Welfare Reform: HHS Should Exercise Oversight to Help Ensure TANF Work Participation Is Measured Consistently across States
Published: 2005-08-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The debate over reauthorization of the Temporary Assistance for Needy Families (TANF) block grant has focused on work requirements and brought attention to the measure of TANF work participation. The measure is used to assess states' performance and determine whether a state is subject to penalty for not meeting TANF work requirements. The 2003 work participation rates ranged from 9 to 88 percent for the 50 states based on data they submit to the U.S. Department of Health and Human Services (HHS). To help Congress understand these rates, GAO looked at (1) how selected states are defining the categories of work activities, (2) whether selected states have implemented internal controls over the work participation data, and (3) what guidance and oversight HHS has provided states.
section_title: What GAO Found
paragraphs: Differences in how states define the 12 categories of work that count toward meeting TANF work participation requirements have resulted in some states counting activities that other states do not count and, therefore, in an inconsistent measurement of work participation across states. For example, 5 of the 10 states we reviewed considered caring for a disabled household or family member to count toward the federal work participation requirement, while 5 did not consider hours spent in this activity to be countable. We also found that some states made significant changes in their definitions of the categories of work. As a result, the work participation rates for these states cannot be compared from year to year. Some of the states in our review have implemented internal controls to help report work participation hours in accordance with HHS guidance, while other states lack such internal controls. Some states have not issued guidance on how to verify that reported hours were actually worked, nor do they monitor data reported by their staff to help ensure that hours are reported correctly. In contrast, a few states have systematic approaches for verifying that hours reported were worked. HHS has provided limited oversight and guidance to states on appropriately defining work activities and reporting hours of work participation. According to HHS officials, HHS has the authority to regulate states' definitions of work activities. However, to promote state flexibility, HHS chose not to issue regulations for this purpose. Further, HHS's guidance lacks specific criteria for determining the appropriate hours to report. Given that HHS has not exercised oversight of states' definitions and internal controls, states are making different decisions about what to measure. Therefore, there is no standard basis for interpreting states' rates, and the rates cannot effectively be used to assess and compare states' performance.

section_title: Letter
paragraphs: In fiscal year 2004, states spent $26 billion from the federal Temporary  Assistance for Needy Families (TANF) block grant and related state funds  to assist low-income parents and their children. The federal welfare  reform law—the Personal Responsibility and Work Opportunity  Reconciliation Act of 1996 (PRWORA)—that created the TANF block grant  included the expectation that welfare recipients would participate in work  activities. The law outlined 12 categories of work activities, such as  “unsubsidized employment” and “community service programs,” in which  recipients could participate to meet federal TANF requirements. Under the  law, states have significant flexibility in designing their TANF programs,  such as flexibility in defining specific activities to fall under the 12  categories of work activities outlined in the law. Along with providing this  flexibility, PRWORA required states to collect and report a specified set of  data to the Department of Health and Human Services (HHS), including  data on hours recipients spent in work activities. PRWORA also created a  performance measure called the TANF work participation rate for  determining the extent to which a state’s TANF families were engaged in  work activities during the year. The 2003 work participation rates  calculated for the 50 states based on the data they submitted to HHS  ranged from 9 to 88 percent. HHS is responsible for reporting these rates  to Congress and for using them to identify states that are not meeting the  required level of work participation for their TANF recipients and, thus,  may be subject to penalties. Given the importance of the work  participation rates, they need to provide a consistent measure of work  participation across states.  Without a consistent measure, there will be no  standard basis for interpreting each state’s rate or for comparing the  performance of states.
A key issue in the debate over TANF reauthorization has been whether to  change work requirements, such as by requiring additional hours of work  and allowing more types of work activities to be counted. For example, a  Senate bill proposed adding substance abuse treatment and caring for a  disabled family member to the list of activities that can be counted as  work participation. Another issue in reauthorization has been how to  revise the caseload reduction credit, which uses levels of TANF caseload  declines to reduce the work participation rates states must have in order  to avoid penalty. Because of significant declines in TANF caseloads  following TANF implementation, the caseload reduction credit enabled  many states to have very low work participation rates and still meet their  required levels of work participation. Revisions in the caseload reduction  credit could raise the required level of work participation for many states  and may result in more states being penalized for not having high enough  work participation rates. In considering welfare reauthorization, Congress  has focused much attention on states’ current work participation rates. To  help you understand these rates, we looked at (1) how selected states are  defining the work activities that count toward meeting federal work  participation requirements, (2) whether selected states have implemented  internal controls to help ensure that the work participation data they  report are in accordance with HHS guidance, and (3) what guidance and  oversight HHS has provided states regarding appropriately defining work  activities and reporting hours of work participation.
Our review focused on HHS’s Administration for Children and Families  (ACF), which administers the TANF block grant, and 10 selected states-–  California, Georgia, Kansas, Maryland, Nevada, New York, Ohio,  Pennsylvania, Washington, and Wisconsin. In 2003, the 10 states made up  46 percent of the national TANF caseload. We selected these states to  represent a mix of TANF 2003 work participation rates, according to data  reported by states to ACF. (These rates are shown in app. IV.)  Specifically, we selected the 3 states with the lowest rates (9 percent to 11  percent), 3 states with some of the highest rates (62 percent to 88  percent), and 4 states with rates in the middle range (22 percent to 46  percent). We also selected states to represent a variety of other  characteristics, such as geographic location, benefit policies, and use of  waivers that exempt the state from certain TANF requirements.  We used a  semistructured interview protocol in conducting telephone interviews  with the 10 selected states’ TANF officials.
