Welfare Reform: HHS Should Exercise Oversight to Help Ensure TANF Work Participation Is Measured Consistently across States
Released: 2005-08-29T00:00:00

Letter

Background

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.

12 Categories of Countable Work Activities

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.

Single Audits

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.

Internal Controls

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.

Differences in How States Define Work Activities Result in Inconsistent Measurement of Work Participation across States and over Time

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.

Activities Are Defined Inconsistently across States

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.

Changes in State Definitions Result in Inconsistent Measurement from Year to Year

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.

Other Differences in Classifications of Adult Recipients Result in Inconsistencies across States

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.

Some States Do Not Have Internal Controls Needed for Reporting Data in Accordance with HHS Guidance, while Other States Do

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.

Some States Lack Internal Controls to Help Ensure Actual Hours of Participation Are Reported

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.

Some States Have Systematic Approaches for Verifying Reported Data

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.

Unsubsidized Employment Has Been Especially Difficult to Track

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.

HHS’s Oversight and Guidance on Appropriately Defining Work Activities and Reporting Hours of Work Participation Have Been Limited

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.

HHS Has Provided Minimal Oversight of States’ Definitions of Work Activities

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.

HHS Has Provided Limited Guidance to States on the Appropriate Hours to Report

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.

HHS Does Not Have a Sufficient Mechanism to Identify Data Not in Accordance with ACF Guidance

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.

Conclusions

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.

Recommendations for Executive Action

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.

Agency Comments and Our Evaluation

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.

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Appendix I: Elements of the Work Participation Requirement and How the Work Participation Rate Is Calculated

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.

The Minimum Number of Hours TANF Recipients Must Participate

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.

Base Percentage of a State’s TANF Families Who Must Be Engaged in Work Activities

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.

Caseload Reduction Credit That Reduces the Base Percentage

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.

Calculation of Each State’s Work Participation Rate

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.

Appendix II: States That Count Certain Activities toward Meeting the Federal Work Participation Rate

Appendix III: States Identified as Lacking Certain Internal Controls

Appendix IV: Fiscal Year 2003 Work Participation Rates Calculated by HHS Based on Data Provided by States

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.

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

Appendix VI: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

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.

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