Food Stamp Fraud

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How much money do federal taxpayers lose to food stamp fraud each year? Nobody really knows. The government claims that trafficking in food stamps decreased to a steady 1 percent of expenditures in the past decade. But with record numbers of Americans utilizing a program that has exploded in cost, it’s hard to take that claim seriously.  

Physical food stamps have been replaced by electronic benefit cards. Food stamp trafficking occurs when recipients swipe their electronic benefits card, but instead of buying groceries, they receive a discounted amount of cash and the retailer pockets the difference. 

The U.S. Department of Agriculture’s Food and Nutrition Service (FNS) analyzes the electronic paper trail for signs of fraud. But as the New England Center for Investigative Reporting’s Beverly Ford reports, the FNS’s investigative manpower is tiny compared to the number of merchants who participate in the program: 
At a time when both food-stamp retailers and recipients are at their highest level since the program began in 1939, the total number of investigators employed by the Food and Nutrition Service to look into problem merchants stands at just over 40. All are assigned to the agency’s Retail Investigations Branch, which monitors the 193,753 merchants nationwide who participate in the program. 
The FNS says that the electronic paper trail has made investigative work more efficient. This may be true, but Ford points out that the government has made a limited effort to prosecute fraudsters:
Yet while digital tracking may have made it easier to do investigations, fewer are being done by the federal entities that are supposed to help investigators sniff out retail fraud in the food stamp system.
According to testimony before a House of Representatives subcommittee in July 2010, the Government Accounting Office found that both the Inspector General and the Secret Service, which also investigates the problem, currently focus only on “high impact investigations,” rather than the smaller merchants who account for most of the trafficking cases.
“As a result, retailers who traffic are less likely to face criminal penalties or prosecution,” the Government Accountability Office found.
The FNS says that its investigators are collaborating more with state and local authorities. However, because the federal government foots the bill for the food stamp programs, states have a lack of incentive to get sufficiently involved. Ford points to Massachusetts as an example:  
Since local authorities don’t investigate or prosecute retail food-stamp trafficking or fraud crimes, state officials have no figures on how widespread the problem is. And while federal officials digitally track food-stamp redemptions by stores, few trafficking cases are ever federally prosecuted in Massachusetts. Merchants found to have committed fraud are often suspended briefly from the Supplemental Nutrition Assistance Program, as food stamps are now known. Many are often back redeeming the benefits within a year. 
In fact, of the 3,014 stores that take food-stamp cards in Massachusetts, only 215 merchants were disqualified from the program in the last five years. By 2009, 90 of those same retailers were back on the list of authorized food-stamp merchants and had collectively racked up more than $7 million in food-stamp redemptions in that one year alone, according to records obtained from the U.S. Department of Agriculture, which oversees the $50 billion program. 
See this Cato essay for more on USDA food subsidies, including food stamps.