To learn how selected states are defining the work activities that count  toward meeting federal work participation requirements, we interviewed  the 10 selected states’ TANF officials about activities they count in work  participation data. We also reviewed state documents, such as annual  TANF reports and TANF manuals that show how states define the 12  federal categories of work activities and how they classify recipients.  Although our work allowed us to identify inconsistencies in definitions  and classifications across states, we did not have data to evaluate the  impact of different definitions and classifications on the rates.
To learn whether selected states have implemented internal controls to  help ensure the work participation data they report are in accordance with  HHS guidance, we interviewed the 10 selected states’ TANF officials about  their internal controls over collection and reporting of the data. We also  reviewed the states’ guidance on collection and reporting of the data.  Through these telephone interviews and document reviews, we learned  about policies and processes established by the states to help ensure data  reported are in accordance with HHS guidance, but we could not learn  whether these policies and processes are effectively carried out by staff at  the local level. Also for the 10 states, we interviewed state auditors and  reviewed single audit reports for fiscal years 2000–2003 and any other  state audit reports that addressed work participation data.
To learn what guidance and oversight HHS has provided states regarding  appropriately defining work activities and reporting hours of work  participation, we interviewed ACF officials about their oversight of states’  definitions of work activities that count toward the work participation  rates and states’ data on hours of work participation. We also interviewed  officials from the HHS Office of Inspector General. In addition, we  reviewed ACF’s regulations and other guidance for reporting work  participation data. We conducted our work from November 2004 to June  2005 in accordance with generally accepted government auditing  standards.
subsections: section_title: Background
paragraphs: Enactment of the TANF block grant significantly changed federal welfare  policy and gave states more flexibility in designing their welfare programs.  For example, states have flexibility in setting benefit levels, eligibility  requirements, work requirements, and policies for sanctioning  noncompliant recipients (that is, reducing or discontinuing their benefits).  Due to this flexibility, TANF programs differ substantially from state to  state. These different state policies can affect the extent to which a state’s  TANF recipients participate in work activities and the type of work  activities they engage in. States also have flexibility in using TANF block  grant funds and in using state funds—referred to as maintenance-of-effort  (MOE) funds—that states were required to use toward TANF purposes in  order to qualify for the block grant. For example, if states want to  exclusively use MOE funds for a particular group of welfare recipients,  such as those in two-parent families, they can use these funds through  separate state programs (SSPs) for those recipients and remove them from  the TANF requirements.
Due to the importance of state flexibility under TANF, PRWORA limited  HHS’s authority to regulate state TANF programs.  PRWORA also  substantially reduced HHS staff available to implement TANF.  However,  PRWORA established penalties for states, such as for not meeting required  levels of work participation, and HHS has authority to regulate in  situations where penalties are involved. TANF has two work participation  rates—one that applies to all adult-headed families and another that  applies to two-parent families. A certain percentage of each state’s adult- headed TANF cases receiving cash assistance must participate in work- related activities for a minimum number of hours each week or the state  may face financial penalty. The categories of work activities that can be  counted for the purpose of the performance measure are outlined in TANF  law and regulations. If TANF recipients engage in other activities provided  or permitted under the state’s TANF program, then those activities do not  count toward meeting the federal work participation requirements.  Further, if TANF recipients engage in work activities for less than the  minimum required number of hours, then those recipients do not count as  being engaged in work for purposes of the performance measure.
When a state does not meet its required level of work participation, HHS  will send the state a penalty notice. The state then has the opportunity to  avoid a penalty by providing reasonable cause why it did not meet the  work participation rate or by submitting a corrective compliance plan that  will correct the violation and ensure continued compliance with work  participation requirements.  Since implementation of TANF, numerous  states have received penalty notices from HHS for not meeting the  required level of work participation. However, most of these states have  avoided penalties by submitting corrective compliance plans. As of  February 2005, 11 states and the District of Columbia had paid penalties  for not meeting the two-parent work participation rate. Most of these  penalties were for the first 4 years (fiscal years 1997-2000) of TANF  implementation, and 5 states and the District of Columbia have paid  penalties for more than 1 year.
Each quarter, states are required to report to ACF monthly data on their  TANF cases, including the number of hours each adult recipient spent in  activities that count toward meeting federal work requirements. States  have the option of reporting to ACF on all their TANF cases (the universe)  or on a scientifically drawn sample of TANF cases. Using the data reported  by states, ACF calculates an annual work participation rate for each state.  A state’s annual work participation rate is based on the state’s average  monthly rate for the year. See appendix I for information on elements of  the work participation requirement and how the work participation rate is  calculated by ACF.
subsections: section_title: 12 Categories of Countable Work Activities
paragraphs: The TANF legislation and regulations outline 12 categories of work  activities that can count toward the federal work requirement. The TANF  regulations name the categories and require each state to include its  definition of each work activity in the annual report it must file each year  with HHS. Hours spent in some activities (referred to as supplemental  activities) generally cannot count toward the federal work requirement  unless hours are also spent in other countable activities (referred to as  core activities). Some activities have restrictions on the amount of time  that can be spent in them. The 12 categories and their time restrictions are  shown in table 1.
section_title: Single Audits
paragraphs: Chapter 75 of Title 31, United States Code. received by the entity. The act requires state and local governments and  nonprofit organizations that expend $500,000 or more in federal funds  during the year to undergo an organizationwide audit. These audits focus  on the entity’s internal controls and compliance with laws and regulations  governing federal awards and should be viewed as a tool that raises  relevant or pertinent questions rather than a document that answers all  questions.
