    Human Service Programs: Demonstration Projects Could Identify
    Ways to Simplify Policies and Facilitate Technology Enhancements
    to Reduce Administrative Costs (19-SEP-06, GAO-06-942).

    The cost of administering human service programs has been a
    long-standing concern among policy makers interested in ensuring
    that federal programs are run in a cost-efficient manner so that
    federal funds go directly to helping vulnerable people. Little is
    known about how administrative costs compare among programs, or
    about opportunities to better manage these costs. GAO looked at
    (1) how administrative costs are defined and what rules govern
    federal and state participation in funding these costs; (2) what
    is known about the amounts of administrative spending and how
    they have changed over time; and (3) what opportunities exist at
    the federal level to help states balance cost savings with
    program effectiveness and integrity. GAO's review included seven
    programs: Adoption Assistance, Child Care and Development Fund
    (CCDF), Child Support Enforcement (CSE), food stamps, Foster
    Care, Temporary Assistance for Needy Families (TANF), and
    Unemployment Insurance (UI). To address the questions, GAO
    reviewed laws, analyzed spending data, and visited five states.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-06-942
        ACCNO:   A61124
      TITLE:     Human Service Programs: Demonstration Projects Could
    Identify Ways to Simplify Policies and Facilitate Technology
    Enhancements to Reduce Administrative Costs
         DATE:   09/19/2006
      SUBJECT:   Administrative costs
    	     Budget administration
    	     Eligibility determinations
    	     Federal aid programs
    	     Federal funds
    	     Federal/state relations
    	     Locally administered programs
    	     Policy evaluation
    	     Program management
    	     Regulation
    	     State-administered programs
    	     Adoption Assistance Program
    	     Child Support Enforcement Program
    	     Food Stamp Program
    	     Foster Care Program
    	     HHS Child Care and Development Fund
    	     Temporary Assistance for Needy Families
    	     Program

    	     Unemployment Insurance Program

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    GAO-06-942

         * Results in Brief
         * Background
         * Although Similar Types of Administrative Activities Occur ac
              * Definitions of Administrative Costs Vary across Programs
              * Federal and State Participation in Funding Administrative Co
              * Administrative Funding Mechanisms Can Affect State Spending
         * Administrative Spending Varied across Programs but Generally
              * In 2004, Administrative Spending for the Selected Programs C
              * In Recent Years, Administrative Spending Has Risen in Most o
              * In the Five States We Visited, Many Program Officials Told U
         * The Federal Government May Help Balance Administrative Cost
              * Simplifying Federal Policies May Save Administrative Costs b
              * Facilitating Technology Enhancements across Programs May Sav
         * Conclusion
         * Matter for Congressional Consideration
         * Agency Comments
              * Analyses of Program Spending Data
              * Visits to State Agencies and County Offices
              * Interviews of Federal Officials, State Auditors, and Experts
              * Reviews of Laws, Regulations, and Reports
         * GAO Contact
         * 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

    September 2006

    HUMAN SERVICE PROGRAMS

    Demonstration Projects Could Identify Ways to Simplify Policies and
    Facilitate Technology Enhancements to Reduce Administrative Costs

    GAO-06-942

    Contents

    Letter 1

    Results in Brief 3
    Background 6
    Although Similar Types of Administrative Activities Occur across Programs,
    Definitions of Administrative Costs and the Federal Funding Role Vary 10
    Administrative Spending Varied across Programs but Generally Increased at
    a Lower Rate Than Total Spending 17
    The Federal Government May Help Balance Administrative Cost Savings with
    Program Effectiveness and Integrity by Simplifying Policies and
    Facilitating Technology Enhancements 28
    Conclusion 36
    Matter for Congressional Consideration 38
    Agency Comments 39
    Appendix I Objectives, Scope, and Methodology 41
    Appendix II Administrative Cost Activities Recognized by Program Statutes
    and Regulations 44
    Appendix III Comments from the Department of Health and Human Services 48
    Appendix IV GAO Contact and Staff Acknowledgments 50
    Related GAO Products 51

    Tables

    Table 1: Description of the Seven Selected Programs 7
    Table 2: Fiscal Year 2004 Federal and State Program Spending and Agencies
    Responsible for Administering the Seven Selected Programs 8
    Table 3: Level of Government Responsible for Design and Funding of the
    Seven Selected Programs 9
    Table 4: Rules Governing State and Federal Funding of State Administrative
    Costs 15

    Figures

    Figure 1: Fiscal Year 2004 Combined Federal and State Administrative and
    Other Spending in Billions (and Administrative Spending as a Percentage of
    Total Spending) 19
    Figure 2: Fiscal Year 2004 State and Federal Shares of Administrative
    Spending 21
    Figure 3: Distribution of Combined Federal and State Administrative
    Spending by States for Fiscal Year 2004 (as a Percentage of Total Program
    Spending) 23
    Figure 4: Combined Federal and State Administrative Spending, Fiscal Years
    2000 to 2004 (Nominal Dollars) 24
    Figure 5: Percent Change in Combined Federal and State Administrative
    Spending, Fiscal Years 2000 to 2004 25
    Figure 6: Federal and State Administrative Spending as a Percentage of
    Total Program Spending, Fiscal Years 2000 to 2004 27

    Abbreviations

    ACF Administration for Children and Families AFDC Aid to Families with
    Dependent Children CalWIN CalWORKs Information Network CCDBG Child Care
    and Development Block Grant CCDF Child Care and Development Fund CSE Child
    Support Enforcement DOL U.S. Department of Labor FNS Food and Nutrition
    Service FY fiscal year HHS U.S. Department of Health and Human Services IT
    Information Technology LIHEAP Low-Income Home Energy Assistance Program
    N/A not applicable OMB Office of Management and Budget SCHIP State
    Children's Health Insurance Program SSA Social Security Administration SSI
    Supplemental Security Income TANF Temporary Assistance for Needy Families
    UI Unemployment Insurance USDA U.S. Department of Agriculture

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    United States Government Accountability Office

    Washington, DC 20548

    September 19, 2006 September 19, 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:

    The federal government spends hundreds of billions of dollars annually on
    programs that support vulnerable people. While most of this money is used
    for direct benefits and services, such as cash assistance or child care
    services, a portion of the money also goes toward the cost of
    administering the programs. Spending on administration has been a
    long-standing concern among policy makers interested in ensuring that
    federal programs are run in a cost-efficient manner so that federal funds
    go directly to helping vulnerable people. While each of the human service
    programs typically has some information available on the costs associated
    with administrative activities, little is known about how these
    administrative costs compare among the programs and whether opportunities
    exist to better manage these costs at the federal level. The importance of
    administering federal programs in an efficient manner is heightened by the
    fiscal challenges facing the nation and the need to update the federal
    government's programs and priorities to meet current and future
    challenges. The federal government spends hundreds of billions of dollars
    annually on programs that support vulnerable people. While most of this
    money is used for direct benefits and services, such as cash assistance or
    child care services, a portion of the money also goes toward the cost of
    administering the programs. Spending on administration has been a
    long-standing concern among policy makers interested in ensuring that
    federal programs are run in a cost-efficient manner so that federal funds
    go directly to helping vulnerable people. While each of the human service
    programs typically has some information available on the costs associated
    with administrative activities, little is known about how these
    administrative costs compare among the programs and whether opportunities
    exist to better manage these costs at the federal level. The importance of
    administering federal programs in an efficient manner is heightened by the
    fiscal challenges facing the nation and the need to update the federal
    government's programs and priorities to meet current and future
    challenges.

    Both federal agencies and states play important roles in administering and
    funding many of the federal programs that support vulnerable people. These
    programs may have different goals, but all were established to assist
    vulnerable populations, and as such, the federal and state administrators
    are tasked with the common goal of serving those eligible for program
    benefits and services. Likewise, federal and state administrators must
    ensure that funds allocated for program benefits and services are provided
    only to those who are eligible. Both federal agencies and states play
    important roles in administering and funding many of the federal programs
    that support vulnerable people. These programs may have different goals,
    but all were established to assist vulnerable populations, and as such,
    the federal and state administrators are tasked with the common goal of
    serving those eligible for program benefits and services. Likewise,
    federal and state administrators must ensure that funds allocated for
    program benefits and services are provided only to those who are eligible.

    To better understand these issues, we examined: (1) how administrative
    costs are defined in selected programs and what rules govern federal and
    state participation in funding these costs; (2) what is known about the
    amounts of federal and state administrative spending for selected programs
    and how they have changed over time; and (3) what To better understand
    these issues, we examined: (1) how administrative costs are defined in
    selected programs and what rules govern federal and state participation in
    funding these costs; (2) what is known about the amounts of federal and
    state administrative spending for selected programs and how they have
    changed over time; and (3) what opportunities exist at the federal level
    to help states balance cost savings with program effectiveness and
    integrity. As agreed with your office, we focused our study on seven key
    programs: Adoption Assistance, Child Care & Development Fund (CCDF), Child
    Support Enforcement (CSE), the Food Stamp Program, Foster Care, Temporary
    Assistance for Needy Families (TANF), and Unemployment Insurance (UI).
    These programs are among the largest programs serving vulnerable
    populations and each has annual federal outlays of over $1 billion. Each
    of the programs also is funded in part through state contributions.

    To address all of our research questions, we interviewed federal officials
    from each of the programs and the Office of Management and Budget (OMB),
    and we conducted state and local interviews in California, Maryland,
    Michigan, Ohio, and South Carolina. We selected these states to provide a
    range of total program spending and share of spending on administration as
    well as a mixture of state and county administrative structures, urban and
    rural demographics, and geographic location. Although our selection
    includes a range of states, our findings are not generalizable beyond the
    states included in our study. In addition, to address our first research
    question, we reviewed laws and regulations on definitions of
    administrative costs and federal-state participation in funding these
    costs for the selected programs. We also reviewed relevant circulars
    issued by the OMB. To address our second question, we analyzed
    administrative spending data, as defined for financial reporting purposes
    by program laws and regulations, for each program for fiscal years
    2000-2004, including federal and state shares of spending. Fiscal year
    2004 data were the most recent data available for all seven programs at
    the time of our review. We assessed the reliability of the administrative
    spending data by interviewing (1) agency officials knowledgeable about the
    data and (2) state officials in the five states we visited knowledgeable
    about the data as reported to the federal government. We also reviewed
    state single audit reports and talked to state auditors in the states we
    visited to identify any known problems with the administrative spending
    data or the technology systems that store the data. Our reviews and
    discussions did not identify significant problems with the data. We
    determined that these data were sufficiently reliable for the purposes of
    this report.

    To address our third question, we interviewed federal officials from each
    of the programs and the OMB as well as state and local program officials
    about administrative costs, options for reducing costs while preserving
    services, and challenges to and consequences of these options. During the
    interviews we also inquired about any interactions between our key
    programs and other programs that support vulnerable people, including
    Medicaid, the State Children's Health Insurance Programs (SCHIP), the
    Low-Income Home Energy Assistance Program (LIHEAP), and housing programs.
    In addition, we interviewed state audit officials from the five states
    about any similar work they have conducted. We also reviewed our prior
    work related to this issue.

    We issued two related reports in June and July 2006 that focused on the
    administrative costs of the Adoption Assistance and Foster Care programs (
    GAO-06-649 , Foster Care and Adoption Assistance: Federal Oversight Needed
    to Safeguard Funds and Ensure Consistent Support for States'
    Administrative Costs, June 2006) and the Child Support Enforcement program
    ( GAO-06-491 , Child Support Enforcement: More Focus on Labor Costs and
    Administrative Cost Audits Could Help Reduce Federal Expenditures, July
    2006). We coordinated our data collection efforts for all three reports.
    Therefore, some of the information on the Child Support Enforcement,
    Adoption Assistance, and Foster Care programs in this report is drawn from
    work conducted for the earlier reports. For example, for this report, we
    supplemented our data collection efforts with administrative spending data
    collected for the other two reports as well as information collected from
    interviews conducted for the other reports. We also coordinated efforts to
    assess the reliability of the administrative spending data used in the
    three reports.

    We conducted our work between July 2005 and August 2006 in accordance with
    generally accepted government auditing standards. See appendix I for more
    details on our scope and methodology.

