TANF And Child Care Programs: HHS Lacks Adequate Information to Assess Risk and Assist States in Managing Improper Payments
Published: 2004-06-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Minimizing improper payments is important given the dollar magnitude of the Temporary Assistance for Needy Families (TANF) and Child Care and Development Fund (CCDF) programs--about $34 billion in federal and state funds expended annually. These block grants support millions of low-income families with cash assistance, child care, and other services aimed at reducing their dependence on the government. At the federal level, the Department of Health and Human Services (HHS) oversees TANF and CCDF. Within states, many public and private entities administer these programs and share responsibility for financial integrity. GAO looked at (1) what selected states have done to manage improper payments in TANF and CCDF and (2) what HHS has done to assess risk and assist states in managing improper payments in these programs. To address these questions, GAO judgmentally selected states that varied in geographic location and program size. GAO used a survey to collect consistent information from 11 states and visited 5 states.
section_title: What GAO Found
paragraphs: The 16 states in GAO's review reported using various strategies and tools to manage improper payments, but their efforts were uneven. Almost all the states in the review reported that they performed some activities to assess whether their programs were at risk of improper payments. These activities, however, did not always cover all payments that could be at risk, focusing, for instance, on cash welfare payments but not on payments for services, which were more than half of all TANF payments in certain states. As a result, the assessments do not provide a comprehensive picture of the level of risk in these state programs, which would be useful to HHS as it takes steps to address requirements under the Improper Payments Act. States also reported using a variety of prevention and detection tools to protect against improper payments, but states reported fewer tools in place for CCDF than for TANF, particularly in the area of data sharing to verify eligibility. Although the states in GAO's review recognized the importance of addressing improper payments, they cited competing demands for staff attention and resource limitations that constrained their efforts. While addressing improper payments does involve costs, comprehensively assessing risks can help focus prevention and detection efforts on areas at greatest risk. HHS reported using information from its monitoring activities, including single audits and state financial expenditure reporting to determine if the TANF and CCDF programs are at risk of improper payments. We found however, that these activities do not capture information about the various strategies and tools that states have in place for managing improper payments, such as those we observed in our review. In the absence of such information, HHS cannot determine if the TANF and CCDF programs are susceptible to significant improper payments, as required under the Improper Payments Act. HHS officials acknowledged that they needed more information to be in a position to carry out their responsibilities under the act and therefore recently initiated several projects to gain a better understanding of state control activities. However, HHS's projects do not provide mechanisms to gather information on a recurring basis. The absence of such mechanisms hinders HHS's ability to adequately assess the risk of improper payments and assist states in managing improper payments in these multibillion dollar programs on an ongoing basis. Given the statutory framework of the TANF program, GAO recognizes that HHS may determine that it needs legislative action to direct states to provide the information it needs to take this approach.

section_title: Letter
paragraphs: Both the federal government and states have a strong financial interest in  minimizing improper payments in the Temporary Assistance for Needy  Families (TANF) and Child Care and Development Fund (CCDF) programs.   Through these two block grant programs, states receive a fixed amount of  federal funds each year to design and operate their own programs for  assisting families with children.  For fiscal year 2002, federal and state  TANF and CCDF expenditures totaled about $34 billion, most of it federal  funds.  States use these funds to design and implement their own  programs—within federal guidelines—to support millions of  predominantly low income families with cash assistance, employment,  child care, and other services aimed at reducing their dependence on the  government and promoting employment.  At the federal level, the  Department of Health and Human Services (HHS) oversees states’ TANF  and CCDF programs.  Within states, numerous public and private sector  entities help administer these programs and share responsibility for  protecting the financial integrity of TANF and CCDF programs.
Improper payments in TANF and CCDF can include those made to  individuals who are not eligible, as well as payments made to providers for  services that are not covered by program rules or services that were billed  and paid for but never actually provided.  Improper payments can also  result from inadvertent errors—due in part to clerical errors or a  misunderstanding of program rules—as well as from fraud—an intentional  act to deceive for gain.
Because improper payments in government programs are a long-standing,  widespread, and significant problem, Congress enacted the Improper  Payments Information Act of 2002 (the Improper Payments Act).  The act  requires federal managers to review all agency programs and activities;  identify those that may be susceptible to significant improper payments;  and take actions to mitigate the risks identified, including actions to  estimate the amount of improper payments.  Like other federal agencies,  HHS must comply with the Improper Payments Act for all of its programs  including TANF and CCDF.
Assessing the risks of improper payments in TANF and CCDF is  particularly important given changes initiated by the Personal  Responsibility and Work Opportunity Reconciliation Act of 1996  (PRWORA).  This statute led to states broadening the range and number of  services and service providers involved in program administration,  heightening the importance of understanding what steps the states and the  federal government have taken to address improper payments in these  programs.  In light of the financial resources at stake and the importance of  TANF and CCDF programs to millions of American families, you asked us  to determine (1) what selected states have done to manage improper  payments in the TANF and CCDF programs and (2) what HHS has done to  assess risk and assist states in managing improper payments in these  programs.
To guide our work, we used the Standards for Internal Control in the  Federal Government and The Executive Guide on Strategies to Manage  Improper Payments: Learning from Public and Private Sector  Organizations as a basis to obtain information about each state’s internal  control structure—control environment, risk assessment procedures,  control activities, information and communications, and monitoring efforts  for the TANF and CCDF programs.
To determine what selected states have done to manage improper  payments in these programs, we visited 5 states and surveyed 11 other  states. We chose these states on the basis of geographic location, level of  program expenditures, and type of program administration.  These states’  TANF and CCDF expenditures totaled almost 60 percent of annual national  expenditures for these two programs.  In our five site visits, we gathered  information on steps taken to identify and address improper payments,  including interviewing TANF and CCDF program officials, fraud officials,  and state auditors and reviewing audit reports and other relevant studies.  In addition, we observed and spoke with program officials in local TANF  and CCDF offices.  We surveyed the other 11 states to obtain similar  information from TANF and CCDF program officials. In addition, we spoke  with representatives of national professional associations to discuss state  program integrity issues and their views on efforts to measure improper  payments.
To determine what HHS has done to assess risk and assist states in  managing improper payments in the TANF and CCDF programs, we  identified and reviewed guidance and policies that described HHS’s  oversight activities; observed key oversight activities at an HHS regional  office; reviewed documents, plans, and strategies for identifying improper  payments; and interviewed HHS finance and program officials.  We also  reviewed results of audits conducted under Office of Management and  Budget (OMB) Circular No. A-133 and the Single Audit Act.  For additional  details of our scope and methodology, see appendix I.  We provided a draft  of this report to HHS and to the American Public Human Services  Association (APHSA), the professional organization of state welfare  officials; HHS’s comments are included in an appendix and technical  comments from HHS and APHSA were incorporated as appropriate. Our  work was conducted from April 2003 through May 2004 in accordance with  generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: The TANF and CCDF programs are two of the nation’s key federal  programs for assisting needy families with children and are an important  component of states’ social services networks.  These two programs each  consist of more than 50 distinct state-level programs—one for each state,  the District of Columbia, four territories, and numerous tribal entities.    Annually, the federal government makes available to each state a portion of  the (1) $16.5 billion TANF block grant that was established by PRWORA  and (2) $4.8 billion from CCDF for child care subsidies and other related  activities.  Within HHS, the Administration for Children and Families (ACF)  oversees states’ TANF and CCDF programs.
subsections: section_title: Changes under PRWORA— TANF
paragraphs: Congress created TANF in 1996 to replace the decades-old Aid to Families  With Dependent Children (AFDC) program that entitled eligible needy  families to monthly cash assistance payments.  PRWORA made sweeping  changes to federal welfare policy, including ending individuals’ entitlement  to aid, imposing time limits on the receipt of aid, and imposing work  requirements on most adults receiving aid.  This federal framework gives  states the flexibility to design their own programs; define who will be  eligible; establish what benefits and services will be available; and develop  their own strategies for achieving program goals, including how to help  recipients move into the workforce.
PRWORA provides states substantial authority to use TANF funds in any  way that is reasonably calculated to meet the goals of the program. As  specified by PRWORA, TANF’s goals include ending the dependence of  needy families on government benefits by promoting job preparation,  work, and marriage; preventing and reducing the incidence of nonmarital  pregnancies; and encouraging two-parent families.  These broad goals  represent a significantly broader scope than AFDC.  PRWORA also  expanded the scope of services that could potentially be contracted out,  such as determining eligibility for TANF, which had traditionally been done  by government employees.
