oversight

WIC: States Had a Variety of Reasons for Not Spending Program Funds

Published by the Government Accountability Office on 1997-06-12.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to the Chairman, Committee on
                  the Budget, House of Representatives



June 1997
                  WIC
                  States Had a Variety of
                  Reasons for Not
                  Spending Program
                  Funds




GAO/RCED-97-166
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Resources, Community, and
                   Economic Development Division

                   B-276975

                   June 12, 1997

                   The Honorable John R. Kasich
                   Chairman, Committee on the Budget
                   House of Representatives

                   Dear Mr. Chairman:

                   The Special Supplemental Nutrition Program for Women, Infants, and
                   Children (WIC) is designed to improve the health of low-income, pregnant,
                   breast-feeding, and postpartum women; infants; and children up to age 5
                   who are at nutritional risk. The program provides annual cash grants to
                   states for food, nutrition benefits, and administrative expenses—about
                   $3.7 billion in fiscal year 1997. The Food and Consumer Service (FCS) of
                   the U.S. Department of Agriculture administers WIC.

                   In the past, the Congress had raised concerns about the amount of WIC
                   grant funds that some states did not spend by the end of the fiscal year and
                   returned to FCS for reallocation to states the following fiscal year (known
                   as unspent recoverable funds). These funds totaled about $137.5 million of
                   the about $3.5 billion WIC appropriation in fiscal year 1995, the most recent
                   year for which data were available.

                   You requested that we identify the reasons that states had unspent
                   recoverable funds. In doing this, we also asked states whether unspent
                   recoverable funds indicated that they had more WIC funds available than
                   necessary to meet their needs. In performing our work, we interviewed
                   state WIC officials in 8 of the 47 states that had unspent recoverable funds
                   in fiscal year 1995 and 2 of the 3 states that had no unspent recoverable
                   funds that year. The eight states accounted for about 50 percent of the
                   unspent recoverable funds in fiscal year 1995.


                   State officials identified a variety of reasons why their states had unspent
Results in Brief   recoverable funds. Some of these reasons were related to how WIC is
                   structured. For example, because the federal grant is the only source of
                   funds for WIC in most states, states exercise caution to ensure that they do
                   not spend more than their federal grant. In addition, because states use
                   vouchers and checks to distribute food benefits, it is difficult for them to
                   determine the program’s food costs until the vouchers and checks have
                   been redeemed and processed. Some other reasons contributing to states’
                   having unspent recoverable funds relate to specific situations or




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             circumstances that limited program participation. For example, in one
             state the installation of a new computer system temporarily reduced the
             amount of time clinic staff had to certify and serve new clients because
             they had to instead spend time learning new software and operating
             procedures.

             Having unspent recoverable funds does not necessarily indicate a lack of
             need for program benefits. According to all eight WIC directors who we
             contacted in states having fiscal year 1995 unspent recoverable funds,
             more eligible individuals could have been served by WIC had it not been for
             reasons such as those identified above.


             Established in 1972, WIC provides federal grants to states for supplemental
Background   foods, health care referrals, and nutrition education for low-income,
             pregnant, breast-feeding, and postpartum women; infants; and children up
             to age 5 who are at nutritional risk. To qualify for the program, WIC
             applicants must show evidence of health or nutritional risk that is
             medically verified by a health professional. In addition, participants must
             have incomes at or below 185 percent of the poverty level. WIC operates in
             the 50 states (as well as on 33 Indian reservations), the District of
             Columbia, Guam, the U.S. Virgin Islands, American Samoa, and the
             Commonwealth of Puerto Rico.

             Federal WIC appropriations totaled $3.47 billion in fiscal year 1995 and
             $3.73 billion annually in fiscal years 1996 and 1997. The program is
             primarily funded by federal appropriations, with some states
             supplementing their federal grant with their own funds. In fiscal years 1995
             and 1996, average monthly WIC participation was about 6.9 million and
             7.2 million, respectively, and in fiscal year 1997, average monthly
             participation was 7.4 million participants through February 1997.

             Grants to states are divided into food grants and Nutrition Services and
             Administration (NSA) grants. Food grants are allocated to states through a
             formula that is based on the number of individuals in each state who are
             eligible for WIC benefits because of their income. NSA grants are allocated
             to states through a formula that is based on factors such as the state’s
             number of program participants and WIC salary costs. Both food and NSA
             grants have a stability feature that attempts to ensure that prior year
             funding levels are maintained. Since 1995, food grants have represented
             about 74 percent of WIC grant funds and NSA grants about 26 percent.
             Food grants cover the costs of supplemental foods. NSA grants cover costs



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                                       B-276975




                                       for program administration, start-up, monitoring, auditing, the
                                       development of and accountability for food delivery systems, nutrition
                                       education, breast-feeding promotion and support, outreach, certification,
                                       and developing and printing food vouchers or checks.