                                    Results in Brief

    The activities that are defined as administrative costs in statutes and
    regulations differ across the seven programs in our review, and the
    programs are subject to various federal funding rules and funding types.
    In the states we visited, state and local program officials conduct
    similar activities to operate each program, such as determining
    eligibility, monitoring program quality, and developing and maintaining
    information technology (IT) systems. However, for financial reporting
    purposes, these activities may be defined as administrative costs in one
    program but not in another, in accordance with federal statutes and
    regulations. For example, the TANF regulations and CCDF legislation
    defining administrative costs specifically exclude costs associated with
    providing direct program services, while Food Stamp legislation
    specifically includes the costs of providing direct program services such
    as certifying applicant households and issuing food stamp benefits as
    administrative costs. The statutes and regulations defining administrative
    costs differ across the programs in part because these programs have
    evolved separately over time. The programs have different missions,
    priorities, services, and clients, and jurisdiction for these programs is
    spread among numerous congressional committees and federal agencies, each
    of which has a role in defining what is an administrative cost. In
    addition to differences in definitions of administrative costs, the laws
    for each program also include different mechanisms for state and federal
    participation in funding administrative costs, including specific matching
    rates, block grants, and spending caps. These funding mechanisms play a
    role in managing the federal government's financial risk and can affect
    state spending decisions by providing financial incentives and funding
    restrictions. While funding mechanisms can create incentives for states to
    limit administrative spending, officials in each of the states we visited
    cautioned that if administrative spending is reduced too far, it can
    negatively affect client services.

    In recent years, combined federal and state administrative spending
    generally increased at a lower rate than the increase in total spending in
    five of the seven selected programs, but varied widely across programs. In
    fiscal year 2004, the seven programs combined spent $21 billion on
    administrative costs, as defined by each program's statutes and
    regulations, amounting to about 18 percent of total program spending. The
    percentage spent on administration varied from 2 percent in CCDF, to 58
    percent in Foster Care, with the exception of CSE in which all program
    spending is considered administrative. Because of the differences in which
    activities are defined as administrative costs for financial reporting
    purposes, a program with high administrative spending is not necessarily
    less efficient than a program with low administrative spending. In recent
    years, the amounts spent on administration increased in five of the seven
    selected programs, but, in most cases, increased at a lower rate than
    total program spending. As a result, the percentage spent on program
    administration declined in five of the programs. In addition, while there
    are limited federal data on what specific costs make up administrative
    spending, officials in the five states we visited reported that staff
    costs and IT were among the largest costs associated with running their
    programs. Officials reported that for some of the programs in our review,
    personnel costs may be higher than necessary, in part because of complex
    administrative processes and outdated information systems that require
    substantial staff time.

    The federal government may help balance long-term administrative cost
    savings with program effectiveness and integrity by simplifying policies
    and facilitating technology improvements. Simplifying policies-especially
    those related to eligibility determination processes and federal funding
    structures-could save resources, improve productivity, and help staff
    focus more time on performing essential program activities, such as
    providing quality services and accurate benefits to recipients. For
    example, the Food and Nutrition Service (FNS) allows some states to use
    TANF, Medicaid, and Supplemental Security Income (SSI) income and resource
    definitions for purposes of determining Food Stamp Program eligibility. In
    addition, by helping states facilitate technology enhancements across
    programs, the federal government may help streamline processes and
    potentially reduce long-term costs. For example, by receiving verified
    electronic data from the Social Security Administration (SSA), some states
    are able to determine SSI recipients' eligibility for food stamp benefits
    without having to separately collect and verify applicant information.
    Officials told us that this arrangement saves administrative dollars and
    reduces duplication across programs while protecting program integrity.
    Together, simplified policies and improved technology could streamline
    administrative processes and potentially reduce administrative costs. We
    acknowledge that all levels of government have attempted to streamline
    processes across human service programs for the past 20 years. However,
    many of these efforts have had limited success due, in part, to the
    considerable challenges that streamlining program processes entail, such
    as the challenge of achieving consensus among the numerous congressional
    committees and federal agencies involved in shaping human service program
    policies and a lack of information on how program changes would affect
    particular populations. We believe one challenge in particular-the lack of
    information on the effect streamlining efforts might have on program and
    administrative costs-is thwarting progress in this area.

    We suggested in our prior work ( GAO-02-58 ) in 2001 that Congress
    consider authorizing state and local demonstration projects designed to
    simplify and coordinate eligibility determination and other processes for
    federal human service programs. While both the House and Senate have
    considered proposals to authorize such demonstration projects, legislation
    was not enacted. We continue to believe that demonstration projects would
    provide more information on how streamlining processes may help reduce
    administrative costs and, further, believe that any projects should have
    an evaluation component to test the long-term cost-effectiveness of the
    projects. In commenting on the draft report, the U.S. Department of Health
    and Human Services (HHS) agreed with the report's emphasis on the need for
    cost-effective administration of federal programs, FNS officials suggested
    we add more detailed information to the report in several areas, and the
    U.S. Department of Labor (DOL) provided only technical comments. None of
    the agencies commented on our suggestion to Congress.

                                       Background

    The federal government funds a wide array of programs intended to provide
    benefits and services or both to individuals, families, and households
    needing financial assistance or other social supports. Representing a
    range of programs available through federal and state partnerships, the
    seven programs in this review have different goals and purposes, and,
    thus, provide a range of benefits and services to specific target
    populations. For example, the Food Stamp Program provides nutrition
    assistance to low-income individuals, while the CSE program helps
    custodial parents, regardless of income, collect child support payments
    from noncustodial parents.1 Table 1 provides a brief description of each
    of the programs covered in this report.

    1 Noncustodial parents are those who do not have custody of their
    children.

    Table 1: Description of the Seven Selected Programs

    Program             Description
    Adoption Assistance The Adoption Assistance program, authorized under
                           title IV-E of the Social Security Act, assists states
                           in finding adoptive homes for eligible children with
                           special needs. The program provides funds to states to
                           assist in providing adoptive families with ongoing
                           financial and medical assistance for adopted children
                           with special needs as well as funds to support staff
                           training and administrative costs.
    CCDF                CCDF, authorized by the Personal Responsibility and
                           Work Opportunity Reconciliation Act of 1996, assists
                           low-income families, families receiving temporary
                           public assistance, and those transitioning from public
                           assistance in obtaining child care so that they can
                           work or attend training or education. With this block
                           grant, states develop and pay for child care programs.
                           Within certain federal guidelines, states have
                           discretion in deciding how these funds will support
                           child care, who will be eligible, and what payment
                           mechanism will be used.
    CSE                 CSE is a joint federal and state partnership
                           established in 1975 under title IV-D of the Social
                           Security Act to ensure that parents financially
                           support to their children. State CSE programs are
                           primarily responsible for carrying out the basic
                           activities for locating noncustodial parents,
                           establishing paternity and support orders, and
                           collecting and distributing child support payments.
                           Although the states administer the child support
                           enforcement program, the federal government plays a
                           major role, which includes funding 66 percent of the
                           program, establishing policies and guidance, and
                           overseeing and monitoring state CSE programs'
                           compliance with federal requirements.
    Food Stamp Program  The Food Stamp Program, established in 1964, is
                           designed to provide basic nutrition to low-income
                           individuals and families in the United States by
                           supplementing their income with benefits to purchase
                           food. The federal government pays the full cost of
                           food stamp benefits and shares the states'
                           administrative costs. The federal government
                           promulgates program regulations and ensures that state
                           officials administer the program in compliance with
                           federal rules. The states administer the program by
                           determining whether households meet the program's
                           income and asset requirements, calculating monthly
                           benefits for qualified households, and issuing
                           benefits to participants on an electronic benefits
                           transfer card.
    Foster Care         The Foster Care program, authorized under title IV-E
                           of the Social Security Act, helps states provide care
                           for eligible children who need placement outside their
                           homes-in a foster family home or an institution. This
                           program provides funds to states to assist with the
                           costs of foster care maintenance for eligible
                           children, administrative costs to manage the program,
                           and training for program staff and foster parents.
    TANF                Personal Responsibility and Work Opportunity
                           Reconciliation Act of 1996 replaced Aid to Families
                           with Dependent Children (AFDC) with TANF, which marked
                           the end of federal entitlement assistance. TANF ended
                           unlimited matching funding for family cash welfare and
                           created fixed-block grants to states. The block grant
                           covers benefits, administrative expenses, and services
                           targeted to needy families and gives states great
                           flexibility to design their own TANF programs. States
                           must spend a specified amount of state funds on
                           eligible low-income families-known as the
                           maintenance-of-effort requirement.
    UI                  The UI program, established in 1935, serves to: (1)
                           temporarily replace a portion of earnings for workers
                           who become unemployed through no fault of their own
                           and (2) facilitate the reemployment of UI claimants.
                           UI is made up of 53 state-administered programs that
                           are subject to broad federal guidelines and oversight.

    Source: GAO.

    The programs included in this review also represent a wide range of
    spending, from $2.9 billion for Adoption Assistance to $37 billion for UI.
    For fiscal year 2004, total spending, including administrative and all
    other spending, for the seven programs was $119 billion. Additionally,
    each of the seven selected programs is administered or overseen by one of
    three different federal departments. Table 2 shows the agency responsible
    for each program and total program expenditures for fiscal year 2004, the
    most current year available.

    Table 2: Fiscal Year 2004 Federal and State Program Spending and Agencies
    Responsible for Administering the Seven Selected Programs

                                                                    Total program
                                                            spending, fiscal year
    Agency                                   Program        2004 (in billions)
    Department of Agriculture/Food and       Food Stamp  $29.8
    Nutrition Service                        Program
    Department of Health and Human           Adoption    2.9
    Services/Administration for Children and Assistance
    Families                                 CCDF        9.4
                                                CSE         3.2a
                                                Foster Care 8.6
                                                TANF        25.8
    Department of Labor/Employment and       UI          37.0b
    Training Administration

    Source: GAO analysis of HHS, USDA, and DOL data.

    aAll CSE spending is administrative. The CSE program reported total
    federal and state administrative expenditures as $5.3 billion for fiscal
    year 2004. However, total spending on the program is offset by child
    support collections for families who received benefits from the TANF and
    Foster Care programs, resulting in net program expenditures of $3.2
    billion.

    bIn the UI program, federal law gives responsibility for administrative
    funding to the federal government; however, some states supplement federal
    funding with state funds. We did not include the state share in our
    analysis because historical data on state spending were not available for
    all of the years included in our review.

    The programs covered by this review have varying federal-state
    relationships in administering and funding the programs. The level of
    government with responsibility for designing the rules, services, and
    processes varies by program. Some programs have federally standardized
    designs while other programs provide states with flexibility to develop
    their own eligibility criteria, benefit levels, and program rules. All of
    the programs are funded through some form of federal-state partnership;
    however, the rules governing funding responsibility vary widely by
    program. Table 3 summarizes the level of government with which
    responsibility for the design and funding resides for each of the seven
    programs.

    Table 3: Level of Government Responsible for Design and Funding of the
    Seven Selected Programs

                                           Funding forb
    Program             Designa       Benefits/services Administration
    Adoption Assistance Federal/state Federal/state     Federal/state
    CCDF                Federal/state Federal/state     Federal/state
    CSE                 Federal/state N/Ac              Federal/state
    Food Stamp Program  Federal       Federal           Federal/state
    Foster Care         Federal/state Federal/state     Federal/state
    TANF                Federal/state Federal/state     Federal/state
    UI                  Federal/state Stated            Federal

    Source: GAO.

    aDefined as the level of government that is primarily responsible for
    availability, eligibility, and benefit amount determination.

    bDefined as the level of government that supplies the primary source of
    funding for the benefit or for administering the benefit. If substantial
    funding comes from more that one source, both sources are listed. Some
    additional funding may come from sources not listed in the table.

    cAll CSE spending is considered administrative.

    dState unemployment taxes pay for regular benefits and half of extended
    benefits, while federal taxes pay half of extended benefits.