Office of Management and Budget (OMB) Circular A-133, Audits of States,  Local Governments, and Non-Profit Organizations, provides the federal  guidance for single audits. It contains a Compliance Supplement that  summarizes key information about federal programs and identifies audit  objectives and suggested procedures for auditors’ use in determining  compliance with the requirements. The Compliance Supplement contains  information on TANF, along with over a hundred other federal programs.  The information on TANF includes some key line items, including those  for reporting hours of work activity, from the TANF data report that states  must submit to ACF.
section_title: Internal Controls
paragraphs: Internal controls comprise the plans, methods, and procedures an  organization uses to meet its missions, goals, and objectives. Internal  controls are a series of actions and activities that occur throughout an  organization’s operations and on an ongoing basis. They provide  reasonable assurance that an organization achieves its objectives of   (1) effective and efficient operations, (2) reliable financial reporting, and  (3) compliance with laws and regulations. An organization’s internal  controls over collecting and reporting data could include numerous  processes and procedures, such as guidance that defines the specific data  to be collected and any documentation needed to support that data and  monitoring to ensure that the reported data are complete and accurate.
section_title: Differences in How States Define Work Activities Result in Inconsistent Measurement of Work Participation across States and over Time
paragraphs: We found that differences in how states define the 12 categories of federal  work activities result in some states counting hours recipients spend in  activities that other states do not consider allowable activities for meeting  federal work participation requirements. Also, some states have made  changes in their definitions of some categories of federal work activities,  making what is measured by those states’ work participation rates  inconsistent from year to year. Further, some differences across states in  their classification of adult recipients can result in certain types of  recipients being excluded from some states’ work participation rates but  included in other states’ rates.
subsections: section_title: Activities Are Defined Inconsistently across States
paragraphs: Although PRWORA outlines 12 categories of work activities that can count  toward meeting federal work participation requirements, states are able to  define the specific activities that fall under each of the categories. We  found that differences in how states define the 12 categories of work result  in some states counting hours spent in certain activities toward meeting  the work participation rate, while other states do not count hours spent in  those activities.
Although PRWORA outlined 12 categories of work activities that count  toward meeting work participation rates, PRWORA does not prevent  states from allowing their recipients to participate in other noncountable  activities, such as activities that help the recipients overcome problems  that prevent them from working. In our review of state TANF documents,  we identified several activities that were commonly mentioned but that  were treated differently by different states, such as substance abuse  treatment. One state may include the activity under 1 of the 12 categories  of work, while other states may consider that activity a state activity that  does not count toward meeting the federal work requirement.
Table 2 shows how many of the 10 reviewed states counted certain  activities that were commonly mentioned in state TANF documents  toward meeting federal work participation requirements. (See app. II for  states included in the table).  States were counting these activities toward  meeting the work participation rate by defining one of the 12 categories of  work as including the activities.
Some states have a very broad definition for at least one federal category  of work that allows the states to include many diverse activities under the  category. For example, one state that defines Community Service as “an  activity approved by your case manager which benefits you, your family,  your community or your tribe” considered all five of the activities shown  in table 2 to fall under the Community Service category.
A few states had activities listed in the definition of a federal work activity  that we did not see in other states’ definitions, such as    bed rest, short-term hospitalizations, and personal care activities a  participant is engaged in as part of recovery from a medical problem  (Job Search/Job Readiness);    physical rehabilitation, which could include massage, regulated  exercise, or supervised activity with the intent of promoting recovery  or rehabilitation (Job Search/Job Readiness);    activities to promote a healthier life style that will eventually assist the  recipient in obtaining employment, such as personal journaling,  motivational reading, exercise at home, smoking cessation, and weight  loss promotion (Job Search/Job Readiness);    participating in your child’s Head Start or Early Head Start programs by  participating in home visits, parent meeting presentations, and  classroom volunteering (Community Service); and    helping a friend or relative with household tasks and errands  (Community Service).
Increasing the number of activities that it counts toward the federal work  participation rate should help a state increase its work participation rate  and avoid incurring penalties. Out of our 10 reviewed states, 2 states  counted all five of the activities shown in table 2 above, while 1 state did  not count any. Such variation in the number of activities that states count  toward the federal work participation rate suggests that the states are  subject to different standards for work participation. Because of the  differences in states’ internal controls over their work participation data  (discussed in the next section of this report), the data cannot be relied  upon for making comparisons across states. Therefore, we did not analyze  states’ work participation rates in relation to the number of activities they  counted toward work participation.
