Child Support Enforcement: Better Data and More Information on Undistributed Collections Are Needed
Published: 2004-03-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Congress established the child support enforcement program in 1975 to ensure that parents financially supported their children. State agencies administer the program and the Office of Child Support Enforcement (OCSE) in the Department of Health and Human Services oversees it. In 2002, state agencies collected over $20 billion in child support, but $657 million in collections from 2002 and previous years were undistributed--funds that were delayed or never reached families. One method used to collect child support, intercepting federal tax refunds, involves all state agencies, OCSE, and two Department of the Treasury agencies--the Internal Revenue Service (IRS) and the Financial Management Service (FMS). GAO was asked to address (1) how the total amount of undistributed collections changed over the years, (2) the causes of undistributed collections, (3) states' efforts to reduce these funds, and (4) OCSE's efforts to assist states. GAO analyzed OCSE data, administered a survey, visited 6 state agencies and interviewed officials.
section_title: What GAO Found
paragraphs: OCSE reported that the amount of undistributed collections for fiscal year 1999 was $545 million and $657 million for fiscal year 2002; however, these amounts may not be accurate. State agencies had different interpretations of what comprised undistributed collections and data reported by several state agencies were found to be unreliable throughout this time period. OCSE revised the reporting form, but data accuracy concerns remain, in part, because OCSE does not have a process to ensure the accuracy of undistributed collections data. Federal law, some state policies, and inaccurate or missing information were the underlying causes of nearly all types of undistributed collections. State agencies determined how long they held collections from joint tax refunds and if they held collections received before they were due. Federal law allows collections intercepted from joint tax refunds to be held for up to 180 days and in response to GAO's survey, 34 state agencies reported holding them for 180 days. Missing or inaccurate information, such as invalid addresses, also leads to undistributed collections. Based on state agencies' survey responses, GAO determined the median value of the undistributed collections from joint tax refunds was about $1.8 million and the median value of four other types of undistributed collections exceeded $350,000. State agencies GAO visited took steps to better understand and reduce undistributed collections. Of the 6 state agencies visited, 5 had analyzed their undistributed collections cases, 4 adopted performance goals, and officials from all 6 state agencies stressed the importance of researching collections that were missing information. In addition, officials stated that using automated processes to receive and distribute collections helped reduce the number of collections with missing or inaccurate information. OCSE has provided some assistance to help state agencies reduce their undistributed collections. However, the Department of the Treasury has not provided OCSE information that would allow state agencies to distribute collections from joint tax refunds to families sooner. Further, OCSE's efforts to obtain this information have been minimal.

section_title: Letter
paragraphs: In 2002, the Office of Child Support Enforcement (OCSE), in the  Department of Health and Human Services, reported that billions of  dollars in child support were collected but that payments totaling   $657 million were delayed or never reached the families for whom they  were intended. These undistributed child support payments are a concern  because child support is an important source of income for many families.  According to a 2003 report, for 36 percent of poor children living in  families headed by single mothers, child support payments comprised  almost one-third of the family’s income in 2001. The 1996 Personal  Responsibility and Work Opportunity Reconciliation Act (PRWORA)  generally requires state child support enforcement agencies to disburse  child support collections within 2 business days, if sufficient information  identifying the recipient is provided. In addition, portions of child support  collections must be distributed to state government programs, such as  Temporary Assistance to Needy Families (TANF), to reimburse them for  cash assistance provided to families.
Although state child support enforcement agencies administer the child  support program, the federal government plays a major role. OCSE funds  two-thirds of the program’s administrative costs; establishes policies and  guidance; provides technical assistance, such as designing curricula and  providing support for staff training; and oversees and monitors state  agencies. Additionally, OCSE is responsible for taking the necessary steps  to help resolve issues at the federal level that affect the child support  program such as processes that prevent child support payments from  reaching families in a timely manner. OCSE and state agencies collect  child support through various methods, such as intercepting the federal  tax refunds of noncustodial parents—parents who do not have primary  care, custody, or control of their children—who are delinquent in paying  their child support. If the noncustodial parent has a new spouse and files  a joint tax return, generally, only the portion of the refund due to the  noncustodial parent should be intercepted. Federal law allows state  agencies to hold collections from certain intercepted federal joint tax  refunds for up to 6 months to provide time for the new spouse to ask for  his or her share of the refund by filing an “injured spouse” claim with the  Department of the Treasury.
In an effort to understand the issues associated with undistributed child  support collections, you requested that we address the following  questions: (1) How has the total amount of undistributed collections  changed in the last few years? (2) What are the causes of undistributed  collections? (3) What are state agencies doing to reduce undistributed  collections? (4) How has OCSE assisted state agencies’ efforts to reduce  the amount of undistributed collections?
We obtained information from several sources that provided some data for  all of the objectives. We conducted a mail survey of all 54 IV-D child  support enforcement agencies. Forty-eight state agencies responded to the  survey. We did not assess the reliability of the data the state agencies  reported in response to our survey. However, we reviewed the data for  completeness and reasonableness. We conducted site visits to 6 state  agencies. We selected California, Florida, Iowa, New York, Texas, and  Virginia because they represented diversity in amounts of undistributed  collections, and geographical location, and they provided examples of  statewide and county administered programs. We interviewed federal and  state officials, reviewed related reports and analyzed applicable laws and  regulations. In addition, we took specific steps to address each of the  objectives. To address how undistributed collections have changed, we  analyzed OCSE data for fiscal years 1999 to 2002 reported by state  agencies. The fiscal year 1999 data was the earliest year with data  comparable to fiscal year 2002; the most current data available at the time  of our review. We assessed the reliability of undistributed collections data  reported to OCSE and found that the data were inconsistent and  unreliable. We also reviewed state and federal reports that discussed  issues associated with calculating and reporting undistributed collections.  To identify the causes of undistributed collections, steps state agencies  have taken to reduce undistributed collections, and assistance OCSE has  provided to state agencies, we reviewed relevant research and audit  reports; examined OCSE guidance and documents related to funded  projects; and interviewed child support advocates and experts.
