Welfare Benefits: Potential to Recover Hundreds of Millions More in
Overpayments (Chapter Report, 06/20/95, GAO/HEHS-95-111).

Pursuant to a congressional request, GAO reviewed states' efforts to
recover benefit overpayments in the Aid to Families with Dependent
Children (AFDC), Food Stamp, and Medicaid programs, focusing on: (1)
overpayments collected from welfare clients in 1992; (2) factors that
help or hinder effective state recovery practices; and (3) what the
federal government could do to help states recover more overpayments.

GAO found that: (1) the states with the highest recovery rates in fiscal
year 1992 established claims for a greater portion of their
overpayments; (2) these successful states used a broader array of
recovery tools and practices than did states with the lowest recovery
rates; (3) successful claiming practices included computer matching to
identify potential overpayments, more timely efforts to verify
overpayments and establish claims, and establishing overpayment claims
on the more difficult collection cases; (4) successful states used lower
average caseloads for eligibility staff, detailed more staff to recovery
efforts, intercepted state income tax refunds, and used automated
tracking and billing systems to recover overpayments; and (5) an
additional $262 million could have been recovered in 1992 if all states
had recovered overpayments at the same rate. GAO also found that: (1) 2
of the 3 federal agencies responsible for overseeing the programs do not
help states identify the best recovery practices; (2) extending
effective federal recovery provisions to these programs could increase
states' recovery of benefit overpayments; and (3) eliminating client
consent for temporary reductions in benefits due to administrative
errors, providing states incentives to make overpayment recoveries, and
retaining federal income tax refunds could increase overpayment
recoveries by millions of dollars annually.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-95-111
     TITLE:  Welfare Benefits: Potential to Recover Hundreds of Millions 
             More in Overpayments
      DATE:  06/20/95
   SUBJECT:  Aid to families with dependent children
             Medicaid programs
             Food stamp programs
             Government collections
             Overpayments
             Welfare benefits
             State-administered programs
             Collection procedures
             Offsetting collections
             Administrative errors
IDENTIFIER:  AFDC
             
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Cover
================================================================ COVER


Report to the Ranking Minority Member, Subcommittee on Oversight of
Government Management, Committee on Governmental Affairs, U.S. 
Senate

June 1995

WELFARE BENEFITS - POTENTIAL TO
RECOVER HUNDREDS OF MILLIONS MORE
IN OVERPAYMENTS

GAO/HEHS-95-111

Welfare Overpayments


Abbreviations
=============================================================== ABBREV

  ACF - Administration for Children and Families
  AFDC - Aid to Families With Dependent Children
  FCS - Food and Consumer Service
  HCFA - Health Care Financing Administration
  HHS - U.S.  Department of Health and Human Services
  IRS - Internal Revenue Service
  USDA - U.S.  Department of Agriculture

Letter
=============================================================== LETTER


B-251009

June 20, 1995

The Honorable Carl Levin
Ranking Minority Member
Subcommittee on Oversight
 of Government Management
Committee on Governmental Affairs
United States Senate

Dear Senator Levin: 

This report responds to your request for information on states'
efforts to recover benefit overpayments in the Aid to Families With
Dependent Children, Food Stamp, and Medicaid programs.  It provides
information on overpayments collected from clients in 1992--the most
recent year for which data were available for all three programs.  It
also identifies factors that help or hinder effective recovery of
overpayments, particularly the nature and extent of state recovery
efforts and federal legislation.  Additionally, data from our
national survey of states on information about their overpayment
recovery practices, upon which parts of this report are based, are
being sent to you under separate cover and will be made available to
others upon request. 

As agreed with your office, unless you publically announce its
contents earlier, we plan no further distribution of this report
until 15 days from the date of this letter.  At that time, we will
send copies to the Chairmen and Ranking Minority Members of the House
Committees on Ways and Means, Agriculture, and Commerce and Senate
Committees on Finance and Agriculture.  In addition, we will send
copies to the Secretary of Agriculture, Administrator of the Food and
Consumer Service, Secretary of Health and Human Services, Assistant
Secretary for Children and Families, Administrator of the Health Care
Financing Administration, Commissioner of the Internal Revenue
Service, and other interested parties.  We also will make copies
available to others upon request. 

If you have any questions concerning this report, please contact
David P.  Bixler, Assistant Director, at (202) 512-7201.  Other GAO
contacts and major contributors to this report are listed in appendix
IX. 

Sincerely yours,

Leslie G.  Aronovitz
Associate Director, Income Security Issues


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

Under the legislative proposals that the Congress is considering to
reform the nation's welfare system, resources for helping America's
low-income families may become increasingly limited.  Under these
circumstances, it is critical that only those people who are eligible
for welfare benefits receive them.  In 1992,\1 people who were not
entitled to benefits, or not entitled to the level of benefits
provided, received an estimated $4.7 billion in benefit overpayments
by three of the nation's largest welfare programs--Aid to Families
With Dependent Children (AFDC), Food Stamps, and Medicaid.  These
overpayments represent about 4 percent of the total benefits paid in
these three programs.\2 Moreover, nationwide recovery of the
overpayments in these programs, about $333 million, was relatively
low:  about 19 percent of AFDC's estimated overpayments were
collected, 7 percent of Food Stamps', and 2 percent of Medicaid's. 

Given the current national emphasis on federal fiscal responsibility,
the Ranking Minority Member, Subcommittee on Oversight of Government
Management, Senate Committee on Governmental Affairs, asked GAO to
determine (1) what states are doing to recover benefit overpayments,
what are the more effective practices they are using, and what, if
anything, they could do better and (2) what the federal government
could do to help states recover more overpayments. 


--------------------
\1 Fiscal year 1992 was the most recent year for which data on
expenditures, overpayments, and collections of overpayments were
available for all three programs. 

\2 Medicaid benefits for individuals whose Medicaid eligibility is
based upon their eligibility for other programs, such as Supplemental
Security Income, were not included in calculating this percentage
because states do not determine these individuals' eligibility. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

AFDC, Food Stamps, and Medicaid are needs-based programs that provide
either direct financial assistance, food coupons, or payment for
certain medical services to low-income individuals and families.  In
1992, combined federal- and state-funded benefits for these programs
totaled about $161 billion, about three-fourths of which was Medicaid
expenditures.  Although the costs of AFDC and Medicaid benefits are
shared by the federal and state governments, Food Stamp benefits are
fully funded by the federal government. 

These programs are administered at the state level and overseen at
the federal level by two cabinet-level agencies--the U.S.  Department
of Health and Human Services (HHS) and the U.S.  Department of
Agriculture (USDA).  HHS' Administration for Children and Families is
responsible for AFDC, and its Health Care Financing Administration is
responsible for Medicaid.  USDA's Food and Consumer Service is
responsible for the Food Stamp Program.  Administration at the state
level includes determining individuals' eligibility and benefit
levels as well as collecting benefit overpayments.  Federal oversight
responsibilities include issuing regulations, providing technical
assistance, and monitoring states' performance using quality control
systems. 

In determining eligibility and benefit levels, mistakes are sometimes
made or inaccurate information provided, which results in
overpayments of cash, food coupons, or medical services to clients. 
Overpayments generally result when a (1) participating household or
individual intentionally provides incorrect or insufficient
information on which eligibility and benefit determinations are based
(fraud), (2) participating household or individual unintentionally
provides incorrect or insufficient information (client error), or (3)
state administering agency incorrectly determines eligibility or
benefits or does not correctly act on client-reported information
(agency error). 

To review states' overpayment recovery efforts, GAO surveyed welfare
program officials in the 50 states and the District of Columbia.  To
collect data on ways that the federal government could help improve
recovery at the state level, GAO interviewed federal and state
welfare program officials and reviewed federal legislation and
regulations for the three programs. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

Increasing state recovery efforts and extending effective federal
recovery provisions to one or more programs could help recover
hundreds of millions of dollars more in benefit overpayments in the
AFDC, Food Stamp, and Medicaid programs.  GAO found that the states
with the highest recovery rates in fiscal year 1992 established
claims for a greater portion of their overpayments.  To help achieve
success in recovering overpayments, these states used certain
practices, and more of them, than did states with the lowest recovery
rates.  These practices included more timely efforts to verify
potential overpayments and establishing claims for overpayments on
more difficult cases, such as those involving clients who
subsequently moved out of state.  If all states had recovered
overpayments at the same rate as the high-performing states, GAO
estimates that an additional $262 million could potentially have been
recovered in 1992. 

In addition, extending effective federal recovery provisions to one
or more programs could potentially increase states' recovery of
overpayments.  Federal laws and regulations that facilitate recovery
in one program are not always in place in the other two.  GAO
estimates that extending such laws to all programs could increase
recovered overpayments by millions more annually. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      INCREASED STATE EFFORTS
      COULD POTENTIALLY RECOVER
      SUBSTANTIAL OVERPAYMENTS
-------------------------------------------------------- Chapter 0:4.1

States with the highest recovery rates--generally the top one-third
in each of the three programs--were at least twice as successful in
recovering overpayments as were the bottom one-third of the states. 
A key reason that the higher performing states collected a
substantially greater percentage of their overpayments than
low-performing states is that they established claims for more of
their overpayments.  These states generally used a broader array of
practices or tools to establish and collect overpayments, including
more timely efforts to verify potential overpayments and establish
claims, establishing overpayment claims on more difficult collection
cases, and using a greater portion of their total staff on recovery
efforts.  If all states had been as successful as the top one-third
performing states, GAO estimates that in 1992 an additional $132
million might have been recovered from AFDC clients, $100 million
more from Food Stamp clients, and $30 million more from Medicaid
clients.  (These estimates are gross collections and not net of the
costs of obtaining them.)


      EXTENDING EFFECTIVE FEDERAL
      RECOVERY PROVISIONS ALSO
      COULD POTENTIALLY INCREASE
      COLLECTIONS
-------------------------------------------------------- Chapter 0:4.2

Certain limitations in the programs may keep states from recovering
additional millions of dollars of overpayments.  While temporarily
reducing benefits to recover overpayments is an effective collection
method in the AFDC program, by law, it cannot be used in the Food
Stamp Program to collect overpayments caused by agency error unless
the client consents.  GAO estimates that without this restriction
states could potentially recover an additional $33 million annually. 
Also, extending the use of federal income tax refund intercept--an
effective overpayment collection tool in the Food Stamp Program--to
AFDC and Medicaid could potentially increase recoveries by about $24
million.  (These estimates are gross collections and not net of the
costs of obtaining them.)


