In federal fiscal year 2011, states  used about 29 percent of their TANF funds on basic assistance that  included cash assistance for needy families, and the remaining funds  were spent on other purposes, such as child care, employment programs,  and child welfare services. Electronic benefit cards—both EBT and EPC—generally can be used like  traditional debit or credit cards, in that recipients can use them at ATMs to  withdraw cash, or at retailers’ POS terminals for purchases or to receive  cash by selecting a cash-back option. In its notice, HHS identified multiple questions for states to answer, including  questions on the methods states use to track the locations where  transactions occur, challenges states experienced when implementing  any restrictions on transactions at certain locations, the initial and ongoing  costs of restrictions, the effectiveness of restrictions and the factors  influencing the effectiveness, and any concerns that have been raised  about the restrictions, among other things. Some States Are Restricting Certain TANF Transactions, but Face Challenges Because of Data Limitations and Other Factors

Six of the 10 states we reviewed have taken steps to prevent certain  types of inappropriate TANF transactions—restrictions that in some cases  are broader than recent federal requirements that require states to take  steps aimed at preventing transactions in casinos, liquor stores, and  adult-entertainment establishments. At the time these efforts were undertaken,  there were no federal requirements that required states to take steps  aimed at restricting such transactions. In addition, EBT transaction data  from federal fiscal year 2010 from 4 of the 10 selected states were  generally incomplete or unreliable, and were of limited use to the states  for systematically identifying or monitoring inappropriate locations. Some States Have Attempted to Restrict TANF Transactions

Six of the 10 states we selected and reviewed have taken steps to  prevent certain types of TANF transactions; these actions vary in their  degree and means of implementation, from widespread disabling of EBT  access at ATMs in certain locations across a state to, according to  officials from one state, passing a law without implementing steps for  enforcing it. The restrictions generally involve prohibiting the use of EBT  cards at certain locations or prohibiting purchases of certain goods or  services, or both, as shown in figure 1 below. In 4 of the 10 selected  states, there were no restrictions on TANF transactions, as no  transactions were unauthorized based on the location of the transactions  or the nature of the goods or services purchased. However, until HHS issues regulations or provides further guidance as to  what policies and practices are sufficient to comply with the new federal  requirements, it is unclear to what extent the various restrictions  implemented by states would be in compliance. The experience of these  states—especially any information related to the cost-effectiveness and  success rates for various restrictions—could be beneficial for HHS to  consider as it works toward determining what policies and practices are  sufficient to comply with the new federal law. Addressing the limitations we found in transaction data that  impede the identification and monitoring of certain locations could require  significant resources. Therefore, restriction methods that do not rely on  flawed transaction data may be the most practical, such as Washington  state’s requirement for businesses to independently disable EBT access  or risk losing or not obtaining their state licenses to operate. Agency and State Comments

We provided a draft of this report to HHS for comment. In addition, HHS stated that our report’s findings and analysis will be  helpful as HHS drafts implementing regulations relevant to these TANF  requirements. HHS also provided technical comments that we  incorporated, as appropriate. We also  interviewed officials from the top 10 states in terms of TANF basic block- grant dollars—California, New York, Michigan, Ohio, Pennsylvania,  Illinois, Florida, Texas, Massachusetts, and Washington. The industry stakeholders included: JP Morgan Chase and  Affiliated Computer Services, the two largest vendors providing TANF  electronic benefit card services to the states; the Electronic Funds  Transfer Association, an industry trade association that conducts work  related to electronic benefit card services for government agencies at the  federal and state level; the National Conference of State Legislatures, a  bipartisan organization that provides research and other services to state  legislators and their staff; and the American Public Human Services  Association, a bipartisan, nonprofit organization representing appointed  state and local health and human-services agency commissioners. We selected these 4 states based on  geographical diversity. The results of our analysis of these 4 states’ data  cannot be generalized to other states. Such monitoring might  include an assessment of the prevalence of transactions at certain  locations. We also assessed whether the data would  allow states to identify individual TANF transactions at certain types of  locations.
Why GAO Did This Study

