Need for HEW To Recover Federal Funds in Uncashed AFDC Checks

GAO reviewed the requirements and practices for refunding or crediting the federal government's portion of checks that were issued to Aid to Families with Dependent Children (AFDC) recipients, but never cashed. Federal AFDC expenditures in fiscal year 1977 amounted to over $5 billion.

The return of federal AFDC funds for checks that were never cashed was generally left to the states' discretion. Although GAO did not determine why the checks were not cashed, information obtained on 11 of the 50 states showed that these states allowed AFDC checks to be negotiated 30 days to 2 years after they were issued, at which time they were cancelled. In addition, once states acted to void the checks, there was no mechanism to ensure that the federal government received credit for its portion of the funds. The President's 1980 budget proposed a change in the procedure for transferring federal funds to the states for public assistance programs, including AFDC. Presently, states are authorized to draw federal funds on or before the day they pay their bills. For the AFDC program, this is generally when the states issue checks to recipients. Between the time the checks are issued and cashed by the recipients, many states invest the federal funds and earn interest. Under the proposal, states would be authorized to draw federal funds only when a recipient actually cashes the check and it is presented to the state's commercial bank for payment. When adopted and implemented, the procedure would also eliminate the problem of the federal government not receiving credit for its share of funds in uncashed AFDC checks.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Joseph F. Delfico Team: General Accounting Office: Human Resources Division Phone: (202) 512-7215