   MATTERS FOR CONGRESSIONAL
   CONSIDERATION
---------------------------------------------------------- Chapter 0:5

To help remove barriers to states' collection of overpayments in the
AFDC, Food Stamp, and Medicaid programs and potentially recover more
overpayments, the Congress may want to consider amending federal
legislation to (1) authorize states to offset Food Stamp benefits
without the client's consent to recover overpayments caused by agency
errors and (2) extend the use of federal income tax refund intercept
for collecting overpayments to the AFDC and Medicaid programs. 


   AGENCIES' COMMENTS
---------------------------------------------------------- Chapter 0:6

USDA and HHS generally agreed with GAO's conclusion that more can be
done to recover welfare benefit overpayments.  USDA supports
authorizing states to use involuntary recoupment of Food Stamp
benefits to recover agency error overpayments, but questioned GAO's
estimate of the amount obtainable from such a collection method.  GAO
requested but did not receive comments from the Internal Revenue
Service.  (See ch.  4.)


INTRODUCTION
============================================================ Chapter 1

In federal fiscal year 1992,\3 three of the nation's largest
means-tested programs--Aid to Families With Dependent Children
(AFDC), Food Stamps, and Medicaid--provided almost $161 billion in
cash, food coupons, and medical benefits, respectively, to millions
of our nation's low-income people.  These people included families
with children who are deprived of support; households that need help
buying food basics; and the low-income aged, blind, or disabled. 
That same year, however, people or households who were ineligible for
these benefits, or who were not entitled to the level of benefits
provided, received nearly $4.7 billion in AFDC, Food Stamp, and
Medicaid benefit overpayments or about 4 percent of the total
benefits paid in the three programs.\4

Program administrators try to prevent overpayments by carefully
determining an applicant's initial eligibility.  However, when errors
are made, recovering overpayments is often very time consuming and
difficult.  Nationwide success in recovering these overpayments
varies considerably among the three programs.  While states recovered
about $215.6 million of nearly $1.2 billion of AFDC overpayments, or
about 18.7 percent, in fiscal year 1992, the recovery rate was
appreciably lower for the other two programs.  In this same year,
almost $104.3 million of about $1.6 billion of Food Stamp
overpayments, or about 6.5 percent, was recovered; while about $13.2
million, or nearly 2 percent, of an estimated $670.6 million of
overpayments was recovered in the Medicaid program.\5

When states do not promptly and efficiently identify and collect
overpayments, governments lose the immediate use of these funds and
incur additional expenses to recover them.  Without a vigorous
recovery effort, current and potential recipients may infer that the
government considers the unrecovered funds dispensable.  Under the
legislative welfare reform proposals that the Congress is
considering, resources available to help low-income Americans may
become increasingly limited.  Therefore, ensuring that the funds
appropriated for these programs reach only those entitled to them is
crucial. 

The Ranking Minority Member of the Subcommittee on Oversight of
Government Management, Senate Committee on Governmental Affairs,
asked us to determine (1) what states are doing to collect benefit
overpayments in the AFDC, Food Stamp, and Medicaid programs;\6 the
more effective practices that they are using; and what, if anything,
they could do better; and (2) what the federal government could do to
help states collect more overpayments. 


--------------------
\3 Fiscal year 1992 was the most recent year for which data on
expenditures, overpayments, and collections of overpayments were
available for all three programs. 

\4 Medicaid benefits for individuals whose Medicaid eligibility is
based upon their eligibility for other programs, such as Supplemental
Security Income, were not included in calculating this percentage
because states do not determine these individuals' eligibility. 

\5 Because national data were not available at the federal level for
all three programs, we used state-reported data to compare the
nationwide recovery rates for the programs.  The data used to
calculate the recovery rates were provided by 49 states and the
District of Columbia for the AFDC Program, 50 states and the District
of Columbia for the Food Stamp Program, and 27 states for the
Medicaid Program.  Thus, the total overpayments reported here for the
three programs do not equal the nationwide total of $4.7 billion that
appears in the first paragraph of this chapter. 

\6 Our review of Medicaid focuses on the value of health care
benefits provided to clients who were not eligible for benefits or
who were eligible but had unmet liability--that is, their excess
income had not been "spent down" to qualify.  Our review does not
focus on overpayments made to service providers. 


   FEDERAL GOVERNMENT AND STATES
   SHARE RESPONSIBILITY FOR THREE
   LARGE WELFARE PROGRAMS
---------------------------------------------------------- Chapter 1:1

Each year, the AFDC, Food Stamp, and Medicaid programs provide cash
and other assistance to millions of economically disadvantaged
persons.  In 1992, the AFDC program, authorized by title IV-A of the
Social Security Act, provided about $22 billion in cash assistance to
more than 13.6 million recipients--members of low-income families
with children who were deprived of support due to the absence, death,
disability, or unemployment of at least one parent.  The Food Stamp
Program, authorized by the 1964 Food Stamp Act, provided about $21
billion in food coupons to more than 25.4 million recipients to help
them buy food to meet their nutritional needs.  And the Medicaid
program, authorized by title XIX of the Social Security Act, paid
about $118 billion in 1992 for medical services for more than 30
million low-income persons who are aged, blind, or disabled; AFDC
recipients; and other low-income persons. 


      FEDERAL GOVERNMENT OVERSEES
      STATE ADMINISTRATION OF
      PROGRAMS
-------------------------------------------------------- Chapter 1:1.1

The Department of Health and Human Services' (HHS) Administration for
Children and Families (ACF) is responsible for the AFDC Program; HHS'
Health Care Financing Administration (HCFA) oversees administration
of the Medicaid Program; and the Department of Agriculture's (USDA)
Food and Consumer Service (FCS) oversees the Food Stamp Program. 

ACF's, FCS', and HCFA's oversight responsibility supports program
operation at the state level.  These agencies develop and issue
regulations on general eligibility and benefit criteria, provide
technical assistance and guidance to the states, and help monitor
state performance through quality control systems.  Under these
systems, states must review a sample of their cases each month to
assess the accuracy of their staffs' eligibility and benefit
determination decisions.  In turn, federal quality control reviewers
from ACF, FCS, and HCFA assess the correctness of state findings by
evaluating a subsample of the state samples.  Differences between the
state and federal findings are reconciled to calculate an official
state error rate.  If the error rate is greater than a program's
targeted error rate--for example, 3 percent in the case of
Medicaid--then federal payments may be reduced by an amount
calculated on the basis of the percentage point difference between
the actual and target error rate.  The error rate is also used to
estimate the total dollar value of estimated overpayments for the
state. 

The federal government and states both provide funding for AFDC, Food
Stamps, and Medicaid.  The federal government pays from 50 to about
80 percent of benefit costs for AFDC and Medicaid and 50 percent of
most administrative costs of those programs.  The federal government
pays 100 percent of benefit costs for Food Stamps and 50 percent of
state administrative costs. 


      STATES DETERMINE HOUSEHOLD
      AND INDIVIDUAL ELIGIBILITY
      AND BENEFIT AMOUNTS
-------------------------------------------------------- Chapter 1:1.2

The states manage the day-to-day functioning of AFDC, Food Stamps,
and Medicaid through local offices--either district, county, or city. 
As part of the daily administration, eligibility staff evaluate
applications to determine a household's or an individual's
eligibility and to ensure that the correct level of benefits is
authorized.  Depending upon the state, these staff may be determining
eligibility and benefit levels for one or all three programs. 

The three programs' eligibility rules and income tests are complex
and differ from one another; so, although all three programs take
into account assets, household income, and size, the extent to which
they do so varies.  For example, in determining an applicant's
eligibility under AFDC in fiscal year 1995, staff generally exclude
the first $1,500 in equity value of an applicant's automobile and
count the remainder in determining available financial resources;
under Medicaid, depending upon the type of applicant, staff exclude
the first $1,500 in equity value or $4,500 in fair market value and,
in certain cases, may exclude all of the value; and, under Food
Stamps, staff exclude the first $4,550 in fair market value and, in
some cases, may exclude all of the fair market value.\7 A requirement
that clients notify the staff when their income changes further
complicates eligibility determinations.  Staff must then use three
sets of eligibility criteria to recalculate benefit levels. 


--------------------
\7 All of the fair market value of an applicant's automobile may be
excluded in the Food Stamp and Medicaid programs for certain
circumstances, such as when the automobile is used for employment
purposes or transporting a disabled or handicapped person. 


      OVERPAYMENTS OCCUR FOR
      SEVERAL REASONS
-------------------------------------------------------- Chapter 1:1.3

Given the complexity and diversity of eligibility rules among the
three welfare programs, ineligible clients sometimes receive benefits
or medical services or eligible clients sometimes receive more
benefits than they are entitled to.  Overpayments generally result
when (1) a participating household or individual intentionally
provides incorrect or insufficient information on which eligibility
and benefit determinations are based (fraud), (2) a participating
household or individual unintentionally provides incorrect or
insufficient information (client error), or (3) the administering
state agency miscalculates eligibility or benefits or does not
correctly act on client-reported information (agency error). 


      STATES ARE RESPONSIBLE FOR
      RECOVERING OVERPAYMENTS
-------------------------------------------------------- Chapter 1:1.4

Regardless of the cause of overpayments, state AFDC and Food Stamp
offices are responsible for (1) preventing and identifying
overpayments, (2) verifying potential overpayments and establishing
claims for them, and (3) collecting overpayments.  While no federal
goals exist for states to recover a minimum percentage of their
overpayments, federal legislation generally requires states to try to
recover them in these two programs.  Although state Medicaid offices'
overpayment responsibilities are similar to those for the other two
programs, under Medicaid law, the focus is on recovering overpayments
to providers of medical services rather than the recipients of
services.  States may, but are not required to, recover funds from
ineligible Medicaid clients when overpayments to providers are made
in their behalf.  In 1992, as a result of state law or policy, most
states attempted to recover overpayments due to errors from Medicaid
clients, including long-term care clients who received nursing home
services to which they were not entitled. 

