Food Assistance: A Variety of Practices May Lower the Costs of WIC
(Letter Report, 09/17/97, GAO/RCED-97-225).

Pursuant to a congressional request, GAO reviewed cost containment
initiatives states are using to control the cost of the Special
Supplemental Nutrition Program for Women, Infants, and Children (WIC),
focusing on the practices that the states use to: (1) contain costs by
controlling the foods approved for use in the WIC program and by more
closely selecting and regulating participating vendors; and (2) ensure
that WIC applicants' incomes meet the program's eligibility
requirements.

GAO noted that: (1) the states are using a variety of cost containment
initiatives to control the WIC program's costs; (2) for example, 10
states have contracted with manufacturers to obtain rebates on WIC foods
in addition to infant formula, and some states have placed greater
limits on WIC participants' food choices than other states; (3)
separately, or in conjunction with efforts to contain food costs, 39
states use various practices to restrict the number of vendors or ensure
that the prices vendors charge for WIC food items are competitive; (4)
these and other practices to contain food costs have saved millions of
dollars annually and enabled more individuals to enroll in the program,
according to WIC directors; (5) while the use of cost containment
practices could be expanded, certain obstacles, including the states'
concern with how the program allocates the additional funds made
available through cost containment initiatives, may discourage the
states from adopting or expanding their use; (6) federal regulations
provide that WIC program applicants who participate in the Food Stamp
Program, Medicaid, and the Temporary Assistance for Needy Families
Program automatically meet the income eligibility requirements of the
WIC program; (7) the states use a variety of procedures to certify the
income eligibility of the applicants who do not participate in these
programs; (8) thirty-two of the 48 state WIC directors responding to
GAO's questionnaire reported that their states generally require these
applicants to provide documents, such as pay stubs and letters, to
verify their income; (9) of the remaining 16 WIC directors, 14 reported
that their states do not require documentation; (10) these states allow
applicants to declare their income without providing supporting
documentation; and (11) the other two directors reported that income
documentation procedures are determined individually by the local WIC
agencies.

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

 REPORTNUM:  RCED-97-225
     TITLE:  Food Assistance: A Variety of Practices May Lower the Costs 
             of WIC
      DATE:  09/17/97
   SUBJECT:  Food programs for children
             Contractor selection
             Eligibility determinations
             Procurement practices
             State-administered programs
             Cost control
IDENTIFIER:  Special Supplemental Food Program for Women, Infants, and 
             Children
             WIC
             Food Stamp Program
             HHS Temporary Assistance for Needy Families Program
             Medicaid Program
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on the Budget, House of
Representatives

September 1997

FOOD ASSISTANCE - A VARIETY OF
PRACTICES MAY LOWER THE COSTS OF
WIC

GAO/RCED-97-225

Food Assistance

(150267)


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

  FCS - Food and Consumer Service
  SAVE -
  WIC - The Special Supplemental Nutrition Program for Women, Infants
     and Children

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


B-277615

September 17, 1997

The Honorable John R.  Kasich
Chairman, Committee on the Budget
House of Representatives

Dear Mr.  Chairman: 

The Special Supplemental Nutrition Program for Women, Infants and
Children (WIC) is a federally funded nutrition assistance program
administered by the U.S.  Department of Agriculture's Food and
Consumer Service (FCS).  This program provides lower-income pregnant
and postpartum women, infants, and children up to age 5 with
supplemental foods, nutrition counseling, and access to health care
services.  The food benefits are typically provided in the form of a
voucher that can be used to obtain approved foods at authorized
retail outlets (food stores and pharmacies), commonly referred to as
vendors.  Food costs accounted for about $2.7 billion, or about 74
percent, of the WIC program's total costs in fiscal year 1996.  In
administering WIC, the states\1 are allowed some flexibility in the
policies and procedures they use.  Since WIC is a discretionary
program that serves as many individuals as the available funding
permits, any actions the states can take to reduce the program's
costs will allow them to serve more eligible people. 

This report is the second in a series of reports responding to your
December 20, 1996, request for information on certain aspects of
WIC.\2 In this report, we (1) describe and assess the practices that
the states use to contain costs by controlling the foods approved for
use in the WIC program and by more closely selecting and regulating
participating vendors and (2) examine practices that the states use
to ensure that WIC applicants' incomes meet the program's eligibility
requirements.  As a part of our review, we surveyed the WIC directors
in the 50 states and the District of Columbia and analyzed the
information provided by the 48 who responded.\3


--------------------
\1 As treated in the FCS regulations, "states" includes the District
of Columbia. 

\2 Our first report was entitled WIC:  States Had a Variety of
Reasons for Not Spending Program Funds (GAO/RCED-97-166, June 12,
1997). 

\3 We did not receive responses to our questionnaire from the state
WIC directors in Minnesota, Oregon, and South Dakota.  Also, we did
not include the 33 Indian tribal organizations and the U.S. 
territories in our survey because of regulatory and program
differences. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

The states are using a variety of cost containment initiatives to
control the WIC program's costs.  For example, 10 states have
contracted with manufacturers to obtain rebates on WIC foods in
addition to infant formula, and some states have placed greater
limits on WIC participants' food choices than other states. 
Separately, or in conjunction with efforts to contain food costs, 39
states use various practices to restrict the number of vendors and/or
ensure that the prices vendors charge for WIC food items are
competitive.  These and other practices to contain food costs have
saved millions of dollars annually and enabled more individuals to
enroll in the program, according to WIC directors.  While the use of
cost containment practices could be expanded, certain obstacles,
including the states' concern with how the program allocates the
additional funds made available through cost containment initiatives,
may discourage the states from adopting or expanding their use. 

