Child Support Enforcement Privatization: Challenges in Ensuring
Accountability for Program Results (Testimony, 11/04/97,
GAO/T-HEHS-98-22).

Pursuant to a congressional request, GAO discussed the privatization of
child support enforcement, focusing on: (1) whether privatization has
increased; (2) whether privatization has increased efficiency and
effectiveness; (3) the main challenges stemming from privatization; and
(4) the federal government's role in this critical area.

GAO noted that: (1) most of the state and local governments GAO
contacted have increased their contracting for social services, as
indicated by the number and types of services privatized and the
percentage of their program budgets paid to private contractors since
1990; (2) the few empirical studies that examine whether privatization
has reduced program costs or improved services show mixed results to
date; (3) the challenges that state and local governments encounter
include developing clear contract specifications and implementing
effective methods of monitoring contractor performance; (4) governments
at all levels are struggling with the best way to hold service providers
accountable for results; and (5) in this changing environment, GAO
believes that the Department of Health and Human Services can be more
helpful by increasing its focus on developing and implementing methods
of assessing program results.

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

 REPORTNUM:  T-HEHS-98-22
     TITLE:  Child Support Enforcement Privatization: Challenges in 
             Ensuring Accountability for Program Results
      DATE:  11/04/97
   SUBJECT:  Privatization
             Contract monitoring
             State programs
             Federal/state relations
             Service contracts
             Cost effectiveness analysis
             Child support payments
             Contractor performance
             Contract specifications
IDENTIFIER:  HHS Child Support Enforcement Program
             
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Cover
================================================================ COVER


Before the Subcommittee on Human Resources and Intergovernmental
Relations, Committee on Government Reform and Oversight, House of
Representatives

For Release on Delivery
Expected at 2 p.m.
Tuesday, November 4, 1997

CHILD SUPPORT ENFORCEMENT
PRIVATIZATION - CHALLENGES IN
ENSURING ACCOUNTABILITY FOR
PROGRAM RESULTS

Statement of Mark V.  Nadel, Associate Director
Income Security Issues
Health, Education, and Human Services Division

GAO/T-HEHS-98-22

GAO/HEHS-98-22T


(116007)


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

  CSE - child support enforcement
  HHS - Department of Health and Human Services
  OCSE - Office of Child Support Enforcement

CHILD SUPPORT ENFORCEMENT
PRIVATIZATION:  CHALLENGES IN
ENSURING ACCOUNTABILITY FOR
PROGRAM RESULTS
============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss our work on the benefits and
challenges of a growing phenomenon--privatization, or contracting
with private sector firms, to provide social services and, in
particular, child support enforcement (CSE) services.  As political
leaders and program managers throughout the nation are responding to
calls for improved social services and lower costs, many are
rethinking the role government plays in providing billions of dollars
in services to millions of children and families and are focusing
greater attention on contracting out as a way to meet service needs
more cost-effectively.  Our work on social service privatization has
examined contracting in child care, child welfare, new block grants
to assist needy families, and, the focus of this hearing today, CSE. 

More specifically, my remarks will address the following questions: 
(1) Has privatization increased?  (2) Has privatization increased
efficiency and effectiveness?  (3) What are the main challenges
stemming from privatization?  (4) What role can the federal
government play in this critical area?\1 In order to provide a better
understanding of these issues, I will use CSE contracting as an
example to illustrate broader social service privatization issues we
examined in the report entitled Social Service Privatization: 
Expansion Poses Challenges in Ensuring Accountability for Program
Results (GAO/HEHS-98-6, Oct.  20, 1997), which the Subcommittee
requested and is releasing today. 

In summary, we found that, first, most of the state and local
governments we contacted have increased their contracting for social
services, as indicated by the number and types of services privatized
and the percentage of their program budgets paid to private
contractors since 1990.  Second, the few empirical studies that
examine whether privatization has reduced program costs or improved
services show mixed results to date.  Third, the challenges that
state and local governments encounter include developing clear
contract specifications and implementing effective methods of
monitoring contractor performance.  Finally, governments at all
levels are struggling with the best way to hold service providers
accountable for results.  In this changing environment, we believe
that HHS can be more helpful by increasing its focus on developing
and implementing methods of assessing program results. 


