Detecting Food Stamp Fraud

[ The number of Americans on food stamps has been trending up for years, in August 2012 it was 15% of Americans, 47,102,780 people. The Supplemental Nutrition Assistance Program (SNAP), has quadrupled in cost since 2001, and doubled in cost since President Obama took office in 2008. You can find out how many are today at SNAP (Supplemental Nutrition Assistance Program), and total population at Current USA and World Populations.

Food stamps are important because we’re only 9 meals away from a revolution.  For as long as the government can keep feeding people, the worst of social unrest, looting, rioting, mass migrations, and civil wars can be held off.  

Since the carrying capacity of the U.S.A without fossil fuels is about 100 million people (the population in 1920 before fossil fuels tripled carrying capacity), quite a few more of us will be on food stamps over the next few decades.

Below are excerpts from 5 different government documents on the SNAP program (formerly the food stamp program) about getting rid of fraud.  It turns out that there is very little fraud to get rid of, and as Stacy Dean points out in her testimony “In comparison, the Internal Revenue Service (IRS) estimates an average tax noncompliance rate of 18.3% for tax years 2008 through 2010. This represents a $458 billion loss to the federal government in one year. Under-reporting of business income alone cost the federal government an average of $125 billion per year between 2008 and 2010, and non-farm sole proprietors under-report their income by 63%.  Yet another case of injustice where the rich steal billions while a very, very small number of poor make off with a few illegal pennies.

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation”, 2015, Springer]

Statement of Kevin W. Concannon, Under Secretary for the Food, Nutrition and Consumer Services Before the House Subcommittees on Government Operations and Interior June 9, 2016

Kevin W. Concannon: The program currently provides food assistance, nutrition education and work support services to 44.3 million low-income individuals according to the most recent month of data. In Fiscal Year (FY) 2014, 64% percent of SNAP recipients were children, seniors, and those with disabilities and 42% of SNAP participants lived in a household with a working adult. In other words, the vast majority of recipients are people who already work or, because of age or disability, are not expected to work.

In contrast to commonly heard rhetoric, SNAP does have work requirements. In general, those who are able to work must register to do so, they must accept a job if offered, and they may not voluntarily quit or reduce work hours in order to become eligible for or continue receiving SNAP. This requirement is not waivable. Those who violate the work requirements face sanctions and may be permanently disqualified from SNAP. In FY 2015, 13.6 million SNAP recipients were registered for work. SNAP’s Employment and Training (E&T) program helps participants prepare for and secure good paying jobs, serving about 600,000 SNAP participants in FY 2014 and more than 1 million participants in FY 2015. USDA continues to expand its capacity to administer the SNAP E&T program nationally and work with States to strengthen their programs to help more SNAP participants gain skills and find work. FNS recently established the Office of Employment and Training to better target E&T resources to the most effective strategies.

During economic downturns, every $1 issued in SNAP benefits generates up to $1.80 in economic activity. Every time a family or individual uses SNAP benefits to put food on the table, it benefits the store and the employees where the purchase was made, the truck driver who delivered the food, the warehouses that stored it, the plant that processed it, and the farmer who produced the food. In short, SNAP strengthens individuals, their families, and their communities.

SNAP also operates with efficiency. Almost 95% of Federal SNAP spending goes directly to families to buy food. Most of the rest goes toward the Federal share of State administrative costs. Only a small portion goes to Federal administration, including oversight of State operations and monitoring of retailers that accept SNAP. Relative to other federal means-tested programs, SNAP spends far less on program administration.

On the Federal side, we establish rules and regulations, provide monitoring and oversight of State administration of the program, pay the full cost of SNAP benefits ($69.7 billion for FY 2015),

USDA takes the lead on the authorization, monitoring and oversight of stores that redeem SNAP benefits—over 260,000 stores around the country.

Punishments can include permanent disqualification and even prosecution.

According to the latest data available, in FY 2015 when more than 45.7 million people participated in the program, States conducted approximately 723,000 investigations resulting in over 46,500 disqualifications for recipient fraud and collected almost $86 million in fraud claims from households. The FNS has succeeded in reducing trafficking from about 4% to 1.3% over the last 20 years. While the trafficking rate is low, and 98.7% of the benefits are used properly, we continue to focus on this vital area because, when almost $70 billion (in FY 2015) in taxpayer supported benefits are involved, continuous attention, energy and diligence is required.

