United States General Accounting Office

GAO Report to the Ranking Minority Member,

Subcommittee on Oversight of

Government Management, Committee

on Governmental Affairs, U.S. Senate

June 1995 WELFARE BENEFITS

Potential to Recover

Hundreds of Millions

More in Overpayments

GAO/HEHS-95-111

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-251009 

June 20, 1995

The Honorable Carl Levin

Ranking Minority Member

Subcommittee on Oversight

 of Government Management

Committee on Governmental Affairs

United States Senate

Dear Senator Levin:

This report responds to your request for information on states’ efforts to recover benefit

overpayments in the Aid to Families With Dependent Children, Food Stamp, and Medicaid

programs. It provides information on overpayments collected from clients in 1992—the most

recent year for which data were available for all three programs. It also identifies factors that

help or hinder effective recovery of overpayments, particularly the nature and extent of state

recovery efforts and federal legislation. Additionally, data from our national survey of states on

information about their overpayment recovery practices, upon which parts of this report are

based, are being sent to you under separate cover and will be made available to others upon

request.

As agreed with your office, unless you publically announce its contents earlier, we plan no

further distribution of this report until 15 days from the date of this letter. At that time, we will

send copies to the Chairmen and Ranking Minority Members of the House Committees on Ways

and Means, Agriculture, and Commerce and Senate Committees on Finance and Agriculture. In

addition, we will send copies to the Secretary of Agriculture, Administrator of the Food and

Consumer Service, Secretary of Health and Human Services, Assistant Secretary for Children

and Families, Administrator of the Health Care Financing Administration, Commissioner of the

Internal Revenue Service, and other interested parties. We also will make copies available to

others upon request.

If you have any questions concerning this report, please contact David P. Bixler, Assistant

Director, at (202) 512-7201. Other GAO contacts and major contributors to this report are listed

in appendix IX.

Sincerely yours,

Leslie G. Aronovitz

Associate Director, Income Security Issues
Executive Summary

Purpose Under the legislative proposals that the Congress is considering to reform

the nation’s welfare system, resources for helping America’s low-income

families may become increasingly limited. Under these circumstances, it is

critical that only those people who are eligible for welfare benefits receive

them. In 1992,1

 people who were not entitled to benefits, or not entitled to

the level of benefits provided, received an estimated $4.7 billion in benefit

overpayments by three of the nation’s largest welfare programs—Aid to

Families With Dependent Children (AFDC), Food Stamps, and Medicaid.

These overpayments represent about 4 percent of the total benefits paid in

these three programs.2

 Moreover, nationwide recovery of the

overpayments in these programs, about $333 million, was relatively low:

about 19 percent of AFDC’s estimated overpayments were collected,

7 percent of Food Stamps’, and 2 percent of Medicaid’s.

Given the current national emphasis on federal fiscal responsibility, the

Ranking Minority Member, Subcommittee on Oversight of Government

Management, Senate Committee on Governmental Affairs, asked GAO to

determine (1) what states are doing to recover benefit overpayments, what

are the more effective practices they are using, and what, if anything, they

could do better and (2) what the federal government could do to help

states recover more overpayments.

Background AFDC, Food Stamps, and Medicaid are needs-based programs that provide

either direct financial assistance, food coupons, or payment for certain

medical services to low-income individuals and families. In 1992,

combined federal- and state-funded benefits for these programs totaled

about $161 billion, about three-fourths of which was Medicaid

expenditures. Although the costs of AFDC and Medicaid benefits are shared

by the federal and state governments, Food Stamp benefits are fully

funded by the federal government.

These programs are administered at the state level and overseen at the

federal level by two cabinet-level agencies—the U.S. Department of Health

and Human Services (HHS) and the U.S. Department of Agriculture (USDA).

HHS’ Administration for Children and Families is responsible for AFDC, and

its Health Care Financing Administration is responsible for Medicaid.

1

Fiscal year 1992 was the most recent year for which data on expenditures, overpayments, and

collections of overpayments were available for all three programs.

2

Medicaid benefits for individuals whose Medicaid eligibility is based upon their eligibility for other

programs, such as Supplemental Security Income, were not included in calculating this percentage

because states do not determine these individuals’ eligibility.

Page 2 GAO/HEHS-95-111 Welfare Overpayments
Executive Summary

USDA’s Food and Consumer Service is responsible for the Food Stamp

Program. Administration at the state level includes determining

individuals’ eligibility and benefit levels as well as collecting benefit

overpayments. Federal oversight responsibilities include issuing

regulations, providing technical assistance, and monitoring states’

performance using quality control systems.

In determining eligibility and benefit levels, mistakes are sometimes made

or inaccurate information provided, which results in overpayments of

cash, food coupons, or medical services to clients. Overpayments

generally result when a (1) participating household or individual

intentionally provides incorrect or insufficient information on which

eligibility and benefit determinations are based (fraud), (2) participating

household or individual unintentionally provides incorrect or insufficient

information (client error), or (3) state administering agency incorrectly

determines eligibility or benefits or does not correctly act on

client-reported information (agency error).

To review states’ overpayment recovery efforts, GAO surveyed welfare

program officials in the 50 states and the District of Columbia. To collect

data on ways that the federal government could help improve recovery at

the state level, GAO interviewed federal and state welfare program officials

and reviewed federal legislation and regulations for the three programs.

Results in Brief Increasing state recovery efforts and extending effective federal recovery

provisions to one or more programs could help recover hundreds of

millions of dollars more in benefit overpayments in the AFDC, Food Stamp,

and Medicaid programs. GAO found that the states with the highest

recovery rates in fiscal year 1992 established claims for a greater portion

of their overpayments. To help achieve success in recovering

overpayments, these states used certain practices, and more of them, than

did states with the lowest recovery rates. These practices included more

timely efforts to verify potential overpayments and establishing claims for

overpayments on more difficult cases, such as those involving clients who

subsequently moved out of state. If all states had recovered overpayments

at the same rate as the high-performing states, GAO estimates that an

additional $262 million could potentially have been recovered in 1992.

In addition, extending effective federal recovery provisions to one or more

programs could potentially increase states’ recovery of overpayments.

Federal laws and regulations that facilitate recovery in one program are

Page 3 GAO/HEHS-95-111 Welfare Overpayments
Executive Summary

not always in place in the other two. GAO estimates that extending such

laws to all programs could increase recovered overpayments by millions

more annually.

Principal Findings

Increased State Efforts

Could Potentially Recover

Substantial Overpayments

States with the highest recovery rates—generally the top one-third in each

of the three programs—were at least twice as successful in recovering

overpayments as were the bottom one-third of the states. A key reason

that the higher performing states collected a substantially greater

percentage of their overpayments than low-performing states is that they

established claims for more of their overpayments. These states generally

used a broader array of practices or tools to establish and collect

overpayments, including more timely efforts to verify potential

overpayments and establish claims, establishing overpayment claims on

more difficult collection cases, and using a greater portion of their total

staff on recovery efforts. If all states had been as successful as the top

one-third performing states, GAO estimates that in 1992 an additional

$132 million might have been recovered from AFDC clients, $100 million

more from Food Stamp clients, and $30 million more from Medicaid

clients. (These estimates are gross collections and not net of the costs of

obtaining them.)

Extending Effective

Federal Recovery

Provisions Also Could

Potentially Increase

Collections

Certain limitations in the programs may keep states from recovering

additional millions of dollars of overpayments. While temporarily reducing

benefits to recover overpayments is an effective collection method in the

AFDC program, by law, it cannot be used in the Food Stamp Program to

collect overpayments caused by agency error unless the client consents.

GAO estimates that without this restriction states could potentially recover

an additional $33 million annually. Also, extending the use of federal

income tax refund intercept—an effective overpayment collection tool in

the Food Stamp Program—to AFDC and Medicaid could potentially

increase recoveries by about $24 million. (These estimates are gross

collections and not net of the costs of obtaining them.)

Page 4 GAO/HEHS-95-111 Welfare Overpayments
Executive Summary

Matters for

Congressional

Consideration

To help remove barriers to states’ collection of overpayments in the AFDC,

Food Stamp, and Medicaid programs and potentially recover more

overpayments, the Congress may want to consider amending federal

legislation to (1) authorize states to offset Food Stamp benefits without

the client’s consent to recover overpayments caused by agency errors and

(2) extend the use of federal income tax refund intercept for collecting

overpayments to the AFDC and Medicaid programs.

Agencies’ Comments USDA and HHS generally agreed with GAO’s conclusion that more can be

done to recover welfare benefit overpayments. USDA supports authorizing

states to use involuntary recoupment of Food Stamp benefits to recover

agency error overpayments, but questioned GAO’s estimate of the amount

obtainable from such a collection method. GAO requested but did not

receive comments from the Internal Revenue Service. (See ch. 4.)