--------------------
\1 To answer these questions, we interviewed officials in the
Department of Health and Human Services (HHS), five states and
selected local governments, unions, advocacy groups, national
associations, and contracting organizations.  We also reviewed
articles and studies written by acknowledged experts in social
service privatization. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

The CSE program enforces parental responsibility by locating
noncustodial parents, establishing paternity and child support
orders, and collecting support payments.  These services, established
under title IV-D of the Social Security Act, are available to both
welfare and nonwelfare families.  State CSE agencies, in conjunction
with other organizations, have responsibility for administering the
program at the state and local levels.  The federal government pays
two-thirds of the states' costs to administer the CSE program.  The
states can also receive incentive funds on the basis of the
cost-effectiveness of CSE agencies in making collections.  In 1996,
federal funding for program administration and incentives totaled
almost $3 billion. 

The most common form of privatization is contracting out, which
typically involves efforts to obtain competition among private
bidders to perform government activities.  Depending on the program,
government agencies can contract with other government
entities--often through cooperative agreements--and with for-profit
and not-for-profit organizations.  For CSE, states can privatize
particular services, such as locating noncustodial parents,
establishing paternity, or collecting support owed, or they may
contract with the private sector to provide all local child support
services.  States may also contract to upgrade automated data
systems, which are used to help locate noncustodial parents and
monitor child support cases. 


   SOCIAL SERVICE PRIVATIZATION
   HAS INCREASED
---------------------------------------------------------- Chapter 0:2

While governments have long used contractors to provide a variety of
services, contracting out has grown in recent years.  Increasingly,
states and local governments have contracted with for-profit and
not-for-profit organizations to provide social services and related
support activities, such as information resource management.  A
national study completed by the Council of State Governments in 1993
found that almost 80 percent of state social service departments
surveyed in the study had expanded the privatization of social
services in the preceding 5 years.  In our own review, most of the 20
state and local governments we contacted said contracting for
services had increased since 1990, as measured by the number and type
of services privatized and the percentage of social service budgets
paid to private contractors.  For CSE, it was not uncommon before
1991 for states to contract out for limited activities, such as
collecting support payments, but only in rare instances had states
contracted with a for-profit organization to provide all the
activities of a local CSE office, commonly known as full-service
privatization.  In contrast, by 1996, 15 states had turned to
full-service privatization in selected local offices.  This form of
contracting out includes a broader array of services, such as
interviewing clients and establishing paternity. 


      DESIRE FOR COST-EFFECTIVE
      QUALITY AND DEMANDS FOR
      SERVICE FUEL GROWTH
-------------------------------------------------------- Chapter 0:2.1

The state and local governments we examined, spurred by strong
support from political leaders and top program managers, have
contracted for social services for a variety of reasons.  These
reasons include the belief that private contractors are able to
provide high-quality services more cost-effectively because of their
management flexibility, an increasing demand for public services, and
limited resources for additional in-house hiring.  In some instances,
governments have chosen to contract out to help compensate for the
lack of government expertise in certain service areas, such as the
development of automated information systems. 

In CSE, as caseloads have grown to as high as 1,000 per worker in
some areas and as governments have lacked resources to hire
additional workers, political leaders have begun to emphasize the
need for government to be more effective in ensuring that parents
meet their child support responsibilities.  In response, many
governments have turned to contractors either to supplement state or
local efforts or to replace them with privatized offices, thereby
continuing efforts to privatize CSE services that have traditionally
been delivered by the public sector.  Future trends in child support
privatization may also be affected by the new welfare law, which may
lead states to contract for additional automated data processing
expertise.  Under this new law, states must enhance their current
statewide systems to interface with other federal and state systems. 
These enhancements are needed to establish central case registries
and new-hire directories.  Considering social service privatization
more broadly, state and local government officials and other experts
told us they expect the growth of contracting out to continue
following the recent changes to federal welfare legislation. 