                                       FCS provides preliminary grant estimates to states in October, followed by
                                       official notification of grant amounts in January. A state can increase its
                                       grant amount during the year by qualifying for and requesting additional
                                       funds through FCS’ reallocation process. FCS reallocates unspent
                                       recoverable funds as well as current-year funds that the states voluntarily
                                       return. In fiscal year 1995, FCS reallocated funds four times: in January,
                                       April, July and August. In fiscal year 1996, FCS reallocated funds five times:
                                       in January, February, May, July and August. Priority for these funds in
                                       fiscal years 1995 and 1996 was given to states that had not received funds
                                       commensurate with their percentage of potentially eligible women,
                                       infants, and children.

                                       In fiscal year 1990, unspent recoverable funds totaled about $28.1 million.1
                                       The amount increased to about $137.5 million in fiscal year 1995, with FCS
                                       estimating a decline to about $121.6 million in fiscal year 1996. The
                                       unspent recoverable funds as a percentage of the WIC appropriation for
                                       fiscal years 1990 through 1996 ranged from about 1.3 to 4.3 percent. See
                                       table 1.

Table 1: Unspent Recoverable Funds,
WIC Appropriations, and Unspent                                        Unspent                         WIC            Unspent recoverable
Recoverable Funds as a Percentage of                          recoverable funds              appropriation          funds as percentage of
Appropriations, Fiscal Years 1990-96   Fiscal year                  ($ millions)               ($ billions)                  appropriation
                                       1990                                  $28.07                    $2.13                                1.32
                                       1991                                   73.38                      2.35                               3.12
                                       1992                                   66.23                      2.60                               2.55
                                       1993                                   97.26                      2.86                               3.40
                                       1994                                  136.77                      3.21                               4.26
                                       1995                                  137.48                      3.47                               3.96
                                       1996                                  121.57                      3.73                               3.26

                                       Most WIC food benefits are provided to participants through vouchers or
                                       checks. These vouchers or checks allow participants to purchase a
                                       monthly food package designed to supplement their diets. The foods they


                                       1
                                        Besides unspent recoverable funds that states must return to FCS for reallocation to states the next
                                       fiscal year, WIC regulations allow states to carry a certain percentage of funds into the next fiscal year
                                       for their spending. These funds are called spend-forward funds.



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                          B-276975




                          can purchase are high in protein, calcium, iron, and vitamins A and
                          C—nutrients frequently lacking in the diets of WIC’s target population.
                          Vouchers or checks can be issued monthly, bimonthly, or every 3 months.

                          Mothers participating in WIC are encouraged to breast-feed their infants if
                          possible, but states still spend hundreds of millions of dollars a year for
                          infant formula for WIC participants. Federal law requires that states enter
                          into cost-containment contracts for the purchase of infant formula used in
                          WIC. These contracts typically involve a rebate to a state by an infant
                          formula manufacturer for each can of the manufacturer’s formula
                          purchased through WIC. By negotiating contracts for rebates with formula
                          manufacturers, states greatly reduce average per person food costs so that
                          more people can be served. In fiscal year 1995, savings from rebates
                          totaled $1.1 billion.

                          State officials we contacted identified a variety of reasons that contributed
Reasons Contributing      to states’ having unspent recoverable funds. Some of these reasons are
to Unspent                associated with the overall structure of WIC, while others are due to
Recoverable Funds         specific circumstances that affect program operations within individual
                          states.


Reasons Associated With   State officials identified five reasons for having unspent recoverable funds
Program Structure         that were related to WIC’s basic structure. First, WIC directors pointed out
                          that the federal grant was the sole source of WIC funding in their states, and
                          as a result, they needed to be cautious to avoid overspending their WIC
                          grant. This careful approach to managing their WIC grant can result in a
                          considerable amount of unspent recoverable funds because of the size of
                          WIC grants. For example, in fiscal year 1995, California had unspent
                          recoverable funds of almost $16 million, which represented about
                          3 percent of its federal grant. In contrast to California, New York had no
                          unspent recoverable funds in fiscal year 1995. New York was one of 12
                          states that provided supplemental funds that year. According to a WIC
                          official in New York, having the supplemental state funds was one of the
                          reasons the state did not have unspent recoverable funds in fiscal year
                          1995. Furthermore, the group of states that supplemented their WIC grants
                          in fiscal year 1995 returned a smaller percentage of their combined WIC
                          grants as unspent recoverable funds than did the states that did not
                          supplement their grants (1.8 percent and 4.6 percent, respectively).

