Food Assistance: Efforts to Control Fraud and Abuse in the Child and
Adult Care Food Program Should be Strengthened (Letter Report,
11/24/1999, GAO/RCED-00-12).
GAO reviewed the Food and Nutrition Service's (FNS) efforts to control
the fraud and abuses occurring in its state administered Child and Adult
Care Food Program, focusing on: (1) the extent to which the states have
implemented required and recommended controls to prevent and detect
fraud and abuse; and (2) FNS' effectiveness in directing the states'
efforts to implement these controls.
GAO noted that: (1) almost all of the state agencies reported they had
implemented, at least in part, FNS' minimum required controls for
detecting fraud and abuse in the Child and Adult Care Food Program; (2)
these agencies, however, reported variation in implementing the
additional controls recommended by the Inspector General and task force;
(3) state agencies cited factors that made it difficult to strengthen
controls over fraud and abuse, including: (a) a lack of resources
(staff, funding, or computer technology); (b) a lack of training in and
knowledge of how to identify fraud and abuse; and (c) unclear
regulations by FNS on removing noncompliant sponsors from the program;
(4) according to FNS and state officials, state agencies may be
reluctant to adopt additional fraud and abuse controls because they view
themselves as providers of program benefits, not policing organizations;
(5) FNS has not effectively directed the states' efforts to protect
against fraud and abuse in this program; (6) it has yet to strengthen
the minimum requirements for the states' controls over fraud and abuse,
despite recommendations from the Inspector General and federal-state
task force dating back to 1995; (7) this has contributed to many states
not implementing the types of controls necessary to reduce the program's
vulnerability to illegal or inappropriate uses of federal funds; (8) FNS
has not adequately monitored the states' implementation of controls over
fraud and abuse and has little basis for identifying and correcting
problems that the states may be experiencing; (9) FNS has had difficulty
correcting problems involving the states' compliance with required
controls, partially because it lacks an appropriate range of sanctions;
(10) agency officials told GAO that these oversight weaknesses largely
resulted from insufficient resources, noting that in the past few years,
the agency needed to concentrate many of its resources on implementing
changes required by welfare reform; (11) beginning in fiscal year 1999,
Congress authorized an additional $1 million annually for 5 years to
strengthen the agency's efforts in preventing and detecting fraud and
abuse in the food program; and (12) FNS has initiated but not completed
actions to address these problems.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-00-12
TITLE: Food Assistance: Efforts to Control Fraud and Abuse in the
Child and Adult Care Food Program Should be
Strengthened
DATE: 11/24/1999
SUBJECT: Food relief programs
Child care programs
Internal controls
Federal/state relations
State-administered programs
Program abuses
Fraud
IDENTIFIER: USDA Child and Adult Care Food Program
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Cover
================================================================ COVER
Report to Congressional Committees
November 1999
FOOD ASSISTANCE - EFFORTS TO
CONTROL FRAUD AND ABUSE IN THE
CHILD AND ADULT CARE FOOD PROGRAM
SHOULD BE STRENGTHENED
GAO/RCED-00-12
Child and Adult Food Assistance Program
(150098)
Abbreviations
=============================================================== ABBREV
FNS - Food and Nutrition Service
USDA - U.S. Department of Agriculture
Letter
=============================================================== LETTER
B-283994
November 29, 1999
Congressional Committees
The Child and Adult Care Food Program provides over $1.5 billion in
benefits annually to children and adults in day care. The U.S.
Department of Agriculture's (USDA) Food and Nutrition Service (FNS)
administers this program through designated state agencies, usually
state departments of education or health, which are responsible for
ensuring that children and adults receive nutritious meals. To do
this, the states use program funds to subsidize the meals served by
day care providers. State agencies operate their programs through
state-approved organizations (sponsors), such as nonprofit community
action agencies or school districts, which oversee the day care
providers. In fiscal year 1998, the program benefited a monthly
average of 2.5 million children and 58,000 adults in the care of
about 220,000 providers, nationwide.
The Child and Adult Care Food Program has long been plagued with
fraud and abuse. Since 1993, USDA's Office of Inspector General has
conducted over 55 audits and investigations in 23 states�identifying
case after case of the intentional misuse of federal funds.\1 Scams
uncovered included sponsors' creating fictitious day care providers,
inflating the number of meals served, and padding executives'
salaries and benefits. Given the scope of the problems that the
Inspector General identified, USDA declared the program to have
�material weaknesses��that is, the program lacked sufficient controls
to ensure that federal funds were adequately safeguarded.
As the principal administrators of this program, state agencies are
responsible for implementing FNS' program regulations to protect
against fraud and abuse. Specifically, these regulations require the
state agencies to, at a minimum, (1) review and approve sponsors'
budgets to ensure that they cover only allowable and reasonable
costs; (2) conduct administrative reviews of sponsors and providers
to ensure compliance with the program's requirements; (3) ensure that
required financial audits are completed and corrective actions taken;
and (4) review all monthly claims submitted for meal reimbursements.
