TANF ELECTRONIC 

BENEFIT CARDS

Some States Are 

Restricting Certain 

TANF Transactions, 

but Challenges 

Remain

Report to the Ranking Member, 

Committee on Homeland Security and 

Governmental Affairs, U.S. Senate

July 2012

GAO-12-535

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-535, a report to the 

Ranking Member, Committee on Homeland 

Security and Governmental Affairs, U.S. 

Senate

July 2012

TANF ELECTRONIC BENEFIT CARDS

Some States Are Restricting Certain TANF 

Transactions, but Challenges Remain

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 Recommends

GAO is not making any 

recommendations. 

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 data—such as 

requiring accurate merchant category codes for retailers—could 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 HHS’s

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 

report’s findings and analysis will be helpful as it drafts implementing regulations, 

and it provided technical comments that we incorporated, as appropriate.

View GAO-12-535. For more information, 

contact Gregory D. Kutz at (202) 512-6722 or 

kutzg@gao.gov.
Page i GAO-12-535 TANF Electronic Benefit Cards

Letter 1 

Background 4

Some States Are Restricting Certain TANF Transactions, but Face 

Challenges Because of Data Limitations and Other Factors 9

Concluding Observations 28

Agency and State Comments 29

Appendix I Objectives, Scope, and Methodology 30

Appendix II Print-Friendly Version of Figure 1 32

Appendix III Comments from the Department of Health and Human Services 34

Appendix IV GAO Contact and Staff Acknowledgments 36

Table

Table 1: Some States Have Taken Steps Aimed at Preventing 

Unauthorized TANF Transactions 32

Figure

Figure 1: Some States Have Taken Steps Aimed at Preventing 

Unauthorized TANF Transactions 10

Contents
Page ii GAO-12-535 TANF Electronic Benefit Cards

Abbreviations

AFDC Aid to Families with Dependent Children

ATM automated teller machine

BIN bank identification number

CDSS California Department of Social Services 

DSHS Washington State Department of Social and Health 

 Services

EBT Electronic Benefit Transfer

EPC electronic payment card

FNS Food and Nutrition Service

HHS Department of Health and Human Services

HHSC Texas Health and Human Services Commission

MOE maintenance of effort 

OSI California Office of Systems Integration

POS point-of-sale

PRWORA Personal Responsibility and Work Opportunity 

 Reconciliation Act of 1996

SNAP Supplemental Nutrition Assistance Program

TANF Temporary Assistance for Needy Families

TIGER Topologically Integrated Geographic Encoding and 

 Referencing

USDA Department of Agriculture

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Page 1 GAO-12-535 TANF Electronic Benefit Cards

United States Government Accountability Office

Washington, DC 20548

July 20, 2012

The Honorable Susan M. Collins

Ranking Member

Committee on Homeland Security and Governmental Affairs

United States Senate

Dear Senator Collins:

The Department of Health and Human Services (HHS) oversees states’ 

administration of the Temporary Assistance to Needy Families (TANF) 

program to provide cash assistance, childcare, and other services to lowincome families. Among the program’s goals are the promotion of job 

preparation, employment, and marriage among parents of dependent 

children. HHS oversees the program at the federal level and distributes 

$16.5 billion in annual federal block grants to states to provide benefits 

and services to recipients. As a federal block-grant program, TANF allows 

states broad flexibility in designing and implementing their programs. To 

purchase goods and services, TANF recipients receive cash assistance, 

which in most states they can access at automated teller machines 

(ATM), banks, or retailers, using Electronic Benefit Transfer (EBT) cards. 

Cash assistance may be used for goods and services, and the amount of 

cash assistance received can vary by state.1

Until February 2012, there were no nationwide federal requirements for 

states to take steps aimed at preventing access to TANF cash assistance 

at certain locations. However, media coverage in some states highlighted 

cases of individuals accessing cash or conducting transactions at 

gambling establishments, adult-entertainment establishments, and liquor 

stores that could be considered inconsistent with the TANF program. In 

response, some states took steps aimed at implementing certain 

The EBT cards are similar to 

debit or stored-value cards, but do not carry a line of credit, and the 

purchases or withdrawals made with these cards cannot exceed the 

amount of recipients’ TANF benefits as determined by each state’s TANF 

program.

 

1

TANF cash benefits are set by states. In July 2010, the maximum monthly benefit for a 

family of three ranged from $923 in Alaska to $170 in Mississippi. Benefits in all states 

represent a fraction of poverty-level income. In the median jurisdiction (Kansas), the 

maximum monthly benefit was $429 for a family of three.

 
 

Page 2 GAO-12-535 TANF Electronic Benefit Cards

restrictions that would prevent such transactions. In February 2012, 

Congress passed, as part of the Middle Class Tax Relief and Job 

Creation Act of 2012, the Welfare Integrity and Data Improvement Act, 

which requires all states to maintain policies and practices as necessary 

to prevent TANF assistance from being used in any electronic benefit 

transfer transaction in (1) liquor stores; (2) casinos, gambling casinos, or 

gaming establishments; and (3) adult-oriented entertainment 

establishments in which performers disrobe or perform in an unclothed 

state for entertainment.2

In this context, you asked us 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 understand this 

ability better, we reviewed actions selected states have taken to prevent 

unauthorized TANF transactions, and the challenges they can face in 

taking such steps in compliance with new federal legislation.

States must report to HHS the steps they have 

taken to implement such policies and practices by February 22, 2014.

3

We also obtained EBT card-transaction data from 4 of the 10 selected 

states—California, Florida, New York, and Texas—covering transactions 

from federal fiscal year 2010.

To perform 

our work, we reviewed TANF laws, regulations, and other documentation 

and interviewed officials from HHS. We also reviewed documentation and 

interviewed officials from the top 10 states in terms of TANF basic blockgrant dollars—California, New York, Michigan, Ohio, Pennsylvania, 

Illinois, Florida, Texas, Massachusetts, and Washington. These 10 states 

received the greatest TANF basic block-grant dollars, and collectively 

represent 66 percent of the TANF basic block grants funded in federal 

fiscal year 2012. In addition, we interviewed and reviewed documentation 

from key industry stakeholders, including EBT vendors, related to the 

selected states’ efforts to prevent unauthorized TANF transactions.

4

 

2

Pub. L. No. 112–96, § 4004, 126 Stat. 156, 197 - 198.

We selected these 4 states on the basis of 

geographical diversity. The results of our analysis of these 4 states’ data 

cannot be generalized to other states. Using these data, we assessed the 

extent to which the data would allow the 4 selected states to conduct 

systematic monitoring to identify unauthorized transactions. To do so, we 

3

For the purposes of this report, we consider “unauthorized” to mean all TANF 

transactions that are prohibited under state laws, regulations, policies, or other actions.

4

October 1, 2009, to September 30, 2010.
 

Page 3 GAO-12-535 TANF Electronic Benefit Cards

used a generalizable, random sample of each of the 4 selected states’ 

EBT transaction data5 and compared it to electronic geo-coding 

information that pinpoints places and identifies locations.6

We conducted this performance audit from October 2011 to July 2012 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 

We also 

assessed whether the data would allow the 4 selected states to identify 

individual TANF transactions at certain types of locations by conducting 

keyword searches of merchant names for terms associated with casinos, 

liquor stores, and adult-entertainment establishments. We conducted 

electronic data testing to determine the reliability of the California, Florida, 

New York, and Texas EBT data. For all four states, we determined that 

the EBT data are not sufficiently reliable for the purpose of performing 

systematic monitoring of transactions in locations that are inconsistent 

with the purposes of TANF. However, EBT transaction data are 

sufficiently reliable for the purpose of identifying examples of transactions 

with merchant names that contain words associated with casinos, liquor 

stores, and adult-entertainment establishments. A more-detailed 

description of our scope and methodology is provided in appendix I.

 

5

The random samples can only generalize about each state using each state’s sample, 

not about other states and not nationally. For example, the Texas sample tells us 

something general about the Texas EBT data as a whole, but cannot tell us anything 

about the California data or all EBT transaction data nationally.

6

We compared EBT transaction addresses to U.S. Census Bureau’s Topologically 

Integrated Geographic Encoding and Referencing (TIGER) standard addresses.
 

