methodology

Page 52 GAO-04-723 TANF and Child Care Programs

Table 10: Families Receiving TANF Monthly Cash Assistance and Percentage of 

Expenditures Spent on Cash Assistance for Fiscal Year 2002 and the Amount of 

Cash Assistance Benefits in January 2003 (in the 16 States)

Source: HHS and the Congressional Research Service. 

Notes: Information for HHS’s Administration for Children and Families and Gene Falk and Meridith 

Walters, “Cash Welfare Benefit Amounts,” Welfare Reform Briefing Book (Washington, D.C.: 

Congressional Research Service, updated 2003). Numbers may not add to totals due to rounding. 

a

California – (Region 1) benefits. 

b

Washtenaw County benefits. 

c

New York City benefits.

Table 11 provides information on the amount of CCDF expenditures, 

average number of children served, and the state CCDF expenditure as a 

percentage of the U.S. total for the 16 states in our review. The table also 

shows that together these 16 states represent almost 60 percent of total 

U.S. CCDF expenditures.

State

Average monthly number 

of TANF families 

receiving monthly cash 

assistance

Maximum monthly 

TANF benefits for 

three-person family

Percentage

of TANF 

expenditures on 

cash assistance

California 462,328 $ 679a 48.4

Colorado 12,086 356 22.7

Florida 59,013 303 26.7

Georgia 53,678 280 22.4

Idaho 1,369 309 12.9

Illinois 48,091 396 16.0

Kansas 13,958 429 38.4

Maryland 27,132 473 54.4

Michigan 74,338 489b 26.2

New Mexico 17,015 389 68.3

New York 170,430 577c 39.1

Ohio 84,031 373 39.3

Pennsylvania 80,624 421 33.2

Texas 129,937 201 28.4

Virginia 30,051 389 41.6

Washington 54,188 546 49.6

Nationwide total 2,064,373
Appendix I

Objectives, Scope, and Methodology

Page 53 GAO-04-723 TANF and Child Care Programs

Table 11: CCDF Expenditures by State and as a Percentage of the U.S. Total, from 

Fiscal Year 2002 Appropriation as Expended Through September 30, 2002 

Source: HHS’s Administration for Children and Families.

Note: These data represent states’ expenditures from their fiscal year 2002 CCDF appropriations only 

and do not reflect expenditures made from previous years’ appropriations. As a result, these data do 

not represent total expenditures for fiscal year 2002. The total amount of CCDF expenditures by state 

is not yet available for fiscal year 2002. Numbers may not add to totals due to rounding. 

a

Represents most recent data available.

b

Data reported in New York for fiscal year 2002 are incomplete.

Table 12 provides information on the number of providers operating in the 

selected states we reviewed and the percentage of those providers 

operating without regulation.

State

Total federal and 

state expenditures 

(dollars in millions)

State's CCDF 

expenditures as a 

percentage of 

U.S. total

Average monthly 

number of children 

receiving CCDF 

subsidies in fiscal 

year 2001a

(in thousands)

California $592.9 9.6 202.0

Colorado 63.1 1.0 24.5

Florida 287.8 4.7 80.5

Georgia 167.4 2.7 57.8

Idaho 31.0 0.5 9.7

Illinois 332.7 5.4 103.0

Kansas 73.7 1.2 14.9

Maryland 143.8 2.3 21.2

Michigan 122.8 2.0 50.1

New Mexico 61.8 1.0 22.8

New Yorkb 277.7 4.5 180.8

Ohio 438.9 7.1 84.0

Pennsylvania 224.2 3.6 65.1

Texas 371.6 6.0 105.5

Virginia 50.8 0.8 15.9

Washington 282.5 4.6 51.2

Total for the states $3,522.7 57.0 1,089.0

Nationwide total $6,159.7 -- 1,813.8
Appendix I

Objectives, Scope, and Methodology

Page 54 GAO-04-723 TANF and Child Care Programs

Table 12: Number of Providers Receiving CCDF Subsidies for Selected States and 

Extent of Use of Providers Operating Legally without Regulation, Fiscal Year 2001

Source: HHS’s Administration for Children and Families.

Note: These data are the most recent available. 

a

Virginia did not report the number of providers by setting type.

Some limitations exist in any methodology that gathers information about 

programs undergoing change, such as those included in this review. 

Although we did not collect information on the entire population of states 

and therefore cannot generalize our findings beyond the 16 states in our 

review, we have used the information for descriptive/illustrative purposes. 

Survey of State TANF 

Directors and Child 

Care Administrators

To obtain information on what selected states have done to manage 

improper payments in the TANF and CCDF programs, we surveyed states 

using a data collection instrument (DCI) for each program in 11 states. 

