In Dallas, Texas, two boys reported in 1998 that they had been sexually molested by a staff member who was a convicted drug trafficker.  After many reports of child abuse at centers nationwide, Teen Challenge-San Antonio was informed by TCADA that the U.S. Department of Agriculture (USDA) had determined that residents of Teen Challenge centers in Texas were no longer eligible to receive food stamps because the centers were not state-licensed or inspected. [i]

The San Antonio center’s director admitted that the facility depended on the food stamps for nearly half its annual food budget. Teen Challenge claimed that federal food stamp regulations hindered men and women working to overcome addictions at Teen Challenge treatment centers in 4 states. Reports had surfaced that the food purchased with the food stamps was sold on the black market while children in the Teen Challenge centers were fed water, white bread and peanut butter.

The Rhode Island Teen Challenge women’s program was managed by a registered sex offender, Shondi Barbato, but she was not the only sex offender on staff at Teen Challenge. State regulators in several states wanted to stop the direct access to children by registered sex offenders and violent criminal offenders in the Teen Challenge programs.

In most Teen Challenge centers, food stamp money provides a majority of their funding. Those in child protective services (CPS) were hopeful that this denial of food stamps would force compliance with regulatory protections.  In several states, including Massachusetts and Vermont, officials halted benefits to Teen Challenge clients because the programs were not formally recognized by state officials, and because clients turned over their food stamps to administrators of the treatment program.[ii]   The coupons were pooled together to buy groceries for those who live in dormitory-style housing for 18 months during their treatment.  Through the USDA actions, federal authorities hoped to protect the human rights and body integrity of children in the care of Teen Challenge facilities.  There had been food stamp fraud in Honolulu HI. [iii]

The cutoff of food stamps impacted Teen Challenge centers in Oregon, Florida, and Massachusetts. The Boston field office for USDA's Food and Nutrition Service (FNS) stopped food stamps to Teen Challenge-New England.[iv]  In 2005, food stamps paid about $150/month per client in the Brockton, MA center. This totaled nearly $200,000 a year. The USDA informed Teen Challenge that "The basis for your denial was that your program is not licensed by the state of Massachusetts."

There was strong protest from Teen Challenge-New England’s director, Rodney Hart, the supervisor of Shondi Barbato, a registered sex offender.  Hart, himself a 1976 graduate of Teen Challenge, advocated politically for the government to create a separate category for Faith-based groups at the federal level, citing it was the key to solve "a serious glitch that needs to be fixed at a higher level."  Teen Challenge-New England’s lawyer, Brad Martin filed a complaint against the government in 2005 on behalf of Teen Challenge-New England, which has centers in Connecticut, Vermont, New Hampshire, and Rhode Island. Teen Challenge New England Director Hart stated, "The government does not have a lens to interpret Faith-based recovery centers. It only recognizes the disease model, which is totally irrelevant to us.”  Hart refused to obtain a state license, equating it to “obtaining an identity that doesn't correspond to who we are… It would be like getting a deer-hunting license to hunt crocodiles.” Stamped Out World Magazine, August 27, 2005, Vol. 20, No. 33 [v]

"Texas Freedom Network, a 23,000-member non-partisan grassroots watchdog group based in Austin conducted a five-year study of the policy and found, “As exempt Faith-based drug treatment centers, [such] facilities are not required to have licensed chemical dependency counselors, conduct staff training or criminal background checks, protect client confidentiality rights, adhere to state health and safety standards, or report abuse, neglect, emergencies and medication errors.” [vi]

With the influence of President George W. Bush, the federal government cleared the way for Teen Challenge clients in recovery programs to resume receipt of food stamps under Charitable Choice. [vii]

“In a joint opinion issued by the Secretaries of the U.S. Departments of Agriculture (USDA), and Health and Human Services (HHS), it has now been determined that residents of such treatment programs are eligible for Food Stamps, so long as the programs are operating in compliance with provisions of the Public Health Services Act.  Under the opinion, state agencies which administer Food Stamps must recognize such programs as "operating to further the purposes of Part B of Title XIX" of the act – however, it also specifies that such programs are not required to be licensed by states in order to be eligible.” [viii]

Rodney Hart’s thesis reported that in 2007, Teen Challenge-New England had 589 beds and revenue of about $7 million. The centers’ staff was 95% graduates of the program and there were 125 salaried staff. To learn more about the beliefs of Hart, as director of Teen Challenge-New England, see his Doctoral thesis. [ix]

Prison Fellowship works through Teen Challenge to provide housing and jobs for recently released prisoners. There are co-mingled funds between these programs.  In addition, Teen Challenge gets TANF federal food assistance, as do the re-entry prisoners, whose federal funds support their employment at Teen Challenge.  Re-entry prisoners’ paychecks are handed over to the Teen Challenge staff.   Some Teen Challenge facilities get up to 80% of their funding from federal sources like TANF. [i]  Thus, the amount of non-federal or state sources of money that supports a program like Teen Challenge's Prison Fellowship aftercare program or IFI is difficult to compute accurately due to the lack of accounting procedures to identify and properly source funds. [ii] [iii] [iv] [v] [vi]