    An individual low-income family is likely to be eligible for and
    participate in several human service programs. For example, in 2001, 88
    percent of families receiving TANF also received food stamp benefits and
    98 percent received Medicaid. The programs are typically administered out
    of a local assistance office that offers benefits from several programs.
    Depending on the administrative structure of the local assistance office,
    a family or individual might provide necessary information to only one
    caseworker who determines eligibility and benefits for multiple programs,
    or they might work with several caseworkers who administer benefits for
    different programs.

    Because eligibility determination as well as other activities are often
    conducted jointly for multiple programs, some programs require states to
    have a process to ensure that costs are appropriately charged to the
    correct federal programs for federal reimbursement purposes. The cost
    allocation process is the formal process for sharing the costs of
    activities that are performed jointly for more than one program. Formal
    "cost allocation plans" specify how costs for those activities are to be
    covered by the various programs. For example, when a local eligibility
    worker determines that an applicant is eligible for TANF, food stamp
    benefits, and CCDF, the cost of her or his time is allocated across these
    programs in accordance with the state's approved cost allocation plan.
    These costs are then reported as administrative or programmatic costs,
    depending on the laws and regulations governing funding for each of the
    programs.

    Although Similar Types of Administrative Activities Occur across Programs,
         Definitions of Administrative Costs and the Federal Funding Role Vary

    Across the seven programs in our review, the legal definitions and the
    federal funding rules for administrative costs vary. The statutes and
    regulations for each program define administrative costs differently, even
    though many of the same activities are performed to administer the
    programs. The laws for each program also include different mechanisms for
    state and federal participation in funding administrative costs, including
    specific matching rates, block grants, and spending caps, which can affect
    state decisions on administrative spending.

    Definitions of Administrative Costs Vary across Programs

    Although many of the programs we reviewed conduct similar activities to
    administer the program, not all of the activities are defined in laws and
    regulations as administrative costs for financial reporting purposes.2
    Based on our analysis of information collected from state and local
    officials, we identified several categories of administrative activities
    that are common across many of these programs. In particular, we found
    that the administration of each program involves at least (1) determining
    who is eligible to participate in the program or processing applications
    for new participants, (2) monitoring program quality, (3) conducting
    general program management and planning, (4) developing and maintaining IT
    systems, and (5) training employees, either at the state or local levels.
    All of the programs also issue benefits or provide services to eligible
    participants, with the exception of CSE, which generally collects and
    distributes payments from noncustodial parents to custodial families.
    Additional activities, such as case management and outreach, are performed
    in only some of the programs or some states.

    2 As used in this report, the phrase "administrative spending as defined
    for financial reporting purposes" is used to describe federal and state
    spending that, by applicable federal statutes and regulations, is
    reportable as administrative expenses of the program.

    However, the statutes and regulations for each program differ on which of
    these activities are defined as administrative costs and which are not.
    For example, the TANF regulations and CCDF statute defining administrative
    costs specifically exclude costs associated with providing direct program
    services, while Food Stamp statute specifically includes the costs of
    providing direct program services, such as certifying applicant households
    and issuing food stamp benefits, as administrative costs. In addition,
    some statutes and regulations are more comprehensive in identifying which
    activities or items are specifically included or excluded from the
    definition of administrative costs. For example, while UI legislation
    allows for amounts "necessary for the proper and efficient administration"
    of state programs with few other qualifiers, the Food Stamp legislation
    and regulations list dozens of specific costs, including such items as
    audit services, advisory councils, building lease management, and certain
    advertising costs. Appendix II identifies the activities and items that
    are specifically included in the definitions of administrative costs in
    the statutes and regulations for each program. Nonetheless, most of the
    lists of activities in program statutes and regulations are only
    illustrative and not exhaustive. Phrases such as "these activities may
    include but are not limited to..." are commonplace and leave the exact
    definitions of administrative costs somewhat ambiguous. Such ambiguity may
    lead to inconsistent interpretation of the definitions of administrative
    costs. Our prior work on administrative costs in the Adoption Assistance
    and Foster Care programs found that state program officials and HHS
    regional offices make different decisions as to what costs are appropriate
    to claim as administrative.

    The statutes and regulations defining administrative costs differ across
    the programs in part because these programs have evolved separately over
    time and have different missions, priorities, services, and clients. The
    CSE program, in particular, differs from the other programs in our review
    in that CSE does not provide public financial benefits to its
    participants; rather, CSE services include collecting and distributing
    payments from noncustodial parents to custodial families, other states,
    and federal agencies. In addition, although the programs conduct similar
    activities, differences in missions and priorities may add to differences
    in spending on particular activities. For example, the Food Stamp
    Program's extensive requirements for monitoring program quality may result
    in more spending on this activity than for a program with few quality
    control requirements.

    The number of congressional committees and federal agencies involved in
    developing laws and regulations for these programs has also contributed to
    differences in the definitions of administrative costs and can make
    coordination across programs difficult. The division of legislative and
    executive responsibility allows multiple points of access for Members of
    Congress, interest groups, and the affected public, but the various
    legislative committees and executive agencies do not necessarily
    collaborate with each other to develop consistent laws and regulations
    across programs. Federal legislation for all of the programs in our
    review, except the Food Stamp Program, is under the jurisdiction of the
    Senate Finance Committee and the House Ways and Means Committee, although
    some aspects of these programs are under the jurisdiction of other
    congressional committees. Federal regulations for Adoption Assistance and
    Foster Care, CCDF, CSE, and TANF are developed by various offices within
    the HHS Administration for Children and Families; Food Stamp Program
    regulations are developed by the U.S. Department of Agriculture (USDA)
    Food and Nutrition Service; and UI regulations are developed by the DOL
    Employment and Training Administration.

    Federal and state officials we interviewed disagreed on whether it was
    problematic to have different definitions of administrative costs across
    programs. According to officials from the OMB, whose role is to improve
    administrative management of federal programs, differences in legal
    definitions of administrative costs across programs are not a barrier to
    program management. OMB officials stated that it is important to accept
    that programs are different and that it may not be possible to compare
    costs across programs. A number of state budget officials responsible for
    financial reporting, however, described how the variation in definitions
    of administrative costs creates difficulties. For example, one budget
    official stated that it can be difficult to develop coding for accounting
    and budgeting that can be used across programs and, as a result, it can be
    difficult to monitor costs accurately. A budget official in another state
    argued, similarly, that having consistent definitions of administrative
    costs and consistent caps on administrative spending would help to
    simplify the process for allocating costs across programs and, therefore,
    might reduce costs. On the other hand, state officials responsible for
    developing program policies and overseeing local implementation of the
    programs reported fewer difficulties with the differences in
    administrative cost definitions. Several of these officials reported that
    they pay little attention to which aspects of their jobs are defined as
    administrative activities and which are not.

    Federal and State Participation in Funding Administrative Costs Is Governed by
    Matching Rates, Block Grants, and Spending Caps

    Federal and state participation in funding the administrative costs of
    human service programs is governed by federal laws that establish matching
    rates, block grants, spending caps, and other funding mechanisms. These
    funding mechanisms, described below, play an important role in managing
    the federal government's risk and can affect states' spending behavior by
    producing financial incentives and funding restrictions.

               o  Matching rates-In programs funded through federal matching
               rates, the federal government covers a portion of states' spending
               on program administration. For example, if a program has a
               50-percent matching rate, the federal government is obligated to
               reimburse states for 50 percent of their spending on
               administration, as defined in law.3 Funding of Foster Care,
               Adoption Assistance, CSE, the Food Stamp Program, and a portion of
               CCDF include matching rates.4

               o  Block grants-Block grants provide states with a statutorily
               fixed amount of funding. TANF5 and a portion of CCDF are funded
               through block grants. The TANF block grant does not change when
               caseloads change, nor is it adjusted for inflation. In both TANF
               and CCDF, states are required to spend a certain amount of their
               own funds to be eligible to receive the full amount of federal
               funds.
               o  Spending caps-Spending caps limit the amount or percent of
               state or federal funds that can be spent for particular purposes.
               For example, the TANF statute prohibits states from spending more
               than 15 percent of federal funds received on administrative costs,
               while the CCDF statute prohibits states from spending more than 5
               percent of aggregate program funds on administrative costs.6

               o  Other funding rules-The legislation governing the funding of
               administrative costs for the UI program gives responsibility for
               administrative funding to the federal government. DOL uses
               information gathered from the states to determine how much of the
               available funds each state will receive. While states are not
               required to spend their own funds on administrative costs, over 40
               states chose to provide additional state funds to cover some
               administrative costs of the UI program in 2004.

    3 The federal matching rate and the actual share of expenditures that the
    federal government pays, in practice, may differ slightly, because of the
    detailed rules governing the sharing of expenses and application of the
    federal matching rate.

    4 CCDF is funded by a combination of discretionary and entitlement funding
    through the Child Care and Development Block Grant (CCDBG). Discretionary
    funds are subject to the annual appropriations process and are allocated
    among states according to a formula; states are not required to match
    these discretionary funds. CCDF also provides entitlement (or "mandatory")
    funding to states. After reserving an amount for payments to Indian tribes
    and tribal organizations, remaining entitlement funds are allocated to
    states in two components. First, each state receives a fixed amount each
    year, as established in law; no state match is required for these funds.
    Second, remaining entitlement funds are allocated to states according to
    each state's share of children under age 13. States must meet
    maintenance-of-effort and matching requirements to receive these funds. In
    addition to amounts provided to states specifically for child care, states
    may also transfer up to 30 percent of their TANF block grant allotment
    into their CCDBG.

    5 The bulk of federal TANF funds are provided to states in a basic block
    grant called the State Family Assistance Grant, totaling $16.5 billion for
    the 50 states and the District of Columbia. The TANF statute also provides
    for supplemental grants to states that meet certain criteria and matching
    contingency funds that can provide additional funding during recessionary
    periods if certain conditions are met.

    Table 4 summarizes the rules governing state and federal funding of
    administrative costs. The table identifies for each program the federal
    funding mechanism and any federal matching rates, caps on administrative
    expenditures, and other rules regarding funding of administrative costs.

    6 The 5-percent spending cap applies to the total Child Care and
    Development Fund, and need not be applied individually to each of the
    component funds -- the discretionary, mandatory, and matching (including
    the state share) funds. However, the spending cap does not apply to the
    states' maintenance-of-effort expenditures.

    Table 4: Rules Governing State and Federal Funding of State Administrative
    Costs

                                Federal
                                matching rate                  Other rules
                    Federal     for            Cap on          regarding funding
                    funding     administrative administrative  of administrative
    Program      mechanism   expenditures   expenditures    costs
    Adoption     Matching    50%            N/A             75% federal
    Assistance   rate                                       matching rate for
                                                               training
                                                               expenditures
    CSE          Matching    66%            N/A             90% federal
                    rate                                       matching rate for
                                                               lab costs of
                                                               paternity testinga

                                                               The federal
                                                               government also
                                                               provides incentive
                                                               funds to encourage
                                                               states to achieve
                                                               program goals.
    Food Stamp   Matching    50%b           N/A             100% federal grant
    Program      rate                                       coverage for some
                                                               employment and
                                                               training costs
    Foster Care  Matching    50%            N/A             75% federal
                    rate                                       matching rate for
                                                               training
                                                               expenditures
    CCDF         Combination 50% to 77%, as 5% of aggregate N/A
                    of block    determined by  funds
                    grant and   formula for
                    matching    each statec
                    rate
    TANF         Block grant N/A            15% of State    N/A
                                               Family
                                               Assistance
                                               Grant
    Unemployment Other       N/A            N/A             N/A
    Insurance

    Source: GAO analysis of HHS, USDA, and DOL data.

    aAs a result of the Deficit Reduction Act of 2005, Pub.L. 109-171 (Feb. 8,
    2006), the higher federal matching rate for laboratory costs of paternity
    testing will be reduced to the general federal CSE matching rate of
    66-percent beginning October 1, 2006.

    bThe 50-percent federal share of state and local administrative expenses
    is reduced by $197 million a year to account for costs covered by grants
    for TANF, resulting in an actual federal share paid under the Food Stamp
    Program that is slightly below 50 percent.

    cFederal matching rate applies only to one component of CCDF funding,
    which is available to states that achieve required levels of state
    spending.