States use a variety of methods, including computer matching and
quality control reviews, to help prevent overpayments and to identify
overpayments.  The Deficit Reduction Act of 1984 requires states to
routinely compare data supplied by applicants and clients of AFDC,
Food Stamps, and Medicaid with other data sources in search of
discrepancies.  These other data sources include (1) Internal Revenue
Service (IRS) data on interest, dividends, and other types of
unearned income; (2) Social Security Administration data on benefits
and earnings; and (3) state reports on quarterly wages and
unemployment insurance benefits.  States may also identify
overpayments when they conduct their monthly quality control reviews
of individual cases or verify an individual's alien status. 

After identifying a possible overpayment, the next step is to verify
the overpayment.  Because one key factor in determining eligibility
and benefit levels is a household's or an individual's financial
information, this may involve contacting the client--or his or her
employer--to obtain wage statements to compare with the information
originally provided by the client.  Once the overpayment is verified,
states establish a claim for it by entering a record in the state
client billing and tracking system.  By regulation, however, states
are not required to pursue every overpayment.  For example, both the
AFDC and Food Stamp programs give states the option of not pursuing a
nonfraudulent overpayment of less than $35 if it cannot be collected
by reducing the individual's or household's benefit.  Under existing
waiver authority, FCS has increased the less than $35 threshold to
less than $100 for some states. 

After establishing a claim for collection, states then send a written
notice to the current or former client who received the overpayment
advising him or her of the amount owed, explaining how the
overpayment occurred, and requesting repayment.  Federal law and
regulations allow states to collect AFDC overpayments by offsetting a
portion of current clients' benefits (recoupment) without their
consent and do not distinguish between the types of overpayment
(agency or client error).  However, the Food Stamp Program can recoup
for agency errors only if the client voluntarily agrees to such
recoupment.  In addition, states must first allow clients with client
error overpayments to repay them by lump sum or installment payments. 
States can use recoupment if the client chooses recoupment to repay a
client error claim or if the client fails to pay the claim using the
method chosen.  If the state determines that collection action
through any of these payment methods would cause undue hardship for
the client, collections can be suspended or repayment amounts
reduced. 

States have several other alternatives available to collect
overpayments.  Depending upon the program, they may garnish wages or
intercept federal or state income tax refunds or state lottery
winnings.  States may also refer cases to collection agencies, report
client debt to credit bureaus, use a small claims court, or place
liens against a client's property to collect the outstanding debt. 

All three programs allow states to retain a portion of the
overpayments they recover.  For AFDC and Medicaid, states keep an
amount equal to the proportion of the benefits they originally
provided in matching funds--from about 20 to 50 percent--regardless
of the type of overpayment error.  Although Food Stamp benefits are
paid entirely by the federal government, states get to keep a portion
of the overpayments that they recover.  Currently, state agencies
retain 25 percent of recovered Food Stamp overpayments due to client
fraud, 10 percent for those due to client error, and nothing for
those due to agency error. 


      IMPLICATIONS OF WELFARE
      REFORM ON RECOVERING
      OVERPAYMENTS
-------------------------------------------------------- Chapter 1:1.5

As the Congress discusses various approaches to serving AFDC, Food
Stamp, and Medicaid clients, some members are proposing restructuring
these programs to give states more flexibility in administering them. 
While federal agencies currently oversee various aspects of these
programs, states may find, under reform, that they must assume
more--or even all--administrative and oversight responsibility. 
AFDC, Food Stamps, and Medicaid are entitlement programs:  no limit
exists on the amount of federal funding a state can receive since
every person who is determined to be eligible must receive benefits. 
Under a block grant approach, however, states would receive a capped,
defined amount of money.  In this instance, they likely would also
have increased financial interest in ensuring that funds are spent
only on those who are eligible. 


   SCOPE AND METHODOLOGY
---------------------------------------------------------- Chapter 1:2

To accomplish our objectives, we mailed a separate questionnaire for
each of the three welfare programs to welfare officials in all 50
states and the District of Columbia.  These questionnaires gathered
information on (1) the methods states use to identify and collect
overpayments, (2) how recovery efforts are coordinated among the
three programs, (3) the level of overpayments established and
collected in fiscal year 1992, and (4) what factors hinder or help
states' abilities to recover overpayments.  We also interviewed
officials at ACF, FCS, HCFA, the Department of the Treasury's
Financial Management Service, and IRS and welfare officials in seven
states.  Appendix I more completely describes our scope and
methodology. 

We conducted our work between April 1993 and March 1995 in accordance
with generally accepted government auditing standards. 


SUCCESSFUL RECOVERY OF
OVERPAYMENTS IS RELATED TO
ESTABLISHMENT OF CLAIMS AND TOOLS
STATES USE
============================================================ Chapter 2

For each of the three programs we reviewed, about a third of the
states--high-performing states--had recovered a substantially greater
portion of their estimated overpayments than the lower one-third of
the states.  One key reason for the high-performing states' success
is that they established more claims for their overpayments than
low-performing states.  In addition, they used a broader array of
tools and practices to both establish and collect overpayments than
the low-performing states.  We estimated that, if all states had
achieved recovery rates equal to those of the high-performing states,
an additional $262 million potentially could have been recovered in
fiscal year 1992. 

States' awareness and understanding of successful recovery techniques
can help enhance their collection efforts.  At the time of our
review, the Food and Consumer Service (FCS) was sharing best Food
Stamp recovery practices and overpayment collection data among the
states, and the Administration for Children and Families (ACF) was
planning to provide similar assistance for AFDC in 1996.  However,
HCFA was not providing, nor is it planning to provide, such
assistance to the states for recovering Medicaid overpayments from
clients. 


   RECOVERY RATES OF
   HIGH-PERFORMING STATES
---------------------------------------------------------- Chapter 2:1

The median recovery rate for high-performing states was at least
twice that of the low-performing states for each program.  For
example, as illustrated in figure 2.1, the high-performing states'
median recovery rate in the AFDC program was about 28 percent of
estimated overpayments, compared with 6 percent for the
low-performing states. 

   Figure 2.1:  Comparison of
   Median Recovery Rates of High-
   and Low-Performing States for
   the AFDC, Food Stamp, and
   Medicaid Programs (Fiscal Year
   1992)

   (See figure in printed
   edition.)

Although high-performing states were not always the same in each
program, the following states were consistently among the
high-performing states in fiscal year 1992 for at least two of the
three programs:  Alabama, Arkansas, California, Colorado, Georgia,
Hawaii, Idaho, Illinois, Kentucky, New Mexico, North Dakota, Oregon,
Utah, and Wyoming.  Appendixes II through IV show individual state
recovery rates for each program. 

One main reason that high-performing states' recovery rates were
greater than low-performing states' is that they established claims
for a significantly greater portion of their overpayments.  For
states to collect any overpayment, they must first establish claims
for them.  As illustrated in figure 2.2, the high-performing states'
median rate for establishing claims in the AFDC program, for example,
was about 54 percent of estimated overpayments, compared with 14
percent for the low-performing states.  The median recovery rate of
high-performing states in the AFDC program was substantially higher
than that for low-performing states, as shown in figure 2.1. 

   Figure 2.2:  Comparison of
   Median Rates for Establishing
   Claims of High- and
   Low-Performing States for the
   AFDC, Food Stamp, and Medicaid
   Programs (Fiscal Year 1992)

   (See figure in printed
   edition.)


   SUCCESSFUL PRACTICES FOR
   ESTABLISHING CLAIMS AND
   RECOVERING OVERPAYMENTS
---------------------------------------------------------- Chapter 2:2

States that had the most success in establishing claims and
recovering overpayments used a much higher number of certain recovery
practices and tools than other states.  States can use many different
practices or tools, under current law, to help recover overpayments. 
Following are the practices and tools for establishing claims and
recovering overpayments that were used more by high-performing states
than by low-performing states.  The practices and tools used for
establishing claims were

  use of self-initiated computer matches to identify potential
     overpayments,

  use of multiple approaches to identify potential overpayments,

  timely verification of overpayments,

  timely establishment of claims, and

  establishment of claims for more difficult collection cases. 

The practices and tools used for recovering overpayments were

  lower average caseloads for eligibility staff,\8

  greater portion of a state's total staff working to recover
     overpayments,

  use of state income tax refund intercept,

  use of multiple approaches to collect overpayments,\9

  automated tracking and billing system with a full range of
     functions,\10 and

  more of a state's overpayment records in automated tracking and
     billing system. 

In studying the high-performing states, we found that they used a
broad array of these practices, focusing on two aspects of the
recovery process--establishing the claim and collecting the
overpayment.  Although not all of the high-performing states used
every practice listed, we found that, overall, a greater proportion
used at least five of these practices than did the low-performing
states.  Many states indicated in our survey that limited staff may
have prevented them from doing more to recover overpayments. 


--------------------
\8 Only a few states provided us with caseload information for the
Medicaid program.  Therefore, this practice is not included in the
analysis of the total number of practices to recover Medicaid
overpayments. 

\9 In this report, we define "multiple approaches" as all or most of
the following methods to recover overpayments from current or former
clients:  (1) recouping of benefits (AFDC and Food Stamp only), (2)
collecting Food Stamp coupons, (3) collecting voluntary cash
payments, (4) collecting cash payments after referring to collection
agency, (5) collecting cash payments after using small claims court,
(6) collecting wage garnishments, (7) using property liens, (8)
intercepting unemployment compensation benefits, (9) intercepting
state income or property tax refunds (available in states with state
income or property tax), (10) intercepting federal income tax refunds
(Food Stamp only), or (11) using other collection method not listed
above such as intercepting state lottery winnings. 

\10 In this report, we define "full range of automated systems" as
those systems that could do at least all of the following functions: 
(1) generate adverse action notices/demand letters, (2) generate
overpayment statements to clients, (3) deduct part or all of the
overpayments from a current or future welfare benefit, (4) track a
client's current overpayment balance, and (5) identify claims that
were delinquent in repayment. 


      PRACTICES FOR ESTABLISHING
      CLAIMS
-------------------------------------------------------- Chapter 2:2.1

We found that high-performing states were more timely in verifying
potential overpayments and establishing claims than were
low-performing states.  As illustrated in figure 2.3, high-performing
states for the AFDC program, for example, established overpayment
claims for current clients on average in about 3 months--half the
average time it took for the lower one-third of the states, which was
about 6 months. 

