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Pursuant to a congressional request, GAO commented on proposed legislation intended to improve states' quality control under the Aid to Families with Dependent Children Program (AFDC). Under current rules, sanctions are assessed against states whose AFDC payment error rates exceed certain thresholds. Under the proposed legislation: (1) certain technical errors would be disregarded in the computation of states' payment error rates; (2) erroneous payments recovered by a state from previous fiscal years could be offset against the state's sanction for the year in which the payments were recovered; and (3) the Secretary of Health and Human Services could waive sanctions for any given state if the state agreed to spend at least half of the sanction amount on reducing payment errors. GAO noted that: (1) the types of technical data that could be omitted under the proposed legislation are necessary to establish recipient eligibility; (2) states are primarily responsible for the types of errors that would be disregarded; and (3) the offset proposal would create a disincentive for states to implement aggressive and desirable collection actions. In addition, GAO noted that, while it agreed in principle with sanction waivers: (1) no federal matching funds should be used because, if they were, states would receive an excessive business; (2) the amount waived should be a direct offset of funds actually expended; and (3) they should be conditional on verification that the funds offset were actually expended for error reduction activities.