Page 5 GAO/HEHS-95-111 Welfare Overpayments
Contents

Executive Summary 2

Chapter 1 

Introduction

10

Federal Government and States Share Responsibility for Three

Large Welfare Programs

11

Scope and Methodology 15

Chapter 2 

Successful Recovery

of Overpayments Is

Related to

Establishment of

Claims and Tools

States Use

16

Recovery Rates of High-Performing States 16

Successful Practices for Establishing Claims and Recovering

Overpayments

18

Potential for States to Improve Recovery Efforts 21

Chapter 3 

Extending Effective

Federal Recovery

Provisions to One or

More Programs Could

Increase Collections

24

Eliminating Limitations on Recoupment Could Potentially

Increase Food Stamp Collections

24

Extending Federal Income Tax Refund Intercept Could

Potentially Increase AFDC and Medicaid Overpayment

Collections

26

Chapter 4 

Conclusions, Matters

for Congressional

Consideration,

Agency Comments,

and Our Evaluation

30

Conclusions 30

Matters for Congressional Consideration 30

Agency Comments 31

Appendixes Appendix I: Scope and Methodology 36

Appendix II: States’ Performance in Recovering AFDC

Overpayments, Fiscal Year 1992

39

Page 6 GAO/HEHS-95-111 Welfare Overpayments
Contents

Appendix III: States’ Performance in Recovering Food Stamp

Overpayments, Fiscal Year 1992

40

Appendix IV: States’ Performance in Recovering Medicaid

Overpayments, Fiscal Year 1992

41

Appendix V: Comparison of Recovery Efforts of High- and

Low-Performing States

42

Appendix VI: Effect of Extending Effective Federal Recovery

Provisions to One or More Programs Could Potentially Increase

Collections

45

Appendix VII: Comments From the Department of Agriculture 47

Appendix VIII: Comments From the Department of Health and

Human Services

50

Appendix IX: GAO Contacts and Staff Acknowledgments 54

Tables Table 3.1: Food Stamp Program—Estimated Overpayments,

Claims Established, and Overpayments Collected Involving

Agency Error

25

Table 3.2: Federal Tax Intercept Program Direct and Indirect

Collections of Food Stamp Overpayments

27

Table I.1: High-, Middle-, and Low-Performing States’ AFDC, Food

Stamp, and Medicaid Overpayment Recovery Levels

37

Table V.1: For the AFDC or Food Stamp Programs, a Greater

Percentage of High- Than Low-Performing States Used

Self-Initiated Computer Matches to Identify Overpayments

42

Table V.2: For the AFDC or Food Stamp Programs, a Greater

Percentage of High- Than Low-Performing States Used Multiple

Approaches to Identify Overpayments

42

Table V.3: For the AFDC, Food Stamp, or Medicaid Programs, the

Total Types of Difficult Collections That States Reported They

Would Attempt Was Higher in High- Than Low-Performing States

42

Table V.4: For the AFDC, Food Stamp, or Medicaid Programs, the

Median Caseload per Eligibility Staff Was Lower in High- Than

Low-Performing States

43

Table V.5: For the AFDC, Food Stamp, or Medicaid Programs, the

Average Percent of Total Staff Who Were Recovery Specialists

Was Higher in High- Than Low-Performing States

43

Table V.6: For the AFDC or Food Stamp Programs, the Average

Percent of Total Staff Who Were Fraud Investigators Was Higher

in High- Than Low-Performing States

43

Page 7 GAO/HEHS-95-111 Welfare Overpayments
Contents

Table V.7: For the AFDC, Food Stamp, or Medicaid Programs, a

Greater Percentage of High- Than Low-Performing States Used

State Income or Property Tax Refund Intercept to Collect

Overpayments

43

Table V.8: For the AFDC, Food Stamp, or Medicaid Programs, a

Greater Percentage of High- Than Low-Performing States Used

More Multiple Approaches to Collect Overpayments

44

Table V.9: For the AFDC or Food Stamp Programs, a Greater

Percentage of High- Than Low-Performing States Had Automated

Billing Systems With a Full Range of Functions

44

Table V.10: For the AFDC, Food Stamp, or Medicaid Programs, a

Greater Percentage of High- Than Low-Performing States Had All

or Almost All of Their Overpayment Records in an Automated

Billing System

44

Table VI.1: Estimate of Additional Food Stamp Overpayment

Recoveries if States Were Required to Reduce Benefits to

Recover Overpayments Resulting From Agency Errors

45

 Table VI.2: Estimate of Additional AFDC Overpayment

Collections for 24 States if Federal Income Tax Refund Intercept

Were Available as an Overpayment Collection Method

46

Table VI.3: Estimate of Additional Medicaid Overpayment

Collections for 11 States if Federal Income Tax Refund Intercept

Were Available as an Overpayment Collection Method

46

Figures Figure 2.1: Comparison of Median Recovery Rates of High- and

Low-Performing States for the AFDC, Food Stamp, and Medicaid

Programs

17

Figure 2.2: Comparison of Median Rates for Establishing Claims

of High- and Low-Performing States for the AFDC, Food Stamp,

and Medicaid Programs

18

Figure 2.3: Comparison of High- and Low-Performing States’

Timeliness in Establishing AFDC Overpayments

20

Abbreviations

ACF Administration for Children and Families

AFDC Aid to Families With Dependent Children

FCS Food and Consumer Service

HCFA Health Care Financing Administration

HHS U.S. Department of Health and Human Services

IRS Internal Revenue Service

USDA U.S. Department of Agriculture

Page 8 GAO/HEHS-95-111 Welfare Overpayments
Page 9 GAO/HEHS-95-111 Welfare Overpayments
Chapter 1 

Introduction

In federal fiscal year 1992,3 three of the nation’s largest means-tested

programs—Aid to Families With Dependent Children (AFDC), Food Stamps,

and Medicaid—provided almost $161 billion in cash, food coupons, and

medical benefits, respectively, to millions of our nation’s low-income

people. These people included families with children who are deprived of

support; households that need help buying food basics; and the

low-income aged, blind, or disabled. That same year, however, people or

households who were ineligible for these benefits, or who were not

entitled to the level of benefits provided, received nearly $4.7 billion in

AFDC, Food Stamp, and Medicaid benefit overpayments or about 4 percent

of the total benefits paid in the three programs.4

Program administrators try to prevent overpayments by carefully

determining an applicant’s initial eligibility. However, when errors are

made, recovering overpayments is often very time consuming and difficult.

Nationwide success in recovering these overpayments varies considerably

among the three programs. While states recovered about $215.6 million of

nearly $1.2 billion of AFDC overpayments, or about 18.7 percent, in fiscal

year 1992, the recovery rate was appreciably lower for the other two

programs. In this same year, almost $104.3 million of about $1.6 billion of

Food Stamp overpayments, or about 6.5 percent, was recovered; while

about $13.2 million, or nearly 2 percent, of an estimated $670.6 million of

overpayments was recovered in the Medicaid program.5

When states do not promptly and efficiently identify and collect

overpayments, governments lose the immediate use of these funds and

incur additional expenses to recover them. Without a vigorous recovery

effort, current and potential recipients may infer that the government

considers the unrecovered funds dispensable. Under the legislative

welfare reform proposals that the Congress is considering, resources

available to help low-income Americans may become increasingly limited.

Therefore, ensuring that the funds appropriated for these programs reach

only those entitled to them is crucial.

3

Fiscal year 1992 was the most recent year for which data on expenditures, overpayments, and

collections of overpayments were available for all three programs.

4

Medicaid benefits for individuals whose Medicaid eligibility is based upon their eligibility for other

programs, such as Supplemental Security Income, were not included in calculating this percentage

because states do not determine these individuals’ eligibility.

5

Because national data were not available at the federal level for all three programs, we used

state-reported data to compare the nationwide recovery rates for the programs. The data used to

calculate the recovery rates were provided by 49 states and the District of Columbia for the AFDC

Program, 50 states and the District of Columbia for the Food Stamp Program, and 27 states for the

Medicaid Program. Thus, the total overpayments reported here for the three programs do not equal the

nationwide total of $4.7 billion that appears in the first paragraph of this chapter.

Page 10 GAO/HEHS-95-111 Welfare Overpayments
Chapter 1 

Introduction

The Ranking Minority Member of the Subcommittee on Oversight of

Government Management, Senate Committee on Governmental Affairs,

asked us to determine (1) what states are doing to collect benefit

overpayments in the AFDC, Food Stamp, and Medicaid programs;6

 the more

effective practices that they are using; and what, if anything, they could do

better; and (2) what the federal government could do to help states collect

more overpayments.

Federal Government

and States Share

Responsibility for

Three Large Welfare

Programs

Each year, the AFDC, Food Stamp, and Medicaid programs provide cash

and other assistance to millions of economically disadvantaged persons. In

1992, the AFDC program, authorized by title IV-A of the Social Security Act,

provided about $22 billion in cash assistance to more than 13.6 million

recipients—members of low-income families with children who were

deprived of support due to the absence, death, disability, or

unemployment of at least one parent. The Food Stamp Program,

authorized by the 1964 Food Stamp Act, provided about $21 billion in food

coupons to more than 25.4 million recipients to help them buy food to

meet their nutritional needs. And the Medicaid program, authorized by

title XIX of the Social Security Act, paid about $118 billion in 1992 for

medical services for more than 30 million low-income persons who are

aged, blind, or disabled; AFDC recipients; and other low-income persons.

Federal Government

Oversees State

Administration of

Programs

The Department of Health and Human Services’ (HHS) Administration for

Children and Families (ACF) is responsible for the AFDC Program; HHS’

Health Care Financing Administration (HCFA) oversees administration of

the Medicaid Program; and the Department of Agriculture’s (USDA) Food

and Consumer Service (FCS) oversees the Food Stamp Program.

ACF’s, FCS’, and HCFA’s oversight responsibility supports program operation

at the state level. These agencies develop and issue regulations on general

eligibility and benefit criteria, provide technical assistance and guidance to

the states, and help monitor state performance through quality control

systems. Under these systems, states must review a sample of their cases

each month to assess the accuracy of their staffs’ eligibility and benefit

determination decisions. In turn, federal quality control reviewers from

ACF, FCS, and HCFA assess the correctness of state findings by evaluating a

subsample of the state samples. Differences between the state and federal

findings are reconciled to calculate an official state error rate. If the error

6

Our review of Medicaid focuses on the value of health care benefits provided to clients who were not

eligible for benefits or who were eligible but had unmet liability—that is, their excess income had not

been “spent down” to qualify. Our review does not focus on overpayments made to service providers.

Page 11 GAO/HEHS-95-111 Welfare Overpayments
Chapter 1 

Introduction

rate is greater than a program’s targeted error rate—for example,

3 percent in the case of Medicaid—then federal payments may be reduced

by an amount calculated on the basis of the percentage point difference

between the actual and target error rate. The error rate is also used to

estimate the total dollar value of estimated overpayments for the state.

The federal government and states both provide funding for AFDC, Food

Stamps, and Medicaid. The federal government pays from 50 to about

80 percent of benefit costs for AFDC and Medicaid and 50 percent of most

administrative costs of those programs. The federal government pays

100 percent of benefit costs for Food Stamps and 50 percent of state

administrative costs.

States Determine

Household and Individual

Eligibility and Benefit

Amounts

The states manage the day-to-day functioning of AFDC, Food Stamps, and

Medicaid through local offices—either district, county, or city. As part of

the daily administration, eligibility staff evaluate applications to determine

a household’s or an individual’s eligibility and to ensure that the correct

level of benefits is authorized. Depending upon the state, these staff may

be determining eligibility and benefit levels for one or all three programs.