   Figure 2.3:  Comparison of
   High- and Low-Performing
   States' Timeliness in
   Establishing AFDC Overpayments
   (Fiscal Year 1992)

   (See figure in printed
   edition.)

In addition, one of our prior studies showed that successful recovery
of overpayments is directly related to the time it takes to establish
an overpayment claim once it is identified.\11 The timely
establishment of overpayment claims for collection is important
because, once clients discontinue receiving program benefits and
overpayments can no longer be recouped, collection can be more
difficult. 

Another practice used by high-performing states was to establish
claims for the more difficult collection cases, such as former
clients who have moved out of state, provided no forwarding
addresses, declared bankruptcy, or died.  Although establishing
claims in these cases is time consuming, states that did this
increased their collection potential. 


--------------------
\11 Benefit Overpayments:  Recoveries Could Be Increased in the Food
Stamp and AFDC Programs (GAO/RCED-86-17, Mar.  14, 1986). 


      PRACTICES FOR COLLECTING
      OVERPAYMENTS
-------------------------------------------------------- Chapter 2:2.2

In addition to the specific practices associated with establishing
claims, high-performing states also used several practices for
collecting overpayments from former or current clients.  For example,
we found that these states had lower average caseloads per
eligibility staff, which allowed their staff an opportunity to spend
more time with each collection case.  Further, these states dedicated
a greater portion of their total staff to recovering overpayments,
including using recovery specialists and fraud investigators where
appropriate.  For example, in the Food Stamp Program, an average of 8
percent of high-performing states' total staff were fraud
investigators compared with 3 percent of low-performing states'. 

While having more resources helped them to collect overpayments,
high-performing states also used other practices not as common among
the low-performing states.  These included state tax refund
intercepts, multiple collection methods, and automated systems with a
full range of client billing and tracking functions.  About 12 of the
15 high-performing states for the Food Stamp Program, for example,
reported that they had a full range of automated functions, whereas 9
of the 20 low-performing states had this capacity.  Appendix V has
additional information related to state collection practices. 


   POTENTIAL FOR STATES TO IMPROVE
   RECOVERY EFFORTS
---------------------------------------------------------- Chapter 2:3

If all states had performed as high-performing states did in
recovering AFDC, Food Stamp, and Medicaid overpayments in 1992, we
estimate that an additional $262 million could have potentially been
recovered.  Our estimate is based on each state agency performing at
the median recovery rate of the top one-third performing states for
each of the programs in 1992.  This estimate is broken down among the
three programs as follows:  $132 million in AFDC recoveries
(61-percent increase over current recoveries), $100 million in Food
Stamp recoveries (96-percent increase), and $30 million in Medicaid
recoveries (230-percent increase). 


      FEDERAL EFFORTS HELP STATES
      LEARN ABOUT BEST RECOVERY
      PRACTICES
-------------------------------------------------------- Chapter 2:3.1

Our estimate of $262 million in potential additional recoveries
assumes that lower performing states would use more of the recovery
practices of the high-performing states.  To do so, states would have
to identify these practices and evaluate the cost benefit of using
them.  We found that FCS has helped states identify other states'
"best practices" for recovering Food Stamp overpayments.  ACF and
HCFA, on the other hand, are not helping states learn about best
recovery practices for AFDC or Medicaid overpayments, respectively. 
However, ACF has plans to begin offering such help in 1996; HCFA has
no similar plans. 

FCS communicates Food Stamp overpayment collection data and best
recovery practices to states in a variety of ways.  It annually
collects recovery data--such as dollar amounts recouped--from the
states and disseminates this information, which helps states compare
their performance and establish recovery goals of their own.  FCS
also collects information on successful recovery practices from the
states, periodically publishes this information, and disseminates it
nationwide.  In addition, FCS established a State Exchange Program
that subsidizes state officials' travel to other states to learn
about effective recovery practices, as well as methods to prevent
overpayments.  Finally, FCS provides training to states on the use of
federal income tax refund intercepts.  FCS officials told us that
they believe their sharing of best practice and recovery information
has helped states improve their overpayment recovery efforts. 

In contrast, the AFDC and Medicaid programs provide little guidance
on best recovery practices to the states.  ACF had collected
overpayment information until September 1988 when the Office of
Management and Budget's approval of its reporting form expired.  ACF
did not renew the form.  Subsequently, in November 1992, HHS' Office
of the Inspector General reported that ACF did not have a reporting
mechanism to collect information needed to assess the effectiveness
of state agency compliance with program requirements for identifying
and recovering AFDC overpayments.\12 ACF officials told us that, as a
result of that report, they have redesigned the form and are planning
to begin collecting financial recovery data from states in fiscal
year 1996.  In addition, the officials said that they are working on
a guidance document for states that would include best recovery
practices.  During our review, Medicaid officials were not aware that
several states were recovering overpayments from clients and, thus,
were not collecting recovery data or sharing best practice
information.\13 Medicaid officials said that they had no plans to
collect or disseminate best practice information because states are
not required to collect overpayments from clients. 


--------------------
\12 Audit of Controls for Each Phase of the Overpayment Recovery
Process in the Aid to Families With Dependent Children Program, U.S. 
Department of Health and Human Services, Office of the Inspector
General, A-01-92-02506 (Nov.  10, 1992), p.  14. 

\13 HCFA disseminates a manual on the best practices used to collect
from insurers and other liable third parties who have the primary
responsibility to pay for claims that Medicaid paid in error. 


EXTENDING EFFECTIVE FEDERAL
RECOVERY PROVISIONS TO ONE OR MORE
PROGRAMS COULD INCREASE
COLLECTIONS
============================================================ Chapter 3

Looking at the programs from the federal perspective, we found that
federal laws and regulations that facilitate recovery in one welfare
program are not in place in all three.  If legislative changes were
made to extend recovery practices used in one program to the others,
we estimate that states could potentially recover millions more in
welfare overpayments annually. 

A large part of the potential additional collections we estimate
involves the Food Stamp Program, in which a rule limiting recovery of
overpayments resulting from agency error has cost the program about
$33 million a year in potential collections.  Currently, unless the
client consents, states may not recover an overpayment by reducing
the client's monthly benefits if the overpayment results from agency
error. 

We also estimated that about $24 million could potentially be
collected annually by extending the use of federal income tax refund
intercept to the AFDC and Medicaid programs.\14 Currently, only the
Food Stamp Program allows states to intercept a federal income tax
refund to recover overpayments from a former program client who is
delinquent in repayment. 


--------------------
\14 The estimated additional overpayment collections from
intercepting federal income tax refunds is not mutually exclusive of
the estimated $262 million in collections presented in chapter 2. 


   ELIMINATING LIMITATIONS ON
   RECOUPMENT COULD POTENTIALLY
   INCREASE FOOD STAMP COLLECTIONS
---------------------------------------------------------- Chapter 3:1

Recovering overpayments due to agency error through recoupment--or
temporarily reducing benefits, without client consent--is an accepted
collection method in AFDC but not allowed for Food Stamp
overpayments.  Food Stamp legislation precludes states from using
recoupment, unless the client consents, to recover overpayments
resulting from agency error.  Eliminating the requirement for client
consent could potentially yield additional collections estimated at
about $33 million annually. 

For agency error overpayments, the Food Stamp restriction on using
recoupment without client consent could negatively affect states'
recovery efforts.  As shown in table 3.1, although about 40 percent
of the estimated overpayments in 1992 involved agency errors, less
than 19 percent of the states' established claims and less than 16
percent of total collections involve agency error overpayments.  One
reason for these rates may be that, unlike for fraud or inadvertent
client error, states cannot keep any collections of overpayments
resulting from agency errors.  Six states responding to our
questionnaire commented on a need for financial incentives for states
to collect agency error overpayments. 



                          Table 3.1
           
                Food Stamp Program--Estimated
            Overpayments, Claims Established, and
           Overpayments Collected Involving Agency
                   Error (Fiscal Year 1992)


                       Dollar  Dollar    Percent of total
                            s       s         errors
---------------------  ------  ------  ---------------------
Estimated              $1,710  $688.4          40.2
 overpayments              .2
Claims established      222.8    41.5          18.6
Overpayments            108.0    17.0          15.7
 collected
------------------------------------------------------------
Source:  Fiscal Year 1992 Food Stamp Quality Control Annual Report
and Food Stamp Program State Activity Report. 

Thirty-seven states reported that a federal requirement to recover
agency error overpayments, such as using recoupment without client
consent, would help them collect overpayments.  Only 11 states
reported that they opposed such a requirement.  One reason for their
response, provided by several states, may be that states do not keep
any part of the amount collected when the overpayment results from
agency error. 

Allowing recoupment without client consent to collect overpayments
resulting from agency error could enable states to potentially
collect an estimated $33 million in additional Food Stamp
overpayments annually.  Our estimate is based on an assumption that
states would establish claims for agency error overpayments at the
same rate that they did for client error overpayments in 1992 and
collect overpayments at least at the same rate that agency error
claims were collected in that year (see app.  VI, table VI.1). 

USDA supports using recoupment of Food Stamp benefits without client
consent to recover agency error overpayments.  In 1985, a legislative
proposal to require recoupment without client consent for agency
error overpayments was introduced but not enacted.  Subsequently, we
recommended in 1986 that the Congress amend the Food Stamp Act to
authorize states to pursue recoupment of agency error overpayments
without client consent.\15 At that time, USDA supported using such
recoupment for agency error claims.  Subsequently, in 1993, USDA
proposed legislation that recommended recoupment of agency error
claims, but the Congress did not act on the recommendation.  USDA is
again evaluating efforts needed, such as the use of recoupment of
agency error claims without client consent, to ensure that agency
error claims are treated the same as client error claims. 


--------------------
\15 Benefit Overpayments:  Recoveries Could Be Increased in the Food
Stamp and AFDC Programs (GAO/RCED-86-17, Mar.  14, 1986). 


   EXTENDING FEDERAL INCOME TAX
   REFUND INTERCEPT COULD
   POTENTIALLY INCREASE AFDC AND
   MEDICAID OVERPAYMENT
   COLLECTIONS
---------------------------------------------------------- Chapter 3:2

Although intercepting federal income tax refunds has proven effective
in collecting Food Stamp overpayments, its use is not authorized for
the AFDC and Medicaid programs.  The Food Stamp Program currently
intercepts tax refunds under demonstration project authority with
participation by about two-fifths of the states.  Twenty-one states
intercepted federal income tax refunds to collect over $30 million in
Food Stamp benefit overpayments in 1994.  Legislation would be needed
to authorize AFDC's and Medicaid's use of federal income tax refund
intercept.  We estimate that such legislation could potentially
result in overpayment collections increasing by $23.6 million
annually. 


