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entitled 'Human Services Programs: Demonstration Projects Could 
Identify Ways to Simplify Policies and Facilitate Technology 
Enhancements to Reduce Administrative Costs' which was released on 
October 19, 2006. 

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Report to the Chairman, Subcommittee on Human Resources, Committee on 
Ways and Means, House of Representatives: 

United States Government Accountability Office: 

GAO: 

September 2006: 

Human Service Programs: 

Demonstration Projects Could Identify Ways to Simplify Policies and 
Facilitate Technology Enhancements to Reduce Administrative Costs: 

Human Services Programs: 

GAO-06-942: 

GAO Highlights: 

Highlights of GAO-06-942, a report to Chairman, Subcommittee on Human 
Resources, Committee on Ways and Means, House of Representatives 

Why GAO Did This Study: 

The cost of administering human service programs has been a long-
standing concern among policy makers interested in ensuring that 
federal programs are run in a cost-efficient manner so that federal 
funds go directly to helping vulnerable people. Little is known about 
how administrative costs compare among programs, or about opportunities 
to better manage these costs. GAO looked at (1) how administrative 
costs are defined and what rules govern federal and state participation 
in funding these costs; (2) what is known about the amounts of 
administrative spending and how they have changed over time; and (3) 
what opportunities exist at the federal level to help states balance 
cost savings with program effectiveness and integrity. GAO’s review 
included seven programs: Adoption Assistance, Child Care and 
Development Fund (CCDF), Child Support Enforcement (CSE), food stamps, 
Foster Care, Temporary Assistance for Needy Families (TANF), and 
Unemployment Insurance (UI). To address the questions, GAO reviewed 
laws, analyzed spending data, and visited five states. 

What GAO Found: 

The statutes and regulations for the seven programs define 
administrative costs differently, even though many of the same 
activities are performed to administer the programs. The laws for each 
program also include different mechanisms for state and federal 
participation in funding administrative costs, including matching 
rates, block grants, and spending caps. 

The seven programs combined spent $21 billion on administration, as 
defined in law, making up about 18 percent of total program spending in 
fiscal year 2004. However, amounts varied widely across the programs 
and states. Administrative spending varied from 2 percent in CCDF to 58 
percent in Foster Care, with the exception of CSE in which all program 
spending is considered administrative. Between fiscal years 2000 and 
2004, administrative spending increased in five of the seven programs, 
generally at a lower rate than total program spending. 

Figure: Fiscal Year 2004 Combined Federal and State Administrative and 
Other Spending (and Administrative Spending as a Percentage of Total 
Spending): 

[See PDF for Image] 

Source: GAO analysis of data from HHS, DOL, and USDA. 

[End of Figure] 

The federal government may help balance administrative cost savings 
with program effectiveness and integrity by simplifying policies and 
facilitating technology improvements. Simplifying policies—especially 
those related to eligibility determination processes and federal 
funding structures—could save resources, improve productivity, and help 
staff focus more time on performing essential program activities. By 
helping states facilitate technology enhancements across programs, the 
federal government can help streamline processes and potentially reduce 
long-term costs. Over the past 20 years, many attempts to streamline 
processes across programs have had limited success due, in part, to the 
considerable challenges that streamlining program processes entail. GAO 
believes one challenge in particular—the lack of information on the 
effect streamlining efforts might have on program and administrative 
costs—is thwarting progress in this area. 

What GAO Recommends: 

To identify ways to reduce administrative costs, Congress should 
consider authorizing state and local demonstration projects designed to 
simplify eligibility determination and other processes for federal 
human service programs. None of the responsible agencies commented on 
the recommendation to Congress. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-942]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Cynthia Fagnoni at (202) 
512-7215 or fagnonic@gao.gov. 

[End of Section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Although Similar Types of Administrative Activities Occur across 
Programs, Definitions of Administrative Costs and the Federal Funding 
Role Vary: 

Administrative Spending Varied across Programs but Generally Increased 
at a Lower Rate Than Total Spending: 

The Federal Government May Help Balance Administrative Cost Savings 
with Program Effectiveness and Integrity by Simplifying Policies and 
Facilitating Technology Enhancements: 

Conclusion: 

Matter for Congressional Consideration: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Administrative Cost Activities Recognized by Program 
Statutes and Regulations: 

Appendix III: Comments from the Department of Health and Human 
Services: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Description of the Seven Selected Programs: 

Table 2: Fiscal Year 2004 Federal and State Program Spending and 
Agencies Responsible for Administering the Seven Selected Programs: 

Table 3: Level of Government Responsible for Design and Funding of the 
Seven Selected Programs: 

Table 4: Rules Governing State and Federal Funding of State 
Administrative Costs: 

Figures: 

Figure 1: Fiscal Year 2004 Combined Federal and State Administrative 
and Other Spending in Billions (and Administrative Spending as a 
Percentage of Total Spending): 

Figure 2: Fiscal Year 2004 State and Federal Shares of Administrative 
Spending: 

Figure 3: Distribution of Combined Federal and State Administrative 
Spending by States for Fiscal Year 2004 (as a Percentage of Total 
Program Spending): 

Figure 4: Combined Federal and State Administrative Spending, Fiscal 
Years 2000 to 2004 (Nominal Dollars): 

Figure 5: Percent Change in Combined Federal and State Administrative 
Spending, Fiscal Years 2000 to 2004: 

Figure 6: Federal and State Administrative Spending as a Percentage of 
Total Program Spending, Fiscal Years 2000 to 2004: 

Abbreviations: 

ACF: Administration for Children and Families: 
AFDC: Aid to Families with Dependent Children: 
CalWIN: CalWORKs Information Network: 
CCDBG: Child Care and Development Block Grant: 
CCDF: Child Care and Development Fund: 
CSE: Child Support Enforcement: 
DOL: U.S. Department of Labor: 
FNS: Food and Nutrition Service: 
FY: fiscal year: 
HHS: U.S. Department of Health and Human Services: 
IT: Information Technology: 
LIHEAP: Low-Income Home Energy Assistance Program: 
N/A: not applicable: 
OMB: Office of Management and Budget: 
SCHIP: State Children's Health Insurance Program: 
SSA: Social Security Administration: 
SSI: Supplemental Security Income: 
TANF: Temporary Assistance for Needy Families: 
UI: Unemployment Insurance: 
USDA: U.S. Department of Agriculture: 

United States Government Accountability Office: 
Washington, DC 20548: 

September 19, 2006: 

The Honorable Wally Herger: 
Chairman: 
Subcommittee on Human Resources: 
Committee on Ways and Means: 
House of Representatives: 

Dear Mr. Chairman: 

The federal government spends hundreds of billions of dollars annually 
on programs that support vulnerable people. While most of this money is 
used for direct benefits and services, such as cash assistance or child 
care services, a portion of the money also goes toward the cost of 
administering the programs. Spending on administration has been a long- 
standing concern among policy makers interested in ensuring that 
federal programs are run in a cost-efficient manner so that federal 
funds go directly to helping vulnerable people. While each of the human 
service programs typically has some information available on the costs 
associated with administrative activities, little is known about how 
these administrative costs compare among the programs and whether 
opportunities exist to better manage these costs at the federal level. 
The importance of administering federal programs in an efficient manner 
is heightened by the fiscal challenges facing the nation and the need 
to update the federal government's programs and priorities to meet 
current and future challenges. 

Both federal agencies and states play important roles in administering 
and funding many of the federal programs that support vulnerable 
people. These programs may have different goals, but all were 
established to assist vulnerable populations, and as such, the federal 
and state administrators are tasked with the common goal of serving 
those eligible for program benefits and services. Likewise, federal and 
state administrators must ensure that funds allocated for program 
benefits and services are provided only to those who are eligible. 

To better understand these issues, we examined: (1) how administrative 
costs are defined in selected programs and what rules govern federal 
and state participation in funding these costs; (2) what is known about 
the amounts of federal and state administrative spending for selected 
programs and how they have changed over time; and (3) what 
opportunities exist at the federal level to help states balance cost 
savings with program effectiveness and integrity. As agreed with your 
office, we focused our study on seven key programs: Adoption 
Assistance, Child Care & Development Fund (CCDF), Child Support 
Enforcement (CSE), the Food Stamp Program, Foster Care, Temporary 
Assistance for Needy Families (TANF), and Unemployment Insurance (UI). 
These programs are among the largest programs serving vulnerable 
populations and each has annual federal outlays of over $1 billion. 
Each of the programs also is funded in part through state 
contributions. 

To address all of our research questions, we interviewed federal 
officials from each of the programs and the Office of Management and 
Budget (OMB), and we conducted state and local interviews in 
California, Maryland, Michigan, Ohio, and South Carolina. We selected 
these states to provide a range of total program spending and share of 
spending on administration as well as a mixture of state and county 
administrative structures, urban and rural demographics, and geographic 
location. Although our selection includes a range of states, our 
findings are not generalizable beyond the states included in our study. 
In addition, to address our first research question, we reviewed laws 
and regulations on definitions of administrative costs and federal- 
state participation in funding these costs for the selected programs. 
We also reviewed relevant circulars issued by the OMB. To address our 
second question, we analyzed administrative spending data, as defined 
for financial reporting purposes by program laws and regulations, for 
each program for fiscal years 2000-2004, including federal and state 
shares of spending. Fiscal year 2004 data were the most recent data 
available for all seven programs at the time of our review. We assessed 
the reliability of the administrative spending data by interviewing (1) 
agency officials knowledgeable about the data and (2) state officials 
in the five states we visited knowledgeable about the data as reported 
to the federal government. We also reviewed state single audit reports 
and talked to state auditors in the states we visited to identify any 
known problems with the administrative spending data or the technology 
systems that store the data. Our reviews and discussions did not 
identify significant problems with the data. We determined that these 
data were sufficiently reliable for the purposes of this report. 

To address our third question, we interviewed federal officials from 
each of the programs and the OMB as well as state and local program 
officials about administrative costs, options for reducing costs while 
preserving services, and challenges to and consequences of these 
options. During the interviews we also inquired about any interactions 
between our key programs and other programs that support vulnerable 
people, including Medicaid, the State Children's Health Insurance 
Programs (SCHIP), the Low-Income Home Energy Assistance Program 
(LIHEAP), and housing programs. In addition, we interviewed state audit 
officials from the five states about any similar work they have 
conducted. We also reviewed our prior work related to this issue. 

We issued two related reports in June and July 2006 that focused on the 
administrative costs of the Adoption Assistance and Foster Care 
programs (GAO-06-649, Foster Care and Adoption Assistance: Federal 
Oversight Needed to Safeguard Funds and Ensure Consistent Support for 
States' Administrative Costs, June 2006) and the Child Support 
Enforcement program (GAO-06-491, Child Support Enforcement: More Focus 
on Labor Costs and Administrative Cost Audits Could Help Reduce Federal 
Expenditures, July 2006). We coordinated our data collection efforts 
for all three reports. Therefore, some of the information on the Child 
Support Enforcement, Adoption Assistance, and Foster Care programs in 
this report is drawn from work conducted for the earlier reports. For 
example, for this report, we supplemented our data collection efforts 
with administrative spending data collected for the other two reports 
as well as information collected from interviews conducted for the 
other reports. We also coordinated efforts to assess the reliability of 
the administrative spending data used in the three reports. 

We conducted our work between July 2005 and August 2006 in accordance 
with generally accepted government auditing standards. See appendix I 
for more details on our scope and methodology. 

Results in Brief: 

The activities that are defined as administrative costs in statutes and 
regulations differ across the seven programs in our review, and the 
programs are subject to various federal funding rules and funding 
types. In the states we visited, state and local program officials 
conduct similar activities to operate each program, such as determining 
eligibility, monitoring program quality, and developing and maintaining 
information technology (IT) systems. However, for financial reporting 
purposes, these activities may be defined as administrative costs in 
one program but not in another, in accordance with federal statutes and 
regulations. For example, the TANF regulations and CCDF legislation 
defining administrative costs specifically exclude costs associated 
with providing direct program services, while Food Stamp legislation 
specifically includes the costs of providing direct program services 
such as certifying applicant households and issuing food stamp benefits 
as administrative costs. The statutes and regulations defining 
administrative costs differ across the programs in part because these 
programs have evolved separately over time. The programs have different 
missions, priorities, services, and clients, and jurisdiction for these 
programs is spread among numerous congressional committees and federal 
agencies, each of which has a role in defining what is an 
administrative cost. In addition to differences in definitions of 
administrative costs, the laws for each program also include different 
mechanisms for state and federal participation in funding 
administrative costs, including specific matching rates, block grants, 
and spending caps. These funding mechanisms play a role in managing the 
federal government's financial risk and can affect state spending 
decisions by providing financial incentives and funding restrictions. 
While funding mechanisms can create incentives for states to limit 
administrative spending, officials in each of the states we visited 
cautioned that if administrative spending is reduced too far, it can 
negatively affect client services. 