The TANF block grant program provides federal grants to states for various benefits and activities, including cash welfare for needy families with children. TANF is overseen at the federal level by HHS, and administered by states. Most states disburse TANF cash assistance through electronic benefit cards, which can be used to withdraw money or make purchases. Media coverage highlighted cases of cardholders accessing benefits at casinos and other locations that were considered inconsistent with the purpose of TANF. In February 2012, Congress passed a law requiring states to prevent certain transactions at casinos, liquor stores, and adult-entertainment establishments. Within 2 years of enactment, the law also requires HHS to oversee states compliance with these requirements.
GAO was asked to review the ability of TANF recipients to withdraw TANF funds at certain locations inconsistent with the purpose of TANF, such as gambling or other establishments. To do so, GAO reviewed documentation and interviewed officials from HHS, key industry stakeholders, and the top 10 states in TANF basic block grant dollars. GAO also assessed the completeness and accuracy of EBT transaction data from federal fiscal year 2010 from 4 of the 10 states selected. GAO selected these 4 states on the basis of geographical diversity, and the results of this data analysis cannot be generalized to other states.

What GAO Found

Six of the 10 states reviewed by GAO took steps aimed at preventing certain Temporary Assistance for Needy Families (TANF) transactions determined to be inconsistent with the purpose of TANF, despite no federal requirement to do so at the time. Restrictions are based on selected states laws, executive orders, and other regulations, and generally cover certain locations or certain types of purchases such as alcohol. In some cases, states restrictions are broader than the new federal requirements. These restrictions vary in their degree and means of implementation, including widespread disabling of Electronic Benefit Transfer (EBT) access at automated teller machines located at certain locations across a state, such as at casinos. The other 4 states had no restrictions because no laws, executive orders, or other regulations prohibited certain transactions based on the location of the transactions or the nature of the goods or services purchased. These states did not implement restrictions due to concerns about cost-effectiveness or technical limitations, according to state officials.
Challenges experienced by states in implementing their current restrictions could inhibit future restriction efforts, including those intended to address new federal requirements. These challenges included difficulties with identifying certain locations that could be prohibited and limitations in available data. For example, the transaction data states receive do not contain information that is accurate or detailed enough for them to identify locations that can potentially be prohibited or restricted. State officials suggested that improvements in the completeness and accuracy of transaction data might better enable them to prevent such transactions. In its assessment of the EBT transaction data from 4 states, GAO found that the data are insufficient for systematic monitoring. To effectively conduct systematic monitoring, including the identification of locations that could be blocked from TANF access, data should be complete and accurate. However, addressing the limitations that GAO found in the transaction datasuch as requiring accurate merchant category codes for retailerscould involve significant resources. States that prohibit certain types of purchases generally do not have ways to track what items recipients buy with their cards, partially due to the lack of information in transaction data on specific goods or services purchased. States were also challenged in attempting to track the spending of cash withdrawn with cards. With no controls on how or where individuals spend withdrawn cash, a recipient could withdraw money at an authorized location and use it at certain locations or for certain purchases restricted by some states.
As of July 2012, the Department of Health and Human Services (HHS) was at the beginning of its rulemaking process and did not yet know what form its regulations would take. Until HHS issues regulations or provides further guidance as to what policies and practices are sufficient to comply with new federal requirements, it is unclear to what extent the various restrictions implemented by states would be in compliance. States restrictions could help inform HHSs oversight efforts, especially any information on the cost-effectiveness and success rates for various state restrictions. Restriction methods that do not rely on flawed transaction data may be the most practical.
We provided HHS with a draft of our report for comment. HHS stated that our reports findings and analysis will be helpful as it drafts implementing regulations, and it provided technical comments that we incorporated, as appropriate.

What GAO Recommends

GAO is not making any recommendations.