What do a Hall of Fame quarterback, a former professional wrestler, and numerous government officials have in common? This sounds like the start to a bad joke, but unfortunately the answer is far more serious: These figures are among those implicated in the largest public embezzlement scheme in the history of Mississippi, one that deprived some of the poorest residents in the United States of access to desperately needed federal assistance. From 2016 to 2020, officials in the state funneled approximately $77 million of federal welfare funds to various sham initiatives designed to enrich themselves and their friends. Much of that money was directed to a nonprofit education center, which spent it on things like kickbacks to the director of the Mississippi Department of Human Services, a horse ranch, football tickets for state lawmakers, and—in what brought this story to national attention—volleyball courts for the university where former NFL quarterback Brett Favre’s daughter played.

On the surface, the Mississippi welfare scandal appears to be a straightforward story of grift and greed. But perhaps more importantly, the scandal highlights deeper structural problems in one of the main federal welfare programs, known as Temporary Assistance for Needy Families (TANF). Although the Mississippi scandal is one of the more egregious examples of TANF abuse, it’s certainly not the only one. Officials using TANF funding for kickbacks is not uncommon, and there are many more examples of states using these funds to finance projects seemingly unrelated to poverty reduction, including anti-abortion clinics and college scholarships for students who are not themselves eligible for welfare. What accounts for this widespread mismanagement of TANF funding, and what can be done to address it?

To answer these questions, it’s important to first understand how TANF came to be. Prior to 1996, welfare in the United States largely operated through direct cash assistance for low-income families. Under that program, known as Aid to Families with Dependent Children (AFDC), states were required to provide direct cash assistance to all families that met certain eligibility requirements (principally poor single-parent households with children). State governments administered the program, and the federal government monitored its implementation and matched all state funding.

But in 1996, Congress overhauled the welfare system, replacing the AFDC program with TANF. TANF was designed to give states more flexibility in addressing poverty. Rather than a cash-based entitlement program, TANF provides states with fixed block grants, which the states can then use in any way that supports one of four statutory goals (which include providing assistance to needy families and promoting work and job preparation). Oftentimes states do not spend this money directly on poverty-reduction programs; instead, like Mississippi, they channel this money into nonprofits and other organizations that offer services meant to promote TANF’s statutory objectives.

The TANF program has been criticized as far less effective than AFDC in alleviating poverty. Additionally, TANF poses a much greater corruption risk. The “block grant” funding mechanism, which provides a lump sum of money to states with almost no requirements for how it is to be spent, has effectively created a “slush fund” for state governments. Moreover, there is little federal oversight to ensure that states spend these funds in ways that actually produce results. There is no federal repository showing either the organizations to which states direct TANF funding or the outcomes that this spending achieves. In short, TANF creates a system of funding without guardrails, and discretion without accountability.

The recent scandal in Mississippi underscores these problems, and it should serve as a wake-up call to federal lawmakers. While reforming the welfare system should make effective poverty reduction the top priority, reformers should also take steps to address the corruption risks in the current system. To that end, lawmakers should consider the following reforms:

• First, Congress should significantly expand and strengthen states’ reporting requirements. Currently, states need to report detailed data only on the portion of TANF funding that goes to direct cash assistance; detailed reporting is not required for TANF funding that flows to other initiatives, like support for childcare programs. But only about one-fifth of the $16.5 billion in TANF funding allocated to states each year is used for cash assistance. Some states, like Mississippi, spend as little as 5% for that purpose. The federal government should require states to produce reports on all TANF spending, and these reports should include information about any organizations to which states direct welfare funds and how these recipients are equipped to meet the state’s anti-poverty goals.
• Second, the federal government should establish clear, measurable criteria for determining whether a state’s TANF spending is meeting the statutorily mandated objectives. As noted above, states direct a sizable portion of TANF funding to nonprofit or other organizations that are tasked with providing welfare-related services. Without metrics through which the federal government can hold states accountable, there is less incentive for states to ensure that this money is used productively and is not siphoned off by unscrupulous actors. Creating measurable outcomes to determine if TANF spending has been successful in reducing poverty—like the number of TANF-eligible participants receiving job training or education benefits—would make the program more effective overall, while also reducing the possibility of downstream corruption.
• Third, the TANF program should be revised to require that a certain percentage of TANF funding goes to direct cash assistance. This is not only an empirically justified way to increase the benefits of welfare spending, but it also removes opportunities for abuse by limiting (though, in line with the program’s goal of giving states flexibility, not completely eliminating) the amount of discretion that states have over TANF funds. Importantly, this measure would have a significant impact even if the expansion of TANF oversight, recommended above, is not adopted, because it would mean that a greater portion of states’ TANF spending is subject to the more detailed reporting requirements currently in place.

Recent data suggests that 37 million people, including 1 in 6 children, currently live in poverty in the United States. A strong federal safety net can go a long way in reducing these numbers. But the force of any program aimed at this goal is blunted when funds are subject to waste and abuse. Reforming TANF to reduce corruption risks would help to prevent another scandal like the one in Mississippi and ensure that welfare funding ultimately benefits those most in need.