We conducted our work between May 2003 and March 2004 in accordance  with generally accepted government auditing standards. See appendix I for  more details on our scope and methodology and appendix II for a copy of  our survey.
subsections: section_title: Background
paragraphs: Child support is not legally owed until a child support order is issued that  stipulates the amount the legally identified noncustodial parent—the  parent who does not have primary care, custody, or control of the child— is required to pay and when these payments are due. The Child Support  Enforcement (CSE) program, established in 1975 under Title IV-D of the  Social Security Act, established federal standards for state CSE programs  to ensure that parents provide support to their children. Services provided  through the CSE program include locating absent noncustodial parents,  establishing paternity and support orders, and collecting and distributing  child support payments. All 50 states, the District of Columbia, Guam,  Puerto Rico, and the Virgin Islands operate CSE programs. However, many  aspects of implementing the child support program are generally under the  purview of the state rather than the federal government.
For fiscal year 2002, OCSE reported over 16 million child support cases  and collections of more than $20 billion. One method for collecting child  support is intercepting federal tax refunds. Congress enacted the Federal  Tax Refund Offset program in 1981. Initially the Internal Revenue Service  (IRS), an agency within the Department of the Treasury, OCSE, and the  state agencies operated the program. In 1998 the Financial Management  Service (FMS), another agency within the Department of the Treasury,  assumed primary responsibility for the program. Now, all state agencies,  OCSE, IRS, and FMS play a role in the program. Table 1 shows the amount  of collections offset from tax refunds from 1999 to 2002.
To start the offset process, state agencies identify those noncustodial  parents that meet the program criteria. For example, for non-TANF cases,  the amount of past due support the noncustodial parent owes must be at  least $500. The state agencies, or OCSE on behalf of the state agencies,  must send a written notice to the noncustodial parent at least 30 days in  advance of sending his or her name to OCSE for the offset program. This  notice includes, among other things, information about filing “injured  spouse claims.” State agencies send OCSE the names of the eligible  noncustodial parents and the amount owed and OCSE transmits this  information to FMS. FMS adds this information to its debtor file that  includes information on those who owe child support as well as those who  owe other federal debts. IRS processes the tax returns, and then forwards  information to FMS on those individuals who are due refunds. FMS  compares this information to its debtor file and, if there is a match, offsets  the refund by the amount of child support owed. After the refunds have  been offset, FMS notifies the individual, and transfers the offset funds and  information to OCSE. OCSE then distributes the funds and information to  the appropriate state agency.
When a noncustodial spouse has filed a joint tax return, FMS may offset  the refund if either person owes child support. FMS, acting on behalf of  the Secretary of the Treasury, must notify OCSE, which notifies the state  agencies when the withholding is being made from a refund based on a  joint return, and provides the names and addresses of each taxpayer.  Under these circumstances, the state agency is permitted to delay  distribution of the amount withheld until the Secretary of the Treasury  notifies the state agency that the spouse has received his or her proper  share of the refund. This delay may not exceed 6 months. However, the  law allows a spouse 6 years to file an “injured spouse” claim. If the spouse  files a timely “injured spouse” claim and is found to be entitled to a portion  of the withheld amount, IRS will process the claim and allocate the  appropriate amount to each person. If the spouse’s claim is filed after the  funds have been forwarded to the state agency, and the spouse is found to  be entitled to a portion of the withheld amount, FMS sends the spouse his  or her portion and the state agencies must reimburse the Treasury. OCSE  data shows that from March to August 2003, almost $200 million dollars  were collected from offsets of non-TANF joint tax refunds.
PRWORA amended portions of the Social Security Act, including some  provisions that pertained to child support enforcement. One provision  required state agencies to establish a state disbursement unit to centralize  collection and disbursement of child support payments in order to receive  federal funds. In addition to distributing collections from noncustodial  parents to custodial parents, state agencies also distribute collections to   other government programs such as TANF and Foster Care programs as  reimbursement for benefits provided to families. For example, as a  condition of receiving temporary cash assistance, parents must apply for  child support enforcement services and agree to give all or a portion of  their child support to the state. In fiscal year 2002, OCSE reported that  custodial parents who were receiving public assistance comprised about  three million cases, and those who formerly received public assistance  comprised about seven million cases.
State agencies are required to report collection and distribution  information quarterly to OCSE through the Quarterly Report of  Collections, Form OCSE-34A. On the form, net undistributed collections  equal the total amount of undistributed collections, less those considered  undistributable or abandoned property according to state laws.
section_title: OCSE Reported Millions in Undistributed Collections, but Data Were Unreliable
paragraphs: OCSE has reported millions in undistributed collections from fiscal year  1999 to 2002, but the amounts may not be accurate. State agencies had  different interpretations of what comprised undistributed collections and  some state agencies reported data that were found to be unreliable  throughout this time period. Although OCSE revised the reporting form for  fiscal year 2004, which should improve consistency in the types of  collections reported as undistributed, data accuracy remains a concern.  OCSE does not audit or periodically review undistributed collections data  as it does other performance and financial data.
subsections: section_title: Types of Collections Reported as Undistributed Differed
paragraphs: Although OCSE reported that the amount of undistributed collections for  fiscal year 1999 was $545 million and $657 million for fiscal year 2002,  OCSE also reported and our survey results indicated that state agencies  varied in the types of collections they reported as undistributed. In its  preliminary annual report for fiscal year 2002, OCSE acknowledged that  interpretation of the data on undistributed collections was limited due to  the variation in the types of collections included. This report indicated  that some state agencies included collections to be distributed within   2 business days; collections received before they were due; and collections  to be distributed to other government programs, while other state agencies  did not. In our survey, we asked state agencies if they included these types  of collections as well as collections to be distributed pending legal  resolution and collections received from intercepting joint tax refunds. Of  the 48 state agencies that responded, nearly all indicated that they  included collections received before they were due to the custodial parent,  collections pending legal resolution, and collections received from joint  tax refunds. Thirty of the state agencies responded that they included  collections to be distributed in 2 business days and 28 state agencies  included collections to be distributed to other government programs.  Figure 1 illustrates the state responses.