section_title: Changes in State Definitions Result in Inconsistent Measurement from Year to Year
paragraphs: Three of the 10 states we reviewed had made changes in their definitions  of work activities within the past 2 years that may have affected their work  participation rates and that could result in work participation rates that  are not comparable over time. Kansas had a dramatic change in its work  participation rate after changing some of its definitions. This state had a  waiver exempting it from the 6-week limit for counting hours recipients  spent in Job Search/Job Readiness activities. For states with waivers, the  effective work participation rate is calculated based on the conditions of  the waiver. However, ACF also calculates a without-waiver rate for states  with waivers. After the state lost its waiver, it redefined some of its  categories of work by placing activities previously in the Job Search/Job  Readiness category (the category that had been covered by the waiver)  into other categories that do not have time restrictions, such as  Community Service. For this state, the 2003 with-waiver rate was  significantly higher than the without-waiver rate. If the without-waiver rate  had been the effective rate, the state would have been subject to penalty  for not meeting the required work participation rate. One month after the  waiver expired and the definitions were changed, the state’s rate without  the waiver rose over 50 percentage points to reach the level of the 2003  with-waiver rate.
Another state, Nevada, also moved some activities from Job Search/Job  Readiness to Work Experience to avoid the 6-week time limit on counting  hours spent in Job Search/Job Readiness. According to a state official, the  change was made because, as a result of the 6-week time limit, field  workers would sometimes make decisions that were not in the best  interest of the recipients and move recipients out of activities too quickly.  The state official believes that the change is likely to help raise the state’s  work participation rate.
Georgia added an additional activity (caring for a disabled relative who  does not live with the recipient) to its Community Service category and  broadened the definition of job skills training to allow for general training  for a job, rather than just training for a specific job. According to a state  official, these changes have helped the state increase its work  participation rate.
section_title: Other Differences in Classifications of Adult Recipients Result in Inconsistencies across States
paragraphs: Some differences among states in their classification of recipients affect  whether or not recipients are included in the work participation rate  calculation. We found the following different approaches that remove  recipients from the work participation rate calculation.
Creating separate state programs for two-parent families. By  serving two-parent families through separate state programs, states  remove those families from the calculation of work participation  rates. Four of the 10 states in our review (California, Georgia,  Maryland, and Nevada) had created separate state programs for two- parent families. Officials from Georgia, Maryland, and Nevada said that  they created the programs because they wanted to avoid having to  meet the higher two-parent family work requirement. Officials from  the states we reviewed with separate state programs for two-parent  families said that although the states do not have to meet a federal  work participation requirement for their two-parent families, they still  require the adult recipients in the two-parent families to comply with  the states’ work requirements.
Moving recipients with significant barriers into a separate state  program. Nevada placed recipients who are less likely to meet the  federal work participation requirements in a separate state program,  thus removing them from the work participation rate calculation. These  include recipients (1) with pending applications for Supplemental  Security Income, (2) with medical difficulties confirmed by a physician,  (3) in the third trimester of pregnancy, and (4) caring for a disabled  family member. According to a state official, these recipients are still  required to participate in work activities to the extent that they are  able.
Reclassifying cases as child-only. California removes adults from  TANF cases when they are sanctioned, thus changing the cases from  adult-headed cases to child-only cases. Because child-only cases are  not included in state work participation calculations, the  reclassification allows the state to avoid counting noncomplying adults  in the calculation, which in turn is likely to result in a higher work  participation rate. According to a state official, the state’s practice of  reclassifying cases this way preceded the implementation of TANF and  therefore was not intended to influence the state’s TANF work  participation rate.
section_title: Some States Do Not Have Internal Controls Needed for Reporting Data in Accordance with HHS Guidance, while Other States Do
paragraphs: Some of the states we reviewed did not have internal controls to help  ensure that reported hours of participation in work activities are in  accordance with HHS guidance. Other states have implemented systematic  practices to help ensure that reported hours are in accordance with HHS  guidance. Officials in some states cited challenges to obtaining support for  hours of participation in unsubsidized employment.
subsections: section_title: Some States Lack Internal Controls to Help Ensure Actual Hours of Participation Are Reported
paragraphs: Some of the states we reviewed did not have internal controls to help  ensure that reported hours of participation in work activities are in  accordance with HHS guidance.  The HHS guidance (as discussed more  fully later in this report) requires that states report hours recipients  actually participated in work activities rather than hours that the  recipients were scheduled to participate.  Internal control weaknesses  among the states we reviewed include the following:    Guidance and/or standard processes allow reporting of  scheduled hours. In some states, we found that the hours recorded to  show how recipients plan to comply with state work requirements  (scheduled hours) were reported to ACF as hours actually worked.  Reporting hours scheduled instead of hours worked does not take into  account unexpected events or noncompliance on the part of the  recipient that would result in scheduled hours being different than the  hours actually worked. Allowing scheduled hours to be reported was  most common for unsubsidized employment, but in a few states, we  found guidance allowing scheduled hours for other work activities,  such as vocational education. In one state, guidance instructs that a set  number of hours be recorded for certain activities, such as 30 hours per  week for parents involved in their children’s Head Start program.  However, the guidance does not indicate that the number of hours  recorded should be verified to ensure that they were actual hours of  participation.
Lack of guidance on the type of documentation needed to  support reported hours of work activities. Without guidance, there  is no assurance that the local staff collecting the data know what type  of documentation is adequate to support hours reported or whether  any documentation is required. The type of support needed would  depend on the activity but could include pay stubs and time and  attendance reports. Without guidance, staff at different locations are  more likely to use different standards for what support is needed.
Guidance allows for reporting hours missed for good cause.
