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. 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. 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 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. 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. 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.