In recent years, combined federal and state administrative spending 
generally increased at a lower rate than the increase in total spending 
in five of the seven selected programs, but varied widely across 
programs. In fiscal year 2004, the seven programs combined spent $21 
billion on administrative costs, as defined by each program's statutes 
and regulations, amounting to about 18 percent of total program 
spending. The percentage spent on administration varied from 2 percent 
in CCDF, to 58 percent in Foster Care, with the exception of CSE in 
which all program spending is considered administrative. Because of the 
differences in which activities are defined as administrative costs for 
financial reporting purposes, a program with high administrative 
spending is not necessarily less efficient than a program with low 
administrative spending. In recent years, the amounts spent on 
administration increased in five of the seven selected programs, but, 
in most cases, increased at a lower rate than total program spending. 
As a result, the percentage spent on program administration declined in 
five of the programs. In addition, while there are limited federal data 
on what specific costs make up administrative spending, officials in 
the five states we visited reported that staff costs and IT were among 
the largest costs associated with running their programs. Officials 
reported that for some of the programs in our review, personnel costs 
may be higher than necessary, in part because of complex administrative 
processes and outdated information systems that require substantial 
staff time. 

The federal government may help balance long-term administrative cost 
savings with program effectiveness and integrity by simplifying 
policies and facilitating technology improvements. Simplifying 
policies--especially those related to eligibility determination 
processes and federal funding structures--could save resources, improve 
productivity, and help staff focus more time on performing essential 
program activities, such as providing quality services and accurate 
benefits to recipients. For example, the Food and Nutrition Service 
(FNS) allows some states to use TANF, Medicaid, and Supplemental 
Security Income (SSI) income and resource definitions for purposes of 
determining Food Stamp Program eligibility. In addition, by helping 
states facilitate technology enhancements across programs, the federal 
government may help streamline processes and potentially reduce long- 
term costs. For example, by receiving verified electronic data from the 
Social Security Administration (SSA), some states are able to determine 
SSI recipients' eligibility for food stamp benefits without having to 
separately collect and verify applicant information. Officials told us 
that this arrangement saves administrative dollars and reduces 
duplication across programs while protecting program integrity. 
Together, simplified policies and improved technology could streamline 
administrative processes and potentially reduce administrative costs. 
We acknowledge that all levels of government have attempted to 
streamline processes across human service programs for the past 20 
years. However, many of these efforts have had limited success due, in 
part, to the considerable challenges that streamlining program 
processes entail, such as the challenge of achieving consensus among 
the numerous congressional committees and federal agencies involved in 
shaping human service program policies and a lack of information on how 
program changes would affect particular populations. We believe one 
challenge in particular--the lack of information on the effect 
streamlining efforts might have on program and administrative costs--is 
thwarting progress in this area. 

We suggested in our prior work (GAO-02-58) in 2001 that Congress 
consider authorizing state and local demonstration projects designed to 
simplify and coordinate eligibility determination and other processes 
for federal human service programs. While both the House and Senate 
have considered proposals to authorize such demonstration projects, 
legislation was not enacted. We continue to believe that demonstration 
projects would provide more information on how streamlining processes 
may help reduce administrative costs and, further, believe that any 
projects should have an evaluation component to test the long-term cost-
effectiveness of the projects. In commenting on the draft report, the 
U.S. Department of Health and Human Services (HHS) agreed with the 
report's emphasis on the need for cost-effective administration of 
federal programs, FNS officials suggested we add more detailed 
information to the report in several areas, and the U.S. Department of 
Labor (DOL) provided only technical comments. None of the agencies 
commented on our suggestion to Congress. 

Background: 

The federal government funds a wide array of programs intended to 
provide benefits and services or both to individuals, families, and 
households needing financial assistance or other social supports. 
Representing a range of programs available through federal and state 
partnerships, the seven programs in this review have different goals 
and purposes, and, thus, provide a range of benefits and services to 
specific target populations. For example, the Food Stamp Program 
provides nutrition assistance to low-income individuals, while the CSE 
program helps custodial parents, regardless of income, collect child 
support payments from noncustodial parents.[Footnote 1] Table 1 
provides a brief description of each of the programs covered in this 
report. 

Table 1: Description of the Seven Selected Programs: 

Program: Adoption Assistance; 
Description: The Adoption Assistance program, authorized under title IV-
E of the Social Security Act, assists states in finding adoptive homes 
for eligible children with special needs. The program provides funds to 
states to assist in providing adoptive families with ongoing financial 
and medical assistance for adopted children with special needs as well 
as funds to support staff training and administrative costs. 

Program: CCDF; 
Description: CCDF, authorized by the Personal Responsibility and Work 
Opportunity Reconciliation Act of 1996, assists low-income families, 
families receiving temporary public assistance, and those transitioning 
from public assistance in obtaining child care so that they can work or 
attend training or education. With this block grant, states develop and 
pay for child care programs. Within certain federal guidelines, states 
have discretion in deciding how these funds will support child care, 
who will be eligible, and what payment mechanism will be used. 

Program: CSE; 
Description: CSE is a joint federal and state partnership established 
in 1975 under title IV-D of the Social Security Act to ensure that 
parents financially support to their children. State CSE programs are 
primarily responsible for carrying out the basic activities for 
locating noncustodial parents, establishing paternity and support 
orders, and collecting and distributing child support payments. 
Although the states administer the child support enforcement program, 
the federal government plays a major role, which includes funding 66 
percent of the program, establishing policies and guidance, and 
overseeing and monitoring state CSE programs' compliance with federal 
requirements. 

Program: Food Stamp Program; 
Description: The Food Stamp Program, established in 1964, is designed 
to provide basic nutrition to low- income individuals and families in 
the United States by supplementing their income with benefits to 
purchase food. The federal government pays the full cost of food stamp 
benefits and shares the states' administrative costs. The federal 
government promulgates program regulations and ensures that state 
officials administer the program in compliance with federal rules. The 
states administer the program by determining whether households meet 
the program's income and asset requirements, calculating monthly 
benefits for qualified households, and issuing benefits to participants 
on an electronic benefits transfer card. 

Program: Foster Care; 
Description: The Foster Care program, authorized under title IV-E of 
the Social Security Act, helps states provide care for eligible 
children who need placement outside their homes--in a foster family 
home or an institution. This program provides funds to states to assist 
with the costs of foster care maintenance for eligible children, 
administrative costs to manage the program, and training for program 
staff and foster parents. 

Program: TANF; 
Description: Personal Responsibility and Work Opportunity 
Reconciliation Act of 1996 replaced Aid to Families with Dependent 
Children (AFDC) with TANF, which marked the end of federal entitlement 
assistance. TANF ended unlimited matching funding for family cash 
welfare and created fixed-block grants to states. The block grant 
covers benefits, administrative expenses, and services targeted to 
needy families and gives states great flexibility to design their own 
TANF programs. States must spend a specified amount of state funds on 
eligible low-income families--known as the maintenance-of-effort 
requirement. 

Program: UI; 
Description: The UI program, established in 1935, serves to: (1) 
temporarily replace a portion of earnings for workers who become 
unemployed through no fault of their own and (2) facilitate the 
reemployment of UI claimants. UI is made up of 53 state-administered 
programs that are subject to broad federal guidelines and oversight. 

Source: GAO. 

[End of table] 

The programs included in this review also represent a wide range of 
spending, from $2.9 billion for Adoption Assistance to $37 billion for 
UI. For fiscal year 2004, total spending, including administrative and 
all other spending, for the seven programs was $119 billion. 
Additionally, each of the seven selected programs is administered or 
overseen by one of three different federal departments. Table 2 shows 
the agency responsible for each program and total program expenditures 
for fiscal year 2004, the most current year available. 

Table 2: Fiscal Year 2004 Federal and State Program Spending and 
Agencies Responsible for Administering the Seven Selected Programs: 

Agency: Department of Agriculture/Food and Nutrition Service; 
Program: Food Stamp Program; 
Total program spending, fiscal year 2004 (in billions): $29.8. 

Agency: Department of Health and Human Services/Administration for 
Children and Families; 
Program: Adoption Assistance; 
Total program spending, fiscal year 2004 (in billions): 2.9. 

Agency: Department of Health and Human Services/Administration for 
Children and Families; 
Program: CCDF; 
Total program spending, fiscal year 2004 (in billions): 9.4. 

Agency: Department of Health and Human Services/Administration for 
Children and Families; 
Program: CSE; 
Total program spending, fiscal year 2004 (in billions): 3.2[A]. 

Agency: Department of Health and Human Services/Administration for 
Children and Families; 
Program: Foster Care; 
Total program spending, fiscal year 2004 (in billions): 8.6. 

Agency: Department of Health and Human Services/Administration for 
Children and Families; 
Program: TANF; 
Total program spending, fiscal year 2004 (in billions): 25.8. 

Agency: Department of Labor/Employment and Training Administration; 
Program: UI; 
Total program spending, fiscal year 2004 (in billions): 37.0[B]. 

Source: GAO analysis of HHS, USDA, and DOL data. 

[A] All CSE spending is administrative. The CSE program reported total 
federal and state administrative expenditures as $5.3 billion for 
fiscal year 2004. However, total spending on the program is offset by 
child support collections for families who received benefits from the 
TANF and Foster Care programs, resulting in net program expenditures of 
$3.2 billion. 

[B] In the UI program, federal law gives responsibility for 
administrative funding to the federal government; however, some states 
supplement federal funding with state funds. We did not include the 
state share in our analysis because historical data on state spending 
were not available for all of the years included in our review. 

[End of table] 

The programs covered by this review have varying federal-state 
relationships in administering and funding the programs. The level of 
government with responsibility for designing the rules, services, and 
processes varies by program. Some programs have federally standardized 
designs while other programs provide states with flexibility to develop 
their own eligibility criteria, benefit levels, and program rules. All 
of the programs are funded through some form of federal-state 
partnership; however, the rules governing funding responsibility vary 
widely by program. Table 3 summarizes the level of government with 
which responsibility for the design and funding resides for each of the 
seven programs. 

Table 3: Level of Government Responsible for Design and Funding of the 
Seven Selected Programs: 

Program: Adoption Assistance; 
Design[A]: Federal/state; 
Funding for[B]: Benefits/services: Federal/state; 
Funding for[B]: Administration: Federal/state. 

Program: CCDF; 
Design[A]: Federal/state; 
Funding for[B]: Benefits/ services: Federal/state; 
Funding for[B]: Administration: Federal/ state. 

Program: CSE; 
Design[A]: Federal/state; 
Funding for[B]: Benefits/ services: N/A[C]; 
Funding for[B]: Administration: Federal/state. 

Program: Food Stamp Program; 
Design[A]: Federal; 
Funding for[B]: Benefits/services: Federal; 
Funding for[B]: Administration: Federal/ state. 

Program: Foster Care; 
Design[A]: Federal/state; 
Funding for[B]: Benefits/services: Federal/state; 
Funding for[B]: Administration: Federal/state. 

Program: TANF; 
Design[A]: Federal/state; 
Funding for[B]: Benefits/ services: Federal/state; 
Funding for[B]: Administration: Federal/ state. 

Program: UI; 
Design[A]: Federal/state; 
Funding for[B]: Benefits/ services: State[D]; 
Funding for[B]: Administration: Federal. 

Source: GAO. 

[A] Defined as the level of government that is primarily responsible 
for availability, eligibility, and benefit amount determination. 

[B] Defined as the level of government that supplies the primary source 
of funding for the benefit or for administering the benefit. If 
substantial funding comes from more that one source, both sources are 
listed. Some additional funding may come from sources not listed in the 
table. 

[C] All CSE spending is considered administrative. 

[D] State unemployment taxes pay for regular benefits and half of 
extended benefits, while federal taxes pay half of extended benefits. 