    Administrative Funding Mechanisms Can Affect State Spending

    Administrative funding mechanisms can create financial incentives that
    affect state spending behavior; however, state responses to these
    incentives vary, according to the federal and state officials we
    interviewed. In some cases, matching rates can encourage states to spend
    more money on a program because for each dollar of its own resources the
    state invests, the state receives additional federal funding for the
    program. For example, the grants manager in one of the states we visited
    said that the federal matching rate gives the state an incentive to
    maintain its funding and to provide more services. In other cases,
    however, state officials reported that they limit their use of federal
    matching funds because they have limited state resources to invest in the
    program. For example, a budget official in one of the states we visited
    reported that when a new expenditure could be charged to either the Food
    Stamp Program, which has a matching rate, or the TANF block grant, the
    state or county might decide to use the TANF funds to avoid the need for
    the state to provide additional funding to meet its share of the matching
    funds. However, block grants also create general incentives for states to
    meet demand for services with limited spending because the federal funding
    amount is fixed. CCDF officials in Michigan stated that because they
    receive a fixed amount of funding, running the program efficiently is
    always in the front of their minds.

    Spending caps on the percentage of a block grant that can be spent on
    administrative costs are, by definition, designed to limit spending.
    However, officials in four of the five states we visited said that the
    CCDF and TANF caps on administrative spending were not a major factor in
    their administrative spending decisions. TANF administrative spending in
    the states we visited was well below the 15-percent cap. Nationally, state
    spending on administration was 7.7 percent for TANF and 2.3 percent for
    CCDF in fiscal year 2004. Some CCDF officials reported that their
    administrative spending decisions were influenced more by state limits on
    administrative spending than by the federal spending cap. For example, the
    California Department of Education estimates that for fiscal year
    2006-2007, only 1 percent of program funds will be available for program
    administration due to current state budget constraints. This amount is
    well below the federal 5-percent cap, because, according to CCDF program
    officials in California, the state legislature wanted to put every
    possible dollar into additional child care vouchers.

    In addition, the funding allocation method for the UI program is designed
    to encourage states to administer their programs efficiently. Total
    funding appropriated for the UI program is less than the amount the states
    report needing to administer their UI programs. To promote efficiency, DOL
    reduces the requests of states with higher costs for certain
    "controllable" aspects of the budget by greater percentages than lower
    cost states. For example, the longer it takes a state to process claims,
    the greater its reduction in the allocation process. Federal UI officials
    we interviewed argued that this process provides states with an incentive
    to increase efficiency. However, some state officials argued that the
    funding process creates disincentives for states to improve efficiency and
    reduce administrative spending. For example, they argued that if they
    invest in technologies that improve their efficiency in administering the
    program, they do not get to keep the savings they gain. Rather, spending
    less in one year could result in less federal funding the next year.

    While funding mechanisms can create incentives for states to limit
    administrative spending, officials in each of the states we visited
    cautioned that if administrative spending is reduced too far, it can
    negatively affect client services. Several officials described how reduced
    administrative spending due to state budget cuts had already affected the
    quality of their services. For example, state human service officials in
    Maryland stated that a hiring freeze has resulted in a slower rate of
    application processing and an increase in Food Stamp administrative
    errors, such as eligible applicants being denied benefits. Local human
    service officials in Michigan reported that budget cuts had resulted in
    increased office waiting times for applicants and the elimination of
    services such as home visits and prevention services.

      Administrative Spending Varied across Programs but Generally Increased at a
                             Lower Rate Than Total Spending

    Administrative spending for the seven programs combined, as defined for
    financial reporting purposes by program statutes and regulations, made up
    about 18 percent of total program spending in fiscal year 2004. However,
    amounts varied widely across the programs and states. Between fiscal years
    2000 and 2004, administrative spending increased in five of the seven
    programs, but generally increased at a lower rate than total program
    spending. Officials in the five states we visited reported that staff and
    technology made up a large portion of the administrative spending in their
    programs.

    In 2004, Administrative Spending for the Selected Programs Combined Was about 18
    Percent of Total Program Spending, but Spending Varied Greatly across Programs
    and States

    In fiscal year 2004, administrative spending, as defined for financial
    reporting purposes by program statutes and regulations, amounted to about
    18 percent7-or $21 billion-of the $119 billion in total program spending
    for the seven programs combined; however, there were large differences in
    the amounts spent by programs and states. As shown in figure 1, the amount
    spent on administration varied widely among the seven programs, ranging
    from $200 million in CCDF to $5.2 billion in the Food Stamp Program and
    $5.3 billion in CSE. As a percentage of total program spending,
    administrative spending ranged from 2 percent in CCDF to 58 percent in the
    Foster Care program, with the exception of CSE in which all program
    spending is considered administrative.8 While administrative spending
    amounts varied significantly across the seven programs, this variation
    does not necessarily indicate that certain programs are more efficiently
    administered. Instead, differences in spending largely reflect the
    differences in how each program's laws and regulations define what counts
    as an administrative cost. As a result, comparing spending across programs
    is not a useful means for determining efficiency.

    7 All CSE spending is considered administrative. When including CSE, the
    programs combined spent 17.5 percent of total program spending on
    administration. When excluding CSE from the calculation, the other
    programs combined spent 13.6 percent of total program spending on
    administration.

    8 In addition, in fiscal year 2004, CSE collected $4.38 in child support
    payments for every dollar spent on the program, also known as the
    cost-effectiveness ratio.

    Figure 1: Fiscal Year 2004 Combined Federal and State Administrative and
    Other Spending in Billions (and Administrative Spending as a Percentage of
    Total Spending)

    aAll CSE spending is administrative. The CSE program reported total
    federal and state administrative expenditures as $5.3 billion for fiscal
    year 2004. However, total spending on the program is offset by child
    support collections for families who received benefits from the TANF and
    Foster Care programs, resulting in net program expenditures of $3.2
    billion.

    bUI data are only estimates because the administrative spending data
    provided by DOL were by fiscal year, while the benefit data were provided
    by calendar year. In addition, in the UI program, federal law gives
    responsibility for administrative funding to the federal government;
    however, some states chose to supplement federal funding with state funds.
    We did not include the state share in our analysis because historical data
    on state spending were not available for all of the years included in our
    review. The state share accounted for about $260 million in administrative
    spending in 2004.

    Each of the seven programs in our review is funded through a combination
    of federal and state contributions. For the seven programs combined,
    federal funds made up roughly 60 percent-or $13 billion-of the $21 billion
    spent on administration in fiscal year 2004.9 Federal spending accounted
    for roughly half or more of the total amount spent to administer each of
    the seven programs. Figure 2 shows the federal and state shares of
    administrative spending for each program. These shares are largely
    representative of the different funding requirements set in law for each
    program, as described earlier in the report.10 For example, the federal
    government matches state administrative spending at specified rates in
    four of the seven programs. The federal match rate set out by law for
    administrative spending in the CSE program is 66 percent, while the match
    rate for the Adoption Assistance, Food Stamp, and Foster Care programs is
    50 percent.11 (See table 4, for a description of the matching rates and
    other funding rules that govern state and federal spending in each
    program.)

    9 Data on the state and federal shares of administrative spending are not
    collected for the CCDF program. In fiscal year 2004, combined federal and
    state administrative spending for CCDF equaled $212 million. With or
    without including the $212 million in CCDF administrative spending, total
    administrative spending for the selected programs combined equaled roughly
    $21 billion.

    10 These funding requirements have not changed significantly since fiscal
    year 2000 and the state and federal shares of administrative spending have
    remained largely the same over time.

    11 CCDF also has matching rates that are determined by a formula set in
    law and that vary by state from 50 percent to 77 percent.

    Figure 2: Fiscal Year 2004 State and Federal Shares of Administrative
    Spendinga

    Note: The federal matching rate and the actual share of spending that the
    federal government pays, in practice, may differ slightly, because of the
    detailed rules governing the sharing of expenses and application of the
    federal matching rate.

    aState and federal shares of administrative spending for the CCDF program
    are not available.

    bThe $3.5 billion in federal spending does not include amounts that the
    federal government paid to states in incentive payments. In addition, as
    reported in GAO-06-491, net federal expenditures-those that are reduced by
    child support collections distributed to TANF and Foster Care programs and
    fees charged for certain services-for fiscal year 2004 were about $2.8
    billion. In this report, we did not deduct these collections from the
    reported spending amounts.

    cIn the UI program, federal law gives responsibility for administrative
    funding to the federal government; however, some states supplement federal
    funding with state funds. We did not include the state share in our
    analysis because historical data on state spending were not available for
    all of the years included in our review. The state share accounted for
    about $260 million in administrative spending in 2004, amounting to 9
    percent of UI administrative spending.

    As with spending across programs, in fiscal year 2004, the combined
    federal and state amount spent on administration also varied greatly by
    state within programs, as shown in figure 3. In some programs, this
    variation is considerable. For example, in the Foster Care program, the
    percentage of total program spending on administration in fiscal year 2004
    ranged from 21 percent to 86 percent. Such variation may suggest some
    opportunities for improved administrative efficiencies in some states;
    however, other factors also may account for the wide ranges in the percent
    spent on administration. Specifically, in the Foster Care and Adoption
    Assistance programs, our prior work cited differences in states' claiming
    practices as well as differences in oversight among HHS regional offices
    that may contribute to differences in state administrative spending.12 In
    addition, federal officials we interviewed said that, given high fixed
    costs, a small state might expend a higher percentage of its total program
    budget on administration than a larger state that serves more people with
    the same fixed costs. Our recent work on administrative costs in CSE
    suggests that states' structures for administering their support programs
    may also contribute to the cost of running the programs.13 Specifically,
    we reported that from fiscal year 2000 to fiscal year 2004, the median net
    federal expenditure for CSE agencies with state-operated programs
    decreased about 4 percent while the median net federal expenditure for
    county-operated programs increased about 11 percent. A few officials we
    interviewed said that states with county-administered programs required
    more administrative spending due to the duplication of effort at the
    county and state levels. However, in Ohio-a state with a
    county-administered structure-officials reported that while the
    county-administered system may contribute to some inefficiencies, moving
    to a state-administered system would require the state to equalize pay
    scales and building costs around the state, which would likely increase
    administrative spending.

    12 See GAO, Foster Care and Adoption Assistance: Federal Oversight Needed
    to Safeguard Funds and Ensure Consistent Support for States'
    Administrative Costs, GAO-06-649 (Washington, D.C.: June 15, 2006).

    13 See GAO, Child Support Enforcement: More Focus on Labor Costs and
    Administrative Cost Audits Could Help Reduce Federal Expenditures,
    GAO-06-491 (Washington, D.C.: July 6, 2006).

    Figure 3: Distribution of Combined Federal and State Administrative
    Spending by States for Fiscal Year 2004 (as a Percentage of Total Program
    Spending)a

    aAll CSE spending is considered administrative; therefore, there is no
    range across the states of percent of total spending on administration.

    bOur calculation for percent of total spending on CCDF administrative
    costs includes maintenance of effort spending and expenditures from all
    open appropriation years in FY 2004. The cap on CCDF administrative
    spending excludes maintenance of effort spending and applies to a single
    fiscal year's appropriation, the funds from which need not necessarily be
    spent in the year of the appropriation. Thus, the percentages shown above
    do not necessarily indicate that some states are spending above the legal
    cap.

    cFor the UI program, the figure only includes federal administrative
    spending and does not include additional state spending.

    In Recent Years, Administrative Spending Has Risen in Most of the Selected
    Programs, but at a Lower Rate Than Total Program Spending

    From fiscal years 2000 to 2004, administrative spending increased in most
    of the seven programs covered in this review, but at a lower rate than
    total program spending. As shown in figure 4, from fiscal years 2000 to
    2004, combined federal and state administrative spending rose in five of
    the seven programs: Adoption Assistance, CSE, Food Stamp, Foster Care, and
    UI. In the remaining two programs, CCDF and TANF, administrative spending
    declined. CCDF administrative spending hovered just above $200 million,14
    declining slightly, while TANF administrative spending declined by $300
    million over the 5 years.15

    Figure 4: Combined Federal and State Administrative Spending, Fiscal Years
    2000 to 2004 (Nominal Dollars)

    aCCDF administrative spending data are not available prior to 2001.

    bThe CSE program reported total federal and state administrative
    expenditures as $5.3 billion for fiscal year 2004. However, total spending
    on the program is offset by child support collections for families who
    received benefits from the TANF and Foster Care programs, resulting in net
    program expenditures of $3.2 billion.

    cUI administrative spending data only include the federal share. State
    shares are only available from 2002 through 2004.