In addition to these programmatic changes, PRWORA dramatically  changed the fiscal structure of the program and shifted significant fiscal  responsibility for the program to states.  Each year, the federal  government makes a fixed amount of TANF funds available to each state,  and a state may reserve some of these funds for use in the future.  This  represents a significant departure from past policy, under which the  amount of federal funds received was linked to the size of each state’s  welfare caseload.  To receive their federal TANF funds, states must spend a  specified amount of their own funds each year, referred to as state  maintenance of effort.
Along with granting states significant flexibility, PRWORA redefined HHS’s  role in administration of the nation’s welfare system, limiting its regulatory  and enforcement authority and reducing its staff level for administering  TANF.  Specifically, the law states: “No officer or employee of the Federal  Government may regulate the conduct of States under this part or enforce  any provision of this part, except to the extent expressly provided in this  part.”  The law also eliminated the quality control system that HHS used to  measure payment accuracy of monthly welfare payments under AFDC.   Under that system, states were required to statistically select a sample of  cash assistance cases and determine the level of erroneous (improper)  payments; if a state’s improper payment rate exceeded the targeted error  rate, it faced a financial penalty.
HHS states in the preamble to TANF regulations that PRWORA reflects the  principle that the federal government should focus less attention on  eligibility determinations and place more emphasis on program results.  To  that end, PRWORA gave HHS new responsibilities for tracking state  performance, including a set of financial penalties for states that fail to  comply with program requirements and a bonus program for states that  perform well in meeting certain program goals. Several of these penalties  reflect new expectations for states to assist recipients in making the  transition to employment.  For example, states face financial penalties if  they do not place a minimum specified percentage of adult TANF recipients  in work or work-related activities each year and if they provide federal  TANF funds to families who have reached the TANF time limits on receipt  of aid—60 months over a lifetime.  The bonus program was to reward  states for high performance toward achieving program goals, such as  moving welfare recipients into jobs and reducing out-of-wedlock births.
At the same time, Congress, through PRWORA, emphasized the importance  of sound fiscal management for state TANF programs.  One part of the new  penalty system focused on penalties for states that use funds in violation of  PRWORA, as identified through audits conducted under the Single Audit  Act.   In addition, the law stated that states are to include in the TANF plans  that they file with HHS a certification that procedures are in place to  combat fraud and abuse, although the law does not require the states to  describe these procedures.  Moreover, states are required to continue  participating in the Income and Eligibility Verification System (IEVS) that  provides information from various sources to help verify eligibility  information.
As state TANF programs have evolved since implementation, the nation’s  welfare system now looks quite different than it did under AFDC, posing  some challenges for defining and measuring improper payments.  As our  previous work has shown, welfare agencies now operate more like job  centers, taking steps to move recipients into work and providing aid to help  families avoid welfare. States now spend most TANF funds on a broad  array of services for families rather than on monthly cash assistance, as  shown in figure 1.  These services include employment services, case  management services, support services such as child care and  transportation, and pregnancy prevention among others.  In addition, states  offer various services to other low-income families not receiving welfare,  including child care and employment and training services.
In addition to the broad range of services provided by TANF programs,  more entities receive and administer TANF program funds than before,  posing additional challenges for states in managing improper payments.  In  many states, county or local governments receive TANF funds and are the  key TANF administrative agencies, sometimes establishing their own  policies and programs. States may also distribute TANF funds to several  different state agencies to provide services.  States and localities also may  contract with a multitude of nonprofit and for-profit organizations.  In our  2002 report on TANF contracting, our survey to states identified more than  5,000 TANF contracts with nongovernmental organizations at the state  level and at least 1,500 contracts at the local level.  We also found that in  2001, about a quarter of states contracted out 20 percent or more of TANF  funds expended for services in fiscal year 2000, ranging up to 74 percent.   Figure 2 shows the broad range of services for which TANF payments are  made and the entities involved in the TANF payment processes.
section_title: Changes under PRWORA— CCDF
paragraphs: PRWORA also combined several existing child care programs into one  program designed to provide states with more flexible funding for  subsidizing the child care needs of low-income families who are working or  preparing for work.  CCDF provides states funds to subsidize child care  assistance for families with incomes up to 85 percent of state median  income who are working or in education or training. Under CCDF rules,  eligible participants are to be allowed parental choice of child care  providers, including center-based, home-based, or relative care.  In  addition, families are required to contribute to the cost of care, in the form  of a copayment, unless states exempt families below the poverty level from  this requirement.  CCDF rules also provide some guidance on establishing  reimbursement rates for child care providers and requires that a specified  portion of funds be set aside for activities designed to enhance child care  quality.
Within this framework, states establish their own income eligibility criteria  and determine how the program will be administered. Like TANF, CCDF is  administered through multiple agencies, including county and local  governments and nonproft and for-profit organizations. This decentralized  system can create challenges for determining what constitutes an improper  payment.  Figure 3 illustrates the steps often involved in making child care  payments.  In recent years, federal and state CCDF expenditures have  increased more than 100 percent—from $4.0 billion in 1997 to $8.6 billion in  2002, the most recent year for which data are available.
section_title: HHS’s Administrative Structure and Oversight
paragraphs: At the federal level, ACF’s Office of Family Assistance (OFA) is responsible  for overseeing TANF, and the Child Care Bureau is responsible for  overseeing CCDF.  Staff in the 10 ACF regional offices and the Office of  Financial Services also assist in overseeing aspects of state TANF and  CCDF programs.  Figure 4 shows ACF’s organizational structure.
OFA is responsible for overseeing TANF and coordinating HHS efforts to  assist states in managing improper payments in the TANF program.   Specifically, the office is responsible for (1) developing and implementing  strategies to assist grantees in implementing and designing programs to  meet TANF purposes; (2) ensuring compliance with federal laws and  regulations; (3) implementing national policy and developing regulations to  implement new laws; (4) developing regulations to implement data  collection requirements; (5) implementing and maintaining systems for the  collection and analysis of data, including participation rate information,  recipient characteristics, financial and administrative data, state  expenditures on families, work activities of noncustodial parents,  transitional services, and data used in the assessment of state performance;  and (6) identifying best practices and sharing information through  conferences, publications, and other means.
The Child Care Bureau is responsible for overseeing CCDF programs and  coordinating HHS efforts to assist states in managing improper payments in  the CCDF program. The Bureau’s responsibilities include (1) tracking  grantee program implementation by collecting and analyzing information  that states are required to report through CCDF plans, financial  expenditure reports, and administrative data reports; (2) providing  technical assistance to grantees concerning CCDF through the Child Care  Technical Assistance Network where the Bureau sponsors national and  regional conferences and meetings and support the development of  Technical Assistance materials and websites; (3) developing program  policy guidance to grantees on the administration of CCDF, including  questions related to what expenditures are allowable under the program;  and (4) supporting research to disseminate findings that document  emerging trends in the child care field.
OFA and the Child Care Bureau share fiscal oversight responsibility with  the 10 regional offices that are responsible for reviewing financial  expenditure reports that states are required to submit as well as assisting in  other program responsibilities.  The Office of Financial Services is the  HHS-designated lead unit for coordinating reporting on the agency’s efforts  to manage improper payments in the TANF and CCDF programs.
section_title: Improper Payments Act
paragraphs: In November 2002, Congress passed the Improper Payments Act.  The act  requires the head of each agency to annually review all programs and  activities that the agency administers and identify all such programs and  activities that may be susceptible to significant improper payments.  For  each program and activity identified, the agency is required to estimate the  annual amount of improper payments and submit those estimates to  Congress before March 31 of the following applicable year.  The act further  requires that for any agency program or activity with estimated improper  payments exceeding $10 million and 2.5 percent of program payments, the  head of the agency shall provide a report on the actions the agency is taking  to reduce those payments.
The Improper Payments Act also required the Director of OMB to prescribe  guidance to implement its requirements.  OMB issued guidance on May 21,  2003, that provides instructions for estimating improper payment rates, and  requires agencies to set target rates for future reductions in improper  payments, identify the types and causes of improper payments, and  highlight variances from targets or goals established.  Significantly, the May  2003 guidance also required 15 agencies to publicly report improper  payment information for 46 programs identified in OMB Circular No. A-11  in the agencies’ fiscal year 2003 Performance and Accountability Reports.   According to OMB, the programs were selected primarily because of their  large dollar volumes ($2 billion dollars or more in outlays).  The TANF and  CCDF programs are included in the 46 programs.