The three programs’ eligibility rules and income tests are complex and

differ from one another; so, although all three programs take into account

assets, household income, and size, the extent to which they do so varies.

For example, in determining an applicant’s eligibility under AFDC in fiscal

year 1995, staff generally exclude the first $1,500 in equity value of an

applicant’s automobile and count the remainder in determining available

financial resources; under Medicaid, depending upon the type of applicant,

staff exclude the first $1,500 in equity value or $4,500 in fair market value

and, in certain cases, may exclude all of the value; and, under Food

Stamps, staff exclude the first $4,550 in fair market value and, in some

cases, may exclude all of the fair market value.7

 A requirement that clients

notify the staff when their income changes further complicates eligibility

determinations. Staff must then use three sets of eligibility criteria to

recalculate benefit levels.

Overpayments Occur for

Several Reasons

Given the complexity and diversity of eligibility rules among the three

welfare programs, ineligible clients sometimes receive benefits or medical

services or eligible clients sometimes receive more benefits than they are

7

All of the fair market value of an applicant’s automobile may be excluded in the Food Stamp and

Medicaid programs for certain circumstances, such as when the automobile is used for employment

purposes or transporting a disabled or handicapped person.

Page 12 GAO/HEHS-95-111 Welfare Overpayments
Chapter 1 

Introduction

entitled to. Overpayments generally result when (1) a participating

household or individual intentionally provides incorrect or insufficient

information on which eligibility and benefit determinations are based

(fraud), (2) a participating household or individual unintentionally

provides incorrect or insufficient information (client error), or (3) the

administering state agency miscalculates eligibility or benefits or does not

correctly act on client-reported information (agency error).

States Are Responsible for

Recovering Overpayments

Regardless of the cause of overpayments, state AFDC and Food Stamp

offices are responsible for (1) preventing and identifying overpayments,

(2) verifying potential overpayments and establishing claims for them, and

(3) collecting overpayments. While no federal goals exist for states to

recover a minimum percentage of their overpayments, federal legislation

generally requires states to try to recover them in these two programs.

Although state Medicaid offices’ overpayment responsibilities are similar

to those for the other two programs, under Medicaid law, the focus is on

recovering overpayments to providers of medical services rather than the

recipients of services. States may, but are not required to, recover funds

from ineligible Medicaid clients when overpayments to providers are made

in their behalf. In 1992, as a result of state law or policy, most states

attempted to recover overpayments due to errors from Medicaid clients,

including long-term care clients who received nursing home services to

which they were not entitled.

States use a variety of methods, including computer matching and quality

control reviews, to help prevent overpayments and to identify

overpayments. The Deficit Reduction Act of 1984 requires states to

routinely compare data supplied by applicants and clients of AFDC, Food

Stamps, and Medicaid with other data sources in search of discrepancies.

These other data sources include (1) Internal Revenue Service (IRS) data

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

Security Administration data on benefits and earnings; and (3) state

reports on quarterly wages and unemployment insurance benefits. States

may also identify overpayments when they conduct their monthly quality

control reviews of individual cases or verify an individual’s alien status.

After identifying a possible overpayment, the next step is to verify the

overpayment. Because one key factor in determining eligibility and benefit

levels is a household’s or an individual’s financial information, this may

involve contacting the client—or his or her employer—to obtain wage

statements to compare with the information originally provided by the

Page 13 GAO/HEHS-95-111 Welfare Overpayments
Chapter 1 

Introduction

client. Once the overpayment is verified, states establish a claim for it by

entering a record in the state client billing and tracking system. By

regulation, however, states are not required to pursue every overpayment.

For example, both the AFDC and Food Stamp programs give states the

option of not pursuing a nonfraudulent overpayment of less than $35 if it

cannot be collected by reducing the individual’s or household’s benefit.

Under existing waiver authority, FCS has increased the less than $35

threshold to less than $100 for some states.

After establishing a claim for collection, states then send a written notice

to the current or former client who received the overpayment advising him

or her of the amount owed, explaining how the overpayment occurred,

and requesting repayment. Federal law and regulations allow states to

collect AFDC overpayments by offsetting a portion of current clients’

benefits (recoupment) without their consent and do not distinguish

between the types of overpayment (agency or client error). However, the

Food Stamp Program can recoup for agency errors only if the client

voluntarily agrees to such recoupment. In addition, states must first allow

clients with client error overpayments to repay them by lump sum or

installment payments. States can use recoupment if the client chooses

recoupment to repay a client error claim or if the client fails to pay the

claim using the method chosen. If the state determines that collection

action through any of these payment methods would cause undue

hardship for the client, collections can be suspended or repayment

amounts reduced.

States have several other alternatives available to collect overpayments.

Depending upon the program, they may garnish wages or intercept federal

or state income tax refunds or state lottery winnings. States may also refer

cases to collection agencies, report client debt to credit bureaus, use a

small claims court, or place liens against a client’s property to collect the

outstanding debt.

All three programs allow states to retain a portion of the overpayments

they recover. For AFDC and Medicaid, states keep an amount equal to the

proportion of the benefits they originally provided in matching

funds—from about 20 to 50 percent—regardless of the type of

overpayment error. Although Food Stamp benefits are paid entirely by the

federal government, states get to keep a portion of the overpayments that

they recover. Currently, state agencies retain 25 percent of recovered Food

Stamp overpayments due to client fraud, 10 percent for those due to client

error, and nothing for those due to agency error.

Page 14 GAO/HEHS-95-111 Welfare Overpayments
Chapter 1 

Introduction

Implications of Welfare

Reform on Recovering

Overpayments

As the Congress discusses various approaches to serving AFDC, Food

Stamp, and Medicaid clients, some members are proposing restructuring

these programs to give states more flexibility in administering them. While

federal agencies currently oversee various aspects of these programs,

states may find, under reform, that they must assume more—or even

all—administrative and oversight responsibility. AFDC, Food Stamps, and

Medicaid are entitlement programs: no limit exists on the amount of

federal funding a state can receive since every person who is determined

to be eligible must receive benefits. Under a block grant approach,

however, states would receive a capped, defined amount of money. In this

instance, they likely would also have increased financial interest in

ensuring that funds are spent only on those who are eligible.

Scope and

Methodology

To accomplish our objectives, we mailed a separate questionnaire for each

of the three welfare programs to welfare officials in all 50 states and the

District of Columbia. These questionnaires gathered information on (1) the

methods states use to identify and collect overpayments, (2) how recovery

efforts are coordinated among the three programs, (3) the level of

overpayments established and collected in fiscal year 1992, and (4) what

factors hinder or help states’ abilities to recover overpayments. We also

interviewed officials at ACF, FCS, HCFA, the Department of the Treasury’s

Financial Management Service, and IRS and welfare officials in seven

states. Appendix I more completely describes our scope and methodology.

We conducted our work between April 1993 and March 1995 in accordance

with generally accepted government auditing standards.

Page 15 GAO/HEHS-95-111 Welfare Overpayments
Chapter 2 

Successful Recovery of Overpayments Is

Related to Establishment of Claims and

Tools States Use

For each of the three programs we reviewed, about a third of the

states—high-performing states—had recovered a substantially greater

portion of their estimated overpayments than the lower one-third of the

states. One key reason for the high-performing states’ success is that they

established more claims for their overpayments than low-performing

states. In addition, they used a broader array of tools and practices to both

establish and collect overpayments than the low-performing states. We

estimated that, if all states had achieved recovery rates equal to those of

the high-performing states, an additional $262 million potentially could

have been recovered in fiscal year 1992.

States’ awareness and understanding of successful recovery techniques

can help enhance their collection efforts. At the time of our review, the

Food and Consumer Service (FCS) was sharing best Food Stamp recovery

practices and overpayment collection data among the states, and the

Administration for Children and Families (ACF) was planning to provide

similar assistance for AFDC in 1996. However, HCFA was not providing, nor

is it planning to provide, such assistance to the states for recovering

Medicaid overpayments from clients.

Recovery Rates of

High-Performing

States

The median recovery rate for high-performing states was at least twice

that of the low-performing states for each program. For example, as

illustrated in figure 2.1, the high-performing states’ median recovery rate in

the AFDC program was about 28 percent of estimated overpayments,

compared with 6 percent for the low-performing states.

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Figure 2.1: Comparison of Median

Recovery Rates of High- and

Low-Performing States for the AFDC,

Food Stamp, and Medicaid Programs

(Fiscal Year 1992)

Median Recovery Rate

0

10

20

30

40

50

AFDC Food Stamp Medicaid

Welfare Programs

27.8

6.1

12.6

4.7 6.3

0.4

Top one-third performing states

Lower one-third performing states

Although high-performing states were not always the same in each

program, the following states were consistently among the

high-performing states in fiscal year 1992 for at least two of the three

programs: Alabama, Arkansas, California, Colorado, Georgia, Hawaii,

Idaho, Illinois, Kentucky, New Mexico, North Dakota, Oregon, Utah, and

Wyoming. Appendixes II through IV show individual state recovery rates

for each program.

One main reason that high-performing states’ recovery rates were greater

than low-performing states’ is that they established claims for a

significantly greater portion of their overpayments. For states to collect

any overpayment, they must first establish claims for them. As illustrated

in figure 2.2, the high-performing states’ median rate for establishing

claims in the AFDC program, for example, was about 54 percent of

estimated overpayments, compared with 14 percent for the

low-performing states. The median recovery rate of high-performing states

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in the AFDC program was substantially higher than that for low-performing

states, as shown in figure 2.1.