[End of table] 

An individual low-income family is likely to be eligible for and 
participate in several human service programs. For example, in 2001, 88 
percent of families receiving TANF also received food stamp benefits 
and 98 percent received Medicaid. The programs are typically 
administered out of a local assistance office that offers benefits from 
several programs. Depending on the administrative structure of the 
local assistance office, a family or individual might provide necessary 
information to only one caseworker who determines eligibility and 
benefits for multiple programs, or they might work with several 
caseworkers who administer benefits for different programs. 

Because eligibility determination as well as other activities are often 
conducted jointly for multiple programs, some programs require states 
to have a process to ensure that costs are appropriately charged to the 
correct federal programs for federal reimbursement purposes. The cost 
allocation process is the formal process for sharing the costs of 
activities that are performed jointly for more than one program. Formal 
"cost allocation plans" specify how costs for those activities are to 
be covered by the various programs. For example, when a local 
eligibility worker determines that an applicant is eligible for TANF, 
food stamp benefits, and CCDF, the cost of her or his time is allocated 
across these programs in accordance with the state's approved cost 
allocation plan. These costs are then reported as administrative or 
programmatic costs, depending on the laws and regulations governing 
funding for each of the programs. 

Although Similar Types of Administrative Activities Occur across 
Programs, Definitions of Administrative Costs and the Federal Funding 
Role Vary: 

Across the seven programs in our review, the legal definitions and the 
federal funding rules for administrative costs vary. The statutes and 
regulations for each program define administrative costs differently, 
even though many of the same activities are performed to administer the 
programs. The laws for each program also include different mechanisms 
for state and federal participation in funding administrative costs, 
including specific matching rates, block grants, and spending caps, 
which can affect state decisions on administrative spending. 

Definitions of Administrative Costs Vary across Programs: 

Although many of the programs we reviewed conduct similar activities to 
administer the program, not all of the activities are defined in laws 
and regulations as administrative costs for financial reporting 
purposes.[Footnote 2] Based on our analysis of information collected 
from state and local officials, we identified several categories of 
administrative activities that are common across many of these 
programs. In particular, we found that the administration of each 
program involves at least (1) determining who is eligible to 
participate in the program or processing applications for new 
participants, (2) monitoring program quality, (3) conducting general 
program management and planning, (4) developing and maintaining IT 
systems, and (5) training employees, either at the state or local 
levels. All of the programs also issue benefits or provide services to 
eligible participants, with the exception of CSE, which generally 
collects and distributes payments from noncustodial parents to 
custodial families. Additional activities, such as case management and 
outreach, are performed in only some of the programs or some states. 

However, the statutes and regulations for each program differ on which 
of these activities are defined as administrative costs and which are 
not. For example, the TANF regulations and CCDF statute defining 
administrative costs specifically exclude costs associated with 
providing direct program services, while Food Stamp statute 
specifically includes the costs of providing direct program services, 
such as certifying applicant households and issuing food stamp 
benefits, as administrative costs. In addition, some statutes and 
regulations are more comprehensive in identifying which activities or 
items are specifically included or excluded from the definition of 
administrative costs. For example, while UI legislation allows for 
amounts "necessary for the proper and efficient administration" of 
state programs with few other qualifiers, the Food Stamp legislation 
and regulations list dozens of specific costs, including such items as 
audit services, advisory councils, building lease management, and 
certain advertising costs. Appendix II identifies the activities and 
items that are specifically included in the definitions of 
administrative costs in the statutes and regulations for each program. 
Nonetheless, most of the lists of activities in program statutes and 
regulations are only illustrative and not exhaustive. Phrases such as 
"these activities may include but are not limited to…" are commonplace 
and leave the exact definitions of administrative costs somewhat 
ambiguous. Such ambiguity may lead to inconsistent interpretation of 
the definitions of administrative costs. Our prior work on 
administrative costs in the Adoption Assistance and Foster Care 
programs found that state program officials and HHS regional offices 
make different decisions as to what costs are appropriate to claim as 
administrative. 

The statutes and regulations defining administrative costs differ 
across the programs in part because these programs have evolved 
separately over time and have different missions, priorities, services, 
and clients. The CSE program, in particular, differs from the other 
programs in our review in that CSE does not provide public financial 
benefits to its participants; rather, CSE services include collecting 
and distributing payments from noncustodial parents to custodial 
families, other states, and federal agencies. In addition, although the 
programs conduct similar activities, differences in missions and 
priorities may add to differences in spending on particular activities. 
For example, the Food Stamp Program's extensive requirements for 
monitoring program quality may result in more spending on this activity 
than for a program with few quality control requirements. 

The number of congressional committees and federal agencies involved in 
developing laws and regulations for these programs has also contributed 
to differences in the definitions of administrative costs and can make 
coordination across programs difficult. The division of legislative and 
executive responsibility allows multiple points of access for Members 
of Congress, interest groups, and the affected public, but the various 
legislative committees and executive agencies do not necessarily 
collaborate with each other to develop consistent laws and regulations 
across programs. Federal legislation for all of the programs in our 
review, except the Food Stamp Program, is under the jurisdiction of the 
Senate Finance Committee and the House Ways and Means Committee, 
although some aspects of these programs are under the jurisdiction of 
other congressional committees. Federal regulations for Adoption 
Assistance and Foster Care, CCDF, CSE, and TANF are developed by 
various offices within the HHS Administration for Children and 
Families; Food Stamp Program regulations are developed by the U.S. 
Department of Agriculture (USDA) Food and Nutrition Service; and UI 
regulations are developed by the DOL Employment and Training 
Administration. 

Federal and state officials we interviewed disagreed on whether it was 
problematic to have different definitions of administrative costs 
across programs. According to officials from the OMB, whose role is to 
improve administrative management of federal programs, differences in 
legal definitions of administrative costs across programs are not a 
barrier to program management. OMB officials stated that it is 
important to accept that programs are different and that it may not be 
possible to compare costs across programs. A number of state budget 
officials responsible for financial reporting, however, described how 
the variation in definitions of administrative costs creates 
difficulties. For example, one budget official stated that it can be 
difficult to develop coding for accounting and budgeting that can be 
used across programs and, as a result, it can be difficult to monitor 
costs accurately. A budget official in another state argued, similarly, 
that having consistent definitions of administrative costs and 
consistent caps on administrative spending would help to simplify the 
process for allocating costs across programs and, therefore, might 
reduce costs. On the other hand, state officials responsible for 
developing program policies and overseeing local implementation of the 
programs reported fewer difficulties with the differences in 
administrative cost definitions. Several of these officials reported 
that they pay little attention to which aspects of their jobs are 
defined as administrative activities and which are not. 

Federal and State Participation in Funding Administrative Costs Is 
Governed by Matching Rates, Block Grants, and Spending Caps: 

Federal and state participation in funding the administrative costs of 
human service programs is governed by federal laws that establish 
matching rates, block grants, spending caps, and other funding 
mechanisms. These funding mechanisms, described below, play an 
important role in managing the federal government's risk and can affect 
states' spending behavior by producing financial incentives and funding 
restrictions. 

* Matching rates--In programs funded through federal matching rates, 
the federal government covers a portion of states' spending on program 
administration. For example, if a program has a 50-percent matching 
rate, the federal government is obligated to reimburse states for 50 
percent of their spending on administration, as defined in 
law.[Footnote 3] Funding of Foster Care, Adoption Assistance, CSE, the 
Food Stamp Program, and a portion of CCDF include matching 
rates.[Footnote 4] 

* Block grants--Block grants provide states with a statutorily fixed 
amount of funding. TANF[Footnote 5] and a portion of CCDF are funded 
through block grants. The TANF block grant does not change when 
caseloads change, nor is it adjusted for inflation. In both TANF and 
CCDF, states are required to spend a certain amount of their own funds 
to be eligible to receive the full amount of federal funds. 

* Spending caps--Spending caps limit the amount or percent of state or 
federal funds that can be spent for particular purposes. For example, 
the TANF statute prohibits states from spending more than 15 percent of 
federal funds received on administrative costs, while the CCDF statute 
prohibits states from spending more than 5 percent of aggregate program 
funds on administrative costs.[Footnote 6] 

* Other funding rules--The legislation governing the funding of 
administrative costs for the UI program gives responsibility for 
administrative funding to the federal government. DOL uses information 
gathered from the states to determine how much of the available funds 
each state will receive. While states are not required to spend their 
own funds on administrative costs, over 40 states chose to provide 
additional state funds to cover some administrative costs of the UI 
program in 2004. 

Table 4 summarizes the rules governing state and federal funding of 
administrative costs. The table identifies for each program the federal 
funding mechanism and any federal matching rates, caps on 
administrative expenditures, and other rules regarding funding of 
administrative costs. 

Table 4: Rules Governing State and Federal Funding of State 
Administrative Costs: 

Program: Adoption Assistance; 
Federal funding mechanism: Matching rate; 
Federal matching rate for administrative expenditures: 50%; 
Cap on administrative expenditures: N/A; 
Other rules regarding funding of administrative costs: 75% federal 
matching rate for training expenditures. 

Program: CSE; 
Federal funding mechanism: Matching rate; 
Federal matching rate for administrative expenditures: 66%; 
Cap on administrative expenditures: N/A; 
Other rules regarding funding of administrative costs: 90% federal 
matching rate for lab costs of paternity testing[A]; The federal 
government also provides incentive funds to encourage states to achieve 
program goals. 

Program: Food Stamp Program; 
Federal funding mechanism: Matching rate; 
Federal matching rate for administrative expenditures: 50%[B]; 
Cap on administrative expenditures: N/A; 
Other rules regarding funding of administrative costs: 100% federal 
grant coverage for some employment and training costs. 

Program: Foster Care; 
Federal funding mechanism: Matching rate; 
Federal matching rate for administrative expenditures: 50%; 
Cap on administrative expenditures: N/A; 
Other rules regarding funding of administrative costs: 75% federal 
matching rate for training expenditures. 

Program: CCDF; 
Federal funding mechanism: Combination of block grant and matching 
rate; 
Federal matching rate for administrative expenditures: 50% to 77%, as 
determined by formula for each state[C]; 
Cap on administrative expenditures: 5% of aggregate funds; 
Other rules regarding funding of administrative costs: N/A. 

Program: TANF; 
Federal funding mechanism: Block grant; 
Federal matching rate for administrative expenditures: N/A; 
Cap on administrative expenditures: 15% of State Family Assistance 
Grant; 
Other rules regarding funding of administrative costs: N/A. 

Program: Unemployment Insurance; 
Federal funding mechanism: Other; 
Federal matching rate for administrative expenditures: N/A; 
Cap on administrative expenditures: N/A; 
Other rules regarding funding of administrative costs: N/A. 

Source: GAO analysis of HHS, USDA, and DOL data. 

[A] As a result of the Deficit Reduction Act of 2005, Pub.L. 109-171 
(Feb. 8, 2006), the higher federal matching rate for laboratory costs 
of paternity testing will be reduced to the general federal CSE 
matching rate of 66-percent beginning October 1, 2006. 

[B] The 50-percent federal share of state and local administrative 
expenses is reduced by $197 million a year to account for costs covered 
by grants for TANF, resulting in an actual federal share paid under the 
Food Stamp Program that is slightly below 50 percent. 

[C] Federal matching rate applies only to one component of CCDF 
funding, which is available to states that achieve required levels of 
state spending. 

[End of table] 

Administrative Funding Mechanisms Can Affect State Spending: 

Administrative funding mechanisms can create financial incentives that 
affect state spending behavior; however, state responses to these 
incentives vary, according to the federal and state officials we 
interviewed. In some cases, matching rates can encourage states to 
spend more money on a program because for each dollar of its own 
resources the state invests, the state receives additional federal 
funding for the program. For example, the grants manager in one of the 
states we visited said that the federal matching rate gives the state 
an incentive to maintain its funding and to provide more services. In 
other cases, however, state officials reported that they limit their 
use of federal matching funds because they have limited state resources 
to invest in the program. For example, a budget official in one of the 
states we visited reported that when a new expenditure could be charged 
to either the Food Stamp Program, which has a matching rate, or the 
TANF block grant, the state or county might decide to use the TANF 
funds to avoid the need for the state to provide additional funding to 
meet its share of the matching funds. However, block grants also create 
general incentives for states to meet demand for services with limited 
spending because the federal funding amount is fixed. CCDF officials in 
Michigan stated that because they receive a fixed amount of funding, 
running the program efficiently is always in the front of their minds. 