In 1995, USDA's Office of Inspector General and a federal-state task
force\2 recommended that the states implement a number of controls,
beyond the minimum program requirements, to better protect against
fraud and abuse. These recommended actions included conducting
unannounced visits to providers to ensure the accuracy of meal
reimbursements, requiring criminal background checks on sponsors' and
providers' employees, and contacting parents to verify children's
enrollment and attendance. To date, FNS has not incorporated these
recommendations into its regulations for detecting and preventing
fraud and abuse in the Child and Adult Care Food Program. However,
it has provided guidance to the states on how they can adopt some
recommended controls on a voluntary basis.
Because of continued concerns about fraud and abuse in the Child and
Adult Care Food Program, we initiated work that (1) examined the
extent to which the states have implemented required and recommended
controls to prevent and detect fraud and abuse and (2) reviewed FNS'
effectiveness in directing the states' efforts to implement these
controls. To do this, we surveyed the agencies responsible for
administering the program in the 50 states, the District of Columbia,
Guam, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands.
All 54 state agencies responded to our survey. We also reviewed
program operations in four states (Florida, Georgia, Maryland, and
Texas). Our review focused on the child care component of this
program, which accounts for 98 percent of the program participants.
Our scope and methodology are discussed in appendix I. This report
is being addressed to committees that have jurisdiction over the
Child and Adult Care Food Program.
--------------------
\1 U.S. Department of Agriculture Office of Inspector General, Food
and Consumer Service Child and Adult Care Food Program Day Care
Homes-Nationwide, Audit Report No. 27600-6At, March 1995; U.S.
Department of Agriculture Office of Inspector General, Food and
Nutrition Service Child and Adult Care Food Program National Report
on Program Abuses Presidential Initiative: Operation Kiddie Care,
Audit Report No. 27601-7-SF, Aug. 23, 1999.
\2 This task force was initiated by FNS to provide technical advice
on USDA's efforts to improve management and regulatory compliance at
all levels of administration in the Child and Adult Care Food
Program. The task force consisted of FNS and state agency officials
responsible for program implementation. Among other things, the task
force recommended that FNS develop additional guidance materials and
suggested regulatory or legislative changes for future consideration.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
Almost all of the state agencies reported they had implemented, at
least in part, the Food and Nutrition Service's minimum required
controls for detecting fraud and abuse in the Child and Adult Care
Food Program. However, these agencies reported variation in
implementing the additional controls recommended by the Inspector
General and a federal-state task force. For example, 47 state
agencies conducted unannounced visits to day care providers, either
as needed or routinely; 13 verified children's enrollment or
attendance through contacts with parents; and 8 required criminal
background checks. State agencies cited factors that made it
difficult to strengthen controls over fraud and abuse, including (1)
a lack of resources (staff, funding, and/or computer technology); (2)
a lack of training in and knowledge of how to identify fraud and
abuse; and (3) unclear regulations by the Food and Nutrition Service
on removing noncompliant sponsors from the program. Additionally,
according to Service and state officials, some state agencies may be
reluctant to adopt additional fraud and abuse controls because they
view themselves as providers of program benefits�not policing
organizations.
The Food and Nutrition Service has not effectively directed the
states' efforts to protect against fraud and abuse in this program.
First, it has yet to strengthen the minimum requirements for the
states' controls over fraud and abuse, despite recommendations from
the Inspector General and the federal-state task force dating back to
1995. This, in part, has contributed to many states' not
implementing the types of controls necessary to reduce the program's
vulnerability to illegal or inappropriate uses of federal funds.
Second, the Food and Nutrition Service has not adequately monitored
the states' implementation of controls over fraud and abuse and,
consequently, has little basis for identifying and correcting
problems that the states may be experiencing. Finally, the Food and
Nutrition Service has had difficulty correcting problems involving
the states' compliance with required controls, partially because it
lacks an appropriate range of sanctions. Agency officials told us
that these oversight weaknesses largely resulted from insufficient
resources, noting that in the past few years, the agency needed to
concentrate many of its resources on implementing changes required by
welfare reform. Beginning in fiscal year 1999, the Congress
authorized an additional $1 million annually for 5 years to
strengthen the agency's efforts in preventing and detecting fraud and
abuse in the food program. The Food and Nutrition Service has
initiated but not completed actions to address these problems.
We are making a recommendation to the Secretary of Agriculture that
the Food and Nutrition Service develop a comprehensive plan to
strengthen the states' controls for detecting and preventing fraud
and abuse. This plan should outline the actions necessary to
strengthen states' controls and include measurable goals and
objectives.
BACKGROUND
The Child and Adult Care Food Program was established to ensure that
children and adults in day care, regardless of their income, receive
meals and snacks that meet federal nutrition standards. As an
entitlement program, it serves all eligible children and adults
without regard to federal budgetary limitations.\3 In addition to
technical assistance and training in nutrition education, it provides
meal subsidies to participating day care providers through cash
payments or USDA commodity foods. In fiscal year 1998, the program
operated in 179,000 day care homes and 38,000 child care centers.\4
Reimbursements to child care centers and day care homes depend on the
type of meal served--breakfast, lunch or supper, or snack--and other
factors, such as the income level of the child's family or provider.