Figure 2.2: Comparison of Median

Rates for Establishing Claims of Highand Low-Performing States for the

AFDC, Food Stamp, and Medicaid

Programs (Fiscal Year 1992)

Median Claims Establishment Rate

0

10

20

30

40

50

60

70

80

90

100

AFDC Food Stamp Medicaid

Welfare Programs

54.5

13.9

23.5

9.1 10.3

2.7

Top one-third performing states

Lower one-third performing states

Successful Practices

for Establishing

Claims and

Recovering

Overpayments

States that had the most success in establishing claims and recovering

overpayments used a much higher number of certain recovery practices

and tools than other states. States can use many different practices or

tools, under current law, to help recover overpayments. Following are the

practices and tools for establishing claims and recovering overpayments

that were used more by high-performing states than by low-performing

states. The practices and tools used for establishing claims were

• use of self-initiated computer matches to identify potential overpayments,

• use of multiple approaches to identify potential overpayments,

• timely verification of overpayments,

• timely establishment of claims, and

• establishment of claims for more difficult collection cases.

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The practices and tools used for recovering overpayments were

• lower average caseloads for eligibility staff,8

• greater portion of a state’s total staff working to recover overpayments,

• use of state income tax refund intercept,

• use of multiple approaches to collect overpayments,9

• automated tracking and billing system with a full range of functions,10 and

• more of a state’s overpayment records in automated tracking and billing

system.

In studying the high-performing states, we found that they used a broad

array of these practices, focusing on two aspects of the recovery

process—establishing the claim and collecting the overpayment. Although

not all of the high-performing states used every practice listed, we found

that, overall, a greater proportion used at least five of these practices than

did the low-performing states. Many states indicated in our survey that

limited staff may have prevented them from doing more to recover

overpayments.

Practices for Establishing

Claims

We found that high-performing states were more timely in verifying

potential overpayments and establishing claims than were low-performing

states. As illustrated in figure 2.3, high-performing states for the AFDC

program, for example, established overpayment claims for current clients

on average in about 3 months—half the average time it took for the lower

one-third of the states, which was about 6 months.

8

Only a few states provided us with caseload information for the Medicaid program. Therefore, this

practice is not included in the analysis of the total number of practices to recover Medicaid

overpayments.

9

In this report, we define “multiple approaches” as all or most of the following methods to recover

overpayments from current or former clients: (1) recouping of benefits (AFDC and Food Stamp only),

(2) collecting Food Stamp coupons, (3) collecting voluntary cash payments, (4) collecting cash

payments after referring to collection agency, (5) collecting cash payments after using small claims

court, (6) collecting wage garnishments, (7) using property liens, (8) intercepting unemployment

compensation benefits, (9) intercepting state income or property tax refunds (available in states with

state income or property tax), (10) intercepting federal income tax refunds (Food Stamp only), or

(11) using other collection method not listed above such as intercepting state lottery winnings.

10In this report, we define “full range of automated systems” as those systems that could do at least all

of the following functions: (1) generate adverse action notices/demand letters, (2) generate

overpayment statements to clients, (3) deduct part or all of the overpayments from a current or future

welfare benefit, (4) track a client’s current overpayment balance, and (5) identify claims that were

delinquent in repayment.

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Figure 2.3: Comparison of High- and Low-Performing States’ Timeliness in Establishing AFDC Overpayments (Fiscal Year

1992)

Overpayment

Occurred

Potential

Overpayment

Identified

Overpayment

Verified

Overpayment Claim

Established

Overpayment

Claim

Established

Overpayment

Occurred

Low

Performers

High

Performers

Potential

Overpayment

Identified

Overpayment

Verified

93

Days

173

Days

0 20 40 60 80 100 120 140 160 180 200

Median Number of Days

In addition, one of our prior studies showed that successful recovery of

overpayments is directly related to the time it takes to establish an

overpayment claim once it is identified.11 The timely establishment of

overpayment claims for collection is important because, once clients

11Benefit Overpayments: Recoveries Could Be Increased in the Food Stamp and AFDC Programs

(GAO/RCED-86-17, Mar. 14, 1986).

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discontinue receiving program benefits and overpayments can no longer

be recouped, collection can be more difficult.

Another practice used by high-performing states was to establish claims

for the more difficult collection cases, such as former clients who have

moved out of state, provided no forwarding addresses, declared

bankruptcy, or died. Although establishing claims in these cases is time

consuming, states that did this increased their collection potential.

Practices for Collecting

Overpayments

In addition to the specific practices associated with establishing claims,

high-performing states also used several practices for collecting

overpayments from former or current clients. For example, we found that

these states had lower average caseloads per eligibility staff, which

allowed their staff an opportunity to spend more time with each collection

case. Further, these states dedicated a greater portion of their total staff to

recovering overpayments, including using recovery specialists and fraud

investigators where appropriate. For example, in the Food Stamp

Program, an average of 8 percent of high-performing states’ total staff

were fraud investigators compared with 3 percent of low-performing

states’.

While having more resources helped them to collect overpayments,

high-performing states also used other practices not as common among

the low-performing states. These included state tax refund intercepts,

multiple collection methods, and automated systems with a full range of

client billing and tracking functions. About 12 of the 15 high-performing

states for the Food Stamp Program, for example, reported that they had a

full range of automated functions, whereas 9 of the 20 low-performing

states had this capacity. Appendix V has additional information related to

state collection practices.

Potential for States to

Improve Recovery

Efforts

If all states had performed as high-performing states did in recovering

AFDC, Food Stamp, and Medicaid overpayments in 1992, we estimate that

an additional $262 million could have potentially been recovered. Our

estimate is based on each state agency performing at the median recovery

rate of the top one-third performing states for each of the programs in

1992. This estimate is broken down among the three programs as follows:

$132 million in AFDC recoveries (61-percent increase over current

recoveries), $100 million in Food Stamp recoveries (96-percent increase),

and $30 million in Medicaid recoveries (230-percent increase).

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Federal Efforts Help States

Learn About Best Recovery

Practices

Our estimate of $262 million in potential additional recoveries assumes

that lower performing states would use more of the recovery practices of

the high-performing states. To do so, states would have to identify these

practices and evaluate the cost benefit of using them. We found that FCS

has helped states identify other states’ “best practices” for recovering

Food Stamp overpayments. ACF and HCFA, on the other hand, are not

helping states learn about best recovery practices for AFDC or Medicaid

overpayments, respectively. However, ACF has plans to begin offering such

help in 1996; HCFA has no similar plans.

FCS communicates Food Stamp overpayment collection data and best

recovery practices to states in a variety of ways. It annually collects

recovery data—such as dollar amounts recouped—from the states and

disseminates this information, which helps states compare their

performance and establish recovery goals of their own. FCS also collects

information on successful recovery practices from the states, periodically

publishes this information, and disseminates it nationwide. In addition, FCS

established a State Exchange Program that subsidizes state officials’ travel

to other states to learn about effective recovery practices, as well as

methods to prevent overpayments. Finally, FCS provides training to states

on the use of federal income tax refund intercepts. FCS officials told us that

they believe their sharing of best practice and recovery information has

helped states improve their overpayment recovery efforts.

In contrast, the AFDC and Medicaid programs provide little guidance on

best recovery practices to the states. ACF had collected overpayment

information until September 1988 when the Office of Management and

Budget’s approval of its reporting form expired. ACF did not renew the

form. Subsequently, in November 1992, HHS’ Office of the Inspector

General reported that ACF did not have a reporting mechanism to collect

information needed to assess the effectiveness of state agency compliance

with program requirements for identifying and recovering AFDC

overpayments.12 ACF officials told us that, as a result of that report, they

have redesigned the form and are planning to begin collecting financial

recovery data from states in fiscal year 1996. In addition, the officials said

that they are working on a guidance document for states that would

include best recovery practices. During our review, Medicaid officials

were not aware that several states were recovering overpayments from

clients and, thus, were not collecting recovery data or sharing best

12Audit of Controls for Each Phase of the Overpayment Recovery Process in the Aid to Families With

Dependent Children Program, U.S. Department of Health and Human Services, Office of the Inspector

General, A-01-92-02506 (Nov. 10, 1992), p. 14.

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practice information.13 Medicaid officials said that they had no plans to

collect or disseminate best practice information because states are not

required to collect overpayments from clients.

13HCFA disseminates a manual on the best practices used to collect from insurers and other liable

third parties who have the primary responsibility to pay for claims that Medicaid paid in error.

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Looking at the programs from the federal perspective, we found that

federal laws and regulations that facilitate recovery in one welfare

program are not in place in all three. If legislative changes were made to

extend recovery practices used in one program to the others, we estimate

that states could potentially recover millions more in welfare

overpayments annually.

A large part of the potential additional collections we estimate involves the

Food Stamp Program, in which a rule limiting recovery of overpayments

resulting from agency error has cost the program about $33 million a year

in potential collections. Currently, unless the client consents, states may

not recover an overpayment by reducing the client’s monthly benefits if

the overpayment results from agency error.

We also estimated that about $24 million could potentially be collected

annually by extending the use of federal income tax refund intercept to the

AFDC and Medicaid programs.14 Currently, only the Food Stamp Program

allows states to intercept a federal income tax refund to recover

overpayments from a former program client who is delinquent in

repayment.

Eliminating

Limitations on

Recoupment Could

Potentially Increase

Food Stamp

Collections

Recovering overpayments due to agency error through recoupment—or

temporarily reducing benefits, without client consent—is an accepted

collection method in AFDC but not allowed for Food Stamp overpayments.

Food Stamp legislation precludes states from using recoupment, unless

the client consents, to recover overpayments resulting from agency error.

Eliminating the requirement for client consent could potentially yield

additional collections estimated at about $33 million annually.

For agency error overpayments, the Food Stamp restriction on using

recoupment without client consent could negatively affect states’ recovery

efforts. As shown in table 3.1, although about 40 percent of the estimated

overpayments in 1992 involved agency errors, less than 19 percent of the

states’ established claims and less than 16 percent of total collections

involve agency error overpayments. One reason for these rates may be

that, unlike for fraud or inadvertent client error, states cannot keep any

collections of overpayments resulting from agency errors. Six states

responding to our questionnaire commented on a need for financial

incentives for states to collect agency error overpayments.

14The estimated additional overpayment collections from intercepting federal income tax refunds is

not mutually exclusive of the estimated $262 million in collections presented in chapter 2.