Spending caps on the percentage of a block grant that can be spent on 
administrative costs are, by definition, designed to limit spending. 
However, officials in four of the five states we visited said that the 
CCDF and TANF caps on administrative spending were not a major factor 
in their administrative spending decisions. TANF administrative 
spending in the states we visited was well below the 15-percent cap. 
Nationally, state spending on administration was 7.7 percent for TANF 
and 2.3 percent for CCDF in fiscal year 2004. Some CCDF officials 
reported that their administrative spending decisions were influenced 
more by state limits on administrative spending than by the federal 
spending cap. For example, the California Department of Education 
estimates that for fiscal year 2006-2007, only 1 percent of program 
funds will be available for program administration due to current state 
budget constraints. This amount is well below the federal 5-percent 
cap, because, according to CCDF program officials in California, the 
state legislature wanted to put every possible dollar into additional 
child care vouchers. 

In addition, the funding allocation method for the UI program is 
designed to encourage states to administer their programs efficiently. 
Total funding appropriated for the UI program is less than the amount 
the states report needing to administer their UI programs. To promote 
efficiency, DOL reduces the requests of states with higher costs for 
certain "controllable" aspects of the budget by greater percentages 
than lower cost states. For example, the longer it takes a state to 
process claims, the greater its reduction in the allocation process. 
Federal UI officials we interviewed argued that this process provides 
states with an incentive to increase efficiency. However, some state 
officials argued that the funding process creates disincentives for 
states to improve efficiency and reduce administrative spending. For 
example, they argued that if they invest in technologies that improve 
their efficiency in administering the program, they do not get to keep 
the savings they gain. Rather, spending less in one year could result 
in less federal funding the next year. 

While funding mechanisms can create incentives for states to limit 
administrative spending, officials in each of the states we visited 
cautioned that if administrative spending is reduced too far, it can 
negatively affect client services. Several officials described how 
reduced administrative spending due to state budget cuts had already 
affected the quality of their services. For example, state human 
service officials in Maryland stated that a hiring freeze has resulted 
in a slower rate of application processing and an increase in Food 
Stamp administrative errors, such as eligible applicants being denied 
benefits. Local human service officials in Michigan reported that 
budget cuts had resulted in increased office waiting times for 
applicants and the elimination of services such as home visits and 
prevention services. 

Administrative Spending Varied across Programs but Generally Increased 
at a Lower Rate Than Total Spending: 

Administrative spending for the seven programs combined, as defined for 
financial reporting purposes by program statutes and regulations, made 
up about 18 percent of total program spending in fiscal year 2004. 
However, amounts varied widely across the programs and states. Between 
fiscal years 2000 and 2004, administrative spending increased in five 
of the seven programs, but generally increased at a lower rate than 
total program spending. Officials in the five states we visited 
reported that staff and technology made up a large portion of the 
administrative spending in their programs. 

In 2004, Administrative Spending for the Selected Programs Combined Was 
about 18 Percent of Total Program Spending, but Spending Varied Greatly 
across Programs and States: 

In fiscal year 2004, administrative spending, as defined for financial 
reporting purposes by program statutes and regulations, amounted to 
about 18 percent[Footnote 7]--or $21 billion--of the $119 billion in 
total program spending for the seven programs combined; however, there 
were large differences in the amounts spent by programs and states. As 
shown in figure 1, the amount spent on administration varied widely 
among the seven programs, ranging from $200 million in CCDF to $5.2 
billion in the Food Stamp Program and $5.3 billion in CSE. As a 
percentage of total program spending, administrative spending ranged 
from 2 percent in CCDF to 58 percent in the Foster Care program, with 
the exception of CSE in which all program spending is considered 
administrative.[Footnote 8] While administrative spending amounts 
varied significantly across the seven programs, this variation does not 
necessarily indicate that certain programs are more efficiently 
administered. Instead, differences in spending largely reflect the 
differences in how each program's laws and regulations define what 
counts as an administrative cost. As a result, comparing spending 
across programs is not a useful means for determining efficiency. 

Figure 1: Fiscal Year 2004 Combined Federal and State Administrative 
and Other Spending in Billions (and Administrative Spending as a 
Percentage of Total Spending): 

[See PDF for image] 

Source: GAO analysis of data from HHS, DOL, and USDA. 

[A] All CSE spending is administrative. The CSE program reported total 
federal and state administrative expenditures as $5.3 billion for 
fiscal year 2004. However, total spending on the program is offset by 
child support collections for families who received benefits from the 
TANF and Foster Care programs, resulting in net program expenditures of 
$3.2 billion. 

[B] UI data are only estimates because the administrative spending data 
provided by DOL were by fiscal year, while the benefit data were 
provided by calendar year. In addition, in the UI program, federal law 
gives responsibility for administrative funding to the federal 
government; however, some states chose to supplement federal funding 
with state funds. We did not include the state share in our analysis 
because historical data on state spending were not available for all of 
the years included in our review. The state share accounted for about 
$260 million in administrative spending in 2004. 

[End of figure] 

Each of the seven programs in our review is funded through a 
combination of federal and state contributions. For the seven programs 
combined, federal funds made up roughly 60 percent--or $13 billion--of 
the $21 billion spent on administration in fiscal year 2004.[Footnote 
9] Federal spending accounted for roughly half or more of the total 
amount spent to administer each of the seven programs. Figure 2 shows 
the federal and state shares of administrative spending for each 
program. These shares are largely representative of the different 
funding requirements set in law for each program, as described earlier 
in the report.[Footnote 10] For example, the federal government matches 
state administrative spending at specified rates in four of the seven 
programs. The federal match rate set out by law for administrative 
spending in the CSE program is 66 percent, while the match rate for the 
Adoption Assistance, Food Stamp, and Foster Care programs is 50 
percent.[Footnote 11] (See table 4, for a description of the matching 
rates and other funding rules that govern state and federal spending in 
each program.) 

Figure 2: Fiscal Year 2004 State and Federal Shares of Administrative 
Spending[A]: 

[See PDF for image] 

Source: GAO analysis of data from HHS, DOL, and USDA. 

Note: The federal matching rate and the actual share of spending that 
the federal government pays, in practice, may differ slightly, because 
of the detailed rules governing the sharing of expenses and application 
of the federal matching rate. 

[A] State and federal shares of administrative spending for the CCDF 
program are not available. 

[B] The $3.5 billion in federal spending does not include amounts that 
the federal government paid to states in incentive payments. In 
addition, as reported in GAO-06-491, net federal expenditures--those 
that are reduced by child support collections distributed to TANF and 
Foster Care programs and fees charged for certain services--for fiscal 
year 2004 were about $2.8 billion. In this report, we did not deduct 
these collections from the reported spending amounts. 

[C] In the UI program, federal law gives responsibility for 
administrative funding to the federal government; however, some states 
supplement federal funding with state funds. We did not include the 
state share in our analysis because historical data on state spending 
were not available for all of the years included in our review. The 
state share accounted for about $260 million in administrative spending 
in 2004, amounting to 9 percent of UI administrative spending. 

[End of figure] 

As with spending across programs, in fiscal year 2004, the combined 
federal and state amount spent on administration also varied greatly by 
state within programs, as shown in figure 3. In some programs, this 
variation is considerable. For example, in the Foster Care program, the 
percentage of total program spending on administration in fiscal year 
2004 ranged from 21 percent to 86 percent. Such variation may suggest 
some opportunities for improved administrative efficiencies in some 
states; however, other factors also may account for the wide ranges in 
the percent spent on administration. Specifically, in the Foster Care 
and Adoption Assistance programs, our prior work cited differences in 
states' claiming practices as well as differences in oversight among 
HHS regional offices that may contribute to differences in state 
administrative spending.[Footnote 12] In addition, federal officials we 
interviewed said that, given high fixed costs, a small state might 
expend a higher percentage of its total program budget on 
administration than a larger state that serves more people with the 
same fixed costs. Our recent work on administrative costs in CSE 
suggests that states' structures for administering their support 
programs may also contribute to the cost of running the 
programs.[Footnote 13] Specifically, we reported that from fiscal year 
2000 to fiscal year 2004, the median net federal expenditure for CSE 
agencies with state-operated programs decreased about 4 percent while 
the median net federal expenditure for county-operated programs 
increased about 11 percent. A few officials we interviewed said that 
states with county-administered programs required more administrative 
spending due to the duplication of effort at the county and state 
levels. However, in Ohio--a state with a county-administered structure-
-officials reported that while the county-administered system may 
contribute to some inefficiencies, moving to a state-administered 
system would require the state to equalize pay scales and building 
costs around the state, which would likely increase administrative 
spending. 

Figure 3: Distribution of Combined Federal and State Administrative 
Spending by States for Fiscal Year 2004 (as a Percentage of Total 
Program Spending)A: 

[See PDF for image] 

Source: GAO analysis of data from HHS, DOL, and USDA. 

[A] All CSE spending is considered administrative; therefore, there is 
no range across the states of percent of total spending on 
administration. 

[B] Our calculation for percent of total spending on CCDF 
administrative costs includes maintenance of effort spending and 
expenditures from all open appropriation years in FY 2004. The cap on 
CCDF administrative spending excludes maintenance of effort spending 
and applies to a single fiscal year's appropriation, the funds from 
which need not necessarily be spent in the year of the appropriation. 
Thus, the percentages shown above do not necessarily indicate that some 
states are spending above the legal cap. 

[C] For the UI program, the figure only includes federal administrative 
spending and does not include additional state spending. 

[End of figure] 

In Recent Years, Administrative Spending Has Risen in Most of the 
Selected Programs, but at a Lower Rate Than Total Program Spending: 

From fiscal years 2000 to 2004, administrative spending increased in 
most of the seven programs covered in this review, but at a lower rate 
than total program spending. As shown in figure 4, from fiscal years 
2000 to 2004, combined federal and state administrative spending rose 
in five of the seven programs: Adoption Assistance, CSE, Food Stamp, 
Foster Care, and UI. In the remaining two programs, CCDF and TANF, 
administrative spending declined. CCDF administrative spending hovered 
just above $200 million,[Footnote 14] declining slightly, while TANF 
administrative spending declined by $300 million over the 5 
years.[Footnote 15] 

Figure 4: Combined Federal and State Administrative Spending, Fiscal 
Years 2000 to 2004 (Nominal Dollars): 

[See PDF for image] 

Source: GAO analysis of data from HHS, DOL, and USDA. 

[A] CCDF administrative spending data are not available prior to 2001. 

[B] The CSE program reported total federal and state administrative 
expenditures as $5.3 billion for fiscal year 2004. However, total 
spending on the program is offset by child support collections for 
families who received benefits from the TANF and Foster Care programs, 
resulting in net program expenditures of $3.2 billion. 

[C] UI administrative spending data only include the federal share. 
State shares are only available from 2002 through 2004. 

[End of figure] 

In each of the five programs in which administrative spending rose, it 
increased by between about 17 and 19 percent over the 5 years. 
Administrative spending declined by 3 percent in CCDF and by 12 percent 
in TANF. Figure 5 shows the percent change in administrative spending 
during this time period for each of the seven programs. Over the same 
period, the rate of price inflation was 9 percent.[Footnote 16] 
Therefore, as illustrated in the figure, in the five programs in which 
administrative spending increased between fiscal years 2000 and 2004, 
the increase was much smaller when adjusted for inflation, shrinking to 
an increase of less than 10 percent in each program. 

Figure 5: Percent Change in Combined Federal and State Administrative 
Spending, Fiscal Years 2000 to 2004: 

[See PDF for image] 

Source: GAO analysis of data from HHS, DOL, and USDA. 

[A] Administrative spending data for CCDF are not available prior to 
2001; thus, changes in administrative spending in CCDF are based on 
2001 through 2004 data. 

[B] The UI administrative spending data only include the federal share 
because state spending was only available for 2002 through 2004. When 
including the state share, the nominal percent change in combined 
federal and state administrative spending for 2002 to 2004 was -4 
percent. 

[End of figure] 

In the five states we visited, officials reported that staff salaries 
and benefits were among the largest costs associated with running their 
programs. According to DOL's wage index, average salaries and benefits 
for state and local government workers increased by 16 percent between 
2000 and 2004.[Footnote 17] The percent change in administrative 
spending for the majority of the programs in this review was slightly 
higher than this average, ranging between about 17 percent and 19 
percent, as previously stated. In two of the programs, CCDF and TANF, 
the percent change fell below this average. While administrative 
spending may include several other types of spending beyond staff 
salaries and benefits, such as overhead and IT, rising salaries and 
benefits may explain some of the increase in spending among the 
programs in this review. 