Internal Control Framework In most cases, the cause of improper payments can be traced to a lack of or  breakdown in internal control.  Our Standards for Internal Control in the  Federal Government provides a road map for entities to establish control  for all aspects of their operations and a basis against which entities’ control  structures can be evaluated.  Also, our Executive Guide on Strategies to  Manage Improper Payments: Learning from Public and Private Sector Organizations focuses on the internal control standards as they relate to  reducing improper payments.
The five components of internal control—control environment, risk  assessment, control activities, information and communication, and  monitoring—are defined in the Executive Guide in relation to improper  payments as follows:  Control environment—creating a culture of accountability by  establishing a positive and supportive attitude toward the achievement  of established program outcomes.
Risk assessment—analyzing program operations to determine where  risks of improper payments exist, what those risks are, and the potential  or actual impact of those risks on program operations.
Control activities—taking actions to address identified risk areas and  help ensure that management’s decisions and plans are carried out and  program objectives are met.
Information and communication—using and sharing relevant, reliable,  and timely financial and non-financial information in managing activities  related to improper payments.
Monitoring—tracking improvement initiatives over time, and identifying  additional actions needed to further improve program efficiency and  effectiveness.
Improper payments in the TANF program can occur in all of the TANF  payment types: ongoing monthly cash assistance payments to individuals  or families; one-time payments to individuals or families; and payments  made to a range of for-profits, non-profits, state agencies, and contractors.  HHS has instructed states that they should recover any overpayments by  recouping them from the recipients as a reduction in future TANF cash  payments or by collecting cash repayments.  It also states that the full  amount of recovered overpayments made after October 1, 1996—PRWORA  was signed into law in August 1996—is to be retained by the state and used  for TANF program costs.  Improper payments in the CCDF program can  occur in all payment types: payments to child care providers or families.
section_title: States’ Efforts To Manage Improper Payments Are Uneven
paragraphs: Almost all states we surveyed and visited reported taking some steps to  assess whether their TANF and CCDF programs were at risk for improper  payments or to measure the extent of improper payments.  However, these  efforts were uneven--not all states had assessed risks, risk assessments  often did not cover all program payment types, and states’ measures of the  amounts of improper payments did not always rely on rigorous  methodologies.  While these assessments provide some valuable  information, they do not provide a comprehensive picture of the nature and  extent of improper payments in TANF and CCDF programs among the 16  states.  In addition, while the states reported they have various strategies  and tools in place to help prevent and detect improper payments, these  efforts were also uneven.  While states understand the importance of  addressing improper payments, they cited several factors that make it  difficult for them to adequately manage improper payments. The  unevenness of internal controls among states may result in missed  opportunities to further address improper payments.
subsections: section_title: Almost All States Reported Some Risk Assessment Activities
paragraphs: Almost all the states we surveyed and visited reported performing some  activities to assess whether their TANF and CCDF programs were at risk of  improper payments.  We defined a risk assessment as a formal or informal  review and analysis of program operations. The purpose of a risk  assessment is to determine where risks of improper payments exist, what  those risks are, and the potential or actual impact of those risks on  program operations.  Conducting risk assessments helps to ensure that  public funds are used appropriately and clients receive the proper benefits.   Improper payments, including fraud, may occur in several different ways  in the TANF and CCDF programs, involving clients, providers, and agency  personnel.  For example, an inadvertent error may result in an  overpayment or underpayment when  a client mistakenly fails to report some income,  a provider accidentally receives payment due to a billing error, or  a caseworker incorrectly records some information or makes an error in  calculating a benefit amount.
Improper payments due to fraudulent activity may occur, for example,  when  a client files for and receives benefits in two jurisdictions concurrently,  a provider claims payment for services not rendered, or  an agency employee creates a fictitious case and collects the benefit.
In addition, a broad range of state entities may be involved in identifying  improper payments and measuring the extent to which they occur.  For  overpayments and underpayments, these state entities may include  frontline workers, quality control staff, or management staff.  State entities  involved in preventing and detecting fraud may include the state inspectors  general offices, state fraud units, and state auditors.
The 16 states we surveyed and visited reported a mix of risk assessment  activities. These activities include state studies conducted under the Single  Audit Act and other studies by state auditors, fraud units, and inspectors  general.  States also identified other activities, including reviews of  program policies, one-time studies or pilots, and regular reviews of client  cases.  States generally reported more activities for TANF than CCDF  programs.  More specifically, TANF-related activities were more likely to  include regular quality control reviews than CCDF activities, as might be  expected given the requirements for the previous AFDC program.  Table 1  provides some examples of states’ risk assessment activities.
While states reported performing some risk assessment activities, these  activities did not appear to be uniformly comprehensive in their coverage  of all types of program payments.  As shown in table 2, many of the states  we surveyed said they had performed some type of an assessment or  analysis of risk for three primary types of TANF payments, while others did  not cover all of these payment types.  Three states said they had assessed  risks for monthly cash payments only.  Data from HHS for fiscal year 2002  showed that in these three states, the percentage of TANF expenditures for  cash assistance ranged from about 25 percent to more than 50 percent.   (See app. I for each state’s percentage of TANF expenditures for cash  assistance.)   While fewer states reported assessing risk in payments to  service providers, states typically have procedures in place to monitor  these contracting activities, as we reported in our previous work.
Most of the states we surveyed and visited reported taking steps to  measure the extent of improper payments in their TANF and CCDF  programs as part of their risk assessment activities, although the extent of  these efforts was mixed.  As shown in table 3, the surveyed states reported  relying on a variety of methods to calculate their measures of improper  payments.  For the TANF program, four of the surveyed states (California,  Maryland, Michigan, and Pennsylvania) as well as one site visit state  (Texas) reported that they relied on a statistically representative sample to  estimate an amount of improper payments, although these generally  covered TANF monthly cash assistance payments only.  Among the  surveyed states, fewer reported estimating an amount of improper  payments for the CCDF program than for the TANF program.  Compared  with TANF, CCDF measures of improper payments generally occurred on a  more ad hoc basis, such as a one-time study or pilot effort that covered one  jurisdiction of a state, and were less likely to result from regular reviews of  cases.  In one state we visited, child care officials said they estimated the  amount of improper payments for the largest subsidized child care program  but not the other three programs also supported with CCDF funds.
Many of the states we visited and surveyed provided us data on the amount  of improper payments in their TANF and CCDF programs, but these data  do not provide a complete picture of the amount of payments in these  states’ programs and cannot be used for comparisons among states.   Too  often, states’ assessment activities did not measure the amount of improper  payments among all types of TANF payments, and therefore do not present  a complete picture of improper payments.  In addition, some state data  included amounts based on overpayments to clients only while others also  included underpayments to clients based on agency errors.  In other cases,  the amount included only those payments identified as fraudulent but not  other types of improper payments based on inadvertent mistakes.  As a  result, data were not comparable across states.
However, data on the amount of improper payments, can play an important  role in states’ program management, helping them to identify program  areas at risk so they can be addressed and to recover funds when possible.   The following are some examples of these types of activities from the  states we visited.
In Texas, TANF program officials stated that the quality control unit and  the fraud unit estimate the amount of improper payments, which include  client error, agency error, and fraud.  The quality control unit uses a  statistically representative sample of cash payments to calculate  improper payments and the fraud unit uses all claims established in the  investigation system to estimate improper payments.  Based on these  methods, Texas officials estimated the amount of improper payments to  be $6.3 million for the TANF program during fiscal year 2002.   Furthermore, officials estimated that $5.7 million in improper payments  were recovered that same year.
In Illinois, child care program officials stated that suspected fraud cases  are sent to the state Bureau of Investigations to be examined.   In 2002,  the Illinois Office of Inspector General completed 114 CCDF  investigations, which identified $1,172,293 in overpayments. The office  cited several examples of fraudulently received child care benefits,  including the following:  A client falsified her payroll information to qualify for child care  assistance.  The alleged overpayment was $27,203.
A client falsified payroll information to qualify for child care and  failed to report her true earnings.  The child care overpayment  totaled $45,174.
In Virginia, child care program officials told us that they conducted a  pilot study to assess the extent of fraud in the child care subsidy  program.  The pilot focused on 3 of the state’s 121 local social service  offices.  During the year-long pilot, a total of 28 fraudulent claims were  identified, and based on these findings, officials determined that the  savings that would accrue to the state would justify the costs of fraud  monitoring.  Child care officials identified several examples of  fraudulent activity, including the following:  A client failed to report income from a second job, that she was living  with the child’s father, and the father’s earnings; the total household  income made them ineligible for assistance.  The total overpayment  was $8,944.
