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This Program Instruction explains the use of TANF funds to recover Aid to Families with Dependent Children (AFDC) overpayments.  Under the former AFDC program, States were required to take appropriate action to collect all overpayments, either through repayments or recoupment (grant reduction).  Collections were retained by the State, reported quarterly and the grant award was adjusted to recover the Federal share (FMAP) of the assistance payment.

With the enactment of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), ACF issued a series of three “program instructions” that required States to continue to pursue AFDC overpayments made prior to October 1, 1996 and refund the Federal share. TANF-ACF-PI-2000-2 dated September 1, 2000 rescinded the prior program instructions and required States to remit the Federal share of recovered AFDC overpayments made prior to October 1, 1996 to ACF via check.  The policy to pursue and return the Federal share of AFDC overpayments made prior to October 1, 1996 is still in place.  Recoveries of overpayments paid to recipients on or after October 1, 1996 were to be retained by the State and used for TANF program costs.  While not explicitly stated in TANF-ACF-PI-2000, the reason for the difference in treatment between the two timeframes is that appropriations law requires public funds to be used only in the program and for the purposes for which they were appropriated, except as otherwise provided by law.

Beginning in fiscal year 2000, the HHS Office of the Inspector General (OIG) began audits of 24 State programs and three California counties to determine whether States had properly collected and refunded AFDC overpayment recoveries to the Federal government, in accordance with the program instruction.  For those States which had not complied, the OIG recommended that the States refund the Federal share to ACF.

The follow-up discussion with States about the policy and appropriations law principles has raised the question as to whether TANF funds can be used for the costs to recover AFDC overpayments, if AFDC collections cannot be retained and used in the TANF program.

This Information Memoradum provides guidance to States on best practices for reduction of improper payments.