Federal regulations provide that WIC program applicants who
participate in the Food Stamp Program, Medicaid, and the Temporary
Assistance for Needy Families Program automatically meet the income
eligibility requirements of the WIC program.  The states use a
variety of procedures to certify the income eligibility of the
applicants who do not participate in these programs.  Thirty-two of
the 48 state WIC directors responding to our questionnaire reported
that their states generally require these applicants to provide
documents, such as pay stubs and letters, to verify their income.  Of
the remaining 16 WIC directors, 14 reported that their states do not
require documentation.  These states allow applicants to declare
their income without providing supporting documentation.  The other
two directors reported that income documentation procedures are
determined individually by the local WIC agencies. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Established in 1972, WIC is designed to improve the health and
nutritional well-being of participants by providing nutritious
supplemental foods, nutrition education, and referrals to health care
services.  The program is available in each state, the District of
Columbia, 33 Indian tribal organizations, Puerto Rico, the U.S. 
Virgin Islands, American Samoa, and Guam.  FCS administers the
program in cooperation with state and local health departments and
related agencies. 

The supplemental foods that WIC provides include milk, cheese, fruit
and vegetable juices, iron-fortified adult and infant cereals, dried
beans or peas, peanut butter, eggs, and infant formula.  Special
infant formulas are also available to meet unusual dietary or
health-related conditions.  Each state designates the types and
amounts of foods that local WIC agencies can prescribe to meet each
participant's nutritional needs.  The WIC food benefit (referred to
as a food package) can be provided through local WIC health clinics
or home delivery.  More commonly, participants receive their food
benefits in the form of a check or a voucher that is used to purchase
the specific foods at authorized retail vendors.  These vendors have
been selected by the state to participate in the program for a period
of time. 

FCS requires the states to operate a rebate program for infant
formula.  By negotiating rebates with infant formula manufacturers
for each can of formula purchased through WIC, the states greatly
reduce their average per person food costs so that more people can be
served.  In fiscal year 1996, infant formula rebates to all states
totaled about $1.2 billion. 

Federal WIC appropriations totaled $3.47 billion in fiscal year 1995
and $3.73 billion annually in fiscal years 1996 and 1997.  The
program is primarily funded by federal appropriations; some states
supplement the federal grant with their own funds.  In fiscal years
1995 and 1996, the average monthly WIC participation nationwide was
about 6.9 million and 7.2 million, respectively, and in fiscal year
1997, the average monthly participation was about 7.4 million through
February 1997. 

Grants to the states are divided into food grants and nutrition
services and administration grants.  Food grants cover the costs of
supplemental foods and are allocated to the states through a formula
that is based on the number of individuals in each state who are
eligible for WIC benefits because of their income.  The nutrition
services and administration grants are allocated to the states
through a formula that is based on factors such as the state's number
of projected program participants and WIC salary costs.  Nutrition
services and administration grants cover costs for program
administration, start-up, monitoring, auditing, the development of
and accountability for food delivery systems, nutrition education,
breast-feeding promotion and support, outreach, certification, and
developing and printing food vouchers. 

State WIC agencies establish program eligibility criteria that are
based on federal guidelines.  To qualify for the program, WIC
applicants must show evidence of nutritional risk that is medically
verified by a health professional.  In addition, participants may not
have incomes that exceed 185 percent of the poverty guidelines that
are established annually by the U.S.  Department of Health and Human
Services.\4 In 1997, for example, the annual WIC income limit for a
family of four is $29,693 in the 48 contiguous states and the
District of Columbia.\5 Federal regulations allow the states to
individually determine their income documentation requirements for
applicants seeking to participate in WIC.  The states are also
required by federal regulations to automatically certify as income
eligible those individuals who document their participation in the
Food Stamp Program, Medicaid, and the Temporary Assistance for Needy
Families Program.  Approximately two-thirds of all WIC participants
were enrolled in one or more of these programs in fiscal year 1994,
the last year for which complete data were available at the time of
our review.  In addition, WIC participants are required by federal
regulations to reside in the jurisdiction of the state where they
receive benefits, and the states are required to check the
identification of all participants when they seek certification for
program participation and when they receive their vouchers.  Although
the applicants who meet the program's health and nutrition, income,
and residency requirements may be certified as eligible to
participate in WIC, the number of participants that are actually
served each year primarily depends on the total amount of funds
available to the states.  According to FCS' estimates, about 75
percent of the eligible women, infants, and children actually
participated in WIC during fiscal year 1995. 


--------------------
\4 In fiscal year 1996, only one state set WIC income eligibility
below 185 percent of poverty:  South Dakota used 175 percent of
poverty. 

\5 Poverty guidelines are established separately for Alaska and
Hawaii. 


   EFFORTS TO CONTROL FOOD COSTS
   AND MANAGE VENDORS HAVE REDUCED
   COSTS, BUT THE PROGRAM'S
   STRUCTURE MAY DISCOURAGE WIDER
   USE
------------------------------------------------------------ Letter :3

States' initiatives to control food costs by limiting the types and
package sizes of WIC foods and by more carefully selecting and
regulating vendors have reduced the program's costs by millions of
dollars.  These practices could be expanded in the states that have
already implemented them and could be adopted by other states. 
However, the National Association of WIC Directors\6

and some WIC directors we spoke with are concerned that, among other
things, the program's regulations can constrain a state's ability to
effectively use the additional funds that become available as a
result of cost containment initiatives. 


--------------------
\6 The National Association of WIC Directors, located in Washington,
D.C., is a voluntary membership organization of state and local WIC
directors, WIC nutrition coordinators, and members of corporate
organizations that provide leadership to the WIC community. 


      STATES' EFFORTS TO HOLD DOWN
      FOOD COSTS HAVE BEEN
      SUCCESSFUL
---------------------------------------------------------- Letter :3.1

Two practices that some states are using to contain food costs are
reported by state WIC directors to be saving millions of dollars. 
These two practices include (1) contracting with manufacturers to
obtain rebates on WIC foods in addition to infant formula and (2)
limiting authorized food selections by, for example, requiring
participants to select brands of foods that have the lowest cost. 


         USE OF COMPETITIVELY BID
         REBATE CONTRACTS
-------------------------------------------------------- Letter :3.1.1

In fiscal year 1996, nine state agencies received rebates for two
WIC-approved foods--infant cereal and/or infant fruit juices.  Table
1 shows the states that were receiving rebates during fiscal year
1996 from the expanded use of rebates through individual or
multistate contracts. 