A provider submitted invoices for five siblings for child care provided  during periods when the provider was not providing care and was not  living near the children. The total overpayment was $14,931.
States generally rely on information from risk assessment activities to  identify the extent of program risks and to highlight problem areas.   Officials in the states we surveyed responded that on the basis of their risk  assessments, they did not perceive improper payments to be a great  problem in either the TANF or CCDF programs.  However, some CCDF  officials reported improper payments as a moderate problem while none of  the TANF officials did so, as shown in figure 5.
As discussed previously, the nature and extent of states’ reported risk  assessments varied greatly, and often did not cover all payment types.  This  suggests their overall program risk assessments were based on a limited  perspective. While state officials did not see improper payments as a great  problem, they had identified factors that contributed to improper payments  in their programs, as shown in table 4.  TANF respondents most often  identified inaccurate information on income, earnings, and assets and  clients not meeting participation requirements as factors contributing to  improper payments.  Inaccurate information on income, earning, and  assets can occur, for example, when clients do not report income from  employment or changes in earnings that they are required to report and  that may affect the amount of their payments or basic eligibility for aid.
For states’ child care programs, the surveyed officials identified factors  associated with both clients and child care providers as contributing most  frequently to improper payments, as shown in table 5.  Officials in the  states we visited identified examples of client- and provider-related  problems.  For example, Virginia CCDF officials identified several cases in  which clients were no longer working or looking for work and therefore no  longer eligible for a child care subsidy.  Illinois officials cited several cases  in which the provider gave inaccurate information on the amount of child  care received.  In one case, the provider billed the state for children she had  stopped caring for, and in another case the provider billed the state for  watching children during hours when the provider was actually working at  another job.
section_title: States More Likely to Use Prevention and Detection Tools in TANF Than in CCDF
paragraphs: In addition to assessing a program’s risk of improper payments, states  reported using other key aspects of an internal control system, including  emphasizing accountability and using tools to prevent and detect fraud,  although the extent of use varied among the states and was less widespread  among CCDF programs.  For example, states we surveyed sometimes used  performance goals to instill a culture of accountability by working toward  improvement and achievement of established program outcomes. Although  improper payment estimates were incomplete (as noted in the previous  section), table 6 shows that a majority of TANF programs and two CCDF  programs surveyed had established goals for reducing improper payments.  In addition, some states were required to generate reports on improper  payments to senior government officials. This was also the case in one of  the states we visited.  Texas officials told us they have established  statewide performance goals for reducing the TANF rate of improper  payments and hold regional offices accountable for performance  objectives. If regions fail to meet their objectives, they must draft and  implement performance improvement plans, which are then monitored by  state officials.
Greater emphasis on reducing improper payments in state TANF programs  likely stems from states’ experience under the former AFDC program in  which the federal government had more guidance and requirements  specifically related to improper payment levels. In contrast, state CCDF  assistance programs do not share that history and generally do not have the  same formal internal control elements in place as in TANF.  For example,  officials in Virginia told us TANF fraud is more under control than child  care fraud because there are more institutional processes in place to  manage improper payments. They noted these processes are holdovers  from the old AFDC program, and pointed out that eligibility workers are  more aware of improper payment activities in TANF because of the training  they received under AFDC. Along these lines, CCDF officials in Virginia  told us they do not have any performance goals or measures for reducing  improper payments, and pointed out that internal controls aimed at  reducing fraud for the CCDF program are relatively new.
In addition to performance goals and reporting requirements, each TANF  and CCDF program reviewed reported performing a variety of activities to  verify the accuracy of information to determine client eligibility and the  proper payment amount, as shown in table 7.  For example, Illinois officials  told us they verify among other things: income, assets, residency,  relationship of members in household, age, school attendance, and child  support payments, for all appropriate household members to determine  TANF eligibility. In addition, any caseworker or member of the public who  is suspicious of welfare fraud is encouraged to complete a one-page on-line  form that is submitted to Illinois’ Office of Inspector General.  Fraud  investigations are then initiated, if warranted.
As the list of activities in table 7 demonstrates, many CCDF programs  report that they verify the accuracy of payments to providers as well as  clients, although this occurs in a variety of ways given the flexibility  provided to states under CCDF.  All CCDF programs surveyed reported  that they confirm the licensing status of regulated child care providers  before payments are made and most conduct background checks for  providers. For example, in Texas, CCDF funds are monitored in a two-tier  system. CCDF funds are distributed by the state to 28 local boards that  contract out the CCDF program. Contract monitors at the state level  identify questionable costs from the boards, while contractors monitor the  individual providers’ contracts at the local level.
Some child care providers are not required to be licensed, and some CCDF  officials reported having a more difficult time monitoring payments to  these types of providers. These legal provider arrangements (referred to  as unregulated or unlicensed providers) are generally established by  parents and frequently involve care by a family member.   Under CCDF,  states are to allow parents to make their own decisions on the type of child  care used, as long as they choose a legally operating provider.  CCDF  officials in Virginia told us there might be more potential for fraud among  unregulated providers because the officials have little knowledge about  unregulated providers, and do not feel they have enough tools in place to  monitor the legitimacy of all unregulated providers.
In addition to activities taken by states to help ensure initial eligibility, all  states surveyed reported requiring additional check-ins with clients to  ensure that their eligibility status has not changed (often referred to as a  redetermination).  Most states surveyed said that they require a  redetermination at least once every 12 months for both programs, although  the method of check-in is generally more flexible for the CCDF program.  For example, the majority of TANF programs require clients to visit the  TANF office in order to continue receiving benefits. Conversely, most  CCDF programs allow clients to check in by phone, fax, e-mail, or mail.   This difference may be explained by state welfare programs’ long history of  requiring periodic office visits for families to continue receiving monthly  checks.  In contrast, the newer CCDF program can be characterized as an  important support for working families not associated with traditional  welfare and the welfare office.  Virginia CCDF officials told us  redetermination methods stem from the philosophy that clients should not  have excessive requirements to meet agency representatives face-to-face.   A CCDF official in Washington echoed this sentiment when she told us  benefit interviews are never meant to interfere with a client’s work or  training schedule. These views are consistent with CCDF’s objective to  assist parents with child care so that they can enter or remain in the  workforce.
One specific activity all the states reported relying on to help identify  accurate eligibility information was data sharing, although the extent of use  varied.  Data sharing, a key control activity, allows comparison of  information from different sources to confirm initial and continuing client  or provider eligibility. All states reported performing at least one data  sharing activity; however, the amount of data sharing varies greatly  between the TANF and CCDF programs.  Among the states we surveyed,  while the majority of TANF programs reported data matching with at least  10 sources, the CCDF programs reported data matching with significantly  fewer sources.  For example, while all of the TANF programs we surveyed  reported sharing data with the state department of labor or employment  security to ensure that clients are correctly reporting their income levels,  only 3 of 11 CCDF programs reported doing the same. Appendix II  summarizes data matching results from all surveyed states.
The extent to which states reported using data sharing capabilities in TANF  and CCDF programs varied by program, in part because state TANF  programs are more likely to have automated information systems that can  help them analyze large amounts of data from other sources.  Some  possible explanations for this difference may be the greater maturity of the  TANF program and the existence of data sharing requirements for TANF  that do not exist for CCDF.  Additionally, under TANF’s predecessor  (AFDC), the federal government funded a large portion of state-run  automated computer system costs in earlier years.  Recognizing the  importance of automated systems in efficiently and accurately determining  eligibility, Congress acted to encourage states to develop automated  systems for the AFDC program by authorizing ACF to reimburse states for  a significant proportion of their total costs to develop and operate  automated eligibility determination systems that met federal requirements.  Under PRWORA, states may use their TANF or CCDF  funds for their automated system needs, although no specific federal  requirements exist for these systems.
The level of sophistication of data sharing practices varied in the states we  visited.  For example, CCDF officials in Washington have implemented a  complex automated system that allows them to find duplicate payments.   Another automated data sharing resource frequently used with TANF  programs is the Public Assistance Reporting Information System (PARIS).  PARIS helps states voluntarily share information on public assistance  programs to identify individuals or families who may be receiving benefit  payments in more than one state simultaneously.  Almost half of the TANF  programs surveyed participate in PARIS.  No CCDF programs surveyed  participated in PARIS because the project was designed especially for  Medicaid, food stamps, and TANF. ACF officials said they are considering  the possibilities of PARIS for the CCDF program.
