Summary
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
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
Director:
Team:
Phone:
Kay E. Brown
Government Accountability Office: Education, Workforce, and Income Security
(202) 512-7003
Recommendations for Executive Action
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
Status: In process
Comments: FNS said it invested in an additional statistical analysis tool to increase its existing data analysis capabilities, planned to double the amount of on-line transaction data available for analysis to 12 months, and was developing a system to obtain daily instead of monthly transaction data. It also said it was researching individual behavior over time to identify patterns that exhibit fraud that may have otherwise have gone undetected. These actions will likely help to improve their existing monitoring system and over time may help FNS develop additional criteria to help identify the stores most likely to traffic and perform risk assessments.
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
Status: In process
Comments: FNS has not yet conducted the type of risk assessments recommended by GAO and therefore cannot target stores for early oversight.
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
Status: Implemented
Comments: GAO had recommended that FNS develop a strategy to increase penalties for trafficking and that if additional authority was needed, consider developing legislative proposals for program reauthorization in 2007. Section 4010 of the draft 2007 Farm Bill approved by the house contains a provision to raise civil money penalties from $10,000 to $100,000 and a provision to allow 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 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
Status: In process
Comments: FNS said their field offices share this information with states unless the states have asked not to receive it. States that do not wish to receive this information generally cite lack of resources as the reason.
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
Status: In process
Comments: FNS said it reconsidered asking Congress to increase the incentive rewards for states who pursue individuals who traffic food stamps but decided not to make the request at this time. They said Congress acted relatively recently to reduce the amount of recovered food stamp benefits states could keep when pursuing individuals who traffic. Further, given the difficulty states have in successfully prosecuting trafficking cases, they could not give Congress their assurance that the new incentives would result in a significant increase in convictions.