Page 4 GAO-12-535 TANF Electronic Benefit Cards

The Personal Responsibility and Work Opportunity Reconciliation Act of 

1996 (PRWORA)7 significantly changed federal welfare policy for lowincome families with children, from a program that entitled eligible families 

to monthly cash payments to a capped block grant that emphasizes 

employment and work supports for most adult recipients. As part of 

PRWORA, Congress created the TANF program,8 through which HHS 

provides states about $16.5 billion each year in block grant funds to 

implement the program. To receive the TANF block grant, each state 

must also spend at least a specified level of its own funds, which is 

referred to as state maintenance of effort (MOE).9

1. provide assistance so that children could be cared for in their own 

homes or in the homes of relatives;

In creating the TANF 

block grant, PRWORA defines four goals for the program:

2. end families’ dependence on government benefits by promoting job 

preparation, work, and marriage;

3. prevent and reduce the incidence of out-of-wedlock pregnancies; and

4. encourage the formation and maintenance of two-parent families.

TANF is a flexible funding stream that states can use to provide cash 

assistance and a wide range of services that are “reasonably calculated” 

to further the program’s four goals.10 In federal fiscal year 2011, states 

used about 29 percent of their TANF funds on basic assistance that 

included cash assistance for needy families,11

 

7

Pub. L. No. 104-193, 110 Stat. 2105.

and the remaining funds 

were spent on other purposes, such as child care, employment programs, 

8

TANF replaced the Aid to Families with Dependent Children (AFDC) program. Id. § 

103(a)(1), 110 Stat. 2105, 2112.

9

42 U.S.C. § 609(a)(7); 45 C.F.R. §§ 263.1 – 263.9. To meet the MOE requirement, each 

state must generally spend 75 or 80 percent of what it spent in fiscal year 1994 on 

welfare-related programs, including AFDC, Job Opportunities and Basic Skills Training, 

Emergency Assistance, and AFDC-related child-care programs.

1042 U.S.C. § 604(a).

11Throughout this report, we refer to families receiving TANF cash assistance, for ease of 

reporting. However, this is a simplification of PRWORA, which actually refers to families 

receiving “assistance.” 42 U.S.C. § 603.

Background 

TANF Funding and 

Program Goals
 

Page 5 GAO-12-535 TANF Electronic Benefit Cards

and child welfare services.12 Due to the flexibility given to states, TANF 

programs differ substantially by state. States are required to develop 

plans that outline their intended use of funds and report data on families 

receiving assistance. While the federal TANF statute does not define 

“assistance,” HHS defines assistance in regulation as cash payments, 

vouchers, and other forms of benefits designed to meet a family’s 

“ongoing basic needs,” such as food, clothing, shelter, utilities, household 

goods, personal-care items, and general incidental expenses.13

Traditionally, states disbursed cash assistance benefit payments by 

means of paper check. The EBT program was devised in the 1980s 

originally to meet the needs of the Department of Agriculture’s (USDA) 

Food Stamp Program, in which federal benefits were electronically 

disbursed to eligible recipients. These cards are not tied to a consumer 

asset account, and generally the account structures and processing 

requirements differ from other payment cards. EBT cards can be used to 

deliver benefits to banked and unbanked recipients and can be used to 

deliver multiple benefits using a single card. The cost savings in the Food 

Stamp Program (now known as the Supplemental Nutrition Assistance 

Program or SNAP) from using electronic payments to distribute benefits 

prompted states to use EBT cards to also distribute TANF benefits 

electronically, leveraging the existent EBT system designed for SNAP. 

Electronic benefit distribution methods also include Electronic Payment 

Cards (EPC). Some EPC cards are prepaid or debit cards that are 

branded with a MasterCard, American Express, Discover, or Visa logo, 

which allows cardholders to conduct signature-based transactions 

anywhere that those brands are accepted as well as at ATM and point-ofsale (POS) machines.

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. However, there are some key 

differences between the electronic benefit card and commercial credit 

 

12States may use TANF funds to support a variety of child welfare services, such as 

screening for child abuse and neglect, case-management activities, and cash assistance 

and services for relative caregivers.

1345 C.F.R. § 260.31.

TANF Cash Assistance 

Disbursement Methods
 

Page 6 GAO-12-535 TANF Electronic Benefit Cards

cards. The main difference is that electronic benefit cards do not carry a 

credit line, and the purchases or withdrawals made with these cards 

cannot exceed the amount of recipients’ TANF benefits. With commercial 

credit cards, cardholders borrow to make a purchase and then pay the 

money back later. Electronic benefit cards are more like debit or storedvalue cards and provide an alternative to cash—each time that a 

cardholder uses his or her electronic benefit card, the money spent or 

withdrawn is deducted from the cardholder’s TANF benefits account.

States consider various factors when implementing EBT or EPC 

programs, including potential financial burden to recipients, such as 

transaction fees at ATMs that charge a surcharge for each transaction; 

recipient characteristics, such as disabilities; implementation costs; and 

fraud and security risks. States also take into account how readily 

recipients can access cash assistance. For example, in some rural areas 

or low-income neighborhoods the only access point for cash assistance 

benefits may be a location such as a grocery store, single depository 

institution, or even a liquor store. Some of the benefits to recipients from 

states choosing EBT or EPC programs include quicker disbursement of 

benefits, the elimination of lost or undelivered paper checks, access to 

benefits without an established bank account, and no need to locate 

check-cashing venues in order to access benefits.

Prior to 2012, states were not required under federal law to take steps 

aimed at preventing specific TANF transactions at certain locations. 

However, the Welfare Integrity and Data Improvement Act, part of the 

Middle Class Tax Relief and Job Creation Act of 2012, signed into law on 

February 22, 2012, introduced several changes to TANF that can affect 

recipients’ ability to access cash assistance at certain locations.14

Specifically, the Act requires that each state receiving a TANF block grant 

 

14Pub. L. No. 112–96, § 4004, 126 Stat. 156, 197 - 198.

Recent TANF Legislative 

Changes
 

Page 7 GAO-12-535 TANF Electronic Benefit Cards

maintain policies and practices as necessary to prevent TANF assistance 

from being used in any “electronic benefit transfer transaction”15

• any liquor store;

in

16

• any casino, gambling casino, or gaming establishment;17

• any retail establishment that provides adult-oriented entertainment in 

which performers disrobe or perform in an unclothed state for 

entertainment.

or

The Act calls for HHS to determine whether states have implemented and 

maintained policies and practices to prevent such transactions, within 2 

years of the Act’s enactment. If HHS determines that a state has not 

implemented and maintained these policies and practices, or if a state 

has not reported to HHS on its policies and practices, HHS may reduce 

the state’s family assistance grant by an amount equal to 5 percent of the 

state’s grant amount for the federal fiscal year following the 2-year period 

after enactment and each succeeding federal fiscal year in which the 

state does not demonstrate that it has implemented and maintained such 

policies and practices. However, HHS may reduce the amount of this 

penalty on the basis of the degree of noncompliance of the state in 

question. In addition, the Act specifies that states are not responsible for 

individuals who engage in fraudulent activity to circumvent the state’s 

policies and practices, and will not face a reduction in their family 

assistance grant amounts in such cases.18

 

15The Act defines electronic benefit transfer transaction as “the use of a credit or debit 

card service, automated teller machine, point-of-sale terminal, or access to an online 

system for the withdrawal of funds or the processing of a payment for merchandise or a 

service.” Id. § 4004(a), 126 Stat. 197.

16The Act defines liquor store as “any retail establishment which sells exclusively or 

primarily intoxicating liquor. Such term does not include a grocery store which sells both 

intoxicating liquor and groceries including staple foods (within the meaning of section 3(r) 

of the Food and Nutrition Act of 2008 (7 U.S.C. 2012(r))).” Id.

17The Act states that the terms casino, gambling casino, and gaming establishment do not 

include “(I) a grocery store which sells groceries including such staple foods and which 

also offers, or is located within the same building or complex as, casino, gambling, or 

gaming activities; or (II) any other establishment that offers casino, gambling, or gaming 

activities incidental to the principal purpose of the business.” Id.

18Id., § 4004(b), 126 Stat. 197 - 198.
 