Not all data matching is done with automated systems however. Georgia  CCDF officials told us they had conducted a match with Head Start to  ensure that families are not being paid twice for child care.  To conduct  this match Head Start program officials provided CCDF administrators  with a printed list of enrolled children, and officials cross-referenced the  list to look for duplication. Officials noted that the process would have  been more efficient if it were automated, but speculated that a lack of  funding or on-going partnership may be reasons the process was not  computerized.
While states reported having implemented many prevention and detection  tools to manage improper payments, it is difficult to determine the relative  effectiveness of these efforts. If states routinely performed comprehensive  risk assessments or rigorously measured improper payments, it would be  easier to understand the effect of these efforts. Without such strategies,  success of these initiatives cannot be quantitatively determined, and the  return on investment is unknown.
section_title: States Cited Factors That Make It Difficult to Adequately Address Improper Payments
paragraphs: While the states visited and surveyed understand the importance of  addressing improper payments, many cited factors that make it difficult for  them to address improper payments. Table 8 highlights the most frequently  cited factors and demonstrates that many concerns were similar for the  TANF and CCDF programs. Factors frequently cited in both programs  include competing demands for staff attention and the lack of staff working  specifically on improper payments.  Based on their survey responses, one  reason states often face competing demands is because they place their  greatest focus on key mission goals, such as moving TANF clients into  employment and meeting clients’ child care needs.  This is consistent with  the transformation in the federal welfare program from a cash welfare  entitlement program to an employment program.  Officials in some of our  site visit states noted that the shift from AFDC to TANF changed the focus  of the program.  For example, Washington state officials said the TANF  program emphasizes assisting the recipient with the tools needed to obtain  and maintain employment.  Illinois state officials also identified activities  other than payment accuracy as their primary focus in meeting TANF  program goals, such as providing income supports including child care  assistance and transportation.  Related to these factors are states’ concerns  about insufficient funding, with about half of the states citing this as a  factor for TANF and CCDF.  We also heard this concern from some of the  state auditors we spoke with in site visit states; the auditor general in one  state said that his office has not conducted any reviews of the TANF and  CCDF programs outside of the single audit within the past few years, in  part due to resource limitations and the loss of staff within the department.
Among CCDF officials, survey respondents were also less likely to have  focused on managing improper payments and more likely to have focused  on other aspects of their program, such as matching clients with providers.  For example, Kansas CCDF officials were concerned that policies and  monitoring activities developed to prevent improper payments and fraud  could become overly burdensome, thereby possibly limiting the quality of  services they provide to the children and families they serve. Officials also  cited a lack of staff dedicated solely to addressing improper payments as  problematic for both the TANF and CCDF programs.  For example, Illinois  officials said they have fraud cases that are not investigated due to small  staff ratios per case or loss of staff. Likewise, Virginia officials stated that  there is a lack of investigator staff to pursue fraud cases.
States’ concerns about how best to use limited resources highlight the  importance of risk assessment as a key element of sound internal control  systems.  Risk assessment activities allow an organization to focus often  limited resources on the most significant problem areas and determine  where risks exist, what those risks are, and what needs to be done to  address the identified risks.  This helps to ensure that public funds are used  appropriately and clients receive the proper benefits, thereby helping meet  the program’s mission and goals.
Officials also cited problems that were more prevalent in one program than  the other. In the TANF program, officials expressed more concern about  the reluctance of law enforcement to prosecute low dollar value cases.  For  example, TANF officials in Virginia told us about law enforcement officials’  reluctance to prosecute improper payment cases unless they reach a  certain dollar amount. The commonwealth attorney in each county  determines the threshold for prosecuting these cases.
On the other hand, CCDF officials frequently cited their limited ability to  use SSNs for data sharing as a problem. While the Social Security Act and  implementing regulations require SSNs as a condition of eligibility for the  TANF program, no such law exists for the CCDF program.  States may not  require SSNs for the CCDF program without violating the Privacy Act of  1974.  States may request that applicants provide their SSNs but must make  clear that supplying the numbers is not required as a condition of receiving  services. HHS has told states they may use alternatives (such as a unique  case identifier) to the SSN to verify non-applicant income and resources  when determining eligibility and benefit levels of applicants.  Regardless of  HHS’s position on this issue, CCDF officials in Illinois reported that the  inability to require SSNs presents the potential for fraudulent payments.   Similarly, CCDF officials in Florida reported that they would like SSNs to  be required at the federal level, because they believe the effectiveness of  data sharing is limited when parents are allowed to report them voluntarily.   On the other hand, at least one state we reviewed addressed this issue in its  CCDF program by asking for SSNs, but noting that the provision of them is  voluntary.  This state said that clients provided SSNs in all but 2 percent of  cases.
In addition to the SSN issue, CCDF officials often cited insufficient funding  as a factor that hinders their efforts to address improper payments. For  example, Washington state CCDF officials said they do not have enough  money to improve improper payment identifications and recoveries  because CCDF rules cap administrative costs at 5 percent of the grant, and  improper payment identification is a very labor-intensive process. Similarly,  Virginia CCDF officials told us the reason they do not have enough staff  dedicated to addressing improper payments is a result of the funding  restrictions imposed by the CCDF’s administrative cap.  While some states  saw the administrative cap as a limitation, others did not. Nationwide, the  average portion of total funds spent on administrative costs in the CCDF  program is about 3 percent.  In addition, states may structure their  programs to use state maintenance of effort funds (required to receive a  portion of their CCDF funds) for these costs because no administrative cap  exists on these state funds.
ACF officials explained that some activities related to identifying and  addressing improper payments may not be considered administrative  activities to be included under the cap.  For example, eligibility  determination and redetermination, training of child care staff, and the  establishment and maintenance of computerized child care information  systems are not to be considered administrative activities, and these  activities can play an important role in states’ efforts to combat improper  payments.  At the same time, CCDF regulations state that activities such as  program monitoring; audit services, including coordinating the resolution  of audit and monitoring findings; and program evaluation are considered  administrative.  States’ choices about how they design and structure their  internal control activities affect the extent to which the administrative cap  may limit their efforts.
section_title: HHS Has Limited Information on the Risk of Improper Payments, but Has Efforts Under Way to Improve Monitoring Activities and Assistance to States
paragraphs: HHS relies on the single audit process and financial expenditure reporting  to monitor state compliance with federal guidelines and oversee whether  states expend federal funds properly.  These mechanisms, however, do not  capture information on the various strategies and tools that states have in  place for managing improper payments.  In the absence of such  information, HHS cannot adequately determine if the TANF and CCDF  programs are susceptible to significant improper payments, as required by  the Improper Payments Act.  HHS officials acknowledge that they will need  information on state activities to manage improper payments if they are to  comply with the Improper Payments Act.  As a result, HHS recently started  several projects to collect information from selected states.  HHS also  initiated several projects to encourage state use of certain tools in  managing improper payments, such as data matching capabilities. Several  states in our review reported that they would like additional assistance  from HHS in identifying effective practices for managing improper  payments.  While HHS’s projects are a good start, they do not provide  mechanisms to gather information on state control activities on a recurring  basis.  The absence of such mechanisms could hinder HHS’s ability to  assess the extent to which program payments may be at risk and comply  with the Improper Payments Act.
subsections: section_title: HHS Monitoring Activities Do Not Provide Information That HHS Needs to Adequately Assess the Risk of Improper Payments
paragraphs: HHS is required to annually review the TANF and CCDF programs to  determine if they are susceptible to significant improper payments.  The  Improper Payments Act also requires agencies to estimate the amount of  improper payments if a program is determined to be susceptible to  significant improper payments.  HHS needs information on the various  controls that states have in place to minimize improper payments in order  to adequately assess risk.  In preparing its 2004 review of TANF and CCDF,  HHS used findings from single audit reports, the key activity that HHS  relies on to monitor state fiscal activities.
