Child Support Enforcement: More Focus on Labor Costs and	 
Administrative Cost Audits Could Help Reduce Federal Expenditures
(06-JUL-06, GAO-06-491).					 
                                                                 
Congress established federal standards for the child support	 
enforcement program (CSE) in 1975. State agencies administer the 
program and the Office of Child Support Enforcement (OCSE) in the
Department of Health and Human Services (HHS) oversees it. The	 
CSE program provides several services, including collecting child
support payments from noncustodial parents--those who are not the
primary caregivers--and distributing these payments to families. 
Generally, the federal government reimburses state agencies 66	 
percent of their costs for administering the CSE program. GAO	 
determined (1) how total net federal expenditures for		 
administrative costs changed from fiscal year 2000 to fiscal year
2004; (2) the categories of costs that contributed most to	 
administrative costs in recent years; and (3) steps state	 
agencies have taken to manage costs, and steps OCSE has taken to 
help state agencies and ensure federal funds have been used	 
appropriately. GAO analyzed program data, surveyed all 54 state  
agencies and visited 6, interviewed program officials, and	 
reviewed laws, policies, and reports.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-491 					        
    ACCNO:   A56300						        
  TITLE:     Child Support Enforcement: More Focus on Labor Costs and 
Administrative Cost Audits Could Help Reduce Federal Expenditures
     DATE:   07/06/2006 
  SUBJECT:   Administrative costs				 
	     Child support payments				 
	     Cost control					 
	     Cost effectiveness analysis			 
	     Federal aid to states				 
	     Federal funds					 
	     Federal/state relations				 
	     Labor costs					 
	     State-administered programs			 
	     Child Support Enforcement Program			 

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GAO-06-491

     

     * Results in Brief
     * Background
     * Net Federal Expenditures, Collections, and the Nationwide Co
          * Total Net Federal Expenditures and Total Collections Increas
          * The Nationwide Cost-Effectiveness Ratio Also Increased
     * All State Agencies Reported Personnel as a Major Cost Catego
          * All State Agencies Reported That Personnel Costs Were a Majo
          * Several Major Cost Categories Reflected Increased FTEs Funde
     * State Agencies Reported Implementing Cost-Saving Initiatives
          * State Agencies Reported Implementing Many Cost-Saving Initia
          * OCSE Has Taken Steps to Help State Agencies Manage Costs
          * OCSE Has Conducted a Limited Number of Administrative Cost A
     * Conclusions
     * Recommendations for Executive Action
     * Agency Comments and Our Evaluation
          * Objectives
          * Scope and Methodology
               * Analyses of Program Data
               * Survey of State Agencies
               * Visits to State Agencies
               * Interviews of officials, representatives, and experts
               * Reviews of laws, policies, and reports
     * GAO Contact
     * Staff Acknowledgments
     * GAO's Mission
     * Obtaining Copies of GAO Reports and Testimony
          * Order by Mail or Phone
     * To Report Fraud, Waste, and Abuse in Federal Programs
     * Congressional Relations
     * Public Affairs

Report to the Chairman, Subcommittee on Human Resources, Committee on Ways
and Means, House of Representatives

United States Government Accountability Office

GAO

July 2006

CHILD SUPPORT ENFORCEMENT

More Focus on Labor Costs and Administrative Cost Audits Could Help Reduce
Federal Expenditures

GAO-06-491

Contents

Letter 1

Results in Brief 3
Background 5
Net Federal Expenditures, Collections, and the Nationwide
Cost-Effectiveness Ratio Increased 13
All State Agencies Reported Personnel as a Major Cost Category, but OCSE
Has Not Developed Staffing Guidelines 20
State Agencies Reported Implementing Cost-Saving Initiatives, and While
OCSE Has Helped State Agencies, It Has Not Conducted Administrative Cost
Audits in Most States 26
Conclusions 37
Recommendations for Executive Action 38
Agency Comments and Our Evaluation 38
Appendix I Objectives, Scope, and Methodology 40
Appendix II Annual Percentage Changes in Net Federal Expenditures, by
State Agency, for Fiscal Years 2000 to 2004 44
Appendix III Annual Percentage Changes in Collections, by State Agency,
for Fiscal Years 2000 to 2004 46
Appendix IV Percentage Changes in the Cost-Effectiveness Ratio by State
Agency and Nationwide 48
Appendix V Percentages Reported by State Agencies for Most Frequently
Cited Cost Categories 50
Appendix VI State Agencies' Implementation of Certain Cost-Saving
Initiatives 51
Appendix VII Comments from the Department of Health and Human Services 53
Appendix VIII GAO Contact and Staff Acknowledgments 56

Tables

Table 1: Percentage of Incentive Payments and Cost-Effectiveness Ratios
Established in the Child Support Performance and Incentive Act of 1998 11
Table 2: Total Number of Cases and Median Net Federal Cost per Case,
Fiscal Years 2000 to 2004. 18
Table 3: Nationwide Cost-Effectiveness Ratio, Fiscal Years 2000 to 2004 20
Table 4: Total FTEs for State Child Support Enforcement Programs, Fiscal
Years 2000 to 2004 24
Table 5: Comparison of Information for Selected State Agencies for Fiscal
Year 2004 25
Table 6: Cost-Saving Initiatives State Agencies Reported Implementing and
Estimated Cost Savings Reported by State Agencies, as of February 2006 29
Table 7: States Agencies' Views about OCSE's Efforts to Help Them Manage
Program Costs 33
Table 8: OCSE's Administrative Cost Audits Completed from March 2004 to
March 2006 34

Figures

Figure 1: Major Services of the Child Support Enforcement Program 7
Figure 2: Total Net and Median Net Expenditures, Fiscal Year 2000 to
Fiscal Year 2004 15
Figure 3: Percentage Change in Net Federal Expenditures by State Agency,
from Fiscal Year 2000 to Fiscal Year 2004 17
Figure 4: Median Percentage of Total Administrative Costs for the Most
Frequently Cited Administrative Cost Categories, Fiscal Year 2002 to
Fiscal Year 2004 21

Abbreviations

ACF Administration for Children and Families

CBO Congressional Budget Office

CLASP Center for Law and Social Policy

CSE Child Support Enforcement

CSPIA Child Support Performance and Incentive Act

FTE full-time-equivalent

GATES Grants Application and Tracking and Evaluation System

HHS Department of Health and Human Services

OCSE Office of Child Support Enforcement

PRWORA Personal Responsibility and Work Opportunity Reconciliation Act

TANF Temporary Assistance For Needy Families

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United States Government Accountability Office

Washington, DC 20548

July 6, 2006 July 6, 2006

The Honorable Wally Herger Chairman Subcommittee on Human Resources
Committee on Ways and Means House of Representatives The Honorable Wally
Herger Chairman Subcommittee on Human Resources Committee on Ways and
Means House of Representatives

Dear Mr. Chairman: Dear Mr. Chairman:

In 1975, Congress established federal standards for state child support
enforcement (CSE) programs to ensure that parents financially support
their children. The CSE program was authorized by Title IV-D of the Social
Security Act as a federal and state partnership.1 The Office of Child
Support Enforcement (OCSE) within the Department of Health and Human
Services (HHS) is responsible for establishing program policies and
overseeing state agencies and is required to conduct audits of state
agencies' performance data and administrative costs. OCSE is also
responsible for providing assistance to help state agencies manage their
programs. For example, OCSE has developed and disseminated to state
agencies information on best practices and cost-saving initiatives. All 50
states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands,
and Guam administer a CSE program.212 In most places, a single state
agency performs the day-to-day operations, but in others, counties operate
the CSE program and states administer it. CSE program responsibilities
include locating noncustodial parents-those who are not the primary
caregivers for or do not have custody or control of their children;
establishing paternity and support orders; and collecting and distributing
child support payments. All costs incurred to carry out these
responsibilities are considered administrative costs. The federal
government funds most of the program by matching a percentage of the
allowable administrative costs. These matching funds are not capped. Also,
the federal government provides incentive payments to state agencies for
meeting certain performance measures, including the program's measure of
cost effectiveness. In 1975, Congress established federal standards for
state child support enforcement (CSE) programs to ensure that parents
financially support their children. The CSE program was authorized by
Title IV-D of the Social Security Act as a federal and state partnership.
The Office of Child Support Enforcement (OCSE) within the Department of
Health and Human Services (HHS) is responsible for establishing program
policies and overseeing state agencies and is required to conduct audits
of state agencies' performance data and administrative costs. OCSE is also
responsible for providing assistance to help state agencies manage their
programs. For example, OCSE has developed and disseminated to state
agencies information on best practices and cost-saving initiatives. All 50
states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands,
and Guam administer a CSE program. In most places, a single state agency
performs the day-to-day operations, but in others, counties operate the
CSE program and states administer it. CSE program responsibilities include
locating noncustodial parents-those who are not the primary caregivers for
or do not have custody or control of their children; establishing
paternity and support orders; and collecting and distributing child
support payments. All costs incurred to carry out these responsibilities
are considered administrative costs. The federal government funds most of
the program by matching a percentage of the allowable administrative
costs. These matching funds are not capped. Also, the federal government
provides incentive payments to state agencies for meeting certain
performance measures, including the program's measure of cost
effectiveness.

1 42 U.S.C. S:S: 651-669b.

2 In addition to these 54 CSE agencies, some American Indian tribes
administer CSE programs. In this report we refer to the 54 CSE agencies as
"state agencies."

Over the years, Congress has authorized various enforcement tools, such as
garnishment of wages and revocation of licenses, to help increase
collections, and Congress has provided funds for systems to automate many
CSE program operations and make them more efficient. According to OCSE's
annual reports, from fiscal years 1995 to 2004, the net federal share of
expenditures for the CSE program increased by one-third, in nominal
dollars, and the program's critical measure of cost effectiveness-the
ratio of dollars collected divided by total administrative
expenditures-did not change significantly. 3 These increased expenditures
raise questions about the factors that affect program costs and the extent
to which state agencies are effectively managing the cost of their CSE
programs. In an effort to provide information about more recent federal
expenditures and the issues associated with the cost of administering the
CSE program, this report addresses the following questions: (1) How have
total net federal expenditures for administrative costs changed from
fiscal year 2000 to fiscal year 2004? (2) What categories of costs have
contributed most to federal expenditures for administrative costs in
recent years? (3) What steps have state agencies taken to manage costs,
and what steps has OCSE taken to help state agencies and ensure federal
funds have been used appropriately?

We obtained information from several sources in conducting this review. To
address how federal expenditures for administrative costs have changed
from fiscal year 2000 to fiscal year 2004, we obtained and analyzed the
net federal share of expenditure data for each state agency for each of
these years. We also examined collections, number of cases,
cost-effectiveness ratios, and the number of full-time-equivalent (FTE)
employees to gain some perspective about changes in expenditures. We
performed procedures to assess the reliability of the system that
maintains data related to funds administered by HHS' Administration for
Children and Families (ACF), including funds provided to state agencies
for the CSE program. We found these data to be sufficiently reliable for
our review. For some analyses, we adjusted these data for inflation to get
a truer picture of changes over several years. Also, we calculated the
median amounts for expenditures and collections because of the wide
variation among state agencies. To obtain information for the other
objectives, we conducted a survey, site visits, and interviews and
reviewed related documents. We sent an e-mail survey to the 54 state
agencies and received responses from all of them. The survey asked state
agencies to (1) identify the five cost categories that contributed most to
their administrative costs during fiscal years 2002 to 2004 and estimate
the percentage that each category comprised, (2) provide information on
selected cost-saving initiatives identified by OCSE as best practices, and
(3) rate the extent to which various OCSE assistance efforts had been
helpful. We did not assess the reliability of the data state agencies
reported in response to our survey, but we reviewed their responses for
completeness and reasonableness. Also, we conducted site visits in the
following six states: California, Connecticut, Maryland, Ohio, South
Carolina, and Utah. We selected these states because they represented
diversity in changes in the amounts of federal expenditures for fiscal
years 2002 to 2004; geographical location; and operational structure, that
is state- or county-operated programs. In addition, we interviewed federal
and state agency officials and child support experts, reviewed related
reports, and analyzed applicable laws and regulations. We conducted our
work between June 2005 and June 2006 in accordance with generally accepted
government auditing standards. See appendix I for more details on our
objectives, scope, and methodology.

3 The expenditures include the net federal share of state agency
expenditures but not costs for OCSE staff and operations or CSE program
costs at HHS/ACF regional offices.

                                Results in Brief

From fiscal year 2000 to fiscal year 2004, total net federal expenditures
for administrative costs increased about 23 percent. During this same
period, child support collections and the program's cost-effectiveness
ratio also increased. Total net federal expenditures for administrative
costs, adjusted for inflation, increased from about $2.2 billion to nearly
$2.8 billion. Collections, adjusted for inflation, increased about 12
percent from about $19 billion to $22 billion. From fiscal year 2000 to
fiscal year 2004, the program's cost-effectiveness ratio-total collections
divided by total administrative expenditures-increased about 4 percent.