    14 Administrative spending data for CCDF are not available prior to 2001;
    thus, changes in administrative spending in CCDF are based on fiscal years
    2001 through 2004 data.

    15 Nominal dollar spending amounts and percentages are used in the text of
    the report, unless otherwise noted.

    In each of the five programs in which administrative spending rose, it
    increased by between about 17 and 19 percent over the 5 years.
    Administrative spending declined by 3 percent in CCDF and by 12 percent in
    TANF. Figure 5 shows the percent change in administrative spending during
    this time period for each of the seven programs. Over the same period, the
    rate of price inflation was 9 percent.16 Therefore, as illustrated in the
    figure, in the five programs in which administrative spending increased
    between fiscal years 2000 and 2004, the increase was much smaller when
    adjusted for inflation, shrinking to an increase of less than 10 percent
    in each program.

    Figure 5: Percent Change in Combined Federal and State Administrative
    Spending, Fiscal Years 2000 to 2004

    aAdministrative spending data for CCDF are not available prior to 2001;
    thus, changes in administrative spending in CCDF are based on 2001 through
    2004 data.

    bThe UI administrative spending data only include the federal share
    because state spending was only available for 2002 through 2004. When
    including the state share, the nominal percent change in combined federal
    and state administrative spending for 2002 to 2004 was -4 percent.

    16 We used the Gross Domestic Product (GDP) price index to calculate
    inflation-adjusted dollars.

    In the five states we visited, officials reported that staff salaries and
    benefits were among the largest costs associated with running their
    programs. According to DOL's wage index, average salaries and benefits for
    state and local government workers increased by 16 percent between 2000
    and 2004.17 The percent change in administrative spending for the majority
    of the programs in this review was slightly higher than this average,
    ranging between about 17 percent and 19 percent, as previously stated. In
    two of the programs, CCDF and TANF, the percent change fell below this
    average. While administrative spending may include several other types of
    spending beyond staff salaries and benefits, such as overhead and IT,
    rising salaries and benefits may explain some of the increase in spending
    among the programs in this review.

    Although administrative spending increased between fiscal years 2000 and
    2004 in the Adoption Assistance, Food Stamp, and UI programs, it increased
    at a lower rate than total program spending. As a result, in these three
    programs, as well as CCDF and TANF, administrative spending declined
    compared to total program spending between fiscal years 2000 and 2004, as
    shown in figure 6, indicating that the amount spent on direct benefits and
    services was rising faster than the amount spent on administering these
    benefits and services. Administrative spending increased compared to total
    program spending in one program, Foster Care.

    17 Data from the DOL's Bureau of Labor Statistics Employment Cost Index.

    Figure 6: Federal and State Administrative Spending as a Percentage of
    Total Program Spending, Fiscal Years 2000 to 2004

    Note: All CSE spending is considered administrative; therefore, there are
    no changes over time in the percentage of administrative spending.

    aAdministrative spending data for CCDF are not available prior to 2001.

    bUI administrative spending data only include the federal share. State
    shares are only available from 2002 through 2004. In addition, UI data are
    only estimates because the administrative spending data were available by
    fiscal year, while the benefit data were available by calendar year.

    In the Five States We Visited, Many Program Officials Told Us That They Spend a
    Large Portion of Their Administrative Dollars on Staff Costs and Technology

    Officials in the five states we visited reported that staff and IT account
    for substantial portions of the spending related to operating their
    programs. In all five states we visited, officials reported that spending
    on staff, including salaries and benefits, was among the largest costs
    associated with running their programs, in part because certain program
    rules are complicated, requiring a considerable amount of staff time. To
    the extent that these costs are included in programs' definitions of
    administrative costs, this will affect the programs' reported
    administrative spending. As we have reported in our prior work,18
    eligibility determination activities make up a substantial portion of
    administrative spending for some programs. Policy experts and researchers
    have found that the complexity and variations in eligibility rules have
    increased substantially the staff resources needed to determine
    eligibility and benefit levels and thereby increased the costs of
    administering programs. Some of the officials in the states we visited
    said that multiple or outdated IT systems also require a great deal of
    staff time. For example, front-line staff and officials we interviewed
    reported that in order to determine eligibility, staff must manually work
    outside the computer systems to work around problems in the systems. In
    addition, county officials we interviewed in one state said that the same
    client information must be entered into three separate systems.

    18 Means-Tested Programs: Determining Financial Eligibility is Cumbersome
    and Can Be Simplified, GA0-02-58  (Washington, D.C.: Nov. 2, 2001).

    While outdated IT systems increase the staff resources needed at the local
    level, officials in four of the five states we visited reported that
    developing and maintaining IT systems also require a significant amount of
    administrative dollars. For example, in California, county officials we
    interviewed reported that two new case management systems have been
    expensive to develop and implement. They said that initial system problems
    and training for staff to learn the new systems added to the costs.
    However, officials in a few states said they believed that their new
    systems will eventually reduce administrative effort and they expected
    administrative costs to decrease as a result.

    The Federal Government May Help Balance Administrative Cost Savings with Program
    Effectiveness and Integrity by Simplifying Policies and Facilitating Technology
                                      Enhancements

    The federal government, including both Congress and the executive
    agencies, may help balance long-term administrative cost savings with
    program effectiveness and integrity by simplifying policies and
    facilitating technology improvements. Simplifying policies-especially
    those related to eligibility determination processes and federal funding
    structures-could save resources, improve productivity, and help staff
    focus more time on performing essential program activities, such as
    providing quality services and accurate benefits to recipients. In
    addition, by helping states facilitate technology enhancements across
    programs, the federal government can help streamline processes and
    potentially reduce long-term costs. Together, simplified policies and
    improved technology could streamline administrative processes and
    potentially reduce administrative costs. We acknowledge that all levels of
    government have attempted to streamline processes across human service
    programs for the past 20 years. However, many of these efforts have had
    limited success due, in part, to the considerable challenges that
    streamlining program processes entail, such as the challenge of achieving
    consensus among the numerous congressional committees and federal agencies
    involved in shaping human service program policies, and a lack of
    information on how program changes would affect particular populations. We
    believe one challenge in particular-the lack of information on the effect
    streamlining efforts might have on program and administrative costs-is
    thwarting progress in this area.

    Simplifying Federal Policies May Save Administrative Costs by Reducing
    Cumbersome and Duplicative Work

    Our current and previous reviews indicate that simplifying
    policies-especially those related to eligibility determination processes
    and federal funding structures-could potentially save resources, improve
    productivity, and help staff focus more time on performing essential
    program activities, such as providing quality services and accurate
    benefits to recipients. Simplifying policies is particularly important for
    those programs that are administered jointly at the local level. In many
    localities, single offices administer TANF, food stamp benefits, CCDF,
    Medicaid, and SCHIP, and make referrals to or have some interaction with
    CSE, Adoption Assistance, Foster Care, UI, LIHEAP, and housing programs.
    Even though the programs are administered jointly, each has its own
    funding structure and eligibility rules, which can be cumbersome and
    require duplicative effort from staff. For example, when a family applies
    for TANF and food stamp benefits, the caseworker applies different rules
    and tests to determine who is eligible for benefits from either or both
    programs. This determination can be complicated as most programs have
    different definitions of who is a part of an eligible unit. In the Food
    Stamp Program, an eligible unit, or household, generally consists of all
    the persons who purchase food and prepare meals together. In TANF, the
    eligible unit (which states define in accordance with certain federal
    requirements) often includes only dependent children, their siblings, and
    the parents or other caretaker relatives. Consequently, a family member
    may be eligible for benefits in one program and ineligible for benefits in
    another program. To ensure that time is divided among and allocated to the
    correct programs, most of the local staff we spoke with track the amount
    of time they spend working on different programs and report this
    information to financial managers. Local financial managers then determine
    what portion of staff's time is defined as administrative costs in each of
    the programs and charge the programs appropriately. Our current and
    previous reviews show that these involved procedures stem, in part, from
    programs having different target populations, different federal funding
    silos, and different statutory and regulatory requirements. Excessive time
    spent working through complex procedures can consume resources and
    diminish staff's ability to focus on other activities that preserve
    program effectiveness and integrity. Many of the state and local officials
    we visited emphasized that one of the best ways to balance cost savings
    with program integrity and effectiveness is to simplify program
    eligibility determination processes and funding structures across
    programs:

    Simplify Eligibility Determination Processes: According to state and local
    officials, the complexity and variation in financial eligibility rules
    have contributed to the time-consuming and duplicative administrative
    processes. The administrative processes can be particularly time consuming
    when caseworkers determine eligibility for more than one program at a
    time, a common practice when applicants may be eligible for multiple
    programs. The issues raised during our site visits echo what we reported
    to Congress in 2001.19 In that report, we identified federal statutes and
    regulations as a source of some of this variation, although states do have
    considerable flexibility, especially in programs such as TANF, in setting
    eligibility rules. Some states have taken advantage of recent changes and
    additional flexibility granted by the federal government to simplify
    eligibility determination processes across programs. For example, states
    may automatically extend eligibility to food stamp applicants based on
    their participation in the TANF cash assistance program-a provision
    referred to as "categorical eligibility." Another way states have
    simplified eligibility processes is by aligning program rules. For
    example, officials in Maryland told us that they took advantage of the
    flexibility offered by the Farm Security and Rural Investment Act of 2002
    (the "Farm Bill") and matched the Food Stamp Program rules for counting
    income and assets to TANF and Medicaid rules. This allows them, for
    example, to determine the value of a car the same way across programs.
    Maryland officials believe that this change has helped them to provide
    benefits and services more quickly and accurately. While some states have
    taken advantage of such flexibility, others have not. In a 2004 report on
    state implementation of the Farm Bill's options, we concluded that
    although federal law and program rules allowed states to align food stamp
    reporting rules with those of other assistance programs, state officials
    in most states had not made the broad changes that would result in greater
    consistency among programs.20 State decisions to increase program
    alignment may have been hindered by concerns regarding the cost of
    programming changes into state computers and the concern that benefit
    costs may increase. On the other hand, savings could result from reducing
    the administrative burden on caseworkers. Ultimately, it is not clear
    whether costs would rise or savings would be realized.

    19 GAO-02-58 .

    20 GAO, Food Stamp Program: Farm Bill Options Ease Administrative Burden,
    but Opportunities Exist to Streamline Participant Reporting Rules among
    Programs, GAO-04-916 (Washington, D.C.: Sept. 16, 2004).

    Simplify Funding Structures: Because the programs are financially
    supported through different federal funding streams and mechanisms, state
    officials argue that serving the needs of families comprehensively and
    efficiently is difficult. Similar to the variation in eligibility rules,
    program administrators face an array of different funding sources
    associated with different federal programs, each with its own financial
    reporting requirements, time frames, and other rules. Often, to meet
    individuals or families' needs, states fund a range of services drawn from
    multiple programs and funding sources. For example, to provide child care
    subsidies, some states use funding from both TANF and CCDF to assist
    families, but very different rules apply to reporting requirements and
    funding restrictions, complicating program administration. Many believe
    that being able to draw funds from more than one federal assistance
    program, simplifying the administrative requirements for managing those
    funds, consolidating small grants, or standardizing administrative
    spending caps across programs would ease states' administrative workload
    and reduce administrative spending. To experiment with simplifying funding
    structures, Ohio's child welfare department officials told us they
    received a waiver in 1997 to implement a flexible-funding demonstration
    project. Participating counties received a monthly allotment to fund any
    child services free of any eligibility and allocation restrictions.
    According to Ohio state officials, during the first 6 years of the
    demonstration, 11 of the 14 counties operated below the average costs,
    resulting in a total savings of $33 million.

