oversight

Child Support Enforcement Privatization: Challenges in Ensuring Accountability for Program Results

Published by the Government Accountability Office on 1997-11-04.

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

                            United States General Accounting Office

GAO                         Testimony
                            Before the Subcommittee on Human Resources and
                            Intergovernmental Relations, Committee on Government
                            Reform and Oversight, House of Representatives


For Release on Delivery
Expected at 2 p.m.
Tuesday, November 4, 1997
                            CHILD SUPPORT
                            ENFORCEMENT
                            PRIVATIZATION

                            Challenges in Ensuring
                            Accountability for Program
                            Results

                            Statement of Mark V. Nadel, Associate Director
                            Income Security Issues
                            Health, Education, and Human Services Division




GAO/T-HEHS-98-22
Child Support Enforcement Privatization:
Challenges in Ensuring Accountability for
Program Results
               Mr. Chairman and Members of the Subcommittee:

               I am pleased to be here today to discuss our work on the benefits and
               challenges of a growing phenomenon—privatization, or contracting with
               private sector firms, to provide social services and, in particular, child
               support enforcement (CSE) services. As political leaders and program
               managers throughout the nation are responding to calls for improved
               social services and lower costs, many are rethinking the role government
               plays in providing billions of dollars in services to millions of children and
               families and are focusing greater attention on contracting out as a way to
               meet service needs more cost-effectively. Our work on social service
               privatization has examined contracting in child care, child welfare, new
               block grants to assist needy families, and, the focus of this hearing today,
               CSE.


               More specifically, my remarks will address the following questions:
               (1) Has privatization increased? (2) Has privatization increased efficiency
               and effectiveness? (3) What are the main challenges stemming from
               privatization? (4) What role can the federal government play in this critical
               area?1 In order to provide a better understanding of these issues, I will use
               CSE contracting as an example to illustrate broader social service
               privatization issues we examined in the report entitled Social Service
               Privatization: Expansion Poses Challenges in Ensuring Accountability for
               Program Results (GAO/HEHS-98-6, Oct. 20, 1997), which the Subcommittee
               requested and is releasing today.

               In summary, we found that, first, most of the state and local governments
               we contacted have increased their contracting for social services, as
               indicated by the number and types of services privatized and the
               percentage of their program budgets paid to private contractors since
               1990. Second, the few empirical studies that examine whether
               privatization has reduced program costs or improved services show mixed
               results to date. Third, the challenges that state and local governments
               encounter include developing clear contract specifications and
               implementing effective methods of monitoring contractor performance.
               Finally, governments at all levels are struggling with the best way to hold
               service providers accountable for results. In this changing environment,
               we believe that HHS can be more helpful by increasing its focus on
               developing and implementing methods of assessing program results.

               1
                To answer these questions, we interviewed officials in the Department of Health and Human Services
               (HHS), five states and selected local governments, unions, advocacy groups, national associations, and
               contracting organizations. We also reviewed articles and studies written by acknowledged experts in
               social service privatization.



               Page 1                                                                          GAO/T-HEHS-98-22
                    Child Support Enforcement Privatization:
                    Challenges in Ensuring Accountability for
                    Program Results




                    The CSE program enforces parental responsibility by locating noncustodial
Background          parents, establishing paternity and child support orders, and collecting
                    support payments. These services, established under title IV-D of the
                    Social Security Act, are available to both welfare and nonwelfare families.
                    State CSE agencies, in conjunction with other organizations, have
                    responsibility for administering the program at the state and local levels.
                    The federal government pays two-thirds of the states’ costs to administer
                    the CSE program. The states can also receive incentive funds on the basis
                    of the cost-effectiveness of CSE agencies in making collections. In 1996,
                    federal funding for program administration and incentives totaled almost
                    $3 billion.