Statement of Mike Carroll Secretary, Florida Department of Children and Families “SNAP: Examining Efforts to Combat Fraud and Improve Program Integrity” Committee on Oversight and Government Reform Subcommittees for Government Operations and The Interior June 9, 2016

I am proud of what Florida has accomplished, and I have a unique and firsthand perspective on it. I started with the Florida Department of Children and Families more than 26 years ago helping people with their eligibility applications. Back then, applications were still on paper, and filled out with a pencil. On the days after it rained, lines would wrap around the building. Applicants had to come in sometimes multiple times to provide interviews and ensure their applications were submitted correctly. It was, of course, inefficient for everyone involved, but it was the best we could do at the time. Modernization Today, Florida is a leader in the modernization of our social services system, and virtually every state in the nation has come to Florida to study our model.

Our efforts have led to a nearly 100 percent accuracy rate on applications, with 93 percent being submitted online, allowing us to reduce our eligibility staff from 7,000 to 4,000. Over the years, our cost per eligibility transaction has dropped from $30 to $7. Our experience in Florida is a testament to how government can run an operation that is cost-effective, efficient and optimizes access to services in a simplified way for customers.

However, we have a new fight on our hands with a growing epidemic of identity theft and trafficking. We are not talking about “mom and pop” storefront operations or cottage industries. We are talking about major criminal enterprises with ties to other serious and dangerous criminal activities including drug sales, prostitution and human trafficking.

In Florida, we have implemented effective front-end detection systems and common-sense legislation that addresses obvious fraud and abuse at the roots. We have banned EBT card transactions at all adult entertainment and gambling venues and in the purchase of alcohol, created a fraud reward program, enhanced criminal penalties for fraud, and revised the definition of EBT trafficking in Florida law to include swapping food benefits for weapons or controlled substances. In addition, our Office of Public Benefits Integrity last year conducted more than 23,000 investigations resulting in more than $27.6 million in cost avoidance.

Florida was the first state in the nation to partner with the Food and Nutrition Service in the battle to combat ID theft.  The current burden of proof for recipient fraud is “clear and convincing,” which is a higher burden of proof than for retailer fraud. We should reduce the burden of proof for recipient fraud to “preponderance of evidence.” Right now it is easier to arrest a recipient than to disqualify them from the SNAP program. When it comes to retailer fraud, we need a bigger army and more cohesive approach. 1. The U.S. Department of Agriculture’s Office of Inspector General has sole authority to investigate retailer fraud, yet has 1/10th of the resources in Florida as the Health and Human Services’ Office of Inspector General. 2. FNS needs to immediately suspend a SNAP Authorized Retailer upon criminal arrest. 3. We need stronger federal policies to require repayment from retailers. Currently, retailers rarely are required to repay trafficked amounts in administrative sanctions. We need to send a strong message that fraud will not be tolerated.

Opa Locka The largest food stamp trafficking bust in the federal program’s history occurred just last month at a flea market in South Florida. It was great work, but it also demonstrates how much more work we need to do. Operation Stampede so far has resulted in the arrests of 22 owners of SNAP authorized retailers and uncovered – just for the past year – $17 million in fraud.

Officers found thousands of dollars in cash and guns, storefronts that were actually drug sale operations, and human trafficking and prostitution. Also uncovered were empty storage rooms, unsanitary conditions, rotten produce, empty display boxes, and even plastic fruit and vegetables on display. One store owner was an illegal alien who used someone else’s Social Security Number to get FNS authorization. Another owner was here on a work permit. And yet another failed to disclose they were a convicted felon.

Since 2011, there has been nearly $89 million in SNAP transactions at this location. We now have to look at more than 41,000 authorized SNAP recipients just since July – and that number is growing – to find cases that might rise to the level of “clear and convincing evidence.” And, the trafficking has not stopped. Today, there are at least eight authorized retailers with transactions consistent with the pattern of fraudulent activity for which this location is now well known. In the first two weeks following the raid, these stores had over $163,000 in SNAP redemptions involving over 1,100 recipients.

