Welfare Reform
Federal Oversight of State and Local Contracting Can be Strengthened Gao ID: GAO-02-661 June 11, 2002The 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.
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Director: Team: Phone:GAO-02-661, Welfare Reform: Federal Oversight of State and Local Contracting Can be Strengthened
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welfare reform:
Federal Oversight of State and Local Contracting Can Be Strengthened:
Report to Congressional Requesters:
United States General Accounting Office:
GAO:
June 2002:
GAO-02-661:
Contents:
Letter:
Results in Brief:
Background:
TANF-Funded Contracts Exceed $1.5 Billion Nationally and Cover an Array
of Services:
HHS Relies Primarily on State Single Audit Reports to Oversee TANF
Contracting but Does Not Use Them Systematically:
Different Approaches Have Been Used To Help Ensure Compliance with, and
Identify Problems in, Implementing Bid Solicitation and Contract Award
Processes:
Deficiencies Have Been Identified with Contract Oversight and
Contractor Performance in the States and Localities We Reviewed:
Conclusions:
Recommendation for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: National Survey on TANF-Funded State and Local Government
Contracting:
Appendix III: Problems Cited with TANF Subrecipient Monitoring
by State Single Audits, 1999 and 2000:
Appendix IV: Comments from the Department of Health and Human Services:
Appendix V: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: TANF Contracting Levels by State, 2001:
Table 2: Number of State Single Audit Reports that Cited Subrecipient
Monitoring or Procurement Problems in Six Social Service Programs, 1999
and 2000:
Table 3: Independent Audits Have Identified Problems with the Oversight
of TANF Contractors in Several States that We Reviewed:
Table 4: Contractor Performance in Meeting Work Participation Rates:
Table 5: Contractor Performance in Meeting Job Placement Rates:
Table 6: Contractor Performance in Meeting Job Retention Rates:
Figures:
Figure 1: Percentage of Federal and State TANF Funds and TANF Contracts
with Different Types of Contractors for State-Level Contracting, 2001:
Figure 2: TANF Services Contracted Out Most Frequently by State
Governments:
Figure 3: Types of Contracts Used for TANF Contracting by State
Governments:
Abbreviations:
AFDC: Aid to Families with Dependent Children
HHS: Health and Human Services
OMB: Office of Management and Budget
PRWORA:L Personal Responsibility and Work Opportunity Reconciliation
Act
TANF: Temporary Assistance for Needy Families
WIA: Workforce Investment Act:
Letter:
June 11, 2002:
The Honorable Tom Barrett
The Honorable Jerry Kleczka
The Honorable Carolyn Maloney
House of Representatives:
The Personal Responsibility and Work Opportunity Reconciliation Act
(PRWORA) of 1996 dramatically 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. As specified in PRWORA, 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.
While state and local governments have contracted out welfare services
for quite some time, 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, known as state
’maintenance-of-effort“ funds, is now devoted to various support
services that are typically contracted out. Contracting out social
services can potentially result in several benefits, such as more
efficient and effective delivery of services. While PRWORA expanded the
flexibility of states to design and administer their TANF programs, it
also limited the ability of the Department of Health and Human Services
(HHS) to regulate states‘ TANF programs. PRWORA also established new
accountability measures, such as minimum mandated work participation
rates for states and a 5-year lifetime limit on assistance for TANF
recipients. These measures heighten the importance of holding TANF
contractors accountable for performance.
In light of the upcoming reauthorization of TANF, you asked us to
review the procedures in place to manage TANF contracting and the
problems that have been identified in this area, particularly with
regard to for-profit organizations. We determined (1) the extent and
nature of state and local government contracting with for-profit and
nonprofit organizations, using federal and state TANF funds to provide
services to eligible recipients; (2) what approaches are used by the
federal government to oversee TANF contracting with nongovernmental
entities and what problems have been identified in this area
nationally; (3) what approaches are used by state and local governments
to ensure compliance with bid solicitation and contract award
requirements and what violations of these requirements have been
identified involving the awarding of contracts funded by TANF in
selected jurisdictions; and (4) what approaches are used by state and
local governments to ensure that organizations contracted to provide
services funded by TANF comply with the terms of their contracts and
what major instances of noncompliance with such requirements have been
identified in selected jurisdictions.
To respond to the first objective, we conducted a national survey of
all 50 states, the District of Columbia, and the 10 counties with the
largest federal TANF-funding allocations in each of the 13 states that
administer TANF locally. To respond to the second objective, we
interviewed HHS officials in Washington, D.C., and in several regional
offices and reviewed policies and other documentation related to
federal TANF oversight. We also examined audits performed under the
Single Audit Act of 1984. These comprehensive audits of expenditures of
various federal program funds by state and local governments and
nonprofit organizations conducted by nonfederal auditors or public
accounting firms assess compliance with federal financial requirements,
including those for TANF.[Footnote 1] To respond to the third and
fourth objectives, we conducted state and local site visits in
California (Los Angeles County and San Diego County); the District of
Columbia; Florida (Palm Beach and Miami-Dade); New York (New York
City); Texas (Austin and Houston); and Wisconsin (Milwaukee).[Footnote
2] We selected these states because of their substantial contracts with
large for-profit organizations to provide services funded by TANF,
large share of the national TANF caseload, and geographic dispersion.
In each of these states and respective localities, we interviewed key
officials, including procurement officers, contract managers,
auditors, and contractors. In addition, we obtained and analyzed
numerous documents, including reviews of contractors and contracting
agencies. We conducted our review from January 2001 through March 2002
in accordance with generally accepted government auditing standards.
(See app. I for a more detailed discussion of our scope and
methodology.):
Results in Brief:
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. This level
of contracting represents at a minimum 13 percent of total federal TANF
and state maintenance-of-effort funds expended for services. About 87
percent of the total funds contracted by state governments--and 73
percent of the contracts--are with nonprofit providers, which include
national organizations, faith-based organizations, and community-based
organizations. The remainder of the funds and contracts are with for-
profit organizations, including several organizations that have
contracts in multiple states. Although contractors provide a wide range
of services, the most commonly contracted services reported by our
survey respondents include education and training, job placement, and
support services to promote job entry or retention. The determination
of eligibility for services supported with TANF funds has been
contracted out in one or more locations in at least 18 states. In at
least 4 of these states, contracting agencies contracted out the
determination of eligibility for cash assistance under TANF. Most state
TANF contracting agencies pay contractors a fixed overall contract
price or reimburse them for their costs. However, some contracts have
performance incentives, whereby contractors are paid in part or whole
on the basis of achieving program objectives for TANF recipients, such
as meeting work participation, job placement, or job retention rates.
HHS relies primarily on state single audit reports to oversee TANF
contracting by states and localities. HHS officials told us that their
regional offices follow up on the TANF deficiencies identified by these
reports and that HHS focuses on reported deficiencies that involve
unallowable or questionable costs. However, HHS officials said that
they do 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 such a
comprehensive manner. State single audit reports have cited
deficiencies with states‘ monitoring of subrecipients of TANF funds for
15 different states--9 states in 1999 and 12 states in 2000--and with
states‘ procurement of TANF services less frequently (3 states in 1999
and 4 states in 2000). Our review of single audit reports found
internal control weaknesses for over a quarter of states nationwide
that potentially affected the states‘ ability to effectively oversee
nongovernmental TANF contractors. The reports cited a range of
weaknesses, including inadequate state reviews of the single audits of
subrecipients, failure of states to inform subrecipients of the sources
of federal funds they received, and inadequate state fiscal and program
monitoring of local workforce boards that contract for services.
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. In 2
of 10 separate TANF procurements--specific instances in which
government entities had solicited bids and awarded one or more
contracts--in the local sites that we visited, contract award decisions
were modified as the result of third-party challenges. These problems
affected 5 of the 58 TANF contracts awarded in the 10 procurements.
Procurement issues were raised in 2 other procurements but did not
result in the modification of contract award decisions.
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 we reviewed identified deficiencies in state or local
oversight of TANF contractors, such as uneven oversight by local
contracting agencies. Various factors have contributed to such
deficiencies, such as the need in some states to create and support new
local entities that contract for TANF services and oversee contractors.
With regard to contractor performance, several contractors at two of
the local sites that we visited were found to have had certain
unallowable costs. Moreover, at five of the eight local sites that had
established performance levels for contractors, most contractors did
not meet one or more of their performance levels. In light of the
extent to which single audits and other sources have identified
internal control weaknesses related to state oversight of TANF
contractors, coupled with HHS‘s lack of a comprehensive perspective on
these problems, we are recommending that HHS use state single audit
reports in a more systematic manner to identify the extent and nature
of these problems.
While HHS said that our report provides useful information on an
important topic, the agency did not agree with our recommendation. HHS
questioned whether the recommendation is consistent with provisions of
the Single Audit Act and with the clear emphasis on state flexibility
in the TANF statute. However, we believe that our recommendation is
consistent with these laws and that it would contribute to the stated
objective of the Single Audit Act of ensuring that federal agencies use
single audit reports to the maximum extent practicable in overseeing
federal programs. In addition, HHS said that it did not see what value
our recommendation would add to the TANF program and added that the
cost/benefit ratio must be considered. We believe that implementing our
recommendation would enable HHS to obtain information that could be
shared with its state TANF partners to facilitate better oversight of
nongovernmental contractors, such as national patterns in the problems
that single audit reports have cited with state monitoring of TANF
subrecipients. Furthermore, we believe that our recommendation is cost-
effective, in that it would involve making fuller use of existing
information at little additional cost.
Background:
State and local governments that receive grants from HHS must follow
the uniform administrative requirements set forth in federal
regulations.[Footnote 3] When procuring property and services, these
regulations require that states follow the same policies and procedures
they use for procurements supported with nonfederal funds. Under HHS‘s
regulations, states must also ensure that contracts include any clauses
required by federal statutes and executive orders. Grantees other than
states and subgrantees, such as local governments, rely on their own
procurement procedures, provided that they conform to applicable
federal laws and the standards identified in the regulations, including
standards of conduct, requirements of full and open competition in
contracting, procedures for different types of procurements, and bid
protest procedures to handle and resolve disputes relating to their
procurements. Grantees and subgrantees must maintain a contract
administration system that ensures that contractors perform in
accordance with the terms, conditions, and specifications of their
contracts.
The procurement of contracts typically follows a process that comprises
several phases, including bid solicitation and contract award
processes. The bid solicitation process will begin with the development
of a work plan by the contracting agency that outlines the objectives
contractors will be expected to achieve and the manner in which they
will be expected to achieve them. The state or locality will then issue
a request-for-proposals to inform potential bidders of the government‘s
interest in obtaining contractors for the work specified. A request-
for-proposals is a publicly advertised document that outlines
information necessary to enable prospective contractors to prepare
proposals properly. After these activities are completed, the contract
award process begins. Once proposals have been submitted, they are
evaluated to assess their relative merit. Several key criteria are
almost always considered in evaluating proposals, including price/cost,
staffing, experience, and technical and/or other resources.
The environment for administering social services such as TANF has been
affected by changes to the nation‘s workforce system. Through the
Workforce Investment Act (WIA) of 1998 (P.L. 105-220), the Congress
sought to replace the fragmented training and employment system that
existed under the previous workforce system. WIA requires state and
local entities that carry out specified federal programs to participate
in local one-stop centers--local centers offering job placement
assistance for workers and opportunities for employers to find workers-
-by making employment and training-related services available. While
TANF is not a mandatory partner at one-stop centers, some states are
using one-stop centers to serve TANF recipients. WIA called for the
development of workforce investment boards to oversee WIA
implementation at the state and local levels.[Footnote 4] WIA listed
the types of members that should participate on the workforce boards,
such as representatives of business, education, labor, and other
segments of the workforce investment community, but did not specify a
minimum or maximum number of members. Local workforce boards can
contract for services delivered through one-stop centers.
PRWORA broadened both the types of TANF services that could be
contracted out and the types of organizations that could serve as TANF
contractors. The act authorized states to contract out the
administration and provision of TANF services, including determining
program eligibility. Under the prior AFDC program, the determination of
program eligibility could not be contracted out to nongovernmental
agencies.[Footnote 5] In addition, under the PRWORA provision commonly
referred to as charitable choice, states are authorized to contract
with faith-based organizations to provide TANF services on the same
basis as any other nongovernmental provider without impairing the
religious character of such organizations.
Such changes in the welfare environment have affected the involvement
of for-profit organizations in TANF contracting. Prior to PRWORA,
contracting in the welfare arena was mainly for direct service delivery
such as job training, job search instruction, and child care provision.
While some for-profit companies provided services, service providers
were mostly nonprofit. Large for-profit companies were mainly involved
as contractors that designed automated data systems. In the broader
area of social services, large for-profits were also involved in
providing various services for child support enforcement. Now that
government agencies can contract out their entire welfare systems under
PRWORA, there has been an increase in the extent to which large for-
profit companies have sought out welfare contracts, in some cases on a
large scale that includes determining eligibility and providing
employment and social services.[Footnote 6]
Federal and state funds are used to serve TANF recipients. For federal
fiscal years 1997 to 2002, states received federal TANF block grants
totaling $16.5 billion annually. With respect to state funding, PRWORA
includes a maintenance-of-effort provision, which requires states to
provide 75 to 80 percent of their historic level of funding.[Footnote
7] States that meet federally mandated minimum participation rates must
provide at least 75 percent of their historic level of funding, and
states that do not meet these rates must provide at least 80 percent.