      FEDERAL TAX REFUND INTERCEPT
      SUCCEEDS IN COLLECTING
      OVERPAYMENTS FOR THE FOOD
      STAMP PROGRAM
-------------------------------------------------------- Chapter 3:2.1

States that use federal income tax refund intercepts in the Food
Stamp Program do so as a last resort.  First, only claims resulting
from client error are referred for federal income tax refund
intercept.  Also, states may only refer claims for intercept if the
client is no longer a Food Stamp beneficiary and the claim becomes
delinquent after a state agency has tried several times to collect
it. 

Intercepting federal income tax refunds to collect delinquent claims
from former Food Stamp clients involves a joint effort by the Food
and Consumer Service (FCS), IRS, and the states.  State agencies
submit claims to FCS and notify the former beneficiaries.  FCS
consolidates individual state submissions, refers them to IRS for
processing, and then transfers the amounts intercepted, including any
earned income tax credit\16 in the refund, to the states.  States
paid half of the $8.28 IRS processing fee for each intercept in 1993;
FCS paid the other half. 

While no cost benefit study of the Food Stamp federal tax intercept
program has been made, it appears effective in recovering substantial
overpayments at a limited cost.  Since FCS' 1992 pilot of the
demonstration project in two states, collections from intercepts plus
voluntary payments made in place of offset have represented at least
23 percent of total collections in the participating states.\17

Each year since 1992, FCS has added states to the program.\18 As
shown in table 3.2, intercept-related collections represented about
33 percent of total overpayments recovered in 21 participating states
in fiscal year 1994.  The federal share (not less than 75 percent\19
) of the $30.6 million intercepted in that year was at least 23 times
greater than the $983,000 that FCS estimated it spent in
administrative costs in 1994.  These costs included salary and
contractor costs, training costs, and FCS' share of the IRS
processing fee.  While FCS does not determine state administrative
costs spent for tax intercept, FCS officials stated that they
believed the states' retention share exceeded their administrative
costs. 



                          Table 3.2
           
           Federal Tax Intercept Program Direct and
              Indirect Collections of Food Stamp
             Overpayments (Fiscal Years 1992-94)

Fiscal year                             1992    1993    1994
------------------------------------  ------  ------  ------
Participating states                       2       9      21
Intercept-related collections
Tax refund offset                       $3.1    $7.3   $27.6
Voluntary payments                        .4     1.4     3.0
Total                                   $3.5    $8.7   $30.6
Total collections in participating     $15.1   $31.4   $93.4
 states
Intercept-related collections as a      23.2    27.7    32.8
 percentage of total collections in
 participating states
------------------------------------------------------------

--------------------
\16 The earned income tax credit provides a refundable tax credit to
low-income working families, supplementing their earnings. 

\17 Voluntary payments are an indirect benefit of the intercept
program that occurs when former clients pay their debt after
receiving notice that they are to be referred to IRS for offset. 

\18 FCS added 11 more states in 1995. 

\19 The federal share of overpayment collections is 75 percent for
fraud and 90 percent for inadvertent client error. 


      LEGISLATION NEEDED TO EXTEND
      FEDERAL INCOME TAX REFUND
      INTERCEPT TO AFDC AND
      MEDICAID
-------------------------------------------------------- Chapter 3:2.2

Current law does not authorize using federal income tax refund
intercept in the AFDC and Medicaid programs.  Broad support exists,
however, to extend such authority to the two programs.  Over the
years, GAO, HHS, Treasury's Financial Management Service, state
agencies, and the United Council on Welfare Fraud, Inc.--a program
integrity advocacy group--have called for extending the federal
income tax intercept, primarily to the AFDC program.  Sixteen states
responding to our AFDC survey and 10 states responding to our
Medicaid survey cited a need for extending federal income tax
intercept to collecting outstanding AFDC and Medicaid overpayments. 

Legislation to extend federal income tax refund intercept to the AFDC
program was introduced in 1994 but did not pass.  The legislation,
part of a welfare reform proposal introduced in the 103rd Congress,
would have authorized an intercept program for AFDC overpayments. 
Commenting on this proposal, officials from the Treasury's Financial
Management Service cited the need to revise the proposal's language
so that HHS' ACF would be the focal point for working with IRS.  This
would lessen the administrative burden on IRS because it could deal
with one entity rather than 50 states and the District of Columbia. 
This approach would more closely resemble the Food Stamp intercept
program, which uses FCS as its focal point. 

In addition to new legislation for AFDC and Medicaid, legislative and
regulatory change would be needed to achieve the full potential of
the Food Stamp federal income tax intercept program.  FCS officials
told us that since they piloted the demonstration project, they have
recruited additional states each year on the basis of the states'
willingness to devote the staff and computer resources to implement
the program.  In its 1995 package of legislative recommendations to
update Food Stamp legislation, USDA recommended a legislative change
that would require all states to use the federal income tax refund
intercept.  Such a provision is contained in the recently passed
House of Representatives' welfare reform bill, H.R.  4. 

According to FCS officials, USDA also has drafted a regulatory change
that would remove the program from its demonstration project status
and fully authorize federal income tax refund intercept to collect
client error overpayments.  FCS officials told us that the decision
to limit the federal income tax refund intercept to only overpayments
caused by client error was a reaction to the failure of a 1994
legislative proposal to extend tax intercept to agency error
overpayments.  In commenting on a draft of this report, however, USDA
stated that, as part of its evaluation of efforts needed to ensure
that agency error claims are treated the same as client error claims,
it is again considering the referral of agency error claims for
federal tax intercept. 


      EXTENDING FEDERAL TAX
      INTERCEPT COULD POTENTIALLY
      RECOVER SUBSTANTIAL
      OVERPAYMENTS
-------------------------------------------------------- Chapter 3:2.3

If the federal income tax refund intercept program were extended to
the AFDC and Medicaid programs, we estimate that overpayment
collections could potentially be increased $23.6 million annually. 
The AFDC portion of our estimate--$22.3 million--is based on an
analysis of 24 states that reported using state income tax refund
intercept in 1992.  (See app.  VI, table VI.2.) We also estimated
that 11 states that used state tax intercept might collect about $1.3
million through extending the federal tax refund intercept to the
Medicaid program (see app.  VI, table VI.3). 

One ACF official we interviewed suggested that the possibility of
intercepting AFDC overpayments might not be as great as in the Food
Stamp Program because AFDC clients are less likely than Food Stamp
clients to be getting a federal income tax refund.  Further, all of
the ACF officials we interviewed believed that states may have to
"wait in line" behind other programs already using federal income tax
refund intercepts to collect from the same clients.  Other than
federal tax liability and past due child support owed AFDC clients,
which receive first priority, the law does not prioritize agencies. 


CONCLUSIONS, MATTERS FOR
CONGRESSIONAL CONSIDERATION,
AGENCY COMMENTS, AND OUR
EVALUATION
============================================================ Chapter 4


   CONCLUSIONS
---------------------------------------------------------- Chapter 4:1

Federal and state efforts to recover AFDC, Food Stamp, and Medicaid
benefit overpayments have fallen short of their potential.  While not
all such overpayments are collectable, recovery of overpayments could
substantially increase if lower performing states improved their
recovery practices, particularly in establishing claims for
overpayments.  Although our estimates of the additional collections
account for a small proportion of the total estimated overpayments in
1992, they represent a substantial increase in the amount that states
collected in each program in that year.  With the Food and Consumer
Service's (FCS) continued sharing of state recovery information and
best recovery practices and the Administration for Children and
Families' (ACF) plans to do so soon, states have an opportunity to
improve their recovery efforts in the AFDC and Food Stamp programs. 

Moreover, states could improve their ability to recover more
overpayments if the Congress would remove certain federal legislative
barriers to collection and recovery techniques.  Specifically, states
could run more fiscally sound welfare programs if (1) limits on
offsetting Food Stamp benefits to recover Food Stamp overpayments
arising from agency error were removed and (2) authority to use
federal income tax refund intercepts was extended to AFDC and
Medicaid overpayments.  While providing states these additional tools
will not end overpayments in these welfare programs, it would provide
states additional opportunities to recover overpayments. 

Managing the three welfare programs' funds--including identifying,
establishing, and collecting overpayments--is critical to the
programs' integrity, regardless of how they may be structured or
administered after the welfare reform debate.  Preventing
overpayments is clearly one way to ensure that taxpayer dollars are
not used for unwarranted benefits, but overpayments will inevitably
occur.  Finding methods to better identify and recover overpayments,
and obtaining additional collection tools, should continue to be a
central concern of program administrators. 


   MATTERS FOR CONGRESSIONAL
   CONSIDERATION
---------------------------------------------------------- Chapter 4:2

The Congress may want to consider legislative amendments to remove
barriers to states' collecting additional overpayments. 
Specifically, it may want to consider

  amending the Food Stamp Act of 1977 to authorize states to offset
     current recipients' benefits, without their consent, to recover
     overpayments caused by agency errors and

  extending the authority for states to intercept federal income tax
     refunds to include the recovery of AFDC and Medicaid
     overpayments. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 4:3

We requested written comments on a draft of this report from USDA,
HHS, and IRS.  IRS did not provide comments.  USDA and HHS comments
and our evaluation of them are summarized below.  USDA's and HHS'
written comments appear in full in appendixes VII and VIII,
respectively. 


      USDA COMMENTS AND OUR
      EVALUATION
-------------------------------------------------------- Chapter 4:3.1

USDA concurred with our conclusion that more can be done to recover
overpayments from current and former welfare clients.  It agreed
that, because some states establish claims for a greater percentage
of their overpayments than others, they recover more overpayments. 
USDA also identified recent actions it is taking to reduce errors
that lead to overpayments, including the creation of a core FCS team
to work solely on developing and coordinating payment accuracy issues
and identifying methods and incentives to encourage states to devote
the necessary resources to identifying and establishing more
overpayment claims.  We believe these are positive steps toward
reducing overpayments and improving collections and encourage USDA to
continue such efforts.  USDA also commented on a few specific
observations in our report.  Its detailed comments and our evaluation
of them follow. 