Although administrative spending increased between fiscal years 2000 
and 2004 in the Adoption Assistance, Food Stamp, and UI programs, it 
increased at a lower rate than total program spending. As a result, in 
these three programs, as well as CCDF and TANF, administrative spending 
declined compared to total program spending between fiscal years 2000 
and 2004, as shown in figure 6, indicating that the amount spent on 
direct benefits and services was rising faster than the amount spent on 
administering these benefits and services. Administrative spending 
increased compared to total program spending in one program, Foster 
Care. 

Figure 6: Federal and State Administrative Spending as a Percentage of 
Total Program Spending, Fiscal Years 2000 to 2004: 

[See PDF for image] 

Source: GAO analysis of data from HHS, DOL, and USDA> 

Note: All CSE spending is considered administrative; therefore, there 
are no changes over time in the percentage of administrative spending. 

[A] Administrative spending data for CCDF are not available prior to 
2001. 

[B] UI administrative spending data only include the federal share. 
State shares are only available from 2002 through 2004. In addition, UI 
data are only estimates because the administrative spending data were 
available by fiscal year, while the benefit data were available by 
calendar year. 

[End of figure] 

In the Five States We Visited, Many Program Officials Told Us That They 
Spend a Large Portion of Their Administrative Dollars on Staff Costs 
and Technology: 

Officials in the five states we visited reported that staff and IT 
account for substantial portions of the spending related to operating 
their programs. In all five states we visited, officials reported that 
spending on staff, including salaries and benefits, was among the 
largest costs associated with running their programs, in part because 
certain program rules are complicated, requiring a considerable amount 
of staff time. To the extent that these costs are included in programs' 
definitions of administrative costs, this will affect the programs' 
reported administrative spending. As we have reported in our prior 
work,[Footnote 18] eligibility determination activities make up a 
substantial portion of administrative spending for some programs. 
Policy experts and researchers have found that the complexity and 
variations in eligibility rules have increased substantially the staff 
resources needed to determine eligibility and benefit levels and 
thereby increased the costs of administering programs. Some of the 
officials in the states we visited said that multiple or outdated IT 
systems also require a great deal of staff time. For example, front- 
line staff and officials we interviewed reported that in order to 
determine eligibility, staff must manually work outside the computer 
systems to work around problems in the systems. In addition, county 
officials we interviewed in one state said that the same client 
information must be entered into three separate systems. 

While outdated IT systems increase the staff resources needed at the 
local level, officials in four of the five states we visited reported 
that developing and maintaining IT systems also require a significant 
amount of administrative dollars. For example, in California, county 
officials we interviewed reported that two new case management systems 
have been expensive to develop and implement. They said that initial 
system problems and training for staff to learn the new systems added 
to the costs. However, officials in a few states said they believed 
that their new systems will eventually reduce administrative effort and 
they expected administrative costs to decrease as a result. 

The Federal Government May Help Balance Administrative Cost Savings 
with Program Effectiveness and Integrity by Simplifying Policies and 
Facilitating Technology Enhancements: 

The federal government, including both Congress and the executive 
agencies, may help balance long-term administrative cost savings with 
program effectiveness and integrity by simplifying policies and 
facilitating technology improvements. Simplifying policies--especially 
those related to eligibility determination processes and federal 
funding structures--could save resources, improve productivity, and 
help staff focus more time on performing essential program activities, 
such as providing quality services and accurate benefits to recipients. 
In addition, by helping states facilitate technology enhancements 
across programs, the federal government can help streamline processes 
and potentially reduce long-term costs. Together, simplified policies 
and improved technology could streamline administrative processes and 
potentially reduce administrative costs. We acknowledge that all levels 
of government have attempted to streamline processes across human 
service programs for the past 20 years. However, many of these efforts 
have had limited success due, in part, to the considerable challenges 
that streamlining program processes entail, such as the challenge of 
achieving consensus among the numerous congressional committees and 
federal agencies involved in shaping human service program policies, 
and a lack of information on how program changes would affect 
particular populations. We believe one challenge in particular--the 
lack of information on the effect streamlining efforts might have on 
program and administrative costs--is thwarting progress in this area. 

Simplifying Federal Policies May Save Administrative Costs by Reducing 
Cumbersome and Duplicative Work: 

Our current and previous reviews indicate that simplifying policies-- 
especially those related to eligibility determination processes and 
federal funding structures--could potentially save resources, improve 
productivity, and help staff focus more time on performing essential 
program activities, such as providing quality services and accurate 
benefits to recipients. Simplifying policies is particularly important 
for those programs that are administered jointly at the local level. In 
many localities, single offices administer TANF, food stamp benefits, 
CCDF, Medicaid, and SCHIP, and make referrals to or have some 
interaction with CSE, Adoption Assistance, Foster Care, UI, LIHEAP, and 
housing programs. Even though the programs are administered jointly, 
each has its own funding structure and eligibility rules, which can be 
cumbersome and require duplicative effort from staff. For example, when 
a family applies for TANF and food stamp benefits, the caseworker 
applies different rules and tests to determine who is eligible for 
benefits from either or both programs. This determination can be 
complicated as most programs have different definitions of who is a 
part of an eligible unit. In the Food Stamp Program, an eligible unit, 
or household, generally consists of all the persons who purchase food 
and prepare meals together. In TANF, the eligible unit (which states 
define in accordance with certain federal requirements) often includes 
only dependent children, their siblings, and the parents or other 
caretaker relatives. Consequently, a family member may be eligible for 
benefits in one program and ineligible for benefits in another program. 
To ensure that time is divided among and allocated to the correct 
programs, most of the local staff we spoke with track the amount of 
time they spend working on different programs and report this 
information to financial managers. Local financial managers then 
determine what portion of staff's time is defined as administrative 
costs in each of the programs and charge the programs appropriately. 
Our current and previous reviews show that these involved procedures 
stem, in part, from programs having different target populations, 
different federal funding silos, and different statutory and regulatory 
requirements. Excessive time spent working through complex procedures 
can consume resources and diminish staff's ability to focus on other 
activities that preserve program effectiveness and integrity. Many of 
the state and local officials we visited emphasized that one of the 
best ways to balance cost savings with program integrity and 
effectiveness is to simplify program eligibility determination 
processes and funding structures across programs: 

Simplify Eligibility Determination Processes: According to state and 
local officials, the complexity and variation in financial eligibility 
rules have contributed to the time-consuming and duplicative 
administrative processes. The administrative processes can be 
particularly time consuming when caseworkers determine eligibility for 
more than one program at a time, a common practice when applicants may 
be eligible for multiple programs. The issues raised during our site 
visits echo what we reported to Congress in 2001.[Footnote 19] In that 
report, we identified federal statutes and regulations as a source of 
some of this variation, although states do have considerable 
flexibility, especially in programs such as TANF, in setting 
eligibility rules. Some states have taken advantage of recent changes 
and additional flexibility granted by the federal government to 
simplify eligibility determination processes across programs. For 
example, states may automatically extend eligibility to food stamp 
applicants based on their participation in the TANF cash assistance 
program--a provision referred to as "categorical eligibility." Another 
way states have simplified eligibility processes is by aligning program 
rules. For example, officials in Maryland told us that they took 
advantage of the flexibility offered by the Farm Security and Rural 
Investment Act of 2002 (the "Farm Bill") and matched the Food Stamp 
Program rules for counting income and assets to TANF and Medicaid 
rules. This allows them, for example, to determine the value of a car 
the same way across programs. Maryland officials believe that this 
change has helped them to provide benefits and services more quickly 
and accurately. While some states have taken advantage of such 
flexibility, others have not. In a 2004 report on state implementation 
of the Farm Bill's options, we concluded that although federal law and 
program rules allowed states to align food stamp reporting rules with 
those of other assistance programs, state officials in most states had 
not made the broad changes that would result in greater consistency 
among programs.[Footnote 20] State decisions to increase program 
alignment may have been hindered by concerns regarding the cost of 
programming changes into state computers and the concern that benefit 
costs may increase. On the other hand, savings could result from 
reducing the administrative burden on caseworkers. Ultimately, it is 
not clear whether costs would rise or savings would be realized. 

Simplify Funding Structures: Because the programs are financially 
supported through different federal funding streams and mechanisms, 
state officials argue that serving the needs of families 
comprehensively and efficiently is difficult. Similar to the variation 
in eligibility rules, program administrators face an array of different 
funding sources associated with different federal programs, each with 
its own financial reporting requirements, time frames, and other rules. 
Often, to meet individuals or families' needs, states fund a range of 
services drawn from multiple programs and funding sources. For example, 
to provide child care subsidies, some states use funding from both TANF 
and CCDF to assist families, but very different rules apply to 
reporting requirements and funding restrictions, complicating program 
administration. Many believe that being able to draw funds from more 
than one federal assistance program, simplifying the administrative 
requirements for managing those funds, consolidating small grants, or 
standardizing administrative spending caps across programs would ease 
states' administrative workload and reduce administrative spending. To 
experiment with simplifying funding structures, Ohio's child welfare 
department officials told us they received a waiver in 1997 to 
implement a flexible-funding demonstration project. Participating 
counties received a monthly allotment to fund any child services free 
of any eligibility and allocation restrictions. According to Ohio state 
officials, during the first 6 years of the demonstration, 11 of the 14 
counties operated below the average costs, resulting in a total savings 
of $33 million. 

The need for simplifying program policies, including both those related 
to simplifying eligibility determination processes and funding 
structures, has been voiced recurrently for the past several decades. 
Stretching as far back as the 1960s, studies and reports have called 
for changes to human service programs, and we issued several reports 
during the 1980s that focused on welfare simplification. In the early 
1990s, a national commission as well as a congressionally created 
advisory commission suggested ways to simplify policies and procedures, 
including steps such as developing a common framework for streamlining 
eligibility requirements, formulating standard definitions, and easing 
administrative and documentation requirements. To address these issues, 
Congress has acted in the past to simplify the federal grant system. 
For example, the Omnibus Budget Reconciliation Act of 1981 consolidated 
a number of human service programs into several block grants that 
allowed for greater state and local autonomy and flexibility in 
designing strategies to address federal objectives.[Footnote 21] More 
recently, in 1996 Congress replaced the previous welfare program with 
the TANF block grant and consolidated several child care programs into 
one program, providing states with additional flexibility to design and 
operate programs.[Footnote 22] In addition, numerous pilot and 
demonstration projects have given particular states and localities 
flexibility to test approaches to integrating and coordinating services 
across a range of human service programs. While the need for 
simplification of program policies has been widely acknowledged, there 
has also been a general recognition that achieving substantial 
improvements in this area is exceptionally difficult. For example, 
implementing systematic changes to the federal rules for human service 
programs can be challenging because of differences among federal 
program goals and purposes and because jurisdiction for these programs 
is spread among numerous congressional committees and federal agencies. 

An additional challenge to systematic policy simplification efforts is 
the lack of information on the costs and effects of these efforts. Lack 
of information on the potential cost to the federal government of 
streamlining policies has been a limiting factor in moving forward in 
this area. In our 2001 report, we concluded that determining 
eligibility across human service programs is cumbersome and can be 
simplified; however, we said that additional information is needed 
about the effects these simplification efforts would have on both 
program and administrative costs. Similarly, a Congressional Research 
Service review of pilot and demonstration projects on service 
integration strategies--one way to simplify policies--found that there 
was little information on the cost-effectiveness of these 
strategies.[Footnote 23] Information is also lacking on the potential 
effects that streamlining policies would have on various populations. 
Streamlining policies could expand client access and increase 
caseloads, but it could also limit access for particular populations, 
depending on which policies were adopted. In addition, no definitive 
information exists to demonstrate the type and extent of changes that 
might result in reduced administrative costs or to demonstrate how 
strategies might work differently in different communities. To help 
address this issue, we asked Congress in our 2001 report to consider 
authorizing state and local demonstration projects designed to simplify 
policies. Recent legislative proposals in both the House and the Senate 
have sought to increase states' abilities to waive federal program 
rules to address program simplification issues, although some 
provisions have been criticized by policy makers and others for 
allowing states too much latitude to set aside federal rules considered 
important to protecting program integrity and services to people in 
need. One legislative proposal, included as part of broader welfare 
legislation, passed in the House but has not been enacted into law. 