Personnel costs were cited as a major contributor to federal expenditures
for administrative costs from fiscal years 2002 through 2004 by all state
agencies that responded to this question in our survey. Of the 54 state
agencies, 49 responded to this question, and we determined that the median
of the percentages state agencies provided was 44 percent of the
administrative costs. Personnel costs include salaries and benefits for
all CSE program employees in the state. State officials said that
personnel costs were a large percentage of their administrative costs for
several reasons, including higher salaries for experienced staff, terms of
collective bargaining agreements, and increasing health benefit costs. In
addition, child support officials from two state agencies said that
although many child support operations are automated, the program remains
labor-intensive. Most state agencies also cited, as major cost categories,
cooperative agreements under which state CSE agencies pay other state and
local agencies to perform child support enforcement functions, automated
data systems, and contracts with private companies. Each of these cost
categories lagged far behind personnel costs. Overall, state agencies
reported that several major cost categories involved labor costs, at least
in part. About 2,200 more FTEs for state agency personnel, as well as
staff providing services under cooperative agreements and contracts, were
funded by the CSE program in fiscal year 2004 than in fiscal year 2000.
OCSE officials said they had not conducted a study of the FTEs per state
agency or developed guidelines to help state agencies manage related
costs.

The 54 state agencies reported implementing cost-saving initiatives, and,
while OCSE has helped state agencies manage their costs, its use of
administrative cost audits to help ensure that federal funds have been
used appropriately has been limited. At least one-half of the state
agencies reported implementing 7 of the 10 cost-saving initiatives
identified as best practices by OCSE and listed in our survey. These
initiatives included electronic transmittal of wages withheld by employers
(50 state agencies), automated voice response systems (48 state agencies),
and direct deposit of child support payments to parents' checking or
savings accounts (48 state agencies). State agencies also reported cost
savings for nearly all of the 10 initiatives. For example, the New York
agency reported saving $4.5 million since fiscal year 1993, when it began
receiving funds electronically from employers that withheld wages for
child support payments. Most state agencies (38) also reported that money
saved from these initiatives was reinvested in the CSE program. To help
state agencies manage their costs, OCSE has provided a range of
assistance, and, generally, state agencies viewed OCSE's assistance
favorably. Nearly all of the state agencies reported that OCSE's
efforts-such as creating federal/state work groups, holding conferences or
sponsoring training, and issuing guidance-were very or moderately helpful.
On the other hand, OCSE has not conducted administrative cost audits of
most state agencies. From March 2004 to March 2006, OCSE issued eight
administrative cost audit reports; all of which raised questions about
inappropriate expenditures. For example, one audit of costs claimed for
one quarter found about $670,000 in unallowable charges, and another audit
that examined expenses claimed for one quarter determined that one state
agency had inappropriately claimed about $603,000 in expenditures. OCSE
officials said they did not have plans to conduct more administrative cost
audits in the future, even though they expect that more audit resources
will be available since OCSE reduced the frequency of its data reliability
audits. Furthermore, OCSE officials did not cite the level of expenditures
for administrative costs as a factor that was considered in planning
administrative cost audits.

We are recommending that the Secretary of Health and Human Services direct
the Commissioner of the Office of Child Support Enforcement to conduct a
study of and develop guidelines for the number of FTEs for the CSE
program, direct resources gained from conducting fewer data reliability
audits to completing more administrative cost audits, and develop an audit
plan that considers total expenditures as one of the factors used to
select state agencies for administrative cost audits.

HHS provided written comments on a draft of this report. HHS did not
explicitly agree or disagree with our recommendations. In response to our
recommendation to conduct a study of and develop guidelines for the number
of full-time-equivalent employees, HHS stated that OCSE will consider
doing such a study. In response to our recommendation to develop a plan to
conduct administrative cost audits, HHS noted that OCSE has developed
plans to conduct administrative cost audits in the past, has conducted
those audits, and will continue to develop plans in the future. We revised
the report to acknowledge that OCSE has a plan for conducting
administrative cost audits and we modified our recommendation to better
reflect our intent to encourage OCSE to complete more administrative cost
audits than it completed during the 2004 to 2006 time period. The HHS
comments are discussed in the report and are reprinted in appendix VII. In
addition, HHS provided technical comments, which we incorporated as
appropriate.

                                   Background

The CSE program makes services available to any parent or other person
with custody of a child who has a parent living outside of the home. These
services are available automatically for families receiving assistance
under the Temporary Assistance for Needy Families (TANF), Medicaid, and
Foster Care programs.4 Other families seeking government child support
services can apply through their state agency or one of the tribes running
the program. For these families, there is an application fee. Figure 1
illustrates the major services provided by the CSE program.

4 The TANF program provides assistance and work opportunities to needy
families by granting states federal funds and wide flexibility to develop
and implement their own welfare programs. When families apply for the TANF
program, the custodial parent assigns to the state the right to child
support collected while the family is receiving TANF benefits. The
Medicaid program provides medical benefits to groups of low-income people,
some who may have no or inadequate medical insurance. Although the federal
government establishes general guidelines for the program, the Medicaid
program requirements are established by each state. The Foster Care
program provides open-ended matching payments to states for the costs of
maintaining certain children in foster care and for the associated
administrative, child placement, and training costs. Several eligibility
criteria apply to the children on whose behalf federal reimbursement is
available to states.

Figure 1: Major Services of the Child Support Enforcement Program

aThe locate process includes steps taken to find a noncustodial parent or
putative father. In addition, state agencies can help locate custodial
parents.

bPaternity is the legal determination of fatherhood and must be
established before child or medical support can be ordered.

cA support order is a judgment, decree, or order- whether temporary,
final, or subject to modification-that is usually issued by a court or an
administrative agency for the support and maintenance of a child. Support
orders can incorporate the provision of monetary support; health
care/medical support; payment of arrearages (past due, unpaid child
support owed by the noncustodial parent); or reimbursement of costs and
fees, interest and penalties, and other forms of relief. The noncustodial
parent is required to provide medical support whenever health care
coverage is available at a reasonable cost. A provision for such coverage
is required as part of all child support orders established or enforced by
state agencies.

dChild support payments are collected through various methods such as
income withholding; state or federal income tax refund offsets; and other
remedies,(e.g. seizure of assets).

eChild support collections are distributed to custodial families, states,
or federal agencies via a check, an electronic transfer, or other means.

fState  agencies must review and, if necessary, adjust child support
orders at least once every 3 years for TANF cases involving the assignment
of support rights or upon the request of either the custodial or
noncustodial parent for any case.

The CSE program is financed by federal and state funds. Federal funds come
from three funding streams-the federal match, also known as the federal
financial participation; incentive payments; and grants. Generally,
federal matching funds reimburse state agencies 66 percent of the
administrative costs for their CSE programs. In addition to matching
funds, the federal government pays state agencies incentive funds to
encourage them to achieve program goals. Incentive funds are capped, and
in fiscal year 2004, $454 million were allocated for incentive payments.5
State agencies must reinvest their incentive funds in the CSE program.
Federal funds also are available through grants. Grants for special
improvement projects, demonstration projects, and child access and
visitation programs are generally awarded annually. OCSE has received an
annual appropriation of $1.8 million for special improvement project
grants or demonstration projects to promote the program's overall
objectives. Additionally, since fiscal year 1997, OCSE has distributed
approximately $10 million per year to state agencies to support child
access and visitation grants for activities such as mediation, counseling,
education, development of parenting plans, noncustodial parent visitation
enforcement (including monitoring and supervision), and development of
noncustodial parent visitation and alternative custody guidelines.
According to a November 2005 report, state agencies used a number of
funding sources to finance their share of CSE program administrative
costs.6 These funding sources included federal incentive payments, child
support collected for parents receiving assistance through the TANF
program, state general funds, state general funds paid as incentives,
county general funds, and fees, along with several other sources that were
mentioned less often by state agencies.7 While state agencies generally
used more than one revenue source, they also varied in the combination of
the revenue sources they used.

For the CSE program, federal and state expenditures are generally offset
by certain collections as well as fees and interest payments.8 Child
support collections for families that receive benefits from the TANF and
Foster Care programs are deducted from the total federal and state
expenditures and paid to these programs as reimbursements. For example, in
fiscal year 2004 about $2 billion in child support collections for
families that received TANF benefits were deducted from total CSE
expenditures-the federal government was reimbursed $1.1 billion, and state
agencies were reimbursed about $900 million. In addition, some state
agencies collect fees from parents for their services, and such fees are
also deducted from total expenditures. Also, expenditures are reduced by
interest income that accrues to state agencies for collections deposited
in interest-bearing accounts.

5 The incentive pool is capped at $446 million for fiscal year 2005, $458
million for fiscal year 2006, $471 million for fiscal year 2007, and $483
million for fiscal year 2008. For years thereafter, the incentive pool is
increased to account for inflation.

6 The Lewin Group and ECONorthwest, State Financing of Child Support
Enforcement Programs, Final Report (Nov. 15, 2005).

7 States retain a share of the TANF-related child support collections and
return a share of these collections to the federal government. States may
use retained collections for the CSE program or for other purposes.

8 42 U.S.C. S: 657.

Over the years, Congress has passed numerous laws that have had an impact
on the CSE program, including the following:

           o  The Social Security Disability Amendments of 1980 included a
           provision that gave state agencies 90 percent matching funds for
           the cost of developing, installing, and enhancing approved
           automated data systems.9 In 1997, we reported that state agencies
           had spent over $2.6 billion since the early 1980s to develop their
           systems, and the federal government had paid from 66 to 90 percent
           of the systems' costs, which amounted to more than $2 billion.10

           o  The Child Support Enforcement Amendments of 1984 addressed many
           aspects of the program.11 For example, this act required that all
           states provide for the use of mandatory wage withholding
           procedures and expedited processes for establishing and enforcing
           support orders.12 The act made available federal matching funds at
           the 90 percent rate for the development and installation of
           automated data systems to facilitate income withholding and other
           procedures. The act reduced the overall federal matching rate to
           68 percent for fiscal years 1988 and 1989, and to 66 percent for
           fiscal year 1990 and thereafter. Also, the act established
           procedures for intercepting state income tax refunds, imposing
           liens against real and personal property, and reporting
           delinquency information to consumer reporting agencies.

           o  The Family Support Act of 1988 established several
           requirements.13 For instance, the Secretary of HHS was required to
           set time limits within which collections must be distributed to
           families, and state agencies were required to meet federal
           standards for the establishment of paternity and to provide for
           wage withholding in accordance with child support orders. Also,
           this act made it mandatory for states to computerize their CSE
           programs and required states to have their automated data systems
           certified by October 1, 1995.14

           o  The Personal Responsibility and Work Opportunity Reconciliation
           Act of 1996 (PRWORA) included many provisions related to the CSE
           program.15 For example, PRWORA reinstated the 90 percent matching
           rate through September 30, 1997, to enable state agencies to
           complete the development and implementation of their automated
           data systems and extended the deadline for implementation to
           October 1, 1997. PRWORA also provided a matching rate of 80
           percent, capped at $400 million for fiscal years 1996 to 2001, for
           system development and implementation costs related to automated
           data processing requirements. In addition, PRWORA provided state
           agencies with new enforcement tools, such as suspension of
           licenses, denial of passports, and financial institution data
           matches, and included procedures for the periodic review and
           adjustment of support orders by state agencies.16 Furthermore,
           PRWORA required audits to assess the completeness, reliability,
           and security of the data used in calculating performance
           indicators and audits of the financial management of states'
           programs, including assessments of whether federal and other funds
           were being appropriately expended and properly accounted for.

           o  The Child Support Performance and Incentive Act (CSPIA) of 1998
           established several new procedures and changed the method for
           calculating incentive payments.17 Since 1975, the federal
           government has paid incentives to state agencies to encourage
           program improvement. The new incentive system established by CSPIA
           links incentive payments to performance in five areas: paternity
           establishment, order establishment, collections of current child
           support, collections of child support in arrears, and cost
           effectiveness. CSPIA specifies the percentage of incentive funds
           that a state agency can receive on the basis of the state agency's
           level of performance in each of these areas. For example, the
           applicable percentage of incentive funds for cost-effectiveness
           ratios is shown in table 1.

9 Pub. L. No. 96-265 (1980).

10 GAO, Child Support Enforcement: Strong Leadership Required to Maximize
Benefits of Automated Systems, GAO/AIMD-97-72 (Washington, D.C.: June 30,
1997).

11 Pub. L. No. 98-378 (1984).

12 Wage withholding, also known as income withholding, is a procedure by
which scheduled deductions are automatically made from wages or income to
pay a debt, such as child support. Wage withholding often is incorporated
into the child support order and may be voluntary or involuntary. The
provision dictates that an employer must withhold child support from a
noncustodial parent's wages and transfer that withholding to the
appropriate agency (the state Centralized Collection Unit or State
Disbursement Unit).