The federally mandated participation rates specify the percentages of
states‘ TANF caseloads that must be participating in work or work-
related activities each year.
HHS oversees states‘ TANF programs. In accordance with PRWORA and
federal regulations,[Footnote 8] HHS has broad responsibility to
oversee the proper state expenditure of TANF funds and the achievement
of related program goals. While TANF legislation prohibits HHS from
regulating states in areas that it is not legislatively authorized to
regulate, it must still oversee state compliance with program
requirements, such as mandated work participation rates and other
program requirements.
TANF-Funded Contracts Exceed $1.5 Billion Nationally and Cover an Array
of Services:
Nearly all states and the District of Columbia contract with
nongovernmental entities for the provision of TANF-funded services at
the state level, local level, or both levels of government. In 2001,
state and local governments spent more than $1.5 billion on contracts
with nongovernmental entities, or at least 13 percent of all federal
TANF and state maintenance-of-effort expenditures (excluding those for
cash assistance). The majority of these contracts are with nonprofit
organizations. Although TANF contractors provide a wide array of
services, the most commonly contracted services reported by our survey
respondents include employment and training services, job placement
services, and support services to promote job entry or retention. In
addition, eligibility determination for cash assistance under TANF or
other TANF-funded services has been contracted out in one or more
locations in some states. Most state TANF contracting agencies pay
contractors a fixed overall price or reimburse them for their costs
rather than base contract payments on achieving program objectives for
TANF recipients.
TANF Contracting Occurs at Different Levels of Government and with
Various Types of Organizations:
Contracting for TANF-funded services occurs in the District of Columbia
and every state except South Dakota. However, the level of government
at which contracting occurs varies, which complicates efforts to
provide comprehensive information on TANF-funded contracts.
Contracting occurs only at the state level in 24 states, only at the
local level in 5 states, at both levels in the remaining 20 states, and
in the District of Columbia. Moreover, contracting at the local level
encompasses contracting by agencies such as county departments of
social or human services as well as workforce development boards whose
jurisdiction may include several counties. Our national survey of TANF
contracting provides comprehensive information on contracting at the
state level but incomplete and nonrepresentative information on local
contracting.[Footnote 9]
In 2001, state and local governments expended at least $1.5 billion in
TANF funds for contracted services. With respect to state-level
contracting, contracts with nonprofit organizations accounted for 87
percent of TANF funds while contracts with for-profit organizations
accounted for 13 percent of funds (see fig. 1).Seventy-three percent of
state-level contracts are with nonprofit organizations and 27 percent
are with for-profit organizations. Under PRWORA‘s charitable choice
provision, some states have established initiatives to promote the use
of faith-based organizations.[Footnote 10] Contracts with faith-based
organizations constitute a smaller proportion of all contracted TANF
funds than contracts with secular nonprofit organizations and for-
profit organizations. As shown in figure 1, contracts with faith-based
organizations account for 8 percent of TANF funds spent by state
governments on contracts with nongovernmental entities nationally.
Figure 1: Percentage of Federal and State TANF Funds and TANF Contracts
with Different Types of Contractors for State-Level Contracting, 2001:
[See PDF for image]
Note: Our national TANF contracting survey also identified 1,517 TANF
contracts at the local level, which accounted for $525 million in
federal and state funds.
Source: GAO‘s national survey of TANF contracting.
[End of figure]
In several states, large percentages of the funds contracted by states
and localities that were identified by our national survey are in
contracts with for-profit organizations. As shown in table 1, at least
half of the contracted funds in 8 states are with for-profit
organizations.[Footnote 11] Moreover, in 11 states, more than 15
percent of all TANF-contracted funds identified by our survey went to
faith-based organizations.[Footnote 12]
The proportion of TANF funds expended for contracted services with
nongovernmental entities varies considerably by state. Nationally, at
least 13 percent of TANF funds expended for services other than cash
assistance have been contracted out. As shown in table 1, the
proportion of funds contracted out in 10 states in 2001 exceeded 20
percent of their fiscal year 2000 TANF fund expenditures (excluding the
portion of expenditures for cash assistance).[Footnote 13] Idaho,
Mississippi, New Jersey, Wisconsin, and the District of Columbia
expended more than 40 percent of their TANF funds on contracted
services. On the other hand, Iowa, Kansas, North Carolina, New Mexico,
and Oregon spent the smallest proportion (2 percent or less of their
TANF funds) on contracts with nongovernmental entities.
Table 1: TANF Contracting Levels by State, 2001:
Dollars in millions.
State: District of; Columbia; Total value of TANF contracts, 2001[A]:
$46.0; Total value of TANF contracts as a percentage of fiscal year
2000
federal TANF and state maintenance-of-effort expenditures (excluding
expenditures for basic assistance)[B]: 74; Percent of contracted funds
with nonprofit entities[C]: 46; Percent of
contracted funds with for-profit entities[C]: 54.
State: Mississippi; Total value of TANF contracts,
2001[A]: 49.0; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
71[D]; Percent of contracted funds with nonprofit
entities[C]: 75; Percent of contracted funds with
for-profit entities[C]: 25.
State: Idaho; Total value of TANF contracts, 2001[A]:
17.3; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
43; Percent of contracted funds with nonprofit
entities[C]: 83; Percent of contracted funds with
for-profit entities[C]: 17.
State: Wisconsin; Total value of TANF contracts, 2001[A]:
152.9; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
43; Percent of contracted funds with nonprofit
entities[C]: 82; Percent of contracted funds with
for-profit entities[C]: 18.
State: New Jersey; Total value of TANF contracts,
2001[A]: 41.6; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
42; Percent of contracted funds with nonprofit
entities[C]: 100; Percent of contracted funds with
for-profit entities[C]: 0.
State: Pennsylvania; Total value of TANF contracts,
2001[A]: 157.8; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
39; Percent of contracted funds with nonprofit
entities[C]: 97; Percent of contracted funds with
for-profit entities[C]: 3.
State: Montana; Total value of TANF contracts, 2001[A]:
7.5; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 32;
Percent of contracted funds with nonprofit
entities[C]: 100; Percent of contracted funds with
for-profit entities[C]: 0.
State: Tennessee; Total value of TANF contracts, 2001[A]:
41.9; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
31; Percent of contracted funds with nonprofit
entities[C]: 100; Percent of contracted funds with
for-profit entities[C]: 0.
State: Vermont; Total value of TANF contracts, 2001[A]:
6.6; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 29;
Percent of contracted funds with nonprofit
entities[C]: 100; Percent of contracted funds with
for-profit entities[C]: 0.
State: Minnesota; Total value of TANF contracts, 2001[A]:
39.3; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
21; Percent of contracted funds with nonprofit
entities[C]: 100; Percent of contracted funds with
for-profit entities[C]: 0.
State: Louisiana; Total value of TANF contracts, 2001[A]:
11.5; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
20; Percent of contracted funds with nonprofit
entities[C]: 74; Percent of contracted funds with
for-profit entities[C]: 26.
State: Nebraska; Total value of TANF contracts, 2001[A]:
7.1; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 20;
Percent of contracted funds with nonprofit
entities[C]: 50; Percent of contracted funds with
for-profit entities[C]: 50.
State: Washington; Total value of TANF contracts,
2001[A]: 44.8; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
20; Percent of contracted funds with nonprofit
entities[C]: 82; Percent of contracted funds with
for-profit entities[C]: 18.
State: Massachusetts; Total value of TANF contracts,
2001[A]: 66.9; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
19; Percent of contracted funds with nonprofit
entities[C]: 98; Percent of contracted funds with
for-profit entities[C]: 2.
State: Illinois; Total value of TANF contracts, 2001[A]:
111.9; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
18; Percent of contracted funds with nonprofit
entities[C]: 96; Percent of contracted funds with
for-profit entities[C]: 4.
State: Ohio; Total value of TANF contracts, 2001[A]:
98.3; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
16; Percent of contracted funds with nonprofit
entities[C]: 90; Percent of contracted funds with
for-profit entities[C]: 10.
State: South Carolina; Total value of TANF contracts,
2001[A]: 15.4; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
16; Percent of contracted funds with nonprofit
entities[C]: 97; Percent of contracted funds with
for-profit entities[C]: 3.
State: Delaware; Total value of TANF contracts, 2001[A]:
5.5; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 15;
Percent of contracted funds with nonprofit
entities[C]: 94; Percent of contracted funds with
for-profit entities[C]: 6.
State: West Virginia; Total value of TANF contracts,
2001[A]: 10.8; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
13; Percent of contracted funds with nonprofit
entities[C]: 52; Percent of contracted funds with
for-profit entities[C]: 48.
State: Arkansas; Total value of TANF contracts, 2001[A]:
9.2; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 11;
Percent of contracted funds with nonprofit
entities[C]: 63; Percent of contracted funds with
for-profit entities[C]: 37.
State: Colorado; Total value of TANF contracts, 2001[A]:
17.1; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
11; Percent of contracted funds with nonprofit
entities[C]: 98; Percent of contracted funds with
for-profit entities[C]: 2.
State: Nevada; Total value of TANF contracts, 2001[A]:
4.1; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 11;
Percent of contracted funds with nonprofit
entities[C]: 43; Percent of contracted funds with
for-profit entities[C]: 57.
State: Georgia; Total value of TANF contracts, 2001[A]:
24.0; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
10; Percent of contracted funds with nonprofit
entities[C]: 57; Percent of contracted funds with
for-profit entities[C]: 43.
State: Arizona; Total value of TANF contracts, 2001[A]:
13.7; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
9; Percent of contracted funds with nonprofit
entities[C]: 77; Percent of contracted funds with
for-profit entities[C]: 23.
State: Indiana; Total value of TANF contracts, 2001[A]:
23.3; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
9; Percent of contracted funds with nonprofit
entities[C]: 95; Percent of contracted funds with
for-profit entities[C]: 5.
State: Maine; Total value of TANF contracts, 2001[A]:
3.1; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 9;
Percent of contracted funds with nonprofit
entities[C]: 83; Percent of contracted funds with
for-profit entities[C]: 17.
State: New Hampshire; Total value of TANF contracts,
2001[A]: 3.5; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
9; Percent of contracted funds with nonprofit
entities[C]: 100; Percent of contracted funds with
for-profit entities[C]: 0.
State: New York; Total value of TANF contracts, 2001[A]:
149.5; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
9; Percent of contracted funds with nonprofit
entities[C]: 75; Percent of contracted funds with
for-profit entities[C]: 25.
State: Maryland; Total value of TANF contracts, 2001[A]:
10.6; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
8; Percent of contracted funds with nonprofit
entities[C]: 54; Percent of contracted funds with
for-profit entities[C]: 46.
State: Rhode Island; Total value of TANF contracts,
2001[A]: 5.3; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
8; Percent of contracted funds with nonprofit
entities[C]: 86; Percent of contracted funds with
for-profit entities[C]: 14.
State: Texas; Total value of TANF contracts, 2001[A]:
37.6; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
8; Percent of contracted funds with nonprofit
entities[C]: 73; Percent of contracted funds with
for-profit entities[C]: 27.
State: Utah; Total value of TANF contracts, 2001[A]: 3.9;
Total value of TANF contracts as a percentage of
fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 8;
Percent of contracted funds with nonprofit
entities[C]: 25; Percent of contracted funds with
for-profit entities[C]: 75.
State: California; Total value of TANF contracts,
2001[A]: 157.9; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
7; Percent of contracted funds with nonprofit
entities[C]: 64; Percent of contracted funds with
for-profit entities[C]: 36.
State: Missouri; Total value of TANF contracts, 2001[A]:
13.1; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
7; Percent of contracted funds with nonprofit
entities[C]: 77; Percent of contracted funds with
for-profit entities[C]: 23.
State: North Dakota; Total value of TANF contracts,
2001[A]: 1.4; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
7; Percent of contracted funds with nonprofit
entities[C]: 100; Percent of contracted funds with
for-profit entities[C]: 0.
State: Michigan; Total value of TANF contracts, 2001[A]:
52.8; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
6; Percent of contracted funds with nonprofit
entities[C]: 98; Percent of contracted funds with
for-profit entities[C]: 2.
State: Virginia; Total value of TANF contracts, 2001[A]:
7.1; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 6;
Percent of contracted funds with nonprofit
entities[C]: 93; Percent of contracted funds with
for-profit entities[C]: 7.
State: Alabama; Total value of TANF contracts, 2001[A]:
2.9; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 5;
Percent of contracted funds with nonprofit
entities[C]: 92; Percent of contracted funds with
for-profit entities[C]: 8.
State: Alaska; Total value of TANF contracts, 2001[A]:
1.3; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 4;
Percent of contracted funds with nonprofit
entities[C]: 100; Percent of contracted funds with
for-profit entities[C]: 0.
State: Connecticut; Total value of TANF contracts,
2001[A]: 11.7; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
4; Percent of contracted funds with nonprofit
entities[C]: 94; Percent of contracted funds with
for-profit entities[C]: 6.
State: Florida; Total value of TANF contracts, 2001[A]:
21.4; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
4; Percent of contracted funds with nonprofit
entities[C]: 30; Percent of contracted funds with
for-profit entities[C]: 70.
State: Oklahoma; Total value of TANF contracts, 2001[A]:
2.6; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 4;
Percent of contracted funds with nonprofit
entities[C]: 79; Percent of contracted funds with
for-profit entities[C]: 21.
State: Hawaii; Total value of TANF contracts, 2001[A]:
0.7; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 3;
Percent of contracted funds with nonprofit
entities[C]: 0; Percent of contracted funds with
for-profit entities[C]: 100.
