Iowa’s failure to track welfare benefits risks $6.6M in federal aid

DES MOINES – Iowa leaders have yet to crack down on where and how welfare dollars are used, putting the state at risk of losing at least $6.6 million in federal dollars next year.

States have until 2014 to find ways to police where welfare recipients make transactions under a federal law passed last year. The law requires states to adopt rules to keep people from accessing the welfare benefits at strip clubs, bars and casinos. States that fail to do so risk losing 5 percent of the federal dollars they receive to fund the program, which is meant to provide low-income families with basic necessities.

Iowa received $131 million in federal aid in fiscal year 2011 for its welfare program, according to state records. A 5-percent cut would have to be made up by either lowering recipient benefits or reallocating state dollars from elsewhere to fill the gap, leaders said.

Officials with the Iowa Department of Human Services, which oversees the program, have yet to write or introduce legislation outlining their proposals to bring Iowa into compliance. Federal workers still haven’t released regulations and guidance. And Iowa also must tackle how it will punish those who inappropriately use the benefit cards.

States must begin tracking where welfare recipients use electronic payment cards or risk losing federal aid.

Roger Munns, spokesman for the Iowa Department of Human Services, said department leaders expect to unveil legislation later this session. Munns said Iowa law needs to be revised in order for the state to comply with the federal rules, although he declined to provide specifics.

“We are still trying to get a foot in the door and get going on this,” Munns said.

The federal legislation came in reaction to media reports in multiple states of welfare recipients using benefits or withdrawing cash from ATMs at liquor stores, hookah bars, strip clubs, and casinos.

At least eight states already have adopted partial or complete bans at those types of locations. They include Arizona, Colorado, Indiana, Massachusetts, Minnesota, Missouri, Pennsylvania and Washington. California bans their use through executive order. Another 22 states have taken up similar proposals, according to the eGovernment Payments Council, a national association representing groups that deliver government payments or benefits.

Iowa lawmakers have yet to tackle the issue, according to officials with the Iowa Legislative Services Agency, who couldn’t find records of any previous attempts to curtail where welfare money is spent and withdrawn.

State officials don’t track any information related to transactions made with state-issued Electronic Payment Cards, used by more than 90 percent of welfare recipients. That’s because the state, unlike most others, contracts with Xerox to administer the program. Federal banking laws prohibit the state from accessing any individual financial information from banks.

Companies contract with states to run the debit-card programs, often at no cost, because it increases their customer base and overall revenues, Munns said.

Iowa faces an uphill battle in finding ways to track where recipients use the money. Recipients can withdraw the money from ATMs and use the cash wherever they choose. Coding for transactions would make it difficult to limit where people use the card. And businesses might have the burden passed onto them through reporting and tracking requirements, officials with the Iowa Department of Human Services wrote in their feedback to the federal government on the law.

“We are doing as much as we can do without getting explicit directions from the feds,” Munns said.

Contact Sheena Dooley at dooley@iowawatchdog.org. Sheena Dooley is the Iowa bureau chief for Watchdog.org, where this story first appeared.