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Table 3.1: Food Stamp

Program—Estimated Overpayments,

Claims Established, and

Overpayments Collected Involving

Agency Error (Fiscal Year 1992) Total errors

Agency errors

Dollars in millions

Dollars Dollars

Percent

of total

errors

Estimated overpayments $1,710.2 $688.4 40.2

Claims established 222.8 41.5 18.6

Overpayments collected 108.0 17.0 15.7

Source: Fiscal Year 1992 Food Stamp Quality Control Annual Report and Food Stamp Program

State Activity Report.

Thirty-seven states reported that a federal requirement to recover agency

error overpayments, such as using recoupment without client consent,

would help them collect overpayments. Only 11 states reported that they

opposed such a requirement. One reason for their response, provided by

several states, may be that states do not keep any part of the amount

collected when the overpayment results from agency error.

Allowing recoupment without client consent to collect overpayments

resulting from agency error could enable states to potentially collect an

estimated $33 million in additional Food Stamp overpayments annually.

Our estimate is based on an assumption that states would establish claims

for agency error overpayments at the same rate that they did for client

error overpayments in 1992 and collect overpayments at least at the same

rate that agency error claims were collected in that year (see app. VI, table

VI.1).

USDA supports using recoupment of Food Stamp benefits without client

consent to recover agency error overpayments. In 1985, a legislative

proposal to require recoupment without client consent for agency error

overpayments was introduced but not enacted. Subsequently, we

recommended in 1986 that the Congress amend the Food Stamp Act to

authorize states to pursue recoupment of agency error overpayments

without client consent.15 At that time, USDA supported using such

recoupment for agency error claims. Subsequently, in 1993, USDA proposed

legislation that recommended recoupment of agency error claims, but the

Congress did not act on the recommendation. USDA is again evaluating

efforts needed, such as the use of recoupment of agency error claims

15Benefit Overpayments: Recoveries Could Be Increased in the Food Stamp and AFDC Programs

(GAO/RCED-86-17, Mar. 14, 1986).

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without client consent, to ensure that agency error claims are treated the

same as client error claims.

Extending Federal

Income Tax Refund

Intercept Could

Potentially Increase

AFDC and Medicaid

Overpayment

Collections

Although intercepting federal income tax refunds has proven effective in

collecting Food Stamp overpayments, its use is not authorized for the AFDC

and Medicaid programs. The Food Stamp Program currently intercepts tax

refunds under demonstration project authority with participation by about

two-fifths of the states. Twenty-one states intercepted federal income tax

refunds to collect over $30 million in Food Stamp benefit overpayments in

1994. Legislation would be needed to authorize AFDC’s and Medicaid’s use

of federal income tax refund intercept. We estimate that such legislation

could potentially result in overpayment collections increasing by

$23.6 million annually.

Federal Tax Refund

Intercept Succeeds in

Collecting Overpayments

for the Food Stamp

Program

States that use federal income tax refund intercepts in the Food Stamp

Program do so as a last resort. First, only claims resulting from client error

are referred for federal income tax refund intercept. Also, states may only

refer claims for intercept if the client is no longer a Food Stamp

beneficiary and the claim becomes delinquent after a state agency has

tried several times to collect it.

Intercepting federal income tax refunds to collect delinquent claims from

former Food Stamp clients involves a joint effort by the Food and

Consumer Service (FCS), IRS, and the states. State agencies submit claims

to FCS and notify the former beneficiaries. FCS consolidates individual state

submissions, refers them to IRS for processing, and then transfers the

amounts intercepted, including any earned income tax credit16 in the

refund, to the states. States paid half of the $8.28 IRS processing fee for

each intercept in 1993; FCS paid the other half.

While no cost benefit study of the Food Stamp federal tax intercept

program has been made, it appears effective in recovering substantial

overpayments at a limited cost. Since FCS’ 1992 pilot of the demonstration

project in two states, collections from intercepts plus voluntary payments

made in place of offset have represented at least 23 percent of total

collections in the participating states.17

16The earned income tax credit provides a refundable tax credit to low-income working families,

supplementing their earnings.

17Voluntary payments are an indirect benefit of the intercept program that occurs when former clients

pay their debt after receiving notice that they are to be referred to IRS for offset.

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Each year since 1992, FCS has added states to the program.18 As shown in

table 3.2, intercept-related collections represented about 33 percent of

total overpayments recovered in 21 participating states in fiscal year 1994.

The federal share (not less than 75 percent19) of the $30.6 million

intercepted in that year was at least 23 times greater than the $983,000 that

FCS estimated it spent in administrative costs in 1994. These costs included

salary and contractor costs, training costs, and FCS’ share of the IRS

processing fee. While FCS does not determine state administrative costs

spent for tax intercept, FCS officials stated that they believed the states’

retention share exceeded their administrative costs.

Table 3.2: Federal Tax Intercept

Program Direct and Indirect

Collections of Food Stamp

Overpayments (Fiscal Years 1992-94) 

Dollars in millions

Fiscal year 1992 1993 1994

Participating states 2 9 21

Intercept-related collections

Tax refund offset $3.1 $7.3 $27.6

Voluntary payments .4 1.4 3.0

Total $3.5 $8.7 $30.6

Total collections in participating states $15.1 $31.4 $93.4

Intercept-related collections as a percentage of

total collections in participating states 23.2 27.7 32.8

Legislation Needed to

Extend Federal Income

Tax Refund Intercept to

AFDC and Medicaid

Current law does not authorize using federal income tax refund intercept

in the AFDC and Medicaid programs. Broad support exists, however, to

extend such authority to the two programs. Over the years, GAO, HHS,

Treasury’s Financial Management Service, state agencies, and the United

Council on Welfare Fraud, Inc.—a program integrity advocacy

group—have called for extending the federal income tax intercept,

primarily to the AFDC program. Sixteen states responding to our AFDC

survey and 10 states responding to our Medicaid survey cited a need for

extending federal income tax intercept to collecting outstanding AFDC and

Medicaid overpayments.

Legislation to extend federal income tax refund intercept to the AFDC

program was introduced in 1994 but did not pass. The legislation, part of a

welfare reform proposal introduced in the 103rd Congress, would have

authorized an intercept program for AFDC overpayments. Commenting on

18FCS added 11 more states in 1995.

19The federal share of overpayment collections is 75 percent for fraud and 90 percent for inadvertent

client error.

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this proposal, officials from the Treasury’s Financial Management Service

cited the need to revise the proposal’s language so that HHS’ ACF would be

the focal point for working with IRS. This would lessen the administrative

burden on IRS because it could deal with one entity rather than 50 states

and the District of Columbia. This approach would more closely resemble

the Food Stamp intercept program, which uses FCS as its focal point.

In addition to new legislation for AFDC and Medicaid, legislative and

regulatory change would be needed to achieve the full potential of the

Food Stamp federal income tax intercept program. FCS officials told us that

since they piloted the demonstration project, they have recruited

additional states each year on the basis of the states’ willingness to devote

the staff and computer resources to implement the program. In its 1995

package of legislative recommendations to update Food Stamp legislation,

USDA recommended a legislative change that would require all states to use

the federal income tax refund intercept. Such a provision is contained in

the recently passed House of Representatives’ welfare reform bill, H.R. 4.

According to FCS officials, USDA also has drafted a regulatory change that

would remove the program from its demonstration project status and fully

authorize federal income tax refund intercept to collect client error

overpayments. FCS officials told us that the decision to limit the federal

income tax refund intercept to only overpayments caused by client error

was a reaction to the failure of a 1994 legislative proposal to extend tax

intercept to agency error overpayments. In commenting on a draft of this

report, however, USDA stated that, as part of its evaluation of efforts

needed to ensure that agency error claims are treated the same as client

error claims, it is again considering the referral of agency error claims for

federal tax intercept.

Extending Federal Tax

Intercept Could Potentially

Recover Substantial

Overpayments

If the federal income tax refund intercept program were extended to the

AFDC and Medicaid programs, we estimate that overpayment collections

could potentially be increased $23.6 million annually. The AFDC portion of

our estimate—$22.3 million—is based on an analysis of 24 states that

reported using state income tax refund intercept in 1992. (See app. VI,

table VI.2.) We also estimated that 11 states that used state tax intercept

might collect about $1.3 million through extending the federal tax refund

intercept to the Medicaid program (see app. VI, table VI.3).

One ACF official we interviewed suggested that the possibility of

intercepting AFDC overpayments might not be as great as in the Food

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Stamp Program because AFDC clients are less likely than Food Stamp

clients to be getting a federal income tax refund. Further, all of the ACF

officials we interviewed believed that states may have to “wait in line”

behind other programs already using federal income tax refund intercepts

to collect from the same clients. Other than federal tax liability and past

due child support owed AFDC clients, which receive first priority, the law

does not prioritize agencies.

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Conclusions, Matters for Congressional

Consideration, Agency Comments, and Our

Evaluation

Conclusions Federal and state efforts to recover AFDC, Food Stamp, and Medicaid

benefit overpayments have fallen short of their potential. While not all

such overpayments are collectable, recovery of overpayments could

substantially increase if lower performing states improved their recovery

practices, particularly in establishing claims for overpayments. Although

our estimates of the additional collections account for a small proportion

of the total estimated overpayments in 1992, they represent a substantial

increase in the amount that states collected in each program in that year.

With the Food and Consumer Service’s (FCS) continued sharing of state

recovery information and best recovery practices and the Administration

for Children and Families’ (ACF) plans to do so soon, states have an

opportunity to improve their recovery efforts in the AFDC and Food Stamp

programs.

Moreover, states could improve their ability to recover more

overpayments if the Congress would remove certain federal legislative

barriers to collection and recovery techniques. Specifically, states could

run more fiscally sound welfare programs if (1) limits on offsetting Food

Stamp benefits to recover Food Stamp overpayments arising from agency

error were removed and (2) authority to use federal income tax refund

intercepts was extended to AFDC and Medicaid overpayments. While

providing states these additional tools will not end overpayments in these

welfare programs, it would provide states additional opportunities to

recover overpayments.

Managing the three welfare programs’ funds—including identifying,

establishing, and collecting overpayments—is critical to the programs’

integrity, regardless of how they may be structured or administered after

the welfare reform debate. Preventing overpayments is clearly one way to

ensure that taxpayer dollars are not used for unwarranted benefits, but

overpayments will inevitably occur. Finding methods to better identify and

recover overpayments, and obtaining additional collection tools, should

continue to be a central concern of program administrators.