    The need for simplifying program policies, including both those related to
    simplifying eligibility determination processes and funding structures,
    has been voiced recurrently for the past several decades. Stretching as
    far back as the 1960s, studies and reports have called for changes to
    human service programs, and we issued several reports during the 1980s
    that focused on welfare simplification. In the early 1990s, a national
    commission as well as a congressionally created advisory commission
    suggested ways to simplify policies and procedures, including steps such
    as developing a common framework for streamlining eligibility
    requirements, formulating standard definitions, and easing administrative
    and documentation requirements. To address these issues, Congress has
    acted in the past to simplify the federal grant system. For example, the
    Omnibus Budget Reconciliation Act of 1981 consolidated a number of human
    service programs into several block grants that allowed for greater state
    and local autonomy and flexibility in designing strategies to address
    federal objectives.21 More recently, in 1996 Congress replaced the
    previous welfare program with the TANF block grant and consolidated
    several child care programs into one program, providing states with
    additional flexibility to design and operate programs.22 In addition,
    numerous pilot and demonstration projects have given particular states and
    localities flexibility to test approaches to integrating and coordinating
    services across a range of human service programs. While the need for
    simplification of program policies has been widely acknowledged, there has
    also been a general recognition that achieving substantial improvements in
    this area is exceptionally difficult. For example, implementing systematic
    changes to the federal rules for human service programs can be challenging
    because of differences among federal program goals and purposes and
    because jurisdiction for these programs is spread among numerous
    congressional committees and federal agencies.

    An additional challenge to systematic policy simplification efforts is the
    lack of information on the costs and effects of these efforts. Lack of
    information on the potential cost to the federal government of
    streamlining policies has been a limiting factor in moving forward in this
    area. In our 2001 report, we concluded that determining eligibility across
    human service programs is cumbersome and can be simplified; however, we
    said that additional information is needed about the effects these
    simplification efforts would have on both program and administrative
    costs. Similarly, a Congressional Research Service review of pilot and
    demonstration projects on service integration strategies-one way to
    simplify policies-found that there was little information on the
    cost-effectiveness of these strategies.23 Information is also lacking on
    the potential effects that streamlining policies would have on various
    populations. Streamlining policies could expand client access and increase
    caseloads, but it could also limit access for particular populations,
    depending on which policies were adopted. In addition, no definitive
    information exists to demonstrate the type and extent of changes that
    might result in reduced administrative costs or to demonstrate how
    strategies might work differently in different communities. To help
    address this issue, we asked Congress in our 2001 report to consider
    authorizing state and local demonstration projects designed to simplify
    policies. Recent legislative proposals in both the House and the Senate
    have sought to increase states' abilities to waive federal program rules
    to address program simplification issues, although some provisions have
    been criticized by policy makers and others for allowing states too much
    latitude to set aside federal rules considered important to protecting
    program integrity and services to people in need. One legislative
    proposal, included as part of broader welfare legislation, passed in the
    House but has not been enacted into law.

    21 For more information, see GAO, Block Grants: Characteristics,
    Experience, and Lessons Learned, GAO/HEHS-95-74 (Washington, D.C.: Feb. 9,
    1995).

    22 For more information, see GAO, Welfare Reform: States Are Restructuring
    Programs to Reduce Welfare Dependence, GAO/HEHS-98-109 (Washington, D.C.:
    June 17, 1998) and GAO, Welfare Reform: With TANF Flexibility, States Vary
    in How They Implement Work Requirements and Time Limits, GAO-02-770
    (Washington, D.C.: July 5, 2002).

    23 Cheryl Vincent, The "Superwaiver" Proposal and Service Integration: A
    History of Federal Initiatives (Washington, D.C.:  Congressional Research
    Service, April 13, 2005).

    Facilitating Technology Enhancements across Programs May Save Administrative
    Costs by Creating More Efficient Processes

    Our previous and current work indicates that the federal government can
    help streamline processes and potentially reduce long-term costs by
    facilitating technology enhancements across programs. Technology plays a
    central role in the management of human service programs and keeping up
    with technological advancements offers opportunities for improving the
    administration of human services. Recognizing the importance of automated
    systems in state-administered federal human service programs, for more
    than 2 decades, Congress has provided varying levels of federal funding to
    encourage states to implement certain systems to improve the efficiency of
    some programs. The federal agencies have also played a role in helping
    states implement IT systems to streamline their processes. For example,
    agencies responsible for child welfare, CSE, and the Food Stamp Program
    must review and approve states' IT planning documents before federal
    technology funds are passed down to states. In contrast, no specific
    federal regulations guide states' use of federal TANF or CCDF funds for IT
    systems. DOL provides some technical assistance to states under the UI
    program.

    With congressional and federal support, states have increasingly relied on
    technology to streamline their program processes. Having modern systems
    that support multiple human service programs is important for streamlining
    eligibility processes and providing timely and accurate services. For
    example, the counties we visited in California developed a single IT
    system, known as CalWIN.24 This system-like others around the
    country-replaced several separate IT systems and automated the eligibility
    determination processes across multiple and complex programs, such as
    TANF, the Food Stamp Program, and Medicaid. According to some officials,
    while the new system has experienced some problems, it has already
    improved program integrity and is intended to reduce administrative costs.
    Additionally, many believe that sharing data across programs and agencies
    can further streamline processes. Data-sharing arrangements allow programs
    to share client information that they otherwise would each collect and
    verify separately, thus reducing duplicative effort, saving money, and
    improving integrity. For example, by receiving verified electronic data
    from SSA, state human service offices are able to determine SSI
    recipients' eligibility for food stamp benefits without having to
    separately collect and verify applicant information. According to South
    Carolina officials we interviewed, this arrangement saves administrative
    dollars and reduces duplicative effort across programs.

    24 The two counties we visited, San Mateo and Santa Cruz, are a part of an
    18-county consortium that helped to develop CalWIN.

    While most agree that IT can help streamline processes, our previous and
    current work shows that technology projects are difficult, and many fall
    short of expectations, creating additional work for staff or compromising
    program integrity. Although many states' computer systems for TANF, the
    Food Stamp Program, and Medicaid are already integrated, we found that
    states are often using IT systems that are outdated, error-prone, and do
    not effectively share information with additional human service programs.
    This compounds the challenges in updating technology in a human services
    environment that increasingly requires coordination across programs. For
    example, the Michigan Department of Human Services is in the process of
    implementing a new integrated IT system that is intended to replace the
    three systems that staff currently use to process eligibility for several
    programs. Michigan officials explained that the third system was initially
    intended to replace the other two systems. However, due to political and
    financial reasons and a lack of commitment, only the first phase of the
    project was implemented. As a result, the system failed to replace the
    other systems and created an additional step in the enrollment process.
    The ability to share data across programs also may be limited by laws that
    have been established to protect individuals' privacy. For example, while
    state CSE programs sometimes utilize information from other federal
    programs, they are often prohibited by law from sharing information about
    their own clients. Michigan CSE officials noted that the CSE program must
    protect its clients' information because it handles money from private
    citizens rather than providing government benefits. Another concern
    regarding efforts to further enhance technology is that there is limited
    information available on the cost-effectiveness of some of these systems.
    Finally, our previous collaborative work with other organizations
    highlighted challenges related to obtaining federal funding for
    information systems.25 To the extent that state IT systems support more
    than one human services program, state cost allocation plans for systems
    development and acquisition projects must be approved by each federal
    agency expected to provide funding, in addition to the regular approval
    process.

    To address concerns about IT systems funding and to identify other ways
    that the federal government may facilitate states' technology
    improvements, we recommended in April 2000 that a multiagency federal
    working group be created.26 In response to this recommendation as well as
    state complaints about the approval process, agencies within HHS and USDA
    convened a working group to improve the federal approval process. This
    group made some progress in identifying needed changes to the federal
    process. However, after about a year of work, the progress stalled, due to
    changes in leadership at the agencies involved and a lack of consensus
    among the federal partners about the direction to take in improving the
    federal process.27 This helps to highlight the challenges involved in
    identifying and reaching agreement on needed improvements to existing
    processes, particularly when multiple programs and agencies are involved.
    More information on specific barriers that states face when attempting to
    make technology improvements when federal funds are involved could help
    facilitate progress in this area.

    Progress on technology improvements could be further facilitated through
    greater collaboration across program agencies and levels of government. At
    the time of our visit, officials in Ohio said that in their efforts to
    replace their outdated IT system for TANF and the Food Stamp Program, they
    would have appreciated more information about what other states were doing
    to implement more efficient and economical IT systems. Officials stated
    that while they had talked to other states about their experiences
    developing IT systems, more comprehensive information on best practices
    would save states time and money. Some agencies are successfully
    collaborating and sharing best practices. For example, counties that we
    visited in California successfully shared technology information that
    helped to save resources. Officials in San Mateo County, California,
    reported that by automating the case management process for the Medicaid
    and Food Stamp programs through call centers, they avoided spending
    additional dollars on personnel costs associated with rising case levels.
    According to county officials, this strategy has helped them reduce
    staff's workload, avoid increased administrative costs, and increase
    integrity across programs. Officials in nearby Santa Cruz County reported
    that they adopted this strategy after learning of its effectiveness in San
    Mateo County. Michigan UI officials reported that DOL has a strong
    partnership with state UI agencies. DOL sponsors a central online forum
    for sharing technology information. Michigan UI officials noted that this
    effort provides a forum for exchanging ideas and learning from the
    mistakes of others. DOL's initiative has helped states develop call
    centers and developed sample computer programming code for Internet claims
    systems, which it shared with states. Further sharing of technology
    strategies like these across programs, states, and agencies potentially
    could yield more cost savings elsewhere.

    25GAO, Human Services Integration: Results of a GAO Cosponsored Conference
    on Modernizing Information Systems, GAO-02-121 (Washington, D.C.: Jan. 31,
    2002).

    26 GAO, Welfare Reform: Improving State Automated Systems Requires
    Coordinated Federal Effort, GAO/HEHS-00-48 (Washington, D.C.: Apr. 27,
    2000).

    27 GAO, Human Services: Federal Approval and Funding Processes for States'
    Information Systems, GAO-02-347T (Washington, D.C.: July 9, 2002).

                                       Conclusion

    To use taxpayer dollars responsibly, federal programs must be administered
    in a cost-efficient manner. Administrative costs are an important
    component of the total cost of providing supports to vulnerable people.
    This report shows slow but steady increases in administrative spending
    among many of the human service programs included in this review, although
    administrative spending increased at a lower rate than total program
    spending. Spending data cannot be compared across programs due to
    programmatic differences, and little information is available regarding
    what level of administrative spending for human service programs is
    appropriate. Even so, there are opportunities available to the federal
    government to assist state and local governments in better identifying and
    implementing cost-saving initiatives that also ensure accurate and timely
    provision of benefits and services. However, minimal information is
    available on which opportunities are most effective and what any actual
    cost savings might be.

    The costs associated with running human service programs have been a
    long-standing concern for policy makers interested in maximizing the
    dollars that go directly to helping vulnerable people. While all levels of
    government have made efforts to reduce the time and money required to run
    these programs, it is unclear the extent to which these efforts have
    actually reduced costs. This is especially true with efforts to streamline
    processes across programs by simplifying program rules and facilitating
    technology enhancements. Simplifying policies across programs may increase
    or decrease the number of eligible individuals, which in turn may affect
    program costs. Technology enhancements likely come with start-up costs and
    may initially create additional work for staff. Because of the
    complexities of such strategies for streamlining processes, there are no
    easy solutions for reducing administrative costs. However, it is
    appropriate to move forward to test the cost-effectiveness of various
    strategies. Only then can more systematic approaches be taken to maximize
    the dollars that are spent to run human service programs.