13 Pub. L. No. 100-485 (1988).

14 Certified CSE systems must be comprehensive, operate statewide, and
meet established standards of efficiency and effectiveness and principles
of an integrated system. In addition, these systems must perform certain
key functions including case initiation, case management, financial
management, and reporting.

15 Pub. L. No. 104-193 (1996).

16 With the financial institution data match, state agencies match
information on delinquent noncustodial parents with the records of their
financial accounts and may seize funds in those accounts.

17 Pub. L. No. 105-200 (1998).

Table 1: Percentage of Incentive Payments and Cost-Effectiveness Ratios
Established in the Child Support Performance and Incentive Act of 1998

If the cost-effectiveness ratio is:                                
At least:            But less than:  The applicable percentage is: 
5.00                                                                100 
4.50                           4.99                                  90 
4.00                           4.50                                  80 
3.50                           4.00                                  70 
3.00                           3.50                                  60 
2.50                           3.00                                  50 
2.00                           2.50                                  40 
0.00                           2.00                                   0 

Source: 42 U.S.C. S: 658(b)(6)(E)(ii).

           o  The Deficit Reduction Act of 2005 included provisions that will
           affect CSE program funds.18 The act reduced the match rate for
           paternity testing from 90 percent to 66 percent effective October
           1, 2006; eliminated the federal match for incentive payments
           effective October 1, 2007; and required states to impose an annual
           fee of $25 on each family that never received TANF benefits and
           for which the program collects $500 a year.19 The Congressional
           Budget Office (CBO) estimated that by 2010 the federal share of
           administrative costs would be reduced by $1.8 billion from
           eliminating the federal match for incentive payments and by $28
           million from the lower match rate for paternity testing. CBO also
           estimated that the federal government would receive an additional
           $172 million from the annual fee. Further, CBO estimated that
           total funding for the program could fall 15 percent by 2010 if
           states did not adjust their own spending for CSE programs. This
           act also included provisions that will reduce federal expenditures
           for several other programs.

18 Pub. L. No. 109-171 (2006).

19 Prior to the Deficit Reduction Act of 2005, the incentive payments that
state agencies received from the federal government were reinvested in the
CSE program and then reimbursed at the appropriate federal matching rate.

We have expressed concern about the federal government's financial
condition and the nation's growing fiscal imbalance. Also, we have
reported that if the federal government is to effectively address this
concern, it cannot accept all of the existing programs, policies, and
activities as givens, and that rethinking the base of existing federal
spending is an important step.20

As the federal partner, OCSE has several responsibilities. OCSE sets
policies and standards, provides technical assistance, and evaluates state
agency performance. 21 OCSE also collects and reviews expenditure data
that state agencies submit using OCSE's Quarterly Report of Expenditures
and Estimates. OCSE maintains these data in the Grants Application
Tracking and Evaluation System (GATES) operated by ACF. 22 Furthermore,
OCSE is responsible for helping state agencies administer their programs.
Routinely OCSE has developed and disseminated to state agencies a
compendium of what it considers best practices. Each compendium describes
several best practices, provides information on the results of
implementing the practices, and identifies a contact person. In
transmitting the compendium, OCSE stated that it does not endorse any
particular practice, but believes that by providing the state agencies
with solutions undertaken at the state and local levels, general program
performance can be improved.

20 GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: February 2005).

21 Staff members in the 10 HHS/ACF regional offices also oversee the
administration of the CSE program as well as other programs. The regions
guide the programmatic and financial management of ACF programs in their
jurisdictions and provide assistance, resources, and information to the
various entities responsible for administering these programs. Regional
offices represent ACF to state, county, city and tribal governments,
grantees, and public and private organizations.

22 GATES is ACF's primary grants administration system. This system is
designed to automate the process of awarding discretionary, formula,
block, and entitlement grants; maintain a nationwide database of grant
program and fiscal information; provide an easy method for viewing and
printing management reports; compile post-award monitoring information and
assist with planning for monitoring; safeguard federal funds through
management of funding limits; and facilitate the closeout of grants and
the archiving of program and fiscal performance information.

  Net Federal Expenditures, Collections, and the Nationwide Cost-Effectiveness
                                Ratio Increased

Overall from fiscal year 2000 to fiscal year 2004, total net federal
expenditures for administrative costs increased about 23 percent. Net
federal expenditures increased in more than one-half of the state
agencies, and the net federal cost per case increased about 36 percent.
Also, collections and the nationwide cost-effectiveness ratio have
increased.

Total Net Federal Expenditures and Total Collections Increased

Total net federal expenditures for administrative costs increased about 23
percent, and the net federal median expenditure increased more than 2
percent.23 From fiscal year 2000 to fiscal year 2004, total net federal
expenditures increased from about $2.2 billion to nearly $2.8 billion.24
While total net federal expenditures increased each year, the largest
increase, in nominal dollars, was about 14 percent from fiscal year 2000
to fiscal year 2001. Overall, the median net federal expenditure increased
from about $25 million to about $26 million between fiscal years 2000 and
2004. However, the median net federal expenditure for state agencies with
state-operated programs decreased about 4 percent from about $20 million
in fiscal year 2000, to $19 million in fiscal year 2004, while the median
net federal expenditure for state agencies with county-operated programs
increased about 11 percent-from about $59 million to about $66 million.
According to a CSE program expert and a state agency official from a state
we visited, expenditures for county-operated programs may be higher
because of possible duplication in administrative functions at the state
and county levels. Figure 2 shows the trends in total net and median net
federal expenditures.

23The total net expenditure amounts shown in the report have been rounded.
We calculated the total percentage changes based on the exact net federal
expenditure amounts--$2,245,016,243 for fiscal year 2000 and
$2,770,020,216 for fiscal year 2004.

24 Unless otherwise noted, expenditure data have been adjusted for
inflation based on 2004 dollars. In nominal dollars, the expenditures were
about $2 billion in fiscal year 2000 and about $2.8 billion in fiscal year
2004.

Figure 2: Total Net and Median Net Expenditures, Fiscal Year 2000 to
Fiscal Year 2004

Note: In addition to the state- and county-operated programs, 5
states-Arizona, Nebraska, Nevada, New Jersey, and Oregon-reported having a
combination of state- and county-operated programs. For example, in
Arizona, 10 of its 15 counties are operated by the state agency; 4 are
operated by counties; and 1 is operated by a private contractor. Data for
these state agencies are included in the overall net expenditures and the
median expenditures for all programs, but not in the medians for either
the state- or county-operated programs.

Overall, total net federal expenditures from fiscal year 2000 to fiscal
year 2004 increased for more than one-half of the state agencies; however,
the percentages varied. From fiscal year 2000 to fiscal year 2004, total
net federal expenditures increased in 30 of the 54 state agencies. These
increases ranged from about 1 percent to over 400 percent, and the median
for these state agencies was 14.8 percent. According to comments from HHS
on a draft of this report, many of the large increases and decreases are a
result of adjustments for under or over reporting expenditures in a
previous quarter. Total net federal expenditures increased most in Maine
and California, reflecting special circumstances in both states. According
to Maine's state agency director, the agency made adjustments over several
quarters to correct its reporting of interest income earned. In
California, state agency officials explained that most of the increase was
attributable to costs associated with developing and implementing its
statewide automated data system.25 Nearly all state agencies (51) had at
least 1 year when net federal expenditures decreased. For example, net
federal expenditures for Alabama's program decreased from fiscal year 2000
to fiscal year 2001 and increased in other fiscal years, while net federal
expenditures for Mississippi's program decreased in each of the fiscal
years from 2000 to 2003. Figure 3 shows the percentage change in net
federal expenditures by state agency during fiscal year 2000 to fiscal
year 2004. Appendix II provides data on annual percentage changes in net
federal expenditures, using nominal numbers, for each state agency for
fiscal years 2000 to 2004.

25 During our review, California and South Carolina were the only state
agencies without certified automated data systems.

Figure 3: Percentage Change in Net Federal Expenditures by State Agency,
from Fiscal Year 2000 to Fiscal Year 2004

Note: parentheses indicate a decrease in net federal expenditures.

For fiscal years 2000 to 2004, the median net federal cost per case
increased 36 percent, as measured in nominal dollars, and the number of
cases declined about 1.5 million; however, the median net federal cost per
case generally increased, even when the number of cases remained about the
same. From fiscal year 2000 to fiscal year 2001, the number of cases
remained at about 17 million, and the median net federal cost per case
increased from $121 to $138, in nominal dollars. During fiscal years 2002
to 2004, the program managed about 16 million cases per year and the
median net federal cost per case continued to increase. Table 2 summarizes
the number of cases and median net federal cost per case.

Table 2: Total Number of Cases and Median Net Federal Cost per Case,
Fiscal Years 2000 to 2004.

Fiscal year Total cases Median net federal cost per case (nominal dollars) 
2000         17,374,041                                               $121 
2001         17,060,501                                                138 
2002         16,065,728                                                158 
2003         15,923,353                                                156 
2004         15,854,475                                                165 

Source: OCSE data.

Note: We used nominal dollars when comparing data from year to year in
order to be consistent with data previously reported to Congress.

Total and median collections increased, and the CSE program is collecting
from a larger percentage of its cases. From fiscal year 2000 to fiscal
year 2004, total collections increased about 12 percent from $19 billion
to about $22 billion.26 During the same period, collections increased for
most state agencies, but the percentage of increase varied among the state
agencies and from year to year. For example, from fiscal year 2000 to
fiscal year 2001, collections in Vermont increased about 5 percent and
collections in Illinois increased about 17 percent. From fiscal year 2003
to fiscal year 2004, collections in Vermont increased about 15 percent,
while Illinois' collections increased about 9 percent. Appendix III
provides data on annual percentage changes in total collections for each
state agency for fiscal years 2000 to 2004. According to comments from HHS
on a draft of this report, many of the large increases and decreases in
collections are a result of adjustments for under or over reporting in a
previous quarter. Overall, median collections also increased, and the
median collections for state agencies with county-operated programs were
higher than for state agencies with state-operated programs. The median
collection for county-operated programs was about $519 million in fiscal
year 2000 and $567 million in fiscal year 2004, while the median
collection for state-operated programs increased from about $141 million
to $156 million during this period. Also, OCSE data indicate that the
program has received collections for a larger percentage of the cases. In
fiscal year 2000, OCSE reported the program received collections for about
42 percent of the cases, and, in fiscal year 2004, the program received
collections for about 52 percent of the cases.

26 All collections data have been adjusted for inflation in 2004 dollars.
(In nominal dollars, the collections were about $18 billion in fiscal
years 2000 and $22 billion in fiscal year 2004.) The total collection
amounts shown in the report have been rounded. However, we calculated the
total percentage changes based on the exact collection
amounts--$19,447,826,418 in fiscal year 2000 and $21,861,258,876 in fiscal
year 2004.

The Nationwide Cost-Effectiveness Ratio Also Increased

From fiscal year 2000 to fiscal year 2004, the nationwide
cost-effectiveness ratio-the ratio of collections divided by total federal
and state administrative expenditures-increased about 4 percent.27 As
shown in table 3, the nationwide cost-effectiveness ratio from fiscal year
2000 to fiscal year 2004 ranged from 4.13 to 4.38 and decreased during
fiscal years 2000 to 2002.  Furthermore, the percentage change in the
nationwide cost-effectiveness ratio has varied from a decrease of 1.9
percent from fiscal year 2001 to fiscal year 2002 to an increase of 4.6
percent from fiscal year 2002 to fiscal year 2003. Percentage changes in
the cost-effectiveness ratio by state agency and nationwide are listed in
appendix IV. According to comments from HHS on a draft of this report,
many of the large increases and decreases in the cost effectiveness ratios
are a result of adjustments for under or over reporting expenditures
and/or collections in a previous quarter.

27 We calculated the percentage change for the nationwide cost
effectiveness ratio by comparing the cost effectiveness ratio in fiscal
year 2000 (4.23) to the cost effectiveness ratio in fiscal year 2004
(4.38). The cost effectiveness ratio is equal to the total amount
collected during the fiscal year divided by the total amount
expended-federal as well as state expenditures.

Table 3: Nationwide Cost-Effectiveness Ratio, Fiscal Years 2000 to 2004

Fiscal year Nationwide cost-effectiveness ratio 
2000                                       4.23 
2001                                       4.21 
2002                                       4.13 
2003                                       4.32 
2004                                       4.38 

Source: OCSE data.

On a state agency basis, the cost-effectiveness ratios varied. For
example, for fiscal year 2004, the cost-effectiveness ratio ranged from
8.70 for Hawaii to 1.83 for the Virgin Islands. During each of the fiscal
years 2000 to 2004, four state agencies had a cost-effectiveness ratio
below 2.0-the minimum to receive an incentive payment.28 Also, during
fiscal years 2000 to 2004, the annual performance of more than 80 percent
of the state agencies declined at least once. For example, for fiscal
years 2000 to 2004, Delaware's cost-effectiveness ratios were 3.19, 2.93,
3.66, 3.03, and 3.01, respectively. Due to the way that the incentive
program is structured, states with declining cost-effectiveness
performance have received incentive funds for these years because they
were over the 2.0 minimum ratio.