                    The most common form of privatization is contracting out, which typically
                    involves efforts to obtain competition among private bidders to perform
                    government activities. Depending on the program, government agencies
                    can contract with other government entities—often through cooperative
                    agreements—and with for-profit and not-for-profit organizations. For CSE,
                    states can privatize particular services, such as locating noncustodial
                    parents, establishing paternity, or collecting support owed, or they may
                    contract with the private sector to provide all local child support services.
                    States may also contract to upgrade automated data systems, which are
                    used to help locate noncustodial parents and monitor child support cases.


                    While governments have long used contractors to provide a variety of
Social Service      services, contracting out has grown in recent years. Increasingly, states
Privatization Has   and local governments have contracted with for-profit and not-for-profit
Increased           organizations to provide social services and related support activities,
                    such as information resource management. A national study completed by
                    the Council of State Governments in 1993 found that almost 80 percent of
                    state social service departments surveyed in the study had expanded the
                    privatization of social services in the preceding 5 years. In our own review,
                    most of the 20 state and local governments we contacted said contracting
                    for services had increased since 1990, as measured by the number and
                    type of services privatized and the percentage of social service budgets
                    paid to private contractors. For CSE, it was not uncommon before 1991 for
                    states to contract out for limited activities, such as collecting support
                    payments, but only in rare instances had states contracted with a for-profit
                    organization to provide all the activities of a local CSE office, commonly
                    known as full-service privatization. In contrast, by 1996, 15 states had
                    turned to full-service privatization in selected local offices. This form of




                    Page 2                                                       GAO/T-HEHS-98-22
                            Child Support Enforcement Privatization:
                            Challenges in Ensuring Accountability for
                            Program Results




                            contracting out includes a broader array of services, such as interviewing
                            clients and establishing paternity.


Desire for Cost-Effective   The state and local governments we examined, spurred by strong support
Quality and Demands for     from political leaders and top program managers, have contracted for
Service Fuel Growth         social services for a variety of reasons. These reasons include the belief
                            that private contractors are able to provide high-quality services more
                            cost-effectively because of their management flexibility, an increasing
                            demand for public services, and limited resources for additional in-house
                            hiring. In some instances, governments have chosen to contract out to
                            help compensate for the lack of government expertise in certain service
                            areas, such as the development of automated information systems.

                            In CSE, as caseloads have grown to as high as 1,000 per worker in some
                            areas and as governments have lacked resources to hire additional
                            workers, political leaders have begun to emphasize the need for
                            government to be more effective in ensuring that parents meet their child
                            support responsibilities. In response, many governments have turned to
                            contractors either to supplement state or local efforts or to replace them
                            with privatized offices, thereby continuing efforts to privatize CSE services
                            that have traditionally been delivered by the public sector. Future trends
                            in child support privatization may also be affected by the new welfare law,
                            which may lead states to contract for additional automated data
                            processing expertise. Under this new law, states must enhance their
                            current statewide systems to interface with other federal and state
                            systems. These enhancements are needed to establish central case
                            registries and new-hire directories. Considering social service privatization
                            more broadly, state and local government officials and other experts told
                            us they expect the growth of contracting out to continue following the
                            recent changes to federal welfare legislation.


                            State and local governments have experienced mixed results in their
Results of Social           efforts to reduce costs and improve services through social service
Service Privatization       privatization. While the number of evaluations is limited, studies show that
Are Mixed                   the relative performance of public and private entities has varied among
                            the social service programs we reviewed. Our report last year on
                            full-service privatization in the CSE program found that the privatized
                            offices in the three locations we examined for performance did better than
                            or as well as public CSE programs in locating noncustodial parents,




                            Page 3                                                      GAO/T-HEHS-98-22
Child Support Enforcement Privatization:
Challenges in Ensuring Accountability for
Program Results




establishing paternity and support orders, and collecting support owed.2 In
Virginia, the privatized office collected support payments from 41 percent
of the cases we reviewed, a rate almost twice that of the similar public
office with which we compared it. However, the relative cost-effectiveness
of the privatized versus public offices varied in the four locations.3 In two
of the four locations we examined for cost-effectiveness, the public office
was as cost-effective as or more cost-effective than its private counterpart.
In Tennessee, one public office was 52 percent more cost-effective than
the privatized office we reviewed, while the other privatized office we
studied in Tennessee was about as cost-effective as its public counterpart.