The Teen Challenge food stamp fraud, the Frank Vennes Ponzi scheme, and affinity fraud of Southwestern Indian Foundation demonstrate that criminal corruption can co-exist inside charity or religious non-profits.  Don Stewart Association (DSA), a Phoenix-based televangelism ministry, and its affiliated 22 charities (including Southwest Indian Foundation)[vii] were accused of controversial transactions with supplies that helped inflate reported financials.  The DSA-affiliated charities transferred ownership of goods to other groups, including $80 million of goods that the charities never physically handled. [viii]

The true level of criminal conduct is not well documented because of lack of inspection and regulation of these facilities including lack of oversight and transparency. 

In concert with diminished regulation over programs, the social safety net is vulnerable to exploitation.   Providing the safety net is a core public function which should remain responsive to democratic principles and accountable to elected officials. Although the government can contract out services, it cannot contract out the function of governing.

This privatization of welfare services leads to lack of adequate oversight in many jurisdictions when the organization that obtains the government grant subcontracts services to others, including private businesses. Thus, for-profit companies can be the entities that actually provide the in-field services. There is no provision for financial or service-quality oversight.  In theory, the contractors should police themselves and their subcontractors, but there is little profit incentive to do proper oversight.  

President George W. Bush’s Faith-based initiative intended to reduce the size of government, but not necessarily the amount spent.  His applied method shifted the responsibility for delivery of numerous social services from government agencies to newly-recognized, Faith-based organizations.  Privatization of welfare by delegation to contractors and subcontractors for service provision raises due process and accountability issues. Welfare programs involve provision of adequate food, adequate clothing, adequate shelter, and minimal preventive public health care.  Although the government has been viewed as the most obvious provider of these programs, faith-based programs have also frequently provided services to those in need. [i]  But the government, which is elected and accountable to the citizenry, still accepts responsibility and accountability to see that social justice prevails and a decent chance at a reasonably healthy and active life can be provided for all citizens.

In 1997, the Texas Supreme Court [ii] developed a test to evaluate the efficacy of delegation to private parties.  These guidelines are used to frame decisions about the scope of authority, accountability to the public and to federal authorities.  They identify the requisite expertise that qualifies a private entity to be a contractor. 

There is concern that private entities which contract to provide welfare services are not governed by constitutional constraints.  In other words, if a private contract provider of social services commits a wrongful action, the wronged person cannot invoke constitutional protections. 

The legal doctrine that defines “State Action” determines that a person who is a government actor and commits a wrongful act is subject to constitutional constraints.  State government and federal employees are clearly government actors, but private entities usually are not.  With government privatization contracts, authorization is transferred to private entities, but not “state actor” obligations.  Liability for actions is effectively diminished.  Privatization of contracts for welfare services permits autonomy without supervision or legal accountability.  Although there may be statutes in state or federal law that give the wronged person the opportunity to receive notice and obtain a hearing, these laws are generally not enforceable.  The courts have held that, unless there is a specific provision for enforcement, there will be no enforcement of these procedural rights.[iii]  The wronged person can sue under the third-party beneficiary principle - to compel compliance with the terms of the contract between the government and the private entity, but this is rarely successful.[iv] 

Contracts are often drawn up with the simple insertion of a provision in the contract that bars third-part lawsuits. Social service recipients are largely at the mercy of the political process to grant legal protection entitlements and due process rights.  They are also at the mercy of contracted parties to define and/or grant them contractual rights. 

Despite these constitutional and due process concerns, an increased number of government services are contracted out to private providers, which leaves clients with little or no recourse if their constitutional rights are violated.  Privatization may, in reality, simply replace a government bureaucracy with a private monopoly. [v]  Most persons who oppose privatization are concerned about the negative outcomes it makes very possible.[vi] 

There is a human dimension to quality social services that is difficult to protect in an unregulated contractual arrangement. To relegate sensitive decisions to private organizations and companies that use market-based models is potentially a risk that is under-appreciated for its implications. Critical decisions that affect our society’s most vulnerable citizens can become based on short-term private incentives rather than long-term public interests.[vii] [viii]  Government authority may be unable to scrutinize the work of private entities adequately because of budgetary restrictions or unfamiliarity with contract management.  The lack of oversight could mean that the public is not assured that tax dollars awarded to government contractors will yield a privatized service that performs adequately. 

The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 [ix] repealed Aid to Families with Dependent Children (AFDC), the federal cash assistance program, and replaced it with Temporary Assistance for Needy Families (TANF), a cash assistance program primarily operated by the individual states.  Prior to PRWORA, determination of which applicants qualified for federal benefits was performed by a public agency staff in civil service. (Title I, Section 104)  Under the new 1996 law,[x] however, TANF eligibility in Florida and Texas was contracted out to private organizations which were not directly accountable to public authority.