All State Agencies Reported Personnel as a Major Cost Category, but OCSE Has Not
                         Developed Staffing Guidelines

Of the 54 state agencies, 49 responded to this question and cited
personnel costs as a major cost category during fiscal years 2002 to 2004.
These costs represented the largest share of administrative costs cited by
38 state agencies. In addition to personnel costs, most state agencies
identified the following as major cost categories: cooperative agreements
under which state CSE agencies reimburse other agencies to perform child
support enforcement functions, automated data systems, and contracts with
private vendors. As shown in figure 4, these categories represented
smaller percentages of state agencies' costs than personnel costs.
Appendix V provides more information about the range of percentages
reported by state agencies for the most frequently cited cost categories.
Overall, state agencies reported that several major cost categories
involved labor costs-state personnel, staff from other state and local
agencies, and contractors-and reflect an increase in the number of FTE
employees over the last several years. While OCSE regulations address
general staffing requirements, OCSE has not developed staffing guidelines
to help state agencies manage their labor costs.

28The February 1997 HHS report to the House of Representatives Committee
on Ways and Means and the Senate Committee on Finance on child support
enforcement incentive funding explained that the upper and lower
thresholds for performance for each of the incentive measures were based
on analysis of state performance data and projections.

Figure 4: Median Percentage of Total Administrative Costs for the Most
Frequently Cited Administrative Cost Categories, Fiscal Year 2002 to
Fiscal Year 2004

Note: This figure includes responses from 49 of the 54 state agencies. We
excluded 5 county-operated state agencies from this analysis because they
did not include county costs in their responses to this survey question.

All State Agencies Reported That Personnel Costs Were a Major Contributor to
Their Administrative Costs, and Most State Agencies Also Cited Cooperative
Agreements, Automated Data Systems, and Contracts as Major Costs

All 49 state agencies cited personnel costs as one of their largest cost
categories during fiscal years 2002 to 2004.29 The median of the
percentages state agencies provided for personnel costs was 44 percent of
total administrative costs. Officials from 38 state agencies ranked
personnel as their largest cost category and estimated that this category
represented from 30 percent to 80 percent of their total administrative
costs during fiscal years 2002 to 2004. Personnel costs include salaries
and benefits for all state agency employees. In fiscal year 2002, the CSE
program nationwide had about 43,000 FTEs, and in fiscal years 2003 and
2004, the program had about 42,000 FTEs. State agency officials with whom
we spoke said that personnel costs represent a large percentage of the
total administrative costs for several reasons. State agency officials
explained that personnel costs are affected by higher salaries for
experienced staff and increasing health benefits costs. According to a
representative of a national child support organization, for state
agencies with collective bargaining agreements, the terms of these
agreements can affect personnel costs. Also, officials from
county-operated states that we visited commented that the state agency has
limited control over how the counties compensate their personnel.

Cooperative agreements were cited by 37 of 49 state agencies as among
their largest administrative cost categories, and the median of the
percentages state agencies provided for this category was 15 percent.
Cooperative agreements were the largest cost category for 3 state
agencies, where these costs represented 40 percent to 70 percent of total
administrative costs. Under the cooperative agreements that we reviewed,
state CSE agencies reimbursed other state or local agencies for services
critical to the CSE program. For example, in California, the CSE agency
has cooperative agreements with the state tax agency, in order to use
certain enforcement tools. Additionally, the Nebraska and South Carolina
CSE agencies have cooperative agreements with county clerks of the court,
and the Iowa agency has cooperative agreements with local sheriffs to
serve court papers to noncustodial parents. According to OCSE data, state
agencies used about 16,400 FTEs under cooperative agreements to provide
CSE program services in fiscal year 2004, an increase of about 1 percent
since fiscal year 2002. According to state agency officials, it can be
challenging for CSE agencies to manage the costs charged by other agencies
under cooperative agreements. In an attempt to manage such costs, CSE
agency officials in Utah told us that after they detected increased
charges from the Attorney General's office to cover attorneys' pay
increases, they capped the payments to that office.

29 We excluded five county-operated state agencies from this analysis
because they did not include the county costs in their responses to this
survey question.

Automated data systems costs were included among the largest cost
categories by 35 of 49 state agencies, and the median of the percentages
these state agencies provided for this cost category was 13 percent.
Automated data systems were the largest cost category for 5 state
agencies, where these costs represented 25 percent to 65 percent of total
administrative costs. These included costs for ongoing maintenance as well
as for enhancements. According to an OCSE official, automated systems
continuously require enhancements to meet new requirements and operational
changes to keep up with technology. Moreover, according to a state CSE
agency official from Utah, the state periodically raises the costs for
processing data and accessing the mainframe for all state agencies, and in
1 year, the cost for the state CSE agency increased by 38 percent.

Contract costs were included by 41 of 49 state agencies among their
largest cost categories, and the median of the percentages these state
agencies provided for this cost category was 11 percent of total
administrative costs. Contracts were the largest cost category for 3 state
agencies, where these costs represented 49 percent to 68 percent of total
costs. According to several state agency officials with whom we spoke,
state agencies have contracted with private sector companies for a wide
range of services, including testing blood to establish paternity,
obtaining information from credit bureaus to help locate noncustodial
parents, operating call centers, identifying assets, and processing
payments. State agencies may combine multiple services in a single
contract. For example, state agency officials in Connecticut told us that
the agency uses a single contract to obtain many services such as
processing payments, handling clients' inquiries, providing outreach
services to clients, managing a Web site that provides information on case
status, and automating certain notices. In addition, some state agencies
have hired contractors to operate the CSE program at the local level. For
example, Tennessee relies on contractors for all local services in 24 of
the state's 95 counties, and an agency official estimated that contract
costs represented about 52 percent of the state agency's administrative
costs during fiscal years 2002 to 2004. According to OCSE data, state
agencies contracted for about 2,300 FTEs in fiscal year 2004, a decrease
of about 11 percent since fiscal year 2002. According to a state agency
director, contracting can be an option for state agencies when the state
has placed a cap on personnel levels.

Additionally, some of the 49 state agencies reported that other costs were
among their largest cost categories during fiscal years 2002 to 2004.
Twenty-four state agencies cited rent among their largest cost categories,
postage was cited by 15 state agencies, and 12 state agencies included
telecommunications costs. The medians of the percentages that state
agencies provided for each of these categories ranged from 2.3 percent to
3.9 percent of total administrative costs.

Several Major Cost Categories Reflected Increased FTEs Funded by the CSE
Program, but OCSE Has Not Developed Staffing Guidelines

State and local CSE personnel, staff working under cooperative agreements,
and individuals hired through contracts contributed to three of the
categories that state agencies said were among the major contributors to
federal expenditures for administrative costs. As shown in table 4, the
number of FTEs funded for state CSE programs increased by about 2,200 from
fiscal year 2000 to fiscal year 2004.

Table 4: Total FTEs for State Child Support Enforcement Programs, Fiscal
Years 2000 to 2004

                                              Cumulative 
                                                         
Fiscal Year Total FTEs Year-to-year change     change 
2000            58,171                 n/a        n/a 
2001            60,535              +2,364      2,364 
2002            61,797              +1,262      3,626 
2003            60,756              -1,041      2,585 
2004            60,354                -402      2,183 

Source: OCSE data.

Note: FTEs include CSE personnel, staff from other state and local
agencies working under cooperative agreements, and contractors.

Furthermore, among selected state agencies with similar numbers of cases,
the number of FTEs varied widely as did the percentage of cases with
collections and the cost-effectiveness ratios. Table 5 shows that for 7
state agencies with about 150,000 to 249,000 cases, the number of FTEs in
fiscal year 2004 ranged from 460 in Connecticut to 1,559 in Minnesota.30
Also, table 5 shows that the number of cases per FTE varied from 457 in
Connecticut to 158 in Minnesota. Additionally, the Iowa CSE program, with
293 cases per FTE, had the highest percentage of cases with collections,
and the Puerto Rico CSE program, with 272 cases per FTE, had the highest
cost-effectiveness ratio.

30 While South Carolina's state agency had about 223,000 cases in fiscal
year 2004, we did not include it in this table because of concerns about
the accuracy of the FTE data. Specifically, the data do not include any
FTEs for cooperative agreements, yet as noted earlier in this report,
South Carolina has cooperative agreements with county clerks of the court.

Table 5: Comparison of Information for Selected State Agencies for Fiscal
Year 2004

                                             Percentage of Cost-effectiveness 
                Number of Total   Cases         cases with                    
State agency     cases  FTEs per FTE        collections              ratio 
Alabama        237,442   756     314                 69               3.93 
Connecticut    210,311   460     457                 61               3.20 
Iowa           179,759   613     293                 89               5.59 
Minnesotaa     246,408 1,559     158                 79               4.10 
Oklahoma       151,410   590     257                 71               3.64 
Oregona        249,048   741     336                 69               5.76 
Puerto Rico    240,878   887     272                 66               7.88 

Source: OCSE data.

aMinnesota's CSE program is county-operated, and Oregon's program is a
combination of state- and county-operated.

Note: FTEs include CSE personnel, staff from other state and local
agencies working under cooperative agreements, and contractors.

According to two state agency officials and a CSE expert, although many
state agency operations are automated, the program's processes remain
labor-intensive. For example, one state agency official noted that
automation has helped facilitate the processes of locating noncustodial
parents and enforcing child support orders. However, this official also
said that the additional information obtained through automation, such as
data to help identify assets, can involve due process considerations that
give noncustodial parents the right to a hearing. Agency staff may need to
talk to these parents about their rights and responsibilities and to
attend hearings-services that cannot be automated. Additionally, this
official commented that while new program requirements established by
federal law have created new enforcement tools, they have also led to
processes that can be very labor-intensive. Another state agency official
said that even with automation, caseworkers still need to work closely
with families to ensure that data reflect families' current situations.

Furthermore, while OCSE has issued regulations that address minimum
organizational and staffing requirements, OCSE officials said they have
not reviewed the number of FTEs per state agency or issued specific
guidelines. The OCSE regulations state the IV-D agency is to have an
organizational structure and sufficient staff to fulfill various program
functions and sufficient resources to meet performance and time standards.
Also, the regulations include a provision under which the Secretary of HHS
may set resource standards for a state if it is determined as a result of
an audit that the state is not in substantial compliance with program
performance standards and the Secretary determines that inadequate
resources were a major contributing factor. OCSE officials said that it is
more appropriate for state agencies to determine their resource needs
because of the many differences in the operations among the state
agencies, such as whether they are state- or county-operated. OCSE
officials also stated that OCSE has not reviewed state agencies' FTEs or
developed guidelines to help state agencies manage the number of FTEs and
the related costs. Furthermore, OCSE officials said that given the demands
on the program, they do not expect staffing levels to ever decline.

State Agencies Reported Implementing Cost-Saving Initiatives, and While OCSE Has
 Helped State Agencies, It Has Not Conducted Administrative Cost Audits in Most
                                     States

State agencies reported they had implemented cost-saving initiatives
identified in our survey, and while OCSE has provided assistance to help
state agencies, it has not conducted administrative cost audits in most
states to help ensure that federal funds have been used appropriately.
Most state agencies reported that savings from implementing cost-saving
initiatives were reinvested in the program. OCSE has provided a range of
assistance to help states manage costs, and state agencies have generally
found that assistance helpful. However, OCSE has completed a limited
number of administrative cost audits from March 2004 to March 2006, even
though all of the completed audits raised questions about inappropriate
expenditures.

State Agencies Reported Implementing Many Cost-Saving Initiatives and
Reinvesting the Savings in the Program

Nearly all state agencies reported they had implemented 4 of the 10
cost-saving initiatives identified in our survey. Also, at least one-half
of the state agencies reported they had implemented 3 other initiatives,
while fewer than one-half of the state agencies reported implementing the
remaining 3 initiatives. Of the 10 initiatives, 6 have been implemented by
some state agencies for a decade or more, while others have been
implemented more recently. For example, 9 state agencies reported having
implemented voice response systems before fiscal year 1995. By contrast,
electronic distribution of collections via debit cards did not begin to be
implemented by any state agency until fiscal year 2000, and most of the
state agencies with debit cards reported they implemented them in or after
fiscal year 2004. State agencies reported several reasons for not
implementing initiatives, including lack of funds or staff to perform the
work, issues related to protecting program and client data, and the need
to meet other state or CSE program priorities. Table 6 provides more
information about the cost-saving initiatives in our survey, and appendix
VI identifies the initiatives that state agencies reported they had
implemented.