                                Table 1
                
                  State WIC Agencies Receiving Infant
                   Cereal and/or Infant Juice Rebates
                    Through Individual or Multistate
                   Contracts During Fiscal Year 1996

                                           Rebates     Total
                                               for   rebates      Food
                                            infant  (includi  expendit
                                            cereal        ng      ures
State                 Infant    Infant      and/or    infant    (minus
agency                cereal    juice        juice  formula)  rebates)
--------------------  --------  --------  --------  --------  --------
California            X\a                 $2,144,7  $184,928  $437,729
                                                41      ,836      ,886

Connecticut           X                    149,791  8,213,53  25,272,8
                                                           9        61

District of Columbia  X\a       X\b         32,757  3,511,16  6,574,54
                                                           2         3

Indiana               X                    276,369  22,318,3  46,232,5
                                                          64        72

Maryland              X\a       X\b        236,793  16,769,4  34,033,6
                                                          77        89

Nevada                X\a                   76,116  6,375,65  11,361,8
                                                           3        69

New York              X                   2,398,88  88,507,8  200,143,
                                                 8        22       479

Texas                 X                    733,483  122,908,  194,499,
                                                         887       363

West Virginia         X\a       X\b        154,714  7,501,98  19,816,1
                                                           2        54

======================================================================
Total                                     $6,203,6  $461,035  $987,026
                                                52      ,722      ,285
----------------------------------------------------------------------
\a Multistate contract for infant cereal. 

\b Multistate contract for infant juice. 

The cost savings resulting from these infant cereal and juice rebates
are relatively small in comparison with the savings resulting from
infant formula rebates.  As shown by the figures in table 1, the
rebates for infant cereal and juices represented about 1 percent of
the total rebates received in these nine states in fiscal year 1996. 
The $6.2 million in infant cereal and juice rebates reduced total
food costs in these states by about six-tenths of a percent in fiscal
year 1996. 

Eleven states--Alaska, California, Delaware, the District of
Columbia, Hawaii, Missouri, New Jersey, New York, Oklahoma, Rhode
Island, and West Virginia--reported that their agencies were
considering, or were in the process of, expanding their use of
rebates to foods other than infant formula.  In May 1997, Delaware
joined the District of Columbia, Maryland, and West Virginia in a
multistate rebate contract for infant cereal and juices.  California
was the first state to expand its rebate program to include adult
juices, adding this option in March 1997.  California currently
spends about $65 million annually on adult juice purchases. 
California's WIC director told us that the state expects to collect
about $12 million in annual rebates on the adult juices, thereby
allowing approximately 30,000 additional persons to participate in
the program each month. 

According to FCS officials, there is the potential to reduce WIC
costs further through the expanded use of rebates.  They said that
FCS has encouraged the states to examine and aggressively pursue
rebates to stretch food dollars to serve a maximum number of eligible
participants.  In May 1997, FCS sent its regional directors a
memorandum outlining a strategy to "manage, contain, and control"
food costs using rebates on products such as special infant formula
and other WIC foods in addition to infant formula.  The officials
told us that if federal funding for WIC remains constant or declines,
more states may consider expanding the use of rebate contracts to
provide funds for their WIC programs.  FCS officials also told us
that some states' WIC agencies may not be expanding the use of
rebates because other cost containment practices have proven
effective in reducing food costs.  For example, the states that have
elected to use only store brand foods may be incurring lower costs
than the states that receive rebates on national brand products. 

While these rebates reduce costs, the procurement process requires
additional administrative effort by the states.  The California WIC
director and FCS officials told us that the process of entering into
and monitoring rebate contracts can be complicated and
time-consuming.  In addition, FCS officials told us that bid protests
filed by the manufacturers that are not awarded contracts impose
additional administrative burdens on the states.  The administrative
burden associated with procuring and monitoring rebate contracts can
be exacerbated if a state contracts with more than one manufacturer
for rebates.  For example, when California expanded its rebate
program to include adult juices, the state requested bids on rebate
contracts from juice companies for frozen and ready-to-drink apple,
grape, orange, and pineapple juices that were available in all parts
of the state and had to negotiate five separate contracts. 

The states also need to use additional resources to manage the rebate
contracts.  FCS officials told us that disagreements between the
states and manufacturers occur over the rebate billings that the
manufacturers are obligated to pay the states.  They said that the
states must therefore develop billing systems that track the amount
of the manufacturers' products selected by WIC clients using their
vouchers.  For example, the California WIC director told us that
before the state implemented its adult juice rebate contracts, the
state agency had to develop a system for determining the amount and
quantity of each type of juice selected by WIC participants and a
system for rebate billing that was acceptable to the juice
manufacturers. 

FCS officials told us that the states could become increasingly
dependent on the funds provided by their rebate contracts. 
Historically, the annual funds received by the states from their
infant formula rebate contracts have continued to increase, but this
source of funding may not always be reliable.  If manufacturers begin
offering lower rebates, the states could have insufficient funds to
provide program benefits to their current level of WIC
participants.\7

According to FCS officials, such a decrease in rebate funds would be
similar to an increase in food prices because of inflation, something
which the program has experienced before.  In such instances, the
states would need to make adjustments to the foods they offer to
contain the escalating costs and/or remove people from the program. 


--------------------
\7 Federal regulations permit the states to use up to 3 percent of
their current year's food funds to pay their prior year's food costs. 
This option is available to any state that experiences a reduction in
its rebates, according to FCS officials. 


         LIMITS ON FOOD SELECTION
-------------------------------------------------------- Letter :3.1.2

According to FCS officials, the prices of the food items provided by
WIC can vary dramatically, depending, for example, on the brand of
the item or how it is packaged.  Individually wrapped sliced cheese
can cost substantially more than the same cheese in block form, and a
national brand of juice could cost substantially more than a vendor's
own brand.  All state WIC directors responding to our survey reported
that their agencies imposed limits on one or more of the WIC food
items.  The states may specify certain brands; limit certain types of
foods, such as sliced cheese; restrict container sizes; and require
the selection of only the lowest-cost brands.  Figure 1 shows the
number of WIC directors who reported that their states use various
types of limits for one or more food items. 