Facilitating Technology Enhancements across Programs May Save 
Administrative Costs by Creating More Efficient Processes: 

Our previous and current work indicates that the federal government can 
help streamline processes and potentially reduce long-term costs by 
facilitating technology enhancements across programs. Technology plays 
a central role in the management of human service programs and keeping 
up with technological advancements offers opportunities for improving 
the administration of human services. Recognizing the importance of 
automated systems in state-administered federal human service programs, 
for more than 2 decades, Congress has provided varying levels of 
federal funding to encourage states to implement certain systems to 
improve the efficiency of some programs. The federal agencies have also 
played a role in helping states implement IT systems to streamline 
their processes. For example, agencies responsible for child welfare, 
CSE, and the Food Stamp Program must review and approve states' IT 
planning documents before federal technology funds are passed down to 
states. In contrast, no specific federal regulations guide states' use 
of federal TANF or CCDF funds for IT systems. DOL provides some 
technical assistance to states under the UI program. 

With congressional and federal support, states have increasingly relied 
on technology to streamline their program processes. Having modern 
systems that support multiple human service programs is important for 
streamlining eligibility processes and providing timely and accurate 
services. For example, the counties we visited in California developed 
a single IT system, known as CalWIN.[Footnote 24] This system--like 
others around the country--replaced several separate IT systems and 
automated the eligibility determination processes across multiple and 
complex programs, such as TANF, the Food Stamp Program, and Medicaid. 
According to some officials, while the new system has experienced some 
problems, it has already improved program integrity and is intended to 
reduce administrative costs. Additionally, many believe that sharing 
data across programs and agencies can further streamline processes. 
Data-sharing arrangements allow programs to share client information 
that they otherwise would each collect and verify separately, thus 
reducing duplicative effort, saving money, and improving integrity. For 
example, by receiving verified electronic data from SSA, state human 
service offices are able to determine SSI recipients' eligibility for 
food stamp benefits without having to separately collect and verify 
applicant information. According to South Carolina officials we 
interviewed, this arrangement saves administrative dollars and reduces 
duplicative effort across programs. 

While most agree that IT can help streamline processes, our previous 
and current work shows that technology projects are difficult, and many 
fall short of expectations, creating additional work for staff or 
compromising program integrity. Although many states' computer systems 
for TANF, the Food Stamp Program, and Medicaid are already integrated, 
we found that states are often using IT systems that are outdated, 
error-prone, and do not effectively share information with additional 
human service programs. This compounds the challenges in updating 
technology in a human services environment that increasingly requires 
coordination across programs. For example, the Michigan Department of 
Human Services is in the process of implementing a new integrated IT 
system that is intended to replace the three systems that staff 
currently use to process eligibility for several programs. Michigan 
officials explained that the third system was initially intended to 
replace the other two systems. However, due to political and financial 
reasons and a lack of commitment, only the first phase of the project 
was implemented. As a result, the system failed to replace the other 
systems and created an additional step in the enrollment process. The 
ability to share data across programs also may be limited by laws that 
have been established to protect individuals' privacy. For example, 
while state CSE programs sometimes utilize information from other 
federal programs, they are often prohibited by law from sharing 
information about their own clients. Michigan CSE officials noted that 
the CSE program must protect its clients' information because it 
handles money from private citizens rather than providing government 
benefits. Another concern regarding efforts to further enhance 
technology is that there is limited information available on the cost- 
effectiveness of some of these systems. Finally, our previous 
collaborative work with other organizations highlighted challenges 
related to obtaining federal funding for information systems.[Footnote 
25] To the extent that state IT systems support more than one human 
services program, state cost allocation plans for systems development 
and acquisition projects must be approved by each federal agency 
expected to provide funding, in addition to the regular approval 
process. 

To address concerns about IT systems funding and to identify other ways 
that the federal government may facilitate states' technology 
improvements, we recommended in April 2000 that a multiagency federal 
working group be created.[Footnote 26] In response to this 
recommendation as well as state complaints about the approval process, 
agencies within HHS and USDA convened a working group to improve the 
federal approval process. This group made some progress in identifying 
needed changes to the federal process. However, after about a year of 
work, the progress stalled, due to changes in leadership at the 
agencies involved and a lack of consensus among the federal partners 
about the direction to take in improving the federal process.[Footnote 
27] This helps to highlight the challenges involved in identifying and 
reaching agreement on needed improvements to existing processes, 
particularly when multiple programs and agencies are involved. More 
information on specific barriers that states face when attempting to 
make technology improvements when federal funds are involved could help 
facilitate progress in this area. 

Progress on technology improvements could be further facilitated 
through greater collaboration across program agencies and levels of 
government. At the time of our visit, officials in Ohio said that in 
their efforts to replace their outdated IT system for TANF and the Food 
Stamp Program, they would have appreciated more information about what 
other states were doing to implement more efficient and economical IT 
systems. Officials stated that while they had talked to other states 
about their experiences developing IT systems, more comprehensive 
information on best practices would save states time and money. Some 
agencies are successfully collaborating and sharing best practices. For 
example, counties that we visited in California successfully shared 
technology information that helped to save resources. Officials in San 
Mateo County, California, reported that by automating the case 
management process for the Medicaid and Food Stamp programs through 
call centers, they avoided spending additional dollars on personnel 
costs associated with rising case levels. According to county 
officials, this strategy has helped them reduce staff's workload, avoid 
increased administrative costs, and increase integrity across programs. 
Officials in nearby Santa Cruz County reported that they adopted this 
strategy after learning of its effectiveness in San Mateo County. 
Michigan UI officials reported that DOL has a strong partnership with 
state UI agencies. DOL sponsors a central online forum for sharing 
technology information. Michigan UI officials noted that this effort 
provides a forum for exchanging ideas and learning from the mistakes of 
others. DOL's initiative has helped states develop call centers and 
developed sample computer programming code for Internet claims systems, 
which it shared with states. Further sharing of technology strategies 
like these across programs, states, and agencies potentially could 
yield more cost savings elsewhere. 

Conclusion: 

To use taxpayer dollars responsibly, federal programs must be 
administered in a cost-efficient manner. Administrative costs are an 
important component of the total cost of providing supports to 
vulnerable people. This report shows slow but steady increases in 
administrative spending among many of the human service programs 
included in this review, although administrative spending increased at 
a lower rate than total program spending. Spending data cannot be 
compared across programs due to programmatic differences, and little 
information is available regarding what level of administrative 
spending for human service programs is appropriate. Even so, there are 
opportunities available to the federal government to assist state and 
local governments in better identifying and implementing cost-saving 
initiatives that also ensure accurate and timely provision of benefits 
and services. However, minimal information is available on which 
opportunities are most effective and what any actual cost savings might 
be. 

The costs associated with running human service programs have been a 
long-standing concern for policy makers interested in maximizing the 
dollars that go directly to helping vulnerable people. While all levels 
of government have made efforts to reduce the time and money required 
to run these programs, it is unclear the extent to which these efforts 
have actually reduced costs. This is especially true with efforts to 
streamline processes across programs by simplifying program rules and 
facilitating technology enhancements. Simplifying policies across 
programs may increase or decrease the number of eligible individuals, 
which in turn may affect program costs. Technology enhancements likely 
come with start-up costs and may initially create additional work for 
staff. Because of the complexities of such strategies for streamlining 
processes, there are no easy solutions for reducing administrative 
costs. However, it is appropriate to move forward to test the cost- 
effectiveness of various strategies. Only then can more systematic 
approaches be taken to maximize the dollars that are spent to run human 
service programs. 

Our previous work recommended that Congress consider authorizing state 
and local demonstration projects designed to simplify and coordinate 
eligibility determination. Maintaining the status quo of stovepiped 
program rules and policies related to eligibility determination and 
other processes will continue to result in program rules that are 
complex and vary across programs and processes that are duplicative and 
cumbersome to administer. Providing states with demonstration 
opportunities would allow them to challenge the current stovepipes and 
open the door to new cost-efficient approaches for administering human 
service programs. Demonstration projects would allow for testing and 
evaluating new approaches that aim to balance cost savings with program 
effectiveness and integrity. The information from these evaluations 
would help the federal government determine which strategies are most 
effective without investing the time and resources in unproven 
strategies. Congress can allow for such approaches to thrive by not 
only giving states opportunities to test these approaches but by 
following up to identify and implement successful strategies. While it 
may be difficult to fully determine the extent to which observed 
changes are the result of the demonstration projects, such projects 
would be useful to identify lessons learned. Members of Congress have 
identified the usefulness of demonstration projects, and both the House 
and Senate have considered proposals to authorize such demonstration 
projects, although legislation has not been enacted. Therefore, 
continued efforts are needed to move forward. 

Matter for Congressional Consideration: 

As suggested in our prior work (GAO-02-58), we continue to believe that 
Congress should consider authorizing state and local demonstration 
projects designed to streamline and coordinate eligibility 
determination and other processes for federal human service programs. 
Such projects would provide states and localities with opportunities to 
test the cost-effectiveness of changes designed to simplify or align 
program rules, expand data sharing across agencies, or enhance 
information technology systems to facilitate eligibility determinations 
and other processes. 

Once authorized, states and localities or both could submit proposals 
for demonstration projects and relevant federal agencies working in a 
coordinated manner could review them, suggest modifications as needed, 
and make final approval decisions. Federal agencies should consider 
certain criteria for the demonstration projects, including oversight 
and internal controls to help ensure that effectiveness and integrity 
are preserved and vulnerable populations are protected. Demonstration 
projects would include waivers of federal statutes and regulations as 
needed and deemed appropriate. While our review covered seven federal 
support programs, we are not suggesting that the demonstration projects 
must include all of these programs or exclude others. States should be 
given the opportunity to try various approaches aimed at streamlining 
processes that consider all feasible programs. 

Projects must be given sufficient time to be fully implemented and must 
include an evaluation component. Cost neutrality of both administrative 
and program costs would be most desirable for federal approval of these 
projects. However, projects should not be rejected solely because they 
are unable to guarantee cost neutrality over the short run. It would be 
expected that, over a period of time, state and federal efforts to 
streamline processes would create administrative cost savings that 
could help offset any increased program costs. Evaluations of the 
projects should include an analysis of whether administrative cost 
savings were indeed achieved in the long-run, which specific laws or 
regulations were waived to facilitate the project, and whether the 
effectiveness and integrity of program services were maintained. To 
enhance the information from each of the projects, Congress should 
consider authorizing a capping report that would compile information 
from each the individual demonstration projects and identify lessons 
learned. 

Agency Comments: 

We shared a draft of this report with HHS, USDA, and DOL for comment. 
HHS agreed with the report's emphasis on the need for cost-effective 
administration of federal programs and noted that HHS has taken steps 
to increase cost-effectiveness in a number of the programs it oversees. 
HHS also provided a number of specific examples of Child Care Bureau 
efforts. HHS's written comments appear in appendix III. 

In their comments, officials from the USDA Food and Nutrition Service 
suggested that, in order to acknowledge the complexity of the Food 
Stamp Program, we add more detailed information to the report on 
several topics, including: differences in administrative cost 
definitions, how programmatic requirements may affect costs, state by 
state cost comparisons, program level impact analyses on past proposed 
changes to eligibility rules, and strategies for facilitating 
technology. We added more information where appropriate, although our 
focus in this report remains on a national perspective across programs 
rather than in-depth, program specific or state-level analyses. In 
addition, the officials questioned the use of the GDP to adjust for 
inflation and stated that staff salaries and benefits constitute a 
large proportion of total costs. As we state in the report, we used 
nominal dollars to discuss historical administrative spending. In 
addition to nominal dollars, we used GDP to discuss the percent change 
in spending over time. Recognizing that staff salaries and benefits 
make up a large portion of spending, we also used DOL's Employment Cost 
Index to discuss how average salaries and benefits for state and local 
government workers changed over time. 

DOL, as well as HHS, provided technical comments, which we incorporated 
in the report where appropriate. None of the agencies commented 
directly on the matter for congressional consideration. 

As agreed with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of the report until 30 days 
after its issue date. At that time, we will send copies of this report 
to the Secretaries of the Departments of Agriculture, Health and Human 
Services, and Labor; relevant congressional committees; and others who 
are interested. Copies will be made available to others upon request, 
and this report will also be available on GAO's Web site at [Hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me on (202) 512-7215. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. Additional GAO contacts and acknowledgments are 
listed in appendix IV. 