For many state agencies, participation in certain initiatives has been
voluntary, and the extent of participation has varied. According to an
OCSE November 2005 update of a survey of all state agencies conducted by
the Massachusetts state agency, most state agencies offered direct deposit
as an option, with the percentage of payments made via direct deposit
ranging from 10 percent to 73 percent. Also, according to the results of
this survey, some state agencies-such as Illinois and Nebraska--offered
debit cards to custodial parents on a voluntary basis, and the percentage
of payments made via debit cards in a state ranged from about 3 percent to
70 percent. The survey data are consistent with what we found in the
states we visited. In Utah and Connecticut, for example, direct deposit is
voluntary and officials said that 41 percent and 46 percent of payments,
respectively, were made through direct deposit. Electronic transmittal of
wages withheld by employers for child support payments is another example
of an electronic payment method that is voluntary, in this case for the
employer. For example, in Alaska, a state agency official told us that
about 53 percent of payments withheld from wages are received
electronically. According to state agency officials with whom we spoke in
Utah and Connecticut, as well as an OCSE official, participation in
electronic payment initiatives has not been higher for several reasons,
such as the initial start-up costs employers incur and the clients' lack
of familiarity with these methods and preference for cash. Also, according
to an official from the Utah state agency, debit card fees, such as ATM
fees that clients may be charged to access their funds, have affected
participation. Officials in Connecticut and Utah said that their agencies
have tried to increase participation through repeated educational efforts,
such as periodically distributing brochures and letters. In Utah,
officials said these efforts typically increase participation 10 percent
to 15 percent after each campaign. Similarly, Connecticut officials also
described outreach efforts to increase participation and estimated that
about 30 custodial parents had enrolled in direct deposit each week in
state fiscal year 2005. Other state agencies, such as North Dakota and
Puerto Rico, have sought to attain the maximum participation possible by
requiring clients to choose either direct deposit or debit cards. 31

State agencies reported savings and other benefits after implementing the
10 initiatives listed in our survey. For example, New York reported saving
$4.5 million since fiscal year 1993 after implementing electronic transfer
of wages withheld by employers for child support payments, and Texas
estimated that by providing online training for its staff, the state
agency had saved $650,000 since fiscal year 2001. Also, officials in
Connecticut stated that direct deposit costs them 17 cents per payment,
while issuing a paper check costs about 61 cents to produce and mail.32 In
addition to cost savings, states can realize other benefits from
implementing these initiatives, such as time savings from quicker
processes, enhanced customer service, or the opportunity to use staff for
other program needs. Our 2004 report found that debit cards can help
states avoid or minimize the problem of undistributed collections-funds
that were delayed or never reached families.33 Also, debit cards ensured
receipt of child support payments during Hurricanes Katrina and Rita,
according to agency and federal officials. Additionally, payments that are
transferred electronically can be credited to multiple cases
simultaneously, according to Utah state agency officials.

31 States that require the use of debit cards or direct deposit generally
allow exemptions for various reasons, according to an OCSE official. For
example, in some states, exemptions to the use of direct deposit may be
granted for clients with language barriers and for certain international
cases. Reasons cited by an OCSE official for exemptions to the requirement
for debit cards include situations where some minor parents are denied
debit cards by private vendors hired to administer the process, or some
parents that have difficulty using a debit card because they live in a
remote location or have disabilities, and for some cases that involve
limited payments such as cases in which a payment is made once a year when
a tax refund is intercepted.

32 According to state agency officials from Connecticut, the state agency
has a single contract for the implementation of multiple initiatives and
estimated savings of about $100,000 a month, but did not provide cost
saving estimates for each initiative. Also, the officials estimated
additional costs savings of another $100,000 a month after full
implementation of the initiatives.

33 GAO, Child Support Enforcement: Better Data and More Information on
Undistributed Collections Are Needed, GAO-04-377 (Washington, D.C.: Mar.
19, 2004).

Table 6: Cost-Saving Initiatives State Agencies Reported Implementing and
Estimated Cost Savings Reported by State Agencies, as of February 2006

                                                      Cumulative   
                                                       savings     
                                 Number of           (minimum and  
                                     state             maximum)    
                                  agencies           estimated by  
                   Year first         that            any state    
                  implemented     reported            agency and   
                       by any implementing          implementation 
Initiative name         state         this              yeara      
and description        agency   initiative                 Minimum Year    Maximum Year 
Electronic fund                                                                         
transfers between                                                                  
states for                                                                         
interstate cases         1991           52                 $30,000 2001   $650,000 2001
Automated voice                                                                         
response systems                                                                   
to handle child                                                                    
support inquiries                                                                  
24 hours a day, 7                                                                  
days a week,                                                                       
without                                                                            
personalized                                                                       
service                  1990          48b                 200,000 2000 72,000,000 1996
Direct deposit of                                                                       
child support                                                                      
payments to                                                                        
custodial                                                                          
parents' checking                                                                  
or savings                                                                         
accounts                 1989          48b                  15,000 2004  7,000,000 2003
Electronic                                                                              
methods for                                                                        
noncustodial                                                                       
parents to                                                                         
transmit payments        1989          38b                     600 2003     30,000 2001
Electronic                                                                              
receipt of wages                                                                   
withheld by                                                                        
employers                1990          50b                 325,000 1998  4,500,000 1993
Web site that                                                                           
permits custodial                                                                  
or noncustodial                                                                    
parents to access                                                                  
or update their                                                                    
file information         1999           29                  24,000 2002 10,000,000 2002
Debit cards that                                                                        
allow custodial                                                                    
parents to access                                                                  
their child                                                                        
support payments                                                                   
electronically           2000           27                   5,700 2005  3,000,000 2005
Child support                                                                           
training                                                                           
conducted via the                                                                  
Internet/intranet                                                                  
for child support                                                                  
staff                    1993           22                  10,000 2002    650,000 2001
Automated address                                                  
change service                                                     
available through                                                  
the U.S. Postal                                                    
Service                  1996           11 100,000c           2004 
Contracts for                                                      
management of                                                      
non- IV-D casesd         1996            9      $0e                

Source: GAO survey.

aA few state agencies reported zero cost savings for certain initiatives,
but expected future cost savings. In addition, many state agencies
reported that cost savings were unknown for several initiatives.

bCalifornia is included in the total number of state agencies implementing
these initiatives; however, at the time our survey was administered,
implementation was limited to certain counties.

cOnly 1 state agency provided an estimate of cost savings for this
initiative.

dNon-IV-D cases are those for which the state agency is not providing, or
has not previously provided, services under the state's TANF, child
support, foster care, or Medicaid programs.

eTwo state agencies provided an estimate for this initiative, and, in both
cases, the estimated cost savings was zero.

Most state agencies (38) reported that they reinvested the savings from
implemented initiatives in the CSE program. For example, state agency
officials we interviewed in Connecticut and Utah told us that once
resources are no longer needed for developing and implementing a new
initiative, they reallocate these resources to other tasks. In Utah, a
state agency official with whom we spoke estimated that by implementing an
automated voice response system and a customer service Web site and by
providing training on how to answer clients' inquiries efficiently, the
state agency was able to shift four full-time staff who formerly handled
customer service calls to other projects. Conversely, five state agencies
reported that they did not reinvest their savings. For example, the Nevada
state agency reported that savings were returned to the state general fund
per state requirements, and the Vermont state agency reported that in some
cases state funding for the program was reduced by the amount of the
savings.

Additionally, state agency officials told us about other practices that
they implemented to reduce costs, beyond the initiatives specified in our
survey. For example, in Connecticut, the state agency has adopted
practices as varied as using videoconference facilities to allow
caseworkers to attend hearings that can help reduce travel costs and
printing double-sided notices to clients. In Utah, the state agency has
automated notices to noncustodial parents regarding pending wage
withholding. In Virginia, the state agency automated intercept of
unemployment insurance payments in fiscal year 2003 and reported total
costs savings of $240,000 as a result. The Georgia state agency reported
implementing Internet-enabled voice communication to reduce telephone
costs.

OCSE Has Taken Steps to Help State Agencies Manage Costs

OCSE issued guidance and awarded grants to state agencies to help them
manage costs. OCSE issued guidance on a wide range of topics addressing
program operations that may directly or indirectly lead to cost savings.
For example, OCSE has issued guidance on electronic disbursement of
payments, criteria for closing cases, multistate financial institution
data matches, and review and adjustment of support orders.34 In addition,
OCSE has awarded grants to help state agencies develop and implement
certain initiatives. For example, in fiscal year 2002, OCSE awarded
Indiana a $100,000 grant to investigate the use of debit cards to reduce
undistributed collections, Texas a $71,630 grant to develop electronic
payment methods for noncustodial parents, North Carolina a $200,000 grant
for an outgoing automated voice response system to send reminders to
clients, and Colorado a $100,000 grant for Web-site technology to increase
customer services.

34 69 Fed. Reg. 77659 (Dec. 28, 2004) and OCSE's Policy Interpretation
Question 04-02.

OCSE has created several work groups consisting of federal and state
agency officials to address specific issues of concern to all state
agencies. Some examples of these federal/state work groups are discussed
as follows:

           o  Work group on a Standardized Electronic Wage Withholding Order:
           OCSE convened a work group in 2004 to develop a standardized
           method for the electronic transmission of wage withholding orders
           to employers. The work group was composed of representatives from
           state and tribal child support enforcement agencies, employers,
           federal agencies (Social Security Administration, Department of
           Defense, and the United States Postal Service), and a large
           payroll processing company. This work group developed, among other
           things, a draft electronic wage withholding order for state
           agencies to notify employers of a wage withholding action.
           According to OCSE, electronic transmission of wage-withholding
           orders will increase processing efficiency and improve the speed
           with which payments are made to families and also reduce the cost
           of postage and processing paper documents.

           o  The National Judicial/CSE Collaboration Work Group: OCSE
           convened this work group in 2004 to help improve collaboration
           between child support enforcement agencies and courts. This work
           group's goals include improving case processing and facilitating
           electronic data and document exchange between state agencies and
           courts.

           o  National Child Support Enforcement Training Work Group: This
           work group met in 2005 to identify training needs and resources
           available to address strategies in the Strategic Plan. The goal is
           to develop a strategy for meeting training needs in order to
           improve program results and customer services at all levels.

Also, OCSE has facilitated information exchanges in other ways. OCSE has
sponsored conferences and invited representatives from state agencies who
have experience with specific initiatives to appear on panels to share
ideas with representatives from other state agencies. According to an OCSE
official, OCSE is working with state agencies to add information about
various initiatives to its existing automated systems certification guide.
State agencies interested in implementing certain initiatives will be able
to consult the guide to learn from what others have done. The guide will
also have information about the availability of grants to help states
implement the initiatives. According to this official, the first draft of
the amended guide will be available to the state agencies for comment in
June 2006. In addition, OCSE held telephone conferences with state
agencies on specific subjects. For example, according to an OCSE official,
OCSE arranged a teleconference in February 2006 to enable state agencies
that had implemented debit cards to share their experiences and expertise
with state agencies interested in implementing them. OCSE officials noted
that they also distributed CD-ROMs to state agencies with information on
the Web-based customer service practices of 6 state agencies.

Generally, state agencies responding to our survey viewed OCSE assistance
favorably. In particular, as shown in table 7, nearly all of the state
agencies reported that OCSE's efforts to create federal/state work groups,
hold conferences or sponsor training, issue guidance, and facilitate
information exchange were very or moderately helpful.

Table 7: States Agencies' Views about OCSE's Efforts to Help Them Manage
Program Costs

                                                     Number of state agencies 
                                                     rating OCSE's assistance 
                                                        as very or moderately 
OCSE efforts                                                       helpful 
Creating federal/state work groups (such as the                            
medical support, interstate, or undistributed     
collections work groups)                                                49
Holding or sponsoring conferences or training                           48 
Issuing guidance                                                        47 
Facilitating the sharing and exchange of                                   
information (e.g. the Compendium of Best          
Practices, the OCSE Web site, or the newsletter)                        44
Leading special projects (such as projects in the                          
area of interstate case reconciliation, medical   
support, and other projects)                                            41
Conducting annual planning document reviews for                            
system modifications/upgrades                                           36
Providing special technical assistance (e.g.                               
performance reviews to help states automate,      
reviews to help assess cost savings associated    
with certain enforcement tools, and other         
reviews)                                                                31
Awarding grants for state projects (e.g. Special                           
Improvement Projects)                                                   27

Source: GAO survey.

OCSE Has Conducted a Limited Number of Administrative Cost Audits

Although OCSE is required to perform audits to determine whether federal
and other funds made available to carry out the state program are being
appropriately expended, OCSE has not conducted administrative cost audits
in most states. From March 2004 to March 2006, OCSE issued eight
administrative cost audit reports--an average of 4 per year. The issued
reports show that all of the audits were limited in scope and all raised
questions about inappropriate expenditures. For example, one audit of
costs claimed for one quarter found that the federal government paid
approximately $670,000 for unallowable collection costs and litigation
settlements claimed by the Texas state agency. Another audit that examined
expenses claimed for one quarter recommended that the Vermont state agency
reimburse the federal government $603,057 for failing to properly report
interest income and abandoned property as program income and claiming
costs not related to the CSE program. Table 8 summarizes the
administrative cost audits completed as of March 2006.

