“Food stamp” fraud has high cost

Vanessa Miller, CR Gazette –

The federal government distributes enough food aid every year to help feed more than 46 million low-income Americans. But a sliver of that “food stamps” pie doesn’t make it to the table.

Some food aid recipients and businesses misuse benefits distributed through the government’s Supplemental Nutrition Assistance Program, formerly known as food stamps, by purchasing things other than food — such as alcohol or cigarettes — and by trafficking the benefits.

“We don’t like it when the program is misused,” said Kevin Concannon, undersecretary for the U.S. Department of Agriculture and former director of the Iowa Department of Human Services. “So we have about 100 people spread across the country whose job it is to track purchases.”

Since the U.S. Department of Agriculture swapped its paper food coupons for electronic benefit transfer cards, food aid fraud has dropped from about 4 percent nationwide to about 1 percent, Concannon said. But that’s not good enough, he added.

“It’s one percent of a much larger number now,” Concannon said.

How big is that number? It cost $80 billion to assist 46 million people in 2011 through the government’s food assistance program. That would put the estimated cost of fraud this past year at about $800 million.

In an effort to crack down on food aid abuse in the United States, the Agriculture Department this past week rolled out new, tougher sanctions available for retailers who misuse the program. It also announced new requirements that states take specific actions to catch fraud and abuse on the front end and make sure ineligible individuals can’t access the program.

“We are upping the stakes on the penalties, so if you’re going to risk this, you are risking something significant,” Concannon said. “And the vast majority of stores aren’t going to risk it.”

Businesses and individuals who do “risk it” and get caught can now face criminal charges, fines and disqualification — before last week’s announcement, businesses could not be both fined and barred from the program. Disqualifications can be permanent or temporary, lasting six months or longer.

In Iowa in the past 10 years, 30 businesses have been temporarily or permanently disqualified from the program after committing some type of abuse against the food aid program. Temporary disqualifications are typically for less serious offenses, such as letting someone buy something other than food.

Permanent disqualifications often are handed down in more serious trafficking cases.

Regarding individual violations, the USDA completed about 785,000 investigations and disqualified more than 44,000 people nationwide in the 2010 budget year, the most recent data available.

In Iowa that year, officials completed 2,953 investigations and disqualified 91 people.

‘BLACKLISTED’

Of the 30 “blacklisted” businesses in Iowa, 12 have been permanently barred from the program and 18 were temporarily punished. Most recently, Nanas Oriental Grocery Store in Waterloo was permanently disqualified in April, and a small African and Mediterranean food store in Coralville called Almadina was temporarily disqualified in June.

Owners of Nanas and Almadina could not be reached for comment.

Most of the businesses that make the blacklist are small, family-run grocery or convenience stores. Large chain stores very rarely commit violations. And Concannon said those larger stores process more than 80 percent of the food aid dollars.

Ruth Comer, a spokeswoman for Hy-Vee, said the grocer takes compliance with the food aid program seriously, but the electronic card system has made enforcement of the rules much simpler.

“When items are scanned and an order is totaled, all the items that are eligible are separated out from all those that are not,” Comer said. “It takes the guess work and the variances out of the system.”

Meaning, according to Comer, cashiers don’t have to endure much training about what is and what is not allowed to be purchased with food stamps and how to make change with the coupons.

“It takes a lot of the potential for mistakes and fraud out of the system because there is no counting of paper stamps,” Comer said. “In the past, with the paper stamps, change had to be given in that same form, and it was much more cumbersome, and there was more opportunity for human error.”

This list of sanctioned businesses came from the U.S. Department of Agriculture

‘I DID NOT REALIZE’

Despite efforts to eliminate opportunities for would-be food aid offenders, some people still manage to skirt the system — at least for a while. Simple violations include purchases of things not allowed under the food stamp program, including non-food items such as diapers, pet food, alcohol and cigarettes.

More serious violations involve food aid trafficking in which a person might sell his or her card for cash. Individuals and stores can be caught for such violations if, for example, a business owner buys a card for less than it’s worth.

What’s the payoff? Such a transaction allows the store owner to make sure that all the card’s dollars are spent at that business, and it sends the individual away with cash – albeit less than what the card was worth – that he or she can spend on anything.

The individual then can request another card, claiming the original was lost. And, officials say, some people run the scam over and over again.

That, in part, is how the government has been able to catch offenders. A data-mining system tracks millions of transactions a day, scanning for suspicion activity – such as 50 redemptions in one day at a smaller store, or consistent use of a card hours away from where the recipient lives.

Before businesses are sanctioned, they are put on a “watch list,” allowing suspicious behavior to be monitored. There are currently about 40 businesses on the watch list in Iowa.

D&T Gas & Food, a small convenience store in Baldwin, is among the Iowa businesses with permanent bans from the federal food assistance program. Owner Dan Singh said his business’ violation was the result of a misunderstanding of how the program works.

He told The Gazette that his violation was for allowing food stamp recipients to swipe their electronic benefit cards once at the beginning of the month for the total amount, and then come in during the month to take items without swiping the card again.

“Every time you have to swipe it,” Singh said. “Being a new owner, I did not realize, and that was the only violation.”

Singh said he isn’t discouraged to be out of the program, noting that he brought in only about $30 a day in food assistance.

“I don’t need it,” he said. “I don’t want the headache for a couple thousand dollars a month. I don’t need all that nonsense.”

‘WE DON’T TOLERATE THAT’

Not only does abuse of the food assistance program misuse taxpayer dollars, but Undersecretary Concannon said it often means someone in a low-income household is being nutritionally shorted.

“We don’t tolerate that,” he said. “We don’t want it to happen. One percent is a good percentage number in terms of reducing fraud, but I’m not satisfied.”

Concannon sent letters to governors, human-services departments and grocers last year asking them to redouble efforts to pursue and prevent food aid fraud.

The tougher sanctions announced Thursday mean the USDA will not only be allowed to permanently disqualify an offending retailer from the food aid program, but it also will be allowed to fine the business.

Monetary penalties will be proportional to the amount of benefits the store was processing, according to Concannon.

The USDA also recently sent letters to officials at Craigslist, eBay, Facebook and Twitter asking for help preventing the illegal online sale or purchase of food aid benefits. And the government is helping states monitor recipients who have requested an “excessive” number of replacement cards, while also increasing the documentation required for “high-risk” stores applying to redeem food assistance benefits.

“The (food assistance) program cuts across all programs as being very important,” said Roger Munns, a spokesman for the Iowa Department of Human Services. “When people abuse it, it threatens other programs.”