Feds to review state welfare filing after Watchdog.org stories

By Arthur Kane | Watchdog.org

Federal officials promised to review Colorado’s next welfare filing to determine if state human service officials are complying with federal law after a series of Watchdog.org stories about welfare recipients withdrawing money at federally prohibited locations.

“The Office of Family Assistance at HHS’ Administration for Children and Families will examine Colorado’s next EBT report submission to determine whether the state has implemented and maintained its policies and practices,” agency spokesman Kenneth J. Wolfe wrote in an email response to Watchdog.org. “If upon review our (staff) determines that Colorado is not in compliance with the EBT provisions, the appropriate state officials will be notified and allowed to take action to remedy the deficiencies.”

Over the past week, Watchdog.org broke stories showing Colorado welfare recipients are withdrawing millions of dollars in casinos, liquor stores, marijuana dispensaries and out-of-state locations like Vegas, Hawaii and even the Virgin Islands.

A federal law passed in Feb. 22, 2012, prohibits welfare withdrawals in liquor stores, casinos and other adult-entertainment locations and provides that if the state don’t fix the problem within two years, it could lose 5 percent of its Temporary Assistance for Needy Families grant.

“If, within 2 years after the date of the enactment of this paragraph, any State has not reported to the Secretary on such State’s implementation of the policies and practices required by section 408(a)(12) or the Secretary determines, based on the information provided in State reports, that any state has not implemented and maintained such policies and practices, the Secretary shall reduce, by an amount equal to 5 percent of the State family assistance grant,” according to the law.

U.S. Sen. Orrin Hatch, a Utah Republican who co-sponsored the legislation, warned the states to prevent prohibited withdrawals or lose money.

“Senator Hatch is carefully monitoring the implementation of this new law which was designed to put an end to the egregious abuses of EBT cards that have happened in many states, not just Colorado,” wrote Hatch spokeswoman Julia Lawless in an emailed statement. “If a state is unable to demonstrate its compliance of the law within two years of its enactment, then they will face up to a five percent reduction in its TANF block grant.”

A Watchdog.org review of a Colorado Department of Human Services database shows welfare recipients withdrew hundreds of thousands of dollars after the two years allowed by law expired and after CDHS filed a federal report providing federal officials details of how the state plans to comply with federal law.

Welfare recipients withdrew more than $200,000 between Feb. 23 and the end of July from liquor stores and casinos and an additional $2,305 at marijuana dispensaries, a Watchdog.org analysis of the database shows.

Initially, Wolfe said Colorado was in compliance with the federal law, providing a filing that laid out Colorado’s plan to stem the prohibited withdrawals. But after Watchdog.org sent links to its stories, Wolfe sent the email saying federal officials would review the state’s next filing, which is due Dec. 31.

The CDHS TANF document, filed in 2012 and amended on the date the two-year federal deadline expired, included notifying businesses and welfare recipients of inappropriate usage and automated prevention by “merchant category code” that will deny EBT transactions at prohibited locations.

However, CDHS officials told Watchdog.org that they cannot block ATMs at the prohibited businesses without the owner’s help, so it’s unclear why they are telling federal officials they plan to implement the process.

“The State of Colorado does not have regulatory authority concerning ATM machines and where they are located,” CDHS spokeswoman wrote Liz McDonough on Sept. 26. “The ATM owner must make a physical change to the machine in order for it not to accept the Electronic Benefits Card. Based on his or her business needs, owners often move their machines into and out of locations where benefit recipients are prohibited from accessing their cash benefits. CDHS has reached out to ATM owners in the past and notified them of the action needed to disable EBT Card acceptance for machines in prohibited locations. But again, we do not have the authority to force compliance on their part.”

Yet the CDHS filing clearly promises to block the ATMs.

“Colorado’s EBT vendor will implement a new automated prevention strategy by July 1, 2014. It will flag transactions at prohibited businesses based on goods or services it provides using a “merchant category code,” the filing said. “When a client attempts an EBT transaction at a point of sale (POS) device or ATM located in one of these businesses, the transaction will be denied.”

But David N. Tente, U.S. executive director of the ATM Industry Association, said while it’s possible to block the use of EBT cards at point of sale locations, ATMs would require knowing the terminal code or codes and getting the processor to block transactions at ATMs with those codes.

“There is no merchant (category) code associated with the ATM,” he said. “Usually to do something like that, it takes a court order.”

Tente also took issue with Colorado’s plan to notify businesses at prohibited locations that welfare recipients are withdrawing money at those ATMs.

“To have the ATM operators to police this is just like ludicrous,” he said.

In the federal filing, the state promised the ATM blocking system would be up and running by July 1, but the CDHS database shows $425 was withdrawn from ATMs in marijuana dispensaries, $8,089 was withdrawn at casinos and $30,675 was withdrawn at liquor stores after the July 1 deadline.

CDHS spokesman Dan Drayer said the state is continuing to work to block ATMs at prohibited locations.

“CDHS is part of a pilot with JP Morgan to block EBT transactions at POS devices based on merchant category codes,” Drayer wrote in an email response. “These codes are based on the type of business, so transactions done at prohibited locations would be blocked. The exception is marijuana dispensaries, which do not yet have merchant category codes since the law regarding recreational marijuana is new. The State does not create these codes; that is up to financial institutions to do. We continue to work with ATM owners to get them to code appropriately to block EBT/ATM transactions in prohibited locations. As we have said, ATM owners are not required but can participate on a voluntary basis.”

Drayer also pointed out the withdrawals at prohibited locations are a very small part of the nearly $1 billion EBT transactions in the state during the past two years.