The rates for reimbursement can differ significantly.\5 For example,
a center may be reimbursed daily for meal service, up to $3.61 for a
child from a low-income family and up to $.45 for a child from a
family whose income exceeds a prescribed level. Reimbursements are
provided only for (1) enrolled children present on a given day and
(2) the specific meals or snacks they are served. To be reimbursed,
the provider must maintain records of the type, content, and number
of meals served; income eligibility; and children's attendance.
FNS administers the food program by providing grants to designated
state agencies.\6 To oversee state agencies' efforts, FNS
periodically conducts on-site management evaluations, which examine
agencies' records to determine the states' compliance with program
regulations.
At the state level, the designated agency operates through (1)
state-approved sponsors, which oversee all day care homes and some
centers, and (2) independent child care centers. Sponsors are
private nonprofit or public organizations, such as community action
agencies or school districts, to which state agencies delegate key
management responsibilities for overseeing and identifying fraud and
abuse in the program.\7 More than 1,200 sponsors nationwide approve
day care homes and/or child care centers for program participation,
conduct on-site compliance visits, reimburse homes and centers with
federal funds, and ensure that federal nutrition standards are met.
In addition, state agencies reimburse the sponsors of day care homes
for reasonable and allowable administrative expenses, based generally
on the number of homes they oversee. States may also allow the
sponsors of child care centers to retain a portion of each center's
meal reimbursements to cover allowable administrative expenses.
Similarly, independent child care centers--centers that are overseen
directly by the state agency�may retain a portion of their meal
reimbursements to cover allowable operating costs. FNS' regulations
require state agencies to conduct annual on-site administrative
reviews of one-third of all sponsors and independent child care
centers. In addition, FNS requires the state agencies, as part of
their review of sponsors, to conduct on-site visits to a prescribed
number of the homes and/or centers that the sponsors oversee.\8
Since 1993, USDA's Office of Inspector General has targeted this
program for audits and investigations to identify fraud and abuse
committed by sponsors and day care homes. As a result, since 1994,
USDA has recognized this program's vulnerability to fraud and abuse
in its annual Federal Managers' Financial Integrity Act report.\9 As
of February 1999, the Inspector General had examined 49 sponsors and
their day care homes in 23 states through unannounced visits. During
its audits and investigations, the Inspector General has disclosed
the following:
-- Thirty-seven of the 49 sponsors had committed serious violations
that could warrant their removal from the program. These 37 had
received $76.3 million in food and administrative funds
annually. In addition, 28 individuals associated with these
sponsors have pleaded guilty or been convicted of committing
fraud.
-- Some sponsors of day care homes created fictitious providers;
inflated the number of meals served; were not monitoring or
training their providers; and had unallowable, unsupported, and
excessive costs in their administrative budgets.
-- Providers did not always maintain adequate records, frequently
inflated the number of meals served, and sometimes served meals
that did not meet nutrition standards.
The Inspector General determined that this fraud and abuse occurred
because (1) state agencies' and FNS' oversight reviews did not focus
on the primary management controls at the sponsors and day care homes
and (2) state administrative reviews generally did not include
sufficient tests to identify inflated and unsupported meal claims and
assess the adequacy of sponsors' monitoring of homes. Most FNS
management evaluations did not include sponsor or day care home
visits.
FNS is currently revising the program's regulations to strengthen
controls to prevent and detect fraud and abuse. These revisions are
in response to a series of Inspector General recommendations, the
findings of the federal-state task force, and problems that FNS has
noted in its management evaluations. The agency expects to propose
these revised regulations in fiscal year 2000. In the interim, it
has issued written guidance on some of these recommended controls.
However, the state agencies' implementation of these controls remains
voluntary until FNS amends its regulations to include them.
--------------------
\3 Eligible children are children age 12 and under, migrant children
age 15 and under, and children with disabilities. Eligible adults
are elderly (age 60 or over) or chronically impaired.
\4 The program also operates in homeless shelters and adult day care
centers.
\5 In centers, the three maximum daily reimbursement rates, depending
on family income, are $.45, $2.64, and $3.61 per child. For homes,
the maximum daily reimbursement rates are $1.49 and $3.11 per child.
\6 FNS directly implements the program in Virginia--the only state in
which program implementation is not handled by a designated state
agency.
\7 For-profit child and adult care centers may also receive program
benefits if at least 25 percent of center participants receive
Medicaid or social services provided with title XX funds under the
Social Security Act.
\8 Independent child care centers, sponsors of centers, and sponsors
of day care homes with 1 to 200 homes must be reviewed at least once
every 4 years; reviews of these sponsors must include 15 percent of
their child care centers and 10 percent of their day care homes.
Sponsors with more than 200 homes must be reviewed at least once
every 2 years; these reviews must include 5 percent of the first
1,000 homes and 2.5 percent of homes in excess of 1,000.
\9 The Federal Managers' Financial Integrity Act of 1982 (P.L.