Some states have guidance specifying that when recipients are absent  from a scheduled activity and the case worker determines that there is  a good cause for the absence, the missed hours can be reported as  worked.  This results in hours that were not worked being reported to  ACF as worked.
Insufficient monitoring to verify that hours were reported  correctly. Some states do not have a monitoring process in place to  perform timely reviews to verify that hours were reported correctly.  Without sufficient monitoring, states cannot be assured that local staff  are reporting hours that are supportable and complete.
Table 3 shows the number of states with the internal control weaknesses  described above for the states in our review. (See app. III for states  included in the table).
Six of the states in our review have at least one of the internal control  weaknesses shown in table 3, and 3 of these states have at least two  internal control weaknesses. Two states that did not have any of the  internal control weaknesses have issued appropriate guidance and begun  monitoring as part of corrective action plans developed in response to  state audit findings on data problems. The states we reviewed may have  internal control weaknesses over the collection and reporting of work  participation data that our review was not designed to assess. For  example, a state may have issued appropriate guidance and established a  monitoring process; however, the state’s staff may not follow the guidance  or conduct monitoring according to the required process.
section_title: Some States Have Systematic Approaches for Verifying Reported Data
paragraphs: While some of the states we reviewed lacked internal controls, other states  have implemented systematic practices to help ensure that reported data  are in accordance with HHS guidance.
Documentation requirements. Some states we reviewed had  guidance outlining the specific documentation needed to verify actual  hours for each work activity and specified when the documentation  must be obtained and the hours recorded in the state’s database.
Monthly audits. Officials in some states we reviewed told us they  conduct monthly audits of all cases sampled for reporting to ACF to  verify that hours reported were actually worked. If there is not  adequate support showing that hours reported were actually worked,  the data are not reported to ACF, according to state officials.
section_title: Unsubsidized Employment Has Been Especially Difficult to Track
paragraphs: State officials cited challenges to obtaining support for hours of  participation in unsubsidized employment. For some states, the standard  process for obtaining hours of unsubsidized employment occurs every 6  months when local staff reverify a recipient’s income and benefit  eligibility. Income is typically verified with a recent pay stub, which is then  used to project the hours the recipient will be working for the next 6  months. Some officials told us that trying to obtain documentation for  actual hours of unsubsidized employment from recipients or employers  monthly would be onerous for case workers and recipients. Officials said  they feared that contacting employers frequently to verify a recipient’s  employment could jeopardize the recipient’s job. In states requiring  monthly documentation, such as pay stubs, for hours of work reported to  HHS, state officials told us they were likely underreporting hours because  of the difficulty local staff face in obtaining the required documentation.
A new effort on the part of ACF may provide states with additional options  for obtaining information on hours recipients spend in unsubsidized  employment. ACF recently began an initiative using the National Directory  of New Hires (NDNH) to help states identify whether or not recipients  are eligible for TANF benefits. If a state chooses to participate, HHS will  conduct data matches comparing NDNH employee data against the state’s  list of TANF recipients. If the data matches identify recipients who are  working and are still eligible for TANF, the data may provide states with a  starting point for obtaining more complete work participation data,  according to an ACF official. Because the NDNH does not contain hours  worked, states would need to contact employers or recipients to obtain  information on the actual hours the recipient worked, according to an ACF  official.
section_title: HHS’s Oversight and Guidance on Appropriately Defining Work Activities and Reporting Hours of Work Participation Have Been Limited
paragraphs: HHS has provided minimal oversight of how states define work activities.  Further, HHS has limited guidance for states on reporting the appropriate  hours of work activities. HHS does not have a sufficient mechanism to  identify data not in accordance with ACF guidance.
subsections: section_title: HHS Has Provided Minimal Oversight of States’ Definitions of Work Activities
paragraphs: Under PRWORA, HHS has authority to regulate states’ definitions of work  activities. However, HHS has chosen not to issue regulations for this  purpose in order to promote the flexibility PRWORA provided states and  in response to calls from states for as much flexibility as possible in  designing their TANF programs, according to HHS officials. The current  TANF regulations only repeat the 12 categories of work activities that are  included in PRWORA and do not further specify activities that can and  cannot be included under the 12 categories. Further, the current TANF  regulations do not state that HHS will review states’ definitions of work  activities to determine if the definitions are appropriate. Accordingly, HHS  officials said they are unable to direct states to change their definitions of  work activities when they believe the states’ definitions are inappropriate,  as has occurred in the past.
section_title: HHS Has Provided Limited Guidance to States on the Appropriate Hours to Report
paragraphs: Although HHS has provided states with general guidance on reporting  actual hours of work participation, the guidance lacks specific criteria for  determining the appropriate hours to report.  The requirement for  reporting actual hours of work participation is not specified in federal  regulations but is instead described in other documents. The guidance on  the type of hours are the following:    Quarterly reports containing work participation data must be  “complete and accurate.”
HHS responses to comments to proposed regulations    Hours for which the recipient was paid may be reported as hours  worked, such as paid holidays.
States must report actual hours of participation for each work activity.
Reporting required (or scheduled) hours of participation is inconsistent  with the “complete and accurate” standard and is not acceptable.
Detailed reporting instructions for TANF data report (reporting  instructions)
States are to report actual hours of participation.
It is not acceptable to report scheduled hours of participation.
