Child Care Bureau: Improper Payments: State Survey Analysis Report: Appendix 26. Conducting Child Care Improper Payments Cost Benefit Analysis

State Survey Analysis Report

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Appendix 26. Conducting Child Care Improper Payments Cost Benefit Analysis

State agencies may use monitoring information, as highlighted in the data elements of this survey, to conduct cost benefit analyses. The purpose of this appendix is to propose how a cost-benefit analysis could be performed using the data from the voluntary survey and other information.

For a cost benefit analysis, States must determine whether the costs of conducting improper payment monitoring activities, as identified in the voluntary survey questions listed below, are offset by improper payment amounts or costs recovered or avoided.

For example, States estimate the time involved and costs of all activities related to identifying and preventing improper payments as described in response to Question 5, 13, 14 and 15 of the survey, such as training and monitoring of eligibility staff in the use of standardized eligibility practices, use of targeted verification practices, name clearances or inquiries on other State agency on-line databases, investigation referrals, quality control audits and monitoring reviews. In addition, a State may estimate the time and costs of the use of a valid method to identify the total amount of improper payments. For example, in Question 6 of the survey, States may select a statistically representative statewide sample of cases to review monthly to estimate an annual amount of improper payments. The costs of record review practices include the salary and numbers of cases reviewed by a State or Contractor Quality Control review team.

Time involved and costs of overpayments processing and recovery activities as detailed in the responses to Questions 5, 16 and 17 are also computed, including: referral volume, case processing, estimated costs of developing a benefit error and recoupment module and notices, client and provider phone calls, billing referrals, administrative hearings and all costs of recovery processing including billing, processing staff, collection agents, returned payments and credits. For example, fraud investigations and prosecution costs could include salary costs for investigators, fraud early detection staff, specialized training, travel, cell phones, laptops, State warrants and prosecutors.

Critical to a cost benefit analysis is computing an adequately documented benefit to cost ratio. A benefit to cost ratio is the most common way to summarize cost benefit. A cost benefit ratio would be based on the total benefits in dollars divided by the total costs in dollars or the average benefit per case (e.g., per fraud case discovered or prevented) divided by the average cost per case (e.g., of discovery, recovery, and prevention). Some of the offsetting benefit amounts to be computed include the weighted average amount of errors detected per case, the actual amount of collections for a fiscal year and annual estimated cost avoidance. Documentation of the necessary information used to calculate any of the ratios or even some of the variables going into these ratios must be included to explain what was done to arrive at the estimates of these key cost and benefit variables.

This appendix provides an illustration below of how Connecticut conducts a cost benefit analysis of error prevention and recovery activities. This cost benefit analysis illustrates how monitoring information can be used to estimate whether costs of error detection and recovery are offset by amounts recovered.

Entity	Task	Time/Cost	Benefit
Connecticut Child Care Improper Payments Cost Benefit Analysis Error Prevention/Recovery Activities
	Eligibility Case Processing
Contractor	Eligibility Staff – (FTE) 50 eligibility counselors	$30,000 - $40,000 salary, plus fringe
Contractor	Targeted Verification – direct contact with employers, shift and schedule verification, identity, birth records for children not known through other DSS programs, self-employment tax, partnership and corporation records, child support, provider criminal and child abuse/neglect background checks, provider capacity and licensing status.	30% of case processing time
Contractor	Name Clearance – Because SSN cannot be used as the primary key, DSS uses a front end add on to our FAMIS system - Eligibility Management System (EMS) that assigns a unique Client ID’s to all household members.	10 % of case processing time
Contractor	State Databases – Automated inquiry into other state data systems – TANF E&T, DOL wage and UCB inquiries, DMV, Child Support, Corrections, EMS.	8 % of case processing time
Contractor	Investigation Referrals – Electronic referrals to Fraud Unit for investigations.	2 % of case processing time
Contractor	Case Reviews – redeterminations conducted every six months.	8 – 10 thousand cases per 6 months
Contractor	System Security – transactions recorded and time and date stamped, security levels, etc.	System development cost not quantified
	Quality Control
State	State QC Reviews – (FTE) 0.5 supervisor and 2.5 case reviewers	$50,000 - $70,000 salary, plus fringe
	Positive case samples (100 per quarter)	800 hrs/qtr
	Supervisory case reviews and exit interview	120 hrs/qtr
Contractor	Internal QC Reviews – (FTE) 0.5 Supervisor and 4 case reviewers	$30,000 - $45,000 salary, plus fringe
	Positive and negative case samples/invoices (100 per week – targeted vs. full reviews	160 hrs/wk
	Supervisory case reviews activity	20 hrs/wk
	Overpayments
Contractor	Overpayments Processing – (FTE) 2 overpayment processing specialists	$30,000 - $40,000 salary, plus fringe
	Referral Volume – 100 referrals per month for unintentional error, administrative error and client fraud not cost effective to prosecute.
	Case Processing – maximum 50 per month/ per processing specialist. Process is manual due to the lack of an overpayment calculation/recoupment module in the state’s Child Care Eligibility Management System (CCMIS).	40 hrs/wk
	Estimated cost of developing a CCMIS benefit error and recoupment module and notices	$500,000
	Client and provider phone calls	Calls on 25% of processed claims
	Billing Referrals – preparation of case materials	5 – 10 hrs/mo
	Administrative Hearings	7/month
	Average Amount - weighted average of administrative and non-fraud client errors		$4,627 per case
State/Contractor	Recovery
State	Billing – Recovery through a monthly billing process and state income tax intercepts. Claims are referred to the Department of Administrative Services Financial Services Center (DAS). CCMIS does not contain the functionality to recover from ongoing benefits.
State	DAS Staff – (FTE) 0.25 processing technician	$38,000 - $50,000 salary, plus fringe
State	DAS collection agents	14.9% of collections
Contractor	Returned payments and credits
State	Recovery of IRS and child support liens
State	Administrative Hearings (state income tax intercept challenges)	Variable
State	Office of Adult Probation – central collections of cases adjudicated in criminal court
State	Actual Collections for SFY 2005		$227,000
	Fraud Investigations and Prosecution
State	Child Care Investigations Staff - (FTE) 3 Supervisors and 8 Investigators	$44,000 - $66,000 salary, plus fringe
State	Cars and Travel Expense
State	Specialized Training – 4days state police academy, investigation and self-defense
State	Cell Phones
State	State Policy Warrants
State	State Prosecutors
	Fraud Protection and Early Detection
State	Fraud Early Detection Staff – (FTE) 1 Supervisor and 4 Investigators	$44,000 - $66,000 salary, plus fringe
State	Site visits – 60 month (estimated)
State	Cars and Travel Expense
State	Lap Top Computers
State	Specialized Training – 4 days state police academy, investigation and self-defense
State	Cell Phones
State	Annual estimated cost avoidance		$2.6 million

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State Survey Analysis Report

Appendix 26. Conducting Child Care Improper Payments Cost Benefit Analysis

Connecticut Child Care Improper Payments Cost Benefit Analysis

Error Prevention/Recovery Activities