Food Stamp Trafficking:

FNS Could Enhance Program Integrity by Better Targeting Stores Likely to Traffic and Increasing Penalties

GAO-07-53: Published: Oct 13, 2006. Publicly Released: Oct 13, 2006.

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Every year, food stamp recipients exchange hundreds of millions of dollars in benefits for cash instead of food with retailers across the country, a practice known as trafficking. From 2000 to 2005, the Food Stamp Program has grown from $15 billion to $29 billion in benefits. During this period of time, the U.S. Department of Agriculture's (USDA) Food and Nutrition Service (FNS) replaced paper food stamp coupons with electronic benefit transfer (EBT) cards that work much like a debit card at the grocery checkout counter. Given these program changes and continuing retailer fraud, GAO was asked to provide information on (1) what is known about the extent and nature of retailer food stamp trafficking, (2) the efforts of federal agencies to combat such trafficking, and (3) program vulnerabilities. To do this, GAO interviewed agency officials, visited 10 field offices, conducted case file reviews, and analyzed data from the FNS retailer database.

FNS's estimates suggest trafficking declined between 1995 and 2005 from 3.8 cents per dollar of benefits redeemed to 1.0 cent, resulting in an estimated $241 million in food stamps trafficked in 2005. The rate of trafficking in small grocery and convenience stores is 7.6 cents per dollar, significantly higher than the rate for large stores, where it is estimated to be 0.2 cents per dollar. In addition, the use of EBT cards has changed the way some benefits are trafficked, for example eliminating middlemen who used to collect and redeem large amounts of paper coupons from program participants willing to sell them. FNS has taken advantage of EBT data to improve its ability to detect and disqualify trafficking retailers, while law enforcement agencies have conducted a decreasing number of investigations. Cases using only EBT transaction data now account for more than half of trafficking disqualifications, supplementing traditional, but more time-consuming, undercover investigations. Other federal entities, such as the USDA's Inspector General and the U.S. Secret Service, have reduced the number of traffickers they pursue in recent years and focused their efforts on high-impact cases. This has resulted in fewer cases referred for federal prosecution and fewer federal convictions for retailer trafficking. Despite FNS progress, the program remains vulnerable because retailers can enter the program intending to traffic, often without fear of severe criminal penalties. FNS authorizes some stores with limited food supplies so that low-income participants in areas with few supermarkets have access to food, but may not inspect these stores again for 5 years unless there is some indication of a problem. Oversight of early operations is important because newly authorized retailers can quickly ramp up the amount of benefits they traffic. One location that FNS disqualified for trafficking redeemed almost $650,000 in 9 months. In addition, FNS has not conducted analyses to identify high risk areas and to target its limited compliance-monitoring resources. Furthermore, disqualification, FNS's most severe penalty, may not be a sufficient deterrent, and FNS must rely upon others for prosecution. Finally, states' failing to pursue trafficking recipients leaves a pool of recipients willing to traffic when a disqualified store reopens.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Food and Nutrition Service (FNS) said the agency encourages states to use all sources of available information for recipient integrity efforts. In a June 2011 letter to states, FNS encouraged states to review the information available from FNS.

    Recommendation: To promote state efforts to pursue recipients suspected of trafficking and thereby reduce the pool of recipient traffickers, the Secretary of Agriculture should direct FNS to ensure that FNS field offices report to states those recipients who are suspected of trafficking with disqualified retailers.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Implemented

    Comments: Section 4010 of the draft 2007 Farm Bill approved by the U.S. House of Representatives contains a provision to raise civil money penalties from $10,000 to $100,000 and a provision to allow the Food and Nutrition Service (FNS), in consultation with the USDA IG, to immediately suspend flagrant retailers from the program pending administrative action. The House report accompanying the bill states that FNS had requested the tougher penalties.