 

United States Government Accountability Office Testimony Before the Subcommittees on Government Operations and the Interior, Committee on Oversight and Government Reform, House of Representatives.  SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM Enhanced Detection Tools and Reporting to Combat Recipient Fraud Are in Development Statement of Kay E. Brown, Director Education, Workforce, and Income Security Issues GAO-16-719T

SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM Enhanced Detection Tools and Reporting to Combat Recipient Fraud Are in Development Why GAO Did This Study In fiscal year 2015, SNAP, the nation’s largest nutrition support program, provided about 46 million people with $70 billion in benefits. Fraud has been a long-standing concern in the program,

What GAO Found.  In 2014, GAO found that selected states employed a range of tools to detect potential Supplemental Nutrition Assistance Program (SNAP) recipient fraud, but they faced challenges, including inadequate staffing levels, that limited the effectiveness of their actions, and the Food and Nutrition Service (FNS) lacked data about the states’ efforts. The 11 states GAO studied reported using detection tools required or recommended by FNS, among others, to combat SNAP recipient fraud. However, 8 of these states reported difficulties in conducting fraud investigations due to reduced or stagnant staff levels and funding despite program growth, and some state officials suggested changing the financial incentives structure to help support the costs of investigating potential fraud.

GAO found FNS’s recommended website monitoring tools to be less effective than manual searches and impractical for detecting internet posts indicative of SNAP trafficking—the misuse of program benefits to obtain non-food items. Further, although FNS required states to monitor SNAP households that request at least four replaced electronic benefit transfer (EBT) cards in a year, GAO found that multiple EBT card requests in the same benefit period may not indicate increased risk of trafficking. GAO found that, by adjusting the analysis to focus on SNAP households that both requested cards in at least four different monthly benefit periods and engaged in suspicious transactions, states could possibly detect potential fraud more accurately. For example, in 2014, GAO found that 4,935 SNAP households in Michigan received at least 4 replaced EBT cards in a year. However, out of these householders, GAO identified 39 households that both received multiple replacement cards in at least four different monthly benefit periods and engaged in suspicious transactions indicative of SNAP trafficking, resulting in 10 or more trafficking flags. GAO reported that this type of targeted analysis may help provide states with a starting point for identifying higher priority households for further review, which can be particularly helpful given that states had reported having limited resources for conducting investigations.

In fiscal year 2015, the federal government provided more than $70 billion in benefits to help about 46 million people purchase food through SNAP. On average, recipient households received about $258 a month in assistance in that year.

FNS program officials have had long-standing concerns that some recipients can falsify information to receive benefits, or misuse their benefits to solicit or obtain non-food goods, services and cash—a practice known as trafficking.

The goal of SNAP, formerly known as the federal Food Stamp Program, is to help low-income individuals and households obtain a more nutritious diet and help alleviate their hunger. It does so by supplementing their income with benefits to purchase allowable food items. The federal government pays the full cost of the benefits and shares the responsibility and costs of administering the program with the states. Specifically, FNS is responsible for promulgating program regulations and ensuring that states comply with these regulations by issuing guidance and monitoring their state activity. FNS headquarters officials are assisted in this oversight work by federal officials in seven regional offices. FNS also determines which retailers are eligible to accept SNAP benefits in exchange for food and investigates and resolves cases of retailer fraud. State officials, on the other hand, are responsible for determining the eligibility of individuals and households, calculating the amount of their monthly benefits and issuing such benefits on an electronic benefit transfer (EBT) card in accordance with program rules.

Trafficking is an intentional program violation that includes acts of fraud, such as making false or misleading statements in order to obtain benefits and trafficking (i.e., using benefits in unallowable ways, such as by exchanging benefits for cash or non-food goods and services or attempting to do so).8 For example, recipients can traffic benefits by selling EBT cards to another person, exchanging the EBT card and the corresponding Personal Identification Number (PIN)9 for cash or non-food goods or services (e.g., rent or transportation). These sales can occur in person or by posting offers on social media and e-commerce sites. Recipients can then contact state agencies to report the sold EBT cards as lost or stolen and receive new cards which can be used for future trafficking transactions, for example, when the benefits are replenished the next month.

 

SNAP: Combating Fraud and Improving Program Integrity Without Weakening Success Testimony of Stacy Dean, Vice President for Food Assistance Policy, Center on Budget and Policy

On average, SNAP recipients receive about $1.39 per person per meal in food benefits. One in seven Americans is participating in SNAP — a figure that speaks both to the extensive need across our country and to SNAP’s important role in addressing it.

Policymakers created SNAP to help low-income families and individuals purchase an adequate diet. It does an admirable job of providing poor households with basic nutritional support and has largely eliminated severe hunger and malnutrition in the United States.

