In federal fiscal year 1992, three of the nation’s largest means-tested programs—Aid to Families With Dependent Children (AFDC), Food Stamps, and Medicaid—provided almost $161 billion in cash, food coupons, and medical benefits, respectively, to millions of our nation’s low-income people. These people included families with children who are deprived of support; households that need help buying food basics; and the low-income aged, blind, or disabled. That same year, however, people or households who were ineligible for these benefits, or who were not entitled to the level of benefits provided, received nearly $4.7 billion in AFDC, Food Stamp, and Medicaid benefit overpayments or about 4 percent of the total benefits paid in the three programs. Program administrators try to prevent overpayments by carefully determining an applicant’s initial eligibility. However, when errors are made, recovering overpayments is often very time consuming and difficult. Nationwide success in recovering these overpayments varies considerably among the three programs. While states recovered about $215.6 million of nearly $1.2 billion of AFDC overpayments, or about 18.7 percent, in fiscal year 1992, the recovery rate was appreciably lower for the other two programs. In this same year, almost $104.3 million of about $1.6 billion of Food Stamp overpayments, or about 6.5 percent, was recovered; while about $13.2 million, or nearly 2 percent, of an estimated $670.6 million of overpayments was recovered in the Medicaid program. When states do not promptly and efficiently identify and collect overpayments, governments lose the immediate use of these funds and incur additional expenses to recover them. Without a vigorous recovery effort, current and potential recipients may infer that the government considers the unrecovered funds dispensable. Under the legislative welfare reform proposals that the Congress is considering, resources available to help low-income Americans may become increasingly limited. Therefore, ensuring that the funds appropriated for these programs reach only those entitled to them is crucial. The Ranking Minority Member of the Subcommittee on Oversight of Government Management, Senate Committee on Governmental Affairs, asked us to determine (1) what states are doing to collect benefit overpayments in the AFDC, Food Stamp, and Medicaid programs; the more effective practices that they are using; and what, if anything, they could do better; and (2) what the federal government could do to help states collect more overpayments. Each year, the AFDC, Food Stamp, and Medicaid programs provide cash and other assistance to millions of economically disadvantaged persons. In 1992, the AFDC program, authorized by title IV-A of the Social Security Act, provided about $22 billion in cash assistance to more than 13.6 million recipients—members of low-income families with children who were deprived of support due to the absence, death, disability, or unemployment of at least one parent. The Food Stamp Program, authorized by the 1964 Food Stamp Act, provided about $21 billion in food coupons to more than 25.4 million recipients to help them buy food to meet their nutritional needs. And the Medicaid program, authorized by title XIX of the Social Security Act, paid about $118 billion in 1992 for medical services for more than 30 million low-income persons who are aged, blind, or disabled; AFDC recipients; and other low-income persons. The Department of Health and Human Services’ (HHS) Administration for Children and Families (ACF) is responsible for the AFDC Program; HHS’ Health Care Financing Administration (HCFA) oversees administration of the Medicaid Program; and the Department of Agriculture’s (USDA) Food and Consumer Service (FCS) oversees the Food Stamp Program. ACF’s, FCS’, and HCFA’s oversight responsibility supports program operation at the state level. These agencies develop and issue regulations on general eligibility and benefit criteria, provide technical assistance and guidance to the states, and help monitor state performance through quality control systems. Under these systems, states must review a sample of their cases each month to assess the accuracy of their staffs’ eligibility and benefit determination decisions. In turn, federal quality control reviewers from ACF, FCS, and HCFA assess the correctness of state findings by evaluating a subsample of the state samples. Differences between the state and federal findings are reconciled to calculate an official state error rate. If the error rate is greater than a program’s targeted error rate—for example, 3 percent in the case of Medicaid—then federal payments may be reduced by an amount calculated on the basis of the percentage point difference between the actual and target error rate. The error rate is also used to estimate the total dollar value of estimated overpayments for the state. The federal government and states both provide funding for AFDC, Food Stamps, and Medicaid. The federal government pays from 50 to about 80 percent of benefit costs for