States should validate actual participation in each work activity.
While HHS guidance calls for states to report actual hours, ACF officials  acknowledged it may be difficult or impossible to obtain information on  actual hours for some activities. For example, the ACF officials cited  problems states have in obtaining hours of actual participation for  recipients enrolled in vocational education courses, community colleges,  and universities for which attendance is not taken.
section_title: HHS Does Not Have a Sufficient Mechanism to Identify Data Not in Accordance with ACF Guidance
paragraphs: ACF uses two mechanisms to identify problems with work participation  data submitted by states--computer edit checks and reviews of single audit  findings. However, neither mechanism provides ACF with reasonable  assurance that data reported are in accordance with ACF guidance.
Computer edit checks. ACF performs edit checks of the data submitted  quarterly by states. The edit checks identify outliers, such as if a recipient  is reported to have participated in 80 hours of work activities for 1 week.  The edit checks also identify inconsistencies between data elements, such  as if a recipient is reported as having earnings but is also reported as  having zero hours of work. ACF notifies states of any problems identified  by the edit checks so that states can correct and resubmit the data. The  edit checks can help improve the data; however, they do not address the  issue of verifying whether hours reported are actual hours of participation.
State single audits. According to ACF officials, HHS’s primary vehicle  for identifying problems with the states’ data is states’ single audit reports.  Findings from the state single audits go through a review process at HHS  to determine whether penalties are warranted. HHS has used findings from  the single audit to take action against a state for reporting poor quality  work participation data. However, ACF officials acknowledged that the  work participation data reported by states may have problems that the  single audits may not reveal. Our interviews with auditors in the 10 states  we reviewed indicate that the level of attention given to work participation  data varies greatly among the states.
State auditors from 5 states (California, Georgia, Maryland, Nevada, and  Ohio) told us that their most recent single audits covering the TANF  program did not review the data states report to HHS on hours of  participation in work activities.
Out of the 5 states in which state auditors reported that the most recent  single audits did test hours of work participation:   Three states (Kansas, Washington, and Wisconsin) reported that the  audits did not look for support of actual hours but instead compared  hours shown in the state’s welfare database with the hours reported to  HHS for a sample of cases. State auditors for the 3 states did not report  any findings on work participation data from these reviews.
Two states (New York and Pennsylvania) looked for supporting  documentation to verify that hours reported to ACF were hours of  actual participation for a sample of cases. In New York, the audit had  no finding regarding work participation hours.  The audit for  Pennsylvania found that some reported hours had no supporting  documentation to verify that they were actually worked. According to  state officials, Pennsylvania has implemented corrective actions in  response to the single audit findings.
Our review of the 10 states’ internal controls identified weaknesses both in  states where state auditors told us that the most recent single audit did not  test the data reported to HHS on hours of participation in work activities  and in states that did. ACF officials acknowledged that because of the  broad nature of the single audits, the quality and focus of the audits vary  from state to state. The single audit, covering hundreds of federal  programs, is designed as a tool that raises relevant questions about states’  internal controls and compliance with laws and regulations governing  federal awards but is not intended to answer all questions. State auditors  responsible for conducting the single audits are provided with federal  guidance issued by OMB—known as the Compliance Supplement.  Currently the Compliance Supplement contains reference to work  participation data only as a key line item for auditors to look at in the  TANF data report. According to ACF officials, the fiscal year 2005  Compliance Supplement for the single audit will contain more guidance to  help auditors identify whether work participation data are reported in  accordance with HHS guidance. The addition to the Compliance  Supplement will suggest that state auditors test a sample of cases to  determine the completeness and accuracy of the data, including the proper  documentation, used in calculating the work participation rate.
section_title: Conclusions
paragraphs: By listing 12 categories of permissible work activities, Congress placed  limits on the type of activities that states could count toward meeting  federal work participation requirements. HHS regulations only restate the  12 categories of work activities and do not further specify the types of  activities that can and cannot count toward meeting the federal work  requirements, nor do they provide for HHS’s oversight of states’ definitions  of the 12 categories. HHS has taken the position that with the current  limited regulations, it will not place restrictions on the activities states can  count toward meeting TANF work requirements.  As a result, states have  been able to include any activity in their definitions of the 12 categories of  work. Several states have broadly defined 1 or more of the categories to  include activities, such as substance abuse treatment, that other states  provide but do not consider countable toward meeting the federal work  participation requirement. Another discrepancy among states occurs with  the internal controls over the data they report to HHS. For example, some  states only report hours that have been verified as having been actually  worked, while others report hours without verification. Because of the  differences among states in the activities that they count in calculating the  work participation rate and in the internal controls over the data used in  the calculation, states are being measured by different standards, and the  work participation rates cannot be used to compare the performance of  states. Further, a high work participation rate does not necessarily  indicate more engagement of TANF recipients in work activities than a  lower rate.