Table 8: OCSE's Administrative Cost Audits Completed from March 2004 to
March 2006

                Date of                                                       
State Agency report        Scope of audit       Major findings
Florida      March 2, 2004 Analysis of          The audit recommended that 
                              cooperative          all cooperative agreement  
                              agreement costs      costs claimed, in the      
                              charged by the CSE   amount of $75.3 million,   
                              program.             be questioned until        
                                                   further studies are        
                                                   conducted.                 
Arkansas     February 16,  Salary, fringe       The state agency had       
                2005          benefits, automated  claimed salary and fringe  
                              data processing      benefit costs for          
                              costs, fund          personnel not working for  
                              transfers, and       the CSE program, claimed   
                              genetic testing fees fund transfers to the      
                              claimed on the state state treasurer that were  
                              agency's expenditure not CSE expenditures, and  
                              report for one       incorrectly reported       
                              quarter covering     recouped genetic testing   
                              April 1, 2004, to    fees in the amount of      
                              June 30, 2004.       $614,861 that the agency   
                                                   later refunded to the      
                                                   federal government.        
Texas        July 20, 2005 Non-IV-D costs and   The state agency           
                              settlement charges   incorrectly claimed        
                              claimed on the state non-IV-D costs for         
                              agency's expenditure processing collections and 
                              report for the       claimed costs of a lawsuit 
                              quarter ended June   settlement totaling        
                              30, 2004.            $670,253 that were not     
                                                   associated with the normal 
                                                   activities of the CSE      
                                                   program.                   
Vermont      February 7,   Expenses claimed for The state agency failed to 
                2006          one quarter on the   properly report interest   
                              state agency's       income and abandoned       
                              expenditure report   property as program income 
                              under the category   and included costs not     
                              of program income as related to the CSE program 
                              well as other        totaling $603,057. In      
                              selected costs.      addition, $92,000 was      
                                                   being questioned.          
Connecticut  February 8,   Expenses claimed for The audit found that the   
                2006          one quarter on the   state agency improperly    
                              state agency's       claimed funds totaling     
                              expenditure report   $525,605 for payments to   
                              under the category   employees either retiring  
                              of cooperative       or terminating employment  
                              agreement and other  and for contractual        
                              selected costs.      services and commodities.  
                                                   The audit recommended that 
                                                   $346,899 be refunded to    
                                                   the federal government.    
New Jersey   February 22,  Costs claimed on the The audit found that       
                2006          state agency's       $1,423,288 of costs        
                              expenditure report   claimed by the state       
                              for the period of    agency was either not      
                              April 1, 2003,       allocable or allowable     
                              through March 30,    under federal cost         
                              2004.                principles and regulations 
                                                   and recommended that       
                                                   $939,370 be refunded to    
                                                   the federal government.    
Alabama      March 1, 2006 Certain costs        The audit found the state  
                              claimed on the state agency claimed advertising 
                              agency's expenditure and legal services costs   
                              report for the       that did not benefit the   
                              quarter ended June   CSE program and, thus, was 
                              30, 2005.            not allowable. As a        
                                                   result, the state agency   
                                                   refunded $17,010 to the    
                                                   federal government.        
New Mexico   March 13,     Selected costs       The audit identified       
                2006          claimed by the state $270,316 in overcharges by 
                              agency for the       the state agency and       
                              quarters ended June  recommended that the       
                              30, 2002, through    agency refund $140,983 to  
                              March 31, 2005.      the federal government.    

Source: GAO analysis of OCSE cost audit reports.

An OCSE official explained that OCSE completed a limited number of
administrative costs audits because most of its resources were devoted to
completing data reliability audits associated with the federal incentive
payments. In fiscal year 2004, OCSE notified state agencies that it would
not perform data reliability audits annually but would conduct audits
every 2 or 3 years, based on prior audit results. In addition, the notice
indicated that this approach would increase the resources available to
conduct other audits. According to an OCSE official, additional
administrative cost audits have not been planned and that unless OCSE gets
more audit resources, it is likely that few administrative cost audits
will be conducted. This official also explained that OCSE has added
reviews related to medical support in anticipation of a medical support
incentive payment measure and this effort has taken resources from other
audit work. 35 In commenting on a draft of this report HHS informed us
that OCSE's approach for conducting fewer data reliability audits has not
yet increased available audit resources.

OCSE's audit plan identifies several types of audits and reviews and shows
that most of the planned audits are not administrative cost audits. The
plan lists 16 administrative cost audits-also referred to as limited cost
audits, as well as 37 data reliability audits, 17 data reliability
reviews, 4 paternity audits, and 36 medical support reviews.36, 37
According to an OCSE official, the audit plan needs to be updated to
reflect current information and status of the assignments.

While OCSE has conducted few administrative cost audits, others have
conducted audits of the CSE programs, and although some of these audits
addressed administrative cost issues, generally they had a broader focus.
For example, at the federal level, the CSE program is audited as part of
the annual financial statement audit of HHS. Financial statement audits of
federal entities are intended to provide decision makers with assurance as
to whether the financial statements are reliable, internal control is
effective, and laws and regulations are complied with. In addition,
statewide single audits assess whether states have complied with
requirements in up to 14 managerial or financial areas, including
allowable activities, cash management, and eligibility. However, in our
review of TANF and Child Care programs, we found that single audits were
limited in scope and varied in how they were conducted, state by state.38
Furthermore, the HHS Office of Inspector General (IG) and state auditors
have completed audits of the CSE program. From fiscal years 2000 to 2005
the IG issued 13 audit reports that focused on the CSE program, and 2 of
these reports focused on administrative cost issues. For example, 1 audit
of Ohio's CSE program found contracting deficiencies and overcharges. We
reviewed selected state auditors' reports of CSE programs from 5 of the 6
states we visited, and found that 3 of these reports included some
findings related to administrative costs, automated data systems, or
internal control.39, 40 For example, the audit of the Connecticut program
found that the state had not properly allocated all related costs. An OCSE
official stated that, as part of its standard procedures for planning
administrative cost audits, its auditors consider the significance and
materiality of findings disclosed in previous audit reports, both OCSE and
other sources, such as the State Auditor, IG, as well as any single audit
reports that may have been performed. Also, according to comments from HHS
on a draft of this report, OCSE develops an audit plan that first
considers staff availability and then prioritizes which state agencies to
audit based on several factors such as requests from the ACF regional
offices, issues identified during data reliability audits, knowledge of
possible problems from other sources and how long it has been since the
prior audit. OCSE officials did not cite the level of expenditures for
administrative costs as a factor that was considered in planning
administrative cost audits.

35Under the Child Support Enforcement Amendments of 1984, HHS was required
to issue regulations to require state agencies to petition for the
inclusion of medical support as part of any child support order whenever
health care coverage is available to the noncustodial parent at a
reasonable cost. Over the years other legislation has been enacted to
facilitate state agencies' attempts to secure and enforce medical coverage
for children. A medical child support working group was established and
issued a report that contains 76 recommendations, including one that
Congress amend Federal law to require that the medical support incentive
measure is developed in conjunction with the implementation of certain
requirements established in CSPIA. In addition, OCSE's strategic plan for
2005 to 2009 identifies medical support as a possible future incentive
measure.

36 In commenting on a draft of this report, HHS stated that OCSE is
required to perform a data reliability review each year for those state
agencies that are not receiving a data reliability audit and that while
reviews consume less time than an audit, reviews require a significant
amount of time and resources.

37 According to an agency official, the paternity audits are done when a
state agency's data fails the data reliability audit and then resubmits
the data in a subsequent fiscal year.

38GAO, TANF and Child Care Programs: HHS Lacks Adequate Information to
Assess Risk and Assist States in Managing Improper Payments, GAO-04-723
(Washington, D.C.: June 18, 2004).

39 According to agency officials, a statewide review of Ohio's CSE program
was not available because audits are done at the county level.

40 The five standards for internal control are (1) control
environment-management and employees should establish and maintain an
environment throughout the organization that sets a positive and
supportive attitude toward internal control and conscientious management;
(2) risk assessment-internal control should provide for an assessment of
the risks the agency faces from both external and internal sources; (3)
control activities-activities that help ensure management's directives are
carried out-- should be effective and efficient in accomplishing the
agency's control objectives; (4) information and
communications-information should be recorded and communicated to
management and others within the entity who need it and in a form and
within a time frame that enables them to carry out their internal control
and other responsibilities; and (5) monitoring-internal control monitoring
should assess the quality of performance over time and ensure that the
findings of audits and other reviews are promptly resolved.

                                  Conclusions

In addition to the changes made by the Deficit Reduction Act of 2005 that
will affect federal expenditures for the CSE program, there may be other
opportunities to reduce the federal expenditures for the CSE program.
Although many state agencies reported implementing several initiatives
that have resulted in savings, most state agencies reported that they have
reinvested funds in other CSE program areas. As such, state agencies have
not used savings from implemented initiatives to reduce administrative
costs. State agencies also reported that several of the cost categories
that were major contributors to federal expenditures for administrative
costs were related, at least in part, to the number of FTEs devoted to the
program, including state and local CSE agency personnel; staff from other
state and local agencies that provide services under cooperative
agreements; and contractors. Although OCSE has established minimum
organizational and staffing requirements, OCSE has not conducted a study
to establish FTE or staffing guidelines to determine whether there are
additional opportunities to improve the efficiency of the CSE program and
reduce administrative costs.

Furthermore, OCSE has not conducted administrative cost audits in most
states. Of the administrative cost audits recently completed by OCSE, all
have raised questions about inappropriate expenditures or unallowable
costs. Nonetheless, most of the completed and planned audits are focused
on incentive payment data and indicators, and although OCSE expects to
have more resources available to conduct audits, it does not plan to use
these resources to conduct more administrative cost audits. The audits
related to the incentive payments are important, however many more federal
dollars have been spent for administrative costs, and the federal
expenditures for administrative costs have been increasing and are not
capped. From the federal government's perspective, more focus on
administrative cost audits would be a prudent use of resources. Also, in
developing its plans for administrative cost audits, OCSE officials did
not cite total expenditures for administrative costs as a factor in
determining which state agencies to  audit. Without conducting
administrative cost audits in more states, and without a plan for
conducting audits based in part on the level of expenditures, OCSE cannot
ensure that federal funds have been appropriately spent.

                      Recommendations for Executive Action

To help manage the administrative costs for the child support enforcement
program and ensure federal funds are being appropriately spent, we are
making three recommendations. We recommend that the Secretary of Health
and Human Services direct the Commissioner of OCSE to

           o  conduct a study of and develop guidelines for the number of
           full-time- equivalent employees,

           o  direct resources gained from conducting fewer data reliability
           audits for the incentive payments to completing more
           administrative cost audits, and

           o  develop an audit plan that considers total expenditures as one
           of the factors used to select state agencies for administrative
           cost audits.

                       Agency Comments and Our Evaluation

We received written comments on a draft of this report from HHS. These
comments are reproduced in appendix VII. HHS also provided technical
comments, which we incorporated when appropriate.

HHS did not explicitly agree or disagree with our recommendations. In
response to our recommendation to conduct a study of and develop
guidelines for the number of full-time-equivalent employees, HHS stated
that OCSE will consider doing such a study. HHS also noted that OCSE
issued a report that reviewed collections, expenditures, caseload, and
other data by full-time-equivalent employees for the 1997 and 1998 time
frame. We reviewed this report and determined that while it summarizes
these data, it does not address guidelines.

In response to our recommendation to develop a plan to conduct
administrative cost audits, HHS commented that OCSE has developed plans to
conduct administrative cost audits in the past, has conducted those
audits, and will continue to develop plans in the future. We revised the
report to acknowledge that OCSE has a plan for conducting administrative
cost audits as well as other audits and to incorporate information from
the technical comments about the plan. Additionally, we modified this
recommendation to better reflect our intent to encourage OCSE to complete
more administrative cost audits than it completed during the 2004 to 2006
time period and to consider total expenditures for administrative costs
when planning these audits. In light of our finding that all of the
completed administrative cost audits have identified inappropriate or
unallowable expenditures, additional audits are needed to help ensure that
federal funds are used appropriately.