OCSE has taken steps to improve data consistency. OCSE revised its   34A form and related instructions in fiscal year 2003 to improve the  consistency of undistributed collections data. According to OCSE officials,  this change was also made to provide more information about the  composition of undistributed collections. Prior to the changes, all  collections were reported under one category, and it was not possible to  distinguish between collections pending distribution and collections  requiring further research in order to distribute them.
As of fiscal year 2004, state agencies are required to report total  collections under two categories. The first category, “undistributed  collections pending distribution,” includes collections that state agencies  reasonably expect to distribute through typical business processing in the  future. For example, collections held because of a legal dispute over the  amount of support owed will be distributed as soon as the matter is  resolved. The second category, “undistributed collections unresolved,”  includes collections that require the child support staff to obtain more  information before they can be distributed. These include but are not  limited to collections (1) lacking information to match them to a case,   (2) missing current addresses for a parent, and (3) from checks that were  issued but the time frame for which to cash them had expired. According  to OCSE officials, another new reporting form has been developed for use  beginning in fiscal year 2005 that will require state agencies to report  amounts for 10 types of undistributed collections included under the two  categories. These officials informed us that the form is subject to review  and approval by the Office of Management and Budget. Table 2  summarizes the two categories and the 10 types of collections to be  reported as undistributed collections.
section_title: Some State Agencies Reported Inaccurate Amounts of Undistributed Collections
paragraphs: In addition to differences in the types of undistributed collections that  state agencies reported, 4 state agencies reported data accuracy problems  in 2002 and 2003 that were found to be overestimates. The cumulative  amounts of these undistributed collections ranged from about $5 million  to $168 million and, according to state officials, the actual amounts of  undistributed collections were lower than reported. The state agencies  and the amounts of the overestimates are summarized in table 3.
Most of the errors were accounting mistakes discovered by the state  agencies. Officials from the California Department of Child Support  Services reviewed the state’s accounting of undistributed collections and  found that some local officials had included collections in their totals  multiple times because they had misinterpreted a policy. They thought that  disbursements could only be reported if collections were also reported in  the same period and, as a result, when they disbursed funds they again  added these collections into their totals. This resulted in overstating  amounts for total collections and for undistributed collections. Nebraska’s  overestimate occurred partly because collections received before they  were due for non-TANF cases were immediately distributed, but the  officials did not show them as being distributed until the official due date.  In Missouri, nearly all of the overestimate was spousal support collected  by the state disbursement unit that was erroneously reported as child  support collections. For the remainder, in Missouri, when a collection  from a joint tax refund had been distributed to a custodial parent and the  amount was later adjusted in the same reporting quarter because of an  “injured spouse” claim, the adjusted amount was added as a new  collection. An audit of Michigan’s child support program revealed that it  failed to account for the distribution of payments that noncustodial  parents paid directly to custodial parents.
The reports related to these overestimates also indicated that having  multiple jurisdictions involved with recording collections contributed to  the errors. Local agencies in California used forms that did not always  include the federal data elements used by the state agency to report  undistributed collections. Nebraska discovered errors when its state  disbursement unit took over the collection and distribution process from  clerks at multiple courts.
section_title: OCSE Did Not Hold State Agencies Accountable for Accurately Reporting Undistributed Collections
paragraphs: While OCSE is required to audit some child support data, it does not have  a process to ensure the accuracy of data on undistributed collections.  OCSE is required to audit the reliability of the performance indicators  used as the basis for paying financial incentives to state agencies.  Officials told us they are conducting these audits annually. To ensure the  reliability of the data, OCSE selects representative sample cases for a  detailed audit and reviews supporting documentation to check for errors.  OCSE is also required to conduct financial audits to determine whether  federal and other funds used to administer the program are being  appropriately expended and properly accounted for. These audits are  required to include an examination of collections and disbursements of  child support payments for proper processing and accounting treatment.  Although OCSE’s general instructions for the collection of data used for its  annual report reminds state agencies that they should report reliable and  complete information, OCSE officials told us they have only reviewed data  on undistributed collections in special circumstances. For example, the  Department of Health and Human Services and OCSE conducted at least  three special reviews of California’s undistributed collections data since  fiscal year 1994 that revealed problems with the accuracy and reliability of  the data. According to OCSE officials, the agency does not have the  resources to routinely review data on undistributed collections in the way  it reviews other program data.
Reviews of undistributed collections data do not have to be done the same  way other program data are reviewed. To minimize the impact on OCSE’s  resources, the reviews of the undistributed collections data could be done  in conjunction with one of the other routine audits and could be limited to  a portion of the state agencies on a rotational basis, for example, one third  of the states each year. Without more accurate data on undistributed  collections, OCSE cannot be certain about the amount of collections that  are not being distributed to families in a timely manner. Further, without  accurate data, OCSE cannot determine whether undistributed collections  are more problematic for certain state agencies than for others.
section_title: Federal Law, Some State Policies, and Inaccurate, or Missing Information Delayed or Prevented Distribution of Certain Collections
paragraphs: The underlying causes for nearly all undistributed collections were federal  law, state policies, as well as inaccurate or missing information. Federal  law allowed state agencies to hold collections from joint tax refunds and  state agencies set polices that guided how long these refunds and other  collections were held. Invalid addresses for custodial parents or missing  case information also contributed to undistributed collections. For  example, information needed to determine the correct amount of the  collection to be distributed to families who are or were receiving public  assistance was sometimes inaccurate or missing, and delayed distribution  of these collections. Our analysis of state agency survey data found that  many state agencies reported holding more that $1 million from joint tax  refunds and several hundred thousand in other types of collections.
subsections: section_title: Federal Law and State Policies Determined How Long Certain Collections Were Held
paragraphs: Federal law and policies in some state agencies contributed to certain  collections being counted as undistributed. While state agencies are  generally required to distribute collections in 2 days, federal law allows  state agencies to hold collections from joint tax refunds for up to 180 days.  Our survey results revealed that the majority of state agencies held  collections intercepted from joint tax refunds for 180 days and a few  distributed them in 1 to 2 days. Table 4 summarizes this survey data.