These DCIs were identical in many respects to allow comparisons between 

the two programs; the instruments differed to the extent necessary to 

capture different conditions and factors in each program. We pretested the 

instruments in two states with the key TANF and CCDF officials 

State

Total number of child 

care providers 

receiving subsidies 

Percentage of children served 

who were in child care settings 

operating without regulation 

California 91,982 27

Colorado 10,914 22

Florida 13,958 10

Georgia 13,566 7

Idaho 5,191 45

Illinois 98,659 53

Kansas 5,306 16

Maryland 12,694 25

Michigan 87,757 66

New Mexico 9,499 51

New York 53,553 49

Ohio 18,415 0

Pennsylvania 30,866 37

Texas 29,904 18

Virginia 0a 13

Washington 38,451 32
Appendix I

Objectives, Scope, and Methodology

Page 55 GAO-04-723 TANF and Child Care Programs

responsible for program administration and program integrity. In addition, 

we showed the instruments to and received input from Administration for 

Children and Families (ACF) officials at HHS. 

Separate data collection instruments were mailed to TANF directors and 

Child Care administrators in December 2003, and follow-up phone calls 

were made to state TANF and CCDF officials whose DCIs were not 

received by January 9, 2004. We addressed DCIs to each state TANF 

director and child care administrator and requested he or she to consult 

with other state officials who were most familiar with efforts taken to 

manage and identify improper payments to complete the DCI. We received 

responses from all 11 of the state TANF directors and 11 child care 

administrators, although each state did not respond to all questions. We 

did not independently verify the information obtained through the DCI, 

other than for specific dollar amounts for which we asked states to provide 

documentation. Data from the DCIs were double-keyed to ensure data 

entry accuracy and were independently verified. In addition, the 

information was analyzed using approved GAO statistical software (SAS). 

The DCIs included questions on an assessment of risk to decide the nature 

and extent of improper payments in the TANF and CCDF programs; other 

actions taken to prevent, identify, and reduce improper payments, 

including fraudulent payments in the TANF and CCDF programs; and 

assistance and guidance from HHS and other sources.

The practical difficulties of conducting any survey may introduce errors, 

commonly referred to as nonsampling errors. For example, difficulties in 

how a particular question is interpreted, in the sources of information that 

are available to respondents, or in how the data are entered into a database 

or were analyzed can introduce unwanted variability into the survey 

results. We took steps in the development of the survey instrument, the 

data collection, and the data analysis to minimize these nonsampling 

errors. For example, a survey specialist designed the survey instrument in 

collaboration with GAO staff with subject matter expertise. Then, as stated 

earlier, it was pretested to ensure that the questions were relevant, clearly 

stated, and easy to comprehend. When the data were analyzed, a second, 

independent analyst checked all computer programs. 
Appendix I

Objectives, Scope, and Methodology

Page 56 GAO-04-723 TANF and Child Care Programs

State Site Visits To obtain information about each assignment objective and, in particular, 

an understanding of the steps states have taken to identify and address 

improper payments, we interviewed state officials in Georgia, Virginia, 

Illinois, Texas, and Washington. We met with state TANF, CCDF, and fraud 

officials in these states. The interviews were administered using an 

interview guide that included questions similar to those on the DCIs. To 

obtain additional perspectives on TANF and CCDF mechanisms to manage 

improper payments, we conducted observations at local offices in the 

following locations: Springfield, Illinois; Austin, Texas; and Tumwater, 

Washington. In addition, we interviewed state auditors in the 5 states we 

visited and we analyzed state single audit reports conducted under Office 

of Management and Budget’s (OMB) Circular A-133 for 15 of the 16 states in 

our review.1

 We also reviewed documents provided by states that 

described their programs and internal control systems and that 

corroborated any data officials provided on the amounts of improper 

payments. 

Review of Federal Role To identify steps HHS has taken to assess risk and assist states in managing 

improper payments in the TANF and CCDF programs, we identified and 

reviewed policies and procedures that described HHS’s oversight activities; 

observed key oversight activities at an HHS regional office; reviewed 

documents, plans, and strategies for identifying improper payments; and 

interviewed ACF finance and program officials. We also reviewed results 

of audits done under OMB’s Circular No. A-133 and the Single Audit Act.

1

According to a Michigan audit division administrator, audits of the Michigan TANF and 

CCDF programs for 2001 and 2002 have not been completed. Michigan performs a separate 

single audit for each department rather than a state-wide single audit. 
Page 57 GAO-04-723 TANF and Child Care Programs

Appendix II

Comparison of Data-Sharing Sources in TANF 

and CCDF Programs Among Surveyed States ApendxiI

Source: GAO.

Note: Based on surveys of state TANF and CCDF administrators in 11 states.