97-255) requires the heads of executive agencies to annually report
to the President and the Congress material weaknesses in their
management and financial controls.
STATE AGENCIES VARY IN THEIR
USE OF RECOMMENDED CONTROLS TO
PREVENT AND DETECT FRAUD AND
ABUSE
------------------------------------------------------------ Letter :2
Almost all of the 54 state agencies indicated that in fiscal years
1997 and 1998 they had implemented, at least in part, the minimum
required fraud and abuse controls contained in FNS' regulations for
the Child and Adult Care Food Program. However, the agencies varied
in the extent to which they had implemented the controls recommended
by the Inspector General and the task force. State agencies
identified several difficulties they face in strengthening their
controls over fraud and abuse, and FNS and state officials added that
some state agencies are reluctant to put more effort into combating
fraud and abuse because these agencies view themselves as service
providers, not as investigative entities.
State Agencies Generally Use the Minimum Controls Required in FNS'
Regulations
Most state agencies surveyed reported that they are using, at least
in part, the minimum required program controls contained in FNS'
regulations. These controls include (1) reviewing and approving the
budgets of day care home sponsors to ensure that planned expenditures
are adequately supported, (2) conducting administrative reviews of
sponsors and providers to ensure compliance with the program's
requirements, (3) ensuring that financial audits of sponsors and
providers are completed and corrective actions taken, and (4)
reviewing the reimbursement claims submitted by sponsors and
providers to detect potentially fraudulent errors prior to payment.
Regarding sponsors' budgets, 50 of the 54 state agencies reported
that they had reviewed and approved these annual administrative
budgets. These reviews for the sponsors of day care homes are to
determine if the budgets contain only reasonable, necessary, and
allowable costs, in accordance with federal requirements, prior to
the agencies' paying sponsors their first reimbursement for meals.
The budget is part of a sponsor's management plan, which provides
information on how the sponsor will use federal funds to pay
employees' salaries and other program-related costs, such as those
for supplies and travel. According to our survey, when state
agencies reviewed these budgets, they most often required changes in
them because administrative expenses appeared to be unclear (22 state
agencies) or were excessive (16 state agencies). The four state
agencies that did not review sponsors' budgets received program funds
totaling about $107 million, or about 7 percent, of all the program's
funds for fiscal year 1998.
Administrative reviews, a key tool for states to identify fraud and
abuse, are on-site visits by state agencies to verify children's
eligibility and attendance, the accuracy of meal claims, and
administrative costs. Of the 41 states that fully responded to our
questions on these reviews, 31 reported that they conducted
administrative reviews of sponsors and of all three types of
providers--independent centers, sponsored centers, and day care
homes--in fiscal years 1997 and 1998. However, of the remaining 10
states, 2 reported that they had conducted no reviews during this
time, while 8 reported not conducting any reviews at either sponsors
or one type of provider in one or both years. Moreover, our survey
results indicate that over half the states had reviewed less than 5
percent of the day care homes annually. The 10 states that did not
conduct all reviews received program funds totaling $224 million, or
14 percent, of all program funds for fiscal year 1998.
Concerning financial audits, while only two state agencies reported
not receiving the findings from required financial audits,\10 nine
reported that, although they received the findings, they lacked a
tracking system to ensure these findings were resolved. Together,
these 11 state agencies received program funds of about $130 million,
or 8 percent, of all program funds in fiscal year 1998. These
audits, usually performed annually by state government auditors or
public accounting firms, can determine whether (1) program funds have
been properly accounted for, (2) adequate internal controls have been
maintained over these funds, and (3) the funds have been used for
appropriate program purposes. Ultimately, the effectiveness of the
audits depends on ensuring corrective actions are taken.
With regard to reimbursement claims, state agencies reported
significant variation in the extensiveness of the methods that they
used to evaluate the soundness of these claims prior to payment.
There are a number of methods, referred to as �edit checks,�
including comparing the (1) number of approved sites (day care homes
and child care centers) with the number of sites claimed, (2) number
of meals claimed with the average daily attendance, (3) number of
children enrolled with the average daily attendance, (4) licensed
capacity with the number of children claimed, (5) days of operations
claimed with the days of operations approved, (6) percentage of
children claimed at different reimbursement rates in centers with the
number of children approved at those rates for the centers, and (7)
number of children claimed at the highest reimbursement rate in day
care homes with the number of children approved for those homes at
that rate. All states reported using at least one review method. In
addition, 26 states reporting using between four and six methods; 18,
all seven methods; and 10, three or fewer.
While these reviews of reimbursement claims are an important tool for
identifying potentially fraudulent or abusive claims, they are not
foolproof. For example, one state we visited used all of these
methods, but a state reviewer found that the reviews did not catch a
$5,000 overpayment to a day care home sponsor. In this case, the
claim for reimbursement had jumped in one month to $7,000, from an
average monthly claim of $2,000. The overpayment was apparently not
detected because the state did not review claims for significant
variation between monthly payments.