In addition, state agencies had policies on whether or not they held child  support collections received before they were due. Depending on how  early collections are received, they may be held for several months and  counted as undistributed collections during that time. Twenty-one state  agencies reported that they immediately distributed collections that were  received before they were due for non-TANF cases and 20 state agencies  reported that they held these collections until they were due. Seven state  agencies had other policies. For example, 1 state agency reported that it  authorized its case managers to distribute the collections based on the  preferences of the custodial parent and another state reported it would  hold as much as 1 month of support received before it was due and refund  the remaining amount to the noncustodial parent.
State policies regarding how long undistributed collections are held before  they are declared abandoned affects reported amounts of undistributed  collections. Eleven state agencies reported that their policies require  undistributed collections to be declared abandoned property after 1 year,  while 1 state indicated its policy was to hold collections for up to 7 years.  Eleven state agencies did not specify a number of years after which  undistributed collections were declared abandoned property. Figure 5  shows the range of times reported by 44 state agencies.
section_title: Inaccurate or Missing Information Contributed to Undistributed Collections
paragraphs: Some undistributed collections were the result of invalid addresses for  custodial parents or missing information. State officials told us that  custodial parents often moved without informing the child support agency  of their new address and that the U.S. Postal Service did not forward  collections to new addresses, but rather returned them to the child  support enforcement agency. According to state officials, noncustodial  parents did not always include identifying information on their payments.  For example, state officials said they sometimes received money orders  from noncustodial parents that were illegible or lacked information, such  as the case number or full name, needed to match them to the right case.
Missing or inaccurate information on TANF or former TANF cases  contributed to undistributed collections. Officials from 2 state agencies we  visited explained that some collections could not be distributed to the  custodial parent until they determined the correct amount owed to the  government. According to Florida officials, this contributed to nearly   50 percent of its approximate $28 million in undistributed collections. The  state cited two major reasons for this problem: (1) data inaccuracies due  to the conversion of cases from the former statewide system to the state  agency’s new automated system and (2) difficulties exchanging  information between the automated systems of the child support agency  processing the payments and the TANF agency. A 2001 report issued by  the Department of Health and Human Services’ Office of Inspector General  found that 11 state agencies experienced difficulties in distributing child  support to families leaving TANF. Among the reasons state agencies cited  were problems exchanging information with TANF agencies and  inaccurate addresses for custodial parents receiving TANF benefits. The  report also noted that 28 of 51 state agencies surveyed reported problems  with the automated exchanges of information between the child support  enforcement and the TANF agencies. These problems included  incompatible design of state TANF and child support enforcement  agencies’ automated systems and timing of information exchanges, which,  according to the report, could have caused child support payment delays  and underpayments after clients left the TANF program.
State officials also said that missing information from employers as well as  inaccurate payments contributed to the amount of undistributed  collections. For example, according to state officials, employers, including  some federal agencies, did not always identify the cases for which the  withheld wages were designated or mailed one check for multiple cases  with the sum of the withheld wages not matching the total amount of the  check. Additionally, some employers sent payments for more than was  due. In its examination of undistributed collections, a report from a private  firm indicated that in New York City, 40 percent of undistributed  collections were from payments that were not due. In some instances  employers sent inaccurate payments because the state agencies had not  notified them that the amount to be withheld had changed. Such changes  would be needed in cases such as those in which previously owed child  support had been paid and only current support was to be withheld, or if  the child had reached the age at which child support payments terminated.  Officials from 1 state agency we visited, told us that they waited to notify  employers about changes in the amount to be withheld until over- payments had been collected. In other cases, officials told us that  employers sent inaccurate payments because they did not always correctly  calculate the amount to be withheld. For example, if a child support order  stipulated that $100 was to be paid each month and $50 were deducted in  each of  26 biweekly pay periods, at the end of the year, the noncustodial  parent would have paid $1,300 instead of the $1,200 that was owed.  Depending on the state’s policy, this $100 overpayment could be returned  to the noncustodial parent, distributed to the custodial parent before it  was due, or held until it was due.
section_title: Many State Agencies Reported Holding More than $1 Million from Joint Tax Refunds and Several Hundred Thousand Dollars in Other Types of Undistributed Collections
paragraphs: In response to our survey, 32 state agencies provided dollar amounts for  undistributed collections from joint tax refunds. The median value  reported for these collections was $1.8 million. Of these 32 state agencies,  19 reported an amount of $1 million dollars or higher with 3 reporting  amounts greater than $10 million dollars. In 15 state agencies this was the  largest amount reported for any of the nine types of undistributed  collections we listed on the survey. For the 9 state agencies that provided  values for all nine types, we determined that undistributed collections  from joint tax refunds ranged from 27 to 48 percent of total undistributed  collections. Our survey requested data as of June 2003, and OCSE officials  explained that the amount of undistributed collections from joint tax  refunds is generally higher in March through September.
Many officials cited the potential financial loss as the primary reason they  are unwilling to assume the risk of releasing these collections before 180  days. State agencies are fully responsible for payments made in error and  must either attempt to recover money that has been distributed to  custodial parents or suffer the financial loss that comes from reimbursing  the Treasury for the “injured spouse” claims. One state agency we visited,  Texas, reduced the time it held collections from joint tax refunds from   120 days to 90 days after analysis of its data showed that the benefit of  distributing these collections outweighed the financial risk of holding  them.
While high values were consistently reported for undistributed collections  from joint tax refunds, our analysis also revealed that the median value of  four other types of undistributed collections that state agencies reported  exceeded $350,000. These undistributed collections included those  received before they were due, pending legal resolution, with an invalid  address for custodial parents, and with data problems. Table 5 illustrates  the median amounts and ranges reported for the nine types included in our  survey as well as the number of state agencies that reported an amount.
section_title: State Agencies Took Steps to Reduce Undistributed Collections
paragraphs: State agencies we visited took various steps to better understand and  resolve undistributed collections. They devoted resources to analyzing  their undistributed collections to help identify the specific causes.  Additionally, 4 state agencies we visited established specific performance  goals and all state agencies we visited emphasized regular monitoring of  undistributed collections. State agencies also implemented processes to  resolve cases with missing information and used electronic processes that  helped to reduce the number of collections with invalid addresses for  custodial parents and unidentified collections.
subsections: section_title: State Agencies Analyzed and Monitored Undistributed Collections
paragraphs: To help reduce their undistributed collections, officials from 5 of 6 state  agencies we visited stated that they devoted resources to better  understanding these collections. Beginning in 2000, California assembled a  team from various units within the state child support enforcement  agency, such as the fiscal and information technology units, to analyze  their undistributed collections. The initiative lasted 3 years and included  the design and implementation of a new collections and distribution  reporting system, verification of the amount and sources of undistributed  collections, and publication of a report in June 2003. Another state agency,  New York, awarded a yearlong, million dollar contract to a private firm to  analyze its undistributed collections. The contractor developed a sampling  plan and reviewed thousands of undistributed collections to determine  their sources and how long the money had been held. In addition, the  contractor evaluated technological solutions and identified general  strategies for reducing the largest types of undistributed collections.