Page 8 GAO-12-535 TANF Electronic Benefit Cards

The Act also contains requirements for states related to maintaining 

recipients’ access to TANF cash assistance. As part of the plan that each 

state is required to submit to HHS,19 states must include policies and 

procedures to ensure that recipients have adequate access to their cash 

assistance. In addition, states must ensure that recipients have access to 

using or withdrawing assistance with minimal fees or charges, including 

an opportunity to access assistance with no fees or charges, and that 

they are provided information on applicable fees and surcharges that 

apply to electronic fund transactions involving the assistance, and that 

such information is made publicly available.20

HHS issued a request for public comment in April 2012, seeking 

information by June 2012 on: how states deliver TANF assistance to 

beneficiaries, whether states have implemented policies and practices to 

prevent electronic benefit transfer transactions at the locations mentioned 

above, states’ experiences with these policies and practices, and other 

similar restrictions states place on TANF assistance usage.21 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. In addition, HHS requested 

input from states’ EBT vendors on potential issues that states may face in 

implementing restrictions, including technical issues, cost implications, 

access implications, and mechanisms for addressing problems identified.

 

1942 U.S.C. § 602(a).

20Pub. L. No. 112–96, § 4004(c), 126 Stat. 156, 198.

2177 Fed. Reg. 24667 (Apr. 25, 2012).
 

Page 9 GAO-12-535 TANF Electronic Benefit Cards

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. These 6 states faced a variety of 

challenges in identifying inappropriate locations and preventing 

transactions at these locations. 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. While 

the federal requirements to restrict inappropriate transactions now exist, 

data issues and other challenges, if unaddressed, may continue to affect 

efforts to comply with these new requirements.

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. As mentioned above, 

before the 2012 enactment of federal legislation, states were not required 

by the federal government to maintain or implement policies and practices 

aimed at preventing TANF transactions based on the location of the 

transactions. Figure 1 below, an interactive map, provides rollover 

information (see interactive instructions below) that describes the steps 

that selected states have taken aimed at preventing the use of TANF 

cash assistance for certain purchases or in certain locations. (See app. II 

for the steps taken within each selected state.)

Some States Are 

Restricting Certain 

TANF Transactions, 

but Face Challenges 

Because of Data 

Limitations and Other 

Factors 

Some States Have 

Attempted to Restrict 

TANF Transactions 
Page 10 GAO-12-535 TANF Electronic Benefit Cards 

Figure 1: Some States Have Taken Steps Aimed at Preventing Unauthorized TANF Transactions

Instructions: Rollover the selected states for more information.

Print Version: Click here or go to appendix II.

Interactive Graphic

Source: GAO.

Six of the 10 states we reviewed have taken steps aimed at preventing the use of TANF cash assistance for 

certain purchases or in certain locations. Figure 1 below, an interactive map, provides rollover information that 

describes the steps that selected states have taken.

Some States Have Taken Steps Aimed at Preventing 

Unauthorized TANF Transactions

Michigan

Massachusetts

Washington

California

Texas

Pennsylvania

Source: GAO (data); Map Resources (map).
 

Page 11 GAO-12-535 TANF Electronic Benefit Cards

Some of the selected states experienced various challenges while 

attempting to prevent certain TANF transactions. Some states’ restriction 

activities were impeded by transaction data that did not allow them to 

identify sufficiently or monitor locations that were prohibited in their state. 

In some cases, states have attempted to address these challenges 

through ongoing monitoring and other efforts. In addition, some of the 

selected states’ restrictions currently lack means of enforcement. For 

example, some states that prohibit certain types of purchases generally 

do not have ways to track what items recipients buy with their cash 

assistance, partially due to the lack of information in transaction data on 

what items are bought with EBT cards. There are also challenges for 

states in attempting to track cash spending. With no controls on how or 

where individuals spend their cash benefits, a recipient could withdraw 

money at an authorized location and then use it at certain locations or for 

certain purchases restricted by some states.

California

In response to media attention, and a California executive order, 

California’s Department of Social Services (CDSS) and its EBT vendor 

took steps to disable TANF access at thousands of ATMs; however, they 

have faced certain technical and legal limitations. In June 2010, the 

Governor of California issued an executive order requiring that CDSS 

prevent TANF recipients from accessing their benefits at ATMs in 

gambling establishments.22

Officials from CDSS and the state’s Office of Systems Integration (OSI) 

worked with the state’s EBT vendor and other parties to identify and block 

these locations from EBT access. For example, CDSS officials stated that 

The executive order resulted from news 

reports that revealed that state TANF recipients had accessed their 

benefits at ATMs located in gambling establishments. The order stated

that benefits are provided to pay for the families’ basic subsistence needs 

and not for gambling. From June 2010 to December 2010, and pursuant 

to this executive order, CDSS issued notices explaining its intent to 

expand the number of locations where EBT access to TANF cash 

assistance would be eliminated. This effort required disabling EBT access 

at ATMs in locations that fall under at least 14 different prohibited 

categories (see fig. 1 above).

 

22Cal. Exec. Ord. S-09-10 (June 24, 2010).

States with Restrictions
 

Page 12 GAO-12-535 TANF Electronic Benefit Cards

CDSS approached California’s casino commission, requesting that it 

notify CDSS if it found EBT cards being used within licensed California 

casinos. In addition, CDSS officials stated that they reached out to the 

California Office of Alcoholic Beverage Control in order to determine, 

identify, and deactivate liquor stores that were not already authorized by 

the Food and Nutrition Service (FNS), which oversees the Supplemental 

Nutrition Assistance Program (SNAP). To identify and block additional

locations, CDSS and OSI officials manually searched EBT transaction 

records for business names that appeared to belong to one of the 

prohibited categories. For example, OSI searched for terms such as 

“beer,” “wine,” “spirit,” “tattoo,” “piercing,” and other words that related to

the prohibited categories. In addition, OSI used lists of tribal casinos and 

card rooms located in the state and corresponding addresses to verify 

against the EBT transaction data. After identifying potential locations to 

be blocked, officials performed Internet searches to attempt to verify the 

type of location. However, California officials noted that the accuracy of 

Internet searches cannot be validated because it is not clear whether the 

information on the Internet is current. For example, when looking at 

satellite photos of streets on the Internet to verify a restricted location, the 

Internet photo may show a vacant building or building under construction 

because the photo could be 1 to 2 years old, according to California 

officials.

Once officials confirmed that the businesses appeared to belong in one of 

the 14 prohibited categories, then they provided the state’s EBT vendor 

with locations that needed to be blocked. The vendor contacted the 

responsible third-party processor to request that the ATMs at these 

locations be disabled from accepting the state’s EBT card. To do so, the 

processors deactivated the state’s bank identification number (BIN) at 

each terminal. CDSS and OSI provided the state’s Department of Justice 

with nonloaded EBT cards so that it could test ATMs at gambling 

establishments to determine whether they are in compliance.

According to CDSS officials, as of February 2012, EBT access was 

disabled at approximately 6,328 ATMs in California, out of a total of 

approximately 35,400 ATMs in California that have performed EBT 

transactions. However, state officials noted that they experienced 

challenges with identifying locations to block. For example, according to 

state officials, the EBT transaction data contain incomplete or inaccurate 

fields, including key information on the location of transactions. California 

officials said that the EBT transaction data sometimes contain misspelled 

addresses, and do not provide information on what type of retailers were 

involved for each transaction. In addition, California officials told us that 
 

Page 13 GAO-12-535 TANF Electronic Benefit Cards

the address information included in the EBT transaction data is 

sometimes that of retailers’ corporate offices rather than the location 

where the transactions actually took place. State officials said that there is 

no code available in the EBT transaction data that would allow them to 

identify easily the nature of each retailer.23 While their EBT vendor 

receives merchant category codes for some ATM transactions, this 

information has limitations because a known issue is that some ATMs 

have the same merchant category code that identifies the location of the 

transaction as a financial institution rather than any categories associated 

with the particular nature of the business where the transaction occurred. 

To work around the limitations in the EBT transaction data, California 

officials told us that their staff conducted online research to verify whether 

businesses actually fell under one of the state’s prohibited categories. 

However, they said that this was a manual, time-intensive process that 

involved making judgments about the nature of retailers, which can be 

subjective and prone to error. According to California officials, some 

ATMs at liquor stores were reactivated because they were initially 

identified as liquor stores not authorized by the U.S. Department of 

Agriculture’s Food and Nutrition Service (FNS),

24

California officials told us that their EBT vendor also conducts ongoing 

monitoring of transaction data to identify terminals blocked formerly that 

then change location or are reactivated, as well as transactions at new 

locations with names that appear to fall under one of the state’s prohibited 

categories. State officials also told us that the transaction data only allow 

them to identify locations where transactions have already occurred, so 

they are unable to assess the universe of locations that might fall under 

prohibited categories. For example, although they disabled EBT access at 

thousands of ATMs that have performed EBT transactions, as mentioned 

but others were 

reactivated because the storeowner applied for FNS authorization after 

having the ATM deactivated. In those stores, the ATM was reactivated as 

the new FNS authorization was verified.