--------------------
\10 Under the Single Audit Act of 1984 as amended, audits are
required for all public and nonprofit organizations, such as sponsors
or child care centers, that receive $300,000 or more in federal
funds. In addition, USDA regulations require all for-profit
organizations to be audited; however, the states have discretion in
setting a dollar limit on the for-profit organizations subject to
this requirement.
STATES VARY IN THEIR USE OF
RECOMMENDED CONTROLS TO MORE
EFFECTIVELY PREVENT AND
DETECT FRAUD AND ABUSE
---------------------------------------------------------- Letter :2.1
State agencies' implementation of the additional controls recommended
by the Inspector General and the federal-state task force varied
considerably. These controls included state agencies' (1) making
unannounced visits to sponsors and providers to assess their
operations; (2) developing profiles of high-risk sponsors,
independent centers, and day care homes as a basis for conducting
more frequent monitoring; (3) verifying children's enrollment and
attendance with parents; and (4) conducting criminal background
checks of prospective sponsors and providers.
Unannounced visits allow a state agency to verify the existence of
the provider, its enrollment, and the quality and quantity of the
meals its serves. Seven state agencies reported never conducting
these visits. The remaining 47 varied considerably in the types of
facilities receiving unannounced visits.\11 Moreover, the full extent
to which these 47 agencies use unannounced visits is unknown. In
comments in our survey, 21 state agencies reported that they
conducted unannounced visits when they are following up on previously
identified problems. However, two reported they use unannounced
visits for all monitoring visits and said these visits are valuable
for obtaining a realistic view of providers' operations, without
giving the provider advance notice to allow for special preparation.
In contrast, 16 state agencies responded that unannounced visits may
not be an efficient use of their limited staff because planned visits
better ensure that required records and responsible personnel will be
available.
Twenty state agencies reported that they profile high-risk sponsors
and independent centers. These agencies identified certain
conditions as signaling high risk: (1) consistent requests for
reimbursements for the maximum allowable number of children, (2) the
program's funds serving as the sponsors' sole source of income, and
(3) closed homes or centers found during on-site reviews. Some
agencies reported providing additional training and technical
assistance and conducting more thorough reviews at these high-risk
sponsors and independent centers.
Thirteen state agencies reported contacting parents to verify their
children's enrollment and attendance in day care. According to FNS
and state officials, parental verification is a useful method to
uncover fraudulent claims by providers for children who either were
not enrolled or who were absent on the day for which the claims were
made. The Office of Inspector General has also used parental
verification to uncover significant fraud and abuse in the food
program.
Eight state agencies require criminal background checks for the
employees of sponsoring organizations and child care centers that the
agencies administer directly. Both the Inspector General and the
federal-state task force recommended state agencies do these checks
before approving or renewing sponsors' applications for program
participation. Such checks would allow state agencies to identify
applicants or staff with a prior criminal conviction that may
jeopardize the safety of children or the integrity of the program.
--------------------
\11 Of the 47 state agencies that reported making unannounced visits,
21 visited sponsoring organizations, 26 visited independent child
care centers, 27 visited child care centers administered by a
sponsoring organization; and 41 visited day care homes.
STATE AGENCIES AND FNS
IDENTIFY DIFFICULTIES IN
STRENGTHENING CONTROLS TO
PREVENT AND DETECT FRAUD AND
ABUSE
---------------------------------------------------------- Letter :2.2
State agencies cited various difficulties they face in implementing
additional controls for fraud and abuse, including (1) a lack of
resources to identify possible fraud and abuse, (2) a lack of
training on and knowledge about fraud and abuse, and (3) unclear FNS
regulations regarding the circumstances that would warrant removing a
sponsor or provider from the program. Furthermore, FNS and state
officials said that some state agencies are reluctant to employ
additional controls because they prefer to concentrate their
resources on providing nutritious meals to children rather than on
investigating sponsors and providers for possible fraud and abuse.
First, almost two-thirds (35 of 54) of the state agencies surveyed
indicated that they lacked the resources--including staff, funding,
and/or computer technology--to adequately detect and prevent fraud
and abuse in their programs. In responding to our survey, state
officials frequently cited problems with an adequate number of staff.
FNS regional and state officials indicated to us that state-imposed
hiring ceilings were a major reason the states have inadequate
staffing. However, FNS officials also pointed out that the federal
funding available for this program is often not fully used by state
agencies, although they do not know why.
With respect to the second most frequently reported difficulty,
one-third (19) of the 54 state agencies reported that their staff's
training was inadequate for detecting or preventing fraud and abuse.
These agencies indicated that they would like additional training in
identifying fraud and abuse. One survey respondent described the
state's staff as educators who are not trained to conduct fraud and
abuse investigations. Moreover, this respondent did not consider
conducting these types of investigations to be the staff's role. FNS
is now providing state officials with training that should assist
them in identifying fraud and abuse, and FNS officials said that
fraud investigations are only to be done by appropriate investigative
officials.