                          Second, states had unspent recoverable funds because the use of vouchers
                          and checks to distribute benefits made it difficult for states to determine



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B-276975




program food costs until the vouchers and checks were redeemed and
processed, according to WIC directors. Two features of the voucher and
check distribution method can contribute to states’ having unspent
recoverable funds. First, some portion of the benefits issued in the form of
vouchers and checks may not be used, thereby reducing projected food
costs. Participants may not purchase all food items specified on the
voucher or check or not redeem the voucher or check at all. Second,
because of the time it takes to process vouchers and checks, states may
find after the end of the fiscal year that their actual food costs were lower
than projected. For example, most states do not know the cost of the
vouchers and checks issued for August and September benefits until after
the fiscal year ends because program regulations require states to give
participants 30 days to use a voucher or check and retailers 60 days after
receipt of the voucher or check to submit it for payment.

The difficulty in projecting food costs in a timely manner can be
exacerbated in states that issue participants 3 months of vouchers or
checks at a time. In such states, vouchers or checks for August benefits
could be provided as early as June but not be submitted for payment by
the retailer until the end of October. Some states, such as Texas, now issue
3 months of vouchers to reduce crowded clinic conditions and serve more
participants with available resources.

Third, some state WIC officials reported that they had unspent recoverable
funds in part because they accepted reallocated WIC funds too late in the
fiscal year to allow them to spend all of the additional funds. According to
the California WIC director, a state with a growing caseload could have an
incentive to accept more funds during the summer than could be spent
because its next fiscal year’s grant is partially based on the current year’s
grant, including reallocations. However, states can be penalized if they do
not spend a certain percentage of their total food grant, including
reallocated funds. In fiscal years 1995 and 1996, this percentage, known as
a performance standard, was 96 percent, and in fiscal year 1997, it is
97 percent.

Fourth, some state WIC directors said that they had unspent recoverable
funds in part because the level of NSA funds they received was, in their
view, insufficient to support the WIC program infrastructure needed to
distribute the food grants they receive. These infrastructure needs
included new clinics, extended clinic hours to serve working women,
updated information processing systems, and additional staff. The Illinois
WIC director, for example, reported that to meet its existing caseload, the




Page 5                                GAO/RCED-97-166 Unspent Recoverable Funds
                            B-276975




                            state needs additional clinic space that cannot be met with its current NSA
                            grant. To compensate for this shortage of space, Illinois now issues 3
                            months of vouchers at one time to reduce crowded clinic conditions.

                            Fifth, several WIC directors pointed out that higher-than-expected increases
                            in rebates on infant formula when new contracts were negotiated
                            contributed to states’ having unspent recoverable funds. For example, the
                            Texas WIC director reported that one of the reasons the state had unspent
                            recoverable funds in fiscal year 1996 was an increase of $19 million in
                            rebates, from $104 million in fiscal year 1995 to $123 million in fiscal year
                            1996, after a new contract went into effect. Program regulations allow
                            states to carry forward into the next fiscal year some of the additional
                            funds that result from new rebate contracts. However, the amount of
                            additional rebate funds Texas experienced as a result of its new contract
                            was more than the amount that is allowed to be carried forward. At the
                            end of the fiscal year, any additional rebate funds that are not spent or
                            allowed to be carried forward are returned to FCS as unspent recoverable
                            funds for reallocation in the next fiscal year.


Reasons Related to          In addition to the reasons related to the structure of WIC, some state
Specific State Situations   officials reported specific situations that contributed to their state’s having
                            unspent recoverable funds. Several examples of state-specific situations
                            follow.

                            In Texas, installation of a new computer system contributed to the state’s
                            having unspent recoverable funds of about $6.8 million in fiscal year 1996.
                            The state WIC director reported that there were eligible individuals who
                            were not served in part because of problems experienced in implementing
                            the new computer system, which is used to certify WIC eligibility and issue
                            WIC food vouchers. According to the WIC director, eligible individuals were
                            not served because it took time for clinic managers and staff to learn new
                            system software and operating procedures, thereby reducing the time
                            available for providing services to new clients.

                            In Florida, a hiring freeze contributed to the state’s having unspent
                            recoverable funds of $7.7 million in fiscal year 1995. According to the state
                            WIC director, although WIC funds were available to increase the number of
                            WIC staff at the state and local agency level, state programs were under a
                            hiring freeze that affected all programs, including WIC. The hiring freeze
                            hindered the state’s ability to hire the staff needed to serve the program’s
                            expanding caseload.