Sincerely, 

Signed by: 

Cynthia M. Fagnoni: 
Managing Director, Education, Workforce, and Income Security Issues: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

We designed our study to provide information on (1) how administrative 
costs are defined in selected programs and what rules govern federal 
and state participation in funding these costs; (2) what is known about 
the amounts of federal and state administrative spending for selected 
programs and how they have changed over time; and (3) what 
opportunities exist at the federal level to help states balance cost 
savings with program effectiveness and integrity. To obtain information 
on these issues, we compiled expenditure data for each of the programs 
covered in this review, conducted state and local site visits, 
interviewed federal program officials, and reviewed relevant laws, 
regulations, and reports. We focused our study on seven key programs: 
Adoption Assistance, Child Care & Development Fund (CCDF), Child 
Support Enforcement (CSE), the Food Stamp Program, Foster Care, 
Temporary Assistance for Needy Families (TANF), and Unemployment 
Insurance (UI). 

We issued two related reports in June and July 2006 that focused on the 
administrative costs of the Adoption Assistance and Foster Care 
programs (GAO-06-649, Foster Care and Adoption Assistance: Federal 
Oversight Needed to Safeguard Funds and Ensure Consistent Support for 
States' Administrative Costs, June 2006) and the Child Support 
Enforcement program (GAO-06-491, Child Support Enforcement: More Focus 
on Labor Costs and Administrative Cost Audits Could Help Reduce Federal 
Expenditures, July 2006). We coordinated our data collection efforts 
for all three reports, so some of the information on the CSE, Adoption 
Assistance, and Foster Care programs in this report is drawn from work 
conducted for the earlier reports. For example, for this report, we 
supplemented our data collection efforts with spending data collected 
for the other two reports as well as information collected from 
interviews conducted for the other reports. We also coordinated efforts 
to assess the reliability of the administrative spending data used in 
the three reports. 

We conducted our work between July 2005 and August 2006 in accordance 
with generally accepted government auditing standards. 

Analyses of Program Spending Data: 

We obtained spending data for each of the seven programs from the 
departments of Agriculture, Health and Human Services, and Labor. We 
analyzed administrative spending data for each program, as defined for 
financial reporting purposes by program laws and regulations, for 
fiscal years 2000-2004, including federal and state shares of spending. 
Fiscal year 2004 data were the most current data available at the time 
of our review. We also analyzed 2004 state spending data to learn about 
the variations in spending across states. We assessed the reliability 
of the administrative spending data by interviewing (1) agency 
officials knowledgeable about the data and (2) state officials in the 
five states we visited knowledgeable about the data as reported to the 
federal government. We also reviewed state single audit reports and 
talked to state auditors in the five states we visited to identify any 
known problems with the administrative spending data or the systems 
that store the data. Our reviews and discussions did not identify 
significant problems with the data. We determined that these data were 
sufficiently reliable for the purposes of this report. 

Visits to State Agencies and County Offices: 

We visited state agencies and county offices in five states-- 
California, Maryland, Michigan, Ohio, and South Carolina. The counties 
we visited were: San Mateo and Santa Cruz Counties in California, 
Wicomico County in Maryland, Wayne County in Michigan, Butler and 
Licking Counties in Ohio, and Newberry County in South Carolina. We 
selected the states to provide a range of total program spending and 
share of spending on administration, as well as a mixture of state and 
county administrative structures, urban and rural demographics, and 
geography. Although our selection includes a range of states, our 
findings are not generalizable beyond the states included in our study. 
In each of the five states, we visited at least one county office to 
talk to county program officials and local staff. We developed a 
questionnaire to capture the types of administrative activities that 
occur in each program at the state and local levels. We asked the state 
and local program officials we visited to fill out the questionnaire, 
and we analyzed the results to learn how administrative activities 
compared across the programs. We interviewed state and local program 
officials and staff about administrative activities, costs, options for 
reducing costs while preserving services and challenges to and 
consequences of these options. During the interviews, we also inquired 
about any interactions between our key programs and other programs that 
support vulnerable people, including Medicaid, the State Children's 
Health Insurance programs (SCHIP), the Low-Income Home Energy 
Assistance Program (LIHEAP), and housing programs. 

Interviews of Federal Officials, State Auditors, and Experts: 

We interviewed federal program officials at the departments of 
Agriculture, Health and Human Services, and Labor and the Office of 
Management and Budget about administrative costs, options for reducing 
costs while preserving services and challenges to and consequences of 
these options. In addition, we conducted phone interviews with state 
audit officials from the five states about any similar work they have 
conducted. We also discussed our objectives with representatives from 
the American Public Human Services Association, Center for Law and 
Social Policy, and National Governors Association. These discussions 
covered each of the objectives and the participants shared their views 
and insights. 

Reviews of Laws, Regulations, and Reports: 

We reviewed laws and regulations on definitions of administrative costs 
and federal/state participation in funding these costs for the selected 
programs. We also reviewed relevant circulars issued by the Office of 
Management and Budget. We obtained and reviewed A-133 state single 
audit reports for the states we visited. In addition, we reviewed 
documents and reports prepared by the Center for Law and Social Policy, 
Congressional Research Service, and other research organizations as 
well as several prior GAO reports. 

[End of section] 

Appendix II: Administrative Cost Activities Recognized by Program 
Statutes and Regulations: 

Eligibility determination/enrollment; 
Adoption Assistance and Foster Care: 
* Determination and re-determination of eligibility; 
* Fair hearings and appeals; 
CCDF: [Empty]; 
Food Stamps; 
* Costs of certifying applicant households; 
* Fair hearings;  
TANF:  
* Activities related to eligibility determinations; 
UI[A]: [Empty]. 

Benefit issuance; 
Adoption Assistance and Foster Care: [Empty]; 
CCDF: [Empty]; 
Food Stamps:  
* Acceptance, storage, protection, control, and accounting of coupons; 
* Issuance of coupons to all eligible households; 
TANF: [Empty]; 
UI[A]: [Empty]. 


Quality control; 
Adoption Assistance and Foster Care: [Empty]; 
CCDF: 
* Audit services as required by regulation; 
* Coordinating the resolution of audit and monitoring findings; 
* Maintaining substantiated complaint files in accordance with 
regulatory requirements; 
* Monitoring program activities for compliance with program 
requirements; 
Food Stamps: 
* Audit services; 
* Program investigations and prosecutions; 
TANF: 
* Fraud and abuse units; 
UI[A]: [Empty]. 


Program management and planning; 
Adoption Assistance and Foster Care: 
* Providing short-term training to current or prospective foster or 
adoptive parents and the members of the state licensed or approved 
child care institutions providing care to children foster care or 
adoption assistance; 
* Rate setting; 
* Training personnel employed or preparing for employment by the state 
or local agency administering the plan; 
CCDF: 
* Coordinating the provision of Child Care and Development Fund 
services with other federal, state, and local child care, early 
childhood development programs, and before-and after-school care 
programs; 
* Developing agreements with administering agencies in order to carry 
out program activities; 
* Evaluating program results; 
* Planning, developing, and designing the Child Care and Development 
Fund program; 
* Preparing the application and plan; 
Food Stamps: 
* Advisory Councils; 
* Management studies[B]; 
* Proposal costs[B]; 
* Training and education; 
TANF: 
* Monitoring programs and projects; 
* Preparation of program plans, budgets, and schedules; 
UI[A]: [Empty]. 


Outreach; 
Adoption Assistance and Foster Care: 
* Recruitment and licensing of foster homes and institutions; 
CCDF: 
* Providing local officials and the public with information about the 
program, including the conduct of public hearings; 
Food Stamps: 
* Advertising (for limited purposes); 
* Exhibits; 
* Food stamp informational activities, but not including recruitment 
activities; 
TANF: 
* Public relations; 
UI[A]: [Empty]. 

Case management; 
Adoption Assistance and Foster Care: 
* Case management and supervision; 
* Case reviews; 
* Development of the case plan; 
* Placement of the child; 
* Preparation for and participation in judicial determinations; 
* Referral to services; 
CCDF: [Empty]; 
Food Stamps: [Empty]; 
TANF: [Empty]; 
UI[A]: [Empty]. 

IT Systems; 
Adoption Assistance and Foster Care: 
* All expenditures of a state to plan, design, develop, install and 
operate the statewide automated child welfare information system 
(without regard to whether the system may be used with respect to 
foster or adoptive children other than those on behalf of whom foster 
care maintenance or adoption assistance payments may be made); 
* Costs related to data collection; 
CCDF: [Empty]; 
Food Stamps: 
* Automated data processing and information retrieval systems[B]; 
* Implementing and operating the immigration status verification 
system; 
TANF: 
* Management information systems not related to the tracking and 
monitoring of TANF requirements (e.g., for a personnel and payroll 
system for state staff); 
UI: 
* All of the reasonable expenditures attributable to the costs of the 
implementation and operation of the immigration status verification 
system. 

Reporting; 
Adoption Assistance and Foster Care: 
* Costs related to reporting; 
CCDF: 
* Preparing reports and other documents related to the program for 
submission to the Secretary of Health and Human Services; 
Food Stamps: [Empty]; 
TANF: 
* Preparing reports and other documents; 
UI: [Empty]. 

Overhead; 
Adoption Assistance and Foster Care: 
* A proportionate share of related agency overhead; 
CCDF: 
* Administrative services, including such services as accounting 
services, performed by grantees or subgrantees or under agreements with 
third parties; 
* Indirect costs as determined by an indirect cost agreement or cost 
allocation plan pursuant to regulation; 
* Managing or supervising persons with certain administrative and 
implementation responsibilities; 
* Other costs for goods and services required for the administration of 
the program, including rental or purchase of equipment, utilities, and 
office supplies; 
* Salaries and related staff costs; 
* Travel costs incurred for official business in carrying out the 
program; 
Food Stamps: 
* Accounting; 
* Bonding; 
* Budgeting; 
* Building lease management; 
* Building space and related facilities[B]; 
* Capital expenditures[B]; 
* Central stores; 
* Communications; 
* Costs incurred by agencies other than the State[B]; 
* Depreciation and use allowance; 
* Disbursing service; 
* Employee fringe benefits; 
* Employee morale, health, and welfare costs; 
* Insurance[B]; 
* Legal expenses; 
* Maintenance and repair; 
* Materials and supplies; 
* Memberships, subscriptions, and professional activities; 
* Motor pools; 
* Payroll preparation; 
* Personnel administration; 
* Preagreement costs[B]; 
* Printing and reproduction; 
* Procurement service; 
* Professional services[B]; 
* Salaries; 
* Taxes; 
* Transportation; 
* Travel; 
TANF: 
* Costs for general administration and coordination of programs, 
including contract costs and all indirect or overhead costs; 
* Costs for the goods and services required for administration of the 
program such as the costs for supplies, equipment, travel, postage, 
utilities, and rental of office space and maintenance of office space, 
provided that such costs are not excluded as a direct administrative 
cost for providing program services; 
* Procurement activities; 
* Salaries and benefits of staff performing administrative and 
coordination functions (but not salaries and benefits for program 
staff); 
* Services related to accounting, litigation, audits, management of 
property, payroll, and personnel; 
* Travel costs incurred for official business and not excluded as a 
direct administrative cost for providing program services; 
UI: 
* The cost of mailing unemployment compensation statements, even if 
information about the earned income credit is mailed along with it 
(except that a portion of the mailing costs may be counted as a non-
administrative cost if the inclusion of materials related to the tax 
credit increases the postage required to mail the information). 

Source: GAO analysis of applicable program statutes and regulations. 

Note: Child Support Enforcement program statutes and regulations do not 
contain specific definitions of administrative costs. 

[A] While the UI program legislation does identify two specific 
activities that are covered as administrative costs, a much broader 
range of activities is actually covered because each state receives 
"such amounts as the Secretary of Labor determines to be necessary for 
the proper and efficient administration of its unemployment 
compensation law." 

[B] These costs are allowable only with approval from the USDA Food and 
Nutrition Service. 