Regarding the third most frequently reported difficulty, 14 state
agencies said that the regulations were unclear or unspecific on how
and under what circumstances to remove sponsors or providers from the
program. Although the regulations provide examples of activities
that are �serious deficiencies�--including the submission of false
information, failure to maintain adequate records, and the serving of
meals without required components--some of these state agencies
indicated that the regulations do not provide specific guidance on
how frequent or severe these activities have to be to warrant removal
from the program. In addition, some states indicated that the
regulations should provide other administrative sanctions short of
removal from the program, such as denying administrative payments to
sponsors for noncompliance with program requirements. One state has
taken this approach. Officials in this state said their agency had
promulgated its own regulations to (1) clarify the specific
circumstances in which a sponsor or provider would be subject to
removal from the program and (2) provide additional administrative
sanctions short of removal.\12 According to these officials, the
additional sanctions provide a means to progressively penalize a
sponsor or provider.\13
In addition to the difficulties identified by the state agencies, FNS
and state officials said that some state agencies are reluctant to
employ additional controls because they prefer to concentrate their
resources on providing technical assistance to ensure that children
receive nutritious meals rather than on identifying fraud and abuse.
Officials in two of the four state agencies we visited echoed this
sentiment, saying that that they viewed their agencies primarily as
service organizations, not policing organizations.
In view of this orientation, it is perhaps not surprising that most
state agencies reported that they do not perceive fraud and abuse as
a widespread problem overall�despite the findings of the Department's
Inspector General over the last several years. For example, 40
states reported that, in their view, fraud and abuse is little or no
problem at sponsors and sponsored child care centers.
Relatedly, although the state agencies surveyed frequently reported
finding indicators of serious deficiencies in sponsor or provider
activities, they generally did not report taking strong enforcement
actions. For example, 30 agencies indicated that they most
frequently sent letters of corrective action and provided technical
assistance to first-time offenders who submitted meal claims for more
children than attend the day care center or home. However, even for
repeat offenders, a majority of state agencies continued most
frequently to send corrective action letters, provide technical
assistance, or declare offenders seriously deficient, rather than
remove the offender from the program.\14 For example, 23 of the 54
state agencies reported identifying sponsors and providers that had
repeatedly submitted false information, but only 8 of these 23
agencies removed the offenders from the program.
--------------------
\12 State agencies are allowed to issue regulations that supplement
those issued by FNS. However, the state regulations are subject to
FNS' approval and must not deny the program to an eligible
institution.
\13 The additional sanctions provided in this state's regulations
include disallowing claims for ineligible meals for a first
violation; disallowing claims for ineligible meals and suspension of
administrative reimbursements for a second offense; and removal from
the program for a third offense.
\14 Prior to removing offenders from this program, FNS regulations
require state agencies to notify offenders that they are being
declared seriously deficient and to provide them with every
reasonable opportunity to correct their deficiencies. If they do not
correct the identified deficiency within a specified time, the state
may remove the offender from the program.
FNS HAS NOT EFFECTIVELY
DIRECTED STATES' EFFORTS TO
CONTROL FRAUD AND ABUSE
------------------------------------------------------------ Letter :3
FNS has not effectively directed the states' efforts to control fraud
and abuse in the food program in terms of (1) developing adequate
minimum requirements for the states to follow, (2) overseeing the
states' implementation of these requirements, and (3) having
appropriate sanctions in cases of noncompliance. FNS has begun but
not completed actions to address these problems, but it lacks a
comprehensive plan with measurable goals for ensuring that the states
are consistently implementing controls to protect the considerable
federal investment in this food program.
FNS has yet to strengthen the minimum requirements for state controls
over fraud and abuse, despite recommendations from the Inspector
General and a federal-state task force dating back to 1995. This
delay has contributed, in part, to many states' not implementing the
types of controls that the Inspector General and the task force
believe are necessary to address the program's significant
vulnerability to fraud and abuse. Originally, FNS planned to issue
new requirements for state fraud and abuse controls in fiscal year
1998. However, according to FNS officials, that issuance date has
been delayed because they have focused their resources on
implementing the significant program changes required by the welfare
reform act; FNS currently plans to issue proposed regulations in
fiscal year 2000.
In addition, FNS has not adequately monitored the states'
implementation of fraud and abuse controls and, consequently, has
little basis for identifying or correcting problems that states may
be experiencing in implementing such controls. FNS relies primarily
on broad management evaluations to monitor the states' program
activities, including the controls the states may have over fraud and
abuse. However, in fiscal years 1997 and 1998, only 23 of FNS' 47
management evaluations directly evaluated the states' implementation
of required controls over reimbursements to sponsors and providers.
Almost half of these reviews found serious problems, including the
failure of some states to conduct any administrative reviews of
sponsors or providers. FNS officials said that in fiscal year 2000
their regions will use a comprehensive approach to evaluate state
agencies' operations.
Finally, even when a management evaluation uncovers a problem, FNS
has difficulties correcting it. FNS officials said that they have
only one sanction to use when states fail to remedy identified
problems�to withhold or take back the state agency's funds for
administering child nutrition programs.\15 They say that this �all or
nothing� sanction has rarely been imposed. For example, they did not
impose this sanction when the Inspector General identified major
problems with fraud and abuse in California--one of the largest state
programs. Similarly, FNS has not taken any formal action against the
state agencies that were not implementing minimum required controls,
such as administrative reviews and required financial audits.