Single audits assess whether states have complied with requirements in up  to 14 managerial or financial areas, including allowable activities, allowable  costs, cash management, eligibility, reporting, period of availability of  funds, procurement and subrecipient monitoring.   Audit findings in many  of these areas often identify control weaknesses that can lead to improper  payments.  Based on an analysis of single audit findings, particularly  findings related to eligibility and allowable cost, HHS concluded in its  January 2004 review that there were no systemic problems or improper  payment trends in the TANF and CCDF programs.  HHS also concluded  that only a very small percentage of program costs have been classified as  misspent funds based on the rate of questioned costs included in the Single  Audit reports, which according to HHS, has been less than .1 percent of  program costs in recent years.  While single audit findings as well as the  amounts of unallowable or questioned costs that the audits identify are  useful in determining the potential for improper payments in the TANF and  CCDF programs, the audits are not designed to provided a complete  description of the methods and activities that the states use to minimize  improper payments.  Questioned costs identified in single audits are also  not intended to provide an estimate of the total amount of improper  payments, and the methods used to derive questioned costs are not  consistent among state auditors.  For example, we observed variation in  the methods that auditors used to identify questioned costs when testing  whether TANF payments are accurate according to states’ eligibility and  payment criteria. In reviewing the fiscal year 2002 and 2001 single audit  reports for the five states we visited, we noted that some samples were  selected statistically so that any questioned costs could be projected to all  TANF payments and others were not.  Also, some auditors determined that  payments were improper if case files were missing or incomplete while  others identified improper payments based on the specific eligibility  criteria that clients failed to meet.
HHS also reported that it considered information from its reviews of state  expenditure reports in determining if TANF and CCDF payments were  susceptible to significant improper payments.  Federal guidelines require  states to report on the expenditure of TANF and CCDF funds on a quarterly  basis.  HHS reported that its review of these reports helps to ensure that  states are properly expending TANF and CCDF funds.  However, regional  office staff said that few resources are devoted to financial expenditure  reviews and that the reviews are limited in identifying improper payments  because expenditures are reported on a summary level and states are not  required to submit detailed financial reports that they would need to  identify improper payments.  As a result, these reviews provide little useful  information in assessing the risk of improper payments.
Also, HHS reported that it gains access to information about state practices  and activities from the TANF and CCDF plans that PRWORA requires states  to submit to HHS, although this information is not used directly to monitor  state fiscal activities.  The state plans describe the practices that states use  to meet the key objectives and federal requirements of the TANF and CCDF  programs.  Further for TANF plans, states are required to certify that they  have procedures in place to combat fraud and abuse.  However, states are  not required to describe these procedures in their TANF plans.  Similarly,  CCDF plans do not require states to describe the procedures that they have  in place to combat fraud and abuse but HHS officials report that they often  gain an understanding of state procedures in reviewing and approving  these plans.
section_title: HHS Has Some Efforts Under Way to Improve Monitoring Activities and Assistance to States
paragraphs: HHS officials acknowledged that HHS’s monitoring activities do not  provide enough information to determine if TANF and CCDF programs are  susceptible to significant improper payments.  In our most recent report on  governmentwide improper payments initiatives, we reported that HHS did  not include information on TANF and CCDF improper payments in its  Performance and Accountability Reports for fiscal year 2003, as required  by OMB guidance for implementing the Improper Payments Act.  The  TANF and CCDF programs are among the 46 programs that OMB required  agencies to report the results of their improper payment efforts in the  Management Discussion and Analysis section of their accountability  reports for fiscal year 2003.  Specifically, we reported that HHS did not  report improper payment amounts, initiatives to prevent and reduce  improper payments, or impediments to preventing or reducing them.
HHS has started several initiatives intended to collect more information on  state efforts to control TANF and CCDF improper payments.  HHS has also  started several initiatives to assist states in managing improper payments  and to encourage state use of certain tools to minimize improper payments,  such as data matching capabilities.  These initiatives should help HHS  begin to assess the risk of improper payments and send a strong signal to  states that managing improper payments is an important issue.  They  should also help states understand that the information they provide HHS  on the strategies and tools that they have in place to manage improper  payments is critical to determining whether these programs are susceptible  to significant improper payments.
HHS’s initiatives to collect more information on state CCDF programs are  under way, and HHS is already starting to compile the results.
subsections: section_title: CCDF Initiative
paragraphs: HHS officials developed the CCDF initiative in September 2003.  The  overall goals of the initiative are to improve monitoring and administration  regarding improper payments and fraud, provide better definitions of child  care errors and child care fraud, and gather documented “best practices.”   HHS officials also expect to identify other technical assistance materials  and any new information reporting needs for the states.  As part of the  CCDF initiative, HHS recruited a state agency official with experience in  program integrity to help the Child Care Bureau oversee the initiative.   According to HHS officials, key actions for completing the initiative  include:  Working with selected states to determine whether there is an effective  and cost efficient approach or methodology for estimating improper  payment amounts in the CCDF program.
Conducting visits to some of the selected states to observe the internal  control and other activities they have in place to manage improper  payments.
Coordinating with the HHS Office of the Inspector General to provide  training and technical assistance on improper payments and fraud to  state CCDF officials.
Coordinating with the United Council on Welfare Fraud and the  American Public Human Services Association to discuss child care  fraud and other issues.
HHS is working with 11 states (Arkansas, Connecticut, Georgia, Indiana,  Maryland, Ohio, Oklahoma, Oregon, South Carolina, Virginia, and  Wisconsin) on the project.  According to HHS officials, these 11 states  provide experience in dealing with erroneous payments, knowledge of the  capacity of their automated systems, and strong working relationships  among key state agencies.  In addition, both centralized and county-based  organizational structures are represented in the 11 states.
HHS held initial meetings with the 11 states during November 2003, in  Washington, D.C.  State officials such as child care administrators, fraud  directors, quality assurance directors, auditors, and investigators  participated in the meetings along with HHS Child Care Bureau and  regional office staff. During the meetings, states discussed various  approaches to controlling errors and fraud. In addition, the Child Care  Bureau has conducted a number of conference calls with states, including  one on PARIS.
Since the November meeting, HHS has completed site visits to two states,  Connecticut and Arkansas, and plans to complete visits to three other  states—Indiana, Ohio, and Oklahoma—by the end of June 2004.   HHS  officials told us that they would compile all of the information from their  visits into a report to analyze and identify possible options for estimating  payment errors in the CCDF program and for improving program integrity.   HHS expects to issue its report by September 2004.
section_title: TANF Initiatives
paragraphs: HHS has developed plans to implement three projects aimed at improving  its monitoring activities for TANF and assistance to states.  HHS is actively  working with OMB on its implementation plans for the TANF projects to  ensure that they strike the right balance between the authority that HHS  has to oversee TANF, as set forth by PRWORA, and the requirements of the  Improper Payments Act.
The first project involves asking two states to volunteer for an expanded  single audit review of their TANF programs by state auditors.  Auditors are  expected to conduct more detailed examinations of certain state controls,  such as those used to determine that payments are in accordance with  eligibility criteria and those controls used to oversee payments to entities  that states contract with to provide TANF services. While this project only  includes two states, HHS hopes to gain detailed knowledge of the adequacy  of controls that states have in place to identify improper payments in all  payment types. HHS said it plans to evaluate the first-year results of the  project, report the information to OMB, and then decide upon second-year  initiatives based on the initial results. According to HHS, it must still secure  funding for these audits and obtain agreement from state auditors to  perform the additional work.  HHS is working with its Office of Inspector  General to identify states to participate in the pilot project.
The second TANF project involves collecting and sharing information on  state activities to address improper payments.  HHS is drafting a letter to  states asking them for information on their “best practices” for addressing  improper payments.  HHS says the letter will request that states describe  how they define improper payments in the state, the process used to  identify such payments, and what actions are taken to reduce improper  payments.  HHS noted that the letter will make clear that a state's  submission is voluntary.  HHS also said it is working with OMB to ensure  that the letter is in accordance with the oversight authority that HHS has  under PRWORA and requirements under the Paperwork Reduction Act of  1995. According to HHS, it plans to establish a repository for the state  submissions, which would be available to all states for viewing on an HHS  Web site.
The third project involves encouraging more states to use PARIS. PARIS is  the interstate match program that was initiated to help state public  assistance agencies share information to identify individuals or families  who may be receiving or may have duplicate payments improperly made on  their behalf in more than one state.  In 2001, we reported on the usefulness  of PARIS in identifying improper payments in the TANF program along with  other programs for low-income individuals, such as food stamps and  Medicaid.   Currently only 22 states participate in PARIS.  Other states  reported that they do not participate in PARIS for various reasons,  including the lack of data showing that participating would produce  savings for their state.
ACF officials say they have promoted state awareness of PARIS at  conferences and ACF staff currently participate as members of the PARIS  board of directors. In addition, HHS’s proposed fiscal year 2005 budget  includes $2 million for PARIS activities.  HHS plans to use $500,000 of the  $2 million for contractor support to conduct an evaluation of participant  states' PARIS activities to (1) establish a valid and reliable method for  calculating the costs and benefits of participating in PARIS and (2)  disseminate data on cost and benefits to other states.  HHS also plans to  devote a full-time equivalent position to manage the PARIS project.
