Child Support Enforcement

States are turning to private firms to collect child support payments because they are finding it increasingly difficult to handle their growing child support enforcement caseloads with existing staff and budgets. Most states pay contractors only if collections are made, and payments to contractors are often a fixed percentage of collections. For example, in fiscal years 1994 and 1995, contractors in nine states collected nearly $60 million and were paid about $6 million. For families receiving welfare, most of the child support collected is kept by the government; in effect, the government is reimbursed for welfare payments made to families. Families not on welfare get most of the support collected. The split in collections between the federal and state governments depends first of all on the federal government's share of welfare payments within each state. The more the federal government pays in relation to the state, the more it gets back from child support collections. However, the net amount actually returned to the federal government is also reduced by performance incentives paid to the states and the share of child support enforcement program administrative costs picked up by the federal government. In the 11 contracts GAO reviewed, the federal government's financial outcomes ranged from a net cost of about $242,000 to revenues of $1.2 million.

GAO found that: (1) states contract with private agencies to collect past-due or hard-to-collect child support payments because they are finding it increasingly difficult to service their growing child support enforcement caseloads with available staff and budget resources; (2) under the terms of most collection contracts, states pay contractors only if collections are made, and contractor payments are often a fixed percentage of collections; (3) the federal and state governments retain most of the child support payments collected for families receiving Aid to Families with Dependent Children (AFDC) benefits, while non-AFDC families receive most of the support payments collected; (4) the federal government's share of the child support collections depends on how much it contributes to the state's welfare program and how much it pays in performance incentives and child support enforcement administrative costs; and (5) a review of 11 contracts showed that the federal government's financial outcomes ranged from a net cost of about $242,000 to revenues of $1.2 million.