    Our previous work recommended that Congress consider authorizing state and
    local demonstration projects designed to simplify and coordinate
    eligibility determination. Maintaining the status quo of stovepiped
    program rules and policies related to eligibility determination and other
    processes will continue to result in program rules that are complex and
    vary across programs and processes that are duplicative and cumbersome to
    administer. Providing states with demonstration opportunities would allow
    them to challenge the current stovepipes and open the door to new
    cost-efficient approaches for administering human service programs.
    Demonstration projects would allow for testing and evaluating new
    approaches that aim to balance cost savings with program effectiveness and
    integrity. The information from these evaluations would help the federal
    government determine which strategies are most effective without investing
    the time and resources in unproven strategies. Congress can allow for such
    approaches to thrive by not only giving states opportunities to test these
    approaches but by following up to identify and implement successful
    strategies. While it may be difficult to fully determine the extent to
    which observed changes are the result of the demonstration projects, such
    projects would be useful to identify lessons learned. Members of Congress
    have identified the usefulness of demonstration projects, and both the
    House and Senate have considered proposals to authorize such demonstration
    projects, although legislation has not been enacted. Therefore, continued
    efforts are needed to move forward.

                         Matter for Congressional Consideration

    As suggested in our prior work ( GAO-02-58 ), we continue to believe that
    Congress should consider authorizing state and local demonstration
    projects designed to streamline and coordinate eligibility determination
    and other processes for federal human service programs. Such projects
    would provide states and localities with opportunities to test the
    cost-effectiveness of changes designed to simplify or align program rules,
    expand data sharing across agencies, or enhance information technology
     systems to facilitate eligibility determinations and other processes.

    Once authorized, states and localities or both could submit proposals for
    demonstration projects and relevant federal agencies working in a
    coordinated manner could review them, suggest modifications as needed, and
    make final approval decisions. Federal agencies should consider certain
    criteria for the demonstration projects, including oversight and internal
    controls to help ensure that effectiveness and integrity are preserved and
    vulnerable populations are protected. Demonstration projects would include
    waivers of federal statutes and regulations as needed and deemed
    appropriate. While our review covered seven federal support programs, we
    are not suggesting that the demonstration projects must include all of
    these programs or exclude others. States should be given the opportunity
    to try various approaches aimed at streamlining processes that consider
    all feasible programs.

    Projects must be given sufficient time to be fully implemented and must
    include an evaluation component. Cost neutrality of both administrative
    and program costs would be most desirable for federal approval of these
    projects. However, projects should not be rejected solely because they are
    unable to guarantee cost neutrality over the short run. It would be
    expected that, over a period of time, state and federal efforts to
    streamline processes would create administrative cost savings that could
    help offset any increased program costs. Evaluations of the projects
    should include an analysis of whether administrative cost savings were
    indeed achieved in the long-run, which specific laws or regulations were
    waived to facilitate the project, and whether the effectiveness and
    integrity of program services were maintained. To enhance the information
    from each of the projects, Congress should consider authorizing a capping
    report that would compile information from each the individual
    demonstration projects and identify lessons learned.

                                    Agency Comments

    We shared a draft of this report with HHS, USDA, and DOL for comment. HHS
    agreed with the report's emphasis on the need for cost-effective
    administration of federal programs and noted that HHS has taken steps to
    increase cost-effectiveness in a number of the programs it oversees. HHS
    also provided a number of specific examples of Child Care Bureau efforts.
    HHS's written comments appear in appendix III.

    In their comments, officials from the USDA Food and Nutrition Service
    suggested that, in order to acknowledge the complexity of the Food Stamp
    Program, we add more detailed information to the report on several topics,
    including: differences in administrative cost definitions, how
    programmatic requirements may affect costs, state by state cost
    comparisons, program level impact analyses on past proposed changes to
    eligibility rules, and strategies for facilitating technology. We added
    more information where appropriate, although our focus in this report
    remains on a national perspective across programs rather than in-depth,
    program specific or state-level analyses. In addition, the officials
    questioned the use of the GDP to adjust for inflation and stated that
    staff salaries and benefits constitute a large proportion of total costs.
    As we state in the report, we used nominal dollars to discuss historical
    administrative spending. In addition to nominal dollars, we used GDP to
    discuss the percent change in spending over time. Recognizing that staff
    salaries and benefits make up a large portion of spending, we also used
    DOL's Employment Cost Index to discuss how average salaries and benefits
    for state and local government workers changed over time.

    DOL, as well as HHS, provided technical comments, which we incorporated in
    the report where appropriate. None of the agencies commented directly on
    the matter for congressional consideration.

    As agreed with your office, unless you publicly announce its contents
    earlier, we plan no further distribution of the report until 30 days after
    its issue date. At that time, we will send copies of this report to the
    Secretaries of the Departments of Agriculture, Health and Human Services,
    and Labor; relevant congressional committees; and others who are
    interested. Copies will be made available to others upon request, and this
    report will also be available on GAO's Web site at http://www.gao.gov .

    If you or your staff have any questions about this report, please contact
    me on (202) 512-7215. Contact points for our Offices of Congressional
    Relations and Public Affairs may be found on the last page of this report.
    Additional GAO contacts and acknowledgments are listed in appendix IV.

    Sincerely,

    Cynthia M. Fagnoni Managing
    Director, Education, Workforce, and Income
    Security Issues

    Appendix I: Objectives, Scope, and Methodology

    We designed our study to provide information on (1) how administrative
    costs are defined in selected programs and what rules govern federal and
    state participation in funding these costs; (2) what is known about the
    amounts of federal and state administrative spending for selected programs
    and how they have changed over time; and (3) what opportunities exist at
    the federal level to help states balance cost savings with program
    effectiveness and integrity. To obtain information on these issues, we
    compiled expenditure data for each of the programs covered in this review,
    conducted state and local site visits, interviewed federal program
    officials, and reviewed relevant laws, regulations, and reports. We
    focused our study on seven key programs: Adoption Assistance, Child Care &
    Development Fund (CCDF), Child Support Enforcement (CSE), the Food Stamp
    Program, Foster Care, Temporary Assistance for Needy Families (TANF), and
    Unemployment Insurance (UI).

    We issued two related reports in June and July 2006 that focused on the
    administrative costs of the Adoption Assistance and Foster Care programs (
    GAO-06-649 , Foster Care and Adoption Assistance: Federal Oversight Needed
    to Safeguard Funds and Ensure Consistent Support for States'
    Administrative Costs, June 2006) and the Child Support Enforcement program
    ( GAO-06-491 , Child Support Enforcement: More Focus on Labor Costs and
    Administrative Cost Audits Could Help Reduce Federal Expenditures, July
    2006). We coordinated our data collection efforts for all three reports,
    so some of the information on the CSE, Adoption Assistance, and Foster
    Care programs in this report is drawn from work conducted for the earlier
    reports. For example, for this report, we supplemented our data collection
    efforts with spending data collected for the other two reports as well as
    information collected from interviews conducted for the other reports. We
    also coordinated efforts to assess the reliability of the administrative
    spending data used in the three reports.

    We conducted our work between July 2005 and August 2006 in accordance with
    generally accepted government auditing standards.

    Analyses of Program Spending Data

    We obtained spending data for each of the seven programs from the
    departments of Agriculture, Health and Human Services, and Labor. We
    analyzed administrative spending data for each program, as defined for
    financial reporting purposes by program laws and regulations, for fiscal
    years 2000-2004, including federal and state shares of spending. Fiscal
    year 2004 data were the most current data available at the time of our
    review. We also analyzed 2004 state spending data to learn about the
    variations in spending across states. We assessed the reliability of the
    administrative spending data by interviewing (1) agency officials
    knowledgeable about the data and (2) state officials in the five states we
    visited knowledgeable about the data as reported to the federal
    government. We also reviewed state single audit reports and talked to
    state auditors in the five states we visited to identify any known
    problems with the administrative spending data or the systems that store
    the data. Our reviews and discussions did not identify significant
    problems with the data. We determined that these data were sufficiently
    reliable for the purposes of this report.

    Visits to State Agencies and County Offices

    We visited state agencies and county offices in five states-California,
    Maryland, Michigan, Ohio, and South Carolina. The counties we visited
    were: San Mateo and Santa Cruz Counties in California, Wicomico County in
    Maryland, Wayne County in Michigan, Butler and Licking Counties in Ohio,
    and Newberry County in South Carolina. We selected the states to provide a
    range of total program spending and share of spending on administration,
    as well as a mixture of state and county administrative structures, urban
    and rural demographics, and geography. Although our selection includes a
    range of states, our findings are not generalizable beyond the states
    included in our study. In each of the five states, we visited at least one
    county office to talk to county program officials and local staff. We
    developed a questionnaire to capture the types of administrative
    activities that occur in each program at the state and local levels. We
    asked the state and local program officials we visited to fill out the
    questionnaire, and we analyzed the results to learn how administrative
    activities compared across the programs. We interviewed state and local
    program officials and staff about administrative activities, costs,
    options for reducing costs while preserving services and challenges to and
    consequences of these options. During the interviews, we also inquired
    about any interactions between our key programs and other programs that
    support vulnerable people, including Medicaid, the State Children's Health
    Insurance programs (SCHIP), the Low-Income Home Energy Assistance Program
    (LIHEAP), and housing programs.

    Interviews of Federal Officials, State Auditors, and Experts

    We interviewed federal program officials at the departments of
    Agriculture, Health and Human Services, and Labor and the Office of
    Management and Budget about administrative costs, options for reducing
    costs while preserving services and challenges to and consequences of
    these options. In addition, we conducted phone interviews with state audit
    officials from the five states about any similar work they have conducted.
    We also discussed our objectives with representatives from the American
    Public Human Services Association, Center for Law and Social Policy, and
    National Governors Association. These discussions covered each of the
    objectives and the participants shared their views and insights.

    Reviews of Laws, Regulations, and Reports

    We reviewed laws and regulations on definitions of administrative costs
    and federal/state participation in funding these costs for the selected
    programs. We also reviewed relevant circulars issued by the Office of
    Management and Budget. We obtained and reviewed A-133 state single audit
    reports for the states we visited. In addition, we reviewed documents and
    reports prepared by the Center for Law and Social Policy, Congressional
    Research Service, and other research organizations as well as several
    prior GAO reports.

    Appendix II: Administrative Cost Activities Recognized by Program Statutes
    and Regulations

                                Adoption Assistance and
                                Foster Care                 CCDF
    Eligibility                 o  Determination and
    determination/enrollment    re-determination of
                                   eligibility
                                   o  Fair hearings and
                                   appeals
    Benefit issuance
    Quality control                                         o  Audit services
                                                               as required by
                                                               regulation
                                                               o  Coordinating
                                                               the resolution of
                                                               audit and
                                                               monitoring
                                                               findings
                                                               o  Maintaining
                                                               substantiated
                                                               complaint files in
                                                               accordance with
                                                               regulatory
                                                               requirements
                                                               o  Monitoring
                                                               program activities
                                                               for compliance
                                                               with program
                                                               requirements
    Program management and      o  Providing short-term     o  Coordinating
    planning                    training to current or      the provision of
                                   prospective foster or       Child Care and
                                   adoptive parents and the    Development Fund
                                   members of the state        services with
                                   licensed or approved        other federal,
                                   child care institutions     state, and local
                                   providing care to           child care, early
                                   children foster care or     childhood
                                   adoption assistance         development
                                   o  Rate setting             programs, and
                                   o  Training personnel       before-and
                                   employed or preparing       after-school care
                                   for employment by the       programs
                                   state or local agency       o  Developing
                                   administering the plan      agreements with
                                                               administering
                                                               agencies in order
                                                               to carry out
                                                               program activities
                                                               o  Evaluating
                                                               program results
                                                               o  Planning,
                                                               developing, and
                                                               designing the
                                                               Child Care and
                                                               Development Fund
                                                               program
                                                               o  Preparing the
                                                               application and
                                                               plan
    Outreach                    o  Recruitment and          o  Providing local
                                   licensing of foster         officials and the
                                   homes and institutions      public with
                                                               information about
                                                               the program,
                                                               including the
                                                               conduct of public
                                                               hearings
    Case management             o  Case management and
                                   supervision
                                   o  Case reviews
                                   o  Development of the
                                   case plan
                                   o  Placement of the
                                   child
                                   o  Preparation for and
                                   participation in
                                   judicial determinations
                                   o  Referral to services