State: Kentucky; Total value of TANF contracts, 2001[A]:
3.2; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 3;
Percent of contracted funds with nonprofit
entities[C]: 52; Percent of contracted funds with
for-profit entities[C]: 48.
State: Wyoming; Total value of TANF contracts, 2001[A]:
0.4; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 3;
Percent of contracted funds with nonprofit
entities[C]: 0; Percent of contracted funds with
for-profit entities[C]: 100.
State: Iowa; Total value of TANF contracts, 2001[A]: 1.8;
Total value of TANF contracts as a percentage of
fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 2;
Percent of contracted funds with nonprofit
entities[C]: 100; Percent of contracted funds with
for-profit entities[C]: 0.
State: Kansas; Total value of TANF contracts, 2001[A]:
2.1; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 2;
Percent of contracted funds with nonprofit
entities[C]: 58; Percent of contracted funds with
for-profit entities[C]: 42.
State: North Carolina; Total value of TANF contracts,
2001[A]: 7.1; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
2; Percent of contracted funds with nonprofit
entities[C]: 75; Percent of contracted funds with
for-profit entities[C]: 25.
State: New Mexico; Total value of TANF contracts,
2001[A]: 0.5; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
1; Percent of contracted funds with nonprofit
entities[C]: 40; Percent of contracted funds with
for-profit entities[C]: 60.
State: Oregon; Total value of TANF contracts, 2001[A]:
0.9; Total value of TANF contracts as a percentage
of fiscal year 2000 federal TANF and state maintenance-of-effort
expenditures (excluding expenditures for basic assistance)[B]: 1;
Percent of contracted funds with nonprofit
entities[C]: 100; Percent of contracted funds with
for-profit entities[C]: 0.
State: South Dakota; Total value of TANF contracts,
2001[A]: e; Total value of TANF contracts as a
percentage of fiscal year 2000 federal TANF and state maintenance-of-
effort expenditures (excluding expenditures for basic assistance)[B]:
e; Percent of contracted funds with nonprofit
entities[C]: e; Percent of contracted funds with
for-profit entities[C]: e.
[A] This is the amount of federal TANF and state maintenance-of-effort
funds contracted out to nongovernmental entities by states and
localities and represents the maximum amount that contractors could
receive in a single year for services provided under their TANF
contracts. The amounts listed for each of the 21 states for which we
did not receive complete information on local-level contracting likely
understate the total value of TANF contracts. These states are Arizona,
Arkansas, California, Colorado, Florida, Georgia, Kentucky, Maryland,
Massachusetts, Minnesota, Mississippi, Nevada, New York, North
Carolina, Ohio, Pennsylvania, South Carolina, Texas, Utah, Virginia,
and Wisconsin.
[B] To calculate these percentages, we used data reported by HHS on
each state‘s total federal TANF and state maintenance-of-effort
expenditures for federal fiscal year 2000. We then subtracted the
portion of these expenditures that were for basic assistance, a
category used by HHS that includes benefits in the form of cash,
payments, vouchers, or other forms designed to meet recipients‘ ongoing
basic needs. We excluded basic assistance in our calculations of TANF
contracting levels because recipients receive these expenditures. Since
national data are not yet available on states‘ federal TANF and
maintenance-of-effort expenditures for federal fiscal year 2001, the
percentages provide an estimate of the relative levels of TANF
contracting in 2001. The percentages may be understated for each of the
21 states for which we did not receive complete information on local-
level contracting (see table note ’a“ for a list of these states).
[C] These percentages are based on the TANF contracts that were
identified in the responses to our national survey on TANF contracting.
[D] We used data on the state‘s federal TANF and state maintenance-of-
effort expenditures obtained from Mississippi state officials to
calculate this figure.
[E] South Dakota does not contract for TANF services.
Source: Data on states‘ federal TANF and maintenance-of-effort
expenditures are from HHS, and other data are from GAO‘s national
survey of TANF contracting.
[End of table]
Several large for-profit organizations and nonprofit organizations have
large TANF contracts in multiple states. Our national survey of TANF
contracting asked state and local respondents to identify the names of
the contractors with the three largest dollar contracts in their
jurisdictions. Four for-profit organizations--Curtis & Associates,
Inc.; Maximus; America Works; and Affiliated Computer Services, Inc.--
have contracts with the highest dollar values in two or more
states.[Footnote 14] Among this group, Curtis & Associates, Inc., had
the TANF contracts with the highest dollar value relative to other
contractors in their respective locations. Among nonprofit contractors,
Goodwill Industries, YWCA, Catholic Charities, Lutheran Social
Services, Salvation Army, Urban League, United Way, Catholic Community
Services, American Red Cross, and Boys & Girls Clubs all have TANF-
funded contracts in two or more states.[Footnote 15] Among this group,
Goodwill Industries had the TANF contracts with the highest dollar
value relative to other contractors in their respective locations.
Services Contracted Out Typically Include Job Preparation, Placement,
and Retention:
States and localities contract with nongovernmental entities to provide
services to facilitate employment, administer program functions, and
strengthen families. Overall, states and localities rarely contract
different types of services to nonprofit and for-profit organizations.
Government entities contract out most often for services to facilitate
employment. As shown in figure 2, over 40 percent of state respondents
reported that half or more of their TANF-funded contracts ask for the
provision of education and training activities, job placement services,
and support services that address barriers to work and help clients
retain employment. These support services include substance abuse
treatment, assistance with transportation, and other services that
facilitate job entry and retention. Childcare services are less common.
While the responses we obtained from local respondents about types of
services contracted out may not be representative of local TANF
contracting, they revealed a similar overall pattern to the responses
by state respondents presented in figure 2. In some cases, states and
localities have contracted with nongovernmental entities to provide
program administrative functions that were required to be performed by
government workers in the past, such as determining eligibility. The
determination of eligibility for TANF-funded services provided to low-
income families who are ineligible for cash assistance has been
contracted out in one or more locations in at least 18 states. For
example, one Ohio county, which offers a variety of services with
varying eligibility criteria to the working poor, contracts with
nongovernmental organizations to both provide and determine eligibility
for the services. Contractors in at least 4 states are contracting out
eligibility for cash assistance under TANF, an option authorized under
TANF. Finally, some states and localities are using TANF funds to
contract for services related to the TANF objectives of preventing and
reducing the incidence of nonmarital pregnancies and encouraging the
formation and maintenance of two-parent families. For example, 20
percent of state respondents reported that half or more of their TANF
contracts call for the provision of services pertaining to stabilizing
families.
Figure 2: TANF Services Contracted Out Most Frequently by State
Governments:
[See PDF for image]
Note: Responses from state respondents in five states covered both
their state-level and local-level contracting. These states are
Connecticut, Missouri, New Jersey, New Mexico, and Washington.
Source: GAO‘s national survey of TANF contracting.
[End of figure]
Many Contracting Agencies Pay Contractors Based on Costs Incurred,
Rather Than on Program Objectives Achieved:
We asked state and local governments about the use of four common types
of contracts for TANF services: cost-reimbursement, fixed priced,
incentive, and cost-reimbursement plus incentive. Under cost-
reimbursement contracts, contracting agencies pay contractors for the
allowable costs they incur, whereas under fixed-price contracts,
contracting agencies pay contractors based on a pre-established overall
contract price. As figure 3 shows, almost 60 percent of state
respondents said that half or more of their TANF contracts are cost-
reimbursement. Far fewer respondents report that half or more of their
TANF contracts were incentive or cost-reimbursement plus incentive.
Under incentive contracts, the amount paid to contractors is determined
based on the extent to which contractors successfully achieve specified
program objectives for TANF recipients, such as job placements and the
retention of jobs. Cost-reimbursement plus incentive contracts pay
contractors for costs they incur and provide payments above costs for
the achievement of specific objectives. While the responses we obtained
from local respondents may not be representative of local TANF
contracting, they revealed a similar pattern to the responses by state
respondents. Our survey disclosed that many state and local governments
have chosen to use a contract type--cost-reimbursement--under which the
government assumes a relatively high level of financial risk.
Contracting agencies assume greater financial risk when they are
required to pay contractors for allowable costs under cost-
reimbursement contracts than when overall contract payments are limited
to a pre-established price.
Figure 3: Types of Contracts Used for TANF Contracting by State
Governments:
[See PDF for image]
Note: Responses from state respondents in five states covered both
their state-level and local-level contracting. These states are
Connecticut, Missouri, New Jersey, New Mexico, and Washington.
Source: GAO‘s national survey of TANF contracting.
[End of figure]
HHS Relies Primarily on State Single Audit Reports to Oversee TANF
Contracting but Does Not Use Them Systematically:
HHS relies primarily on state single audit reports to oversee state and
local procurement of TANF services and monitoring of TANF contractors.
State single audit reports identified TANF procurement or subrecipient
monitoring problems for about one-third of the states for the period
1999 to 2000, and subrecipient monitoring problems were identified more
frequently. However, HHS officials told us that they do not know the
overall extent to which state single audits have identified problems
with the monitoring of nongovernmental TANF contractors or the nature
of these problems because they do not analyze the reports in such a
comprehensive manner. Our review of state single audit reports for 1999
and 2000 found internal control weaknesses for over a quarter of states
nationwide that potentially affected the states‘ ability to effectively
oversee TANF contractors.[Footnote 16]
Single Audits Assess TANF Procurement and Subrecipient Monitoring:
HHS relies primarily on state single audits to oversee TANF contracting
by states and localities. The Single Audit Act of 1984 (P.L. 98-502),
as amended, requires federal agencies to use single audit reports in
their oversight of state-managed programs supported by federal funds.
The objectives of the act, among others, are to (1) promote sound
financial management, including effective internal controls, with
respect to federal funds administered by states and other nonfederal
entities; (2) establish uniform requirements for audits of federal
awards administered by nonfederal entities; and (3) ensure that federal
agencies, to the maximum extent practicable, rely on and use single
audit reports. In addition, the act requires federal agencies to
monitor the use of federal funds by nonfederal entities and provide
technical assistance to help them implement required single audit
provisions. The results of single audits provide a tool for federal
agencies to monitor whether nonfederal entities are complying with
federal program requirements. To help meet the act‘s objectives, Office
Of Management and Budget (OMB) Circular A-133 requires federal agencies
to evaluate single audit findings and proposed corrective actions,
instruct states and other nonfederal entities on any additional actions
needed to correct reported problems, and follow up with these entities
to ensure that they take appropriate and timely corrective action.
States, in turn, are responsible for working with local governments to
address deficiencies identified in single audits of local
governments.[Footnote 17]
Single audits assess whether audited entities have complied with
requirements in up to 14 managerial or financial areas, including
allowable activities, allowable costs, cash management, eligibility,
and reporting. Procurement and subrecipient monitoring constitute 2 of
the 14 compliance areas most relevant to TANF contracting. Audits of
procurement requirements assess the implementation of required
procedures, including whether government contracting agencies awarded
TANF contracts in a full and open manner. Audits of subrecipient
monitoring requirements examine whether an entity has adequately
monitored the entities to whom it has distributed TANF funds.
Subrecipients of TANF funds from states can include both local
governments and nongovernmental entities with whom the state has
contracted. Subrecipients of TANF funds from localities can include
nongovernmental TANF contractors.
State Single Audits Have Identified TANF Monitoring and Procurement
Problems:
State single audit reports identified TANF subrecipient monitoring or
procurement problems for one-third of the states. Single audits
identified subrecipient monitoring deficiencies for 9 states in 1999
and 12 states in 2000.[Footnote 18] Of the 15 states that had
subrecipient monitoring deficiencies in either 1999 or 2000, 6 states
were cited for deficiencies in both years. State single audits
identified procurement problems less frequently: for 3 states in 1999
and 4 states in 2000.[Footnote 19]
The extent to which state single audits have identified problems with
subrecipient monitoring involving TANF funds is generally equal to or
greater than for several other social service programs in which
contracting occurs with nongovernmental organizations. As shown in
table 2, the number of state single audits that identified deficiencies
in subrecipient monitoring for the 1999 to 2000 time period is similar
for TANF, child care, and the Social Services Block Grant. Fewer state
audits identified such problems for child support enforcement,
Medicaid, and Food Stamps. With regard to procurement, the frequency of
identified deficiencies in state audits for TANF was fewer than that
for Medicaid but about the same as for several other programs.[Footnote
20]
Table 2: Number of State Single Audit Reports that Cited Subrecipient
Monitoring or Procurement Problems in Six Social Service Programs, 1999
and 2000:
Social service program: TANF; Numbers of reports that cited problems
with subrecipient monitoring (percentages[A] of audited programs that
cited problems)b: 1999: 9 (22 percent); Numbers of reports that cited
problems with subrecipient monitoring (percentages[A] of audited
programs that cited problems)b: 2000: 12 (29 percent); [Empty]; Numbers
of reports that cited problems with procurement (percentages[A] of
audited programs that cited problems)b: 1999: 3 (7 percent); Numbers of
reports that cited problems with procurement (percentages[A] of audited
programs that cited problems)b: 2000: 4 (10 percent).
Social service program: Child Care; Numbers of reports that cited
problems with subrecipient monitoring (percentages[A] of audited
programs that cited problems)b: 1999: 8 (23); Numbers of reports that
cited problems with subrecipient monitoring (percentages[A] of audited
programs that cited problems)b: 2000: 11 (29); [Empty]; Numbers of
reports that cited problems with procurement (percentages[A] of audited
programs that cited problems)b: 1999: 4 (11); Numbers of reports that
cited problems with procurement (percentages[A] of audited programs
that cited problems)b: 2000: 1 (3).