   RESULTS OF SOCIAL SERVICE
   PRIVATIZATION ARE MIXED
---------------------------------------------------------- Chapter 0:3

State and local governments have experienced mixed results in their
efforts to reduce costs and improve services through social service
privatization.  While the number of evaluations is limited, studies
show that the relative performance of public and private entities has
varied among the social service programs we reviewed.  Our report
last year on full-service privatization in the CSE program found that
the privatized offices in the three locations we examined for
performance did better than or as well as public CSE programs in
locating noncustodial parents, establishing paternity and support
orders, and collecting support owed.\2 In Virginia, the privatized
office collected support payments from 41 percent of the cases we
reviewed, a rate almost twice that of the similar public office with
which we compared it.  However, the relative cost-effectiveness of
the privatized versus public offices varied in the four locations.\3
In two of the four locations we examined for cost-effectiveness, the
public office was as cost-effective as or more cost-effective than
its private counterpart.  In Tennessee, one public office was 52
percent more cost-effective than the privatized office we reviewed,
while the other privatized office we studied in Tennessee was about
as cost-effective as its public counterpart. 

States more frequently contract for selected CSE activities than for
the full range of program services, such as contracting for the
collection of child support payments.\4

States most commonly contract with the private sector for the
collection of past-due support, especially that considered hard to
collect.  Under the terms of most collection contracts, states pay
contractors only if collections are made, and payments to contractors
are often a fixed percentage of collections.  Privatizing collections
has enabled states to collect support that they would have been
unable to collect without hiring additional staff.  In fiscal years
1994 and 1995, contractors in nine states collected nearly $60
million and were paid about $6 million. 

Privatization in the CSE program also involves contracting out to
upgrade state and local government automated data systems.  As we
reported earlier, these systems appear to have improved caseworker
productivity by helping track court actions relating to paternity and
support orders and amounts of collections and distributions. 
However, in some cases, contractors have encountered difficulties in
meeting state specifications for the upgraded systems, resulting in
large cost overruns and delays in implementing the new systems.\5


--------------------
\2 Child Support Enforcement:  Early Results on Comparability of
Privatized and Public Offices (GAO/HEHS-97-4, Dec.  16, 1996). 

\3 Cost-effectiveness was defined as the ratio of each office's
administrative costs to collections, expressed as the cost to collect
$1. 

\4 Child Support Enforcement:  States' Experience With Private
Agencies' Collection of Support Payments (GAO/HEHS-97-11, Oct.  23,
1996). 

\5 Child Support Enforcement:  Strong Leadership Required to Maximize
Benefits of Automated Systems (GAO/AIMD-97-72, June 30, 1997). 


   STATES AND LOCALITIES FACE
   SEVERAL CHALLENGES IN
   PRIVATIZING SOCIAL SERVICES
---------------------------------------------------------- Chapter 0:4

Officials from state and local governments, unions, national
associations, advocacy groups, and contracting organizations cited
several major challenges governments face when privatizing social
services:  (1) obtaining a sufficient number of qualified bidders,
(2) developing contracts with clear specifications, and (3) assessing
contractor performance.  Even when services are provided by
contractors, the government entity remains responsible for the use of
public resources and the quality of services provided.  Unless the
entity meets these challenges, it may be difficult for state and
local governments to reduce program costs and improve services. 