Instead, FNS only required that these states develop a plan to
correct their deficiencies. FNS has also not pursued obtaining
authority to impose additional forms of sanctions.
Beyond this lack of a flexible array of sanctions, FNS officials told
us that the oversight problems they have experienced were in large
part a result of insufficient resources. More specifically,
according to these officials, the agency focused its resources on
ensuring that the states were implementing changes to the program
associated with the welfare reform changes enacted in 1996, including
changing the reimbursement structure for day care homes.
FNS has begun to take actions to strengthen its oversight of states'
controls over fraud and abuse. It has been authorized an additional
$1 million annually for 5 fiscal years, beginning in fiscal year
1999, to strengthen program integrity. In the first year, FNS spent
most of this money to hire additional staff, develop training for
federal and state officials, and increase travel budgets in its
regional offices, which are responsible for overseeing the states'
activities. Furthermore, as noted earlier, FNS plans to issue
proposed regulations for minimum state controls over fraud and abuse.
While FNS has taken certain steps to correct oversight problems, it
has not developed a comprehensive plan for reducing the food
program's vulnerability to fraud and abuse. Currently, FNS' course
of action for addressing weaknesses in the program's controls over
fraud and abuse can be found in an �action plan� developed in
response to USDA's identifying the controls in the program as
materially weak. This two-page plan broadly summarizes the agency's
intended actions, which are primarily to develop new regulations and
guidance for state controls over fraud and abuse and to assess the
states' implementation of these new controls. The plan does not,
however, contain specific, measurable goals and objectives that would
allow FNS to evaluate how successfully it implemented these actions
or how successful these actions were in reducing fraud and abuse.
For example, the plan does not include goals for the minimum number
of evaluations that should be completed within a given time frame.
Furthermore, it does not discuss what measures could or should be
used to indicate the level of fraud and abuse in the program�a key
piece of management information that currently is unavailable.
CONCLUSIONS
Despite FNS' and the states' efforts to reduce the vulnerability of
the Child and Adult Care Food Program to fraud and abuse, USDA's
Office of Inspector General continues to uncover these problems in
the program. Part of the responsibility for this situation rests
with the states as the program's principal administrators. However,
FNS shares in the responsibility--it has not exercised its leadership
role effectively. Perhaps most importantly, FNS has not sent clear
messages to the states that it expects them to have strong programs
to detect fraud and abuse. This is evidenced by, among other things,
its failure to (1) quickly incorporate recommended improvements for
minimum required state controls over fraud and abuse into its
regulations and (2) systematically monitor states efforts to prevent
and detect fraud and abuse. Furthermore, FNS has rarely used the one
sanction available to ensure the states comply with its minimum
controls and has not sought the authority to use other forms of
sanction. FNS is taking actions that could, if properly implemented,
help send a clearer message to the states that fraud and abuse is a
serious problem. However, it has no comprehensive plan to guide
these actions nor a means of evaluating their success. As a result,
FNS has little assurance that its corrective actions are anything
more than a band-aid approach.
--------------------
\15 These funds (referred to as state administrative expenses funds)
are paid to state agencies to cover their administrative costs for
managing a number of child nutrition programs. Besides the Child and
Adult Day Care Program, these programs include the National School
Lunch Program, Special Milk Program, and School Breakfast Program.
RECOMMENDATION
------------------------------------------------------------ Letter :4
To reduce the Child and Adult Care Food Program's vulnerability to
fraud and abuse, we recommend that the Secretary of Agriculture
direct the Administrator of the Food and Nutrition Service to develop
and implement a comprehensive plan for strengthening state controls
for detecting and preventing fraud and abuse. The plan should
identify actions that the agency needs to take and include measurable
goals and objectives for each action. These actions should include,
but not be limited to, (1) expediting the issuance of regulations
strengthening the minimum requirements for the states' controls over
fraud and abuse, (2) developing a systematic means of monitoring the
states' compliance with minimum requirements, (3) examining ways to
address difficulties the states face in implementing strong program
controls (such as unclear federal guidance and inadequate training),
and (4) exploring alternative types of sanctions that could be
invoked in cases of noncompliance. Furthermore, as part of the plan,
the Food and Nutrition Service should examine measures for evaluating
the success or failure of the combined actions it carries out in
terms of their ultimate impact on the level of fraud and abuse in the
program.
AGENCY COMMENTS
------------------------------------------------------------ Letter :5
We provided USDA with a draft of this report for its review and
comment. We met with officials from the Food and Nutrition Service,
including the Director of the Child Nutrition Division, and officials
from the Grants Management Division and the Office of Analysis,
Nutrition, and Evaluation.