When the program was first established, hunger and malnutrition were much more serious problems in this country than they are today. A team of Field Foundation-sponsored doctors who examined hunger and malnutrition among poor children in the South, Appalachia, and other very poor areas in 1967 (before the Food Stamp Program, as SNAP was then named, was widespread in these areas) and again in the late 1970s (after the program had been instituted nationwide) found marked reductions over this ten-year period in serious nutrition-related problems among children. The doctors gave primary credit for this reduction to the Food Stamp Program. Findings such as this led then-Senator Robert Dole to describe the Food Stamp Program as the most important advance in the nation’s social programs since the creation of Social Security.

During the recession, as the official poverty rate rose from 12.5 percent to 15.1 percent, SNAP enrollment rose to respond to this increase. Poverty stayed high through 2014 (the most recent year for which data are available), at 14.8 percent,

Participation rates among eligible people grew from 69 percent in 2007 to 83 percent in 2014 (the most recent year available). Several factors likely contributed to these rising rates. The widespread and prolonged effects of the recession, particularly the record long-term unemployment, may have made it more difficult for family members and communities to help people struggling to make ends meet.

Long-term unemployment hit record highs in the recession and remains unusually high; in May 2016, about a quarter (25.1 percent) of the nation’s 7.4 million unemployed workers had been looking for work for 27 weeks or longer. That’s much higher than it’s ever been (in data back to 1948) when overall unemployment has been so low.

The percentage of SNAP benefit dollars issued to ineligible households or to eligible households in excessive amounts fell for seven consecutive years and stayed low in 2014 at 2.96 percent, USDA data show. The underpayment error rate also stayed low at 0.69 percent. The combined payment error rate — that is, the sum of the overpayment and underpayment error rates — was 3.66 percent, low by historical standards.5 Less than 1 percent of SNAP benefits go to households that are ineligible. (See Figure 7.) If one subtracts underpayments (which reduce federal costs) from overpayments, the net loss to the government in FY2014 from errors was 2.27 percent of benefits.

In comparison, the Internal Revenue Service (IRS) estimates an average tax noncompliance rate of 18.3 percent for tax years 2008 through 2010 (the most recently studied years). This represents a $458 billion loss to the federal government in one year. Underreporting of business income alone cost the federal government an average of $125 billion per year between 2008 and 2010, and nonfarm sole proprietors underreport their income by 63 percent.

Internal Revenue Service, “Tax Gap for Tax Year 2008-2010, Overview,” April 28, 2016, https://www.irs.gov/PUP/newsroom/tax%20gap%20estimates%20for%202008%20through%202010.pdf

Low-income earners often experience sharp fluctuations in their monthly income, making household income difficult to predict accurately for SNAP benefit calculations. Some states instituted administrative practices designed to reduce errors that had the unintended effect of making it harder for many working-poor parents to participate, largely by requiring them to take too much time off from work for repeated visits to SNAP offices at frequent intervals, such as every 90 days, to reapply for benefits.

 

Statement of Mary Mayhew Commissioner, Maine Department of Health and Human Services SNAP: Examining Efforts to Combat Fraud and Improve Program Integrity The Government Oversight Committee Subcommittees for Government Operations and The Interior June 9, 2016

When Governor LePage took office in January 2011, Maine had a record 250,000 people on SNAP with annual expenditures on benefits of $330 million out of a population of 1.3 million people. To strengthen the program integrity of SNAP in the

In a recent case in Maine a 33 year old man was arrested in a drug raid that found crack cocaine, guns, cash and 5 EBT cards. The EBT cards were all in the name of someone other than drug dealer arrested. One of the cards issued had been re-issued to the recipient 47 times in a span of a few years. In another similar case last year in Maine a drug felon was accepting SNAP-loaded EBT cards as payment for the illicit drug Fentanyl, which is 50 times more potent than heroin and responsible for thousands of overdose deaths.1 We know there is a very unfortunate and direct connection between benefits trafficking and the drug-trafficking world, but federal SNAP regulations often create barriers to pursuing cases against these traffickers. FNS rules state categorically that if someone has the EBT card and the PIN, FNS considers them an authorized user of the EBT card. Law enforcement officials give us examples of persons arrested with drugs and EBT cards who tell them they are going grocery shopping for the person whose name is on the card. Because of the regulation, there is little we can do to stop that practice. The regulation should be changed to require authorized users to register as such with the welfare agency overseeing the program and should be limited to no more than three per case at any given time.2 This is similar to how the Woman, Infants and Children (WIC) program operates currently in Maine, which is also administered by Maine DHHS, and is permitted under federal regulation.

