Federal Mandates May Influence Outsourcing

The federal government and some states have outsourced in response to  federal mandates to automate or centralize certain functions of human  services programs. Most States Perform Some Functions Offshore in Four State-Administered Programs, but No Offshoring Is Occurring in Two Federally- Administered Student Aid Programs

In the four state-administered programs we reviewed, 43 of 50 states and  the District of Columbia have offshoring in one or more programs, but we  did not find occurrences of offshoring in the two federally-administered  programs. Services most frequently reported as being performed  offshore include customer service for the Food Stamp and TANF  programs, and software development for the Unemployment Insurance  and Child Support Enforcement programs. In the federal student aid programs we  examined—the Pell Grant and FFEL—we found no occurrence of  offshoring. For example, the U.S.  company that holds the majority of state contracts with some offshoring in  the Food Stamp and TANF programs estimated that services performed  offshore constituted less than 3 percent of the total services provided  through these contracts. Like the  Department of Education, they have department-level requirements that  contractor employees be U.S. citizens or legally permitted to work in the  United States in order to perform high-risk work. State Officials Cited Cost Savings as a Benefit of Contracting with Companies That Offshore Services and Few Officials Reported Any Problems with Offshored Services

State officials reported that contracts with some services performed  offshore cost less than contracts with all services performed within the  United States and the magnitude of cost savings varied across states. Magnitude of Cost Savings for Contracts in Which Some Services Are Performed Offshore Varies by State

All 15 state program directors that reported having performed cost  comparisons for their contracts, based on differences in the location of  services, reported that cost savings are associated with having some of the  work performed offshore. Their contracts,  with some services performed offshore, would cost from about 0.3 to   24 percent less than if all the services in these contracts were to be  performed somewhere within the United States. Few State Officials Identified Problems Associated with Offshoring

Most state officials we interviewed did not report any problems with the  quality of services by offshore contractors. The three officials that indicated problems with  offshored services in their contracts said that those problems were related  to difficulties in understanding the English of software programmers and  customer service representatives in India. Few States Have Taken Actions to Ban Offshoring and No Federal Provisions Specifically Restrict Offshoring of Services in the Six Human Services Programs We Reviewed

While numerous actions have been proposed at the state and federal levels  to limit offshoring by government agencies, few restrictions have been  enacted—and only at the state level—with respect to the six programs we  reviewed. Two states—New Jersey and Arizona—have banned offshoring in state  contracts. As we  have seen, Education’s security-related policies for contractors in the  FFEL and Pell Grant programs restrict the ability to perform work  offshore in these programs, whereas the security-related policies of the  federal agencies for the state-administered programs we examined do not  have this effect on state-level contracting. Agency Comments and Our Evaluation

The Departments of Agriculture, Education, Health and Human Services,  and Labor did not have comments on this report. First, we  surveyed 204 directors for the Child Support Enforcement, Food Stamp,  Temporary Assistance for Needy Families, and Unemployment Insurance  programs in all 50 states and the District of Columbia.
Why GAO Did This Study

As states and the federal government have sought to streamline and improve administrative processes and take advantage of technological advances, both have outsourced certain functions to private firms. In some cases, these firms have used offshore resources to perform these functions. As a result, questions have been raised about the prevalence of offshoring in federal human services programs. In response to widespread congressional interest, we conducted work under the Comptroller General's authority to determine (1) the occurrence and nature of offshoring, (2) the benefits state agencies have achieved through offshoring and problems they have encountered, and (3) the actions, if any, states and the federal government have taken to limit offshoring and why. We examined four federally-funded state-administered programs--Child Support Enforcement, Food Stamp, Temporary Assistance for Needy Families (TANF), and Unemployment Insurance--and two federally-administered programs that provide student financial aid--Pell Grant and Federal Family Education Loan (FFEL). The Departments of Agriculture, Education, Health and Human Services, and Labor did not have comments on this report.

What GAO Found

Some work is performed offshore in the majority of states for the four state-administered programs we reviewed, but no work is performed offshore for the two federally-administered student aid programs. Offshoring occurred in one or more programs in 43 of 50 states and the District of Columbia, most frequently in the Food Stamp and TANF programs. However, expenditures for services performed offshore in the four state-administered programs appear to be relatively small. The services states most frequently reported as being performed offshore in the Food Stamp and TANF programs were functions related to customer service, such as call centers, and in the Unemployment Insurance and Child Support Enforcement programs functions were related to software development. India was the most prevalent offshore location, followed by Mexico. We did not find any occurrences of offshoring in the Pell Grant and FFEL programs and the Department of Education's U.S. residency requirement for contractors performing high-risk work has the effect of limiting offshoring. State officials reported that lower costs are a benefit of having services performed offshore and few officials identified problems with offshore service providers in their contracts. Fifteen state program directors reported having performed cost comparisons for their current contracts, based on differences in the location of services, and all reported that they would achieve cost savings if some of the work were performed offshore. On average, these comparisons showed that with some services performed offshore, contract costs would be between 0.3 and 24 percent less than if all the services in the contracts were to be performed in the United States. The few state officials that reported any problems with the quality of services provided by offshore contractors said that they involved difficulties in understanding the English of software programmers or customer service representatives. While numerous actions have been proposed at the state and federal levels to limit offshoring by government agencies, few restrictions exist with respect to the six programs we reviewed. Two states--New Jersey and Arizona--have prohibited offshoring in state contracts. Some states have also taken other actions, such as requiring state agencies to disclose when state-contracted work is performed offshore or to report on the implications of offshoring. The federal government does not have regulations specifically related to the offshoring of services in the six programs we reviewed.