 

23As discussed below, we identified limitations in the accuracy and completeness of the 

transaction data from four states. In addition, officials from multiple states expressed 

concerns about the data similar to our findings and the views of California officials.

24Any retailer that would like to allow its customers to use their federal food benefits from 

the Supplemental Nutrition Assistance Program (SNAP) must be authorized by FNS to 

participate in SNAP. According to FNS, the only form of SNAP benefit issuance is the EBT 

card. EBT allows the retailer, such as a liquor store, to accept SNAP payment for food 

using the EBT card.
 

Page 14 GAO-12-535 TANF Electronic Benefit Cards

above, officials said that there are likely many more ATMs that exist in the 

state, but they cannot be identified until a transaction takes place there. 

As a result, CDSS is unable to use the EBT transaction data and its 

methodology noted above to identify all ATMs in California locations that 

may fall under the 14 prohibited categories.

In addition, although CDSS has expressed its intent to disable TANF 

access at POS devices that fall under the 14 categories, officials from 

CDSS and the state’s EBT vendor told us that they have been unable to 

disable EBT access at any POS terminals as of March 2012. CDSS 

officials stated that POS terminals will be blocked sometime in the future, 

but they did not know when this would occur because third-party 

processors are finding it difficult to block POS terminals as opposed to 

ATMs. For example, according to CDSS’s vendor, identification numbers 

for POS terminals are generally not as unique as those assigned to 

ATMs. Specifically, POS terminals located in many retailers in California 

and across the country use the same terminal identification numbers as 

opposed to unique terminal identification numbers, which may result in 

third-party processors accidentally blocking POS terminals at locations 

that were not intended to be blocked, including some that are located 

outside of California.

Further, it is not illegal under California state law for a California resident 

to use his or her EBT card at one of the prohibited locations. In fact, 

California state law still includes a provision that specifically protects the 

rights of individuals to spend their cash assistance as they want in 

California. The California statute states, “[n]o person concerned with the 

administration of a public assistance program shall dictate how any 

recipient shall expend the aid granted to him.”25 Implementing this statute, 

CDSS’s Manual of Policies and Procedures: Eligibility and Assistance 

Standards states “[e]ach individual or family has the right to manage 

his/her own affairs; to decide what use of his/her money, including the aid 

payment, will best serve his/her interests.”26

 

25Cal. Welf. & Inst. Code § 10501.

Such broad treatment, while 

consistent with California state law, raises questions about the extent to 

which California’s current controls will help to ensure that cash assistance 

is being used in a manner consistent with the purposes of the TANF 

program and the new federal requirements. Until HHS issues regulations 

26Cal. Dep’t. Soc. Serv. Manual Pol’y. & Proc. § 44-301.
 

Page 15 GAO-12-535 TANF Electronic Benefit Cards

or provides further guidance as to what policies and practices are 

sufficient to comply with the new federal requirements, it is unclear 

whether there is any conflict between the new federal law and California’s 

statute.

Massachusetts

Although Massachusetts has made certain TANF transactions illegal, the 

state has not yet finalized plans for enforcing its legal restrictions and has 

not blocked any transactions. Specifically, state TANF officials have not 

yet taken steps aimed at enforcing the legal restrictions or monitoring 

compliance. As of July 2011, Massachusetts state law prohibits 

individuals from using their cash assistance to purchase alcohol, tobacco, 

and lottery tickets.27 Individuals who make a purchase in violation of the 

law are required to reimburse the state for the purchase, and are also 

banned from receiving benefits for varying periods, according to state 

law.28 The law also states that individuals or store owners who knowingly 

accept direct cash assistance funds held on EBT cards for the purchase 

of alcoholic beverages, lottery tickets, or tobacco products will be fined 

not more than $500 for the first offense, not less than $500 or more than 

$1,000 for the second offense, and not less than $1,000 for the third or 

subsequent offense.29

In December 2011, Massachusetts law also mandated the creation of an 

EBT Commission to study and report on, among other things, the use of 

EBT cards for the purchase of products such as firearms, tobacco, lottery 

However, as of July 2012, Massachusetts had not 

yet finalized plans for enforcing the law and had not blocked any 

transactions. State officials told us that they are unable to track or identify 

the types of items or services recipients actually purchase with the TANF 

cash assistance withdrawn using their EBT cards at ATMs or POS 

terminals. For example, according to state officials, EBT transaction data 

do not contain information on what items are purchased using EBT cards. 

According to a Massachusetts official, the state has not yet blocked any 

purchases because it does not have the manual or technological 

processes to do so.

 

27Mass. Gen. Laws ch. 18, § 5I.

28Id.

29Mass. Gen. Laws ch. 18, § 5J.
 

Page 16 GAO-12-535 TANF Electronic Benefit Cards

tickets, and alcohol.30

Michigan

The commission was tasked with developing 

recommendations for the state legislature, including recommendations on 

how to prevent the inappropriate use of EBT cards. The commission met 

between February and March 2012 and determined that EBT transaction 

data do not capture information on what items are purchased with EBT 

cards, which makes blocking specific items from being purchased with an 

EBT card impossible technologically. In compliance with, and in addition 

to implementing the new federal law, the commission recommended and 

stated that legislative members of the commission will file legislation in 

Massachusetts that will ban EBT transactions at ATMs and POS 

terminals in liquor stores, casinos and gaming establishments, adultoriented entertainment establishments, nail salons, tattoo parlors, 

firearms dealers, bars/drinking establishments, smoke shops, and spas. 

The commission discussed, but did not recommend, implementing further 

restrictions on recipients’ use of cash. For example, the commission 

considered, but chose not to recommend, limiting the amount of cash 

assistance that can be withdrawn from ATMs or POS terminals either 

entirely or to 50 percent of each recipient’s monthly cash benefit amount. 

However, the commission determined that restricting cash access this 

way could incentivize fraud and trafficking of EBT cards. In addition, the 

commission did not want to cause additional hardship for recipients who 

use their cash assistance appropriately to pay for rent, transportation, and 

other essential costs. Moreover, the commission learned that its EBT 

vendor did not have current functionality to restrict each recipient’s cash 

access at ATMs to only 50 percent of his or her total monthly benefit 

amount.

Michigan has a procedure in place that prohibits certain uses of TANF 

cash assistance, but does not have a way to track whether recipients 

adhere to state requirements. Beginning in October 2011, Michigan law 

required that TANF recipients’ family self-sufficiency plans—which 

families must execute in return for receiving assistance—must include a 

prohibition on using assistance to purchase lottery tickets, alcohol, or 

tobacco, or for gambling, illegal activities or other nonessential items.31

 

302011 Mass. Acts ch. 219.

If 

a recipient does not adhere to the requirements of his or her family self31Mich. Comp. Laws § 400.57e.
 

Page 17 GAO-12-535 TANF Electronic Benefit Cards

sufficiency plan, the state can impose penalties based on the number of 

instances of noncompliance. For example, the third instance of 

noncompliance can result in the family being permanently ineligible from 

receiving program assistance.32 In addition to the prohibited items or 

activities noted above, state policy also bars recipients from using cash 

assistance for adult entertainment, massage parlors, spas, tattoo shops, 

bail bond agencies, and cruise ships.33

In addition, in a letter sent to Michigan casinos in 2011, the state 

governor’s office expressed its decision to correct flaws in Michigan’s 

EBT card program, and tighten the rules for Michigan’s EBT card use by 

prohibiting clients from using their EBT card to withdraw cash from any 

ATM machine located in any casino in Michigan, due to reports of 

possible abuse committed by some of Michigan’s TANF recipients. As a 

result, state officials said that Michigan casinos contacted third-party 

processors and financial institutions to ask that they block the state’s BIN 

at ATMs located in the casinos, thereby cutting off EBT access there. 

State officials told us that they later had the state’s EBT vendor conduct a 

query to determine whether transactions were still occurring at casinos. 