In carrying out these projects for TANF and CCDF, HHS expects to also  provide more assistance to states in managing improper payments.  Several  states that we surveyed said they would like additional assistance from  HHS in this area.  We specifically asked states the following: To what  extent, if any, have you received assistance from HHS (regional or  headquarters) regarding identifying and managing improper payments in  your state’s TANF and CCDF programs--assistance such as responses to  state queries, any written guidance, any Web-based HHS information,  conference, presentation, etc.?
Many of the states we surveyed reported that they did not receive  assistance from HHS regarding managing improper payments. As figure 7  shows, states reported that HHS generally provided little to no assistance  for the CCDF program and moderate to some assistance for the TANF  program on this topic.
Several states said they would like additional assistance from HHS in  managing improper payments.  We also asked states if they would like  assistance from a variety of national organizations, recognizing that other  organizations play an important role in advising states on how to operate  their TANF and CCDF programs. TANF officials most frequently indicated  they would like assistance from the National Council of State Human  Services Administrators (NCSHS) and the United Council on Welfare Fraud  (UCOWF), while the CCDF officials primarily wanted assistance from the  National Child Care Information Center (NCCIC).   Regarding assistance  from HHS, most states indicated that they would like additional assistance  identifying and disseminating promising practices for managing improper  payments, as figure 8 illustrates.  Additionally, most CCDF programs  reported that they would like HHS to provide guidance on what the federal  law requires and allows with respect to improper payments.
The projects for TANF and CCDF should help improve HHS monitoring  activities as well as assistance to states.  If successfully implemented, the  projects will begin to provide HHS with a baseline of information on the  various controls that states have in place for managing improper payments  and thus improve HHS’s ability to determine if the TANF and CCDF  programs are susceptible to significant improper payments.  However, HHS  projects do not provide mechanisms to gather information on state control  activities on a recurring basis.   The absence of such mechanisms hinders  HHS’s ability to adequately assess the risk of improper payments and assist  states in managing improper payments in these multi-billion dollar  programs on an ongoing basis.
section_title: Conclusions
paragraphs: The extent to which the TANF and CCDF programs are vulnerable to  improper payments cannot be determined given the information currently  available nationwide and in the 16 states we reviewed.  Given the dollar  magnitude of these programs—about $34 billion in federal and state  funds—and the nature of their activities, we know that potential risks exist.   We also know—based on our review of the 16 states--that states have some  prevention and detection tools in place and at least some understanding of  the extent of program risks, although some unevenness exists among states  and between the TANF and CCDF programs in these areas.
What is not known, however, is the extent to which states’ internal control  systems are sufficient to protect these programs against an unnecessarily  high level of improper payments.  While we acknowledge that states have a  great deal of discretion in TANF and CCDF, HHS continues to have a  fiduciary responsibility to ensure that states properly account for their use  of federal funds and maintain adequate internal controls over the use of  funds.  In addition, it has requirements under the Improper Payments Act to  assess the significance of risks for improper payments, which it cannot do  with the information currently available.  As a result, HHS needs  mechanisms to gather information on state control activities on a recurring  basis.
HHS may determine that it needs legislative action in obtaining information  from states.  HHS may also require a shift in resources or additional  resources to implement its efforts.  It is essential that HHS move ahead  with and expand its actions to better understand the internal control  systems that states have in place and the extent to which program  payments may be at risk.  It can also play an important role in exploring the  usefulness of expanding data sharing systems like PARIS to state CCDF  programs.
In the short term, program funds lost to fraud and abuse or used to support  ineligible families mean other needy families cannot be helped.  In the  longer term, it means that federal resources may not be used as effectively  and efficiently as possible to meet important federal goals.  Insufficient  attention to addressing improper payments can erode public confidence in  and support for these programs.  As HHS moves forward, attention must be  paid to carefully balancing the flexibility allowed states under law and the  need for accountability for federal funds.
section_title: Recommendations for Executive Action
paragraphs: To better assist states in managing improper payments in the TANF and  CCDF programs and comply with the Improper Payments Act, we  recommend that the Secretary of Health and Human Services direct the  Assistant Secretary of ACF to take the following four actions:   Develop mechanisms to gather information on a recurring basis from all  states on their internal control systems for measuring and minimizing  improper payments.
Follow through on efforts to identify practices that states think are  effective in minimizing improper payments and facilitate sharing of  these with other states.
Where appropriate, partner with states to assess the cost-effectiveness  of selected practices.
Explore the feasibility of expanding PARIS to include CCDF, in addition  to TANF, including a study of the cost-effectiveness of such a plan.
In recommending these approaches, we recognize that HHS may determine  that it needs legislative action to direct states to provide the information.   We also recognize that these approaches may require a shift in resources or  additional resources.
section_title: Agency Comments and Our Evaluation
paragraphs: ACF provided written comments on a draft of this report; these comments  appear in appendix III.  It also provided technical comments that we  incorporated as appropriate.  We also provided a draft of the report to the  American Public Human Services Association, the professional  organization of state welfare officials, which provided technical comments  that we also incorporated as appropriate.  In its comments, ACF said that  the report provides HHS with new and useful information.  It also  expressed concerns about our recommendation for collecting information  on state internal controls as it relates to the TANF program and said we did  not address its ongoing initiatives.
Regarding CCDF, ACF said it welcomed our examination of improper  payments in CCDF and added that our work complements its ongoing  initiative to examine state efforts to address improper payments.  While it  did not specifically state that it agreed with our recommendations as they  pertain to CCDF, it noted that its new efforts to examine child care  improper payments are still in the early stages and it is committed to  considering a wide range of options for possible next steps.  ACF also  noted that our findings on states' views about the level and usefulness of  ACF technical assistance related to improper payments may not reflect its  recent and growing level of effort it provides states in this area.  We  generally spoke with and surveyed states between December 2003 and  February 2004.  As a result, the time period of our review would not cover  ACF's most recent efforts.
Regarding TANF, ACF agreed that new and improved information from  states would enable HHS to better help states address improper payments.   It also stated, however, that it believed that the assessment of risk called  for under the Improper Payments Act must be made within the statutory  framework of the TANF program, which places constraints on ACF to  regulate state TANF programs.  Within this statutory framework, ACF  thinks its plan for acquiring additional information and assessing risk is  adequate.  It also expressed concern that the draft report did not  adequately portray the regulatory constraints, particularly in its summary  sections.  In the draft report, we clearly stated the regulatory restrictions  and noted that HHS may need to pursue additional legislative authority to  collect the information needed on state internal control systems to assess  program risk levels.  We have added more of this information to our  summary sections.
We also recognize, and discuss in the draft report, that ACF has plans to ask  states to provide voluntarily more information on their efforts to address  improper payments in order to share that information with all states.  We  agree that this is an important effort; we found that states in our review  often reported wanting more assistance from HHS on identifying promising  practices in this area.  However, ACF will need to expand upon this effort  or pursue additional strategies to ensure it has information of sufficient  detail to gain an understanding of states' internal control systems.  Its  current data collection strategy is not likely to lead to information of  sufficient detail to adequately assess the risk of improper payments on a  recurring basis.
In addition, ACF said the draft did not address the relevant initiatives it has  undertaken or will undertake during fiscal years 2004 and 2005 and it  provided information on these initiatives.  We disagree.  Our draft  discussed all of the initiatives for the CCDF and TANF programs that ACF noted in its comments. We did, however, enhance portions of the  discussion based on information provided by ACF in its comment letter.
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If you or your staff have any questions about this report, please contact  Linda M. Calbom on (202) 512-9508 or Calboml@gao.gov or Cynthia M.  Fagnoni on (202) 512-7215 or Fagnonic@gao.gov.  Additional GAO contacts  and acknowledgments are provided in appendix IV.
section_title: Objectives, Scope, and Methodology
paragraphs: We designed our study to provide information on (1) what selected states  have done to manage improper payments in the Temporary Assistance for  Needy Families (TANF) and Child Care and Development Fund (CCDF)  programs, and (2) what the Department of Health and Human Services  (HHS) has done to assess risk and assist states in managing improper  payments in these programs.  To obtain information about these objectives,  we developed a data collection instrument for state TANF directors and a  separate one for state CCDF administrators, conducted in-person  interviews with state TANF and CCDF program officials and state fraud  officials, conducted telephone interviews with state auditors, reviewed  information from our prior work, and conducted work at the federal level.   In addition, we interviewed or consulted officials with professional  associations including the American Public Human Services Association  and the United Council on Welfare Fraud. We provided a draft of this report  to APHSA and HHS. HHS’s comments are included in appendix III and  technical comments from HHS and APHSA were incorporated as  appropriate.