   Figure 1:  Types of Food
   Selection Limits States Use to
   Control WIC Food Costs

   (See figure in printed
   edition.)

As the figure indicates, some types of restrictions are more widely
used than others.  Forty-seven of the 48 WIC directors reported that
their states' participants are allowed to choose only certain
container or package sizes of one or more food items.  For example,
27 of the 48 directors who responded to our questionnaire reported
that their states limit the container or package size of infant
juice.  In addition, 8 states limit allowable types of infant juice,
and 18 do not offer infant juice.\8 Some states have also extended
limits to non-infant foods. 

For example, Texas participants can select only cheese that is not
packaged as individually wrapped slices or shredded, and milk must be
in 1-gallon or half-gallon sizes and must be the least expensive
brand.  In Pennsylvania, dry beans or peas must be in 1-pound
packages, ready-to-drink juices must be in 46-ounce cans, and the
price of a dozen eggs must not exceed $1.75. 

While all states have one or more food selection restrictions, 17 of
the 48 WIC directors responding to our questionnaire reported that
their states are considering the use of additional food selection
limits to contain or reduce costs in the WIC program. 

Most of the 48 WIC directors reported that placing selection limits
on WIC foods has at least moderately decreased their food costs. 
Twelve of these directors reported that selection limits have greatly
or very greatly reduced their WIC food costs.  Figure 2 shows the
range of food cost reductions that the directors reported from
implementing these restrictions. 

   Figure 2:  Impact on Food Costs
   Resulting From States' Use of
   Food Selection Limits

   (See figure in printed
   edition.)

Texas, for example, which reported that the restrictions had a very
great impact, uses a combination of food selection limits, including
a least-cost brand policy.  The policy requires participants to buy
the cheapest brand of milk, evaporated milk, and cheese available in
the store--usually the store's own brand.  Texas also requires
participants to buy the lowest-cost 46-ounce fluid or 12-ounce frozen
fruit juices from an approved list of types (orange, grapefruit,
orange/grapefruit, purple grape, pineapple, orange/pineapple, and
apple) and/or specific brands.  According to Texas WIC officials, the
least-cost brand policy has had a "tremendous" impact on lowering the
dollar amount that the state pays for WIC food products.  For
example, in fiscal year 1989 (the first full fiscal year that the
policy was in effect), the cost of milk was reduced by about $3
million.  In fiscal year 1996, Texas had a lower than average food
cost per person among the 50 states and the District of Columbia even
before rebates were factored in.  (See app.  I.)

FCS headquarters officials told us that the selection by state
agencies of the foods available to participants is one of the states'
most powerful cost containment tools.  FCS encourages the states to
approve WIC foods that are low in price.  However, the officials said
that while cost efficiencies are important, the states must maintain
the nutritional integrity of the program's food package.  The
practice of limiting food items can have a negative impact if
participants do not select the food products or do not eat them.  For
example, Texas WIC officials told us that they discontinued the
least-cost brand requirement for peanut butter when they discovered
that participants were not selecting the product. 

In addition, FCS officials said that the restrictions may make food
selections more confusing for participants and burdensome for
vendors.  For example, Texas WIC officials told us that participants
and cashiers often have difficulty determining which products have
the lowest price.  A 1995 study of participants' selections of
lowest-cost WIC foods performed by a Texas WIC food chain found that
95 percent of the participants were selecting one or more nonapproved
food items that had to be exchanged for the correct item.  In
response, the food chain, among other things, upgraded the quality,
location, and clarity of WIC labels and signs in all of its stores,
adding color displays and descriptions of approved WIC items.  The
Texas WIC agency has also published and displayed a color brochure of
approved items that has helped participants to select the approved
foods.  According to an official of the supermarket chain, these
actions have reduced exchanges of food items between 19 and 50
percent. 


--------------------
\8 The regulations require states to provide infants either
single-strength adult juice or infant juice. 


      STATES' CONTROL FOOD COSTS
      BY MANAGING VENDORS
---------------------------------------------------------- Letter :3.2

Separately or in conjunction with measures to contain food costs,
some state agencies have placed restrictions on vendors to hold down
costs.  Some states are also selecting alternatives to vendor
distribution for certain food products. 


         RESTRICTIONS ON VENDORS
-------------------------------------------------------- Letter :3.2.1

Thirty-nine of the 48 states responding to our questionnaire reported
that they use special selection requirements or limits to contain the
number of authorized vendors.  Twenty-nine WIC directors reported
that they considered it extremely or very important to contain the
number of vendors in order to control the program's costs, and 9
reported that it is moderately important.  Of the 39 states, 34
reported using competitive food costs as one of their criteria for
selecting vendors.  In addition, 27 states have established price
limits that vendors cannot exceed for allowable foods, and 5 states
require vendors to bid competitively for vendor slots. 

The food prices of WIC vendors in Texas must not exceed by more than
8 percent the average prices charged by vendors doing a comparable
dollar volume in the same area.  Once selected, vendors must maintain
competitive prices.  According to Texas WIC officials, the state does
not limit the number of vendors that can participate in the WIC
program.  However, Texas' selection criteria for approving vendors
exclude many stores from the program.  By approving only stores with
competitive prices, Texas officials said that they save WIC food
dollars by paying competitive prices for WIC products.\9

Similarly, Delaware's Project SAVE (Selecting Authorized Vendors
Efficiently) requires vendors to bid competitively for all authorized
WIC food items.  Vendors that meet the minimum qualification
requirements and bid the lowest prices are selected to fill the
available retail outlet slots.  Delaware selects vendors every 2
years. 

Delaware's WIC director said that while SAVE maintains the clients'
access to vendors, administrative savings have been achieved by
training and monitoring vendors, and the number of potentially
high-risk vendors has declined.  The director noted that SAVE enables
the state to control unexpected price increases because the prices
are locked in for 2 years through agreements with vendors, thereby
allowing grant funds to be more effectively and efficiently managed. 
Between fiscal years 1991 and 1996, the director estimated, the
agreements saved the program about $1.8 million in food costs. 