Officials from 4 state agencies we visited emphasized that in order to  reduce undistributed collections, it is necessary to establish performance  goals and measures and compare program results with those goals. Four  of the state agencies we visited established performance goals and  measures to help them monitor undistributed collections. Florida  established a series of performance accountability measures, including  resolution of collections requiring additional research  and timeliness of  disbursements, to track the overall operation of its disbursement unit.  Virginia established its goal for undistributed collections at 3 percent of  monthly collections and was considering lowering that baseline to   2 percent as well as maintaining less than $50,000 in unidentified  collections. An objective in California’s strategic plan is to ensure that no  more than 1 percent of collections due families remain undistributed at  any time. Texas established benchmark amounts for each type of  undistributed collections.
Officials from all of the state agencies we visited highlighted the  importance of monitoring undistributed collections to ensure that goals  are being met. Three of the state agencies we visited had detailed  automated reports to help them monitor undistributed collections. These  reports varied from state to state, but the examples provided included data  on the total dollar value of undistributed collections, number of cases,  number of collections, and dates collections were received. Also, several  state agencies produced data reports for each field or local office. For  example, a monthly management report in Virginia enabled the state  officials to monitor the performance of its 22 district offices. According to  our survey, nearly all state agencies indicated that they routinely produced  statistical data on undistributed collections. For example, 27 state  agencies produced daily reports and 12 produced weekly reports.
section_title: State Agencies Took Steps to Address Missing Information and Improve Payment Processes
paragraphs: State agencies we visited dedicated staff and focused resources on  resolving cases with missing information and invalid addresses. Some  state agencies used automated methods to receive and transmit  collections. Additionally, 1 state agency automated two processes that  helped reduce its undistributed collections.
subsections: section_title: Resolving Missing Information and Invalid Addresses
paragraphs: Officials from all of the state agencies we visited highlighted the  importance of dedicating staff to researching collections involving missing  information. In Virginia, the state disbursement unit separated collections  with missing information, such as a social security or case number, from  those with this information. The team contacted employers, courts, or  other state agencies to obtain the needed information. A database of the  most difficult collections along with contact information and instructions  was maintained in order to reduce processing time on similar collections  received in the future. The team typically resolved unidentified collections  within 72 hours. Other state disbursement units we visited also had  specific staff dedicated to researching payments with missing information  in order to distribute them as soon as possible.
State agencies also focused resources on resolving cases with invalid  addresses for custodial parents. State officials cited the importance of  allowing staff to access federal, state, and private databases to locate  custodial parents. Officials in 1 state said they had a contract with a  private vendor because they found this information to be most useful.  Virginia’s system automatically searched databases to match cases that  needed information. Such databases included FPLS, state licensing  agencies, and credit bureaus. In Texas, an indicator was added to case  records to allow field workers to automatically refer cases with invalid  addresses to special enforcement investigators. In addition, a new report  was created to show all cases with collections held due to missing  addresses so that field staff could focus their efforts on these cases. This  change resulted in the distribution of almost $1 million in the first   4 months of implementation. Also, state officials from the 4 state  disbursement units we visited told us that customer service  representatives routinely verified addresses when contacted by custodial  or noncustodial parents.
section_title: Using Automated Processes
paragraphs: Officials from 4 of the 6 state agencies we visited encouraged employers to  use Electronic Funds Transfer (EFT) when transmitting collections to the  state disbursement unit as a way to improve efficiency and reduce  undistributed collections. According to OCSE officials and a  representative from the American Payroll Association, converting to  electronic payments for child support means having to purchase software  or make programming changes to payroll systems, which can initially be  costly. As an alternative to EFT, 5 state agencies, including 1 we visited,  Florida, developed a process to allow employers to send payments to the  state disbursement unit over the Internet. A state agency’s Web based  payment service operates much like other online banking services in that  an employer registers for the service, receives a user identification and  password and can then access the Web site each pay period to make the  payments for each of its employees. State agencies generally offered these  services free of charge to employers.
State agencies also provided alternative ways for noncustodial parents to  transmit their payments. Florida offered noncustodial parents the option  of paying their support over the Internet. Texas had a pilot project with a  grocery chain to allow noncustodial parents to pay their child support at  their stores, and then the stores would transmit the payment to the state  disbursement unit electronically. In another pilot project, New York  partnered with a private vendor that sells money orders. Noncustodial  parents could provide the payment to the vendor who would then transmit  the payment electronically to the state disbursement unit.
In addition to receiving collections electronically, many state agencies  distributed collections to parents electronically. Thirty-seven state  agencies that responded to our survey indicated they offered direct  deposit—a process whereby money is directly transferred to a checking or  savings account—and 9 reported that they issued a state debit card.  Officials from all the state agencies we visited explained that direct  deposit is not an option for many of their customers because they do not  have bank accounts. For anyone without a bank account, a state debit  card is an alternative. The card may be used to purchase goods or services  as well as to obtain cash. Safeguards have been included that prevent  custodial parents from withdrawing cash or making purchases that would  cause an overdraft of the available child support funds. In response to our  survey, most state agencies indicated that they send 40 percent or fewer of  their collections to parents electronically. Figure 6 shows the portion of  collections that state agencies reported distributing to parents  electronically.
While most state agencies offered at least one form of electronic  distribution to parents, in 2003, Iowa began requiring all parents to receive  collections electronically. Exceptions to this requirement were based on  individual circumstances. Officials told us that as of January 2004, about  95 percent of custodial parents in Iowa were receiving collections  electronically.