Social service program: Child Support Enforcement; Numbers of reports
that cited problems with subrecipient monitoring (percentages[A] of
audited programs that cited problems)b: 1999: 5 (15); Numbers of
reports that cited problems with subrecipient monitoring
(percentages[A] of audited programs that cited problems)b: 2000: 11
(28); [Empty]; Numbers of reports that cited problems with procurement
(percentages[A] of audited programs that cited problems)b: 1999: 2 (6);
Numbers of reports that cited problems with procurement (percentages[A]
of audited programs that cited problems)b: 2000: 6 (15).
Social service program: Medicaid; Numbers of reports that cited
problems with subrecipient monitoring (percentages[A] of audited
programs that cited problems)b: 1999: 7 (16); Numbers of reports that
cited problems with subrecipient monitoring (percentages[A] of audited
programs that cited problems)b: 2000: 7 (15); [Empty]; Numbers of
reports that cited problems with procurement (percentages[A] of audited
programs that cited problems)b: 1999: 7 (16); Numbers of reports that
cited problems with procurement (percentages[A] of audited programs
that cited problems)b: 2000: 7 (15).
Social service program: Food Stamps; Numbers of reports that cited
problems with subrecipient monitoring (percentages[A] of audited
programs that cited problems)b: 1999: 2 (5); Numbers of reports that
cited problems with subrecipient monitoring (percentages[A] of audited
programs that cited problems)b: 2000: 4 (12); [Empty]; Numbers of
reports that cited problems with procurement (percentages[A] of audited
programs that cited problems)b: 1999: 2 (5); Numbers of reports that
cited problems with procurement (percentages[A] of audited programs
that cited problems)b: 2000: 0 (0).
Social service program: Social Services Block Grant; Numbers of reports
that cited problems with subrecipient monitoring (percentages[A] of
audited programs that cited problems)b: 1999: 6 (21); Numbers of
reports that cited problems with subrecipient monitoring
(percentages[A] of audited programs that cited problems)b: 2000: 14
(47); [Empty]; Numbers of reports that cited problems with procurement
(percentages[A] of audited programs that cited problems)b: 1999: 2 (7);
Numbers of reports that cited problems with procurement (percentages[A]
of audited programs that cited problems)b: 2000: 4 (13).
[A] In some cases, a state‘s single audit may not cover every social
service program each year. The figures in parentheses represent the
numbers of single audit reports that cited problems as a percentage of
the single audit reports in which the program was audited.
[B] For this analysis, the scope of state single audit reports included
the 50 states and the District of Columbia but not Puerto Rico and the
United States territories. :
Source: GAO analysis of the single audit database.
[End of table]
HHS officials told us that state single audits during this time period
had identified TANF subrecipient monitoring problems in only two
states--Florida and Louisiana--that involved unallowable or
questionable costs and that also pertained to the oversight of
nongovernmental TANF contractors. However, HHS officials also said that
they do not know the overall extent to which state single audits have
identified problems with the monitoring of nongovernmental TANF
contractors or the nature of these problems because they do not analyze
the reports in such a comprehensive manner. Our analysis of the state
single audit reports that cited TANF subrecipient monitoring problems
in 1999 or 2000 indicates that the reports for 14 of the 15 states
identified internal control weaknesses that potentially affected the
states‘ ability to adequately oversee nongovernmental TANF
contractors.[Footnote 21] Thus, internal control weaknesses pertaining
to contractor oversight have been reported for more than a quarter of
all states nationwide. (See app. III for a summary of the problems
reported in each of the state single audits.):
The reported deficiencies in states‘ monitoring of subrecipients cover
a wide range of problems, including inadequate reviews of the single
audits of subrecipients, failure to inform subrecipients of the sources
of federal funds they received, and inadequate fiscal and program
monitoring of local workforce boards. The audit reports for some
states, such as Alaska, Kentucky (2000 report), and Louisiana (1999 and
2000 reports) specified that the monitoring deficiencies involved or
included subrecipients that were nongovernmental entities. For example,
the 2000 single audit for Louisiana reported that for 7 consecutive
years the state did not have an adequate monitoring system to ensure
that subrecipients and social service contractors were properly
audited, which indicates that misspent federal funds or poor contactor
performance may not be detected and corrected.
The audit reports for other states, including Arizona, Michigan,
Minnesota, and Mississippi do not specify whether the subrecipients
that were inadequately monitored were governmental or nongovernmental
entities. However, the reported internal control weaknesses potentially
impaired the ability of these states to properly oversee either their
own TANF contractors or the monitoring of TANF contractors that have
contracts with local governments. For example, the 2000 single audit
report for Minnesota found that the state agency did not have policies
and procedures in place to monitor the activities of TANF
subrecipients. The 2000 audit report for Mississippi found that the
state did not review single audits of some subrecipients in a timely
manner and did not perform timely follow-up in some cases when
subrecipients did not submit their single audits on time. Even if the
subrecipients referred to in both of these audit reports were solely
local governmental entities, the deficiencies cited potentially limited
the states‘ abilities to identify and follow-up in a timely manner on
any problems with local monitoring of TANF contractors.
HHS Does Not Use State Single Audits in a Systematic Manner to Oversee
TANF Contracting:
HHS follows up on a state-by-state basis on the TANF-related problems
cited in state single audits and focuses primarily on the problems that
involve monetary findings. However, HHS does not use these reports in a
systematic manner to develop a national overview of the extent and
nature of problems with states‘ oversight of TANF contractors. HHS
officials said that HHS regional offices review state single audits and
perform follow-up actions in cases where deficiencies were identified.
These actions include sending a letter to the state acknowledging the
reported problems and any plans the state may have submitted to correct
the identified deficiency. HHS officials told us that their reviews of
single audit reports focus on TANF audit findings that cited
unallowable or questionable costs, and that HHS tracks such findings in
its audit resolution database. The officials explained that their focus
on monetary findings stems from the need to recover any unallowable
costs from states and from HHS‘s oversight responsibility under PRWORA
to determine whether to impose penalties on states for violating
statutory TANF requirements. If the deficiency identified by a single
audit involves monetary findings, HHS takes actions to recover the
costs within the same year, according to HHS officials. HHS officials
told us that if the identified deficiency does not involve monetary
findings but pertains to a programmatic issue such as subrecipient
monitoring, HHS generally relies on the state to correct the reported
problem and would initiate corrective action if the same problem were
cited in the state‘s single audit the following year. However, HHS does
not use state single audit reports in a systematic manner to oversee
TANF contracting, such as by analyzing patterns in the subrecipient
monitoring deficiencies cited by these reports.
HHS auditors and program officials also told us that inconsistent
auditing of nongovernmental entities and state monitoring of these
entities affects HHS‘s use of single audits as a management tool. For
example, HHS officials said that the same nongovernmental entity might
be treated as a subrecipient by one state and as a vendor by another
state, which could limit HHS‘s ability to determine whether the entity
has consistently complied with all applicable federal and state
requirements. HHS officials told us that they plan to work, in
conjunction with OMB, to explore the reasons for the inconsistencies
and, where appropriate, to identify ways to better assure compliance
with audit requirements applicable to nongovernmental entities.
Different Approaches Have Been Used To Help Ensure Compliance with, and
Identify Problems in, Implementing Bid Solicitation and Contract Award
Processes:
State and local governments rely on third parties to help ensure
compliance with procurement requirements, including bid protests,
judicial processes, and external audits. Procurement problems that
resulted in the modification of contract award decisions surfaced in 2
of the 10 TANF procurements we reviewed. These problems affected 5 of
the 58 TANF contracts awarded in the 10 procurements. Procurement
issues were raised in 2 other procurements but did not result in the
modification of contract award decisions.
Oversight Approaches Include External Reviews and Administrative and
Judicial Processes:
State and local governments have primary responsibility for overseeing
procurement procedures, and they use several approaches to identify
problems with procurement processes. In some cases, contracting
agencies rely on aggrieved third parties to identify procurement
problems through bid protests or lawsuits. In other cases,
organizations outside the procurement process may review bid
solicitation and contract award procedures. A bid protest occurs when
an aggrieved party--a bidder who did not win a contract award--protests
the decision of the local or state agency to award another bidder a
contract. The process usually has several tiers, starting with a
secondary review by the agency that denied the contract award. If the
protest cannot be resolved internally, it can be brought to a higher
level of authority. Contract agency officials said that bidders
frequently protest contract award decisions. However, state and local
officials also said that many bid protests are based more on bidder
disgruntlement with award decisions than on corroborated instances of
noncompliance with procurement processes. However, these protests do
occasionally result in a resolution that favors the bid protester.
Procurement Problems Were Identified in Some Cases:
We reviewed 10 separate procurements--specific instances in which
government agencies had solicited bids and awarded one or more TANF
contracts--in the local sites that we visited.[Footnote 22] Procurement
problems identified in San Diego and Los Angeles resulted in contract
award decisions being modified. In San Diego, the county employees
union filed a lawsuit against the county maintaining that the county
had failed to conduct a required cost analysis to determine whether it
was more or less efficient to contract out services than it would be to
provide them by county employees. The union won the case, and the
county was required to perform a cost analysis and, upon determination
that contracted services would be more cost-efficient than publicly
provided services, resolicit bids from potential contractors. In Los
Angeles County‘s procurement of TANF services, one bidder filed a bid
protest, claiming that the contracting agency had failed to properly
evaluate its bid. As the final contract award authority, the County
Board of Supervisors ordered the Director of Public Social Services to
negotiate separate contracts for TANF services to the original awardee
and protesting bidder.
While procurement issues were raised in the District of Columbia and
New York City, their resolution did not result in contract award
decisions being modified. In the District of Columbia, the city
Corporation Counsel raised concerns regarding the lack of price
competition and the lack of an evaluation factor for price. For
example, the District‘s contracting agency set fixed prices it would
pay for TANF services and did not select contractors based on prices
they offered. District officials said that they set fixed prices so
that contractors would not submit proposals that would unrealistically
underbid other contractors. In addition, the agency did not include
price as a factor in its evaluation of proposals. As a result of these
and other factors, the Corporation Counsel concluded that the
District‘s procurement of TANF services was defective and legally
insufficient. However, the city, operating under the authority of the
mayor‘s office to make final contract award decisions, approved the
contract awards and subsequently implemented regulations changing the
way price is used in making contract award decisions.
In New York City, the TANF contracting process was alleged to have
violated certain requirements, but these charges were not confirmed
upon subsequent legal review and a resulting appellate court decision.
The New York City Comptroller reported that the contracting agency had
not disclosed the weights assigned to evaluation criteria for assessing
bids, provided contract information to all bidders, and assessed each
bid equitably. With regard to the assessment of bids, the comptroller
maintained that the city‘s Human Resources Administration (HRA) had
deemed as unqualified some proposals that clearly ranked among the most
technically qualified and recommended contract awards for other
proposals that were much less qualified. The comptroller also
maintained that HRA had preliminary contact with one of the potential
contractors, reporting that HRA had held discussions and shared
financial and other information with the contractor before other
organizations had been made aware of the same information. The
comptroller concluded that these actions constituted violations of city
procurement policies. Utilizing its authority to make final contract
award decisions, the mayor‘s office subsequently overruled the
comptroller‘s objections and authorized the contract agency to award
contracts to the organizations it had selected. A later court appeal
found in favor of the mayor‘s office.[Footnote 23]
Deficiencies Have Been Identified with Contract Oversight and
Contractor Performance in the States and Localities We Reviewed:
State and local governments use a variety of approaches to help ensure
that TANF-funded contractors expend federal funds properly and comply
with TANF program requirements, such as on-site reviews and independent
audits. Four of the six states that we visited identified deficiencies
in their oversight of TANF contractors. Various factors have
contributed to these deficiencies, such as the need in some states to
create and support local workforce boards that contract for TANF
services and oversee contractors. With regard to contractor
performance, several contractors at two local sites were found to have
had certain disallowed costs and were required to pay back the amounts
of these costs. Moreover, in five of the eight locations that
established performance levels for TANF contractors, most contractors,
including both nonprofit and for-profit contractors, did not meet one
or more of their performance levels.
States and Localities Use Various Approaches to Oversee TANF
Contractors:
State and local oversight approaches that we found being used originate
from organizations external to contracting agencies and these include
independent audits and program evaluations. State and local government
auditors, comptrollers, treasurers, or contracted certified public
accounting firms audit contractors. Independent auditors conduct
financial and programmatic audits of compliance with contract
specifications. Similarly, evaluators from outside the contracting
agency generally evaluate various aspects of program implementation,
including financial, programmatic, and operational performance by
contractors and other entities responsible for achieving program goals.
Problems Have Been Cited with State and Local Oversight of TANF
Contractors:
State and local government auditors in several states have identified
shortcomings in how contracting agencies oversee TANF contractors. As
shown in table 2, auditors reported oversight deficiencies in four of
the six states that we visited--Florida, New York, Texas, and
Wisconsin. Audit reports cited uneven oversight coverage of TANF
contractors over time or across local contracting agencies. We did not
identify any audit reports that assessed the oversight of TANF
contractors in California or the District of Columbia.