We conducted our work from April 2003 through May 2004 in accordance  with generally accepted government auditing standards.
subsections: section_title: Information on Selected States
paragraphs: To obtain information for this report, we judgmentally selected 16 states  that reflect variations in the following characteristics: geographic location,  level of TANF and CCDF program expenditures, and size of population.  As  part of our analysis, we sent data collection instruments to 11 states:  California, Colorado, Florida, Idaho, Kansas, Maryland, Michigan, New  Mexico, New York, Ohio, and Pennsylvania.  We also visited 5 other states:  Georgia, Illinois, Texas, Virginia, and Washington.  Table 9 provides  information on the amount of TANF expenditures for the 16 states in our  review and each state’s TANF expenditure as a percentage of the U.S. total.   The table also shows that together these states represent about 70 percent  of total U.S. TANF expenditures.
Table 10 provides information on the number of families and children  served by the TANF program and the percentage of TANF expenditures  attributed to cash assistance payments for the 16 states in our review.
Table 11 provides information on the amount of CCDF expenditures,  average number of children served, and the state CCDF expenditure as a  percentage of the U.S. total for the 16 states in our review.  The table also  shows that together these 16 states represent almost 60 percent of total  U.S. CCDF expenditures.
Table 12 provides information on the number of providers operating in the  selected states we reviewed and the percentage of those providers  operating without regulation.
Some limitations exist in any methodology that gathers information about  programs undergoing change, such as those included in this review.   Although we did not collect information on the entire population of states  and therefore cannot generalize our findings beyond the 16 states in our  review, we have used the information for descriptive/illustrative purposes.
section_title: Survey of State TANF Directors and Child Care Administrators
paragraphs: To obtain information on what selected states have done to manage  improper payments in the TANF and CCDF programs, we surveyed states  using a data collection instrument (DCI) for each program in 11 states.   These DCIs were identical in many respects to allow comparisons between  the two programs; the instruments differed to the extent necessary to  capture different conditions and factors in each program.  We pretested the  instruments in two states with the key TANF and CCDF officials  responsible for program administration and program integrity.  In addition,  we showed the instruments to and received input from Administration for  Children and Families (ACF) officials at HHS.
Separate data collection instruments were mailed to TANF directors and  Child Care administrators in December 2003, and follow-up phone calls  were made to state TANF and CCDF officials whose DCIs were not  received by January 9, 2004.  We addressed DCIs to each state TANF  director and child care administrator and requested he or she to consult  with other state officials who were most familiar with efforts taken to  manage and identify improper payments to complete the DCI.  We received  responses from all 11 of the state TANF directors and 11 child care  administrators, although each state did not respond to all questions.  We  did not independently verify the information obtained through the DCI,  other than for specific dollar amounts for which we asked states to provide  documentation.  Data from the DCIs were double-keyed to ensure data  entry accuracy and were independently verified.  In addition, the  information was analyzed using approved GAO statistical software (SAS).   The DCIs included questions on an assessment of risk to decide the nature  and extent of improper payments in the TANF and CCDF programs; other  actions taken to prevent, identify, and reduce improper payments,  including fraudulent payments in the TANF and CCDF programs; and  assistance and guidance from HHS and other sources.
The practical difficulties of conducting any survey may introduce errors,  commonly referred to as nonsampling errors.  For example, difficulties in  how a particular question is interpreted, in the sources of information that  are available to respondents, or in how the data are entered into a database  or were analyzed can introduce unwanted variability into the survey  results.  We took steps in the development of the survey instrument, the  data collection, and the data analysis to minimize these nonsampling  errors.  For example, a survey specialist designed the survey instrument in  collaboration with GAO staff with subject matter expertise.  Then, as stated  earlier, it was pretested to ensure that the questions were relevant, clearly  stated, and easy to comprehend.  When the data were analyzed, a second,  independent analyst checked all computer programs.
section_title: State Site Visits
paragraphs: To obtain information about each assignment objective and, in particular,  an understanding of the steps states have taken to identify and address  improper payments, we interviewed state officials in Georgia, Virginia,  Illinois, Texas, and Washington.  We met with state TANF, CCDF, and fraud  officials in these states.  The interviews were administered using an  interview guide that included questions similar to those on the DCIs.  To  obtain additional perspectives on TANF and CCDF mechanisms to manage  improper payments, we conducted observations at local offices in the  following locations: Springfield, Illinois; Austin, Texas; and Tumwater,  Washington.  In addition, we interviewed state auditors in the 5 states we  visited and we analyzed state single audit reports conducted under Office  of Management and Budget’s (OMB) Circular A-133 for 15 of the 16 states in  our review.  We also reviewed documents provided by states that  described their programs and internal control systems and that  corroborated any data officials provided on the amounts of improper  payments.
Review of Federal Role To identify steps HHS has taken to assess risk and assist states in managing  improper payments in the TANF and CCDF programs, we identified and  reviewed policies and procedures that described HHS’s oversight activities;  observed key oversight activities at an HHS regional office; reviewed  documents, plans, and strategies for identifying improper payments; and  interviewed ACF finance and program officials.  We also reviewed results  of audits done under OMB’s Circular No. A-133 and the Single Audit Act.
section_title: Comparison of Data-Sharing Sources in TANF and CCDF Programs Among Surveyed States
paragraphs: Other human services programs in agency/ state State department of labor or employment security State directory of new hires State department of motor vehicles Public Assistance Reporting Information System  Prisons and criminal justice agencies at state level Other providers of services, education, and training Social Security Administration (SSA) form W-2 (wage  statements)
section_title: Comments from the Administration for Children and Families
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: Elspeth Grindstaff, Amanda Mackison, Kathryn Peterson, Cynthia  Teddleton, and Kris Trueblood made major contributions to this report.   Jerry Sandau provided technical assistance in analyzing data.
section_title: Related GAO Products
paragraphs: Financial Management: Fiscal Year 2003 Performance and  Accountability Reports Provide Limited Information on  Governmentwide Improper Payments. GAO-04-631T. Washington,  D.C.: April 15, 2004.
Financial Management: Effective Implementation of the Improper  Payments Information Act of 2002 Is Key to Reducing the Government's  Improper Payments. GAO-03-991T.  Washington, D.C: July 14, 2003.
Single Audit: Single Audit Act Effectiveness Issues. GAO-02-877T.  Washington, D.C.: June 26, 2002.
Welfare Reform: Federal Oversight of State and Local Contracting Can Be  Strengthened. GAO-02-661. Washington, D.C.: June 11, 2002.
Welfare Reform: States Provide TANF-Funded Work Support Services to  Many Low-Income Families Who Do Not Receive Cash Assistance. GAO- 02-615T. Washington, D.C.: April 10, 2002.
Single Audit: Survey of CFO Act Agencies. GAO-02-376. Washington, D.C.:   March 15, 2002.
Human Services Integration: Results of a GAO Cosponsored Conference  on Modernizing Information Systems. GAO-02-121. Washington, D.C.:  January 31, 2002.
Means-Tested Programs: Determining Financial Eligibility Is  Cumbersome and Can Be Simplified. GAO-02-58. Washington, D.C.:  November 2, 2001.
Strategies to Manage Improper Payments: Learning From Public and  Private Sector Organizations. GAO-02-69G. Washington, D.C.: October  2001.
Public Assistance: PARIS Project Can Help States Reduce Improper  Benefit Payments. GAO-01-935. Washington, D.C.: September 6, 2001.
Welfare Reform: Challenges in Maintaining a Federal-State Fiscal  Partnership. GAO-01-828. Washington, D.C.: August 10, 2001.
Medicaid: State Efforts to Control Improper Payments Vary. GAO-01-662.  Washington, D.C.: June 7, 2001.
The Challenge of Data Sharing: Results of a GAO- Sponsored Symposium  on Benefit and Loan Programs. GAO-01-67. Washington, D.C.: October 20,  2000.
Benefit and Loan Programs: Improved Data Sharing Could Enhance  Program Integrity. GAO/HEHS-00-119. Washington, D.C.: September 13,  2000.
Standards for Internal Control in the Federal Government. GAO/AIMD- 00-21.3.1. Washington, D.C.: November 1999.
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