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                       B-276975




                       In Mississippi, changes in the health care delivery system for Medicaid
                       patients contributed to that state’s having unspent recoverable funds of
                       $8 million in fiscal year 1995. The state WIC director said that many clients
                       “dropped through the cracks” because the state shifted health care for
                       Medicaid patients from public health centers, where WIC staff certified
                       eligibility and provided benefits, to private health maintenance
                       organizations that did not provide WIC services. Under the new system,
                       potential WIC participants have to go to an additional location to obtain WIC
                       benefits. This change made it more difficult to obtain WIC benefits, thereby
                       reducing program participation.


                       Although states had unspent recoverable funds, they reported that they
Unspent Recoverable    had eligible individuals who were not served. According to all eight WIC
Funds Do Not           directors that we contacted in states’ having fiscal year 1995 unspent
Necessarily Mean All   recoverable funds, more eligible individuals could have been served by WIC
                       had it not been for the reasons related to the program’s structure and/or
States’ Needs Met      state-specific situations. The Ohio WIC director, for example, reported that
                       although the state had unspent recoverable funds in fiscal years 1995 and
                       1996, more eligible individuals could have been served if additional NSA
                       funds had been available to hire more staff. The director pointed out that
                       Ohio’s WIC reaches about 72 percent of WIC-eligible individuals, and he
                       believed that the state could serve 78 percent of eligible individuals.


                       We provided copies of a draft of this report to the U.S. Department of
Agency Comments        Agriculture’s Food and Consumer Service for its review and comment. We
                       met with Food and Consumer Service officials, including the Director,
                       Grants Management Division, and the Acting Director, Supplemental Food
                       Programs Division. They agreed with the report’s findings and provided
                       technical corrections, which we incorporated into the report.


                       We judgmentally selected 10 states to contact regarding their reasons for
Scope and              having or not having unspent recoverable funds. Using FCS program data
Methodology            for fiscal year 1995, the most recent available at the time we selected the
                       states, we identified the six states (California, Florida, Illinois, Ohio,
                       Mississippi, and Texas) with the greatest amount of unspent recoverable
                       funds, the two states with the highest percentage of unspent recoverable
                       funds in relation to their WIC grant (Montana and Wyoming), and two states
                       that had no unspent recoverable funds (Georgia and New York). We
                       contacted each state’s WIC director (or representative) by telephone to



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B-276975




discuss the reasons that the state had or did not have unspent recoverable
funds. Because we judgmentally selected the states, the results we
obtained cannot be used to make statements about the universe of all
states participating in WIC. As agreed, we excluded Indian tribal
organizations, the District of Columbia, and the territories from our
potential sample. We also asked states whether unspent recoverable funds
indicated that their state had more WIC funds available than necessary to
meet the state’s needs.

In addition to talking with state WIC officials, we reviewed WIC regulations
and FCS financial documents, and discussed program operations with staff
at FCS headquarters and the six regional offices that monitor the 10 states
we contacted. Furthermore, we discussed WIC operations with the
Executive Director, National Association of WIC Directors; and the
Executive Director and staff from the Center for Budget and Policy
Priorities, an organization that has conducted a number of studies on WIC.

We conducted our review from December 1996 through May 1997 in
accordance with generally accepted government auditing standards. We
did not independently verify the financial information contained in the FCS
database.


We are sending copies of this report to the appropriate congressional
committees and the Secretary of Agriculture. We will also make copies
available to others on request.

Please contact me at (202) 512-5138 if you or your staff have any questions
about this report. Major contributors to this report are listed in appendix
II.

Sincerely yours,




Robert A. Robinson
Director, Food and
  Agriculture Issues




Page 8                                GAO/RCED-97-166 Unspent Recoverable Funds
Page 9   GAO/RCED-97-166 Unspent Recoverable Funds
Appendix I