States more frequently contract for selected CSE activities than for the full
range of program services, such as contracting for the collection of child
support payments.4 States most commonly contract with the private sector
for the collection of past-due support, especially that considered hard to
collect. Under the terms of most collection contracts, states pay
contractors only if collections are made, and payments to contractors are
often a fixed percentage of collections. Privatizing collections has enabled
states to collect support that they would have been unable to collect
without hiring additional staff. In fiscal years 1994 and 1995, contractors in
nine states collected nearly $60 million and were paid about $6 million.

Privatization in the CSE program also involves contracting out to upgrade
state and local government automated data systems. As we reported
earlier, these systems appear to have improved caseworker productivity
by helping track court actions relating to paternity and support orders and
amounts of collections and distributions. However, in some cases,
contractors have encountered difficulties in meeting state specifications
for the upgraded systems, resulting in large cost overruns and delays in
implementing the new systems.5




2
 Child Support Enforcement: Early Results on Comparability of Privatized and Public Offices
(GAO/HEHS-97-4, Dec. 16, 1996).
3
 Cost-effectiveness was defined as the ratio of each office’s administrative costs to collections,
expressed as the cost to collect $1.
4
 Child Support Enforcement: States’ Experience With Private Agencies’ Collection of Support
Payments (GAO/HEHS-97-11, Oct. 23, 1996).
5
 Child Support Enforcement: Strong Leadership Required to Maximize Benefits of Automated Systems
(GAO/AIMD-97-72, June 30, 1997).


Page 4                                                                              GAO/T-HEHS-98-22
                          Child Support Enforcement Privatization:
                          Challenges in Ensuring Accountability for
                          Program Results




                          Officials from state and local governments, unions, national associations,
States and Localities     advocacy groups, and contracting organizations cited several major
Face Several              challenges governments face when privatizing social services:
Challenges in             (1) obtaining a sufficient number of qualified bidders, (2) developing
                          contracts with clear specifications, and (3) assessing contractor
Privatizing Social        performance. Even when services are provided by contractors, the
Services                  government entity remains responsible for the use of public resources and
                          the quality of services provided. Unless the entity meets these challenges,
                          it may be difficult for state and local governments to reduce program costs
                          and improve services.


Competitive Markets for   Several experts in social service privatization and state and local
Social Services Are       government officials believe that without a sufficient number of qualified
Sometimes Lacking         bidders, the likelihood of reducing costs and improving service quality
                          through privatization declines. While many state and local social service
                          program officials we interviewed reported that they were generally
                          satisfied with the number of qualified bidders in their state or locality, they
                          expressed concern about the limited number of qualified bidders in certain
                          situations. Several state and local government officials said they had
                          occasionally encountered the problem of an insufficient number of
                          qualified bidders, especially in rural areas and when the service for which
                          they contracted required technical skills in such areas as information
                          resource management. In the case of CSE, when states contract out
                          activities that are similar to those commonly performed in the private
                          sector, such as collection services that debt-collection agencies perform,
                          state officials and contractors told us that there may be many qualified
                          bidders. However, when states move to broaden the scope of the contract
                          to full-service privatization of child support activities, the prevalence of
                          qualified contractors may decrease sharply. Generally, the requirement to
                          provide a wider array of social services could discourage some
                          contractors from bidding because they might have to hire additional
                          experts and face higher start-up costs.

                          In social service programs other than CSE, state and local governments are
                          experimenting with alternative approaches in order to benefit from
                          competition. For example, in Wisconsin, public employees are competing
                          against nongovernment entities to provide welfare-to-work services in the
                          Wisconsin Works program. Governments may also award a contract to a
                          private provider to serve part of the caseload and allow the public agency
                          to serve the rest. In California, officials concluded that when public and




                          Page 5                                                        GAO/T-HEHS-98-22
                             Child Support Enforcement Privatization:
                             Challenges in Ensuring Accountability for
                             Program Results




                             private agencies worked side by side in welfare-to-work programs, both
                             sets of personnel were motivated to improve their performance.


