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

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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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www.gao.gov/cgi-bin/getrpt?GAO-06-942 .

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For more information, contact Cynthia Fagnoni at (202) 512-7215 or
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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. ***