Automated processes to receive and distributed collections can help  reduce undistributed collections. According to state agency officials,  methods that allow state agencies to receive collections electronically can  help reduce undistributed collections due to fewer incorrect or  unidentified collections. Electronic methods for distributing collections to  families can also reduce the number of undistributed collections.  With  direct deposit and state debit cards, funds are transferred from the state  directly to a financial institution and even if the custodial parent changes  addresses, the collections can continue to be deposited. As such, by using  direct deposit and state debit cards, undistributed collections due to  invalid addresses of the custodial parents and those due to paper checks  that can no longer be cashed are reduced.
In addition to reducing undistributed collections, officials from 2 state  agencies told us that electronic distribution to parents reduces many  processing costs and requires limited manual intervention. Iowa officials  predicted a combined savings to the state and federal government of about  $35,000 a month by sending collections to parents electronically. Officials  in Texas reported a cost savings of $1.34 per transaction by using direct  deposit versus mailing a check, a savings of over $300,000 in a typical  month.
Additionally, Texas automated two of its child support processes that will  help prevent undistributed collections. In 2000, Texas established an  automated mechanism to issue refunds to noncustodial parents for  collections that exceeded the amount owed. Previously, manual  intervention was required to release these collections. According to  officials, this program saved hundreds of hours of staff time and enabled  them to quickly process refunds. Also in 2000, Texas developed an  automated process to issue new wage withholding orders to employers  when circumstances of cases changed, such as a reduction in the amount  owed. In the first 60 days after implementation, Texas issued over 15,000  new orders to employers.
section_title: State Agencies Reported Earning Interest and Income
paragraphs: Many state agencies reported earning interest and program income. OCSE  issued a memorandum in 1989 that encouraged state agencies to deposit  all child support collections in interest-bearing accounts. According to our  survey, 32 state agencies reported that they kept all undistributed  collections in interest-bearing accounts, 4 state agencies reported keeping  some undistributed collections in interest-bearing accounts and 11 state  agencies reported that they did not keep their collections in these  accounts. One state agency did not answer the question. State agencies are  required to deduct interest earned and income from program costs and  can charge fees to help recover some of their administrative costs. For  example, state agencies are required to charge non-TANF families an  application fee, and can charge fees for tax refund offsets and various  services and expenses such as case maintenance fees, or a fee to establish  a support order. Our prior reports concluded that most states either did  not charge fees or charged minimal fees. For fiscal year 2002, state  agencies reported earning almost $50 million in interest and income. The  amounts reported ranged from $0 to $15 million.
section_title: OCSE Has Assisted States’ Efforts to Reduce Undistributed Collections, but the Department of the Treasury Has Not Provided Information That Would Help States Distribute Collections from Some Joint Tax Refunds Sooner
paragraphs: OCSE has provided some assistance to help state agencies reduce their  undistributed collections. OCSE focused attention on reducing  undistributed collections, shared best practices, and funded projects.  However, OCSE does not have information on some “injured spouse”  claims that could reduce the amount of time collections from some joint  tax refunds are held.
subsections: section_title: OCSE Provided Some Assistance to State Agencies
paragraphs: In fiscal years 2002 and 2003, OCSE focused on reducing undistributed  collections. In its fiscal year 2002 annual report, OCSE stated that it was  taking actions to understand the composition of undistributed collections  and identify efforts state agencies could take to distribute more collections  to families. Additionally, OCSE emphasized that improved customer  service by state agencies helps reduce undistributed collections.  According to state officials, customer service representatives are  encouraged to ask for updated information from parents, thereby reducing  the number of cases with incorrect addresses. In fiscal year 2003, OCSE  partnered with the National Council of Child Support Directors to refine  the categories of undistributed collections and obtain state data and best  practices. Also, OCSE issued guidance in March 2003 to reduce the  number of cases with invalid addresses. This guidance informed state  agencies that they could access FPLS to locate custodial parents as well as  to locate noncustodial parents.
OCSE funded research and provided technical assistance to state agencies  to help them reduce undistributed collections. Between fiscal years 2000  and 2002, OCSE awarded three contracts. The first contract awarded in  fiscal year 2000, for about $135,000, funded research to identify  approaches for reducing undistributed collections in 11 state agencies  with large caseloads or amounts of collections. In addition, this contractor  reviewed undistributed collections in two New York counties and  identified factors in their business processes and automated systems that  prevented them from further reducing these collections. According to  OCSE, a second contract was also awarded in fiscal year 2000 for about  $112,000 that funded research focused on understanding the extent and  causes of undistributed collections across state agencies and highlighting  best practices for distributing such collections. Additionally, OCSE  officials said that a third contract was awarded in fiscal year 2002 for  about $300,000 that funded research to review undistributed collections in  5 state agencies.
Beginning in fiscal year 2000, OCSE made projects designed to reduce  undistributed collections a priority for demonstration grants, and awarded  five grants. In fiscal year 2000, OCSE awarded one grant for about  $188,000, and in fiscal year 2002, OCSE awarded four grants—one each to  Texas, and the District of Columbia and two to Indiana—for a total  amount of about $500,000. The goals for each of the fiscal year 2002  projects were different. For example, the goal for one project was to  evaluate the use of state debit cards as a way to reduce undistributed  collections.
Further, OCSE actively encouraged more use of EFT, which as previously  stated can help reduce undistributed collections. In July 2003, the OCSE  Commissioner sent a letter to 80 private sector employers that employ a  large number of noncustodial parents encouraging them to use EFT to pay  the child support they withheld from their employees’ wages. During  several conferences sponsored by employer organizations, OCSE  promoted electronic payment by distributing literature and making  presentations. Additionally, in 2002 OCSE staff assisted the NACHA— Electronic Payments Association’s Child Support Task Force by helping to  identify issues associated with promoting the electronic collection and  distribution of child support payments. OCSE also worked with several  federal agencies on issues related to electronic payment. For example,  OCSE worked with the Defense Finance and Accounting Service to  encourage more use of electronic payments.