Developing Contracts         Successful contracting out requires devoting adequate attention and
Poses Challenges             resources to both contract development and monitoring. State and local
                             governments have to develop clearly specified program goals and
                             performance measures to ensure that they are getting what they asked for
                             and contractors achieve intended program results. Although some
                             program officials told us they had ample staff who were experienced with
                             these tasks, others said they had an insufficient number of staff with the
                             necessary skills to prepare and negotiate contracts. When contract
                             requirements are vague, contractor performance cannot be easily
                             evaluated.

                             Once contracts are in place, contract monitoring should assess a
                             contractor’s compliance with statutes, regulations, and the terms of the
                             agreement, as well as evaluate the contractor’s performance in delivering
                             services and achieving desired program goals. In this and previous reviews
                             of privatization efforts, we found that monitoring contractors’
                             performance was the weakest link in the privatization process.6


Privatization and            The increase in privatization comes at a time when governments at all
Accountability for Results   levels are trying to hold service providers accountable for results, amid
                             pressures to demonstrate improved performance while cutting costs.
                             Privatization actually enhances the importance of focusing on program
                             results, so that governments can know what they are buying and assess
                             whether services are being provided effectively and efficiently.

                             We have found that, depending on the program and the entity’s experience
                             with performance measurement, setting clear goals and measuring
                             performance can be difficult.7 For example, programs may face competing
                             or conflicting goals. In child welfare, program managers and workers must
                             reconcile the competing goals of ensuring the safety of a child, which may
                             argue for removing a child from his or her home, with the goal of
                             preserving the family. As a result, measuring success may be difficult in
                             some cases. In contrast with other social service programs, the goals of


                             6
                              Privatization: Lessons Learned by State and Local Governments (GAO/GGD-97-48, Mar. 14, 1997).
                             7
                             The Government Performance and Results Act: 1997 Governmentwide Implementation Will Be
                             Uneven (GAO/GGD-97-109, June 2, 1997).



                             Page 6                                                                        GAO/T-HEHS-98-22
                     Child Support Enforcement Privatization:
                     Challenges in Ensuring Accountability for
                     Program Results




                     the CSE program—establishing paternity, obtaining support orders, and
                     collecting child support payments—can be more easily quantified.


                     Concurrent with the growth in privatization, recent federal initiatives, such
HHS Has a Key Role   as the Government Performance and Results Act of 1993, have attempted
                     to improve program management throughout the government by focusing
                     on the intended results of federal programs rather than on program inputs
                     and processes, such as staffing levels and number of tasks completed. The
                     act’s stated purpose is to improve program effectiveness and service
                     delivery, among other objectives. Implementing the Government
                     Performance and Results Act will require the Department of Health and
                     Human Services (HHS) and other federal agencies to move from a focus on
                     compliance to a focus on developing and implementing methods of
                     assessing program results.

                     Through HHS’ dual responsibilities of providing technical assistance to
                     state and local governments and monitoring their performance, the agency
                     can help states overcome the difficulties of ensuring that contractors
                     achieve intended results. Several state and local government officials told
                     us that HHS could help the states and localities develop methods of
                     assessing program results by clarifying program goals, providing more
                     responsive technical assistance, and sharing best practices in measuring
                     the performance of social service providers.

                     HHS  has traditionally focused more on monitoring compliance with
                     legislation and regulations than on results. However, in CSE, HHS has made
                     progress in integrating the assessment and tracking of program results in
                     its oversight function. Following its designation as a pilot agency to test
                     the implementation of the Government Performance and Results Act, HHS’
                     Office of Child Support Enforcement (OCSE), in conjunction with the
                     states, began to reorient its management of the CSE program. OCSE and its
                     state partners agreed on a 5-year strategic plan containing program goals
                     and objectives and developed performance measures for assessing state
                     performance.8 In addition to conducting traditional compliance audits, CSE
                     auditors have recently begun to assess the accuracy of state-reported data
                     on program results. Also, OCSE and the states, in accordance with the new
                     welfare law, developed and submitted to the Congress proposed changes
                     in the program’s incentive funding structure intended to reorient incentive
                     payments toward rewarding state progress in achieving program goals.