Eighteen WIC directors reported that their states use ratios of
participants to vendors to restrict the number of vendors allowed to
participate in the program.  By limiting the number of vendors, the
states can more frequently monitor stores and conduct compliance
investigations, according to FCS and state WIC officials.  For
example, Delaware uses a ratio of 200 participants per store to
determine the total number of vendors that can participate in the
program in each WIC service area. 

Of the 39 states reporting that they contain the number of vendors,
31 states reported that as a result, their programs' costs have
decreased somewhat or greatly.  Figure 3 presents the WIC directors'
estimates of the cost reductions resulting from limits on vendors and
selection policies. 

   Figure 3:  Impact on the
   Program's Costs Resulting From
   States' Use of Vendor Limits
   and Selection Policies

   (See figure in printed
   edition.)

The WIC directors in 7 of the 39 states (Maine, Massachusetts,
Nebraska, New Mexico, Rhode Island, South Carolina, and Wisconsin)
that currently contain the number of vendors allowed to participate
in the program reported that they are planning to introduce
additional initiatives, such as requiring competitive food pricing by
currently authorized vendors, to contain the program's costs.  In
addition, the directors in two other states (Connecticut and North
Carolina) also reported that they plan to select vendors on the basis
of competitive pricing. 

FCS headquarters officials told us that limiting the number of
vendors and selecting vendors with competitive prices are important
aspects of containing WIC costs.  However, they told us that the
retail community does not favor limits on the number of approved
vendors.  Instead, vendors have pressured state WIC agencies and FCS
officials to allow all vendors that qualify to participate. 
According to the FCS officials, the amount that the WIC program
spends for food would be substantially higher if stores with higher
prices were authorized for the program. 


--------------------
\9 Texas does not have available data on the specific cost savings
attributed to selecting vendors with competitive prices. 


         DIRECT DISTRIBUTION OF
         SPECIAL INFANT FORMULA
-------------------------------------------------------- Letter :3.2.2

Upon a physician's instructions, WIC infants with special dietary
needs or medical conditions may receive special infant formula. 
While only a small percentage of the WIC infants nationwide require
these formulas, the monthly retail costs for them can be
high--ranging in one state we surveyed from $540 to $900 for each
infant.  Twenty-one states avoid paying retail prices by purchasing
the special formula at much lower wholesale prices and distributing
it to participants. 

Opportunities exist to substantially lower the cost of special infant
formula.  Cost savings may be achieved if the states purchase special
infant formula at wholesale instead of retail prices.  Additional
savings may also be possible if these states are able to reduce or
eliminate the cost of authorizing and monitoring the retail vendors
and pharmacies that distribute only special infant formula to WIC
participants. 

Pennsylvania, for example, turned to direct purchasing to make
special infant formula more available and to avoid the high cost of
vendor-provided formulas.  It established a central distribution
warehouse for special formulas in August 1996 to serve the less than
1 percent of WIC infants in the state--about 400--who needed special
formulas in fiscal year 1996.  Pennsylvania purchases the special
formulas directly from the manufacturers at wholesale prices, usually
for between $300 to $500 for a 1-month supply.  The warehouse ships
the special formulas, at the participant's option, either directly to
the participant or to the WIC clinic.  According to the state WIC
director, in many instances, the WIC warehouse delivers the formula
faster than pharmacies do.  The program is expected to save about
$100,000 annually.  In addition, by relying on its warehouse, the
state can remove over 200 pharmacies from the program, resulting in
significant and measurable administrative cost savings, according to
the WIC director. 

Appendix II provides information on the states' use of cost
containment practices that affect the program's costs. 


      WIC FUNDING STRUCTURE MAY
      DISCOURAGE THE ADOPTION OF
      COST CONTAINMENT PRACTICES
---------------------------------------------------------- Letter :3.3

According to the National Association of WIC Directors and some WIC
directors we spoke with, the program's funding structure can
constrain a state's ability to make effective use of the additional
funds that become available as a result of cost containment
initiatives.  FCS policy requires that during the grant year, any
savings from cost containment accrue to the food portion of the WIC
grant, thereby allowing the states to provide food benefits to
additional WIC applicants.  None of the cost containment savings are
automatically available to the states for support services, such as
staffing, clinic facilities, voucher issuance sites, outreach, and
other activities that are needed to increase participation in the
program.  As a result, the states may not be able to serve more
eligible persons or they may have to carry a substantial portion of
the program's support costs until the federal nutrition services and
administration grant is adjusted for the increased participation
level--a process that can take up to 2 years--according to the
National Association of WIC Directors. 

FCS officials pointed out that provisions in the federal regulations
allow the states where participation increases to use a limited
amount of their food grant funds for program support activities. 
However, some states may be reluctant to use the option.  For
example, according to a Texas WIC official, states may not want to
redirect food funds to support services because doing so may be
perceived as taking food away from babies. 

Although California implemented cost containment initiatives during
the current and past year, the WIC director told us that the state
received less funding for support services this year compared with
last year.  As a result, she said California has a large,
multimillion-dollar imbalance between food money and program support
funds that is likely to get worse.  She told us that the California
program has been hampered by the lack of adequate support funds to
sustain its caseload.  Some WIC directors told us that such
shortfalls in funding for support services may discourage state
agencies from expanding the use of cost containment initiatives. 

FCS officials stated that while the WIC funding process does not
immediately adjust the amount of funds for support services to
reflect cost containment savings, such adjustments are generally made
in the following year's funding allocation.  FCS officials also noted
that a major reason for the lack of adequate funding for program
support activities is an insufficient appropriation level overall--a
factor that affected California as well as all WIC state agencies. 


   STATES' REQUIREMENTS FOR
   OBTAINING INCOME DOCUMENTATION
   FROM APPLICANTS VARY, BUT
   STATES REPORT OBTAINING
   DOCUMENTATION IN MOST CASES
------------------------------------------------------------ Letter :4

Federal regulations allow the states to establish their own
documentation requirements for applicants who do not automatically
meet the income requirements for participation in WIC.  Thirty-two of
the 48 WIC directors reported that their state agencies generally
require documentation of income eligibility for these applicants. 
Fourteen directors reported that their states do not require
documentation.  These states allow applicants to declare their income
without providing supporting documentation.  Finally, two directors
reported that income documentation procedures are determined
individually by the local WIC agencies.  In addition, 20 state WIC
directors reported that their states do not require applicants to
provide proof of residency, and 12 reported that their states do not
require applicants to provide proof of identity when they seek
certification for program participation. 

Thirty of the 32 states that generally require applicants to document
their income will waive this requirement under certain conditions. 
The responses to our questionnaire and our review of state policies
indicate that waiving this requirement can be routine.  For example,
in some instances when individuals report that they are homeless or
lack any income, the documentation requirement can be waived.  We
found that some states also allow individuals to self-declare their
income if they do not bring income documents to their certification
meeting. 

While these states will waive their documentation requirements, 27 of
the 32 state directors reported that 75 percent or more of the
participants who were not automatically income eligible provided
documentation, such as pay stubs and letters, to establish
eligibility in fiscal year 1996.  Appendix III provides information
on the states' income documentation requirements and the percentage
of participants who were not automatically income eligible and
provided income documentation during fiscal year 1996. 

In addition to meeting income requirements, WIC applicants must
reside within the jurisdiction of the state where they expect to
establish eligibility to receive benefits.\10 FCS allows the states
to accept an applicant's declaration of state residency without
documentation.  While 20 of the 48 WIC directors reported that their
states do not require applicants to provide any proof of state
residency, 28 states do require applicants to provide proof of state
residency.  The types of residency documentation accepted by these
states include utility bills, rent receipts, driver's licenses, voter
registration cards, and bank statements.  To prevent duplicate
payments, the program's regulations require the local WIC agency to
check the identification of each participant at certification and
when issuing food or food vouchers.\11 The types of identification
accepted by states include driver's licenses, birth certificates,
hospital records, pay stubs, voter registration cards, or recent
correspondence.  Twelve of the 48 WIC directors reported that their
states do not require such proof of identification at certification. 

There has not been a study of the incidence and magnitude of errors
in determining income eligibility for the WIC program since 1988.\12
The 1988 study found that 5.7 percent of the participants were not
eligible.  According to FCS officials, there is potential for error
in making income eligibility decisions, and income documentation
requirements may need to be tightened.  FCS has begun a nationwide
study, scheduled to be completed in 1999, that will develop a
national estimate of the number of people participating in the
program who are not income eligible.  The study will also assess the
extent to which various income documentation procedures reduce the
level of participation by individuals who are ineligible.  The
information from this study will assist FCS in determining what
changes are needed in income documentation to ensure that the states
provide benefits only to applicants who are eligible. 

FCS officials told us they strongly encourage the states to obtain
income documentation.  However, they said that imposing stricter
documentation requirements could result in increased administrative
costs for state and local agencies and might discourage some eligible
individuals from applying for benefits.  They also noted that certain
subgroups of the WIC population, such as aliens, may find stricter
documentation requirements a barrier to participation because
individuals may be intimidated by the paperwork. 

FCS officials also expressed concern that the states not requiring
proof of personal identification may not be able to ensure that they
are complying with the federal requirement that they check the
identification of participants when they are certified and when they
receive vouchers.  Also, FCS officials expressed concern that the
states not obtaining evidence of participants' residency may not be
able to ensure that the participants are residents of their states as
required by federal regulations. 


--------------------
\10 7 C.F.R.  246.7(c)(1). 

\11 7 C.F.R.  246.7(l)(2). 

\12 WIC Income Verification Study (1988), U.S.  Department of
Agriculture's Food and Consumer Service. 


   CONCLUSIONS
------------------------------------------------------------ Letter :5

A number of the states are making effective use of a variety of
practices to contain the WIC program's costs and to extend coverage
to more women and children.  However, these states have had to
overcome various obstacles to implement cost containment.  These
obstacles include incurring the increased administrative burden
associated with procuring and monitoring rebate contracts, ensuring
that cost reduction does not result in a food package that is
unacceptable to participants, and overcoming resistance from the
retail community when attempting to establish special selection
requirements or limits on vendors authorized to participate in the
program.  Given such obstacles, and the states' concern with how the
program allocates the additional funds made available through cost
containment initiatives, some states may be discouraged from adopting
or expanding the use of cost containment practices. 

As they seek to expand cost containment practices, FCS and the states
can benefit from the experiences of those states that have
implemented such practices effectively.  Expanding cost containment
depends, in part, on reducing or eliminating the obstacles that can
discourage the states from initiating such practices.  The expansion
of these practices can have a substantial impact on the WIC program
because for every 1-percent reduction in food costs that may result
from these initiatives, the federal food expenditure of about $2.7
billion could be reduced by about $27 million annually.  Cost savings
could be used to provide benefits to additional participants, improve
the quality of WIC services, and/or reduce the cost of the program to
the federal government. 

The states that base income-eligibility decisions on WIC applicants'
declarations of income without documentation may be allowing
applicants who are not eligible to participate in the WIC program. 
It is clear that this policy may result in unintentional or
deliberate misreporting of income information.  However, the extent
of the problem is unknown because there has not been a recent study
of the number of participants in the program that are not income
eligible.  Information from the new study FCS has begun should enable
the agency to determine what changes are needed in the program's
income documentation requirements. 

Similarly, WIC participants must reside in the jurisdiction of the
state where they receive benefits and provide identification at the
time they are certified to participate in the program and when they
receive their vouchers.  However, some states are not requiring proof
of residency or identity.  Without such proof, the states cannot
ensure that these requirements are being met. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :6

To encourage further implementation of WIC cost containment
initiatives, the Secretary of Agriculture should direct the
Administrator of FCS to work with the states to identify and
implement strategies, including policy and regulatory and legislative
revisions, to reduce or eliminate the obstacles that may discourage
such initiatives.  These strategies could include modifying policies
and procedures that allow the states to use cost containment savings
for the program's support services and establishing regulatory
guidelines for selecting vendors to participate in the program. 