Matters for

Congressional

Consideration

The Congress may want to consider legislative amendments to remove

barriers to states’ collecting additional overpayments. Specifically, it may

want to consider

• amending the Food Stamp Act of 1977 to authorize states to offset current

recipients’ benefits, without their consent, to recover overpayments

caused by agency errors and

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Evaluation

• extending the authority for states to intercept federal income tax refunds

to include the recovery of AFDC and Medicaid overpayments.

Agency Comments We requested written comments on a draft of this report from USDA, HHS,

and IRS. IRS did not provide comments. USDA and HHS comments and our

evaluation of them are summarized below. USDA’s and HHS’ written

comments appear in full in appendixes VII and VIII, respectively.

USDA Comments and Our

Evaluation

USDA concurred with our conclusion that more can be done to recover

overpayments from current and former welfare clients. It agreed that,

because some states establish claims for a greater percentage of their

overpayments than others, they recover more overpayments. USDA also

identified recent actions it is taking to reduce errors that lead to

overpayments, including the creation of a core FCS team to work solely on

developing and coordinating payment accuracy issues and identifying

methods and incentives to encourage states to devote the necessary

resources to identifying and establishing more overpayment claims. We

believe these are positive steps toward reducing overpayments and

improving collections and encourage USDA to continue such efforts. USDA

also commented on a few specific observations in our report. Its detailed

comments and our evaluation of them follow.

Collection Improvements USDA noted that, while the nationwide recovery rate of Food Stamp

overpayments was 7 percent, state agencies have been increasing the

amount of overpayments collected in recent years. It stated that this

increase is due in part to the use of the Federal Tax Refund Offset

Program. USDA also commented that state agencies are collecting nearly

50 percent of the overpayments they establish as claims.

While we agree that states have increased their collection of overpayments

each year, they have not increased collections relative to the growing

amount of their estimated overpayments. For example, in fiscal year 1988,

states collected about 8.6 percent (about $71 million) of their estimated

overpayments but collected less than 6.4 percent (about $117 million) of

estimated overpayments in fiscal year 1993. Regarding USDA’s comment

that states are collecting almost 50 percent of the overpayment claims they

establish, USDA did not consider that most states are establishing claims for

a small percentage of their estimated overpayments. For example, in 1992,

31 states had established claims for less than 20 percent of their total

estimated Food Stamp overpayments.

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Consideration, Agency Comments, and Our

Evaluation

Welfare Reform Implications Regarding our comments about the implications of welfare reform on

recovering overpayments, USDA believes it is our opinion and not fact that

states would have an increased financial interest in ensuring that block

grant funds are spent only on those who are eligible. In addition, USDA

commented that a capped level of funding under block grants does not

presume that overpayment errors will be fewer or that more staff will be

available to collect overpayments. It also noted that, under block grants,

the accuracy in determining benefit levels would largely depend on the

state eligibility standards that would replace current federal standards.

It is our opinion that states would have an increased interest in ensuring

payment accuracy under block grants. However, we did not state, nor do

we presume, that with block grants fewer overpayment errors would

occur or more staff would be available to collect overpayments. We agree

with USDA that the accuracy of determining benefit levels depends on the

eligibility standards. Eligibility standards, however, are not the only

variable that affects the accuracy of benefit determinations. The accuracy

of benefit determinations is also affected, for example, if the client

intentionally or unintentionally withholds necessary eligibility information,

such as earnings or assets.

Involuntary Recoupment of

Agency Errors

USDA points out that we did not accurately report its position on

involuntary recoupment of agency error overpayments. It previously

supported and continues to support the position that states should be able

to use involuntary recoupment to collect agency error overpayments. We

revised the report to reflect USDA’s position.

Estimate of Additional Agency

Error Collections

USDA believes that our estimate of additional agency error collections if

states were allowed to use involuntary recoupment of benefits is

optimistic. It questioned an assumption we used in calculating our

estimate—that states would establish agency error claims at the same rate

as client errors. USDA contends that states may not devote the same

amount of resources to establish and collect agency error claims as they

do to determine client errors because states do not keep a portion of

agency error collections as they do for client error collections. While some

states may aggressively pursue agency error claims, USDA does not believe

that involuntary recoupment alone would generate the added incentive to

achieve the additional agency error collections we estimated.

We do not believe our estimate of additional agency error collections is

overly optimistic. While we agree that states have a clear incentive to

devote their limited resources to collecting client error overpayments, we

Page 32 GAO/HEHS-95-111 Welfare Overpayments
Chapter 4 

Conclusions, Matters for Congressional

Consideration, Agency Comments, and Our

Evaluation

also believe that states would have a continued interest to recover

overpayments caused by agency errors. First, by law, states are required to

establish claims for, and attempt to collect, all types of overpayments.

Collecting all types of overpayments helps maintain program integrity.

Second, as noted in the report, our survey results suggest that most states

would favor a federal requirement to recover agency error overpayments,

such as involuntary recoupment, because it would increase their ability to

collect such overpayments. We believe that involuntary recoupment would

make it easier for states to collect agency error overpayments and, thus,

states would be more likely to establish claims for agency error

overpayments as they do for client error overpayments.

Other Technical Comments USDA also provided technical comments on our draft report. We made

changes where appropriate in the final report.

HHS Comments and Our

Evaluation

In commenting on a draft of this report, HHS agreed that federal and state

efforts to recover overpayments fall short of their potential. In particular,

it said that a substantial potential for increase in AFDC recoveries exists if

lower performing states improved to the level of the high-performing ones.

The Department also believes that federal agencies and states must

emphasize the need to maintain payment accuracy as well as find methods

to better identify and recover overpayments.

HHS also provided other comments that raised questions about our

analyses and scope of review. These and other comments and our

evaluation of them follow.

Quality of GAO Analysis HHS raised questions about the quality of our analysis and stated that we

were somewhat selective in citing findings that may exaggerate

differences in the characteristics of high- and low-performing states.

Specifically, it questioned how we (1) defined high- and low-performing

states and specific overpayment terms used throughout the report,

(2) identified most promising practices, and (3) measured collection rates.

We disagree with HHS’ assertions about the quality of our analysis and

presentation of findings. As we explained in appendix I, for each program,

our definition of state performance is based upon a ranking of the states

according to the percentage of estimated overpayments they collected and

a subsequent division of the state rankings into approximate thirds—high-,

middle-, and low-performing states. The practices that we referred to as

most promising in the draft of this report are those that tended to be more

Page 33 GAO/HEHS-95-111 Welfare Overpayments
Chapter 4 

Conclusions, Matters for Congressional

Consideration, Agency Comments, and Our

Evaluation

commonly used by high-performing states than by low-performing states.

Thus, because we did not study the effectiveness of individual practices,

we deleted our reference to the practices as most promising. The

overpayment terms we use throughout the report and our methodology for

calculating collection rates were also explained in appendix I. While we

agree with HHS about the difficulties associated with calculating state

collection rates, in the absence of better data, we established the proxy

measure defined in the report.

HHS also stated that it hoped the report would elaborate more on the

cost-effectiveness of various practices, causes for differences among

states’ performance, and differences in state administrative costs. These

issues were beyond this report’s scope and objectives. Our review focused

more broadly on the recovery of welfare overpayments and not on any

individual state’s performance.

Multiple Program Goals

Require Staff Tradeoffs

HHS believes that the report needs to acknowledge that the programs

discussed in this report have multiple goals that often require tradeoffs. It

commented that state eligibility workers who spend their time recovering

overpayments have to divert their efforts from helping the client

population attain self-sufficiency. Clearly, between these two program

goals are tradeoffs that states would have to make in allocating their

resources. We are not suggesting that significant state resources be

diverted from casework. Rather, we are suggesting that, by adopting some

of the practices discussed in the report, states could improve their

performance in recovering overpayments. Most states already have

recovery specialists devoted to recovering overpayments. By providing

effective recovery techniques to these specialists, states may not have to

divert scarce resources from self-sufficiency efforts to recover

overpayments.

Other Technical Comments In considering other HHS comments, we clarified our discussion of

program administration, rules, and procedures. In addition, HHS offered

technical comments on the report draft. We considered these comments

for the final report and made changes where appropriate.

Page 34 GAO/HEHS-95-111 Welfare Overpayments
Page 35 GAO/HEHS-95-111 Welfare Overpayments
Appendix I 

Scope and Methodology

To accomplish our objectives, we surveyed officials in the 50 states and

the District of Columbia to determine the methods states use to identify

and collect overpayments; how recovery efforts were coordinated among

the three programs; what amounts of overpayments were established and

collected in the most recent year for which data were available for the

three programs, federal fiscal year 1992; and what factors hinder or help

states in collecting overpayments.

We used three questionnaires in each state, one each for AFDC, Food

Stamps, and Medicaid. Our analyses are based on responses from officials

in all 50 states and the District of Columbia.20 Although we did not

independently verify the accuracy of all survey data provided by the states,

we did verify the amounts reported as estimated overpayments, claims

established, and overpayments collected for the AFDC and Food Stamp

programs by comparing them to Administration for Children and Families

(ACF) and Food and Consumer Service (FCS) records, respectively, to the

extent available. No similar records were available to verify Medicaid data

reported by the states. Copies of our questionnaires and survey results can

be obtained by writing to

U.S. General Accounting Office

NGB/Income Security

Attention: Ms. Suzanne Sterling

441 G Street NW

Washington, DC 20548.

Nationwide and state-by-state data matching overpayment collections with

the year the overpayments occurred were not available for any of the

programs. In the absence of such data to calculate recovery rates, we

developed a proxy measure of an individual state’s recovery performance

for each of the three programs by dividing the overpayment dollars

recovered by each state in 1992 by quality control estimates of

overpayment dollars21 for that year from ACF, FCS, and HCFA.

22 We realize

that a one-to-one correspondence does not exist between overpayments

made and recovered in a given year. For example, overpayments can occur

a year or more before they are identified and established as claims; then

20The District of Columbia did not respond to our Medicaid overpayment recovery survey.