The current caseload reduction credit has greatly reduced the required  level of work participation for most states. However, if TANF  reauthorization results in lowering the caseload reduction credit and  raising the work participation requirements, more states could be  penalized, and states with strict definitions and effective internal controls  may be the most susceptible to penalties. If the TANF work participation  rate is to be an effective and equitable measure for assessing states’  performance and penalizing states, HHS needs to give more oversight to  states’ definitions of federal work activities and internal controls over the  data to help make the measure more consistent across states. We  acknowledge that efforts to obtain more valid, accurate, and consistent  information for this performance measure may have unintended  consequences. For example, it may motivate states to use separate state  programs or make other choices about the design of their TANF programs.   However, a measure that is used to assess penalties needs to be clear and  consistent for all those potentially subject to penalty; otherwise, the  measure can result in misleading information and inequitable penalty  assessments.
section_title: Recommendations for Executive Action
paragraphs: HHS should issue regulations to    specify the types of activities that can and cannot be included under  the 12 categories of work activities,    have HHS oversee states’ definitions of activities under the 12    set forth criteria for counting actual hours of activity and whether there  are circumstances under which scheduled hours may be counted.
We also recommend that HHS develop and implement a plan for working  with states to improve internal controls over work participation data.  This  plan could make use of existing resources and include steps such as   working through its regional offices to identify cost-effective internal  controls being used by states,    using regional offices and existing sponsored conferences to share  information with states on these internal controls and to emphasize  the importance of internal controls, and    obtaining information from states about their experiences using the  National Directory of New Hires to determine if it has potential for  helping states collect more complete work participation data and if  there are any useful practices to be shared with other states.
section_title: Agency Comments and Our Evaluation
paragraphs: HHS provided written comments on a draft of this report; these comments  appear in appendix V. HHS said that the report provides it with new and  useful information. HHS said it would consider making the recommended  revisions in its regulations after TANF reauthorization and is exploring  options for implementing the recommendation on internal controls. HHS  also provided technical comments that we incorporated as appropriate.
Concerning our recommendation that HHS issue regulations to provide  oversight of states’ definition and more guidance on counting hours of  work activities, HHS said that it will consider this recommendation when  it develops the proposed rule after Congress enacts legislation to  reauthorize the TANF program. We agree that addressing this  recommendation during rule making after TANF reauthorization is  appropriate, if TANF is reauthorized in the near future. However, TANF  reauthorization has been delayed for 3 years and if it is delayed for much  longer, HHS should take action to revise TANF regulations without waiting  for reauthorization. Concerning our recommendation that HHS develop  and implement a plan for working with states to improve internal controls  over the work participation data, HHS said it recognized that more can be  done to ensure increased consistency in the accuracy of the work  participation data. HHS also stated that ACF is exploring options to  increase oversight and provide technical assistance to states using its  currently limited resources. Further, HHS noted that federal staff for  TANF had been reduced by 75 percent several years ago. We added a  statement about this staff reduction to the background section of the  report.
HHS expressed concern that the draft report did not sufficiently recognize  the flexibility that Congress intended for the TANF program, and it stated  that Congress did not intend that there be a consistent measure of work  participation across states or that HHS make state-by-state comparisons  for penalty purposes. We believe that the report does recognize the  flexibility Congress provided to states. Also, we believe that the fact that  Congress gave states the flexibility to design their TANF programs does  not indicate that Congress did not want a meaningful measure to  determine if states are meeting TANF requirements. While states have  flexibility in determining what policies they will use to achieve TANF goals  and requirements, the measure used to assess their performance should be  defined the same way from state to state; otherwise, the rates produced by  the measure cannot provide meaningful and understandable information  for national policy makers and for assessing financial penalties. Further,  although the use of waivers and separate state programs contributes to  differences in which families are included in the work participation rate,  HHS has made efforts, through its annual reporting, to ensure  transparency about the rules governing these mechanisms and which  states are using them. The lack of oversight of states’ definitions of  categories of work activities results in inconsistencies in performance  measurement, as discussed in this report, that are not transparent.
HHS noted some imprecision in the draft report’s description of the work  participation rate calculation. In response, we made revisions to the  report. HHS also took issue with our discussion of how a state’s work  participation rate changed after its waiver expired. We continue to believe  that this example of how a state’s rate changed over 50 percentage points  1 month after the waiver expired is a useful illustration of how changes in  definitions can affect work participation rates.
As agreed with your office, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days after its  issue date. At that time, we will send copies of this report to the Secretary  of the Department of Health and Human Services, relevant congressional  committees, and others who are interested. Copies will be made available  to others upon request, and this report will also be available on GAO’s  Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact me  on (415) 904-2272. Contact points for our Offices of Congressional   Relations and Public Affairs may be found on the last page of this report.  Additional GAO contacts and acknowledgments are listed in appendix VI.
section_title: Appendix I: Elements of the Work Participation Requirement and How the Work Participation Rate Is Calculated
paragraphs: The Temporary Assistance for Needy Families (TANF) work participation  requirement is composed of (1) a requirement for a minimum number of  hours recipients must participate in order to be counted as engaged in  work activities and (2) a requirement for the percentage of TANF families  with an adult (or minor head of household) a state must have engaged in  work activities. The Department of Health and Human Services’  Administration for Children and Families (ACF) uses a formula specified  in the Personal Responsibility and Work Opportunity Reconciliation Act  for calculating whether states are meeting the work participation  requirement.
subsections: section_title: The Minimum Number of Hours TANF Recipients Must Participate
paragraphs: The minimum number of hours TANF recipients must participate, on  average, per week to be counted as engaged in work is shown in table 4.
section_title: Base Percentage of a State’s TANF Families Who Must Be Engaged in Work Activities
paragraphs: Different base percentages were established for all families and for two- parent families. The required percentages rose over time until they  reached their current levels shown in table 5.