Table 3: Independent Audits Have Identified Problems with the Oversight
of TANF Contractors in Several States that We Reviewed:
State government: Florida; Audit agency (year of audit report): State
Inspector General‘s Office (2000); Overview of problems identified:
Contract monitoring conducted by Florida‘s 24 local workforce boards
was inconsistent. Some of the boards failed to develop a monitoring
plan to document and follow-up on oversight activities. In addition,
some of the boards that were monitoring contractors did not assess
financial and programmatic performance..
Audit agency (year of audit report): State government : State
Legislative Offices (2000); Overview of problems identified: State
government : Lack of a fully integrated system for reporting and
resolving instances of contractor noncompliance. State agencies
primarily serve in a policy making, administrative, support, or
oversight capacity, including oversight of local workforce boards. The
boards, in turn, contract with nongovernmental entities to provide
direct services or administrative functions. To improve oversight of
contractors, the report recommended that the state develop an
integrated automated system to, among other things, generate
performance information on service providers and workforce development
outcomes at both the state and local levels..
State government: New York; Audit agency (year of audit report): State
Comptroller‘s Office (2000); Overview of problems identified: The state
contracting agency devoted its limited resources to implementing
welfare employment programs and did not give appropriate priority to
monitoring the outcomes of these programs. Similarly, counties have not
devoted sufficient priority or resources to carry out their monitoring
responsibilities effectively. In addition, the state contracting agency
did not have adequate information systems to monitor and report on work
participation by TANF recipients..
State government: Texas; Audit agency (year of audit report): State
Auditor‘s Office (1999); Overview of problems identified: The state‘s
financial and program monitoring of local workforce boards did not
provide reasonable assurance that TANF funds were being spent
appropriately. The state performed only limited program monitoring of 4
of the 18 local boards that had TANF contracts at the time. In
addition, financial monitoring procedures were inconsistent and lacked
certain attributes, such as assessing whether the boards passed funds
to their contractors as required.; Local workforce boards were not
meeting their responsibility to monitor their TANF contractors. Only 5
of 15 boards contacted by the state auditor had reviewed their TANF
contractors and issued a monitoring report, and only 1 of these 5 had
performed any fiscal monitoring..
Audit agency (year of audit report): State Auditor‘s Office (2001);
Overview of problems identified: While the state has improved its
oversight of local workforce boards, the local boards audited for this
report continue to provide insufficient oversight of TANF contractors.
For example, the boards lacked knowledgeable staff to oversee
contractors and did not have adequate coverage of contractors, thus
increasing the risk of not detecting or correcting major problems..
State government: Wisconsin; Audit agency (year of audit report): State
Legislative Audit Bureau (2001); Overview of problems identified: The
organization contracted to oversee TANF contractors in Milwaukee County
did not review case management information through monthly desk reviews
and on-site visits for all clients reaching the 24-month time limit, as
contractually required..
Source: State government audit reports.
[End of table]
Evolving TANF program structures, resource constraints, and data
quality issues contributed to the deficiencies in contractor oversight.
In Florida and Texas, for example, new TANF program structures entailed
establishing local workforce boards throughout the state as the
principal entity for TANF contracting and the subsequent oversight of
TANF contractors. In both states, local workforce boards varied
significantly in their capability to oversee TANF contractors and
ensure compliance with contract requirements. According to New York
State program officials, contracting agencies in the state continue to
experience ongoing shortfalls in staff resources necessary to provide
sufficient oversight of contractor performance. In addition,
Wisconsin‘s Legislative Audit Bureau reported in 2001 that the Private
Industry Council had not provided the requisite oversight of five TANF-
funded contractors in Milwaukee County. In addition, state and local
officials in other states frequently told us that data quality issues
complicated efforts to monitor contractors effectively. For example,
officials told us that case file information on job placements or job
retention frequently differed from data in automated systems maintained
by state or local contracting agencies. In New York City, such
discrepancies required the Human Resources Administration to conduct
time-consuming reviews and reconciliations of the data. Such
inaccuracies forced delays in New York City‘s payments to contractors,
estimated by city officials to total several million dollars.
States and localities have taken actions in response to some of the
reported contract oversight deficiencies. For example, state of Florida
officials worked with local workforce boards to integrate the
operations of welfare and employment offices to improve oversight of
service providers, including nongovernmental contractors. In Texas, the
Texas Workforce Commission issued new oversight policies and provided
technical assistance and guidance to help local workforce boards
oversee the performance of TANF contractors. For example, the
commission‘s prior monitoring had identified inappropriate cost
allocations across programs and other financial management problems by
local boards. The commission subsequently issued guidance on how boards
and their contractors can meet cost allocation requirements. Commission
officials told us that they use a team approach to monitor workforce
boards and provide technical assistance.
Contractors at Two Locations Had Unallowable Costs:
Auditors disallowed significant costs by TANF contractors at two of the
locations that we visited: Milwaukee County, Wisconsin, and Miami-Dade
County, Florida.[Footnote 24] In the first location, Wisconsin‘s State
Legislative Audit Bureau reported that one for-profit contractor had
disallowable and questionable costs[Footnote 25] totaling $415,247 (of
which 33 percent were disallowable) and one nonprofit contractor had
disallowable and questionable costs totaling $367,401 (of which 83
percent were disallowable).[Footnote 26] State auditors reported that a
large proportion of the disallowable costs resulted from the
contractors claiming reimbursement from Wisconsin for expenses incurred
while attempting to obtain TANF contracts in other states. Auditors
said that generally accepted contract restrictions prohibit the use of
contract funds obtained in one state from being used to obtain new
contracts in other states. State auditors also said they examined
whether there had been any preconceived intent underlying these
prohibited contract practices, which could have led to charges of
fraud. However, the auditors could not demonstrate preconceived intent
or any related allegations of fraud.
The for-profit contractor also had costs disallowed for expenditures
that supported TANF-funded activities involving a popular entertainer
who had formerly received welfare benefits. The contractor believed the
activity would provide an innovative, motivational opportunity for TANF
recipients. While the contractor claimed that Wisconsin officials had
not provided sufficient guidance about allowable activities, state
officials subsequently found the costs associated with the
entertainment activities to be unallowable. Costs incurred by the for-
profit contractor that state auditors cited as questionable included
charges for a range of promotional advertising activities, restaurant
and food purchases for which there was no documented business purpose,
and flowers for which documentation was inadequate to justify a
business purpose. Costs incurred by the nonprofit contractor that were
cited as questionable included funds spent on advertising, restaurant
meals and other food purchases that were not a program need, and local
hotel charges for which there was inadequate documentation. At the time
of our review, the contractors had repaid all unallowable and
questionable costs. In 2001, Wisconsin enacted a state law that
requires TANF contracts beginning on January 1, 2002, and ending on
December 31, 2003, to contain a provision stating that contractors that
submit unallowable expenses must pay the state a sanction equal to 50
percent of the total amount of unallowable expenses.
Auditors also disallowed some program costs claimed by several
contractors under contract with the Miami-Dade Workforce Development
Board in Florida. The auditors found instances in which several
contractors had billed the contracting agency for duplicate costs. On
the basis of these findings, the auditors recommended that the
contractors repay the board about $33,000 for the costs that exceeded
their valid claims. At the time of our review, arrangements had been
made for the contractors to repay the disallowed costs to the
contracting agency.
Many TANF Contractors at Localities that We Reviewed Are Not Achieving
Performance Levels Specified in Contracts:
Many TANF contractors at the sites that we reviewed are not meeting
their established performance levels in the areas of work
participation, job placement, or job retention rates. Contracting
agencies in eight of the nine localities we reviewed (all except the
District of Columbia) have established expected levels of performance
for their TANF contractors, and these performance levels vary by
locality. At two of the eight sites--Milwaukee and Palm Beach--all
contractors met all specified performance levels. However, at five of
the other sites, most contractors did not meet one or more of their
performance levels, indicating that state and local governments did not
achieve all anticipated performance levels by contracting for TANF
services.[Footnote 27] Tables 4, 5, and 6 indicate the overall extent
to which contractors met performance levels and the actual performance
achieved by individual contractors with respect to measures for work
participation, job placement, and job retention rates in each location
that had established these performance levels.[Footnote 28] In
contrast, at the two local sites that either established performance
measures for the percentage of job placements that pay wages of at
least a specified level (Milwaukee and Palm Beach) or offered health
benefits (Milwaukee), all contractors met these measures.
Payments to contractors at the eight localities that established
performance levels are based either entirely or in part on whether
contractors meet their specified performance levels. The measures most
often used in the locations we visited mirror PRWORA‘s emphasis on
helping TANF recipients obtain employment. The most common performance
measures are work participation, job placement, and job retention
rates. Work participation rates stipulate that contractors engage a
specified percentage of TANF recipients in work-related activities such
as job search or community work experience. Job placement rates specify
that contractors place a specified percentage of recipients in jobs and
job retention rates specify that contractors ensure that recipients
retain employment (but not necessarily at the same job) for a specified
period, typically ranging from 30 to 180 days. In addition, some
localities have established performance levels that require contractors
to place TANF recipients in certain types of jobs, such as jobs that
pay wages of at least a specified level or offer health benefits.
Table 4: Contractor Performance in Meeting Work Participation Rates:
Localities (total number of contractors) and performance levels
established for contractors: Austin, Texas (1); ; Participation in work
activities by 90 percent of two-parent families; Overall contractor
performance: Percentage of for-profit contractors that met the
established level: 0; Overall contractor performance: Percentage of
nonprofit contractors that met the established level: b; Overall
contractor performance: Percentage of all contractors that met the
established level: 0; [Empty]; Individual contractor
performance[A]: : 82; Individual contractor performance[A]: :
b.
Localities (total number of contractors) and performance levels
established for contractors: Participation in work activities by 45
percent of all families; Overall contractor performance: Percentage of
for-profit contractors that met the established level: 0; Overall
contractor performance: Percentage of nonprofit contractors that met
the established level: b; Overall contractor performance: Percentage of
all contractors that met the established level: 0; [Empty]; Individual
contractor performance[A]: : 31; Individual contractor performance[A]:
: b.
Localities (total number of contractors) and performance levels
established for contractors: San Diego County, California (3)
Participation in work activities by 90 percent of two-parent cases;
Overall contractor performance: Percentage of for-profit contractors
that met the established level: 0; Overall contractor
performance: Percentage of nonprofit contractors that met the
established level: 0; Overall contractor performance: Percentage
of all contractors that met the established level: 0; [Empty];
Individual contractor performance[A]: : 64, 39; Individual
contractor performance[A]: : 63.
Localities (total number of contractors) and performance levels
established for contractors: Participation in work activities by 75
percent of one-parent cases; Overall contractor performance: Percentage
of for-profit contractors that met the established level: 0; Overall
contractor performance: Percentage of nonprofit contractors that met
the established level: 0; Overall contractor performance: Percentage of
all contractors that met the established level: 0; [Empty]; Individual
contractor performance[A]: : 49, 33; Individual contractor
performance[A]: : 44.
Localities (total number of contractors) and performance levels
established for contractors: Miami-Dade, Florida (19)Participation
in work activities by 45 percent of all families; Overall contractor
performance: Percentage of for-profit contractors that met the
established level: 100; Overall contractor performance:
Percentage of nonprofit contractors that met the established level:
; 81; Overall contractor performance: Percentage of all contractors
that met the established level: 84; [Empty]; Individual
contractor performance[A]: : 65, 63, 55; Individual contractor
performance[A]: : 83, 75, 72, 68; 67, 65, 63, 60; 59, 59, 58, 55;
48, 42, 33, 31.
Localities (total number of contractors) and performance levels
established for contractors: No more than 5 percent of the caseload in
no recorded work activity; Overall contractor performance: Percentage
of for-profit contractors that met the established level: 33; Overall
contractor performance: Percentage of nonprofit contractors that met
the established level: 25; Overall contractor performance: Percentage
of all contractors that met the established level: 26; [Empty];
Individual contractor performance[A]: : 7, 7, 3; Individual contractor
performance[A]: : 33, 20, 19, 18; 17, 17, 12, 11; 11, 8, 7, 7; 5, 4, 1,
1.
Localities (total number of contractors) and performance levels
established for contractors: No more than 1 percent of the caseload in
no recorded work activity for more than 30 days; Overall contractor
performance: Percentage of for-profit contractors that met the
established level: 100; Overall contractor performance: Percentage of
nonprofit contractors that met the established level: 31; Overall
contractor performance: Percentage of all contractors that met the
established level: 42; [Empty]; Individual contractor performance[A]: :
1, 1, 0; Individual contractor performance[A]: : 25, 5, 4, 4; 3, 3, 3,
2; 2, 2, 2, 1; 1, 1, 0, 0.
[A] Contractor performance information is expressed in terms of the
percentage of the specified population participating in work
activities, except for the last two rows of the table, in which the
information is expressed in terms of the percentage of the specified
population that is not participating in work activities. Comparing
contractor performance across localities can be problematic because key
aspects of the performance measures may vary by locality, such as the
percentage of all TANF families that are required to participate in
work activities.
[B] Not applicable.
Source: State and local government contract performance data.
[End of table]
Table 5: Contractor Performance in Meeting Job Placement Rates:
Localities (total number of contractors) and performance levels
established for contractors: Austin, Texas (1)50 percent of program
participants placed in jobs; Overall contractor performance: Percentage
of for-profit contractors that met the established level: 100;
Overall contractor performance: Percentage of nonprofit contractors
that met the established level: b; Overall contractor
performance: Percentage of all contractors that met the established
level: 100; [Empty]; Individual contractor performance[A]:
Percentage achieved by each for-profit contractor: 69; Individual
contractor performance[A]: Percentage achieved by each nonprofit
contractor: b.
