No commonly accepted definition of offshoring currently exists, and the term includes a wide range of business activities. Generally, services offshoring is used to describe the replacement of domestically supplied service functions with imported services produced offshore. This definition focuses on a business’s decision to contract out: should it produce the services internally, contract with a company located in the United States (outsourcing), or contract out with companies based offshore? Offshoring has also been used to describe the movement of domestic production (and the related jobs) offshore. In this case, the definition focuses not on imports of services from abroad, but on U.S. companies investing offshore. Business and professional services such as accounting, bookkeeping, and software programming and design do not have to be performed on site, and, therefore, can be outsourced offshore to any location. For example, a U.S.-based company can stop producing certain services in-house and instead purchase them from a company with foreign-based staff or a state government could contract out its software programming to a company with foreign-based staff. While limited, U.S. government data provide some insight into trends in offshoring of services. Trade data from the Department of Commerce show that, generally, imports of services associated with offshoring are growing. Federal procurement data show that the total dollar value of the federal government’s services contracts with offshoring increased between 1997 and 2002. However, when compared to all federal contracts with services, the proportion showed little change during that time. The federal government provides benefits (for example, food, child care, or income subsidies) through human services programs. Table 1 provides information on the state and federal human services programs we examined. The four state-administered programs spent about $15.7 billion dollars in state and federal funds on program administration in fiscal year 2004 (the most recent year for which expenditure data were available for all four of the programs). The federal government and some states have outsourced in response to federal mandates to automate or centralize certain functions of human services programs. For example, the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 required states to establish a central unit for receipt and disbursement of child support payments from non-custodial parents and employers. According to data reported by the federal program office in March 2005, 27 state programs for child support enforcement have contracted with private companies to handle all or some of these functions. The federal government provides a 66 percent match to state spending for most of the administration of child support enforcement. PRWORA also required states to implement electronic benefits transfer (EBT) systems for the reimbursement of food stamp benefits. EBT allows food stamp recipients to use a plastic card, much like a debit card, to pay for their food from authorized retailers and have the benefit deducted from the household’s allocation. EBT contracts generally include a range of programs and support functions, including customer service. It is this complete group of services, often referred to as “bundled,” that are included under the term “EBT” and for which states contract out. All 50 states and the District of Columbia provide Food Stamp benefits through EBT. Forty-eight states and the District of Columbia have contracts with private companies to provide all or some of these EBT services. The federal government provides a 50 percent match for most EBT and other administrative functions for states. Some states combine the distribution of benefits for Food Stamps with cash assistance under TANF. As such, some states spend TANF funds for the administration of their EBT systems. Thirty-six states distribute TANF benefits via EBT in combination with Food Stamps and other programs. While not mandated to do so, some Unemployment Insurance programs are redesigning their benefits systems to provide efficient and cost-effective services to unemployment insurance customers through electronic submission of applications and wage and tax data. Through federal unemployment taxes, the federal government provides all of the funding for the administration of Unemployment Insurance programs at the state level. The 1998 reauthorization of the Higher Education Act of 1965 mandated the Office of Federal Student Aid (Student Aid) to integrate its separate computer systems, improve service to its customers and employees, and reduce its operational costs. Through the use of contractors, Student Aid is replacing these separate computer systems that aid the office in performing business operations such as determining eligibility, processing aid applications, and disbursing grants and loans with integrated computer systems. Through integrated computer systems, Student Aid will be able to streamline data sharing among schools, lenders, and its offices and eliminate system redundancies. The Higher Education Act also requires Student Aid to establish appropriate administrative, technical, and physical safeguards to ensure the security and confidentiality of privacy- protected information used in these systems. In 2004 and 2005, Student Aid spent about $500 million annually on information technology related to its programs. In the four state-administered programs we reviewed, 43 of 50 states and the District of Columbia have offshoring in one or more programs, but we did not find occurrences of offshoring in the two federally-administered programs. Offshoring occurs most often in the Food Stamp and TANF programs. We also found offshoring in Unemployment Insurance and Child Support Enforcement programs, but in fewer states. While the magnitude of expenditures on offshored services appears to be relatively small, we could not determine the specific amount of these expenditures for several reasons. Services most frequently reported as being performed offshore include customer service for the Food Stamp and TANF programs, and software development for the Unemployment Insurance and Child Support Enforcement programs. In all four programs, state officials rarely contracted directly with foreign companies to perform these services. Rather, state officials used U.S. contractors that either used subcontractors that performed the work offshore or used their own workers located offshore. In the federal student aid programs we examined—the Pell Grant and FFEL—we found no occurrence of offshoring. Education’s efforts to safeguard high-risk work in these programs, through security screenings for contractor employees, has the effect of limiting the extent to which services can be performed offshore. Forty-three of 50 states and the District of Columbia have offshoring in one or more of the four state-administered programs. Offshoring was most often cited by state program directors and contractors in the Food Stamp (31 of 51) and TANF programs (16 of 51). Occurrences of offshoring were less frequently reported by state program directors and contractors in the Child Support Enforcement (12 of 51) and Unemployment Insurance programs (8 of 51). Of the state program directors we surveyed, most reported that they knew where services are performed and reported no offshoring in their contracts, but several state officials said they were uncertain about offshoring in their contracts. State officials most frequently reported that there was no offshoring in their contracts because they closely monitor contracts and know where the services are performed. However, our survey of contractors uncovered additional occurrences of offshoring in all four programs in some contracts for which state officials had reported either that no offshoring was occurring or that they were uncertain whether offshoring was occurring. In 16 states, we found offshoring in certain contracts where state officials had reported that the contractor performed all services within the United States. Figure 1 shows the states and programs in which state officials and contractors reported offshoring in one or more contracts (including the 16 states) and also provides information on the total number of reported occurrences of offshoring in each of the four programs. The magnitude of spending on offshored services in the four state- administered programs appears to be relatively small with respect to total spending on outsourced services, but is difficult to quantify. In total, administrative spending across the four programs was about $15.7 billion in fiscal year 2004. At the time of our review, the four programs had about 5,606 contracts valued at approximately $1.8 billion (or 12 percent of total administrative spending). The total value of the 83 contracts where some offshoring occurred was at least $335 million. For nine of these contracts, state officials did not report total contract costs. The contracts with reported offshoring comprised 2 percent of the total number of contracts and about 18 percent of the total spending for all contracted-out services across the four programs. However, the magnitude of actual spending on the offshored services we identified is likely considerably lower than $335 million because for many of the contracts with some offshoring, the bulk of services are performed in the United States. For example, the U.S. company that holds the majority of state contracts with some offshoring in the Food Stamp and TANF programs estimated that services performed offshore constituted less than 3 percent of the total services provided through these contracts. Similarly, a contractor providing services to several child support enforcement programs stated that offshored computer software programming comprised less than 1 percent of the total package of services provided to states. Figure 2 shows the estimated spending on contracts with some offshoring out of the total spending on administration across the four state-administered programs. The level of spending on contracts with some offshored services varies considerably among the four state-administered programs. As shown in figure 3, spending on contracts with some offshored services constituted 30 percent or more of total spending on outsourced contracts in the Food Stamp and Child Support Enforcement programs. The comparable percentages for the TANF and Unemployment Insurance programs are considerably lower. State officials in seven states provided estimates for their Food Stamp or TANF contracts of the percent of contract spending represented by offshore services and these estimates ranged from 3 to 39 percent of the total expenditures for each contract. However, it is unclear whether this range of estimates reflects levels of offshore spending in the other contracts with offshoring.