USDA generally agreed with our report and recommendation. Even so,
USDA told us that it has initiated a comprehensive approach to
correcting the problems in the food program, pointing out that it has
issued two guidance manuals and is providing national training for
state agencies as well as drafting revised regulations designed to
improve program management at all levels. We agree that such actions
are important and believe they would be further bolstered by a
written plan with measurable goals and objectives. Such a plan would
better enable the agency to evaluate its progress in implementing
planned actions and to evaluate the impact that these or other
actions may have on the level of fraud and abuse in the program.
Additionally, USDA believes that because many states do not perceive
fraud and abuse as a significant problem, it is hindered in its
efforts to encourage states to make concerted efforts to institute
stronger controls over fraud and abuse. However, USDA believes that
its improved guidance materials, the training it has under way, and
its strengthened oversight activities will have a significant effect
on states' efforts to combat fraud and abuse. USDA also provided a
number of technical changes and clarifications to the report, which
we incorporated as appropriate.
---------------------------------------------------------- Letter :5.1
We conducted our work from January 1999 through October 1999 in
accordance with generally accepted government auditing standards.
Copies of this report will be sent to the congressional committees
responsible for the Child and Adult Care Food Program; the Honorable
Dan Glickman, Secretary of Agriculture; the Honorable Shirley
Watkins, Under Secretary for Food, Nutrition, and Consumer Services,
USDA; the Honorable Samuel Chambers, Administrator, Food and
Nutrition Service, USDA; and the Honorable Roger Viadero, Inspector
General, USDA. We will also make copies available on request.
If you or your staff have any questions about this report, please
contact me or Cathy Helm, Assistant Director, at (202) 512-5138. Key
contributors to this report are listed in appendix II.
Sincerely yours,
Robert E. Robertson
Associate Director, Food
and Agriculture Issues
List of Recipients
The Honorable Richard G. Lugar
Chairman
The Honorable Tom Harkin
Ranking Minority Member
Committee on Agriculture, Nutrition, and Forestry
United States Senate
The Honorable Ted Stevens
Chairman
The Honorable Robert C. Byrd
Ranking Minority Member
Committee on Appropriations
United States Senate
The Honorable Pete V. Domenici
Chairman
The Honorable Frank R. Lautenberg
Ranking Minority Member
Committee on the Budget
United States Senate
The Honorable William F. Goodling
Chairman
The Honorable William (Bill) Clay
Ranking Minority Member
Committee on Education and the Workforce
House of Representatives
The Honorable C. W. Bill Young
Chairman
The Honorable David R. Obey
Ranking Minority Member
Committee on Appropriations
House of Representatives
The Honorable John R. Kasich
Chairman
The Honorable John M. Spratt, Jr.
Ranking Minority Member
Committee on the Budget
House of Representatives
SCOPE AND METHODOLOGY
=========================================================== Appendix I
To examine the extent to which state agencies have implemented
required and recommended controls to prevent and detect fraud and
abuse, we conducted a mail survey of all 54 state agencies
administering the Child and Adult Care Food Program, including
agencies in the District of Columbia, the Commonwealth of Puerto
Rico, Guam, and the U.S. Virgin Islands. Our survey asked the state
directors to provide information on program and financial management,
state agencies' internal controls, administrative review activities,
areas of fraud and abuse in sponsoring organizations and child care
providers, and their opinions about fraud and abuse. We received
survey responses from all 54 state agencies. In addition, we
interviewed staff at agencies in four states--Florida, Georgia,
Maryland, and Texas�to better understand activities, problems, and
limitations affecting the states' efforts to identify fraud and
abuse. We visited Florida and Texas because of their unique
approaches to combating fraud and abuse. At the four state agencies,
we also reviewed and analyzed relevant program documentation,
including their regulations, policies, and procedures; application
and renewal files; administrative reviews; and financial audits.
These four states accounted for about 15 percent of the total monthly
participation for fiscal year 1998.
To review the Food and Nutrition Service's (FNS) effectiveness in
directing the states' efforts to implement these required and
recommended controls, we interviewed FNS officials at headquarters
and four FNS regional offices�the Southeast Region in Atlanta,
Georgia; the Southwest Region in Dallas, Texas; the Mountain Plains
Region in Denver, Colorado; and the Mid-Atlantic Region in
Robbinsville, New Jersey. We also reviewed and analyzed relevant
program documentation, such as regulations, guidance, training
manuals, OMB circulars, Federal Managers' Financial Integrity Act
reports, and over 40 management evaluation reports. In addition, we
met with OIG officials and reviewed their reports on this program.
We conducted our work from January 1999 through October 1999 in
accordance with generally accepted government auditing standards.
KEY CONTACTS AND STAFF
ACKNOWLEDGEMENTS
========================================================== Appendix II
GAO CONTACTS
Robert E. Robertson, (202) 512-5138
Cathy Helm, (202) 512-5138
ACKNOWLEDGEMENTS
In addition to those named above, Galen Barnett, Jacqueline Cook, Don
Ficklin, Patricia Gleason, Fred Mayo, Luann Moy, Renee McGhee-Lenart,
Carol Herrnstadt Shulman, John C. Smith, and Janice Turner made key
contributions to this report.
*** End of document. ***