Localities (total number of contractors) and performance levels
established for contractors: Houston, Texas (6)50 percent of
program participants placed in jobs; Overall contractor performance:
Percentage of for-profit contractors that met the established level:
100; Overall contractor performance: Percentage of nonprofit
contractors that met the established level: 0; Overall contractor
performance: Percentage of all contractors that met the established
level: 17; [Empty]; Individual contractor performance[A]:
Percentage achieved by each for-profit contractor: 62; Individual
contractor performance[A]: Percentage achieved by each nonprofit
contractor: 47, 42, 35, 33, 29.
Localities (total number of contractors) and performance levels
established for contractors: Los Angeles County, California (2)At
least 3 percent higher than the TANF job placement rate achieved by
county employees, which was 10 percent; Overall contractor performance:
Percentage of for-profit contractors that met the established level:
; 50; Overall contractor performance: Percentage of nonprofit
contractors that met the established level: b; Overall
contractor performance: Percentage of all contractors that met the
established level: 50; [Empty]; Individual contractor
performance[A]: Percentage achieved by each for-profit contractor:
12, 8; Individual contractor performance[A]: Percentage achieved by
each nonprofit contractor: b.
Localities (total number of contractors) and performance levels
established for contractors: Milwaukee County, Wisconsin (5)35
percent of program participants placed in jobs; Overall contractor
performance: Percentage of for-profit contractors that met the
established level: 100; Overall contractor performance:
Percentage of nonprofit contractors that met the established level:
100; Overall contractor performance: Percentage of all contractors
that met the established level: 100; [Empty]; Individual
contractor performance[A]: Percentage achieved by each for-profit
contractor: 43; Individual contractor performance[A]:
Percentage achieved by each nonprofit contractor: 45, 43, 41,
39.
Localities (total number of contractors) and performance levels
established for contractors: Palm Beach, Florida (1)22 percent of
program participants placed in jobs; Overall contractor performance:
Percentage of for-profit contractors that met the established level:
100; Overall contractor performance: Percentage of nonprofit
contractors that met the established level:b; Overall contractor
performance: Percentage of all contractors that met the established
level:100; [Empty]; Individual contractor performance[A]:
Percentage achieved by each for-profit contractor:26; Individual
contractor performance[A]: Percentage achieved by each nonprofit
contractor:b.
Localities (total number of contractors) and performance levels
established for contractors: New York City, New York (11)Equal to
or higher than the average job placement rate achieved by all TANF
contractors in the city, which was 55 percent; Overall contractor
performance: Percentage of for-profit contractors that met the
established level:0; Overall contractor performance: Percentage
of nonprofit contractors that met the established level: 13;
Overall contractor performance: Percentage of all contractors that met
the established level: 9; [Empty]; Individual contractor
performance[A]: Percentage achieved by each for-profit contractor:
; 54, 51, 50; Individual contractor performance[A]: Percentage achieved
by each nonprofit contractor: 91, 54, 54, 53; 50, 49, 49, 45.
[A] Contractor performance information is expressed in terms of the
percentage of program participants placed in jobs. Comparing contractor
performance across localities can be problematic because key aspects of
the performance measures may vary by locality, such as the percentage
of all TANF families that are required to participate in work
activities.
[B] Not applicable.
Source: State and local government contract performance data.
[End of table]
Table 6: Contractor Performance in Meeting Job Retention Rates:
Localities (total number of contractors) and performance levels
established for contractors: Milwaukee County, Wisconsin (5)75
percent of program participants who entered employment must retain
employment for 30 days; Overall contractor performance: Percentage of
for-profit contractors that met the established level: 100;
Overall contractor performance: Percentage of nonprofit contractors
that met the established level: 100; Overall contractor
performance: Percentage of all contractors that met the established
level: 100; [Empty]; Individual contractor performance[A]:
Percentage achieved by each for-profit contractor: 80; Individual
contractor performance[A]: Percentage achieved by each nonprofit
contractor: 92, 89, 85, 85.
Localities (total number of contractors) and performance levels
established for contractors: 50 percent of program participants who
entered employment must retain employment for 180 days; Overall
contractor performance: Percentage of for-profit contractors that met
the established level: 100; Overall contractor performance: Percentage
of nonprofit contractors that met the established level: 100; Overall
contractor performance: Percentage of all contractors that met the
established level: 100; [Empty]; Individual contractor performance[A]:
Percentage achieved by each for-profit contractor: 56; Individual
contractor performance[A]: Percentage achieved by each nonprofit
contractor: 72, 66, 62, 55.
Localities (total number of contractors) and performance levels
established for contractors: New York City, New York (11)Equal to
or higher than the average job retention rate achieved by all TANF
contractors in the city, which was 75 percent of program participants
who entered employment retaining employment for 30 days; Overall
contractor performance: Percentage of for-profit contractors that met
the established level: 100; Overall contractor performance:
Percentage of nonprofit contractors that met the established level:
; 13; Overall contractor performance: Percentage of all contractors
that met the established level: 36; [Empty]; Individual
contractor performance[A]: Percentage achieved by each for-profit
contractor: 94, 79, 76; Individual contractor performance[A]:
Percentage achieved by each nonprofit contractor: 92, 74, 73, 72;
70, 69, 68, 65.
Localities (total number of contractors) and performance levels
established for contractors: San Diego County, California (3)90
percent of program participants who entered employment must retain
employment for 30 days; Overall contractor performance: Percentage of
for-profit contractors that met the established level: 0; Overall
contractor performance: Percentage of nonprofit contractors that met
the established level: 0; Overall contractor performance:
Percentage of all contractors that met the established level: 0;
[Empty]; Individual contractor performance[A]: Percentage achieved by
each for-profit contractor: 71, 67; Individual contractor
performance[A]: Percentage achieved by each nonprofit contractor:
58.
Localities (total number of contractors) and performance levels
established for contractors: 70 percent of program participants who
entered employment must retain employment for 90 days; Overall
contractor performance: Percentage of for-profit contractors that met
the established level: 0; Overall contractor performance: Percentage of
nonprofit contractors that met the established level: 0; Overall
contractor performance: Percentage of all contractors that met the
established level: 0; [Empty]; Individual contractor performance[A]:
Percentage achieved by each for-profit contractor: 66, 60; Individual
contractor performance[A]: Percentage achieved by each nonprofit
contractor: 57.
Localities (total number of contractors) and performance levels
established for contractors: 60 percent of program participants who
entered employment must retain employment for 180 days; Overall
contractor performance: Percentage of for-profit contractors that met
the established level: 100; Overall contractor performance: Percentage
of nonprofit contractors that met the established level: 100; Overall
contractor performance: Percentage of all contractors that met the
established level: 100; [Empty]; Individual contractor performance[A]:
Percentage achieved by each for-profit contractor: 69, 68; Individual
contractor performance[A]: Percentage achieved by each nonprofit
contractor: 65.
[A] Contractor performance information is expressed in terms of the
percentage of program participants entering employment who retained
employment for the specified time period. Comparing contractor
performance across localities can be problematic because key aspects of
the performance measures may vary by locality, such as the percentage
of all TANF families that are required to participate in work
activities.
Source: State and local government contract performance data.
[End of table]
The localities varied in the types of measures and levels of
performance they established. For example, the specified levels for job
placements ranged from 22 percent of program participants in Palm Beach
to 50 percent in Austin and Houston.[Footnote 29] Performance levels
established for job retention also varied by jurisdiction. For example,
the specified performance levels for contractors in Milwaukee County
are that 75 percent of TANF recipients who entered employment retain
employment for 30 days and 50 percent retain employment for 180 days.
In comparison, contractors in San Diego County face a 90-percent level
for 30-day employment retention and a 60-percent level for 180-day
retention.[Footnote 30]
In most cases, nonprofit and for-profit contractors had similar
performance with respect to meeting the performance levels established
for them. Across the locations we reviewed, there are 14 instances in
which a local site had data on the comparable performance of nonprofit
and for-profit contractors. In 11 of these instances, the percentages
of nonprofit and for-profit contractors that met the measures were
similar. In each of the remaining three instances, for-profit
contractors performed substantially better overall.[Footnote 31]
In two locations we reviewed--Los Angeles County and San Diego County-
-county governments also provided TANF services. Overall, the relative
performance levels of county-provided services and contracted services
were mixed. For example, in San Diego County, the county performed
better than one for-profit contractor and worse than another for-profit
contractor in meeting performance levels for certain job retention
rates. In Los Angeles County, one of two for-profit contractors
performed better than the county in placing TANF recipients in jobs
while one of the two county providers achieved higher placement rates
than the other for-profit contractor.
At the remaining site, the District of Columbia, contracting officials
were unable to provide information on how well TANF contractors met
expected levels of performance. While the District has not established
contractually specified performance levels for TANF contractors, these
contractors do have performance-based contracts.[Footnote 32] For
example, contractors receive a specified payment for each TANF
recipient who becomes enrolled in work-related activities, placed in a
job, or who retains employment for a certain period of time. However,
District officials were unable to provide us with an assessment of TANF
contractors‘ performance in serving TANF recipients.
Conclusions:
The contracting out of TANF-funded services is an important area for
several reasons. First, the magnitude of TANF contracting is
substantial, involving at least $1.5 billion in federal and state funds
in 2001, which represents at a minimum 13 percent of the total amount
states expended for TANF programs (excluding expenditures for cash
assistance). In 2001, about a quarter of the states contracted out 20
percent or more of the amounts they had expended for TANF programs in
fiscal year 2000, ranging up to 74 percent. Second, PRWORA expanded the
scope of services that could be contracted out to nongovernmental
entities, such as determining eligibility for TANF. Third, some states
are using new entities--local workforce boards--that procure TANF
services and are responsible for overseeing TANF contractors.
Problems with the performance of TANF contractors have been identified
in some cases, but there is no clear pattern of a greater incidence of
these problems with nonprofit versus for-profit contractors. At two of
the nine localities we reviewed, auditors had disallowed certain costs
by several contractors, and arrangements had been made for the
contractors to repay unallowable costs. We found more widespread
instances of contractors at the local sites not meeting their
contractually established performance levels in areas such as work
participation, job placement, and job retention rates. Contracting
agencies at the local sites had established financial incentives for
contractors by basing payments to contractors in whole or part on their
performance in such areas. While meeting the service needs of TANF
recipients can present many challenges for contractors, this has become
even more important now that these recipients face time limits on the
receipt of TANF.
Effective oversight is critical to help ensure contractor
accountability for the use of public funds, and our review identified
problems in some cases with state and local oversight of TANF
contractors. At the national level, our review of state single audit
reports found internal control weaknesses for over a quarter of the
states that potentially affected the states‘ ability to effectively
monitor TANF contractors. The extent to which state single audits have
identified problems with subrecipient monitoring involving TANF funds
is generally equal to or greater than for several other social service
programs in which contracting occurs with nongovernmental
organizations. Moreover, in four of the six states we visited,
independent audits have identified deficiencies in state or local
oversight of TANF contractors. However, HHS officials told us that they
do not know the extent and nature of problems pertaining to the
oversight of TANF contractors that state single audit reports have
cited because HHS does not analyze these reports in such a
comprehensive manner. This is due, in part, to HHS‘s focus on those
problems identified by single audit reports that involve unallowable or
questionable costs. While such problems certainly warrant high
priority, the result is that there is not adequate assurance that
identified deficiencies pertaining to the monitoring of TANF
contractors are being corrected in a strategic manner. Greater use of
single audits as a program management tool by HHS would provide greater
assurance that TANF contractors are being held accountable for the use
of public funds. For example, HHS could use state audit reports more
systematically in ways such as obtaining additional information about
the extent to which nongovernmental TANF contractors are involved in
the subrecipient monitoring deficiencies cited in these reports,
identifying the most commonly reported types of deficiencies, and
tracking how often the same deficiencies are cited recurrently for
individual states.
Recommendation for Executive Action:
To facilitate improved oversight of TANF contractors by all levels of
government, we recommend that the Secretary of HHS 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 Comments and Our Evaluation:
HHS provided written comments on a draft of this report, and these are
reprinted in appendix IV. HHS said that the report addresses an
important topic and provides useful information in describing the
reasons that have prompted the rise in contracting, as well as the
associated issues and challenges. However, HHS did not agree with our
recommendation to the Assistant Secretary for Children and Families to
use state single audit reports in a more systematic manner with regard
to problems related to state oversight of nongovernmental TANF
contractors. After evaluating HHS‘s comments, we continue to believe
that our recommendation is warranted.
HHS questioned whether our recommendation is consistent with the
provisions of the Single Audit Act and whether the recommendation is
necessary, in light of the current responsibilities that federal
agencies and other units of government have for using single audit
reports. HHS elaborated by explaining that OMB Circular A-133 requires
federal agencies to take actions such as ensuring that audits of
recipients of federal funds are completed and reports are received in a
timely manner, issuing management decisions on audit findings within 6
months after receipt of the audit report, and ensuring that recipients
take appropriate and timely corrective actions. HHS said that it
performs such actions. HHS also said that Circular A-133 assigns these
same responsibilities to other entities (e.g., state and local
governments) for oversight of their subrecipients of federal funds. In
addition, HHS said that there is some question about whether it is
appropriate under the TANF statute, with its clear emphasis on state
flexibility, for HHS to assume substantial new responsibilities that
could interfere with states‘ methods of monitoring their subrecipients
or contractors.