21Estimates of overpayment dollars were calculated by multiplying the error rate by 1992 benefit

expenditures.

22The estimate of Medicaid overpayments does not include Medicaid expenditures for individuals

whose Medicaid eligibility is based upon their eligibility for Supplemental Security Income, Indian

Health Services, and AFDC while in foster care, which generally is not determined by the state.

Page 36 GAO/HEHS-95-111 Welfare Overpayments
Appendix I 

Scope and Methodology

collections can continue to be received years after the overpayment claims

were established. We believe, however, that this proxy measure

reasonably reflects the variation in the 1992 recovery performance among

states.23

To help determine the more effective practices that states use to collect

overpayments, for each program, we ranked the states by the

collection-to-overpayments ratio developed from the proxy measure of

states’ recovery performance. We then divided the states into high-,

middle-, and low-performance categories for each program, with

approximately one-third of the states in each of the three groups, as shown

in table I.1. We defined high-performing states as those with an AFDC

recovery rate of 20 percent or greater, a Food Stamp recovery rate of

10 percent or greater, or a Medicaid recovery rate of 3 percent or greater.

Table I.1: High-, Middle-, and

Low-Performing States’ AFDC, Food

Stamp, and Medicaid Overpayment

Recovery Levels (Fiscal Year 1992) 

High Middle Low

Program Percent

Number of

states Percent

Number of

states Percent

Number of

states

AFDC 20 or

greater 19

10 to less

than 20 16

Less

than 10 15

Food

Stamp

10 or

greater 15

7 to less

than 10 16

Less

than 7 20

Medicaid 3 or

greater 10

1 to less

than 3 8

Less

than 1 9

Note: The data used to calculate the recovery rates were provided by 49 states and the District of

Columbia for the AFDC program, 50 states and the District of Columbia for the Food Stamp

program, and 27 states for the Medicaid program.

By categorizing the states this way, we could analyze our survey data to

determine if high-performing states differed from low-performing states in

the number or kind of practices used to establish or collect overpayments.

We also used this ranking of states’ performance to estimate the potential

for additional collections if lower performing states raised their recovery

efforts to the level of high-performing states. Our estimate of the

additional collections represents gross collections and is not net of the

cost of obtaining them.

23As a further test of our Food Stamp proxy measure (6.5 percent recovery rate nationwide), we

compared Food Stamp collection and estimated overpayment data for 1988 through 1993 and derived a

7.4 percent nationwide recovery rate for the 6-year period. The data are from FCS’ annual quality

control and state activity reports. However, similar data are not available for the AFDC and Medicaid

programs.

Page 37 GAO/HEHS-95-111 Welfare Overpayments
Appendix I 

Scope and Methodology

We also interviewed federal and state officials to better understand their

recovery policies and practices. We interviewed officials from ACF, FCS, and

HCFA; Treasury’s Financial Management Service and IRS; and seven states

(California, Maryland, North Carolina, Oregon, Tennessee, Texas, and

Wisconsin). We focused our interviews on four aspects of recovery:

(1) recovery organization and coordination; (2) use of specific

identification and collection methods; (3) factors that hinder recovery; and

(4) federal oversight, monitoring, and guidance of state recovery efforts.

To determine what the federal government can do to help states recover

more overpayments, we reviewed the federal laws and regulations for

each program. In addition, as presented in appendix VI, we estimated the

additional overpayments that could be collected if certain legislative or

regulatory provisions that facilitate recovery in one program were

extended to the others. Our estimate of additional recoveries represents

gross collections and is not net of the cost of obtaining them.

Page 38 GAO/HEHS-95-111 Welfare Overpayments
Appendix II 

States’ Performance in Recovering AFDC

Overpayments, Fiscal Year 1992

High (20 percent and greater) Middle (10 to less than 20 percent) Low (Less than 10 percent)

State

Percent of

estimated

overpayments

recovered State

Percent of

estimated

overpayments

recovered State

Percent of

estimated

overpayments

recovered

North Dakota 67.0 Idaho 18.7 Iowa 9.7

Nevada 63.4 South Carolina 17.4 Michigan 8.8

Oregon 40.1 Oklahoma 17.2 Connecticut 8.5

New York 39.0 North Carolina 16.5 Tennessee 7.5

Nebraska 35.7 Delaware 16.2 Maryland 7.4

Illinois 35.3 Alabama 15.0 Ohio 6.9

Georgia 34.4 Virginia 14.6 Wisconsin 6.3

Utah 33.5 Montana 14.5 Mississippi 6.1

Colorado 30.1 Arkansas 14.3 Texas 6.0

Hawaii 27.8 Arizona 12.6 West Virginia 5.9

Minnesota 26.7 Missouri 12.4 Pennsylvania 4.9

New Mexico 25.6 Rhode Island 12.0 Louisiana 4.8

South Dakota 24.8 New Jersey 11.9 Florida 2.6

Washington 24.4 Indiana 11.0 New Hampshire 2.0

Kentucky 23.9 Massachusetts 10.5 Maine 1.1

California 23.7 Vermont 10.3

Wyoming 21.7

Alaska 21.0

Washington, D.C. 20.8

Note: AFDC recovery information was not available for Kansas.

Page 39 GAO/HEHS-95-111 Welfare Overpayments
Appendix III 

States’ Performance in Recovering Food

Stamp Overpayments, Fiscal Year 1992

High (10 percent and greater) Middle (7 to less than 10 percent) Low (Less than 7 percent)

State

Percent of

estimated

overpayments

recovered State

Percent of

estimated

overpayments

recovered State

Percent of

estimated

overpayments

recovered

Hawaii 29.1 South Dakota 9.8 North Carolina 6.2

North Dakota 18.1 Alaska 9.3 Connecticut 6.0

Utah 16.7 New Jersey 9.3 Maryland 6.0

Oregon 16.6 Kansas 8.9 Arizona 5.9

Idaho 15.3 Montana 8.7 Texas 5.8

Colorado 14.5 Iowa 8.5 New Hampshire 5.6

Wisconsin 13.0 Vermont 8.3 Oklahoma 5.5

Alabama 12.6 Washington 8.3 Washington, D.C. 5.4

Georgia 12.6 South Carolina 8.3 New York 5.2

Illinois 12.5 Missouri 8.1 West Virginia 5.2

Wyoming 12.5 New Mexico 8.0 Nevada 4.1

Arkansas 11.1 Nebraska 8.0 Tennessee 3.9

California 10.4 Maine 7.8 Virginia 3.7

Pennsylvania 10.3 Minnesota 7.5 Massachusetts 3.7

Kentucky 10.2 Delaware 7.3 Mississippi 3.1

Michigan 7.1 Louisiana 3.1

Indiana 3.0

Rhode Island 2.6

Ohio 2.5

Florida 1.3

Page 40 GAO/HEHS-95-111 Welfare Overpayments
Appendix IV 

States’ Performance in Recovering Medicaid

Overpayments, Fiscal Year 1992

High (3 percent and greater) Middle (1 to less than 3 percent) Low (Less than 1 percent)

State

Percent of

estimated

overpayments

recovered State

Percent of

estimated

overpayments

recovered State

Percent of

estimated

overpayments

recovered

Alabama 13.4 Alaska 2.7 Nevada .8

Idaho 10.8 Oregon 2.3 Hawaii .7

Maryland 10.0 New Jersey 2.3 Nebraska .6

Utah 7.3 Washington 2.0 South Dakota .5

New Mexico 6.4 Wyoming 1.7 Texas .5

Montana 6.2 Iowa 1.5 Georgia .2

Arkansas 5.2 North Carolina 1.4 Kentucky .2

Missouri 3.7 Delaware 1.3 South Carolina .1

California 3.4 Florida less than .1

Colorado 3.2

Note: Medicaid recovery information was not available for Arizona, Connecticut, District of

Columbia, Illinois, Indiana, Kansas, Louisiana, Maine, Massachusetts, Michigan, Minnesota,

Mississippi, New Hampshire, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode

Island, Tennessee, Vermont, Virginia, West Virginia, and Wisconsin.

Page 41 GAO/HEHS-95-111 Welfare Overpayments
Appendix V 

Comparison of Recovery Efforts of Highand Low-Performing States

The following tables provide additional information on our analyses of the

recovery practices that successful states use to establish and collect

overpayments as discussed in chapter 2.

Table V.1: For the AFDC or Food

Stamp Programs, a Greater Percentage

of High- Than Low-Performing States

Used Self-Initiated Computer Matches

to Identify Overpayments

High Low

Programa

Number of

states Percent

Number of

states Percent

AFDC 18 of 19 95 10 of 15 67

Food Stamp 15 of 15 100 15 of 20 75

aThere was relatively little difference between high- and low-performing states for the Medicaid

program for this individual practice, and, therefore, the program is not included in the table.

Table V.2: For the AFDC or Food

Stamp Programs, a Greater Percentage

of High- Than Low-Performing States

Used Multiple Approaches to Identify

Overpayments

High Low

Programa

Number of

states Percent

Number of

states Percent

AFDC 15 of 19 79 10 of 15 67

Food Stamp 11 of 15 73 13 of 20 65

Note: In this report, those states that use at least all of the following methods to identify potential

overpayments are considered as using multiple approaches: (1) self-initiated computer matches;

(2) quality control reviews; (3) fraud hotlines; (4) client application procedures; (5) client

recertification process; and (6) methods other than those listed, such as supervisory reviews of

client applications processed by eligibility staff.

aThere was relatively little difference between high- and low-performing states for the Medicaid

program for this individual practice, and, therefore, the program is not included in the table.

Table V.3: For the AFDC, Food Stamp,

or Medicaid Programs, the Total Types

of Difficult Collections That States

Reported They Would Attempt Was

Higher in High- Than Low-Performing

States

High Low

Program

Number of

statesa

Total types

(average)

Number of

statesa

Total types

(average)

AFDC 19 5 15 4

Food Stamp 15 5 20 4

Medicaid 10 6 9 4

Note: More difficult types of collection include collections of overpayments from current or former

clients for each of the following situations: (1) current client who declared bankruptcy, (2) current

client who could not repay the debt, (3) former client who moved out of state, (4) former client with

no forwarding address, (5) former client who declared bankruptcy, (6) former client who could not

repay the debt, and (7) former client who was deceased.

aExcludes state(s) in each performance category that did not respond to the question.