[End of table] 

[End of section] 

Appendix III: Comments from the Department of Health and Human 
Services: 

Department Of Health & Human Services: 
Office of Inspector General: 
Washington, D.C. 20201: 

AUG 22 2006: 

Ms. Cynthia M. Fagnoni: 
Managing Director: 
Education, Workforce, and Income Security Issues: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Ms. Fagnoni: 

Enclosed are the Department's comments on the U.S. Government 
Accountability Office's (GAO) draft report entitled, "Human Service 
Programs-Demonstration Projects Could Identify Ways to Reduce 
Administrative Costs" (GAO-06-942), before its publication. These 
comments represent the tentative position of the Department and are 
subject to reevaluation when the final version of the report is 
received. 

The Department provided several technical comments directly to your 
staff. 

The Department appreciates the opportunity to comment on this draft 
report before its publication. 

Sincerely, 

Signed by: 

Daniel R. Levinson: 
Inspector General: 

Enclosure: 

The Office of Inspector General (OIG) is transmitting the Department's 
response to this draft report in our capacity as the Department's 
designed focal point and coordinator for U.S. Government Accountability 
Office reports. OIG has not conducted an independent assessment of 
these comments and therefore expresses no opinion on them. 

Comments Of The Department Of Health And Human Services On The U.S. 
Government Accountability Office's (GAO) Draft Report Entitled, "Human 
Service Programs-Demonstration Projects Could Identify Ways To Reduce 
Administrative Costs" (GAO-06-942): 

The Department of Health and Human Services (HHS) appreciates the 
opportunity to comment on the U.S. Government Accountability Office's 
(GAO) draft report. 

General Comments: 

We strongly agree with the report's emphasis on the need for cost- 
effective administration of Federal programs and HHS has taken steps to 
increase cost-effectiveness in a number of the programs that it 
oversees. For example, ACF's Child Care Bureau (CCB) identifies and 
disseminates information about the cost-effectiveness of various 
administrative strategies that States, Territories, and Tribes might 
use when implementing the Child Care and Development Fund (CCDF). CCB 
has incorporated analyses looking at cost-effectiveness into many of 
its research and evaluation efforts, including projects looking at 
child care provider training approaches and at market rate surveys used 
to set provider payment rates. CCB's improper payments initiative is 
pilot-testing a method to measure errors associated with client 
eligibility determination, which includes an analysis of the costs 
involved. As part of the improper payments initiative, CCB is providing 
technical assistance to facilitate States' technology enhancements- 
another key area highlighted in the GAO report. Through a technology 
conference in 2005 and other means, CCB is providing opportunities for 
States to learn from each other about strategies and best practices, 
including efforts to integrate data and systems across programs. 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Cynthia Fagnoni (202) 512-7215: 

Acknowledgments: 

The following staff members made major contributions to the report: 
Heather McCallum Hahn (Assistant Director), Cady S. Panetta (Analyst- 
in-Charge), David Bellis, William Colvin, Cheri Harrington, Gale 
Harris, Sheila McCoy, Luann Moy, and Tovah Rom. 

[End of section] 

Related GAO Products: 

Child Support Enforcement: More Focus on Labor Costs and Administrative 
Cost Audits Could Help Reduce Federal Expenditures. GAO-06-491. 
Washington, D.C.: July 6, 2006. 

Foster Care and Adoption Assistance: Federal Oversight Needed to 
Safeguard Funds and Ensure Consistent Support for States' 
Administrative Costs. GAO-06-649. Washington, D.C.: June 15, 2006. 

Means-Tested Programs: Information on Program Access Can Be an 
Important Management Tool. GAO-05-221. Washington, D.C.: March 11, 
2005. 

Food Stamp Program: Farm Bill Options Ease Administrative Burden, but 
Opportunities Exist to Streamline Participant Reporting Rules among 
Programs. GAO-04-916. Washington, D.C.: September 16, 2004. 

TANF and Child Care Programs: HHS Lacks Adequate Information to Assess 
Risk and Assist States in Managing Improper Payments. GAO-04-723. 
Washington, D.C.: June 18, 2004. 

Food Stamp Program: Steps Have Been Taken to Increase Participation of 
Working Families, but Better Tracking of Efforts Is Needed. GAO-04-346. 
Washington, D.C.: March 5, 2004. 

Human Services: Federal Approval and Funding Processes for States' 
Information Systems. GAO-02-347T. Washington, D.C.: July 9, 2002. 

Welfare Reform: States Provide TANF-Funded Work Support Services to 
Many Low-Income Families Who Do Not Receive Cash Assistance. GAO-02- 
615T. Washington, D.C.: April 10, 2002. 

Food Stamp Program: States' Use of Options and Waivers to Improve 
Program Administration and Promote Access. GAO-02-409. Washington, 
D.C.: February 22, 2002. 

Human Services Integration: Results of a GAO Cosponsored Conference on 
Modernizing Information Systems. GAO-02-121. Washington, D.C.: January 
31, 2002. 

Means-Tested Programs: Determining Financial Eligibility Is Cumbersome 
and Can Be Simplified. GAO-02-58. Washington, D.C.: November 2, 2001. 

Food Stamp Program: Program Integrity and Participation Challenges. GAO-
01-881T. Washington, D.C.: June 27, 2001. 

Food Stamp Program: States Seek to Reduce Payment Errors and Program 
Complexity. GAO-01-272. Washington, D.C.: January 19, 2001. 

Benefit and Loan Programs: Improved Data Sharing Could Enhance Program 
Integrity. GAO/HEHS-00-119. Washington, D.C.: September 13, 2000. 

Welfare Reform: Improving State Automated Systems Requires Coordinated 
Federal Effort. GAO/HEHS-00-48. Washington, D.C.: April 27, 2000. 

Food Stamp Program: States Face Reduced Federal Reimbursements for 
Administrative Costs. GAO/RCED/AIMD-99-231. Washington D.C.: July 23, 
1999. 

Food Stamp Program: Various Factors Have Led to Declining 
Participation. RCED-99-185. Washington, D.C.: July 2, 1999. 

Welfare Reform: Few States Are Likely to Use the Simplified Food Stamp 
Program. GAO/RCED-99-43. Washington, D.C.: January 29, 1999. 

Welfare Programs: Opportunities to Consolidate and Increase Program 
Efficiencies. GAO/HEHS-95-139. Washington, D.C.: May 31, 1995. 

Means-Tested Programs: An Overview, Problems, and Issues. GAO/T-HEHS- 
95-76. Washington, D.C.: February 7, 1995. 

Welfare Simplification: States' Views on Coordinating Services for Low- 
Income Families. GAO/HRD-87-110FS. Washington, D.C.: July 29, 1987. 

Welfare Simplification: Thirty-Two States' Views on Coordinating 
Services for Low-Income Families. GAO/HRD-87-6FS. Washington, D.C.: 
October 30, 1986. 

Welfare Simplification: Projects to Coordinate Services for Low-Income 
Families. GAO/HRD-86-124FS. Washington, D.C.: August 29, 1986. 

Needs-Based Programs: Eligibility and Benefit Factors. GAO/HRD-86- 
107FS. Washington, D.C.: July 9, 1986. 

FOOTNOTES 

[1] Noncustodial parents are those who do not have custody of their 
children. 

[2] As used in this report, the phrase "administrative spending as 
defined for financial reporting purposes" is used to describe federal 
and state spending that, by applicable federal statutes and 
regulations, is reportable as administrative expenses of the program. 

[3] The federal matching rate and the actual share of expenditures that 
the federal government pays, in practice, may differ slightly, because 
of the detailed rules governing the sharing of expenses and application 
of the federal matching rate. 

[4] CCDF is funded by a combination of discretionary and entitlement 
funding through the Child Care and Development Block Grant (CCDBG). 
Discretionary funds are subject to the annual appropriations process 
and are allocated among states according to a formula; states are not 
required to match these discretionary funds. CCDF also provides 
entitlement (or "mandatory") funding to states. After reserving an 
amount for payments to Indian tribes and tribal organizations, 
remaining entitlement funds are allocated to states in two components. 
First, each state receives a fixed amount each year, as established in 
law; no state match is required for these funds. Second, remaining 
entitlement funds are allocated to states according to each state's 
share of children under age 13. States must meet maintenance-of-effort 
and matching requirements to receive these funds. In addition to 
amounts provided to states specifically for child care, states may also 
transfer up to 30 percent of their TANF block grant allotment into 
their CCDBG. 

[5] The bulk of federal TANF funds are provided to states in a basic 
block grant called the State Family Assistance Grant, totaling $16.5 
billion for the 50 states and the District of Columbia. The TANF 
statute also provides for supplemental grants to states that meet 
certain criteria and matching contingency funds that can provide 
additional funding during recessionary periods if certain conditions 
are met. 

[6] The 5-percent spending cap applies to the total Child Care and 
Development Fund, and need not be applied individually to each of the 
component funds --the discretionary, mandatory, and matching (including 
the state share) funds. However, the spending cap does not apply to the 
states' maintenance-of-effort expenditures. 

[7] All CSE spending is considered administrative. When including CSE, 
the programs combined spent 17.5 percent of total program spending on 
administration. When excluding CSE from the calculation, the other 
programs combined spent 13.6 percent of total program spending on 
administration. 

[8] In addition, in fiscal year 2004, CSE collected $4.38 in child 
support payments for every dollar spent on the program, also known as 
the cost-effectiveness ratio. 

[9] Data on the state and federal shares of administrative spending are 
not collected for the CCDF program. In fiscal year 2004, combined 
federal and state administrative spending for CCDF equaled $212 
million. With or without including the $212 million in CCDF 
administrative spending, total administrative spending for the selected 
programs combined equaled roughly $21 billion. 

[10] These funding requirements have not changed significantly since 
fiscal year 2000 and the state and federal shares of administrative 
spending have remained largely the same over time. 

[11] CCDF also has matching rates that are determined by a formula set 
in law and that vary by state from 50 percent to 77 percent. 

[12] See GAO, Foster Care and Adoption Assistance: Federal Oversight 
Needed to Safeguard Funds and Ensure Consistent Support for States' 
Administrative Costs, GAO-06-649 (Washington, D.C.: June 15, 2006). 

[13] See GAO, Child Support Enforcement: More Focus on Labor Costs and 
Administrative Cost Audits Could Help Reduce Federal Expenditures, GAO-
06-491 (Washington, D.C.: July 6, 2006). 

[14] Administrative spending data for CCDF are not available prior to 
2001; thus, changes in administrative spending in CCDF are based on 
fiscal years 2001 through 2004 data. 

[15] Nominal dollar spending amounts and percentages are used in the 
text of the report, unless otherwise noted. 

[16] We used the Gross Domestic Product (GDP) price index to calculate 
inflation-adjusted dollars. 

[17] Data from the DOL's Bureau of Labor Statistics Employment Cost 
Index. 

[18] Means-Tested Programs: Determining Financial Eligibility is 
Cumbersome and Can Be Simplified, GA0-02-58 (Washington, D.C.: Nov. 2, 
2001). 

[19] GAO-02-58. 

[20] GAO, Food Stamp Program: Farm Bill Options Ease Administrative 
Burden, but Opportunities Exist to Streamline Participant Reporting 
Rules among Programs, GAO-04-916 (Washington, D.C.: Sept. 16, 2004). 

[21] For more information, see GAO, Block Grants: Characteristics, 
Experience, and Lessons Learned, GAO/HEHS-95-74 (Washington, D.C.: Feb. 
9, 1995). 

[22] For more information, see GAO, Welfare Reform: States Are 
Restructuring Programs to Reduce Welfare Dependence, GAO/HEHS-98-109 
(Washington, D.C.: June 17, 1998) and GAO, Welfare Reform: With TANF 
Flexibility, States Vary in How They Implement Work Requirements and 
Time Limits, GAO-02-770 (Washington, D.C.: July 5, 2002). 

[23] Cheryl Vincent, The "Superwaiver" Proposal and Service 
Integration: A History of Federal Initiatives (Washington, D.C.: 
Congressional Research Service, April 13, 2005). 

[24] The two counties we visited, San Mateo and Santa Cruz, are a part 
of an 18-county consortium that helped to develop CalWIN. 

[25] GAO, Human Services Integration: Results of a GAO Cosponsored 
Conference on Modernizing Information Systems, GAO-02-121 (Washington, 
D.C.: Jan. 31, 2002). 

[26] GAO, Welfare Reform: Improving State Automated Systems Requires 
Coordinated Federal Effort, GAO/HEHS-00-48 (Washington, D.C.: Apr. 27, 
2000). 

[27] GAO, Human Services: Federal Approval and Funding Processes for 
States' Information Systems, GAO-02-347T (Washington, D.C.: July 9, 
2002). 

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