Number of states that 

report sharing with 

listed data source

Data source TANF CCDF

Income Eligibility Verification System 11 1

Other human services programs in agency/ state 9 5

State department of labor or employment security 11 3

State directory of new hires 8 0

State department of motor vehicles 10 1

Public Assistance Reporting Information System 5 0

Lottery agencies 6 0

Prisons and criminal justice agencies at state level 8 2

National Criminal Information Center 4 1

Local jails 5 1

Credit bureaus 4 1

Financial institutions 5 1

State tax intercepts 7 1

Immigration and Naturalization Service 8 2

K-12 school system 6 3

Community colleges 3 3

Other providers of services, education, and training 4 4

Child support 9 8

Social Security Administration (SSA) form W-2 (wage 

statements) 6 5

SSA Social Security number verification 11 2

SSA Supplemental Security Income data 11 6

SSA death information 7 2

State data (from other states) on length of TANF receipt 8

State data (from other states) on potential concurrent TANF 

receipt 9

State child care licensing data 9

Head Start agencies 2
Page 58 GAO-04-723 TANF and Child Care Programs

Appendix III

Comments from the Administration for 

Children and Families ApendxiI
Appendix III

Comments from the Administration for 

Children and Families

Page 59 GAO-04-723 TANF and Child Care Programs
Appendix III

Comments from the Administration for 

Children and Families

Page 60 GAO-04-723 TANF and Child Care Programs
Appendix III

Comments from the Administration for 

Children and Families

Page 61 GAO-04-723 TANF and Child Care Programs
Appendix III

Comments from the Administration for 

Children and Families

Page 62 GAO-04-723 TANF and Child Care Programs
Page 63 GAO-04-723 TANF and Child Care Programs

Appendix IV

GAO Contacts and Staff Acknowledgments ApendxiIV

GAO Contacts Kimberly Brooks, (202) 512-9038, brooksk@gao.gov

Gale Harris, (202) 512-7235, harrisg@gao.gov

Staff 

Acknowledgments

Elspeth Grindstaff, Amanda Mackison, Kathryn Peterson, Cynthia 

Teddleton, and Kris Trueblood made major contributions to this report. 

Jerry Sandau provided technical assistance in analyzing data. 
Page 64 GAO-04-723 TANF and Child Care Programs

Related GAO Products

Financial Management: Fiscal Year 2003 Performance and 

Accountability Reports Provide Limited Information on 

Governmentwide Improper Payments. GAO-04-631T. Washington, 

D.C.: April 15, 2004.

Financial Management: Effective Implementation of the Improper 

Payments Information Act of 2002 Is Key to Reducing the Government's 

Improper Payments. GAO-03-991T. Washington, D.C: July 14, 2003.

Single Audit: Single Audit Act Effectiveness Issues. GAO-02-877T. 

Washington, D.C.: June 26, 2002.

Welfare Reform: Federal Oversight of State and Local Contracting Can Be 

Strengthened. GAO-02-661. Washington, D.C.: June 11, 2002.

Welfare Reform: States Provide TANF-Funded Work Support Services to 

Many Low-Income Families Who Do Not Receive Cash Assistance. GAO02-615T. Washington, D.C.: April 10, 2002.

Single Audit: Survey of CFO Act Agencies. GAO-02-376. Washington, D.C.:

March 15, 2002.

Human Services Integration: Results of a GAO Cosponsored Conference 

on Modernizing Information Systems. GAO-02-121. Washington, D.C.: 

January 31, 2002.

Means-Tested Programs: Determining Financial Eligibility Is 

Cumbersome and Can Be Simplified. GAO-02-58. Washington, D.C.: 

November 2, 2001.

Strategies to Manage Improper Payments: Learning From Public and 

Private Sector Organizations. GAO-02-69G. Washington, D.C.: October 

2001.

Public Assistance: PARIS Project Can Help States Reduce Improper 

Benefit Payments. GAO-01-935. Washington, D.C.: September 6, 2001.

Welfare Reform: Challenges in Maintaining a Federal-State Fiscal 

Partnership. GAO-01-828. Washington, D.C.: August 10, 2001.

Medicaid: State Efforts to Control Improper Payments Vary. GAO-01-662. 

Washington, D.C.: June 7, 2001.
Related GAO Products

Page 65 GAO-04-723 TANF and Child Care Programs

The Challenge of Data Sharing: Results of a GAO- Sponsored Symposium 

on Benefit and Loan Programs. GAO-01-67. Washington, D.C.: October 20, 

2000.

Benefit and Loan Programs: Improved Data Sharing Could Enhance 

Program Integrity. GAO/HEHS-00-119. Washington, D.C.: September 13, 

2000.

Standards for Internal Control in the Federal Government. GAO/AIMD00-21.3.1. Washington, D.C.: November 1999.

(190085)
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Washington, D.C. 20548

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Public Affairs Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202) 512-4800

U.S. General Accounting Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Service Requested

Presorted Standard

Postage & Fees Paid

GAO

Permit No. GI00