         COLLECTION IMPROVEMENTS
------------------------------------------------------ Chapter 4:3.1.1

USDA noted that, while the nationwide recovery rate of Food Stamp
overpayments was 7 percent, state agencies have been increasing the
amount of overpayments collected in recent years.  It stated that
this increase is due in part to the use of the Federal Tax Refund
Offset Program.  USDA also commented that state agencies are
collecting nearly 50 percent of the overpayments they establish as
claims. 

While we agree that states have increased their collection of
overpayments each year, they have not increased collections relative
to the growing amount of their estimated overpayments.  For example,
in fiscal year 1988, states collected about 8.6 percent (about $71
million) of their estimated overpayments but collected less than 6.4
percent (about $117 million) of estimated overpayments in fiscal year
1993.  Regarding USDA's comment that states are collecting almost 50
percent of the overpayment claims they establish, USDA did not
consider that most states are establishing claims for a small
percentage of their estimated overpayments.  For example, in 1992, 31
states had established claims for less than 20 percent of their total
estimated Food Stamp overpayments. 


         WELFARE REFORM
         IMPLICATIONS
------------------------------------------------------ Chapter 4:3.1.2

Regarding our comments about the implications of welfare reform on
recovering overpayments, USDA believes it is our opinion and not fact
that states would have an increased financial interest in ensuring
that block grant funds are spent only on those who are eligible.  In
addition, USDA commented that a capped level of funding under block
grants does not presume that overpayment errors will be fewer or that
more staff will be available to collect overpayments.  It also noted
that, under block grants, the accuracy in determining benefit levels
would largely depend on the state eligibility standards that would
replace current federal standards. 

It is our opinion that states would have an increased interest in
ensuring payment accuracy under block grants.  However, we did not
state, nor do we presume, that with block grants fewer overpayment
errors would occur or more staff would be available to collect
overpayments.  We agree with USDA that the accuracy of determining
benefit levels depends on the eligibility standards.  Eligibility
standards, however, are not the only variable that affects the
accuracy of benefit determinations.  The accuracy of benefit
determinations is also affected, for example, if the client
intentionally or unintentionally withholds necessary eligibility
information, such as earnings or assets. 


         INVOLUNTARY RECOUPMENT OF
         AGENCY ERRORS
------------------------------------------------------ Chapter 4:3.1.3

USDA points out that we did not accurately report its position on
involuntary recoupment of agency error overpayments.  It previously
supported and continues to support the position that states should be
able to use involuntary recoupment to collect agency error
overpayments.  We revised the report to reflect USDA's position. 


         ESTIMATE OF ADDITIONAL
         AGENCY ERROR COLLECTIONS
------------------------------------------------------ Chapter 4:3.1.4

USDA believes that our estimate of additional agency error
collections if states were allowed to use involuntary recoupment of
benefits is optimistic.  It questioned an assumption we used in
calculating our estimate--that states would establish agency error
claims at the same rate as client errors.  USDA contends that states
may not devote the same amount of resources to establish and collect
agency error claims as they do to determine client errors because
states do not keep a portion of agency error collections as they do
for client error collections.  While some states may aggressively
pursue agency error claims, USDA does not believe that involuntary
recoupment alone would generate the added incentive to achieve the
additional agency error collections we estimated. 

We do not believe our estimate of additional agency error collections
is overly optimistic.  While we agree that states have a clear
incentive to devote their limited resources to collecting client
error overpayments, we also believe that states would have a
continued interest to recover overpayments caused by agency errors. 
First, by law, states are required to establish claims for, and
attempt to collect, all types of overpayments.  Collecting all types
of overpayments helps maintain program integrity.  Second, as noted
in the report, our survey results suggest that most states would
favor a federal requirement to recover agency error overpayments,
such as involuntary recoupment, because it would increase their
ability to collect such overpayments.  We believe that involuntary
recoupment would make it easier for states to collect agency error
overpayments and, thus, states would be more likely to establish
claims for agency error overpayments as they do for client error
overpayments. 


         OTHER TECHNICAL COMMENTS
------------------------------------------------------ Chapter 4:3.1.5

USDA also provided technical comments on our draft report.  We made
changes where appropriate in the final report. 


      HHS COMMENTS AND OUR
      EVALUATION
-------------------------------------------------------- Chapter 4:3.2

In commenting on a draft of this report, HHS agreed that federal and
state efforts to recover overpayments fall short of their potential. 
In particular, it said that a substantial potential for increase in
AFDC recoveries exists if lower performing states improved to the
level of the high-performing ones.  The Department also believes that
federal agencies and states must emphasize the need to maintain
payment accuracy as well as find methods to better identify and
recover overpayments. 

HHS also provided other comments that raised questions about our
analyses and scope of review.  These and other comments and our
evaluation of them follow. 


         QUALITY OF GAO ANALYSIS
------------------------------------------------------ Chapter 4:3.2.1

HHS raised questions about the quality of our analysis and stated
that we were somewhat selective in citing findings that may
exaggerate differences in the characteristics of high- and
low-performing states.  Specifically, it questioned how we (1)
defined high- and low-performing states and specific overpayment
terms used throughout the report, (2) identified most promising
practices, and (3) measured collection rates. 

We disagree with HHS' assertions about the quality of our analysis
and presentation of findings.  As we explained in appendix I, for
each program, our definition of state performance is based upon a
ranking of the states according to the percentage of estimated
overpayments they collected and a subsequent division of the state
rankings into approximate thirds--high-, middle-, and low-performing
states.  The practices that we referred to as most promising in the
draft of this report are those that tended to be more commonly used
by high-performing states than by low-performing states.  Thus,
because we did not study the effectiveness of individual practices,
we deleted our reference to the practices as most promising.  The
overpayment terms we use throughout the report and our methodology
for calculating collection rates were also explained in appendix I. 
While we agree with HHS about the difficulties associated with
calculating state collection rates, in the absence of better data, we
established the proxy measure defined in the report. 

HHS also stated that it hoped the report would elaborate more on the
cost-effectiveness of various practices, causes for differences among
states' performance, and differences in state administrative costs. 
These issues were beyond this report's scope and objectives.  Our
review focused more broadly on the recovery of welfare overpayments
and not on any individual state's performance. 


         MULTIPLE PROGRAM GOALS
         REQUIRE STAFF TRADEOFFS
------------------------------------------------------ Chapter 4:3.2.2

HHS believes that the report needs to acknowledge that the programs
discussed in this report have multiple goals that often require
tradeoffs.  It commented that state eligibility workers who spend
their time recovering overpayments have to divert their efforts from
helping the client population attain self-sufficiency.  Clearly,
between these two program goals are tradeoffs that states would have
to make in allocating their resources.  We are not suggesting that
significant state resources be diverted from casework.  Rather, we
are suggesting that, by adopting some of the practices discussed in
the report, states could improve their performance in recovering
overpayments.  Most states already have recovery specialists devoted
to recovering overpayments.  By providing effective recovery
techniques to these specialists, states may not have to divert scarce
resources from self-sufficiency efforts to recover overpayments. 


         OTHER TECHNICAL COMMENTS
------------------------------------------------------ Chapter 4:3.2.3

In considering other HHS comments, we clarified our discussion of
program administration, rules, and procedures.  In addition, HHS
offered technical comments on the report draft.  We considered these
comments for the final report and made changes where appropriate. 


SCOPE AND METHODOLOGY
=========================================================== Appendix I

To accomplish our objectives, we surveyed officials in the 50 states
and the District of Columbia to determine the methods states use to
identify and collect overpayments; how recovery efforts were
coordinated among the three programs; what amounts of overpayments
were established and collected in the most recent year for which data
were available for the three programs, federal fiscal year 1992; and
what factors hinder or help states in collecting overpayments. 

We used three questionnaires in each state, one each for AFDC, Food
Stamps, and Medicaid.  Our analyses are based on responses from
officials in all 50 states and the District of Columbia.\20 Although
we did not independently verify the accuracy of all survey data
provided by the states, we did verify the amounts reported as
estimated overpayments, claims established, and overpayments
collected for the AFDC and Food Stamp programs by comparing them to
Administration for Children and Families (ACF) and Food and Consumer
Service (FCS) records, respectively, to the extent available.  No
similar records were available to verify Medicaid data reported by
the states.  Copies of our questionnaires and survey results can be
obtained by writing to

U.S.  General Accounting Office
NGB/Income Security
Attention:  Ms.  Suzanne Sterling
441 G Street NW
Washington, DC 20548. 

Nationwide and state-by-state data matching overpayment collections
with the year the overpayments occurred were not available for any of
the programs.  In the absence of such data to calculate recovery
rates, we developed a proxy measure of an individual state's recovery
performance for each of the three programs by dividing the
overpayment dollars recovered by each state in 1992 by quality
control estimates of overpayment dollars\21 for that year from ACF,
FCS, and HCFA.\22 We realize that a one-to-one correspondence does
not exist between overpayments made and recovered in a given year. 
For example, overpayments can occur a year or more before they are
identified and established as claims; then collections can continue
to be received years after the overpayment claims were established. 
We believe, however, that this proxy measure reasonably reflects the
variation in the 1992 recovery performance among states.\23

To help determine the more effective practices that states use to
collect overpayments, for each program, we ranked the states by the
collection-to-overpayments ratio developed from the proxy measure of
states' recovery performance.  We then divided the states into high-,
middle-, and low-performance categories for each program, with
approximately one-third of the states in each of the three groups, as
shown in table I.1.  We defined high-performing states as those with
an AFDC recovery rate of 20 percent or greater, a Food Stamp recovery
rate of 10 percent or greater, or a Medicaid recovery rate of 3
percent or greater. 



                          Table I.1
           
              High-, Middle-, and Low-Performing
            States' AFDC, Food Stamp, and Medicaid
           Overpayment Recovery Levels (Fiscal Year
                            1992)


                      Number          Number          Number
              Percen      of  Percen      of  Percen      of
Program            t  states       t  states       t  states
------------  ------  ------  ------  ------  ------  ------
AFDC           20 or      19   10 to      16    Less      15
              greate            less            than
                   r            than              10
                                  20
Food Stamp     10 or      15    7 to      16    Less      20
              greate            less          than 7
                   r            than
                                  10
Medicaid        3 or      10    1 to       8    Less       9
              greate            less          than 1
                   r          than 3
------------------------------------------------------------
Note:  The data used to calculate the recovery rates were provided by
49 states and the District of Columbia for the AFDC program, 50
states and the District of Columbia for the Food Stamp program, and
27 states for the Medicaid program. 