OCSE shared information about initiatives state agencies took to reduce  undistributed collections in its publications. Each month OCSE published  its “Child Support Report” with information about various child support  topics. Descriptions of successful state efforts related to undistributed  collections were featured in several editions. OCSE also published an  annual compendium of best practices in child support enforcement and  several of the entries in its 2002 edition were related to undistributed  collections.
In addition to these publications, OCSE has discussed or arranged  sessions on undistributed collections at conferences, forums, and training  sessions. OCSE officials also reported that regional meetings have  included sessions focused on reducing undistributed collections. For  example, officials from Region VII organized a workshop where  perspectives on reporting and best practices were addressed. In July  2003, OCSE initiated monthly audio conference calls to foster discussions  on implementing best practices such as electronic funds distribution. As of  December 2003, OCSE had arranged five calls with a range of 25 to   38 state agencies participating.
As part of our survey, we asked state agencies how helpful various OCSE  efforts related to undistributed collections have been. For the most part,  state agencies reported that OCSE’s efforts have been helpful and many  reported that discussions of best practices at forums were greatly or  extremely helpful. However, several state agencies reported that OCSE’s  efforts were hardly or not at all helpful. Table 6 summarizes the state  agencies’ responses.
section_title: The Department of the Treasury Has Not Provided OCSE Information on Collections from Some Joint Tax Refunds
paragraphs: OCSE and state agencies are not receiving information from the  Department of the Treasury about approved “injured spouse” claims that  are submitted at the time a tax return is filed. Such information is  important because state agencies may delay disbursement of tax-offset  collections for a period of up to 180 days to allow for the possibility of a  reversal based on an “injured spouse” claim. IRS officials explained that  while they do not know the type of debt owed when they process the  claims, they have estimated that about 55,000 “injured spouse” claims  related to the offset of non-TANF joint tax refunds for child support have  been filed with the tax returns each year. Additionally, these officials  commented that when the claims were filed with tax returns and  approved, the amount due the “injured spouse” was allocated before the  file was sent to FMS. However, the information FMS sent to OCSE, which  was then forwarded to the state agencies, did not identify these collections  as having had their “injured spouse” claims satisfied. As our survey results  show, most state agencies delayed distributing all collections from joint  tax refunds.
IRS officials explained that federal law and current processes have played  a role in determining the information provided to OCSE on approved  “injured spouse” claims. IRS officials stated that their disclosure statute  allows, but does not require, them to provide OCSE and the states with  information on specific tax offsets for payment of past due child support.  The officials also explained that they include data on the payment file they  send to FMS that could enable FMS to determine whether the “injured  spouse” claim has been processed. Furthermore, the IRS officials said that  it would be very costly to reprogram the IRS data systems to enable them  to provide OCSE information on “injured spouse” claims.
FMS officials we spoke with stated that until recently, they were not aware  that OCSE needed notification on the payment of injured spouse claims  and they expressed concern about the cost associated with changing their  system in order to provide the information to OCSE. The FMS officials  added that neither IRS nor OCSE emphasized the need for information on  injured spouse claims when FMS became responsible for and set up their  systems to support the tax-offset program. Furthermore, in order for FMS  to send OCSE more information about injured spouse claims, they would  have to reprogram their data files and change at least two data systems.  They also stated that it would take at least 3 years to modify the systems  and would be very costly. FMS officials suggested that the more cost-  effective solution would be for IRS to send OCSE the requested  information Although the offset program has been operating for almost 20 years,  OCSE’s efforts to obtain the information on “injured spouse” claims from  the Department of the Treasury began in late 2001. According to OCSE  officials, they have discussed the need for additional information with  officials from the Department of the Treasury on several occasions.  Further, in February 2003, OCSE’s Commissioner sent a letter to the  Department of the Treasury requesting that the two agencies involved in  the Tax Offset Program, IRS and FMS, provide information that identifies  which joint tax refunds involve “injured spouse” claims. FMS and IRS  formed a work group to investigate ways to shorten the process related to  satisfying these claims. However, according to an FMS official, there has  been little movement in response to OCSE’s letter and as of January 2004,  the Department of the Treasury had not responded to OCSE’s letter. If the  Department of the Treasury provided OCSE and state agencies with  information on the satisfied “injured spouse” claims filed with the initial  tax returns, state agencies could immediately release the offset collections  to the families.
section_title: Conclusion
paragraphs: Receipt of child support is critical for many custodial parents and their  children. However, no one is certain about the amount of child support  collections that are not distributed to families on time, if at all. By revising  the quarterly collections form, OCSE has taken the first step to improving  data about undistributed collections, but more reliable data are needed in  order for OCSE and the state agencies to know more about undistributed  child support collections and to be able to take appropriate actions to help  reduce them.
While the total amount of undistributed child support collections is  uncertain, it is clear that millions of dollars being held for months are  collections from joint tax refunds.  State agencies need more information  about those “injured spouse” claims that are filed with the tax returns and  approved.  As the federal partner and overseer of this program, it is  OCSE’s role to work with other federal agencies, such as the Department  of the Treasury, to remove barriers that hinder fulfilling its mission.  Furthermore, since collections held from joint tax refunds represent a  large amount of state agencies’ total undistributed collections, it is in the  best interest of the child support program for OCSE to focus more  attention on getting this information. Additionally, the Secretary of the  Treasury needs to provide OCSE and state agencies information about  satisfied “injured spouse” claims. If the Department of the Treasury  provides this information, collections held from some joint tax refunds  could reach families sooner.
section_title: Recommendations for Executive Action
paragraphs: To better measure the amount of and help reduce undistributed  collections, we are making three recommendations.
We recommend that the Secretary of Health and Human Services direct  the Commissioner of OCSE to  review undistributed collections data from state agencies periodically in  conjunction with one of the other routine reviews to help improve the  accuracy of the data and   work closely with the Department of the Treasury to identify a cost- effective approach for obtaining information on “injured spouse” claims in  order to enable collections from some joint tax refunds to reach families  sooner.