Page 42 GAO/HEHS-95-111 Welfare Overpayments
Appendix V 

Comparison of Recovery Efforts of Highand Low-Performing States

Table V.4: For the AFDC, Food Stamp,

or Medicaid Programs, the Median

Caseload Per Eligibility Staff Was

Lower in High- Than Low-Performing

States

High Low

Program

Number of

statesa

Median

caseload

Number of

statesa

Median

caseload

AFDC 14 218 10 332

Food Stamp 11 230 11 321

Medicaid 4 216 6 254

aExcludes state(s) in each performance category that did not respond to the question.

Table V.5: For the AFDC, Food Stamp,

or Medicaid Programs, the Average

Percent of Total Staff Who Were

Recovery Specialists Was Higher in

High- Than Low-Performing States

High Low

Program

Number of

statesa

Average

percent

Number of

statesa

Average

percent

AFDC 13 4 8 3

Food Stamp 13 7 12 3

Medicaid 6 5 9 4

Note: Total staff include eligibility staff, recovery specialists, and fraud investigators.

aExcludes state(s) in each performance category that did not respond to the question.

Table V.6: For the AFDC or Food

Stamp Programs, the Average Percent

of Total Staff Who Were Fraud

Investigators Was Higher in HighThan Low-Performing States

High Low

Programa

Number of

statesb

Average

percent

Number of

statesb

Average

percent

AFDC 13 4 8 2

Food Stamp 13 8 12 3

Note: Total staff include eligibility staff, recovery specialists, and fraud investigators.

aThere was relatively little difference between high- and low-performing states for the Medicaid

program for this individual practice, and, therefore, the program is not included in the table.

bExcludes state(s) in each performance category that did not respond to the question.

Table V.7: For the AFDC, Food Stamp,

or Medicaid Programs, a Greater

Percentage of High- Than

Low-Performing States Used State

Income or Property Tax Refund

Intercept to Collect Overpayments

High Low

Program

Number of

statesa Percent

Number of

states Percent

AFDC 10 of 18 56 6 of 15 40

Food Stamp 10 of 15 67 8 of 20 40

Medicaid 6 of 10 60 2 of 9 22

aExcludes state(s) in each performance category that did not respond to the question.

Page 43 GAO/HEHS-95-111 Welfare Overpayments
Appendix V 

Comparison of Recovery Efforts of Highand Low-Performing States

Table V.8: For the AFDC, Food Stamp,

or Medicaid Programs, a Greater

Percentage of High- Than

Low-Performing States Used More

Multiple Approaches to Collect

Overpayments

High Low

Program

Number of

collection

methods

used

Number of

statesa Percent

Number of

states Percent

AFDC 11 5 of 19 26 0 of 15 0

Food Stamp 12 7 of 15 47 7 of 20 35

Medicaid 6 4 of 10 40 1 of 9 11

Note: In this report, states that use all or most of the following collection methods to recover

overpayments from current or former clients are considered as using multiple approaches:

(1) recouping of benefits (AFDC and Food Stamp only), (2) collecting Food Stamp coupons,

(3) collecting voluntary cash payments, (4) collecting cash payments after referring to collection

agency, (5) collecting cash payments after using small claims court, (6) collecting wage

garnishments, (7) using property liens, (8) intercepting unemployment compensation benefits,

(9) intercepting state income or property tax refunds (available in states with state income or

property tax), (10) intercepting federal income tax refunds (Food Stamp only), or (11) using other

collection method not listed above such as intercepting state lottery winnings.

aExcludes state(s) in each performance category that did not respond to the question.

Table V.9: For the AFDC or Food

Stamp Programs, a Greater Percentage

of High- Than Low-Performing States

Had Automated Billing Systems With a

Full Range of Functions

High Low

Programa

Number of

states Percent

Number of

states Percent

AFDC 13 of 19 68 6 of 15 40

Food Stamp 12 of 15 80 9 of 20 45

Note: In this report, we define as “full range” those automated systems that could do at least all of

the following functions: (1) generate adverse action notices/demand letters, (2) generate

overpayment statements to clients, (3) deduct part or all of the overpayments from a current or

future welfare benefit, (4) track a client’s current overpayment balance, and (5) identify delinquent

claims.

aThere was relatively little difference between high- and low-performing states for the Medicaid

program for this individual practice, and, therefore, the program is not included in the table.

Table V.10: For the AFDC, Food Stamp,

or Medicaid Programs, a Greater

Percentage of High- Than

Low-Performing States Had All or

Almost All of Their Overpayment

Records in an Automated Billing

System

High Low

Program

Number of

statesa Percent

Number of

statesa Percent

AFDC 14 of 18 78 10 of 15 67

Food Stamp 14 of 15 93 15 of 20 75

Medicaid 7 of 8 88 5 of 8 63

aExcludes state(s) in each performance category that did not respond to the question.

Page 44 GAO/HEHS-95-111 Welfare Overpayments
Appendix VI 

Effect of Extending Effective Federal

Recovery Provisions to One or More

Programs Could Potentially Increase

Collections

The following tables provide additional information supporting our

estimates of the additional overpayments that could be recovered from

establishing more uniform federal recovery provisions among the AFDC,

Food Stamp, and Medicaid programs.

Table VI.1: Estimate of Additional Food

Stamp Overpayment Recoveries If

States Were Required to Reduce

Benefits (Recoupment) to Recover

Overpayments Resulting From Agency

Errors

Dollars in millions

Estimated overpayments due to agency error a $688.4

Claims establishment rate for client error overpaymentsb .177

Estimated overpayment claims established $121.8

Claims collection rate for agency overpaymentsc .41

Estimated overpayment claims collected $50.0

Less actual overpayment claims collected $17.0

Estimated additional overpayment collections $33.0

aBased on 1992 quality control review data provided by the Food and Consumer Service.

bWe assumed that with recoupment without the client’s consent states would establish

overpayment claims at the same rate that they did for client error overpayments.

cWe assumed that with recoupment without the client’s consent states would collect overpayment

claims at the same rate as for agency error overpayments. In doing this, we were taking a

conservative approach because the agency error collection rate was lower than that for client

error overpayments.

To estimate potential additional collections from using federal income tax

refund intercept for AFDC and Medicaid overpayments, as shown in tables

VI.2 and VI.3, we used information provided by the United Council on

Welfare Fraud, Inc., a program integrity advocacy group, and survey data

provided by state agencies. Information from the Council included a ratio

of the dollar amount of Food Stamp overpayments collected using state

income tax intercept to the overpayments collected using federal tax

intercept, based on a Council study of Alabama’s and California’s

experience using federal tax refund intercept in 1992. To estimate the

additional collections for the AFDC and Medicaid programs, we multiplied

the total AFDC and Medicaid overpayments collected using state tax

intercept in 1992 by the ratio provided by the Council. We assumed that

the relationship between the overpayment amount collected using state

income tax intercept and the amount collected using a federal income tax

intercept for any state would be the same as that for Food Stamp

overpayments.

Page 45 GAO/HEHS-95-111 Welfare Overpayments
Appendix VI 

Effect of Extending Effective Federal

Recovery Provisions to One or More

Programs Could Potentially Increase

Collections

Table VI.2: Estimate of Additional

AFDC Overpayment Collections for 24

States If Federal Income Tax Refund

Intercept Were Available as an

Overpayment Collection Method

Dollars in thousands

Collections by 24 states using state income tax refund intercepta $8,360.7

Ratio of state income tax refund intercept to federal income tax refund

interceptb .375:1

Estimate of collections for 24 states by using federal income tax refund

intercept $22,295.2

aData developed from state responses to GAO nationwide survey of state AFDC agencies.

bBased on data provided by the United Council on Welfare Fraud, Inc.

Table VI.3: Estimate of Additional

Medicaid Overpayment Collections for

11 States If Federal Income Tax Refund

Intercept Were Available as an

Overpayment Collection Method

Dollars in thousands

Collections by 11 states using state income tax refund intercepta $472.5

Ratio of state income tax refund intercept to federal income tax refund

interceptb .375:1

Estimate of collections for 11 states by using federal income tax refund

intercept $1,259.9

aData developed from state responses to GAO nationwide survey of state Medicaid agencies.

bBased on data provided by the United Council on Welfare Fraud, Inc.

Page 46 GAO/HEHS-95-111 Welfare Overpayments
Appendix VII 

Comments From the Department of

Agriculture

Page 47 GAO/HEHS-95-111 Welfare Overpayments
Appendix VII 

Comments From the Department of

Agriculture

Page 48 GAO/HEHS-95-111 Welfare Overpayments
Appendix VII 

Comments From the Department of

Agriculture

Page 49 GAO/HEHS-95-111 Welfare Overpayments
Appendix VIII 

Comments From the Department of Health

and Human Services

Page 50 GAO/HEHS-95-111 Welfare Overpayments
Appendix VIII 

Comments From the Department of Health

and Human Services

Page 51 GAO/HEHS-95-111 Welfare Overpayments
Appendix VIII 

Comments From the Department of Health

and Human Services

Page 52 GAO/HEHS-95-111 Welfare Overpayments
Appendix VIII 

Comments From the Department of Health

and Human Services

Page 53 GAO/HEHS-95-111 Welfare Overpayments
Appendix IX 

GAO Contacts and Staff Acknowledgments

GAO Contacts Suzanne C. Sterling, Evaluator, (202) 512-3081

Philip J. Andres, Evaluator-in-Charge, (313) 256-8306

David P. Bixler, Assistant Director, (202) 512-7201

Acknowledgments In addition to those named above, the following individuals made

important contributions to this report: Mark Vinkenes assisted with

questionnaire development, Kathleen Ward assisted with the methodology

and data analysis, Jean Freeman developed the data entry programs and

keypunched questionnaire data, and Sara Peth provided data verification

assistance.

(105497) Page 54 GAO/HEHS-95-111 Welfare Overpayments
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