Within many states, local governments operate social service programs with considerable autonomy. Whether administered by a state or county government, the child welfare system is generally composed of the following service components: child protective services that entail responding to and investigating reports of child abuse and neglect, identifying services for the family, and determining whether to remove a child from the family’s home; family preservation and family support services that are designed to strengthen and support families who are at risk of abusing or neglecting their children or losing their children to foster care and that include family counseling, respite care for parents and caregivers, and services to improve parenting skills and support child development; foster care services that provide food and housing to meet the physical needs of children who are removed from their homes and placed with a foster family or in a group home or residential care facility until their family can be reunited, the child is adopted, or some other permanent placement is arranged; adoption services that include recruiting potential adoptive parents, placing children in adoptive homes, providing financial assistance to adoptive parents to assist in the support of special needs children, and initiating proceedings to relinquish or terminate parental rights for the care and custody of their children; and independent living services that are activities for older foster children—generally age 16 and older—to help them make the transition from foster care to living independently. The states can also receive incentive funds based on the cost-effectiveness of child support enforcement agencies in making collections. Since 1990, more than half of the state and local governments we contacted have increased their contracting for services, as indicated by the number and type of services privatized and the percentage of social service budgets paid to private contractors. Spurred by political leaders and top program managers, states and localities privatized social services in an attempt to reduce program costs and improve services by using the technology and management flexibility they believe private contractors offer. States and Localities Privatize for Various Reasons

A variety of reasons have prompted states and localities to contract out social services. The growth in privatization has most often been prompted by strong support from top government officials, an increasing demand for public services, and the belief that private contractors are able to provide higher-quality services more cost-effectively because of their management flexibility. Competition, Contract Development, and Monitoring Issues Could Undermine Privatization Goals

Federal, state, and local government officials, union representatives, national associations, advocacy groups, contractors, and other experts in social service privatization identified several challenges that state and local governments most often encountered when they privatized social services. HHS’ Oversight of States and Localities May Need to Change in a New Environment

The increase in privatization combined with the difficulties states are having in developing methods to monitor program results raise questions about how HHS can ensure that broad program goals are achieved. It will be challenging for HHS to develop and implement approaches to help states assess results of federally funded programs and track them over time so that state and local governments are better prepared to hold contractors accountable for the services they provide. Currently, monitoring program results poses a challenge throughout the government. HHS’ current focus on compliance with statutes and regulations poses a challenge in monitoring the effectiveness of state programs and in identifying the effects of privatization on these programs. At the same time, the federal government, through the Government Performance and Results Act of 1993, is focusing on achieving better program results. 1-18. 6, No. 14-17. Related GAO Products

The Results Act: Observations on the Department of Health and Human Services’ April 1997 Draft Strategic Plan (GAO/HEHS-97-173R, July 11, 1997).
Why GAO Did This Study

Pursuant to a congressional request, GAO examined issues related to social service privatization, focusing on the: (1) recent history of state and local government efforts to privatize federally funded social services; (2) key issues surrounding state and local privatized social services; and (3) federal policy implications of state and local social service privatization.

What GAO Found

GAO found that: (1) since 1990, more than half of the state and local governments GAO contacted have increased their contracting for services, as indicated by the number and type of services privatized and the percentage of social service budgets paid to private contractors; (2) many experts GAO consulted expect privatization to expand further; (3) GAO's research found that the recent increases in privatization were most often prompted by political leaders and top program managers, who were responding to an increasing demand for public services and a belief that contractors can provide higher-quality services more cost-effectively than can public agencies; (4) in attempts to provide more cost-effective services, more states are contracting out larger portions of their child support enforcement programs; (5) state and local governments are turning to contractors to provide some services and support activities in which they lack experience or technical expertise; (6) state and local governments face several key challenges as they plan and implement strategies to privatize their social services; (7) first is the challenge to obtain sufficient competition to realize the benefits of privatization; (8) second, state and local governments often have little experience in developing contracts that specify program results in sufficient detail to effectively hold contractors accountable; (9) third, it can be difficult for states to monitor performance in some social service programs; (10) increased privatization raises questions about how the Department of Health and Human Services (HHS) will fulfill its obligation to ensure that broad program goals are achieved; (11) assessing program results presents a significant challenge throughout the government, yet it is an important component of an effective system for holding service providers accountable; (12) the difficulties the states have in monitoring privatized social services focus attention on the need to improve accountability for results; (13) some of the state and local officials GAO interviewed believe that HHS should clarify its program goals and develop performance measures states can use to monitor and evaluate contractor efforts; (14) the Government Performance and Results Act of 1993 requires federal agencies like HHS to focus their efforts on achieving better program results; (15) HHS' practice of holding states accountable primarily for compliance with statutes and regulations may make the transition particularly difficult; and (16) however, promising approaches are available within HHS in moving to a program results orientation.