States’ WIC Grants and Unspent
Recoverable Funds, Fiscal Years 1995 and
1996

                    Fiscal year 1995                          Fiscal year 1996
                               Unspent recoverable                       Unspent recoverable
State             WIC grant                 funds          WIC grant                  fundsa
Alabama          $64,611,410            $2,918,859        $61,217,277                $577,765
Alaska            14,950,896             1,180,022         16,005,387                 500,772
Arizona           51,575,185             2,559,178         58,927,576               3,320,350
Arkansas          40,736,964               761,538         42,362,221                       0
California       528,264,582            15,950,928        631,052,167              36,651,129
Colorado          36,958,426             1,192,418         38,360,902               2,545,461
Connecticut       38,720,671             1,778,925         36,586,494               2,282,418
Delaware           7,926,995                80,672          8,244,816                 119,344
Florida          163,876,394             7,735,081        176,189,537                 672,456
Georgia          107,253,724                    0         109,730,495               2,603,317
Hawaii            22,089,495             3,079,333         22,652,211                  33,586
Idaho             19,009,593             2,704,452         17,736,340               2,106,815
Illinois         134,576,605             7,722,076        145,988,966                 783,517
Indiana           62,746,560             1,788,687         66,369,206                 278,630
Iowa              31,202,554             1,304,187         33,024,358                   1,906
Kansas            28,797,513               831,671         28,194,852               1,368,262
Kentucky          58,848,075             1,525,130         60,376,983               1,887,377
Louisiana         73,526,079             4,524,832         73,035,770                       0
Maine             13,610,310               834,941         13,987,474               1,078,613
Maryland          44,861,177             1,348,600         48,997,345               1,901,410
Massachusetts     52,660,857             1,605,171         55,424,377                       0
Michigan         106,563,052             2,538,542        112,191,242               3,463,741
Minnesota         43,027,616                    0          45,264,013                       0
Mississippi       57,764,023             8,000,314         55,850,694               7,342,817
Missouri          64,158,981             3,683,036         67,251,953               3,377,648
Montana           12,106,893             1,885,585         12,590,028               1,442,734
Nebraska          17,782,146               400,183         18,659,852                       0
Nevada            15,723,968             1,640,476         17,467,771                 515,513
New Hampshire      9,691,047               323,896          9,465,600                       0
New Jersey        70,886,124               371,253         74,029,481               3,879,861
New Mexico        25,468,382                52,476         27,276,366                       0
New York         237,732,790                    0         253,009,178                       0
North Carolina    86,156,248             3,350,351         89,939,421               2,501,167
North Dakota       8,930,948               347,061          8,767,349                  25,949
Ohio             121,153,627             4,706,154        124,621,932               8,104,571
Oklahoma          41,082,326               759,306         42,418,976                       0
                                                                                   (continued)


                    Page 10                          GAO/RCED-97-166 Unspent Recoverable Funds
                                   Appendix I
                                   States’ WIC Grants and Unspent
                                   Recoverable Funds, Fiscal Years 1995 and
                                   1996




                                       Fiscal year 1995                                        Fiscal year 1996
                                                      Unspent recoverable                                 Unspent recoverable
State                             WIC grant                        funds                    WIC grant                  fundsa
Oregon                           39,378,115                         1,357,113               43,775,330               1,527,110
Pennsylvania                    128,033,346                         1,139,154              134,322,962               4,457,144
Rhode Island                     11,837,294                           509,801               11,777,659                  91,985
South Carolina                   58,179,048                         4,031,474               59,951,078               1,617,017
South Dakota                     11,545,103                         1,440,989               10,968,497                 119,806
Tennessee                        71,592,650                         2,048,077               77,232,944                 211,417
Texas                           290,772,155                        21,238,422              290,896,733               6,787,112
Utah                             29,034,990                         3,230,678               30,017,807                 592,300
Vermont                            8,837,753                          275,149                8,969,678                 275,705
Virginia                         66,135,980                           551,490               70,872,396               3,502,451
Washington                       60,412,019                         1,200,000               77,160,239               6,767,714
West Virginia                    28,733,148                         3,287,465               29,367,162                 731,539
Wisconsin                        55,275,738                         2,048,790               55,295,823                       0
Wyoming                            7,214,584                        1,563,897                6,301,585                 590,777
                                                b                                 b
American Samoa                                                                               4,345,329               1,577,791
District of Columbia               9,183,395                                      0          9,793,974                 415,282
Guam                               5,163,965                          563,790                5,199,580                 792,431
Puerto Rico                     123,933,180                           801,211              132,779,345                       0
U.S. Virgin Islands                5,866,193                             3,896               6,025,014                 456,702
Indian Tribal Organizations      40,162,705                         2,702,015               45,585,584               1,693,516
Total                         $3,566,323,597                    $137,478,745            $3,809,562,000            $121,574,928

                                   a
                                    Preliminary, subject to final reconciliation.
                                   b
                                       Did not participate in fiscal year 1995.

                                   Source: U.S. Department of Agriculture’s Food and Consumer Service.




                                   Page 11                                            GAO/RCED-97-166 Unspent Recoverable Funds
Appendix II

Major Contributors to This Report


               Thomas Slomba, Assistant Director
               Rosellen McCarthy, Evaluator-in-Charge
               Natalie Herzog
               Carol Herrnstadt Shulman




(150269)       Page 12                            GAO/RCED-97-166 Unspent Recoverable Funds
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