The vendor ran six separate queries, but identified no EBT transactions at 

casinos after the EBT access was disabled, including one casino where 

state officials said that they had previously identified $87,340 in EBT 

transactions. State officials said that ATMs have not been blocked yet at 

locations other than casinos. In addition, EBT access at POS terminals 

has not yet been disabled at restricted locations, and state officials are 

unaware of EBT access being disabled at POS terminals in Michigan 

casinos. Michigan officials noted that EBT vendors do not have a suitable 

electronic method of disabling the use of EBT cards in certain types of 

businesses, whether at POS devices or at ATMs. Michigan officials noted 

two contributing problems with identifying locations and disabling EBT 

access at certain locations. First, identifying the type of location is 

dependent on the business accurately reporting data on the nature of its 

business, according to Michigan officials. Second, although the banking 

and ATM industries are the entities that collect the business type and 

However, state officials told us 

that they do not have any way to track how recipients spend cash 

withdrawn with EBT cards, and that EBT card data do not include 

information on what purchases recipients make with their cards.

 

32Mich. Comp. Laws § 400.57g.

33Michigan Bridges Eligibility Manual (BPB 2011-023) §§ 228, 230A, and 515.
 

Page 18 GAO-12-535 TANF Electronic Benefit Cards

location data, and they have the means to disable access at any location, 

they have not been mandated to assist the states in this effort.

Pennsylvania

Pennsylvania prevents EBT use at state-run liquor stores and obtained 

the cooperation of casinos in disabling EBT access on their premises. In 

addition, since December 2009, it has been illegal under Pennsylvania 

state law to purchase liquor or alcohol with an electronic benefits card.34

Under Pennsylvania law, a person found to violate knowingly this law 

shall be guilty of a misdemeanor, and, upon conviction, shall be 

sentenced to pay a fine, not exceeding $100, or to undergo imprisonment, 

not exceeding 6 months, or both.35 Liquor stores in Pennsylvania are 

operated by the state. According to state officials, these liquor stores do 

not accept the state’s EBT card at POS devices, and there are no ATMs 

in these state-run liquor stores. In response to bills introduced, but not 

passed, in the state assembly that would have prohibited EBT access at 

casinos,36

Texas

state officials from the gaming control commission contacted a 

third-party processor for ATMs at casinos to ask the processor to 

deactivate the state’s bank identification number (BIN) from those 

machines. State officials told us that they assessed the effectiveness of 

the restrictions by sending staff members with working EBT cards to three 

casinos to check in person whether the casinos’ ATMs accepted EBT 

cards. Although some of the ATMs still accepted EBT cards at first, state 

officials told us that those machines were eventually blocked from 

accepting further EBT transactions. According to Pennsylvania officials, 

when they conducted pilot monitoring of their restrictions, they had to look 

up retailer information on the Internet because the transaction data did 

not contain information that allowed them to determine what type of 

businesses the retailers were.

As opposed to restricting categories of locations that had previously 

accepted TANF EBT cards, the design of Texas’s TANF program places 

 

3462 Pa. Cons. Stat. § 484. 

3562 Pa. Cons. Stat. § 483. 

36Pa. S.B. 975 (2011) and Pa. H.B. 1254 (2011).
 

Page 19 GAO-12-535 TANF Electronic Benefit Cards

limitations on the participation in the state EBT network of retailers that 

derive most of their revenue from alcohol, gambling, adult entertainment, 

and other functions. Since the mid-1990s, Texas has required that 

retailers seeking to participate in the state’s EBT system must be: (1) 

authorized by FNS to provide food services to SNAP recipients; or (2) a 

non-FNS authorized retailer that receives no more than 10 percent of its 

gross revenue from entertainment, such as from the sale of alcoholic 

beverages, legalized games of chance, sexually oriented materials, coinoperated amusement machines or amusement services.37 According to 

officials with the state’s Health and Human Services Commission 

(HHSC), third-party processors are responsible for ensuring that retailers 

comply with these requirements. In addition, state officials said that thirdparty processors send them a list of TANF-only retailers,

38

Since September 1997, a Texas state statute has required that recipients 

use TANF benefits to purchase only goods and services necessary and 

essential to the welfare of the family, such as food, clothing, housing, 

utilities, child care, transportation, and medicine, medical supplies, or 

equipment not covered by Medicaid.

which HHSC 

uses to monitor locations that appear to be in noncompliance on the basis 

of the retailers’ names. State officials added that they implemented a 

more-rigorous monitoring process in 2011, but were not aware of any 

retailers removed from the EBT program for noncompliance.

39 State officials told us that they are 

unable to track how recipients spend their cash assistance. However, 

they said that if they receive information through social workers, 

neighbors of recipients, a hotline, or other sources regarding TANF 

recipients misusing their TANF benefits, they could assign a protective 

payee to TANF recipients who display misuse of their TANF benefits.40

 

371 Tex. Admin. Code §§ 372.1701 - 1702.

38According to HHSC officials, TANF-only retailers are those retailers that have the ability 

to redeem TANF benefits in Texas, but are not authorized by FNS to redeem SNAP 

benefits. 

39Tex. Hum. Res. Code § 31.0355(a). Subsequent state regulations expanded the list of 

permissible purchases to include furniture, laundry, household supplies, and recreation. 

See 1 Tex. Admin. Code § 372.1509(b).

40Texas state regulations define a TANF protective payee as “a person whom HHSC 

selects to receive and manage benefits for the certified group instead of the caretaker. 

HHSC may designate a protective payee whenever HHSC determines that the caretaker 

has failed to comply with one or more program requirements.” See 1 Tex. Admin. Code §§ 

372.2(17) and 372.905(a).
 

Page 20 GAO-12-535 TANF Electronic Benefit Cards

According to state officials, in May 2012, 84 active TANF cases were 

assigned a protective payee. In addition, TANF recipients are not able to 

access their benefits at ATMs in Texas, as the state’s EBT cards are not 

accepted at ATMs there.

Washington

Washington has implemented a system in which retailers are responsible 

for blocking unauthorized TANF transactions, and will soon employ 

monitoring efforts to determine the effectiveness of its actions. As of 

January 1, 2012, businesses falling under one of Washington’s nine 

prohibited categories (see fig. 1 above) are required by Washington law 

to disable the ability of ATM and POS machines located on their premises 

to accept the state’s EBT card.41 State-licensed taverns, nightclubs, 

beer/wine specialty stores, bail bond agencies, gambling establishments, 

and tattoo, body piercing, or body-art shops can have their state business 

licenses suspended by various state regulatory agencies if it is 

determined that they are not in compliance with this Washington law.42

For example, the Washington State Liquor Control Board is required to 

suspend the licenses of taverns, beer/wine stores, and nightclubs if they 

are not in compliance. However, because there are no specific statewide 

licensing requirements for Washington adult-entertainment 

establishments or establishments where individuals under the age of 18 

are not permitted, it is unclear what penalties might apply to those 

businesses. According to one official from Washington State Department 

of Social and Health Services (DSHS), DSHS will rely on businesses to 

ensure that third-party processors have deactivated the state’s BIN from 

relevant machines in the restricted locations, and businesses will be held 

accountable if DSHS finds that the third-party processors have failed to 

perform these deactivations. However, one DSHS official stated that 

DSHS was able to work with the state’s tribal casinos, EBT vendor, liquor 

control board, and gaming commission to disable EBT access at ATMs in 

casinos and liquor stores.43

 

41Wash. Rev. Code § 74.08.580(2).

To do so, according to DSHS officials, the 

state’s EBT vendor contacted tribal casinos and commercial bingo 

establishments to identify the relevant third-party processors and ATM 

42Wash. Rev. Code §§ 66.24.013, 18.185.056, 9.46.410, and 18.300.095.

43By June 1, 2012, all state-run liquor stores were closed, and sale and distribution of 

liquor in the state was privatized. See Wash. Initiative Measure No. 1183 (Nov. 8, 2011).
 

Page 21 GAO-12-535 TANF Electronic Benefit Cards

owners, and then asked them to deactivate the state’s BIN from their 

machines. 

Although Washington law requires that certain retailers disable TANF 

EBT access at ATMs and POS devices on their premises, a state official 

said that in order to implement the EBT restrictions, the owners of ATMs 

and POS terminals must manually disable the state’s BIN at the ATMs 

and POS machines. However, DSHS officials clarified that it is possible 

for larger businesses to perform this remotely. According to officials from 

DSHS, some retailers may not be aware of the new state law, especially 

small “mom and pop” retailers. DSHS has coordinated with state licensing 

agencies to educate licensees about the new requirements affecting 

them, according to officials from DSHS. However, according to one DSHS 

official, there are ways to circumvent the state’s laws, such as businesses 

reactivating the state’s BIN or changing the location of an ATM after the 

business obtained or renewed its license.

