Welfare Reform:

Federal Oversight of State and Local Contracting Can be Strengthened

GAO-02-661: Published: Jun 11, 2002. Publicly Released: Jun 11, 2002.

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The Personal Responsibility and Work Opportunity Reconciliation Act (PRWPRA) of 1996 changed the nation's cash assistance program for needy families with children. The former program, Aid to Families with Dependent Children (AFDC), was replaced with the Temporary Assistance for Needy Families (TANF) block grant, which provides states with $16.5 billion each year through 2002 to serve this population. TANF's goals include ending the dependence of needy families on government benefits by promoting job preparation, work, and marriage; preventing and reducing the incidence of nonmarital pregnancies; and encouraging two-parent families. PRWORA expanded the scope of services that could potentially be contracted out, such as determining eligibility for TANF, which had traditionally been done by government employees. Moreover, with the large drop in TANF caseloads nationally, a greater share of federal TANF block grant funds and state funds is now devoted to various support services that are typically contracted out. Although PRWORA expanded the flexibility of states to design and administer TANF programs, its also limited the ability of the Department of Health and Human Services (HHS) to regulate states' TANF programs. Contracting with nongovernmental entities to provide TANF-funded services occurs in almost every state and exceeds $1.5 billion in federal TANF and state maintenance-of-effort funds for 2001. HHS relies primarily on state single audit reports to oversee TANF contracting by states and localities. Their regional offices follow up on the TANF deficiencies identified by these reports, and HHS focuses on reported deficiencies that involve unallowable or questionable costs. However, HHS does not know the extent and nature of problems pertaining to the oversight of nongovernmental TANF contractors that have been cited by state single audits because they do not analyze the reports in a comprehensive manner. State and local governments rely on third parties to help ensure compliance with bid solicitation and contract award procedures, including bid protests, judicial processes, and external audits. State and local government agencies use various approaches to oversee TANF contractors, and problems have been identified with both contract oversight and contractor performance. State and local governments have primary responsibility for overseeing TANF contractors, and they rely on various approaches, including reviewing contractor-provided information and performing on-site reviews. However, auditors in four of the six states identified deficiencies in state or local oversight of TANF contractors, such as uneven oversight by local contracting agencies.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: HHS questioned whether the recommendation is (1) consistent with the Single Audit Act, (2) consistent with the flexibility that states have under the Temporary Assistance for Needy Families statute, and (3) necessary in light of the responsibilities that pass-through entities have under OMB Circular A-133. In addition, the agency said that it did not recognize what value the recommendation would add to the program. The House passed a welfare reauthorization bill in the 109th Congress (H.R. 240, Section 113 (g)) that would have required HHS to implement the actions outlined in this recommendation. However, this provision was not included in the Deficit Reduction Act of 2005 (P.L. 109-171), the scaled-back version of welfare reform reauthorization signed into law on February 8, 2006.

    Recommendation: To facilitate improved oversight of TANF contractors by all levels of government, the Secretary of Health and Human Services should direct the Assistant Secretary for Children and Families to use state single audit reports in a more systematic manner to identify the extent and nature of problems related to state oversight of nongovernmental TANF contractors and determine what additional actions may be appropriate to help prevent and correct such problems.

    Agency Affected: Department of Health and Human Services


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