For federal fiscal years 1997 to 2002, states received federal TANF block grants totaling $16.5 billion annually. HHS oversees states’ TANF programs. 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). 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. 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. Single Audits Assess TANF Procurement and Subrecipient Monitoring

HHS relies primarily on state single audits to oversee TANF contracting by states and localities. 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. 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. Second, PRWORA expanded the scope of services that could be contracted out to nongovernmental entities, such as determining eligibility for TANF. 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. 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.
What GAO Found

The 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.