The Secretary should also direct the Administrator to take the
necessary steps to ensure that the state agencies are requiring
participants to provide evidence that they reside in the states where
they receive WIC benefits and to provide identification when their
eligibility is certified and when they receive food or food vouchers. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

We provided the Food and Consumer Service with copies of a draft of
this report for review and comment.  We met with agency officials,
including the Administrator, the Acting Deputy Administrator for
Special Nutrition Programs, and the Director of the Supplemental Food
Program Division.  FCS generally agreed with the report's findings
and recommendations, but FCS suggested revising the presentation of
our first recommendation that FCS work with the states to reduce or
eliminate the obstacles that may discourage the use of cost
containment initiatives.  FCS believed that the clarity of our
recommendation could be improved by emphasizing that a variety of
additional approaches could be taken by the agency to reduce or
eliminate cost containment obstacles or provide additional incentives
to encourage more cost containment.  In response to these concerns,
we revised the wording of the recommendation. 

FCS also provided us with a number of technical comments that we
incorporated into the report as appropriate. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

In developing information for this report, we spoke with and obtained
documents from officials at FCS headquarters.  We also spoke with
officials at all seven of FCS' regional offices.  We interviewed
state WIC officials in California, Delaware, Pennsylvania, and Texas. 
In addition, we collected pertinent information from the National
Association of WIC Directors.  We reviewed federal laws and
regulations applicable to the establishment and operation of the WIC
program.  We also mailed questionnaires to the WIC agency directors
in the 50 states and the District of Columbia.  We received responses
to our questionnaire from 48 directors (94 percent). 

We conducted our work from December 1996 through August 1997 in
accordance with generally accepted government auditing standards.  We
did not, however, independently verify the accuracy of the state WIC
agency directors' responses to our questionnaire. 


---------------------------------------------------------- Letter :8.1

We are sending copies of this report to the appropriate congressional
committees, interested Members of Congress, the Secretary of
Agriculture, and other interested parties.  We will also make copies
available upon request. 

If you have any questions, please call me at (202) 512-5138.  Major
contributors to this report are listed in appendix IV. 

Sincerely yours,

Robert A.  Robinson
Director, Food and
 Agriculture Issues


AVERAGE STATE PRE- AND POSTREBATE
MONTHLY FOOD COSTS PER PERSON FOR
FISCAL YEAR 1996
=========================================================== Appendix I

                                 Prerebate average  Postrebate average
                                     food cost per       food cost per
State                                       person              person
------------------------------  ------------------  ------------------
Alabama                                     $48.25              $30.75
Arizona                                      45.70               29.69
Alaska                                       47.78               38.69
Arkansas                                     44.11               29.03
California                                   45.45               31.95
Colorado                                     41.32               30.07
Connecticut                                  44.63               33.69
Delaware                                     43.60               30.17
District of Columbia                         52.15               34.00
Florida                                      48.02               32.45
Georgia                                      41.46               27.28
Hawaii                                       62.72               50.57
Idaho                                        37.95               26.94
Illinois                                     52.50               36.21
Indiana                                      43.10               29.07
Iowa                                         41.94               29.66
Kansas                                       43.65               30.45
Kentucky                                     43.25               30.04
Louisiana                                    50.96               34.87
Maine                                        39.39               28.60
Maryland                                     48.13               32.24
Massachusetts                                39.90               28.09
Michigan                                     44.91               31.47
Minnesota                                    41.88               29.09
Mississippi                                  28.38               28.38
Missouri                                     45.80               31.27
Montana                                      39.35               25.59
Nebraska                                     44.51               32.21
Nevada                                       41.84               26.80
New Hampshire                                37.52               25.93
New Jersey                                   42.07               30.71
New Mexico                                   43.01               31.15
New York                                     50.18               34.35
North Carolina                               43.04               27.74
North Dakota                                 43.97               33.65
Ohio                                         41.04               26.64
Oklahoma                                     44.08               30.34
Oregon                                       38.79               28.91
Pennsylvania                                 43.23               31.00
Rhode Island                                 42.82               29.95
South Carolina                               41.07               28.22
South Dakota                                 40.92               29.64
Tennessee                                    48.65               33.00
Texas                                        41.26               25.28
Utah                                         42.03               31.39
Vermont                                      32.44               32.44
Virginia                                     44.80               32.18
Washington                                   45.11               32.30
West Virginia                                42.02               30.48
Wisconsin                                    41.96               30.47
Wyoming                                      37.88               27.54
======================================================================
Average                                     $43.54              $30.84
----------------------------------------------------------------------
Source:  Special Nutrition Programs Integrated Information System,
FCS. 


STATES' USE OF COST CONTAINMENT
PRACTICES THAT AFFECT THEIR
PROGRAMS' COSTS
========================================================== Appendix II



                               Table II.1
                
                Number of States Using Various Practices
                That Can Affect Their Programs' Costs as
                  Reported in Our Survey of State WIC
                           Program Directors

                                                Number of states using
Practice                                                      practice
----------------------------------------  ----------------------------
Limiting participants' selections for one or more WIC food items by:
----------------------------------------------------------------------
Designating specific brands or                                      45
 disallowing specific brands
Allowing only certain container or                                  47
 package size for one or more WIC food
 items
Limiting allowable types of food (e.g.,                             44
 block rather than sliced cheese) for
 one or more WIC food items
Setting a maximum purchase price for one                            15
 or more WIC food items
Requiring purchase of lowest cost brand                             20
 for one or more WIC food items
Direct distribution of food packages                                 5
Home delivery of food                                                5
Contracted rebates on WIC foods other                               10
 than infant formula
Noncontracted rebates on WIC foods                                  18
Direct purchase of special infant                                   21
 formula
Printing maximum price for each food                                 3
 item on WIC voucher
Printing maximum price for the entire                               23
 WIC food package on voucher
Reimbursing vendors for actual costs, up                            29
 to a state-set maximum
Reimbursing vendors for reasonable                                   9
 costs, as determined by state, not
 actual shelf prices
Using competitive food cost as a vendor                             34
 selection criterion
Vendor food prices cannot exceed limits                             27
 set by the state
Containing number of WIC vendors based                              18
 on a ratio of number of vendors to
 participants or other ratios
Competitive bidding for vendor slots                                 5
Vendor monitoring                                                   46
----------------------------------------------------------------------
Source:  WIC Directors Questionnaire, GAO, Mar.  1997. 