We believe that our recommendation is consistent with the Single Audit
Act, Circular A-133, and the TANF statute. Moreover, we view our
recommendation as contributing to the stated objective of the Single
Audit Act of ensuring that federal agencies use single audit reports to
the maximum extent practicable in overseeing federal programs. In the
TANF block grant environment, the rise in contracting brings with it
new challenges at all levels of government regarding accountability for
use of federal funds by nongovernmental entities. While states have a
great deal of flexibility in using TANF funds, HHS continues to have a
fiduciary responsibility to ensure that states properly account for
their use of federal funds and maintain adequate internal controls over
the use of funds by their subrecipients. HHS follow-up on individual
state single audit reports does not preclude the agency from analyzing
these reports in a more systematic manner to meet its oversight
responsibilities, as we recommend. Furthermore, our recommendation does
not call for HHS to usurp any oversight responsibilities from the
states for overseeing their subrecipients.
Finally, HHS said that it failed to recognize what value our
recommendation would add to the TANF program. HHS said that because its
staffing level for administering TANF has been greatly reduced, the
value and cost-benefit of our recommendation must be considered before
adding or redirecting staff to gain a comprehensive perspective on the
extent and nature of problems with the monitoring of subrecipients and
contractors. In response, we believe that implementing our
recommendation could strengthen HHS‘s oversight of this important area
and facilitate improved oversight of TANF contractors by states. For
example, more systematic analysis of state single audit reports by HHS
could help identify national patterns in the problems with states‘
monitoring of their TANF subrecipients cited by these reports. This
information would be valuable to states working to improve their
oversight of these subrecipients. Moreover, users of single audit
reports can now analyze information more quickly than ever before by
using the Internet to access a single audit database established by the
Bureau of the Census. In addition, more systematic analysis by HHS of
the subrecipient monitoring problems reported by state single audits
could also provide useful information on the extent to which these
problems involve nongovernmental contractors and are recurring in the
same states. Such information could help HHS ascertain whether or not
this is a growing problem area that may warrant closer scrutiny. By
disseminating the results of its analysis of single audit reports to
states through existing venues such as audit forums and conferences
with state TANF officials, HHS could share information with its TANF
partners to facilitate better oversight of contractor-provided
services.
In addition, we believe that our recommendation represents a cost-
effective approach to improving oversight of TANF contractors because
the recommendation involves making fuller use of information that is
already collected. The national analysis of state single audit reports
that we performed for this report took less than a month and involved
using the single audit database to identify reports that cited problems
with TANF subrecipient monitoring, reviewing these reports to extract
the specific problems, and identifying some of the most commonly cited
problems. It may be possible for HHS regional office staff to perform
some of this type of analysis, as well as to obtain any needed
additional information about specific problems, in the course of their
current reviews of state single audit reports for their regions. Such
an approach could reduce the amount of analysis by HHS headquarters
staff needed to obtain a comprehensive perspective on the extent and
nature of problems related to state oversight of TANF contractors.
We are sending copies of this report to the Secretary of HHS and the
department‘s Assistant Secretary for Children and Families, appropriate
congressional committees, and other interested parties. We will also
make copies available to others upon request.
Please contact me on (202) 512-7215 if you have any questions about
this report. Other GAO contacts and staff acknowledgments are listed in
appendix V.
Sigurd R. Nilsen
Director, Education, Workforce, and
Income Security Issues:
Signed by Sigurd R. Nilsen:
[End of section]
Appendix I: Scope and Methodology:
To identify the extent and nature of Temporary Assistance for Needy
Families (TANF) contracting, we conducted a national survey of all 50
states, the District of Columbia, and the10 counties with the largest
federal TANF-funding allocations in each of the13 states that
administer their TANF programs locally. Contracting for TANF-funded
services occurs at different levels of government--the state, the
local, or both--and data on TANF-funded contracts are maintained at
various levels of government. We developed three survey instruments to
accommodate these differences. The first survey instrument, which
requested state data only, was sent to the 13 states that contract at
both levels of government or locally only, but maintain data
separately. For these 13 states, a second survey instrument, which
requested data on contracts entered into at the local level, was sent
to 10 counties that receive the largest TANF allocations in each of
these 13 states to determine how much contracting takes place in their
larger counties. The third survey instrument, which requested data on
state-level and local-level contracts, was sent to the remaining 37
states and the District of Columbia (see app. II for this survey
instrument). All three survey instruments were pretested with
appropriate respondents in six states. In addition to obtaining data
through our national survey, we also obtained data from HHS on federal
TANF and state maintenance-of-effort funds for fiscal year 2000. We did
not independently verify these data.
The response rate for the survey instrument sent to the counties in the
13 states was 78 percent. [Footnote 33] The response rate for the
remaining survey instruments sent to state governments was 100 percent.
Since our survey did not cover all counties in the 13 states that
contract for TANF services locally, the total number of TANF-funded
contracts and their dollar value may be understated. In addition, eight
states that maintain data on local-level contracting did not provide us
with these data. We subsequently contacted survey respondents who had
indicated that the determination of eligibility had been contracted out
to confirm that this was for the TANF program and determine whether
contractors determined eligibility for cash assistance or other TANF-
funded services.
To obtain information on approaches used by the federal government to
oversee TANF contracting, we met with officials in HHS‘s Administration
for Children and Families in Washington, D.C., and conducted telephone
interviews with staff in HHS regional offices in Atlanta, Chicago,
Dallas, New York, Philadelphia, and San Francisco. We also interviewed
the director of HHS‘s National External Audit Review Center to learn
how the agency uses single audit reports to oversee procurement
processes and contractor monitoring. In addition, we analyzed the
single audit database and reviewed state single audit reports.
To obtain information on approaches used by state and local governments
to ensure compliance with bid solicitation and contract award
requirements and to oversee contractor performance, we conducted site
visits to California, the District of Columbia, Florida, New York,
Texas, and Wisconsin. We met with state TANF officials in these states.
In addition, we met with procurement officers, contract managers,
auditors, and private contractors in the following nine locations:
Austin and Houston, Texas; the District of Columbia; Los Angeles County
and San Diego County, California; Miami-Dade and Palm Beach, Florida;
Milwaukee, Wisconsin; and New York City, New York. We elected to visit
these localities because they all serve a large portion of the TANF
population and have at least one large contractor providing TANF-funded
services. To obtain additional perspectives on TANF contracting, we
interviewed representatives from government associations (American
Public Human Services Association, Council of State Governments,
National Conference of State Legislatures, and the National Association
of Counties) and unions (American Federation of State, County, and
Municipal Employees at the national office and in Milwaukee County,
Wisconsin). We also reviewed various audit reports for the state
governments, local governments, and nonprofit contractors that we
interviewed in the nine locations to determine whether auditors found
instances of noncompliance with bid solicitation and contract award
requirements or contract monitoring. In addition, we selected 7 TANF-
funded contracts with nonprofit organizations and 10 TANF-funded
contracts with for-profit organizations to obtain information on their
contract structure, services provided, and other relevant information.
[End of section]
Appendix II: National Survey on TANF-Funded State and Local Government
Contracting:
[See PDF for image]
[End of section]
Appendix III: Problems Cited with TANF Subrecipient Monitoring by State
Single Audits, 1999 and 2000:
Table:
State: Alaska; 1999: a; 2000: The state lacked procedures to ensure
that subrecipient nonprofit organizations used TANF funds only for
allowable purposes as required by TANF regulations.; The state failed
to inform nonprofit subrecipients of the source and amount of TANF
funds they received.; As a result, the state cannot provide assurance
that nonprofit organizations are complying with federal requirements,
including TANF requirements for allowable activities, allowable costs,
and suspension and debarment of contractors..
State: Arizona; 1999: In some cases, the state did not provide
subrecipients with information about the sources of federal funds they
received. The lack of proper notification to subrecipients of federal
award information increases the risk of the improper use and
administration of federal funds.; 2000: a.
State: Colorado; 1999: a; 2000: The state has not ensured that
significant deficiencies related to electronic benefit transfer cards
are corrected on a timely basis.; The state did not issue monitoring
reports to counties within a consistent timeframe..
State: Florida; 1999: In some cases, the state did not notify
subrecipients that the funding they received originated from TANF. The
lack of proper notification to subrecipients of federal award
information increases the risk of the improper use and administration
of federal funds, including limited assurance that proper audits are
conducted of those funds.; The single audit report references a state
inspector general report that identified inadequate state oversight of
local workforce coalitions that administer TANF funds and inadequate
procurement and cash management practices by the local coalitions.;
2000: The 1999 finding on not notifying subrecipients of the federal
funding sources from which they received funds was subsequently
reported in 2000, including the associated risks reported in the prior
year..
State: Illinois; 1999: a; 2000: The state did not provide information
to some subrecipients on the sources of federal funds it distributed to
them. The state did not provide this information because it initially
considered the service providers to be vendors rather than
subrecipients, and as such, the state did not believe it was necessary
to notify the service providers of the federal award information.;
Failure to inform subrecipients of the federal award information could
result in subrecipients improperly reporting expenditures of federal
awards, expending federal funds for unallowable purposes, or not
receiving a single audit in accordance with federal requirements..
State: Kentucky; 1999: The state contracts with the Kentucky
Transportation Cabinet, which subcontracts with 16 different regions to
provide transportation services to TANF recipients. However, the state
failed to monitor these subrecipients due to understaffing. As a
result, the state cannot be assured that subrecipients spent grant
monies for their intended purpose and complied with federal
requirements.; 2000: The state did not ensure that all nongovernmental
contractors submitted their required audit reports or requested an
extension. As a result, the state cannot be assured that subrecipients
expended federal awards for their intended purpose and complied with
federal requirements..
State: Louisiana; 1999: The state continues to lack an adequate
monitoring system to ensure that federal subrecipients and social
services contractors are audited in accordance with federal, state, and
department regulations.; 2000: For the seventh consecutive year, the
state does not have an adequate monitoring system to ensure that
federal subrecipients and social services contractors are audited in
accordance with federal, state, and department regulations. In
addition, the audit identified $267,749 in questionable costs for
TANF.; For 35 percent of the contracts audited, the contract did not
include required federal award information and information on
applicable compliance requirements.; The state cannot determine if all
required audit reports are received and lacks review procedures to
ensure that the information entered into the audit tracking system is
accurate and complete.; State policy and procedures relating to audit
follow-up for subrecipient audits need to be revised to include current
official policies.; The state is not able to ensure the completeness or
accuracy of its system for tracking the total amount of funds provided
to subrecipients..
State: Michigan; 1999: b; 2000: The state‘s internal control mechanisms
did not provide for the proper identification, monitoring, and
reporting of payments to all subrecipients.; The state‘s contract
management database excludes several entities that received payments of
federal funds. As a result, the state could not be assured that all
entities receiving funds were identified as subrecipients, when
appropriate, and monitored.; In addition, self-certification of
entities as subrecipients or vendors increases the risk that the state
is not properly identifying and monitoring subrecipients.[B].
State: Minnesota; 1999: a; 2000: While OMB Circular A-133 requires
states to monitor subrecipients to ensure compliance with laws,
regulations, and provisions of contracts, the state agency did not have
policies and procedures in place to monitor the activities of
subrecipients..
State: Mississippi; 1999: a; 2000: The state did not verify the amount
of federal financial assistance expended by subrecipients, which should
be done to determine which subrecipients require an audit.; The state
had not implemented an effective procedure for documenting the fiscal
year-end for each new subrecipient.; 2 of 15 subrecipients tested did
not submit their 1998 audit reports in a timely manner, and the state
did not perform follow up procedures in a timely manner. For 5 of 15
subrecipients tested, the state‘s review of the audit reports was
performed 6 months or more after the state received the reports.
Without adequate control over the submission of audit reports and
prompt follow-up of audit findings, noncompliance with federal
regulations by subrecipients could occur and not be detected..
State: Missouri; 1999: Local offices of the state agency reported that
they could not locate over 6 percent of the case files requested for
detailed review. Without case files, adequate documentation is not
available to verify the eligibility of clients and the appropriateness
of benefits paid.; 2000: a.
State: New Jersey; 1999: The state did not properly monitor the federal
funds expended by the Essex County Welfare Board for the Public
Assistance Program. While an independent auditor issued a single audit
report for Essex County, the audit excluded the Public Assistance
Program because of the lack of internal controls related to some
components of the program.; Payments to public assistance recipients
are made through an electronic benefit transfer (EBT) system
administered by a contractor, but EBT account activity has not been
reconciled to the state‘s automated system for the public assistance
program.; 2000: The state did not maintain sufficient documentation to
adequately monitor advance payments to, and expenditures of,
contractors providing child care services..
State: New York; 1999: Eleven of the 58 local districts did not submit
their single audit reports within the required 13-month period.; 2000:
Eleven of the 58 local districts did not submit their single audit
reports within the required 13-month period.; The state does not
perform an adequate desk review of local districts‘ single audit
reports to ensure that submitted reports were performed in accordance
with federal requirements..
