Figure 1  illustrates the major services provided by the CSE program. The CSE program is financed by federal and state funds. Generally,  federal matching funds reimburse state agencies 66 percent of the  administrative costs for their CSE programs. Child support  collections for families that receive benefits from the TANF and Foster  Care programs are deducted from the total federal and state expenditures  and paid to these programs as reimbursements. Net Federal Expenditures, Collections, and the Nationwide Cost- Effectiveness Ratio Increased

Overall from fiscal year 2000 to fiscal year 2004, total net federal  expenditures for administrative costs increased about 23 percent. From fiscal year 2000 to fiscal year 2004, total net federal  expenditures increased from about $2.2 billion to nearly $2.8 billion. From fiscal year 2000 to fiscal year  2004, total collections increased about 12 percent from $19 billion to about  $22 billion. All State Agencies Reported That Personnel Costs Were a Major Contributor to Their Administrative Costs, and Most State Agencies Also Cited Cooperative Agreements, Automated Data Systems, and Contracts as Major Costs

All 49 state agencies cited personnel costs as one of their largest cost  categories during fiscal years 2002 to 2004. OCSE  officials also stated that OCSE has not reviewed state agencies’ FTEs or  developed guidelines to help state agencies manage the number of FTEs  and the related costs. State Agencies Reported Implementing Cost- Saving Initiatives, and While OCSE Has Helped State Agencies, It Has Not Conducted Administrative Cost Audits in Most States

State agencies reported they had implemented cost-saving initiatives  identified in our survey, and while OCSE has provided assistance to help  state agencies, it has not conducted administrative cost audits in most  states to help ensure that federal funds have been used appropriately. However, OCSE has completed a limited  number of administrative cost audits from March 2004 to March 2006, even  though all of the completed audits raised questions about inappropriate  expenditures. State agencies reported savings and other benefits after implementing the  10 initiatives listed in our survey. Nonetheless, most of the completed and planned audits are focused  on incentive payment data and indicators, and although OCSE expects to  have more resources available to conduct audits, it does not plan to use  these resources to conduct more administrative cost audits. We are sending copies of this report to the Secretary of Health and Human  Services, Directors of state child support enforcement agencies in the  states we visited, and other interested parties. Appendix I: Objectives, Scope, and Methodology

	Objectives

The objectives of this study were to determine (1) how total net federal  expenditures for administrative costs have changed from fiscal year 2000  to fiscal year 2004, (2) the categories of cost that have contributed most to  federal expenditures for administrative costs in recent years, and (3) steps  state agencies have taken to manage costs and steps the Office of Child  Support Enforcement (OCSE) has taken to help state agencies and to  ensure federal funds have been used appropriately. We   (1) analyzed program data for all 54 state agencies for fiscal years 2000 to  2004; (2) conducted a survey of state agencies; (3) visited 6 state agencies;  (4) interviewed OCSE and state agency officials as well as child support  experts; and (5) reviewed relevant laws and regulations, pertinent reports  and studies, and applicable OCSE policy and guidance documents.
Why GAO Did This Study

Congress established federal standards for the child support enforcement program (CSE) in 1975. State agencies administer the program and the Office of Child Support Enforcement (OCSE) in the Department of Health and Human Services (HHS) oversees it. The CSE program provides several services, including collecting child support payments from noncustodial parents--those who are not the primary caregivers--and distributing these payments to families. Generally, the federal government reimburses state agencies 66 percent of their costs for administering the CSE program. GAO determined (1) how total net federal expenditures for administrative costs changed from fiscal year 2000 to fiscal year 2004; (2) the categories of costs that contributed most to administrative costs in recent years; and (3) steps state agencies have taken to manage costs, and steps OCSE has taken to help state agencies and ensure federal funds have been used appropriately. GAO analyzed program data, surveyed all 54 state agencies and visited 6, interviewed program officials, and reviewed laws, policies, and reports.

What GAO Found

From fiscal year 2000 to fiscal year 2004, total net federal expenditures for administrative costs (the cost after deducting child support collections for families receiving benefits from other government programs) increased by about 23 percent. After adjusting for inflation, total net federal expenditures increased from about $2.2 billion to $2.8 billion. Also, during this period, collections increased by about 12 percent from about $19 billion to $22 billion, and the program's cost effectiveness measure (the ratio of collections to total administrative expenditures) increased about 4 percent. Personnel costs were cited as a major contributor to federal expenditures for administrative costs in fiscal years 2002 to 2004 by the 49 state agencies that responded to the relevant question in our survey. Most state agencies also cited as major costs cooperative agreements under which staff from other state agencies are paid to perform CSE program duties, automated data systems, and contracts with private firms. Several of these categories involve labor costs, and from fiscal years 2000 to 2004, the number of full-time-equivalent (FTE) employees funded by the CSE program increased about 2,200. Yet, OCSE has not developed guidelines to help state agencies manage their FTEs and related labor costs. State agencies reported implementing cost-saving initiatives, and while OCSE has helped state agencies manage costs, it has conducted a limited number of administrative cost audits to help ensure the appropriate use of federal funds. At least one-half of the state agencies reported implementing 7 of the 10 cost-saving initiatives listed in our survey, and many reported cost savings. To help state agencies manage their programs, OCSE issued guidance, created federal/state work groups, and sponsored conferences. OCSE is required to conduct audits of state agencies' administrative costs, and from March 2004 to March 2006, OCSE issued eight administrative cost audit reports. All of these audit reports raised questions about inappropriate expenditures. Although OCSE expects to have more resources available to conduct audits, it does not plan to use these resources to conduct more administrative cost audits.