HHS also identified several areas that needed further clarification. HHS
suggested that we explain that the CSE program locates custodial parents
and that custodial as well as noncustodial parents may apply for services.
We modified the report to include these facts. HHS also said that the
report does not note that staffing declined since fiscal year 2003. We did
not make any changes in response to this comment since data in the report
show this decline. In addition, HHS commented that we did not discuss the
relationship between spending and performance and referred to the findings
in a report done by the Lewin Group, Inc. We did not include an analysis
of the relationship between spending and the performance measures because
that analysis was beyond the scope of our work for this review. As for the
Lewin report, we did not include findings from this report because they
were based on fiscal year 1997 data, and the report includes a statement
that the findings should be interpreted carefully because of several
problems associated with measures that are proxies for performance, data
quality, missing variables, and other factors. Additionally, the HHS
comments pointed out that our report did not include certain provisions in
the Deficit Reduction Act of 2005 or mention estimated income or savings
related to this act. We added this information to the report.

We are sending copies of this report to the Secretary of Health and Human
Services, Directors of state child support enforcement agencies in the
states we visited, and other interested parties. In addition, we will make
copies available to others upon request. Also, this report will be
available at no charge on GAO's Web site at http://www.gao.gov .

If you or your staff have any questions about his report, please contact
me at 202-512-7215 or [email protected] . Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. GAO staff who made major contributions to this report are
listed in appendix VIII.

Sincerely yours,

Cornelia M. Ashby, Director Education, Workforce, and Income Security
Issues

Appendix I: Objectives, Scope, and Methodology

Objectives

The objectives of this study were to determine (1) how total net federal
expenditures for administrative costs have changed from fiscal year 2000
to fiscal year 2004, (2) the categories of cost that have contributed most
to federal expenditures for administrative costs in recent years, and (3)
steps state agencies have taken to manage costs and steps the Office of
Child Support Enforcement (OCSE) has taken to help state agencies and to
ensure federal funds have been used appropriately.

Scope and Methodology

In conducting our review, we used multiple methodologies. We (1) analyzed
program data for all 54 state agencies for fiscal years 2000 to 2004; (2)
conducted a survey of state agencies; (3) visited 6 state agencies; (4)
interviewed OCSE and state agency officials as well as child support
experts; and (5) reviewed relevant laws and regulations, pertinent reports
and studies, and applicable OCSE policy and guidance documents. We
conducted our work between June 2005 and June 2006 in accordance with
generally accepted government auditing standards.

  Analyses of Program Data

To determine how net federal expenditures for administrative costs have
changed, we obtained data from the system that maintains information
related to funds administered by Health and Human Services' (HHS)
Administration for Children and Families, including funds provided to
state agencies. This system is known as the Grants Application Tracking
and Evaluation System (GATES). Before analyzing the data, we took several
steps to assess its reliability. We interviewed HHS officials responsible
for managing GATES and obtained information about the system such as its
purpose, the procedures to ensure that it captures all records, and tests
or edit checks to assure that data are accurate. We also obtained copies
of the system manual and system audit reports. Because the state agencies
are the sources for the GATES data, we also interviewed state agency
officials and asked them about reviews and routine audits of the data, and
we obtained copies of system audit reports as well as documents that
summarized the procedures for ensuring data accuracy. Additionally, we
compared expenditure data from several state agencies with data from GATES
and found they were nearly identical. Furthermore, we reviewed results of
OCSE's data reliability audits of state agencies' data related to the
performance incentive measures, including collections, and
cost-effectiveness ratios. On the basis of these steps, we determined the
data from GATES were sufficiently reliable for the purposes of this
report.

We obtained and analyzed several sets of state CSE program data for fiscal
years 2000 to 2004. We analyzed the net federal share of state
expenditures and calculated the percentage change and the median amounts.
Additionally, we examined other program data to gain some perspective
about changes in the net federal expenditures for administrative costs.
Specifically, for fiscal years 2000 to 2004, we examined collections,
number of cases, the cost-effectiveness ratios, and the number of
full-time-equivalent employees. To determine the cost per case, we used
the total number of cases at the end of each fiscal year and the nominal
net expenditures for each year. We calculated the median amounts for
expenditures and collections because of the wide variation among state
agencies. Since the data span a 5-year period, we considered it
appropriate to adjust the expenditure and collection data for inflation,
using the price index for the U.S gross domestic product when the analysis
covered a period of years. These data, in 2004 dollars, were used in
discussing trends in net federal expenditures for administrative costs and
collections. However, when we calculated percentage changes from year to
year, we used nominal dollars to be consistent with data previously
reported to Congress.

  Survey of State Agencies

We designed and administered a survey to all 54 state agencies. The survey
asked state agencies to identify the administrative cost categories in
which they incurred costs during fiscal years 2002 to 2004 and to estimate
the percent of the state's administrative costs for the five categories
that accounted for the largest percentages. The survey also asked state
agencies whether they had implemented 10 cost-saving initiatives and, if
so, when each was implemented and what the cost savings had been, if any.
We selected these 10 cost-saving initiatives after reviewing OCSE's
Compendium of State Best Practices and Good Ideas in Child Support
Enforcement for 2001, 2002, and 2003-the most recent years available at
the time of our review. We selected initiatives that had demonstrated
dollar savings or the potential for dollar savings. The last section of
the survey asked state agencies to rate how helpful certain OCSE efforts
had been in reducing or minimizing their administrative costs and if there
were other actions OCSE could take to help state agencies reduce or
minimize administrative costs. Surveys were sent via an e-mail as a MSWord
attachment in November 2005, and all 54 state agencies sent in responses
by February 2006.

Because we received responses from all of the state agencies, our results
are not subject to sampling error. However, the practical difficulties of
conducting any survey may introduce other types of errors, commonly
referred to as nonsampling errors. For example, differences in how a
particular question is interpreted and the sources of information
available to respondents in answering a question can introduce unwanted
variability into the survey results. We included steps in both the data
collection and data analysis stages to minimize such nonsampling errors.
For example, the survey instrument was developed by a GAO survey
specialist in collaboration with staff knowledgeable about the CSE
program. In addition, the survey was reviewed by another GAO survey
specialist and pretested telephonically with two state agencies to develop
a survey instrument that was relevant, easy to comprehend, unambiguous,
and unbiased. We made changes to the content and format of the survey
instrument based on the review and the results of the pretests. To further
reduce nonsampling error, respondents entered their responses directly
into the survey instrument and returned them electronically. Responses
were then reviewed by GAO staff for completeness and internal consistency,
and when data seemed questionable, we followed up with state agency
officials for clarification.

Survey responses were then keypunched into the database used for analysis
and these data were 100 percent verified for accuracy of data entry. When
the data were analyzed, a second, independent analyst checked all computer
programs.

  Visits to State Agencies

We visited state agencies in 6 states-California, Connecticut, Maryland,
Ohio, South Carolina, and Utah. We selected these states because they
represented diversity in changes in federal expenditures during fiscal
years 2002 to 2004, geographical location, and operational structure
(state- or county-operated). During these visits, we interviewed state
officials and obtained their opinions and perspectives about key issues.
We discussed administrative cost trends for their state, the categories of
cost that contributed most to their total administrative costs, and steps
taken to reduce costs, including implementing the cost-saving initiatives.
We also collected administrative cost data for fiscal years 2002 to 2004,
state agency policies and procedures, and relevant reports.

  Interviews of officials, representatives, and experts

We interviewed many CSE program officials and representatives from various
organizations to learn more about each of the objectives. We interviewed
several key OCSE officials, including the Commissioner, Director of the
Office of Audits, Director of State and Tribal Systems, and the Director
of the Planning, Research and Evaluation Division. Several of these
interviews focused on OCSE's efforts to help states manage their
administrative costs and their efforts to help ensure that federal funds
were used appropriately. In addition, we obtained their views on reasons
the expenditures have increased and the factors that have contributed most
to these increases. We also discussed our objectives with representatives
from the National Child Support Enforcement Association and the National
Council of Child Support Directors. These discussions covered each of the
objectives and the participants shared their views and insights. For
example, the participants expressed their opinions about personnel costs
as a major contributor to administrative costs, various cost-saving
initiatives, and OCSE's efforts to help state agencies. In addition, we
interviewed experts and professionals with extensive knowledge of the
child support program. Specifically, we discussed the objectives with
professionals from the Center for Law and Social Policy (CLASP) and the
Urban Institute.

  Reviews of laws, policies, and reports

During the course of this work, we obtained and reviewed numerous
documents. We reviewed provisions in several laws that affected the CSE
program, including, among others, the Personal Responsibility and Work
Opportunity Reconciliation Act of 1996, the Child Support Performance and
Incentive Act, and the Deficit Reduction Act of 2005. We examined OCSE's
policies and guidance, strategic plans, forms and instructions for
reporting administrative costs as well as other OCSE reports and documents
related to administrative costs. We obtained and reviewed documents and
reports prepared by state agencies, the Congressional Budget Office,
CLASP, the Congressional Research Service, the Urban Institute, and the
Lewin Group and ECONorthwest. In addition, we reviewed several prior GAO
reports.

Appendix II: Annual Percentage Changes in Net Federal Expenditures, by
State Agency, for Fiscal Years 2000 to 2004 

                      Percentage change, by fiscal year
State Agency         2000 to 2001 2001 to 2002 2002 to 2003 2003 to 2004 
Alabama                     (8.4)         16.8          4.2          4.7 
Alaska                      (3.0)        (1.8)          5.4        (9.3) 
Arizona                     (3.6)        (2.2)        (6.0)          7.7 
Arkansas                     17.0         18.3       (11.8)        (9.9) 
California                   77.0         53.5        (5.2)         19.1 
Colorado                        2          6.2         16.7        (1.5) 
Connecticut                   1.8         17.9          (3)         49.0 
Delaware                     21.7       (16.3)         31.6          7.6 
District of Columbia         25.7       (12.0)         39.7       (38.3) 
Florida                      10.6        (1.4)          2.6          8.6 
Georgia                         9            2          4.7          1.0 
Guam                        193.6       (29.8)       (27.1)         22.1 
Hawaii                     (51.4)          5.5         79.2       (58.2) 
Idaho                        12.8        (8.4)          3.8          6.0 
Illinois                     26.9          4.0         10.6        (8.1) 
Indiana                      33.6       (26.9)       (20.3)         66.2 
Iowa                       (19.9)          9.8          9.2          8.7 
Kansas                       36.0        (8.1)       (18.8)          4.6 
Kentucky                     16.6       (15.4)          5.2       (14.2) 
Louisiana                    30.0        (5.0)        (7.0)          8.7 
Maine                     (355.0)        242.3       (93.3)        829.8 
Maryland                   (12.5)          6.7        (4.3)          4.6 
Massachusetts              (27.2)        (1.2)         16.0         27.1 
Michigan                     36.8          (5)        (3.2)       (12.8) 
Minnesota                    14.6         13.2          4.5          1.8 
Mississippi                (19.1)        (7.2)        (2.4)          1.9 
Missouri                    (5.3)       (19.2)          5.8        (1.2) 
Montana                     (8.0)       (20.7)         21.1        (2.7) 
Nebraska                     28.5          9.1        (6.7)        (4.2) 
Nevada                     (14.4)         15.3          (8)        (1.4) 
New Hampshire               (1.8)         45.5       (15.7)        (5.2) 
New Jersey                  (3.3)         24.3          (8)         13.3 
New Mexico                   36.7       (19.3)          9.3       (16.5) 
New York                      6.1         48.3        (2.1)         21.8 
North Carolina                4.8          7.7          (5)          8.1 
North Dakota                 16.9        (1.2)        (3.9)          9.4 
Ohio                         28.8        (4.9)          (9)       (10.4) 
Oklahoma                      6.0         30.6        (6.0)       (10.2) 
Oregon                     (11.5)         17.1         12.6        (6.7) 
Pennsylvania               (10.4)         11.1         14.4        (5.1) 
Puerto Rico                  23.8        (4.5)         22.3       (23.7) 
Rhode Island                 37.4         23.5       (10.5)        (9.3) 
South Carolina               26.7       (18.7)        (2.4)        (8.8) 
South Dakota                  1.1       (13.3)         10.2          5.6 
Tennessee                   (2.9)         23.3        (8.7)         10.1 
Texas                        13.6         28.0         13.3        (3.7) 
Utah                          4.2        (1.6)        (1.8)         12.2 
Vermont                      26.7          8.0         13.4       (57.0) 
Virgin Islands               63.1       (33.3)        (9.6)         17.3 
Virginia                   (16.7)          8.8          4.8          9.3 
Washington                   14.3        (4.7)         21.7          3.3 
West Virginia              (21.6)          2.3         17.1         12.7 
Wisconsin                    17.4          3.6         11.8          3.1 
Wyoming                      13.6       (17.7)        (4.3)         18.8 

Source: OCSE data.

Note: Nominal dollars were used when comparing data from year to year in
order to be consistent with data previously reported to Congress.
Parentheses indicate a decrease.

