Purpose

The objective of our performance audit was to determine whether the Office of Temporary and Disability Assistance (Office) had sufficient policies and practices to identify and prohibit electronic benefit transfer (EBT) card transactions at prohibited locations, and thereby comply with applicable federal and State laws. Our audit scope period covered March 1, 2014 through December 7, 2016.

Background

The Office is responsible for supervising programs that provide assistance and support to eligible families and individuals. The Office receives federal funds under the Temporary Assistance for Needy Families (TANF) program to provide benefits and services, and delivers payments from this and other assistance programs (e.g., Supplemental Nutrition Assistance Program) through EBT cards. Recipients can use the cards to make purchases or withdraw cash from a portion of their monthly benefits at participating automated teller machines (ATMs) and point of sale terminals throughout the State.

The federal Middle Class Tax Relief and Job Creation Act of 2012 (Pub. L. 112-96, Title IV §4004(a), February 22, 2012) (Act), in part, requires states to maintain policies and practices to prevent TANF funding from being used in any EBT transaction at a liquor store, gaming establishment, or adult-oriented establishment in which performers disrobe or perform in an unclothed state for entertainment (prohibited locations).¹ In addition, the Act requires states to report annually to the Department of Health and Human Services (HHS) on the implementation of policies and practices related to restricting use of TANF assistance in EBT transactions at the prohibited locations.² For states that fail to comply with this reporting requirement, HHS will reduce their TANF funding by up to 5 percent annually. As the agency in charge of administering TANF funds, the Office is responsible for ensuring the State’s compliance with the Act and other associated federal requirements.

The Office monitors EBT activity through its Specialized Fraud Abuse Reporting System (SFARS) database, and is responsible for notifying the State Liquor Authority (SLA) and/or the Gaming Commission (Gaming) of potentially prohibited locations under their authority that improperly accept EBT transactions from public assistance recipients. The Office itself is responsible for all other locations not otherwise covered (e.g., adult-oriented locations that do not serve alcohol). Where there are violations, these governing entities are authorized, under section 151 of the Social Services Law to: impose sanctions, including monetary fines; revoke, cancel, or suspend licenses; and pursue criminal prosecution.

The SFARS database is maintained by the Office of Information Technology Services (OITS). OITS receives EBT transaction data directly from the EBT vendor (Xerox Corp.) and uploads the data into SFARS. According to a data download of EBT cash transactions that the Office provided to us, approximately 37 million transactions, totaling about $1.9 billion, were made from January 1, 2014 to March 18, 2016 – an average of 1.4 million EBT transactions per month.

1 42 USC §608(a)(12).
2 42 USC §609(a)(16).

Key Findings

• The Office has adopted appropriate policies and practices to avoid the risk of federal financial penalties. In addition, the Office is monitoring EBT transactions in accordance with procedures it reported to HHS for preventing TANF cash assistance from being used at prohibited locations, and is referring identified violations to the appropriate governing authority.
• We found the Office’s monitoring of EBT transactions to be adequate, but identified certain strategic refinements that could help the Office to better monitor transactions and identify violations.
• We analyzed client card usage at prohibited locations and identified 15 recipients with 20 or more EBT transactions. Of these 15, we identified 7 recipients with 20 or more transactions at the Turning Stone Casino, including 1 recipient with 71 EBT card transactions totaling more than $3,360.
• The Office assigned responsibility for monitoring to its Bureau of Audit and Quality Improvement – a management function that is incompatible with independent appraisal of operations. The Office’s duty to monitor EBT transactions should be more appropriately assigned to a Program unit and not internal audit.

Key Recommendations

• Develop comprehensive data analysis testing of monthly transactions, focusing on repeated violations at the same potentially prohibited location.
• Include transactions occurring in other states in monthly reviews, and notify the other states where potential violations are identified.
• Reassign responsibility for EBT cash transaction monitoring to allow for both effective supervision and independence of the internal audit function.

Agency Response

In response to our draft report, the Office disagreed with our conclusions and asserted that it has implemented EBT restrictions that sufficiently address all legal requirements. However, our recommendations focus on practical and efficient steps the Office can take to further improve the processes already in place, and help prevent more inappropriate transactions from occurring. Further, the Office’s response demonstrates an unwillingness to move beyond minimum legal requirements, and dismisses the notion of trying to expand and/or improve monitoring efforts. This is disappointing, because all government agencies have an inherent responsibility to continually work to improve operations and ensure that limited taxpayer funds are properly spent. That responsibility is particularly important when public funding is used to provide necessary shelter and sustenance for vulnerable families and children. We maintain that Office management should better ensure that EBT support is not compromised by prohibited transactions at liquor stores, casinos, and adult clubs.

Other Related Audits/Reports of Interest

Office of Temporary and Disability Assistance: Benefit Eligibility Assessment Process (Follow-Up) (2015-F-28)
Office of Temporary and Disability Assistance: Oversight of Homeless Shelters (2015-S-23)