One official from DSHS also said that the department monitors EBT 

transaction data to test whether certain retailers are complying with the 

requirement to disable EBT access on their premises. However, 

according to one official, although the EBT transaction data may have 

address information of a business that may match the address of an ATM 

transaction, this does not necessarily mean that the ATM is located 

physically on the business’s premises. DSHS officials said that they are 

still considering, but have not yet decided whether to use undercover 

investigators with loaded EBT cards to test on-site whether retailers are in 

compliance.

State officials also said that in the past they faced challenges in 

identifying and classifying locations pursuant to some definitions of 

prohibited locations. For example, DSHS officials said that the state’s 

gaming regulations classified a certain game as gambling, in which 

children use a claw to try to win toys, candy, or other prizes. According to 

state officials, the regulations were changed so that they would not 

classify these types of games as gambling. In addition, state officials told 

us that adult-entertainment establishments are not regulated by the state, 

which may complicate the monitoring of these retailers’ compliance with 

state law due to the uncertainty about what agencies are actually 

responsible for these specific retailers. For example, one DSHS official 

told us that DSHS contacted local law enforcement to ask what adultentertainment establishments are located in their jurisdictions, in an 

attempt to identify establishments that should disable their EBT access.
 

Page 22 GAO-12-535 TANF Electronic Benefit Cards

Washington state law allows TANF recipients to use their TANF cash 

assistance to pay for a reasonable amount of basic living expenses, such 

as shelter, food, transportation, clothing, household maintenance, 

personal hygiene, employment or school related items, or other 

necessary incidentals and items. However, state law prohibits individuals 

from using their EBT cards or TANF cash assistance for gambling 

activities or to purchase lottery tickets, tobacco, cigarettes, horse racing, 

or for the purpose of participating in or purchasing any activities located in 

nightclubs, adult-entertainment venues, establishments where persons 

under the age of 18 are not permitted, contract liquor stores, bail bond 

agencies, beer/wine stores, taverns, gambling establishments, or a 

licensed tattoo, body piercing, or body art shop (see fig. 1 above).44

Individuals who violate this provision can be fined, forfeit future cash 

assistance, or after more than one violation be assigned a protective 

payee.45 Under state regulations, violators can also be required to provide 

proof that the cash assistance is being used for the benefit of the children 

in the household.46

 

44Wash. Rev. Code § 74.08.580(1).

DSHS officials also said that they are unable to 

restrict specific types of purchases. Rather, they would need to either 

completely disable the state’s BIN at affected POS devices or allow 

everything to be purchased with an EBT card. As a result, DSHS officials 

told us that they rely on the honor system and hope that retailers will stop 

individuals from using their EBT cards to purchase prohibited items. One 

DSHS official told us that it is difficult to track how individuals spend the 

cash withdrawn with their EBT cards. However, DSHS officials stated that 

if in the course of working with a TANF client the case managers find that 

the family is consistently in financial crisis and cannot adequately explain 

why, the case managers might assume the client is not expending the 

benefits appropriately or wisely. According to DSHS officials, in those 

instances, the case managers will delve deeper and talk with the clients 

to determine if they are using their benefits correctly by meeting the basic 

needs of the clients’ families and assist the clients with understanding 

how the TANF benefits should be used. If these issues continue, the case 

managers may suggest or require that a protective payee be assigned.

45Wash. Rev. Code § 74.08.580(5). Washington state regulation defines a protective 

payee as “a person or an employee of an agency who manages client cash benefits to 

provide for basic needs—housing, utilities, clothing, child care, and food.” See Wash. 

Admin. Code § 388-460-0020(1).

46Wash. Admin. Code § 388-412-0046(1)(e)(ii).
 

Page 23 GAO-12-535 TANF Electronic Benefit Cards

Four of our 10 selected states—Florida, Illinois, New York, and Ohio—do 

not have any restrictions aimed at preventing certain TANF transactions. 

This is because they have no state laws, executive orders, or other 

regulations that prohibit certain TANF transactions on the basis of the 

location of the transaction or the nature of the goods or services 

purchased. In addition, these states did not implement restrictions due to 

concerns about cost effectiveness or technical limitations, according to 

state officials. As mentioned above, before the recent passage of the 

Welfare Integrity and Data Improvement Act, as part of the Middle Class 

Tax Relief and Job Creation Act of 2012, states were not required to 

maintain or implement policies or practices aimed at preventing certain 

TANF transactions in certain locations. TANF was designed to provide 

states with great flexibility in determining how to run their own programs. 

Although states are required to implement policies and practices aimed at 

preventing certain TANF transactions in certain locations by February 22, 

2014, there is currently no nationwide restriction on how TANF recipients 

can spend their TANF cash assistance. Because of these factors, these 4 

states have not attempted to block or prohibit certain TANF transactions 

at certain locations or to prohibit the purchase of certain goods and 

services, unlike the other 6 states discussed above.

Other additional factors also influenced these states’ decisions not to 

restrict certain TANF transactions. For example, officials in Florida and 

New York told us that they reviewed the number of EBT transactions 

conducted at certain locations—casinos and liquor stores in Florida; bingo 

halls, casinos, and off-track betting sites in New York—and compared 

that number to the total number of EBT transactions. They found that only 

a small percentage of transactions took place at these locations.47

New York officials did note later that liquor stores in New York are 

precluded from having ATMs. In addition, New York officials noted that 

they received voluntary cooperation, over the last several years, from 

merchants and ATM providers to prevent TANF transactions initiated with 

the New York EBT card in select gambling establishments located in New 

York and other states serviced by these merchants and ATM providers. 

Therefore, officials in these states determined that it would not be costeffective to implement restrictions aimed at preventing a relatively small 

number of transactions.

 

47We did not independently verify the results of these reviews.

States without Restrictions
 

Page 24 GAO-12-535 TANF Electronic Benefit Cards

New York officials stated that merchants have accomplished this by 

identifying TANF transactions initiated at ATMs in select gambling 

establishments and declining such transactions that are associated with 

New York’s BIN for EBT transactions. New York officials noted this 

methodology as one possible cost-effective way to prevent electronic 

transactions with TANF funds at certain locations because it would entail 

that the merchants direct their third-party processor to block the states’ 

EBT cards’ BINs from being able to complete an ATM or POS transaction 

in certain establishments. According to New York officials, third-party 

processors can add and block BINs regularly through software updates. 

According to New York officials, this can be done as part of the service 

third-party processors provide to business establishments through their 

service agreements, which could be performed at no extra cost to the 

business establishments.

Illinois officials told us that their current EBT contract did not include the 

capability to block certain locations from EBT access. Although Illinois 

officials said that their state had no restrictions in place to block certain 

TANF transactions, they said that state casinos voluntarily disabled EBT 

access at ATMs on their premises—this is similar to the voluntary efforts 

by casinos in Michigan and Pennsylvania. Ohio is unique among our 10 

selected states in that it uses EPC cards to distribute TANF cash 

assistance rather than EBT cards. State officials told us that they chose to 

use EPC cards because of the increased accessibility they provide to 

recipients. Because federal financial-privacy laws generally prevent the 

state from receiving data on individual EPC transactions, unless a 

specified exception exists,48 state officials said that they are unable to 

monitor or restrict the use of EPC cards at certain locations.

States may face challenges in implementing future restrictions on TANF 

transactions. As mentioned above, the Welfare Integrity and Data 

Improvement Act, part of the Middle Class Tax Relief and Job Creation 

Act of 2012, will require states to prevent TANF electronic benefit 

transactions at certain locations.49

 

4812 U.S.C. § 3402.

In addition, the law requires that HHS 

49As stated above, states will be required to have in place policies and practices as 

necessary to prevent such transactions within 2 years of the Act’s enactment. Pub. L. No. 

112–96, § 4004(b), 126 Stat. 156, 197–198.

States May Face 

Challenges in 

Implementing Restrictions
 

Page 25 GAO-12-535 TANF Electronic Benefit Cards

determine whether states have implemented and maintained such 

policies and practices for preventing these transactions. At the time of this 

report’s issuance, HHS was at the beginning of its rulemaking process 

and it did not yet know what form its final regulations would take. As such, 

it was too early to determine what states will need to do in order to 

comply with the new federal requirements. Officials from multiple states 

told us that the federal requirements are expected to help states ensure 

that cash assistance is used in a manner reflecting the purpose of TANF. 