State: North Carolina; 1999: The state‘s procedures for reviewing
subrecipient audit reports were inadequate. Errors and omissions in
reports on subrecipient expenditures went undetected. The state did not
conduct expenditure reviews to ensure that amounts disclosed in
subrecipient audit reports agreed with expenditure records maintained
by the state.; As reported in the prior audit, the state did not
perform sufficient monitoring procedures to provide reasonable
assurance that subrecipients administered federal awards in compliance
with federal requirements. The reported problem remains unresolved, as
the state did not provide reasonable assurance that services and
assistance were provided to eligible families.; 2000: The state did not
always perform or document a review of the counties‘ eligibility
determination process to provide reasonable assurance that services and
assistance were provided to eligible families.; The state did not
always monitor to ensure that sanctions were imposed on TANF recipients
who did not cooperate with the child support enforcement office.; The
state did not perform monitoring procedures to provide reasonable
assurance that the counties used Social Services Block Grant funds for
only eligible individuals and allowable service activities..
State: Texas; 1999: The state‘s fiscal and program monitoring of local
workforce boards does not provide reasonable assurance that TANF funds
are being spent appropriately.; Current fiscal monitoring procedures
are inconsistent and lack program-specific attributes. For example,
state fiscal monitors generally do not compare a local workforce
board‘s funding allocation for specific programs to its subcontractor‘s
budget to ensure that the board is passing on the funds as required.;
Federal and state compliance is not ensured by the limited scope of
reviews. The state conducted limited program monitoring of only 4 of 18
boards that had TANF contracts in place.; 2000: [C].
[A] No problems were cited.
[B] Michigan prepares biennial single audit reports, and the report
prepared for 2000 covers the period October 1998 through September
2000.
[C] While the 2000 state single audit did not report monitoring
problems, another state audit issued in March 2001 reported that local
workforce boards still needed to make significant improvements in their
contract monitoring. The audit reported that improvements are needed to
ensure proper accounting for program funds, management of contracts
with service providers, and achievement of data integrity.
Source: Single audit reports.
[End of table]
[End of section]
Appendix IV: Comments from the Department of Health and Human Services:
DEPARTMENT OF HEALTH & HUMAN SERVICESOffice of Inspector General:
Washington, D.C. 20201:
MAY - 9 2002:
Mr. Sigurd R. Nilsen:
Director, Education, Workforce, and Income Security Issues:
United States General Accounting Office Washington, D.C. 20548:
Dear Mr. Nilsen:
Enclosed are the Department‘s comments on your interim report, ’Welfare
Reform: Interim Report on Potential Ways to Strengthen Federal
Oversight of State and Local Contracting.“ The comments represent the
tentative position of the Department and are subject to reevaluation
when the final version of this report is received.
The Department appreciates the opportunity to comment on this interim
report before its publication.
Sincerely,
Janet Rehnquist Inspector General:
Signed by Janet Rehnquist:
Enclosure:
The Office of Inspector General (OIG) is transmitting the Department‘s
response to this interim report in our capacity as the Department‘s
designated focal point and coordinator for General Accounting Office
reports. The 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 GENERAL
ACCOUNTING OFFICE‘S REPORT. ’WELFARE REFORM: INTERIM REPORT ON
POTENTIAL WAYS TO STRENGTHEN FEDERAL OVERSIGHT OF STATE AND LOCAL
CONTRACTING“ (GAO-02-245):
The Department of Health and Human Services (Department) appreciates
the opportunity to comment on this interim report, which addresses an
important topic, oversight of State and local contracting.
General Comments:
The Personal Responsibility and Work Opportunity Reconciliation Act
(PRWORA), which created the Temporary Assistance for Needy Families
(TANF) Program, granted States unprecedented flexibility in the design
and operation of their TANF programs. That flexibility coupled with a
new funding structure (block grant), financial penalties on States for
failure to meet work participation rate requirements, and a shift in
purpose from income maintenance to moving families to work, has lead to
dramatic changes in welfare programs across the country. Clearly, as
your report noted, time limits for recipients have added a real sense
of urgency to the tasks of transforming welfare offices, shifting
caseworkers‘ roles, and maintaining current services while adding new
and tailored services. The Department has encouraged States to use
their flexibility to create new and innovative programs that more
effectively and efficiently assist families in moving to work and self-
sufficiency. It is in this environment that contracting in general and
contracting with for profit entities in State TANF programs has
increased both in the number of contracts and in the dollar amounts
associated with those contracts. Your report provides useful
information in describing the reasons that have prompted the rise in
contracting, as well as the issues and challenges.
GAO Recommendation:
To facilitate improved oversight of TANF contractors by all levels of
government, we recommend that the Secretary of HHS 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.
Department Comment:
The Department of Health and Human Services does not agree that GAO‘s
recommendation is appropriate.
The Department questions whether the recommendation is consistent with
the Single Audit Act of 1984, which sought to ensure that Federal
agencies, to the maximum extent practicable, rely on and use single
audit
reports. As noted by GAO, the Single Audit Act of 1984 (P.L. 98-502),
as amended, requires Federal agencies to use single audit reports in
their oversight of State-managed programs supported by Federal funds.
The objectives of the act, among others, are to (a) promote sound
financial
management, including effective internal controls, with respect to
Federal
funds administered by States and other nonfederal entities; (2)
establish
uniform requirements for audits of Federal awards administered by
nonfederal
entities; and (3) ensure that federal agencies, to the maximum extent
practicable, rely on and use single audit reports.
To help meet the act‘s objectives, Office of Management and Budget
(OMB) Circular A-133 requires that Federal awarding agencies ensure
that audits of award recipients are completed and reports are received
in a timely manner and in accordance with the requirements; issue a
management decision on audit findings within six months after receipt
of the audit report; and ensure that the recipient takes appropriate
and timely corrective action. OMB Circular A-133 assigns these same
responsibilities to pass-through entities in their oversight of
subrecipients.
The Department ensures that State audits citing internal control,
compliance and/or questioned costs findings are addressed within the
required 6-month period. If findings on contracting systems or
subrecipient monitoring are reported, States are required to provide a
corrective action plan. Given that there are timing issues associated
with the States developing and implementing policies, procedures and/or
systems, the determination of whether the corrective action has in fact
been implemented is often done by the auditors in their audit work
related to the subsequent audit. There is some question as to whether
it is appropriate under current TANF statute, with its clear emphasis
on State flexibility, to assume substantial new Federal
responsibilities that could interfere with State methods of monitoring
its subrecipients and contractors; or that such actions would conform
with the provisions of the Single Audit Act or A-133; or be necessary
in light of the A-133 assigned responsibilities.
Finally, we fail to recognize, and the GAO recommendation does not
address, what value would be added to the program. Since ACF‘ staffing
level for administering TANF has been greatly reduced, the value and
cost-benefit of GAO‘s recommendation must be considered before adding
or redirecting staff effort to gain a comprehensive perspective on the
extent and nature of subrecipient and contractor monitoring problems.
[End of section]
Appendix V: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Andrew Sherrill, (202) 512-7252, sherrilla@gao.gov
Mark E. Ward, (202) 512-7274, wardm@gao.gov:
Staff Acknowledgments:
The following individuals made important contributions to this report:
Barbara Alsip, Elizabeth Caplick, Mary Ellen Chervenic, Joel Grossman,
Adam M. Roye, Susan Pachikara, Daniel Schwimer, and Suzanne Sterling.
[End of section]
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FOOTNOTES
[1] These organizations are required to have single audits if they
expend at least $300,000 in federal funds in a year. For-profit
organizations are not covered under the Single Audit Act.
[2] In two of these states--Florida and Texas--our local visits were to
workforce boards whose jurisdiction in some cases extended beyond a
single county or city.
[3] These requirements are specified in 45 C.F.R. 92.
[4] For information on the implementation of WIA, see U.S. General
Accounting Office, Workforce Investment Act: Better Guidance Needed to
Address Concerns Over New Requirements, GAO-02-72, (Washington, D.C.:
2001).
[5] This administrative function is not allowed to be contracted out to
nongovernmental agencies in the Medicaid or Food Stamp Programs. HHS
has contracted with Mathematica Policy Research, Inc., to study state
and local contracting for case management under TANF, and the study
includes plans to assess the contracting out of eligibility
determination in the TANF program.
[6] This historical overview of social service contracting with for-
profit organizations is from Demetra Smith Nightingale and Nancy M.
Pindus, Privatization of Public Social Services: A Background Paper,
prepared for the U.S. Department of Labor, Office of the Assistant
Secretary for Policy (Washington, D.C.: The Urban Institute, Oct. 15,
1997). http://www.urban.org/template.cfm?Template=/TaggedContent/
ViewPublication.cfm&
PublicationID=6213
[7] As used in this report, the term ’TANF funds“ includes federal TANF
block grant funds and state maintenance-of-effort funds.
[8] 45 C.F.R. Part 92.
[9] See app. I for information on the geographic scope of the data that
we obtained on state-and local-level contracting.
[10] Faith-based organizations include churches, congregations, and
religiously affiliated nonprofit organizations.
[11] The states are Florida, Hawaii, Nevada, New Mexico, Utah,
Nebraska, and Wyoming and the District of Columbia.
[12] The states are Delaware, Iowa, Kansas, Michigan, New Jersey, New
Mexico, North Carolina, North Dakota, Oklahoma, and Washington and the
District of Columbia.
[13] Since national data are not yet available on states‘ federal TANF
and maintenance-of-effort expenditures for federal fiscal year 2001, we
used data on expenditures for fiscal year 2000. As a result, the
percentages provide an estimate of the relative levels of TANF
contracting in 2001.
[14] Affiliated Computer Services, Inc., acquired Lockheed Martin IMS,
a wholly owned subsidiary of Lockheed Martin, in August 2001.
[15] The names of nonprofit contractors as listed do not necessarily
include designated local affiliations.
[16] Internal controls are defined as management practices intended to
provide reasonable assurance that effective and efficient operations,
reliable financial reporting, and compliance with applicable laws and
regulations will be achieved.
[17] For information on the implementation of the Single Audit Act, see
U.S. General Accounting Office, Single Audit: Update on the
Implementation of the Single Audit Act Amendments of 1996, GAO/
AIMD-00-293, (Washington, D.C.: Sept. 29, 2000) and Single Audit:
Refinements Can Improve Usefulness, GAO/AIMD-94-133, (Washington, D.C:
June 21, 1994).
[18] At the time of our review, single audit reports for 1999 and 2000
represented the 2 most recent years for which a complete set of such
reports was available for review through the single audit database.
[19] The states were Connecticut, Michigan, and New York (1999) and
Connecticut, Kentucky, Mississippi, and New Hampshire (2000).
[20] Single audits of local governments identified TANF subrecipient
monitoring problems in 13 localities in 1999 and 6 in 2000 and
identified TANF procurement problems in 7 localities in 1999 and 2 in
2000. Over this 2-year period, single audits cited more localities with
subrecipient monitoring problems for TANF than for each of the other
five social service programs except Medicaid. Similarly, single audits
of local governments cited more localities with procurement problems
for TANF than for each of the other five social service programs,
except Medicaid and food stamps. For this analysis, the scope of local
governments included tribal organizations.
[21] The single audit report for Missouri identified a problem that
appears to be less relevant to the monitoring of TANF contractors.
[22] We selected procurements in which contract awards were made to
large for-profit and nonprofit organizations. We reviewed one TANF
procurement in each of 8 localities and 2 TANF procurements in Palm
Beach. In Palm Beach, one procurement was for employment and case
management services and the other was for determining eligibility for
TANF as part of a pilot project to contract out this function in
selected locations in Florida.
[23] Two judicial rulings affected New York City‘s procurement of TANF
services. In the first case, Guliani v. Hevesi, the court found in
favor of the New York City Comptroller regarding the alleged violations
of the city‘s procurement process. The appellate court ruling, Guliani,
etc., et. al. v. Hevesi, etc., and Maximus, Inc. (Non-Party
Intervenor), overturned the initial court decision, thereby supporting
HRA‘s contract award recommendations.
[24] Unallowable costs can involve either contractor costs expended on
prohibited activities or program costs for allowable activities that
are overstated by contractors.
[25] Questionable costs relate to expenditures for which the auditor,
contracting agency, and contractor must reach a final determination as
to whether such costs are strictly prohibited, and if so, which costs
must be repaid to the contracting agency.
[26] See Administration of the Wisconsin Works Program by Maximus, Inc.
(http://www.legis.state.wi.us/lab/reports/ltrmaximus.htm) and
Administration of the Wisconsin Works Program by Employment Solutions,
Inc., and Other Selected Agencies (http://www.legis.state.wi.us/lab/
reports/ltrempsolutions.htm) for more information on the audit
findings. The latter report also identified questionable costs totaling
$76,023 for three other nonprofit TANF contractors in Milwaukee.
[27] At the remaining site, Los Angeles County, one contractor met the
established performance level and the other contractor did not.
[28] Differences in the levels of performance achieved by contractors
may reflect variations in several factors, such as contractor
capabilities and resources, caseload characteristics, and coordination
among service providers. We did not identify any differences in the
types of services that nonprofit and for-profit providers had been
contracted to provide in these localities.
[29] However, the established performance levels in Los Angeles County
and New York City, which are expressed in terms of the relative
performance to other contractors, actually fell outside of this range.
[30] A San Diego County official informed us that the county
subsequently revised its established performance levels for job
retention and work participation for TANF contractors when the
contracts were renegotiated.
[31] The three instances are the work participation rate in Miami
pertaining to recipients in no recorded work activity for more than 30
days, job placement rate in Houston, and job retention rate in New York
City.
[32] There are four nonprofit and six for-profit TANF contractors in
the District of Columbia.
[33] This group consisted of counties in Arkansas, California,
Colorado, Florida, Georgia, Maryland, Massachusetts, Minnesota, New
York, North Carolina, Ohio, Texas, and Virginia.
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