By categorizing the states this way, we could analyze our survey data
to determine if high-performing states differed from low-performing
states in the number or kind of practices used to establish or
collect overpayments.  We also used this ranking of states'
performance to estimate the potential for additional collections if
lower performing states raised their recovery efforts to the level of
high-performing states.  Our estimate of the additional collections
represents gross collections and is not net of the cost of obtaining
them. 

We also interviewed federal and state officials to better understand
their recovery policies and practices.  We interviewed officials from
ACF, FCS, and HCFA; Treasury's Financial Management Service and IRS;
and seven states (California, Maryland, North Carolina, Oregon,
Tennessee, Texas, and Wisconsin).  We focused our interviews on four
aspects of recovery:  (1) recovery organization and coordination; (2)
use of specific identification and collection methods; (3) factors
that hinder recovery; and (4) federal oversight, monitoring, and
guidance of state recovery efforts. 

To determine what the federal government can do to help states
recover more overpayments, we reviewed the federal laws and
regulations for each program.  In addition, as presented in appendix
VI, we estimated the additional overpayments that could be collected
if certain legislative or regulatory provisions that facilitate
recovery in one program were extended to the others.  Our estimate of
additional recoveries represents gross collections and is not net of
the cost of obtaining them. 


--------------------
\20 The District of Columbia did not respond to our Medicaid
overpayment recovery survey. 

\21 Estimates of overpayment dollars were calculated by multiplying
the error rate by 1992 benefit expenditures. 

\22 The estimate of Medicaid overpayments does not include Medicaid
expenditures for individuals whose Medicaid eligibility is based upon
their eligibility for Supplemental Security Income, Indian Health
Services, and AFDC while in foster care, which generally is not
determined by the state. 

\23 As a further test of our Food Stamp proxy measure (6.5 percent
recovery rate nationwide), we compared Food Stamp collection and
estimated overpayment data for 1988 through 1993 and derived a 7.4
percent nationwide recovery rate for the 6-year period.  The data are
from FCS' annual quality control and state activity reports. 
However, similar data are not available for the AFDC and Medicaid
programs. 


STATES' PERFORMANCE IN RECOVERING
AFDC OVERPAYMENTS, FISCAL YEAR
1992
========================================================== Appendix II


                  Percent of                                                   Percent of
                   estimated                     Percent of                     estimated
                  overpaymen                      estimated                    overpaymen
                          ts                   overpayments                            ts
State              recovered  State               recovered  State              recovered
----------------  ----------  --------------  -------------  ----------------  ----------
North Dakota            67.0  Idaho                    18.7  Iowa                     9.7

Nevada                  63.4  South Carolina           17.4  Michigan                 8.8

Oregon                  40.1  Oklahoma                 17.2  Connecticut              8.5

New York                39.0  North Carolina           16.5  Tennessee                7.5

Nebraska                35.7  Delaware                 16.2  Maryland                 7.4

Illinois                35.3  Alabama                  15.0  Ohio                     6.9

Georgia                 34.4  Virginia                 14.6  Wisconsin                6.3

Utah                    33.5  Montana                  14.5  Mississippi              6.1

Colorado                30.1  Arkansas                 14.3  Texas                    6.0

Hawaii                  27.8  Arizona                  12.6  West Virginia            5.9

Minnesota               26.7  Missouri                 12.4  Pennsylvania             4.9

New Mexico              25.6  Rhode Island             12.0  Louisiana                4.8

South Dakota            24.8  New Jersey               11.9  Florida                  2.6

Washington              24.4  Indiana                  11.0  New Hampshire            2.0

Kentucky                23.9  Massachusetts            10.5  Maine                    1.1

California              23.7  Vermont                  10.3

Wyoming                 21.7

Alaska                  21.0

Washington, D.C.        20.8
-----------------------------------------------------------------------------------------
Note:  AFDC recovery information was not available for Kansas. 


STATES' PERFORMANCE IN RECOVERING
FOOD STAMP OVERPAYMENTS, FISCAL
YEAR 1992
========================================================= Appendix III


                Percent of                     Percent of                      Percent of
                 estimated                      estimated                       estimated
              overpayments                   overpayments                    overpayments
State            recovered  State               recovered  State                recovered
------------  ------------  --------------  -------------  ----------------  ------------
Hawaii                29.1  South Dakota              9.8  North Carolina             6.2

North Dakota          18.1  Alaska                    9.3  Connecticut                6.0

Utah                  16.7  New Jersey                9.3  Maryland                   6.0

Oregon                16.6  Kansas                    8.9  Arizona                    5.9

Idaho                 15.3  Montana                   8.7  Texas                      5.8

Colorado              14.5  Iowa                      8.5  New Hampshire              5.6

Wisconsin             13.0  Vermont                   8.3  Oklahoma                   5.5

Alabama               12.6  Washington                8.3  Washington, D.C.           5.4

Georgia               12.6  South Carolina            8.3  New York                   5.2

Illinois              12.5  Missouri                  8.1  West Virginia              5.2

Wyoming               12.5  New Mexico                8.0  Nevada                     4.1

Arkansas              11.1  Nebraska                  8.0  Tennessee                  3.9

California            10.4  Maine                     7.8  Virginia                   3.7

Pennsylvania          10.3  Minnesota                 7.5  Massachusetts              3.7

Kentucky              10.2  Delaware                  7.3  Mississippi                3.1

                            Michigan                  7.1  Louisiana                  3.1

                                                           Indiana                    3.0

                                                           Rhode Island               2.6

                                                           Ohio                       2.5

                                                           Florida                    1.3
-----------------------------------------------------------------------------------------

STATES' PERFORMANCE IN RECOVERING
MEDICAID OVERPAYMENTS, FISCAL YEAR
1992
========================================================== Appendix IV


                   Percen                     Percen                      Percen
                     t of                       t of                        t of
                   estima                     estima                      estima
                      ted                        ted                         ted
                   overpa                     overpa                      overpa
                   yments                     yments                      yments
                   recove                     recove                      recove
State                 red  State                 red  State                  red
-----------------  ------  -----------------  ------  ------------------  ------
Alabama              13.4  Alaska                2.7  Nevada                  .8

Idaho                10.8  Oregon                2.3  Hawaii                  .7

Maryland             10.0  New Jersey            2.3  Nebraska                .6

Utah                  7.3  Washington            2.0  South Dakota            .5

New Mexico            6.4  Wyoming               1.7  Texas                   .5

Montana               6.2  Iowa                  1.5  Georgia                 .2

Arkansas              5.2  North Carolina        1.4  Kentucky                .2

Missouri              3.7  Delaware              1.3  South Carolina          .1

California            3.4                             Florida               less
                                                                            than
                                                                              .1

Colorado              3.2
--------------------------------------------------------------------------------
Note:  Medicaid recovery information was not available for Arizona,
Connecticut, District of Columbia, Illinois, Indiana, Kansas,
Louisiana, Maine, Massachusetts, Michigan, Minnesota, Mississippi,
New Hampshire, New York, North Dakota, Ohio, Oklahoma, Pennsylvania,
Rhode Island, Tennessee, Vermont, Virginia, West Virginia, and
Wisconsin. 


COMPARISON OF RECOVERY EFFORTS OF
HIGH- AND LOW-PERFORMING STATES
=========================================================== Appendix V

The following tables provide additional information on our analyses
of the recovery practices that successful states use to establish and
collect overpayments as discussed in chapter 2. 



                          Table V.1
           
            For the AFDC or Food Stamp Programs, a
             Greater Percentage of High-Than Low-
            Performing States Used Self-Initiated
                 Computer Matches to Identify
                         Overpayments


                              Number          Number
                                  of  Percen      of  Percen
Program\a                     states       t  states       t
----------------------------  ------  ------  ------  ------
AFDC                           18 of      95   10 of      67
                                  19              15
Food Stamp                     15 of     100   15 of      75
                                  15              20
------------------------------------------------------------
\a There was relatively little difference between high- and
low-performing states for the Medicaid program for this individual
practice, and, therefore, the program is not included in the table. 



                          Table V.2
           
            For the AFDC or Food Stamp Programs, a
             Greater Percentage of High-Than Low-
               Performing States Used Multiple
             Approaches to Identify Overpayments


                              Number          Number
                                  of  Percen      of  Percen
Program\a                     states       t  states       t
----------------------------  ------  ------  ------  ------
AFDC                           15 of      79   10 of      67
                                  19              15
Food Stamp                     11 of      73   13 of      65
                                  15              20
------------------------------------------------------------
Note:  In this report, those states that use at least all of the
following methods to identify potential overpayments are considered
as using multiple approaches:  (1) self-initiated computer matches;
(2) quality control reviews; (3) fraud hotlines; (4) client
application procedures; (5) client recertification process; and (6)
methods other than those listed, such as supervisory reviews of
client applications processed by eligibility staff. 

\a There was relatively little difference between high- and
low-performing states for the Medicaid program for this individual
practice, and, therefore, the program is not included in the table. 



                          Table V.3
           
            For the AFDC, Food Stamp, or Medicaid
            Programs, the Total Types of Difficult
            Collections That States Reported They
            Would Attempt Was Higher in High-Than
                    Low-Performing States


                              Number   Total  Number   Total
                                  of   types      of   types
                              states  (avera  states  (avera
Program                           \a     ge)      \a     ge)
----------------------------  ------  ------  ------  ------
AFDC                              19       5      15       4
Food Stamp                        15       5      20       4
Medicaid                          10       6       9       4
------------------------------------------------------------
Note:  More difficult types of collection include collections of
overpayments from current or former clients for each of the following
situations:  (1) current client who declared bankruptcy, (2) current
client who could not repay the debt, (3) former client who moved out
of state, (4) former client with no forwarding address, (5) former
client who declared bankruptcy, (6) former client who could not repay
the debt, and (7) former client who was deceased. 

\a Excludes state(s) in each performance category that did not
respond to the question. 