We also recommend that the Secretary of the Treasury direct the  Commissioner of IRS and the Commissioner of FMS to work together with  OCSE to identify a cost-effective approach for providing OCSE  information needed to identify those collections that have had their  “injured spouse” claims satisfied so that these collections can be  distributed to families sooner.
section_title: Agency Comments and Our Evaluation
paragraphs: We received written comments on a draft of this report from HHS. These  comments are reprinted in appendix III. The department did not explicitly  agree or disagree with either of our recommendations. In response to our  recommendation to review undistributed collections data, HHS stated that  conducting these reviews in conjunction with the data reliability audits  would substantially increase the time needed to complete them due to the  variability of the undistributed collections data and that the data reliability  audits must be completed on time. As we stated in our report, such  reviews of undistributed collections data could be done in a number of  ways and would not necessarily have to be done with data reliability  audits. Also, HHS stated that its audit resources are insufficient to  routinely audit any other function or area except data reliability. We also  noted their concern about limited resources in the report. With regard to  the recommendation that OCSE work with IRS and FMS, HHS stated that  it has been working with IRS and FMS. We added more detail to this  section in the report. HHS also agreed with our finding that information on  approved injured spouse claims could significantly reduce undistributed  collections and get money to families in a timelier manner. However, the  HHS comments also noted concerns about a direct exchange of  information between IRS and OCSE because OCSE’s current interaction is  strictly with FMS, and it would be more complex, time consuming and  costly to add the additional interfaces and processing that would be  required for a direct exchange with IRS. We did not recommend a specific  approach for sharing the information.
We also received written comments on a draft of this report from the  Department of the Treasury. These comments are reprinted in appendix  IV.  The Department of the Treasury agreed with our recommendation. In  commenting, the Acting Chief Financial Officer stated that although  neither IRS nor FMS can readily provide OCSE information on satisfied  injured spouse claims, and that significant programming changes would be  needed, IRS and FMS would work together with OCSE to develop a cost- effective way to advise OCSE when injured spouse claims have been  satisfied.
In addition to written comments, officials from HHS, FMS, and IRS  provided technical comments. We incorporated these comments in the  report as appropriate.
As arranged with your office, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days from its  issue date. At that time we will send copies of this report to appropriate  congressional committees, the Secretary of Health and Human Services,  the Secretary of the Treasury, and other interested parties. In addition, this  report will be available at no charge on GAO’s Web site at  http://www.gao.gov.
If you have any questions regarding this report, please call me on (202)  512-8403. Other contacts and acknowledgments are listed in appendix V.
section_title: Appendix I: Scope and Methodology
paragraphs: To accomplish our objectives, we conducted a mail survey of all 54 IV-D  child support enforcement directors, conducted site visits to 6 state  agencies, interviewed federal and state officials, as well as reviewed  related reports and analyzed laws and regulations.
We sent each director a self-administered mail-back questionnaire. To  ensure that our survey questions were clear, unbiased, specific, and easy  to understand, we pretested the survey instruments in 3 state agencies and  discussed the appropriateness of the survey questions with OCSE. We  electronically mailed follow-up letters and replacement copies of the  survey to nonrespondents to encourage response. Forty-eight state  agencies participated in the survey. Nonrespondents included Arizona,  Indiana, Guam, Mississippi, New Jersey, and Virgin Islands. We requested  data as of June 30, 2003, and administered the survey from September to  November 2003. We did not assess the reliability of the data reported by  state agencies in response to our survey. However, we reviewed the data  for completeness and reasonableness.
We visited Virginia, New York, Florida, Texas, Iowa, and California. We  selected the state agencies so as to obtain diversity in the amount of  collections and balances of undistributed collections, geographic location,  number of clients served, and whether the child support program was  county or state administered. Of the state agencies we visited, 3—Iowa,  Texas, and Virginia—had undistributed collection balances lower than the  national average of 3 percent and were cited by the Office of Child Support  Enforcement (OCSE) as having best practices in reducing and or  improving payment distribution practices. Two of the state agencies— California and New York—had balances of undistributed collections that  were higher than the national average of 3 percent while 1 state, Florida,  had a balance of about 3 percent.
In addition to our overall approach, we took specific steps for each of the  objectives. To address how the data on undistributed collections has  changed in the last few years, we reviewed and analyzed OCSE data on  undistributed collections for fiscal years 1999 to 2002 as reported by state  agencies. We began with fiscal year 1999 data because that was the earliest  year with data comparable to fiscal year 2002; the most current year data  were available at the time of our review. As a part of our analysis we   (1) reviewed and compared the data for each fiscal year and (2) identified  issues associated with the calculation and reporting of undistributed  collections through interviews with state and OCSE officials. Additionally,  we analyzed survey responses that identified the types of funds state  agencies classify and report as undistributed collections. We cited findings  from an internal review conducted in California, however, we did not  verify the methodology used in this review. To identify the causes of  undistributed collections, we reviewed relevant literature and past audit  reports on the causes of undistributed collections.  We cited relevant  findings from two of these reports. The report issued by the Department of  Health and Human Services Office of Inspector General was conducted in  accordance with Quality Standards for Inspections issued by the  President’s Council on Integrity and Efficiency. We did not verify the  methodology used in the report produced by a private firm. We also  reviewed laws, regulations, and policies governing child support  distribution practices to gain an understanding of the required time frames  for distribution of child support payments. We interviewed child support  advocates and experts to obtain their opinions on the causes for  undistributed collections.
To identify what state agencies are doing to reduce undistributed  collections and to determine what guidance OCSE has given state agencies  to help reduce undistributed collections, we reviewed relevant documents  and agency audit reports. We also reviewed documents issued by the  National Council of Child Support Directors and collected information on  relevant OCSE-funded research. In addition, we also interviewed child  support advocates and experts, as well as federal and state officials to  obtain their perspectives on how OCSE has helped state agencies reduce  undistributed collections and additional actions that OCSE can take.
section_title: Appendix II: Survey of State Directors of Child Support Enforcement
section_title: Appendix III: Comments from the Department of Health and Human Services
section_title: Appendix IV: Comments from the Department of the Treasury
section_title: Appendix V: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to those named above the following individuals made  important contributions to this report: Vernette Shaw, Carolyn Boyce,   Jay Smale, Corinna Nicolaou, James Rebbe, and Paul Schearf.