Another key strategy in Maine’s mission to deter welfare fraud has been to place photos on our EBT cards. This is a common sense measure that provides protection against trafficking or theft. When someone’s picture is on their card, it only follows that they are less likely to sell it for cash or trade it for drugs. We have seen the results – while EBT cards still turn up in drug-related arrests too often, we don’t see EBT cards with photos turning up in those raids.

In Maine, we have found that out of state usage of our EBT cards is a major warning sign of fraudulent activity. In 2011, Maine had more than $15 million in welfare benefits spent outside of Maine, including significant amounts in places like the Bronx, Brooklyn, Philadelphia and Worcester, Massachusetts.4 Our Law Enforcement partners informed us these are known drug trafficking cities, with heroin and other drugs flowing up the I-95 corridor to Maine. Our data analytics software alerts us when someone has used a Maine EBT card exclusively in other states for two consecutive months. We then follow up with the client to ensure there is no inappropriate use and that they still reside in Maine. By working with this EBT data extensively, we cracked down on inappropriate out of state welfare use. As a result, out of state usage of Maine EBT cards has been reduced to $8 million a year.

Unfortunately, the data still shows regular usage of SNAP benefits in places all over the country, like Brooklyn, New York, California and the Walt Disney World area of Florida. Federal regulations don’t currently allow states to restrict SNAP benefits to certain geographic areas. We don’t believe it is right for Maine SNAP benefits to be spent by someone living outside of Maine and we see the connection between interstate usage of EBT and fraud. We believe there should be some reasonable restrictions on the mobility of EBT cards.5

Retailer Fraud and Non-compliance Often when SNAP benefits cards are trafficked it is in conjunction with a SNAP approved vendor who is helping turn the card to cash that can be used to purchase things other than food. In some cases, the offending stores are small “convenience” type stores. There are many of these stores participating in the SNAP program that may not be meeting the goals of the “ nutrition” program based on their real food inventories. For example, in one Maine case of suspected retailer fraud this year, a small store with just one cash register had SNAP reimbursements totaling nearly that of a large local Hannaford chain grocery store with 18 cash registers. We were alerted to the potential fraud because our data tracking found numerous instances of $300 and above purchases in this small store that had no grocery carts to carry out that amount of produce. The same store is suspected of trading cash for EBT cards and helping SNAP participants commit tax fraud.

Retailer Oversight In the case that a store is committing fraud or is in non-compliance with food standards, states do not have the authority to remove them from SNAP participation. We rely on the federal government for that function. The investigator we have in our region does a great job, but we know that USDA is resource constrained in our region in terms of investigating and disqualifying offending stores. Only 8 stores in Maine have been sanctioned since 2011.

Welfare enrollment, particularly in SNAP, has had explosive growth since 2000. SNAP has grown from 17 million to 45 million people.10

Welfare fraud has followed the trend and in Maine we’ve seen a disturbing and strong connection to the drug problem. We can’t sit idly by as taxpayer funded programs help fuel the drug trade through trafficking or divert scarce resources away from hungry children and needy families. We have an obligation to deter fraud, protect benefits for the truly needy and secure taxpayer’s peace of mind that their money isn’t being wasted.

STATEMENT SECRETARIES’ INNOVATION GROUP

One out of every seven Americans currently receives Food Stamps. The Supplemental Nutrition Assistance Program (SNAP), which is known as Food Stamps, has quadrupled in cost since 2001, and has doubled in cost since President Obama took office in 2008. States face an uphill battle on reforming this program.

FOOD STAMP PROGRAM PROBLEMS AND RECOMMENDED SOLUTIONS 1) The “Nutrition” program allows the purchase of soda, candy and other harmful products PROBLEM: The Supplemental Nutrition Assistance Program is intended to subsidize nutrition for needy families. Instead it is fueling the Obesity problem in America. Too many recipients are utilizing their benefit to purchase items that are not only void of nutrition, they are damaging to their health. “More than one-third of adults and 17% of youth in the United States are obese,” according to the Journal of the American Medical Association.1 The Obesity epidemic, driven in part by poor choices in Food Stamp purchasing, costs the U.S. and states billions of dollars. According to a Health Affairs study, the medical costs associated with Obesity are an estimated $147 billion in 2008.2 This massive spending certainly includes state’s Medicaid programs, which is a major cost driver in state and federal budgets.

 

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