However, some officials cited challenges that they might face in 

attempting to prevent certain TANF transactions in order to meet the 

potential requirements of the law. These challenges were primarily 

focused on difficulties with identifying locations that could be blocked from 

EBT access and limitations in available data. For example, according to 

officials from multiple states, the transaction data they receive do not 

contain information that is accurate or detailed enough for them to identify 

locations that could potentially be prohibited or restricted. If transaction 

data are inaccurate or lack enough information about the business nature 

of specific retailers, states’ efforts to prevent certain TANF transactions 

may be impeded. State officials suggested that improvements in the 

quality of EBT transaction data might better enable them to prevent such 

transactions. For example, state officials suggested that prevention efforts 

would be aided by more-accurate and complete address information for 

transactions, or requiring merchant category codes to be included in the 

data. In addition, officials from multiple states suggested that businesses 

or third-party processors should be responsible for ensuring that EBT 

access is disabled at certain locations, rather than states.

We found that EBT transaction data from four states—California, Florida, 

New York, and Texas—contained incomplete or inaccurate information 

for the address of the location where the transaction occurred, which 

limits the data’s usefulness for systematic monitoring.50

 

50As mentioned above, we assessed EBT data from these four states containing 

transactions made from October 1, 2009, through September 30, 2010.

To conduct 

systematic monitoring effectively, including the identification of locations 

that can be blocked from EBT access, data should be complete and 

accurate. In the California and Florida data, the address information was 

sufficiently complete; however, it was not sufficiently accurate. We 

estimate that the reported addresses of the locations where the 

transactions occurred could be linked to standardized addresses for less 
 

Page 26 GAO-12-535 TANF Electronic Benefit Cards

than 21 percent and 14 percent of the transactions, respectively.51 This 

means that the states could not rely on the majority of the transaction 

records for accurately identifying a true location and would therefore need 

to verify manually that the reported addresses for the transactions 

matched to a real location, which would increase the time and labor 

required as part of this process. The New York EBT data contained 

complete address information for approximately 71 percent of the 

transactions, of which we estimate that up to 34.2 percent could be linked 

to standardized addresses.52

Texas address information was complete for approximately 30 percent of 

the transactions,53

Officials from multiple states and representatives from states’ EBT 

vendors expressed concerns about the EBT data. For example, according 

to one vendor, address information in the data— which is self-reported by 

ATM or POS device owners or operators, and is transmitted by third-party 

processors—is not always correct, and the ATM addresses listed in the 

data sometimes do not reflect where transactions actually took place. In 

addition, state officials and representatives from states’ EBT vendors 

stated that the ATM transaction data maintained by vendors all list the 

same merchant category code that provides no information about the type 

although we estimate that as many as 70.4 percent of 

those addresses could be linked to standardized addresses. Without 

sufficiently complete and accurate information for the address where an 

EBT transaction occurred, states are unable to systematically monitor or 

block EBT access. To the extent that the information is available, states 

could use EBT data to identify individual transactions that may have 

occurred at certain locations on the basis of the name of the merchant at 

the location where the transaction occurred. We found that the merchant 

name was available for approximately 19 million transactions—45 percent 

of the transactions we examined—as low as 30 percent in Texas and as 

high as 90 percent in Florida.

 

51As mentioned above, we compared EBT transaction addresses to U.S. Census Bureau 

TIGER standard addresses. Estimates include a margin of error of no more than 3.3 

percent for California and 2.8 percent for Florida at the 95 percent confidence level.

52Estimate includes a margin of error of no more than 4.1 percent at the 95 percent 

confidence level.

53Estimate includes a margin of error of no more than 4.2 percent at the 95 percent 

confidence level.
 

Page 27 GAO-12-535 TANF Electronic Benefit Cards

of retailer where the ATM machines are located. According to state and 

vendor officials, the inaccuracies and insufficiencies in the EBT 

transaction data are due to gaps in data reporting and the nature of the 

EBT system’s infrastructure. According to representatives from one EBT 

vendor, third-party processors do not always verify the information 

contained in transaction data, which diminishes the quality of the data that 

they submit to the EBT vendors. According to some state and vendor 

officials, the EBT transaction data are not used generally for only 

identifying where TANF transactions might occur.

The EBT program was devised in the 1980s to originally meet the needs 

of the USDA’s Food Stamp Program, in which federal benefits would be 

disbursed electronically to eligible recipients, with states later adding their 

TANF programs to EBT cards. Some state officials and vendor 

representatives noted that the specifications governing the extent of the 

EBT data captured as part of an EBT transaction do not require all 

transaction information on each EBT transaction.54

As mentioned above, Ohio is unique among our selected 10 states in 

disbursing TANF cash assistance through EPC cards rather than EBT 

cards. Regarding potential future restrictions, Ohio officials told us that 

they are unsure how they will be able to restrict TANF transactions, and 

will need to work with their vendor that operates their EPC state card to 

determine the feasibility of performing these restrictions. However, 

according to one vendor, given that EPC cards are branded by major 

financial institutions—such as Visa and MasterCard—and operate on 

For example, 

according to state officials from Texas, some data elements, such as 

merchant names, could be useful for monitoring where TANF benefits are 

accessed, but they are not required under those specifications. The 

accuracy of the data is also affected by self-reporting. For example, 

although it is intended that the transactions follow these specifications, 

key industry players, such as third-party processors, do not follow these 

specifications consistently, according to California officials. Moreover, 

because transactions can go through multiple entities, including thirdparty processors, the transaction data can change and may not always be 

transmitted accurately to the vendor, according to California officials.

 

54These state officials and vendor representatives said that EBT transactions follow ISO 

8583, which is the International Standard designed as an interface specification enabling 

messages relating to financial transactions to be exchanged between systems adopting a 

variety of application specifications.
 

Page 28 GAO-12-535 TANF Electronic Benefit Cards

these institutions’ commercial infrastructure, these institutions could 

disable POS access for EPC cards by using merchant category codes 

that retailers are required to submit as part of the transaction data in order 

to participate in the institutions’ networks. This type of blocking is not 

possible, however, with ATMs that accept EPC cards, according to 

representatives from one vendor. However, vendor representatives told 

us that ATM data for EPC transactions, similar to EBT card data, contain 

only one merchant category code for all terminals, identifying the location 

of the transaction as a financial institution. Also similar to EBT card data, 

EPC card data do not contain detailed information on items purchased 

with the EPC cards.

The purpose of TANF is to help needy families achieve self-sufficiency. 

Providing TANF benefits by means of electronic benefit cards helps the 

banked and unbanked TANF recipients, gives TANF recipients an 

alternate to cash, and allows states to use existing infrastructures. 

However, any misuse of TANF funds not only deprives low-income 

families of needed assistance, but also diminishes public trust in both the 

integrity of the program and the federal government. Before Congress 

passed the Welfare Integrity and Data Improvement Act, as part of the 

Middle Class Tax Relief and Job Creation Act of 2012, some states acted 

independently to implement restrictions on certain TANF transactions. As 

a result, their approach to enacting restrictions varies significantly. 

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. As we heard from officials in 

multiple states, preventing unauthorized transactions can be timeintensive and is impaired by flaws in available transaction data and other 

challenges. 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.

Concluding 

Observations 
 

Page 29 GAO-12-535 TANF Electronic Benefit Cards

We provided a draft of this report to HHS for comment. In its written 

comments, reproduced in appendix III, HHS noted that our report 

highlights many of the challenges and issues states and others face in 

issuing the TANF requirements that Congress enacted in February 2012. 

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.

In May 2012, we also provided the 10 selected states with an opportunity 

to comment on our draft findings relevant to their specific TANF 

programs. In May 2012, 7 of the 10 selected states provided us with 

technical comments by e-mail, and we incorporated their technical 

comments as appropriate. Three states, Illinois, Massachusetts, and 

Pennsylvania, had no comments.

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 7 days from the 

report date. At that time, we will send copies to other interested 

congressional committees and the Secretary of Health and Human 

Services. In addition, the report will be available at no charge on the GAO 

website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

me at (202) 512-6722 or kutzg@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made key contributions to this report are 

listed in appendix IV.