                     8
                      Child Support Enforcement: Reorienting Management Toward Achieving Better Program Results
                     (GAO/HEHS/GGD-97-14, Oct. 25, 1996) describes how OCSE worked with the states to establish a
                     framework for improving program management.



                     Page 7                                                                      GAO/T-HEHS-98-22
              Child Support Enforcement Privatization:
              Challenges in Ensuring Accountability for
              Program Results




              These initiatives may serve as models for HHS as it attempts to enhance
              accountability for results.


              Our examination of social service privatization suggests that the
Conclusions   magnitude of privatized services has grown and is likely to continue to
              grow. Under the right conditions, contracting for social services may result
              in improved services and cost savings. Social service privatization is likely
              to work best at the state and local levels when competition is sufficient
              and governments develop contract requirements, monitor performance,
              and track program results over time.

              Several concurrent developments—increasing social service privatization,
              emerging needs for clear performance measures and effective monitoring,
              and growing federal orientation toward achieving better program
              results—should facilitate more effective privatized social services. In
              responding to the requirements of the Government Performance and
              Results Act, HHS could help states find better ways to manage contracts for
              results. This could, in turn, help state and local governments ensure that
              they are holding contractors accountable for the results they are expected
              to achieve, thus optimizing their gains from privatization.


              Mr. Chairman, this concludes my prepared statement. I would be pleased
              to answer any questions you or Members of the Subcommittee may have.




              Page 8                                                      GAO/T-HEHS-98-22
Child Support Enforcement Privatization:
Challenges in Ensuring Accountability for
Program Results




Page 9                                      GAO/T-HEHS-98-22
Child Support Enforcement Privatization:
Challenges in Ensuring Accountability for
Program Results




Page 10                                     GAO/T-HEHS-98-22
Child Support Enforcement Privatization:
Challenges in Ensuring Accountability for
Program Results




Page 11                                     GAO/T-HEHS-98-22
Related GAO Products


              Social Service Privatization: Expansion Poses Challenges in Ensuring
              Accountability for Program Results (GAO/HEHS-98-6, Oct. 20, 1997).

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

              Child Support Enforcement: Strong Leadership Required to Maximize
              Benefits of Automated Systems (GAO/AIMD-97-72, June 30, 1997).

               Government Performance and Results Act: 1997 Governmentwide
              Implementation Will Be Uneven (GAO/GGD-97-109, June 2, 1997).

              Managing for Results: Analytic Challenges in Measuring Performance
              (GAO/HEHS/GGD-97-138, May 30, 1997).

              Privatization: Lessons Learned by State and Local Governments
              (GAO/GGD-97-48, Mar. 14, 1997).

              Child Support Enforcement: Early Results on Comparability of Privatized
              and Public Offices (GAO/HEHS-97-4, Dec. 16, 1996).

              Child Support Enforcement: Reorienting Management Toward Achieving
              Better Program Results (GAO/HEHS/GGD-97-14, Oct. 25, 1996).

              Child Support Enforcement: States’ Experience With Private Agencies’
              Collection of Support Payments (GAO/HEHS-97-11, Oct. 23, 1996).

              Child Support Enforcement: States and Localities Move to Privatized
              Services (GAO/HEHS-96-43FS, Nov. 20, 1995).

              District of Columbia: City and State Privatization Initiatives and
              Impediments (GAO/GGD-95-194, June 28, 1995).




(116007)      Page 12                                                       GAO/T-HEHS-98-22
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 37050
Washington, DC 20013

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov




PRINTED ON    RECYCLED PAPER
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested