The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) significantly changed federal welfare policy for low- income families with children, from a program that entitled eligible families to monthly cash payments to a capped block grant that emphasizes employment and work supports for most adult recipients. As part of PRWORA, Congress created the TANF program, through which HHS provides states about $16.5 billion each year in block grant funds to implement the program. To receive the TANF block grant, each state must also spend at least a specified level of its own funds, which is referred to as state maintenance of effort (MOE).block grant, PRWORA defines four goals for the program: 1. provide assistance so that children could be cared for in their own homes or in the homes of relatives; 2. end families’ dependence on government benefits by promoting job preparation, work, and marriage; 3. prevent and reduce the incidence of out-of-wedlock pregnancies; and 4. encourage the formation and maintenance of two-parent families. TANF is a flexible funding stream that states can use to provide cash assistance and a wide range of services that are “reasonably calculated” to further the program’s four goals. In federal fiscal year 2011, states used about 29 percent of their TANF funds on basic assistance that included cash assistance for needy families, and the remaining funds were spent on other purposes, such as child care, employment programs, and child welfare services. Due to the flexibility given to states, TANF programs differ substantially by state. States are required to develop plans that outline their intended use of funds and report data on families receiving assistance. While the federal TANF statute does not define “assistance,” HHS defines assistance in regulation as cash payments, vouchers, and other forms of benefits designed to meet a family’s “ongoing basic needs,” such as food, clothing, shelter, utilities, household goods, personal-care items, and general incidental expenses. Traditionally, states disbursed cash assistance benefit payments by means of paper check. The EBT program was devised in the 1980s originally to meet the needs of the Department of Agriculture’s (USDA) Food Stamp Program, in which federal benefits were electronically disbursed to eligible recipients. These cards are not tied to a consumer asset account, and generally the account structures and processing requirements differ from other payment cards. EBT cards can be used to deliver benefits to banked and unbanked recipients and can be used to deliver multiple benefits using a single card. The cost savings in the Food Stamp Program (now known as the Supplemental Nutrition Assistance Program or SNAP) from using electronic payments to distribute benefits prompted states to use EBT cards to also distribute TANF benefits electronically, leveraging the existent EBT system designed for SNAP. Electronic benefit distribution methods also include Electronic Payment Cards (EPC). Some EPC cards are prepaid or debit cards that are branded with a MasterCard, American Express, Discover, or Visa logo, which allows cardholders to conduct signature-based transactions anywhere that those brands are accepted as well as at ATM and point-of- sale (POS) machines. Electronic benefit cards—both EBT and EPC—generally can be used like traditional debit or credit cards, in that recipients can use them at ATMs to withdraw cash, or at retailers’ POS terminals for purchases or to receive cash by selecting a cash-back option. However, there are some key differences between the electronic benefit card and commercial credit cards. The main difference is that electronic benefit cards do not carry a credit line, and the purchases or withdrawals made with these cards cannot exceed the amount of recipients’ TANF benefits. With commercial credit cards, cardholders borrow to make a purchase and then pay the money back later. Electronic benefit cards are more like debit or stored- value cards and provide an alternative to cash—each time that a cardholder uses his or her electronic benefit card, the money spent or withdrawn is deducted from the cardholder’s TANF benefits account. States consider various factors when implementing EBT or EPC programs, including potential financial burden to recipients, such as transaction fees at ATMs that charge a surcharge for each transaction; recipient characteristics, such as disabilities; implementation costs; and fraud and security risks. States also take into account how readily recipients can access cash assistance. For example, in some rural areas or low-income neighborhoods the only access point for cash assistance benefits may be a location such as a grocery store, single depository institution, or even a liquor store. Some of the benefits to recipients from states choosing EBT or EPC programs include quicker disbursement of benefits, the elimination of lost or undelivered paper checks, access to benefits without an established bank account, and no need to locate check-cashing venues in order to access benefits. Prior to 2012, states were not required under federal law to take steps aimed at preventing specific TANF transactions at certain locations. However, the Welfare Integrity and Data Improvement Act, part of the Middle Class Tax Relief and Job Creation Act of 2012, signed into law on February 22, 2012, introduced several changes to TANF that can affect recipients’ ability to access cash assistance at certain locations. Specifically, the Act requires that each state receiving a TANF block grant maintain policies and practices as necessary to prevent TANF assistance from being used in any “electronic benefit transfer transaction” in any liquor store; any casino, gambling casino, or gaming establishment; or any retail establishment that provides adult-oriented entertainment in which performers disrobe or perform in an unclothed state for entertainment. The Act calls for HHS to determine whether states have implemented and maintained policies and practices to prevent such transactions, within 2 years of the Act’s enactment. If HHS determines that a state has not implemented and maintained these policies and practices, or if a state has not reported to HHS on its policies and practices, HHS may reduce the state’s family assistance grant by an amount equal to 5 percent of the state’s grant amount for the federal fiscal year following the 2-year period after enactment and each succeeding federal fiscal year in which the state does not demonstrate that it has implemented and maintained such policies and practices. However, HHS may reduce the amount of this penalty on the basis of the degree of noncompliance of the state in question. In addition, the Act specifies that states are not responsible for individuals who engage in fraudulent activity to circumvent the state’s policies and practices, and will not face a reduction in their family assistance grant amounts in such cases. The Act defines liquor store as “any retail establishment which sells exclusively or primarily intoxicating liquor. Such term does not include a grocery store which sells both intoxicating liquor and groceries including staple foods (within the meaning of section 3(r) of the Food and Nutrition Act of 2008 (7 U.S.C. 2012(r))).” Id. The Act also contains requirements for states related to maintaining recipients’ access to TANF cash assistance. As part of the plan that each state is required to submit to HHS, states must include policies and procedures to ensure that recipients have adequate access to their cash assistance. In addition, states must ensure that recipients have access to using or withdrawing assistance with minimal fees or charges, including an opportunity to access assistance with no fees or charges, and that they are provided information on applicable fees and surcharges that apply to electronic fund transactions involving the assistance, and that such information is made publicly available. HHS issued a request for public comment in April 2012, seeking information by June 2012 on: how states deliver TANF assistance to beneficiaries, whether states have implemented policies and practices to prevent electronic benefit transfer transactions at the locations mentioned above, states’ experiences with these policies and practices, and other similar restrictions states place on TANF assistance usage. In its notice, HHS identified multiple questions for states to answer, including questions on the methods states use to track the locations where transactions occur, challenges states experienced when implementing any restrictions on transactions at certain locations, the initial and ongoing costs of restrictions, the effectiveness of restrictions and the factors influencing the effectiveness, and any concerns that have been raised about the restrictions, among other things. In addition, HHS requested input from states’ EBT vendors on potential issues that states may face in implementing restrictions, including technical issues, cost implications, access implications, and mechanisms for addressing problems identified. Six of the 10 states we reviewed have taken steps to prevent certain types of inappropriate TANF transactions—restrictions that in some cases are broader than recent federal requirements that require states to take steps aimed at preventing transactions in casinos, liquor stores, and adult-entertainment establishments. These 6 states faced a variety of challenges in identifying inappropriate locations and preventing transactions at these locations. At the time these efforts were undertaken, there were no federal requirements that required states to take steps aimed at restricting such transactions. In addition, EBT transaction data from federal fiscal year 2010 from 4 of the 10 selected states were generally incomplete or unreliable, and were of limited use to the states for systematically identifying or monitoring inappropriate locations. While the federal requirements to restrict inappropriate transactions now exist, data issues and other challenges, if unaddressed, may continue to affect efforts to comply with these new requirements. Six of the 10 states we selected and reviewed have taken steps to prevent certain types of TANF transactions; these actions vary in their degree and means of implementation, from widespread disabling of EBT access at ATMs in certain locations across a state to, according to officials from one state, passing a law without implementing steps for enforcing it. The restrictions generally involve prohibiting the use of EBT cards at certain locations or prohibiting purchases of certain goods or services, or both, as shown in figure 1 below.