AFDC and Medicaid and 50 percent of most administrative costs of those programs. The federal government pays 100 percent of benefit costs for Food Stamps and 50 percent of state administrative costs. The states manage the day-to-day functioning of AFDC, Food Stamps, and Medicaid through local offices—either district, county, or city. As part of the daily administration, eligibility staff evaluate applications to determine a household’s or an individual’s eligibility and to ensure that the correct level of benefits is authorized. Depending upon the state, these staff may be determining eligibility and benefit levels for one or all three programs. The three programs’ eligibility rules and income tests are complex and differ from one another; so, although all three programs take into account assets, household income, and size, the extent to which they do so varies. For example, in determining an applicant’s eligibility under AFDC in fiscal year 1995, staff generally exclude the first $1,500 in equity value of an applicant’s automobile and count the remainder in determining available financial resources; under Medicaid, depending upon the type of applicant, staff exclude the first $1,500 in equity value or $4,500 in fair market value and, in certain cases, may exclude all of the value; and, under Food Stamps, staff exclude the first $4,550 in fair market value and, in some cases, may exclude all of the fair market value. A requirement that clients notify the staff when their income changes further complicates eligibility determinations. Staff must then use three sets of eligibility criteria to recalculate benefit levels. Given the complexity and diversity of eligibility rules among the three welfare programs, ineligible clients sometimes receive benefits or medical services or eligible clients sometimes receive more benefits than they are entitled to. Overpayments generally result when (1) a participating household or individual intentionally provides incorrect or insufficient information on which eligibility and benefit determinations are based (fraud), (2) a participating household or individual unintentionally provides incorrect or insufficient information (client error), or (3) the administering state agency miscalculates eligibility or benefits or does not correctly act on client-reported information (agency error). Regardless of the cause of overpayments, state AFDC and Food Stamp offices are responsible for (1) preventing and identifying overpayments, (2) verifying potential overpayments and establishing claims for them, and (3) collecting overpayments. While no federal goals exist for states to recover a minimum percentage of their overpayments, federal legislation generally requires states to try to recover them in these two programs. Although state Medicaid offices’ overpayment responsibilities are similar to those for the other two programs, under Medicaid law, the focus is on recovering overpayments to providers of medical services rather than the recipients of services. States may, but are not required to, recover funds from ineligible Medicaid clients when overpayments to providers are made in their behalf. In 1992, as a result of state law or policy, most states attempted to recover overpayments due to errors from Medicaid clients, including long-term care clients who received nursing home services to which they were not entitled. States use a variety of methods, including computer matching and quality control reviews, to help prevent overpayments and to identify overpayments. The Deficit Reduction Act of 1984 requires states to routinely compare data supplied by applicants and clients of AFDC, Food Stamps, and Medicaid with other data sources in search of discrepancies. These other data sources include (1) Internal Revenue Service (IRS) data on interest, dividends, and other types of unearned income; (2) Social Security Administration data on benefits and earnings; and (3) state reports on quarterly wages and unemployment insurance benefits. States may also identify overpayments when they conduct their monthly quality control reviews of individual cases or verify an individual’s alien status. After identifying a possible overpayment, the next step is to verify the overpayment. Because one key factor in determining eligibility and benefit levels is a household’s or an individual’s financial information, this may involve contacting the client—or his or her employer—to obtain wage statements to compare with the information originally provided by the client. Once the overpayment is verified, states establish a claim for it by entering a record in the state client billing and tracking system. By regulation, however, states are not required to pursue every overpayment. For example, both the AFDC and Food Stamp programs give states the option of not pursuing a nonfraudulent overpayment of less than $35 if it cannot be collected by reducing the individual’s or household’s benefit. Under existing waiver authority, FCS has increased the less than $35 threshold to less than $100 for some states.