section_title: Caseload Reduction Credit That Reduces the Base Percentage
paragraphs: For each percentage point that a state’s welfare caseload declined from its  1995 level, the caseload reduction credit reduces the base percentage of  TANF families who must be engaged in work in the state. For example, if a  state’s welfare caseload declined 40 percent since 1995, then the all-family  work participation rate that it must meet is 10 percent and the two-parent  family work participation rate that it must meet is 50 percent. Because of  significant declines in welfare caseloads that have occurred in most states  since 1995, 33 of the 50 states were required to meet an all-family rate of 10  percent or less in fiscal year 2003.
section_title: Calculation of Each State’s Work Participation Rate
paragraphs: Each quarter, states are required to report to ACF monthly data on their  TANF cases, including the number of hours each adult recipient spent in  countable work activities. States have the option of reporting to ACF on all  their TANF cases (the universe) or on a scientifically drawn sample of  TANF cases. Using the data reported by states, ACF calculates an annual  work participation rate for each state. A state’s annual work participation  rate is based on the state’s average monthly rate for the year. The formula  for the all-family rate is shown in figure 1.
Child-only TANF cases are not included in the calculation.  States have the  option of disregarding from the calculation of the all-family work  participation rate families with a single custodial parent and a child under  age one. Other families disregarded in the calculation of the all family rate  include   families that are part of an ongoing research evaluation approved  under Section 1115 of the Social Security Act;  families that are disregarded based on an inconsistency under an  approved welfare reform waiver that exempts the family; and  families participating in a tribal family assistance plan or a Tribal work  program (unless the state chooses to include the families in the  calculation).
The two-parent family rate is calculated the same way as the all-family  rate, except that the calculation only includes two-parent families. Two- parent families with a disabled parent are not used in calculating the two- parent rate.
section_title: Appendix II: States That Count Certain Activities toward Meeting the Federal Work Participation Rate
section_title: Appendix III: States Identified as Lacking Certain Internal Controls
section_title: Appendix IV: Fiscal Year 2003 Work Participation Rates Calculated by HHS Based on Data Provided by States
paragraphs: As discussed in this report, our review covering 10 states found that there  were differences among states in the activities counted in the rates and, in  some cases, weaknesses in internal controls over the data used to  calculate the rates. Therefore, these rates may not reliably reflect work  participation rates and should not be used to make comparisons between  states.
section_title: Appendix V: Comments from the Department of Health and Human Services
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: The following staff members made major contributions to the report:   Gale Harris (Assistant Director), Kathy Peyman (Analyst-in-Charge),  Carolyn Blocker, Amanda Miller, Cady S. Panetta, Tovah Rom,   Dan Schwimer, and Shana Wallace.
section_title: Related GAO Products
paragraphs: Welfare Reform: Rural TANF Programs Have Developed Many Strategies  to Address Rural Challenges.  GAO-04-921.  Washington, D.C.:  Sept. 10,  2004.
Supports For Low-Income Families: States Serve a Broad Range of  Families through a Complex and Changing System.  GAO-04-256.   Washington, D.C.:  Jan. 26, 2004.
Welfare Reform: With TANF Flexibility, States Vary in How They  Implement Work Requirements and Time Limits. GAO-02-770.  Washington, D.C.: July 5, 2002.
Welfare Reform: Federal Oversight of State and Local Contracting Can  Be Strengthened.  GAO-02-661. Washington, D.C.:  June 11, 2002.
Welfare Reform:  States Are Using TANF Flexibility to Adapt Work  Requirements and Time Limits to Meet State and Local Needs.   GAO-02-501T.  Washington, D.C.:  Mar. 7, 2002.
Welfare Reform: More Coordinated Federal Effort Could Help States and  Localities Move TANF Recipients with Impairments toward  Employment.  GAO-02-37.  Washington, D.C.:  Oct. 31, 2001.
Welfare Reform: Progress in Meeting Work-Focused TANF Goals.   GAO-01-522T.  Washington, D.C.:  Mar. 15, 2001.
Welfare Reform: Moving Hard-to-Employ Recipients Into the Workforce.   GAO-01-368.  Washington, D.C.:  Mar. 15, 2001.
Welfare Reform: Data Available to Assess TANF's Progress.  GAO-01-298.   Washington, D.C.:  Feb. 28, 2001.
Single Audit:  Update of the Implementation of the Single Audit Act  Amendments of 1996. GAO/AIMD-00-293. Washington, D.C.: Sept. 29,  2000.
Welfare Reform:  Work-Site-Based Activities Can Play an Important Role  in TANF Programs. GAO/HEHS-00-122. Washington, D.C.: July 28, 2000.
Standards for Internal Control in the Federal Government.  GAO/AIMD-00-21.3.1. Washington, D.C.:  Nov. 1999.
Performance Plans:  Selected Approaches for Verification and Validation  of Agency Performance Information.  GAO/GGD-99-139.  Washington,  D.C.: July 30, 1999.
Block Grants:  Issues in Designing Accountability Provisions.   GAO/AIMD-95-226.  Washington, D.C.: Sept. 1, 1995.
Welfare to Work:  JOBS Participation Rate Data Unreliable for Assessing  States’ Performance. GAO/HRD-93-73. Washington, D.C.: May 5, 1993.