      COMPETITIVE MARKETS FOR
      SOCIAL SERVICES ARE
      SOMETIMES LACKING
-------------------------------------------------------- Chapter 0:4.1

Several experts in social service privatization and state and local
government officials believe that without a sufficient number of
qualified bidders, the likelihood of reducing costs and improving
service quality through privatization declines.  While many state and
local social service program officials we interviewed reported that
they were generally satisfied with the number of qualified bidders in
their state or locality, they expressed concern about the limited
number of qualified bidders in certain situations.  Several state and
local government officials said they had occasionally encountered the
problem of an insufficient number of qualified bidders, especially in
rural areas and when the service for which they contracted required
technical skills in such areas as information resource management. 
In the case of CSE, when states contract out activities that are
similar to those commonly performed in the private sector, such as
collection services that debt-collection agencies perform, state
officials and contractors told us that there may be many qualified
bidders.  However, when states move to broaden the scope of the
contract to full-service privatization of child support activities,
the prevalence of qualified contractors may decrease sharply. 
Generally, the requirement to provide a wider array of social
services could discourage some contractors from bidding because they
might have to hire additional experts and face higher start-up costs. 

In social service programs other than CSE, state and local
governments are experimenting with alternative approaches in order to
benefit from competition.  For example, in Wisconsin, public
employees are competing against nongovernment entities to provide
welfare-to-work services in the Wisconsin Works program.  Governments
may also award a contract to a private provider to serve part of the
caseload and allow the public agency to serve the rest.  In
California, officials concluded that when public and private agencies
worked side by side in welfare-to-work programs, both sets of
personnel were motivated to improve their performance. 


      DEVELOPING CONTRACTS POSES
      CHALLENGES
-------------------------------------------------------- Chapter 0:4.2

Successful contracting out requires devoting adequate attention and
resources to both contract development and monitoring.  State and
local governments have to develop clearly specified program goals and
performance measures to ensure that they are getting what they asked
for and contractors achieve intended program results.  Although some
program officials told us they had ample staff who were experienced
with these tasks, others said they had an insufficient number of
staff with the necessary skills to prepare and negotiate contracts. 
When contract requirements are vague, contractor performance cannot
be easily evaluated. 

Once contracts are in place, contract monitoring should assess a
contractor's compliance with statutes, regulations, and the terms of
the agreement, as well as evaluate the contractor's performance in
delivering services and achieving desired program goals.  In this and
previous reviews of privatization efforts, we found that monitoring
contractors' performance was the weakest link in the privatization
process.\6


--------------------
\6 Privatization:  Lessons Learned by State and Local Governments
(GAO/GGD-97-48, Mar.  14, 1997). 


      PRIVATIZATION AND
      ACCOUNTABILITY FOR RESULTS
-------------------------------------------------------- Chapter 0:4.3

The increase in privatization comes at a time when governments at all
levels are trying to hold service providers accountable for results,
amid pressures to demonstrate improved performance while cutting
costs.  Privatization actually enhances the importance of focusing on
program results, so that governments can know what they are buying
and assess whether services are being provided effectively and
efficiently. 

We have found that, depending on the program and the entity's
experience with performance measurement, setting clear goals and
measuring performance can be difficult.\7 For example, programs may
face competing or conflicting goals.  In child welfare, program
managers and workers must reconcile the competing goals of ensuring
the safety of a child, which may argue for removing a child from his
or her home, with the goal of preserving the family.  As a result,
measuring success may be difficult in some cases.  In contrast with
other social service programs, the goals of the CSE
program--establishing paternity, obtaining support orders, and
collecting child support payments--can be more easily quantified. 


--------------------
\7 The Government Performance and Results Act:  1997 Governmentwide
Implementation Will Be Uneven (GAO/GGD-97-109, June 2, 1997). 


   HHS HAS A KEY ROLE
---------------------------------------------------------- Chapter 0:5

Concurrent with the growth in privatization, recent federal
initiatives, such as the Government Performance and Results Act of
1993, have attempted to improve program management throughout the
government by focusing on the intended results of federal programs
rather than on program inputs and processes, such as staffing levels
and number of tasks completed.  The act's stated purpose is to
improve program effectiveness and service delivery, among other
objectives.  Implementing the Government Performance and Results Act
will require the Department of Health and Human Services (HHS) and
other federal agencies to move from a focus on compliance to a focus
on developing and implementing methods of assessing program results. 