    Food Stamps                              TANF                          UIa
          o  Costs of certifying applicant         o  Activities related to
          households                               eligibility determinations
          o  Fair hearings
          o  Acceptance, storage, protection,
          control, and accounting of coupons
          o  Issuance of coupons to all
          eligible households
          o  Audit services                        o  Fraud and abuse units
          o  Program investigations and
          prosecutions
          o  Advisory Councils                     o  Monitoring programs and
          o  Management studiesb                   projects
          o  Proposal costsb                       o  Preparation of program
          o  Training and education                plans, budgets, and
                                                   schedules
          o  Advertising (for limited purposes)    o  Public relations
          o  Exhibits
          o  Food stamp informational
          activities, but not including
          recruitment activities

                  Adoption Assistance and Foster
                  Care                               CCDF
    IT Systems    o  All expenditures of a state
                     to plan, design, develop,
                     install and operate the
                     statewide automated child
                     welfare information system
                     (without regard to whether the
                     system may be used with respect
                     to foster or adoptive children
                     other than those on behalf of
                     whom foster care maintenance or
                     adoption assistance payments
                     may be made)
                     o  Costs related to data
                     collection
    Reporting     o  Costs related to reporting      o  Preparing reports and
                                                        other documents related
                                                        to the program for
                                                        submission to the
                                                        Secretary of Health and
                                                        Human Services
    Overhead      o  A proportionate share of        o  Administrative
                     related agency overhead            services, including such
                                                        services as accounting
                                                        services, performed by
                                                        grantees or subgrantees
                                                        or under agreements with
                                                        third parties
                                                        o  Indirect costs as
                                                        determined by an indirect
                                                        cost agreement or cost
                                                        allocation plan pursuant
                                                        to regulation
                                                        o  Managing or
                                                        supervising persons with
                                                        certain administrative
                                                        and implementation
                                                        responsibilities
                                                        o  Other costs for goods
                                                        and services required for
                                                        the administration of the
                                                        program, including rental
                                                        or purchase of equipment,
                                                        utilities, and office
                                                        supplies
                                                        o  Salaries and related
                                                        staff costs
                                                        o  Travel costs incurred
                                                        for official business in
                                                        carrying out the program

    Source: GAO analysis of applicable program statutes and regulations.

    Food Stamps           TANF                    UI
          o  Automated data     o  Management           o  All of the reasonable
          processing and        information systems     expenditures attributable
          information           not related to the      to the costs of the
          retrieval systemsb    tracking and            implementation and
          o  Implementing       monitoring of TANF      operation of the
          and operating the     requirements (e.g.,     immigration status
          immigration status    for a personnel and     verification system
          verification          payroll system for
          system                state staff)
                                o  Preparing reports
                                and other documents
          o  Accounting         o  Costs for general    o  The cost of mailing
          o  Bonding            administration and      unemployment compensation
          o  Budgeting          coordination of         statements, even if
          o  Building lease     programs, including     information about the
          management            contract costs and      earned income credit is
          o  Building space     all indirect or         mailed along with it
          and related           overhead costs          (except that a portion of
          facilitiesb           o  Costs for the        the mailing costs may be
          o  Capital            goods and services      counted as a
          expendituresb         required for            non-administrative cost
          o  Central stores     administration of       if the inclusion of
          o  Communications     the program such as     materials related to the
          o  Costs incurred     the costs for           tax credit increases the
          by agencies other     supplies, equipment,    postage required to mail
          than the Stateb       travel, postage,        the information)
          o  Depreciation       utilities, and
          and use allowance     rental of office
          o  Disbursing         space and
          service               maintenance of
          o  Employee fringe    office space,
          benefits              provided that such
          o  Employee           costs are not
          morale, health,       excluded as a direct
          and welfare costs     administrative cost
          o  Insuranceb         for providing
          o  Legal expenses     program services
          o  Maintenance and    o  Procurement
          repair                activities
          o  Materials and      o  Salaries and
          supplies              benefits of staff
          o  Memberships,       performing
          subscriptions, and    administrative and
          professional          coordination
          activities            functions (but not
          o  Motor pools        salaries and
          o  Payroll            benefits for program
          preparation           staff)
          o  Personnel          o  Services related
          administration        to accounting,
          o  Preagreement       litigation, audits,
          costsb                management of
          o  Printing and       property, payroll,
          reproduction          and personnel
          o  Procurement        o  Travel costs
          service               incurred for
          o  Professional       official business
          servicesb             and not excluded as
          o  Salaries           a direct
          o  Taxes              administrative cost
          o  Transportation     for providing
          o  Travel             program services

    Note: Child Support Enforcement program statutes and regulations do not
    contain specific definitions of administrative costs.

    aWhile the UI program legislation does identify two specific activities
    that are covered as administrative costs, a much broader range of
    activities is actually covered because each state receives "such amounts
    as the Secretary of Labor determines to be necessary for the proper and
    efficient administration of its unemployment compensation law."

    bThese costs are allowable only with approval from the USDA Food and
    Nutrition Service.

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

    Appendix IV: GAO Contact and Staff Acknowledgments

    GAO Contact

    Cynthia Fagnoni (202) 512-7215

    Acknowledgments

    The following staff members made major contributions to the report:
    Heather McCallum Hahn (Assistant Director), Cady S. Panetta
    (Analyst-in-Charge), David Bellis, William Colvin, Cheri Harrington, Gale
    Harris, Sheila McCoy, Luann Moy, and Tovah Rom.

    Related GAO Products

    Child Support Enforcement: More Focus on Labor Costs and Administrative
    Cost Audits Could Help Reduce Federal Expenditures. GAO-06-491 .
    Washington, D.C.: July 6, 2006.

    Foster Care and Adoption Assistance: Federal Oversight Needed to Safeguard
    Funds and Ensure Consistent Support for States' Administrative Costs.
    GAO-06-649 . Washington, D.C.: June 15, 2006.

    Means-Tested Programs: Information on Program Access Can Be an Important
    Management Tool. GAO-05-221 . Washington, D.C.: March 11, 2005.

    Food Stamp Program: Farm Bill Options Ease Administrative Burden, but
    Opportunities Exist to Streamline Participant Reporting Rules among
    Programs. GAO-04-916 . Washington, D.C.: September 16, 2004.

    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.

    Food Stamp Program: Steps Have Been Taken to Increase Participation of
    Working Families, but Better Tracking of Efforts Is Needed. GAO-04-346 .
    Washington, D.C.: March 5, 2004.

    Human Services: Federal Approval and Funding Processes for States'
    Information Systems. GAO-02-347T . Washington, D.C.: July 9, 2002.

    Welfare Reform: States Provide TANF-Funded Work Support Services to Many
    Low-Income Families Who Do Not Receive Cash Assistance. GAO-02-615T .
    Washington, D.C.: April 10, 2002.

    Food Stamp Program: States' Use of Options and Waivers to Improve Program
    Administration and Promote Access. GAO-02-409 . Washington, D.C.: February
    22, 2002.

    Human Services Integration: Results of a GAO Cosponsored Conference on
    Modernizing Information Systems. GAO-02-121 . Washington, D.C.: January
    31, 2002.

    Means-Tested Programs: Determining Financial Eligibility Is Cumbersome and
    Can Be Simplified. GAO-02-58 . Washington, D.C.: November 2, 2001.

    Food Stamp Program: Program Integrity and Participation Challenges.
    GAO-01-881T . Washington, D.C.: June 27, 2001.

    Food Stamp Program: States Seek to Reduce Payment Errors and Program
    Complexity. GAO-01-272 . Washington, D.C.: January 19, 2001.

    Benefit and Loan Programs: Improved Data Sharing Could Enhance Program
    Integrity. GAO/HEHS-00-119 . Washington, D.C.: September 13, 2000.

    Welfare Reform: Improving State Automated Systems Requires Coordinated
    Federal Effort. GAO/HEHS-00-48 . Washington, D.C.: April 27, 2000.

    Food Stamp Program: States Face Reduced Federal Reimbursements for
    Administrative Costs. GAO/RCED/AIMD-99-231 . Washington D.C.: July 23,
    1999.

    Food Stamp Program: Various Factors Have Led to Declining Participation.
    RCED-99-185 . Washington, D.C.: July 2, 1999.

    Welfare Reform: Few States Are Likely to Use the Simplified Food Stamp
    Program. GAO/RCED-99-43 . Washington, D.C.: January 29, 1999.

    Welfare Programs: Opportunities to Consolidate and Increase Program
    Efficiencies. GAO/HEHS-95-139 . Washington, D.C.: May 31, 1995.

    Means-Tested Programs: An Overview, Problems, and Issues. GAO/T-HEHS-95-76
    . Washington, D.C.: February 7, 1995.

    Welfare Simplification: States' Views on Coordinating Services for
    Low-Income Families. GAO/HRD-87-110FS . Washington, D.C.: July 29, 1987.

    Welfare Simplification: Thirty-Two States' Views on Coordinating Services
    for Low-Income Families. GAO/HRD-87-6FS . Washington, D.C.: October 30,
    1986.

    Welfare Simplification: Projects to Coordinate Services for Low-Income
    Families. GAO/HRD-86-124FS . Washington, D.C.: August 29, 1986.

    Needs-Based Programs: Eligibility and Benefit Factors. GAO/HRD-86-107FS .
    Washington, D.C.: July 9, 1986.

    (130494)

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    Highlights of GAO-06-942 , a report to Chairman, Subcommittee on Human
    Resources, Committee on Ways and Means, House of Representatives

    September 2006

    HUMAN SERVICE PROGRAMS

    Demonstration Projects Could Identify Ways to Simplify Policies and
    Facilitate Technology Enhancements to Reduce Administrative Costs

    The cost of administering human service programs has been a long-standing
    concern among policy makers interested in ensuring that federal programs
    are run in a cost-efficient manner so that federal funds go directly to
    helping vulnerable people. Little is known about how administrative costs
    compare among programs, or about opportunities to better manage these
    costs. GAO looked at (1) how administrative costs are defined and what
    rules govern federal and state participation in funding these costs; (2)
    what is known about the amounts of administrative spending and how they
    have changed over time; and (3) what opportunities exist at the federal
    level to help states balance cost savings with program effectiveness and
    integrity. GAO's review included seven programs: Adoption Assistance,
    Child Care and Development Fund (CCDF), Child Support Enforcement (CSE),
    food stamps, Foster Care, Temporary Assistance for Needy Families (TANF),
    and Unemployment Insurance (UI). To address the questions, GAO reviewed
    laws, analyzed spending data, and visited five states.

    What GAO Recommends

    To identify ways to reduce administrative costs, Congress should consider
    authorizing state and local demonstration projects designed to simplify
    eligibility determination and other processes for federal human service
    programs. None of the responsible agencies commented on the recommendation
    to Congress.

    The statutes and regulations for the seven programs define administrative
    costs differently, even though many of the same activities are performed
    to administer the programs. The laws for each program also include
    different mechanisms for state and federal participation in funding
    administrative costs, including matching rates, block grants, and spending
    caps.

    The seven programs combined spent $21 billion on administration, as
    defined in law, making up about 18 percent of total program spending in
    fiscal year 2004. However, amounts varied widely across the programs and
    states. Administrative spending varied from 2 percent in CCDF to 58
    percent in Foster Care, with the exception of CSE in which all program
    spending is considered administrative. Between fiscal years 2000 and 2004,
    administrative spending increased in five of the seven programs, generally
    at a lower rate than total program spending.

    Fiscal Year 2004 Combined Federal and State Administrative and Other
    Spending (and Administrative Spending as a Percentage of Total Spending)

    The federal government may help balance administrative cost savings with
    program effectiveness and integrity by simplifying policies and
    facilitating technology improvements. Simplifying policies-especially
    those related to eligibility determination processes and federal funding
    structures-could save resources, improve productivity, and help staff
    focus more time on performing essential program activities. By helping
    states facilitate technology enhancements across programs, the federal
    government can help streamline processes and potentially reduce long-term
    costs. Over the past 20 years, many attempts to streamline processes
    across programs have had limited success due, in part, to the considerable
    challenges that streamlining program processes entail. GAO believes one
    challenge in particular-the lack of information on the effect streamlining
    efforts might have on program and administrative costs-is thwarting
    progress in this area.
    *** End of document. ***