                                        Table II.2
                         
                           States Using Practices Described in
                         Report to Contain Their Programs' Costs

                                                                   Vendor
                   Require                 Using                   food
                   purchase                competitiv              prices
                   of lowest               e food                  cannot      Direct
                   cost brand  Ratios to   cost as a   Competitiv  exceed      purchase
                   for one or  contain     vendor      e bidding   limits set  of special
                   more WIC    the number  selection   for vendor  by the      infant
State              food items  of vendors  criterion   slots       state       formula
-----------------  ----------  ----------  ----------  ----------  ----------  ----------
Alabama                                    X                                   X

Arizona                                    X                       X

Alaska                         X

Arkansas           X           X                                               X

California                                 X                       X           X

Colorado                                                                       X

Connecticut        X                                                           X

Delaware                       X           X           X

District of                    X           X
Columbia

Florida            X                       X                       X           X

Georgia            X                       X                       X           X

Hawaii                                                                         X

Idaho

Illinois           X           X           X                       X

Indiana                        X           X

Iowa               X

Kansas             X                       X                       X

Kentucky                                   X                       X

Louisiana          X                       X           X           X           X

Maine              X                       X                       X

Maryland                                   X                       X           X

Massachusetts      X           X           X           X           X

Michigan                       X           X

Mississippi                                                                    X

Missouri                       X           X                       X

Montana

Nebraska                                   X                       X

Nevada             X                       X                       X           X

New Hampshire      X                       X

New Jersey                     X           X           X           X

New Mexico         X           X           X                       X

New York                       X                                   X

North Carolina     X                                                           X

North Dakota

Ohio                           X           X

Oklahoma           X           X           X                       X

Pennsylvania                   X           X                       X           X

Rhode Island       X                       X                       X           X

South Carolina                             X                       X           X

Tennessee                                  X                       X

Texas              X                       X                       X           X

Utah               X           X           X                       X           X

Vermont                                                X                       X

Virginia           X           X           X                                   X

Washington

West Virginia      X           X           X                       X

Wisconsin                                  X                       X

Wyoming                                    X                       X           X
-----------------------------------------------------------------------------------------
Note:  Minnesota, Oregon, and South Dakota are not listed because
they did not respond to our survey. 

Source:  WIC Directors Questionnaire, GAO, Mar.  1997. 


STATE INCOME DOCUMENTATION
REQUIREMENTS AND PERCENTAGE OF
APPLICANTS WHO WERE NOT
AUTOMATICALLY INCOME ELIGIBLE AND
PROVIDED DOCUMENTATION DURING
FISCAL YEAR 1996
========================================================= Appendix III

                        Reported income documentation requirement
                   ----------------------------------------------------
                   Documentation of                    Documentation is  Percentage of
                   income is                           not required,     applicants who
                   required--but                       self-             were not
                   requirement can                     declaration of    automatically
                   be waived in      Local agencies    income is         income eligible
                   certain           establish their   allowed in all    and provided
State              circumstances     own requirement   cases             documentation
-----------------  ----------------  ----------------  ----------------  ----------------
Alabama                                                X                 6-25

Arizona            X                                                     76-95

Alaska             X                                                     76-95

Arkansas                                               X                 0-5

California         X                                                     76-95

Colorado                             X                                   26-75

Connecticut        X                                                     96-100

Delaware           X                                                     76-95

District of        X                                                     76-95
Columbia

Florida                                                X                 0-5

Georgia                                                X                 0-5

Hawaii             X                                                     96-100

Idaho              X                                                     26-75

Illinois           X                                                     96-100

Indiana            X                                                     96-100

Iowa                                                   X                 No basis to
                                                                         judge

Kansas             X                                                     96-100

Kentucky                                               X                 0-5

Louisiana                                              X                 No basis to
                                                                         judge

Maine              X                                                     96-100

Maryland           X                                                     96-100

Massachusetts      X                                                     76-95

Michigan           X                                                     No basis to
                                                                         judge

Minnesota                                                                No response

Mississippi                          X                                   No basis to
                                                                         judge

Missouri           X                                                     76-95

Montana            X                                                     96-100

Nebraska                                               X                 0-5

Nevada             X                                                     No basis to
                                                                         judge

New Hampshire      X                                                     76-95

New Jersey         X                                                     96-100

New Mexico         X                                                     96-100

New York           X                                                     6-25

North Carolina                                         X                 6-25

North Dakota       X                                                     96-100

Ohio               X                                                     96-100

Oklahoma                                               X                 No basis to
                                                                         judge

Oregon                                                                   No response

Pennsylvania       X                                                     96-100

Rhode Island       X                                                     96-100

South Carolina                                         X                 0-5

South Dakota                                                             No response

Tennessee                                              X                 0-5

Texas              X                                                     96-100

Utah               X                                                     96-100

Vermont                                                X                 No basis to
                                                                         judge

Virginia           X                                                     No basis to
                                                                         judge

Washington                                             X                 0-5

West Virginia      X                                                     96-100

Wisconsin          X                                                     96-100

Wyoming            X                                                     96-100
-----------------------------------------------------------------------------------------
Source:  WIC Directors Questionnaire, GAO, Mar.  1997. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

Thomas Slomba, Assistant Director
Peter Bramble
Leigh McCaskill White
Carolyn Boyce
Carol Herrnstadt Shulman


*** End of document. ***