Sincerely yours,

Gregory D. Kutz

Director, Forensic Audits and Investigative Service

Agency and State 

Comments
Appendix I: Objectives, Scope, and 

Methodology

Page 30 GAO-12-535 TANF Electronic Benefit Cards

Our objective was to determine the extent to which selected states have 

taken action to prevent unauthorized Temporary Assistance for Needy 

Families (TANF) transactions. To conduct our work, we reviewed TANF 

laws, regulations, and other documentation—including the Welfare 

Integrity and Data Improvement Act, part of the Middle Class Tax Relief 

and Job Creation Act of 2012, which introduced new state requirements 

for preventing certain TANF transactions—and interviewed officials from 

Health and Human Services (HHS). From each selected state, we 

reviewed information related to its laws, policies, practices, and other 

factors affecting its TANF program. In addition, we interviewed and 

reviewed documentation from several key industry stakeholders related to 

states’ efforts to prevent unauthorized TANF transactions. We also 

interviewed officials from the top 10 states in terms of TANF basic blockgrant dollars—California, New York, Michigan, Ohio, Pennsylvania, 

Illinois, Florida, Texas, Massachusetts, and Washington. Together, these 

10 states represent a total of 66 percent of TANF basic block-grant 

funds.1 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 

obtained electronic benefit card transaction data from 4 of the 10 selected 

states—California, Florida, New York, and Texas—covering transactions 

from federal fiscal year 2010.2 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.3

 

1

California represents 22.6 percent of total national TANF basic block grant dollars; New 

York, 14.8 percent; Michigan, 4.7 percent; Ohio, 4.4 percent; Pennsylvania, 4.4 percent; 

Illinois, 3.5 percent; Florida, 3.4 percent; Texas, 2.9 percent; Massachusetts, 2.8 percent; 

and Washington, 2.5 percent in fiscal year 2012.

Using these data, we assessed 

2

October 1, 2009, to September 30, 2010.

3

The random samples can only generalize about each state using each state’s sample, 

not about other states and not nationally. For example, the Texas sample tells us 

something general about the Texas EBT data as a whole, but cannot tell us anything 

about the California data or all U.S. data.

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 31 GAO-12-535 TANF Electronic Benefit Cards

the extent to which the data would allow the 4 selected states to conduct 

systematic monitoring of TANF transactions. Such monitoring might 

include an assessment of the prevalence of transactions at certain 

locations.

To do so, we used a generalizable, random sample of each of the 4 

selected states’ Electronic Benefit Transfer (EBT) transaction data and 

compared it to electronic geo-coding information that pinpoints places and 

identifies locations.4

 

4

We compared EBT transaction addresses to U.S. Census Bureau’s Topologically 

Integrated Geographic Encoding and Referencing (TIGER) standard addresses.

Subsequent visual inspection and manual cleaning of 

obvious address errors in the EBT data only resulted in a small portion of 

corrected location addresses. We also assessed whether the data would 

allow states to identify individual TANF transactions at certain types of 

locations. To do so, we conducted keyword searches of merchant names 

for terms that are potentially associated with casinos, liquor stores, and 

adult-entertainment establishments. We performed data checks to 

determine the reliability of the California, Florida, New York, and Texas 

EBT data for the purposes of our engagement. For all four states, we 

determined that the EBT data are not sufficiently reliable for the purpose 

of performing systematic monitoring, as the selected states’ data 

contained incomplete or inaccurate information for the addresses of the 

locations where the transactions occurred. Given the combination of both 

completeness and accuracy issues in the 4 selected states, we also 

determined most of the data in the 4 selected states could not match to 

address location information that would allow for suitable comparisons to 

other potential data sources. However, we determined that the 

transaction data would support keyword searches of merchant names for 

terms that are associated potentially with casinos, liquor stores, and 

adult-entertainment establishments, for records that contain merchant 

names. We conducted this performance audit from October 2012 to July 

2012, in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.
Appendix II: Print-Friendly Version of 

Figure 1

Page 32 GAO-12-535 TANF Electronic Benefit Cards

The table below includes figure 1’s (see above) rollover information and 

describes the steps that 6 of the 10 states we reviewed have taken that 

are aimed at preventing the use Temporary Assistance for Needy 

Families (TANF) cash assistance for certain purchases or in certain 

locations.

Table 1: Some States Have Taken Steps Aimed at Preventing Unauthorized TANF Transactions

State Steps taken

California - EBT access disabled at ATMs in California businesses, including

 - Casinos

 - Adult-entertainment businesses

 - Bail-bond locations

 - Night clubs/saloons/taverns

 - Bingo halls

 - Race tracks

 - Gun/ammunition stores

 - Cruise ships

 - Psychic readers

 - Smoking shops 

 - Cannabis shops

 - Tattoo/piercing shops

 - Spa/massage salons

 - Liquor stores not authorized by the Food and Nutrition Service (FNS)

Massachusetts - TANF recipients in Massachusetts are prohibited by state law from using cash assistance to purchase

 - Alcohol

 - Tobacco

 - Lottery tickets

- Merchants in Massachusetts are prohibited by state law from knowingly accepting EBT cards for the 

purchase of

 - Alcoholic beverages

 - Tobacco products

 - Lottery tickets

Michigan - TANF recipients in Michigan are prohibited by state law and policies from using their TANF cash 

assistance for

- Lottery tickets

- Alcohol

- Tobacco

- Gambling

- Illegal activities, including purchasing illegal drugs

- Adult entertainment

- Massage parlors

- Spas

- Tattoo shops

- Bail-bond agencies

- Cruise ships

- Nonessential items, including items not necessary to sustain the household

- EBT access disabled at ATMs in Michigan casinos

Appendix II: Print-Friendly Version of 

Figure 1
Appendix II: Print-Friendly Version of 

Figure 1

Page 33 GAO-12-535 TANF Electronic Benefit Cards

State Steps taken

Pennsylvania - No ATMs exist in Pennsylvania-run liquor stores

- Pennsylvania liquor stores do not accept Pennsylvania’s EBT card at POS terminals

a

- EBT access disabled at ATMs in licensed casinos in Pennsylvania

- By Pennsylvania law, TANF cash assistance shall be diminished by amounts that a Pennsylvania TANF 

recipient obtains by cashing a TANF cash assistance check at a Pennsylvania gambling casino, racetrack, 

bingo hall or other establishment which derives more than 50 percent of its gross revenue from gambling

- TANF recipients are prohibited from using their EBT card to purchase liquor or alcohol

Washington - Washington merchants are required by state law to disable ATMs and POS terminals located in their

 - Casinos

 - Liquor stores

 - Taverns

 - Nightclubs

 - Bail-bond agencies

 - Body-art shops

 - Race tracks

 - Adult-entertainment venues

 - Establishments where persons under the age of 18 are not permitted

- Washington TANF recipients are prohibited by state law from using TANF cash assistance for

- Gambling

 - Amusement games

 - Raffling

 - Horse racing

 - Lottery tickets

 - Cigarettes

 - Tobacco products

 - Body piercings

 - Beer

 - Wine

 - Adult-entertainment materials

 - Bail bonds

Texas - TANF recipients in Texas are not able to access their TANF cash assistance at ATMs

- Retailers participating in the Texas EBT program must be either FNS-authorized or nonfood retailers that 

receive no more than 10 percent of their gross revenue from entertainment, such as from the sale of 

a

 - Alcoholic beverages

 - Legalized games of chance

 - Sexually oriented materials

 - Coin-operated amusement machines or amusement services

- TANF recipients in Texas can only use their TANF cash assistance for goods and services necessary and 

essential to the welfare of the family

Source: GAO.

a

Liquor stores in Pennsylvania are operated by the state.

b

TANF recipients in Texas can use their EBT cards to make purchases of approved items or take out 

cash at participating retailers’ POS devices
Appendix III: Comments from the Department 

of Health and Human Services

Page 34 GAO-12-535 TANF Electronic Benefit Cards

Appendix III: Comments from the 

Department of Health and Human Services
Appendix III: Comments from the Department 

of Health and Human Services

Page 35 GAO-12-535 TANF Electronic Benefit Cards
Appendix IV: GAO Contact and Staff 

Acknowledgments

Page 36 GAO-12-535 TANF Electronic Benefit Cards

Gregory D. Kutz, (202) 512-6722 or kutzg@gao.gov

In addition to the contact named above, Cindy Brown Barnes, Assistant 

Director; Erika Axelson, Assistant Director; Christopher W. Backley; 

Melinda Cordero; Justin Fisher; Katherine Forsyth; Gale Harris; Olivia 

Lopez; Grant Mallie; Flavio J. Martinez; Maria McMullen; James Murphy; 

Anna Maria Ortiz; Robert C. Rodgers; Rebecca Shea; and Timothy 

Walker made key contributions to this report.

Appendix IV: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(192390)
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