Privatization can be undermined by corruption if lucrative contracts are awarded to political allies, relatives or friends of public officials.  Many of these contractors are not qualified for the work or may cut corners to expand profits, especially when oversight is limited.  Contractors have been found to commit fraudulent and illegal practices, including:

• bid-rigging (arranges bids to be submitted by selected firms to limit real competition);

• low-ball bids (sets bids artificially low to win contracts, then subsequently raises fees excessively through tactics such as change orders);

• over-billing (charge too much, or charge for work not done).

These practices are difficult to prove, to monitor for and to investigate.[xi]

Texas and Florida privatized functions to qualify clients for public benefits.  They closed public offices and set up call centers that use 2-1-1 information lines.  Staff employed by private contractors took initial client applications by telephone and if eligible, sent them to a public agency for final certification.  Private contractors employed by corporations determined whether an application was submitted to a public agency. Access to benefits under this system can be manipulated to maximize profit or can be awarded in a biased way.  The privatization of welfare eligibility determination, including food stamp and Medicaid coverage, represents a fundamental shift in delivery of social support to low-income populations. Large, for-profit corporations may have strong financial incentives to either turn away recipients or provide them with inadequate services.  Freedom of information and open records acts do not apply to private contractors.  This makes it difficult to determine how public funds were spent.[xii]

The use of subcontractors or outsourcing has often been used to abdicate social and moral responsibility.  There are significant legal, political and economic advantages to the perpetrator of human rights abuses, of using subcontractors, because it ultimately helps obscure the relationship between the perpetrator and the actual act.  It is a politically valuable device, because even if abuses are exposed, it will frequently look as if someone else (the contractor) was responsible.  This ultimately makes it difficult to hold a violator legally accountable and to be able to apply appropriate sanctions.  Thus the very effective human rights tactic of public shaming, in these circumstances, often becomes ineffective.  Outsourcing to contractors permits the perpetrators to ignore the societal norms and to conceal the perpetrators breach of those norms.  In addition, it legally protects perpetrators from both legal prosecution and embarrassment.  Subcontracting to corporations providing services such as prisons, healthcare and the military are particularly problematic, as in these settings there is reduced transparency to the public and less scrutiny by law enforcement.  Transnational corporations have enormous political and financial influence and power.  Health maintenance organizations and prisons use cost cutting methods which include using insufficiently trained, underpaid and over worked employees.  Rapid employee training and high turnover can lead to inadequate services in residential treatment centers, prisons, and other facilities.  When operated as a for profit business, cost reductions can lead to inadequate care, lack of adequate programming and abuse.  Outsourcing allows the perpetrator to not just abdicate responsibility but also assists the aggressor in maintaining a respectable public persona in the public eye. This often amounts to abuse of state-sanctioned power and authority.  Often outsourcing is presented to the public as necessary to cut costs. The use of subcontractors makes it more difficult to determine who is responsible for abuses and these cases are very complex.

A major proposal to “privatize” welfare administration emerged in Texas.  The state developed a plan for administration by a private contractor of an integrated state eligibility system for TANF, Medicaid and food stamps. However, in May, 1997, the Clinton Administration held that law  required eligibility for Medicaid and food stamps to be determined by a public official. 

In July and October 2000, two court suits were filed challenging the constitutionality of TANF charitable choice programs. One suit charged that a job training and placement program for TANF recipients funded by the Texas Department of Human Services and operated by the Jobs  Partnership of Washington County was “permeated” by Protestant evangelical Christianity in violation of both the state and federal constitution (American Jewish Congress and Texas Civil Rights Project v. Bost, filed July 24, 2000, but dismissed in February 2001 as moot after Texas discontinued the program). However, a remaining issue is yet to be decided — whether the training program should be required to return the funds it received.

The second suit, (Freedom from Religion Foundation, Inc. vs. McCallum, filed October 12, 2000) charged that a job placement and support services program for drug addicts in Milwaukee,  Wisconsin, violated the state and federal constitutions by giving welfare-to-work funds directly to a “pervasively sectarian” organization [Faith Works] and using the funds to indoctrinate clients in the Christian faith A federal judge on January 8, 2002 ordered Wisconsin to cease this direct funding as unconstitutional, but she said her ruling did not deal with constitutionality of the 1996 charitable choice law, which does not authorize direct funding of religious activities. Later, on July 26, 2002, the judge ruled on a second issue in the Faith Works case. She found a contract between Faith Works and the Wisconsin Department of Corrections to be constitutional because the religious  organization received public funds only when offenders chose to receive treatment there.

CRS Report for Congress, Order Code RS20712, Updated September 30, 2003
Charitable Choice, Faith-Based Initiatives, and TANF
Vee Burke of the  Domestic Social Policy Division

See Also the Congressional Research Service, Report RS21713
Social Service Provisions in the CARE Act and the Charitable Giving Act
Vee Burke, Domestic Social Policy Division, Updated January 20, 2004

Additional Information in The Compassion Capital Fund: Brief Facts and Current Developments
Joe Richardson, Domestic Social Policy Division, Order Code RS21844,  Updated February 28, 2005