Through HHS' dual responsibilities of providing technical assistance
to state and local governments and monitoring their performance, the
agency can help states overcome the difficulties of ensuring that
contractors achieve intended results.  Several state and local
government officials told us that HHS could help the states and
localities develop methods of assessing program results by clarifying
program goals, providing more responsive technical assistance, and
sharing best practices in measuring the performance of social service
providers. 

HHS has traditionally focused more on monitoring compliance with
legislation and regulations than on results.  However, in CSE, HHS
has made progress in integrating the assessment and tracking of
program results in its oversight function.  Following its designation
as a pilot agency to test the implementation of the Government
Performance and Results Act, HHS' Office of Child Support Enforcement
(OCSE), in conjunction with the states, began to reorient its
management of the CSE program.  OCSE and its state partners agreed on
a 5-year strategic plan containing program goals and objectives and
developed performance measures for assessing state performance.\8 In
addition to conducting traditional compliance audits, CSE auditors
have recently begun to assess the accuracy of state-reported data on
program results.  Also, OCSE and the states, in accordance with the
new welfare law, developed and submitted to the Congress proposed
changes in the program's incentive funding structure intended to
reorient incentive payments toward rewarding state progress in
achieving program goals.  These initiatives may serve as models for
HHS as it attempts to enhance accountability for results. 


--------------------
\8 Child Support Enforcement:  Reorienting Management Toward
Achieving Better Program Results (GAO/HEHS/GGD-97-14, Oct.  25, 1996)
describes how OCSE worked with the states to establish a framework
for improving program management. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 0:6

Our examination of social service privatization suggests that the
magnitude of privatized services has grown and is likely to continue
to grow.  Under the right conditions, contracting for social services
may result in improved services and cost savings.  Social service
privatization is likely to work best at the state and local levels
when competition is sufficient and governments develop contract
requirements, monitor performance, and track program results over
time. 

Several concurrent developments--increasing social service
privatization, emerging needs for clear performance measures and
effective monitoring, and growing federal orientation toward
achieving better program results--should facilitate more effective
privatized social services.  In responding to the requirements of the
Government Performance and Results Act, HHS could help states find
better ways to manage contracts for results.  This could, in turn,
help state and local governments ensure that they are holding
contractors accountable for the results they are expected to achieve,
thus optimizing their gains from privatization. 


-------------------------------------------------------- Chapter 0:6.1

Mr.  Chairman, this concludes my prepared statement.  I would be
pleased to answer any questions you or Members of the Subcommittee
may have. 

RELATED GAO PRODUCTS

Social Service Privatization:  Expansion Poses Challenges in Ensuring
Accountability for Program Results (GAO/HEHS-98-6, Oct.  20, 1997). 

The Results Act:  Observations on the Department of Health and Human
Services' April 1997 Draft Strategic Plan (GAO/HEHS-97-173R, July 11,
1997). 

Child Support Enforcement:  Strong Leadership Required to Maximize
Benefits of Automated Systems (GAO/AIMD-97-72, June 30, 1997). 

Government Performance and Results Act:  1997 Governmentwide
Implementation Will Be Uneven (GAO/GGD-97-109, June 2, 1997). 

Managing for Results:  Analytic Challenges in Measuring Performance
(GAO/HEHS/GGD-97-138, May 30, 1997). 

Privatization:  Lessons Learned by State and Local Governments
(GAO/GGD-97-48, Mar.  14, 1997). 

Child Support Enforcement:  Early Results on Comparability of
Privatized and Public Offices (GAO/HEHS-97-4, Dec.  16, 1996). 

Child Support Enforcement:  Reorienting Management Toward Achieving
Better Program Results (GAO/HEHS/GGD-97-14, Oct.  25, 1996). 

Child Support Enforcement:  States' Experience With Private Agencies'
Collection of Support Payments (GAO/HEHS-97-11, Oct.  23, 1996). 

Child Support Enforcement:  States and Localities Move to Privatized
Services (GAO/HEHS-96-43FS, Nov.  20, 1995). 

District of Columbia:  City and State Privatization Initiatives and
Impediments (GAO/GGD-95-194, June 28, 1995). 


*** End of document. ***