    Recommendation: To provide further deterrence for trafficking, the Secretary of Agriculture should direct FNS to develop a strategy to increase the penalties for trafficking, working with the Office of the Inspector General (OIG) as needed. If these penalties entail additional authority, consider developing legislative proposals for program reauthorization in 2007.

    Agency Affected: Department of Agriculture

  3. Status: Closed - Implemented

    Comments: The Food and Nutrition Service (FNS) increased the amount of data available to review and changed its monitoring of transaction data from reviewing monthly data to reviewing these data on a daily basis. FNS also implemented new technology to improve its ability to detect trafficking and disqualify retailers who traffic, which has contributed to more sophisticated analyses of Supplemental Nutrition Assistance Program (SNAP) transactions and categorization of stores based on risk. Specifically, in August 2009, FNS implemented a risk assessment tool that assigns each retailer a risk category of high, medium, or low, based on the likelihood that a retailer will commit program violations. Assessment criteria were developed as a result of a data mining project to identify common characteristics gleaned from ten years of compliance activity. Every SNAP authorized retailer is assessed a risk level that is re-evaluated daily. High risk retailers are prioritized by FNS's fraud detection system and are scrutinized by agency compliance staff. FNS' ability to review data daily combined with the risk assessments allows FNS to quickly monitor new stores that pose a higher risk.

    Recommendation: To help ensure that its limited compliance-monitoring resources are used efficiently, the Secretary of Agriculture should direct FNS to provide more targeted and early oversight of stores that meet these criteria, such as conducting early monitoring or follow-up inspections.

    Agency Affected: Department of Agriculture

  4. Status: Closed - Implemented

    Comments: The Food and Nutrition Service (FNS) has implemented new technology to improve its ability to detect trafficking and disqualify retailers who traffic, which has contributed to more sophisticated analyses of the Supplemental Nutrition Assistance Program (SNAP) (formerly known as Food Stamp Program) transactions and categorization of stores based on risk. Specifically, in August 2009, FNS implemented a risk assessment tool that assigns each retailer a risk category of high, medium, or low, based on the likelihood that a retailer will commit program violations. Assessment criteria were developed as a result of a data mining project to identify common characteristics gleaned from ten years of compliance activity. Every SNAP authorized retailer is assessed a risk level that is re-evaluated daily. High risk retailers are prioritized by FNS's fraud detection system. According to agency officials, SNAP's risk profile tool has allowed the agency to re-allocate resources towards retailers presenting the highest risk of non-compliance.

    Recommendation: To help ensure that its limited compliance-monitoring resources are used efficiently, the Secretary of Agriculture should direct FNS to develop additional criteria to help identify stores most likely to traffic and their locations; conduct risk assessments, using compliance and other data, to systematically identify stores and areas that meet these criteria; and allocate resources accordingly.

    Agency Affected: Department of Agriculture

  5. Status: Closed - Not Implemented

    Comments: Although additional financial incentives for states were not included in the Food, Energy, and Conservation Act of 2008, Food and Nutrition Service (FNS) reports continuing to work with states on addressing recipient trafficking. In June 2011, the Under Secretary sent a letter to the commissioners of all Supplemental Nutrition Assistance Program (SNAP) state agencies expressing concern about recipient fraud and highlighting technical resources and policy options available to assist states in this effort. FNS is planning to develop a more detailed assessment of current State anti-fraud activities and identify best practices and ways in which the agency can work collaboratively with the States to improve the effectiveness of these efforts. FNS will also be assessing the impact of federal policies, including claims retention and administrative match rates, on states ability and incentives to pursue participant fraud. The agency is taking action and making significant progress to implement this recommendation, however, several activities have not yet begun or been completed.

    Recommendation: To promote state efforts to pursue recipients suspected of trafficking and thereby reduce the pool of recipient traffickers, the Secretary of Agriculture should direct FNS to revisit the incentive structure to incorporate additional provisions to encourage states to investigate and take action against recipients who traffic.

    Agency Affected: Department of Agriculture

 

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