                          Table V.4
           
            For the AFDC, Food Stamp, or Medicaid
              Programs, the Median Caseload per
             Eligibility Staff Was Lower in High-
                  Than Low-Performing States


                              Number          Number
                                  of  Median      of  Median
                              states  caselo  states  caselo
Program                           \a      ad      \a      ad
----------------------------  ------  ------  ------  ------
AFDC                              14     218      10     332
Food Stamp                        11     230      11     321
Medicaid                           4     216       6     254
------------------------------------------------------------
\a Excludes state(s) in each performance category that did not
respond to the question. 



                          Table V.5
           
            For the AFDC, Food Stamp, or Medicaid
            Programs, the Average Percent of Total
           Staff Who Were Recovery Specialists Was
              Higher in High-Than Low-Performing
                            States


                              Number  Averag  Number  Averag
                                  of       e      of       e
                              states  percen  states  percen
Program                           \a       t      \a       t
----------------------------  ------  ------  ------  ------
AFDC                              13       4       8       3
Food Stamp                        13       7      12       3
Medicaid                           6       5       9       4
------------------------------------------------------------
Note:  Total staff include eligibility staff, recovery specialists,
and fraud investigators. 

\a Excludes state(s) in each performance category that did not
respond to the question. 



                          Table V.6
           
           For the AFDC or Food Stamp Programs, the
           Average Percent of Total Staff Who Were
           Fraud Investigators Was Higher in High-
                  Than Low-Performing States


                              Number  Averag  Number  Averag
                                  of       e      of       e
                              states  percen  states  percen
Program\a                         \b       t      \b       t
----------------------------  ------  ------  ------  ------
AFDC                              13       4       8       2
Food Stamp                        13       8      12       3
------------------------------------------------------------
Note:  Total staff include eligibility staff, recovery specialists,
and fraud investigators. 

\a There was relatively little difference between high- and
low-performing states for the Medicaid program for this individual
practice, and, therefore, the program is not included in the table. 

\b Excludes state(s) in each performance category that did not
respond to the question. 



                          Table V.7
           
            For the AFDC, Food Stamp, or Medicaid
           Programs, a Greater Percentage of High-
            Than Low-Performing States Used State
           Income or Property Tax Refund Intercept
                   to Collect Overpayments


                              Number
                                  of          Number
                              states  Percen      of  Percen
Program                           \a       t  states       t
----------------------------  ------  ------  ------  ------
AFDC                           10 of      56    6 of      40
                                  18              15
Food Stamp                     10 of      67    8 of      40
                                  15              20
Medicaid                        6 of      60  2 of 9      22
                                  10
------------------------------------------------------------
\a Excludes state(s) in each performance category that did not
respond to the question. 



                          Table V.8
           
            For the AFDC, Food Stamp, or Medicaid
           Programs, a Greater Percentage of High-
             Than Low-Performing States Used More
                Multiple Approaches to Collect
                         Overpayments


                      Number
                          of
                      collec  Number
                        tion      of          Number
                      method  states  Percen      of  Percen
Program               s used      \a       t  states       t
--------------------  ------  ------  ------  ------  ------
AFDC                      11    5 of      26    0 of       0
                                  19              15
Food Stamp                12    7 of      47    7 of      35
                                  15              20
Medicaid                   6    4 of      40  1 of 9      11
                                  10
------------------------------------------------------------
Note:  In this report, states that use all or most of the following
collection methods to recover overpayments from current or former
clients are considered as using multiple approaches:  (1) recouping
of benefits (AFDC and Food Stamp only), (2) collecting Food Stamp
coupons, (3) collecting voluntary cash payments, (4) collecting cash
payments after referring to collection agency, (5) collecting cash
payments after using small claims court, (6) collecting wage
garnishments, (7) using property liens, (8) intercepting unemployment
compensation benefits, (9) intercepting state income or property tax
refunds (available in states with state income or property tax), (10)
intercepting federal income tax refunds (Food Stamp only), or (11)
using other collection method not listed above such as intercepting
state lottery winnings. 

\a Excludes state(s) in each performance category that did not
respond to the question. 



                          Table V.9
           
            For the AFDC or Food Stamp Programs, a
             Greater Percentage of High-Than Low-
           Performing States Had Automated Billing
            Systems With a Full Range of Functions


                              Number          Number
                                  of  Percen      of  Percen
Program\a                     states       t  states       t
----------------------------  ------  ------  ------  ------
AFDC                           13 of      68    6 of      40
                                  19              15
Food Stamp                     12 of      80    9 of      45
                                  15              20
------------------------------------------------------------
Note:  In this report, we define as "full range" those automated
systems that could do at least all of the following functions:  (1)
generate adverse action notices/demand letters, (2) generate
overpayment statements to clients, (3) deduct part or all of the
overpayments from a current or future welfare benefit, (4) track a
client's current overpayment balance, and (5) identify delinquent
claims. 

\a There was relatively little difference between high- and
low-performing states for the Medicaid program for this individual
practice, and, therefore, the program is not included in the table. 



                          Table V.10
           
            For the AFDC, Food Stamp, or Medicaid
           Programs, a Greater Percentage of High-
            Than Low-Performing States Had All or
           Almost All of Their Overpayment Records
                in an Automated Billing System


                              Number          Number
                                  of              of
                              states  Percen  states  Percen
Program                           \a       t      \a       t
----------------------------  ------  ------  ------  ------
AFDC                           14 of      78   10 of      67
                                  18              15
Food Stamp                     14 of      93   15 of      75
                                  15              20
Medicaid                      7 of 8      88  5 of 8      63
------------------------------------------------------------
\a Excludes state(s) in each performance category that did not
respond to the question. 


EFFECT OF EXTENDING EFFECTIVE
FEDERAL RECOVERY PROVISIONS TO ONE
OR MORE PROGRAMS COULD POTENTIALLY
INCREASE COLLECTIONS
========================================================== Appendix VI

The following tables provide additional information supporting our
estimates of the additional overpayments that could be recovered from
establishing more uniform federal recovery provisions among the AFDC,
Food Stamp, and Medicaid programs. 



                          Table VI.1
           
              Estimate of Additional Food Stamp
            Overpayment Recoveries if States Were
           Required to Reduce Benefits (Recoupment)
            to Recover Overpayments Resulting From
                        Agency Errors

                    (Dollars in millions)

----------------------------------------------------  ------
Estimated overpayments due to agency error \a         $688.4
Claims establishment rate for client error              .177
 overpayments\b
Estimated overpayment claims established              $121.8
Claims collection rate for agency overpayments\c         .41
Estimated overpayment claims collected                 $50.0
Less actual overpayment claims collected               $17.0
Estimated additional overpayment collections           $33.0
------------------------------------------------------------
\a Based on 1992 quality control review data provided by the Food and
Consumer Service. 

\b We assumed that with recoupment without the client's consent
states would establish overpayment claims at the same rate that they
did for client error overpayments. 

\c We assumed that with recoupment without the client's consent
states would collect overpayment claims at the same rate as for
agency error overpayments.  In doing this, we were taking a
conservative approach because the agency error collection rate was
lower than that for client error overpayments. 

To estimate potential additional collections from using federal
income tax refund intercept for AFDC and Medicaid overpayments, as
shown in tables VI.2 and VI.3, we used information provided by the
United Council on Welfare Fraud, Inc., a program integrity advocacy
group, and survey data provided by state agencies.  Information from
the Council included a ratio of the dollar amount of Food Stamp
overpayments collected using state income tax intercept to the
overpayments collected using federal tax intercept, based on a
Council study of Alabama's and California's experience using federal
tax refund intercept in 1992.  To estimate the additional collections
for the AFDC and Medicaid programs, we multiplied the total AFDC and
Medicaid overpayments collected using state tax intercept in 1992 by
the ratio provided by the Council.  We assumed that the relationship
between the overpayment amount collected using state income tax
intercept and the amount collected using a federal income tax
intercept for any state would be the same as that for Food Stamp
overpayments. 



                          Table VI.2
           
           Estimate of Additional AFDC Overpayment
             Collections for 24 States if Federal
               Income Tax Refund Intercept Were
            Available as an Overpayment Collection
                            Method

                    (Dollars in thousands)

----------------------------------------------------  ------
Collections by 24 states using state income tax       $8,360
 refund intercept\a                                       .7
Ratio of state income tax refund intercept to         .375:1
 federal income tax refund intercept\b
Estimate of collections for 24 states by using        $22,29
 federal income tax refund intercept                     5.2
------------------------------------------------------------
\a Data developed from state responses to GAO nationwide survey of
state AFDC agencies. 

\b Based on data provided by the United Council on Welfare Fraud,
Inc. 



                          Table VI.3
           
               Estimate of Additional Medicaid
           Overpayment Collections for 11 States if
           Federal Income Tax Refund Intercept Were
            Available as an Overpayment Collection
                            Method

                    (Dollars in thousands)

----------------------------------------------------  ------
Collections by 11 states using state income tax       $472.5
 refund intercept\a
Ratio of state income tax refund intercept to         .375:1
 federal income tax refund intercept\b
Estimate of collections for 11 states by using        $1,259
 federal income tax refund intercept                      .9
------------------------------------------------------------
\a Data developed from state responses to GAO nationwide survey of
state Medicaid agencies. 

\b Based on data provided by the United Council on Welfare Fraud,
Inc. 




(See figure in printed edition.)APPENDIX VII
COMMENTS FROM THE DEPARTMENT OF
AGRICULTURE
========================================================== Appendix VI



(See figure in printed edition.)



(See figure in printed edition.)




(See figure in printed edition.)APPENDIX VIII
COMMENTS FROM THE DEPARTMENT OF
HEALTH AND HUMAN SERVICES
========================================================== Appendix VI



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


GAO CONTACTS AND STAFF
ACKNOWLEDGMENTS
========================================================== Appendix IX

GAO CONTACTS

Suzanne C.  Sterling, Evaluator, (202) 512-3081
Philip J.  Andres, Evaluator-in-Charge, (313) 256-8306
David P.  Bixler, Assistant Director, (202) 512-7201

ACKNOWLEDGMENTS

In addition to those named above, the following individuals made
important contributions to this report:  Mark Vinkenes assisted with
questionnaire development, Kathleen Ward assisted with the
methodology and data analysis, Jean Freeman developed the data entry
programs and keypunched questionnaire data, and Sara Peth provided
data verification assistance. 

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