Appendix III: Annual Percentage Changes in Collections, by State Agency,
for Fiscal Years 2000 to 2004

                      Percentage change, by fiscal year
State Agency         2000 to 2001 2001 to 2002 2002 to 2003 2003 to 2004 
Alabama                       4.2          5.3          5.9          1.4 
Alaska                        9.6          4.4        (2.4)          3.5 
Arizona                       7.9          8.1          1.7          6.1 
Arkansas                      1.4          5.5          5.0          6.9 
California                  (3.5)       (11.4)         21.0          2.1 
Colorado                      7.7          6.7          0.3          6.9 
Connecticut                   6.3          6.8          2.6          1.9 
Delaware                      9.0         11.4          3.4          3.5 
District of Columbia          7.8          7.4          9.3          9.0 
Florida                       8.1         14.7         10.9         10.3 
Georgia                       6.0          8.3          9.3          2.6 
Guam                        (3.3)          6.3          5.0          4.7 
Hawaii                        4.2          6.0          3.0          6.8 
Idaho                        16.4          9.4          7.7          7.6 
Illinois                     17.4          8.5          2.4          8.5 
Indiana                       2.0         17.3        (3.0)          6.1 
Iowa                          8.3          7.8          5.7          3.9 
Kansas                      (8.6)          5.5          3.8          2.5 
Kentucky                      9.9         12.8          1.0         14.6 
Louisiana                     9.2         11.5          4.9          2.4 
Maine                         6.4          1.0          1.6          2.0 
Maryland                      3.1          4.5          3.3          4.5 
Massachusetts                14.0         10.9          5.6          3.5 
Michigan                      2.8          4.2        (2.8)          7.0 
Minnesota                     7.3          4.9          4.0          1.6 
Mississippi                   9.5          6.9          3.6          4.0 
Missouri                      9.9         10.3          5.4          3.9 
Montana                       7.0          5.9          1.9          1.6 
Nebraska                     12.2       (10.4)          2.4          4.7 
Nevada                        6.0          8.8          9.0          8.1 
New Hampshire                 2.6          3.8          4.6          1.0 
New Jersey                    6.7          6.9          5.2          5.8 
New Mexico                   10.2         19.0         15.3         11.0 
New York                      4.2         12.2          4.0        (2.2) 
North Carolina                8.8          8.9          5.8          6.3 
North Dakota                 13.9          6.8          7.3          5.8 
Ohio                          3.6         10.7        (3.2)          4.5 
Oklahoma                      8.5         13.4          8.1          8.1 
Oregon                        9.2          1.8          4.8          3.2 
Pennsylvania                  7.3          6.4          1.9          1.1 
Puerto Rico                   7.1          8.0          9.8          3.5 
Rhode Island                  1.0          8.9        (1.4)          4.0 
South Carolina               10.6          7.8          3.6          1.4 
South Dakota                  9.1          6.7          3.7          6.2 
Tennessee                    11.3         15.2         11.1          8.1 
Texas                        21.7         14.7         11.9        (3.0) 
Utah                          7.9          4.5          3.0          2.5 
Vermont                       5.1          2.0          1.7         15.3 
Virgin Islands              (4.8)          2.0          5.8         11.6 
Virginia                     15.9          8.3          7.0          5.9 
Washington                    4.4          3.1          1.1        (1.0) 
West Virginia                14.0         10.2          3.9          9.0 
Wisconsin                     2.6        (1.6)          6.0          1.9 
Wyoming                       7.0          7.1          4.6          4.5 

Source: OCSE data.

Note: Nominal dollars were used when comparing data from year to year in
order to be consistent with data previously reported to Congress.
Parentheses indicate a decrease.

Appendix IV: Percentage Changes in the Cost-Effectiveness Ratio by State
Agency and Nationwide

                          Percentage change in the cost-effectiveness ratio
                                    from the previous fiscal year
State Agency               2001 to 2002      2002 to 2003     2003 to 2004
Alabama                          (9.23)              3.85             4.50
Alaska                             8.45            (5.57)             6.13
Arizona                            3.16              5.18           (1.12)
Arkansas                         (6.01)             17.29            24.36
California                      (26.82)             20.94           (8.23)
Colorado                           2.23           (12.02)            10.25
Connecticut                      (2.59)              7.45          (20.79)
Delaware                          24.91           (17.21)           (0.66)
District of Columbia              19.03           (22.30)            50.24
Florida                           11.94              8.93             2.51
Georgia                            7.07              5.42             4.47
Guam                              23.31             28.05             7.62
Hawaii                             6.01           (22.21)            71.26
Idaho                             14.50              7.75             4.21
Illinois                          12.00            (5.71)            21.97
Indiana                           23.03              1.41          (11.00)
Iowa                               6.83            (1.95)             1.27
Kansas                             3.98             19.54             0.96
Kentucky                          15.44              3.61            21.93
Louisiana                         11.19              4.93           (1.37)
Maine                           (28.79)             16.59          (12.83)
Maryland                         (0.71)              8.11             0.88
Massachusetts                     12.26            (5.37)          (10.62)
Michigan                         (4.77)              4.36            13.15
Minnesota                        (1.94)              0.00             1.23
Mississippi                       19.46              5.34             6.13
Missouri                          21.52              6.91             9.09
Montana                            4.86           (11.46)             8.54
Nebraska                        (14.33)             12.20            12.73
Nevada                          (11.42)              8.71             6.09
New Hampshire                   (19.07)              8.01            11.65
New Jersey                       (8.35)              4.76           (3.36)
New Mexico                       36.45a              7.53            19.11
New York                        (11.44)             11.36          (13.80)
North Carolina                     9.65             12.64             0.40
North Dakota                      12.41              8.28             5.29
Ohio                              13.71              2.08            11.20
Oklahoma                         (3.45)             11.43            16.67
Oregon                          (11.76)            (4.27)            10.18
Pennsylvania                     (1.86)            (0.73)             3.09
Puerto Rico                       13.79            (9.57)            38.98
Rhode Island                       6.86              2.43             8.21
South Carolina                    27.61              7.67            10.76
South Dakota                     (1.68)              2.77           (3.97)
Tennessee                        (9.82)             21.56           (5.67)
Texas                              3.44              4.07             5.68
Utah                               5.42              6.17           (1.21)
Vermont                            0.77            (3.82)            11.64
Virgin Islands                    41.07             16.46           (0.54)
Virginia                           3.59              2.84           (2.91)
Washington                         8.79            (8.28)           (0.44)
West Virginia                      4.96            (6.78)           (2.64)
Wisconsin                          0.83            (2.62)           (0.67)
Wyoming                           22.25             11.40           (7.36)
NATIONWIDE                       (1.90)              4.60             1.39

Source: OCSE.

Note: Parentheses indicate a decrease.

aOCSE reported the data for 2001 as not reliable

Appendix V: Percentages Reported by State Agencies for Most Frequently
Cited Cost Categories

                 Category reported as largest cost   Category reported as one  
                              category              of five largest categories 
                   Number                         Number                       
  Administrative of state    Highest     Lowest of state    Highest     Lowest 
  cost category  agencies percentage percentage agencies percentage percentage 
  Personnel                  38              80  30              49         80 3 
  Cooperative                                                                    
  agreements                  3              70  40              37         70 2
  Automated data                                                                 
  systems                     5              65  25              35         65 1
  Contracts                   3              68  49              41         68 1 

Source: GAO survey.

Appendix VI: State Agencies' Implementation of Certain Cost-Saving
Initiatives

                                                Initiatives
      Electronic  Electronic                                                  Child               Electronic 
      receipt of methods for                                                 support                 fund    
        wages    noncustodial                         Web site to Automated training  Contracting transfers  
       withheld   parents to                Automated  access or   address     via     non-IV-D      for     
          by       transmit   Direct  Debit voicemail update case  change   internet/    case     interstate 
State employers    payments   deposit cards  systems  information  service  intranet   registry     cases    
 AL                                                                                               
 AK                                                                                               
 AZ                                                                                               
 AR                                                                                               
 CA       a           a          a              a                                                 
 CO                                                                                               
 CT                                                                                               
 DE                                                                                               
 DC                                                                                               
 FL                                                                                               
 GA                                                                                               
 GU                                                                                               
 HI                                                                                               
 ID                                                                                               
 IL                                                                                               
 IN                                                                                               
 IA                                                                                               
 KS                                                                                               
 KY                                                                                               
 LA                                                                                               
 ME                                                                                               
 MD                                                                                               
 MA                                                                                               
 MI                                                                                               
 MN                                                                                               
 MS                                                                                               
 MO                                                                                               
 MT                                                                                               
 NE                                                                                               
 NV                                                                                               
 NH                                                                                               
 NJ                                                                                               
 NM                                                                                               
 NY                                                                                               
 NC                                                                                               
 ND                                                                                               
 OH                                                                                               
 OK                                                                                               
 OR                                                                                               
 PA                                                                                               
 PR                                                                                               
 RI                                                                                               
 SC                                                                                               
 SD                                                                                               
 TN                                                                                               
 TX                                                                                               
 UT                                                                                               
 VT                                                                                               
 VI                                                                                               
 VA                                                                                               
 WA                                                                                               
 WV                                                                                               
 WI                                                                                               
 WY                                                                                               

Source: GAO survey.

aImplementation of this initiative was limited to certain counties as of
the time of our survey, December 2005.

Appendix VII: Comments from the Department of Health and Human Services

Appendix VIII: A Appendix VIII: GAO Contact and Staff Acknowledgments

GAO Contact

Cornelia M. Ashby 202-512-7215

Staff Acknowledgments

In addition to the person named above, Carolyn M. Taylor, Assistant
Director; Susan Higgins, Analyst in Charge; Tim Hall; Sheila McCoy, Chris
Morehouse; Vernette Shaw; Wilfred Holloway; Cathy Hurley; Stu Kaufman; and
James Rebbe made key contributions to this report.

(130491)

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www.gao.gov/cgi-bin/getrpt? GAO-06-491 .

To view the full product, including the scope

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Highlights of GAO-06-491 , a report to the Chairman, Subcommittee on Human
Resources, Committee on Ways and Means, House of Representatives

July 2006

CHILD SUPPORT ENFORCEMENT

More Focus on Labor Costs and Administrative Cost Audits Could Help Reduce
Federal Expenditures

Congress established federal standards for the child support enforcement
program (CSE) in 1975. State agencies administer the program and the
Office of Child Support Enforcement (OCSE) in the Department of Health and
Human Services (HHS) oversees it. The CSE program provides several
services, including collecting child support payments from noncustodial
parents-those who are not the primary caregivers-and distributing these
payments to families. Generally, the federal government reimburses state
agencies 66 percent of their costs for administering the CSE program. GAO
determined (1) how total net federal expenditures for administrative costs
changed from fiscal year 2000 to fiscal year 2004; (2) the categories of
costs that contributed most to administrative costs in recent years; and
(3) steps state agencies have taken to manage costs, and steps OCSE has
taken to help state agencies and ensure federal funds have been used
appropriately. GAO analyzed program data, surveyed all 54 state agencies
and visited 6, interviewed program officials, and reviewed laws, policies,
and reports.

What GAO RecommendsGAO recommends that HHS direct OCSE to conduct a study
to develop staffing guidelines, direct resources to completing more
administrative cost audits, and develop audit plans that consider
expenditures. HHS stated that OCSE would consider doing a study, and OCSE
has an audit plan.

From fiscal year 2000 to fiscal year 2004, total net federal expenditures
for administrative costs (the cost after deducting child support
collections for families receiving benefits from other government
programs) increased by about 23 percent. After adjusting for inflation,
total net federal expenditures increased from about $2.2 billion to $2.8
billion. Also, during this period, collections increased by about 12
percent-from about $19 billion to $22 billion, and the program's cost
effectiveness measure (the ratio of collections to total administrative
expenditures) increased about 4 percent.

Personnel costs were cited as a major contributor to federal expenditures
for administrative costs in fiscal years 2002 to 2004 by the 49 state
agencies that responded to the relevant question in our survey. Most state
agencies also cited as major costs cooperative agreements under which
staff from other state agencies are paid to perform CSE program duties,
automated data systems, and contracts with private firms. Several of these
categories involve labor costs, and from fiscal years 2000 to 2004, the
number of full-time-equivalent (FTE) employees funded by the CSE program
increased about 2,200. Yet, OCSE has not developed guidelines to help
state agencies manage their FTEs and related labor costs.

Median Percentage of Administrative Costs for Most Frequently Cited
Categories, Fiscal Years 2002 to 2004

State agencies reported implementing cost-saving initiatives, and while
OCSE has helped state agencies manage costs, it has conducted a limited
number of administrative cost audits to help ensure the appropriate use of
federal funds. At least one-half of the state agencies reported
implementing 7 of the 10 cost-saving initiatives listed in our survey, and
many reported cost savings. To help state agencies manage their programs,
OCSE issued guidance, created federal/state work groups, and sponsored
conferences. OCSE is required to conduct audits of state agencies'
administrative costs, and from March 2004 to March 2006, OCSE issued eight
administrative cost audit reports. All of these audit reports raised
questions about inappropriate expenditures. Although OCSE expects to have
more resources available to conduct audits, it does not plan to use these
resources to conduct more administrative cost audits.
*** End of document. ***