	Nature and Extent of Fraud, Waste, and Abuse

The two main areas of fraud, waste, and abuse involve (1) overpayment of food stamp benefits and (2) trafficking. Concerning the first area, overpayments occur when ineligible persons are provided food stamps and when eligible persons are provided more than they are entitled to receive. In 1996, for example, the states overpaid recipients an estimated $1.5 billion—or 6.92 percent—of the approximately $22 billion in food stamps issued. With respect to trafficking—the second main area of fraud, waste and abuse—program regulations specify that participants must use food stamps only to purchase food items from the retailers authorized by FCS to accept food stamps. Numerous retailers are caught each year accepting food stamps from recipients, giving them a discounted value of the stamps in cash (for example, 70 cents on the dollar), and then redeeming the stamps at full face value from the government. However, a 1995 FCS study estimated that up to $815 million, or about 4 percent of the food stamps issued, was exchanged for cash by authorized retailers during fiscal year 1993. Roles and Responsibilities of the Federal Agencies in Minimizing Fraud, Waste, and Abuse

The Food Stamp Program is administered by USDA’s FCS in partnership with the states. FCS provides nationwide criteria for determining who is eligible for assistance and the amount of benefits recipients are entitled to receive. The states are responsible for the day-to-day operation of the program, including meeting with applicants and determining their eligibility and benefit levels. Under the QC System, the states must review a sample of their household cases each year to determine the accuracy of the eligibility and benefit determinations made by state caseworkers and the extent of payment errors—both overpayments and underpayments. According to USDA’s data, overpayments in the Food Stamp Program have declined since 1993. With respect to trafficking, our 1995 report stated that FCS’ controls and procedures for authorizing and monitoring the retailers that participate in the Food Stamp Program did not deter or prevent retailers from trafficking in food stamps. Furthermore, FCS’ monitoring process was inadequate to detect authorized retailers that were violating program regulations. The OIG has also taken an active role in monitoring and reviewing EBT systems and developing the automated system to analyze EBT data to identify fraud in the Food Stamp Program. Observations on the Use of Electronic Benefits Transfer Systems

Food stamp benefits have historically been distributed in the form of printed coupons. Under such systems, recipients receive plastic debit cards to obtain their food stamps and pay for purchases through point-of-sale terminals installed at check-out counters in food stores. EBT systems reduce the likelihood of benefit theft. While EBT systems make a major contribution to reducing certain aspects of food stamp fraud, they will not eliminate all fraud.
Why GAO Did This Study

GAO discussed fraud, waste, and abuse in the Food Stamp Program, focusing on: (1) the nature and extent of the problem; (2) the roles and responsibilities of the major federal agencies involved in minimizing it; and (3) the potential of electronic benefits transfer (EBT), a system of benefit delivery that replaces the traditional food stamp coupons with a debit card, to reduce it.

What GAO Found

GAO noted that: (1) fraud, waste, and abuse in the Food Stamp program takes two primary forms: (a) overpayments to food stamp recipients; and (b) the use of food stamps to obtain cash or other non-food items, a process known as trafficking; (2) according to the Department of Agriculture (USDA), in fiscal year (FY) 1996, about $1.5 billion was paid out to individuals who either should not have received any food stamps at all or received more than they were entitled to receive; (3) these overpayments represented nearly 7 percent of the approximately $22 billion in food stamps provided; (4) overpayments are caused by both inadvertent and intentional errors made by recipients and errors made by state caseworkers; (5) program regulations specify that recipients use food stamps only to purchase food from authorized retailers; (6) USDA recently estimated that up to $815 million in food stamps, approximately 4 percent of the food stamps issued, were traded for cash in FY 1993 through retail stores; (7) numerous retailers are caught each year paying recipients a discounted value of the stamps and then redeeming the stamps at full face value; (8) there are no reliable data on the extent of trafficking that occurs before food stamps are redeemed by an authorized retailer; (9) the Food and Consumer Service (FCS) administers the Food Stamp Program in partnership with the states, which are responsible for the day-to-day operation of the program, including determining applicants' eligibility and benefit levels; (10) FCS provides criteria for determining eligibility and the amount recipients are entitled to receive; (11) FCS monitors the accuracy of state benefit determinations and operates a system of incentives and sanctions to encourage states to reduce the errors; (12) FCS approves retailers to participate in the program and monitors and investigates their activities to identify those potentially violating program regulations; (13) USDA's Inspector General devotes a substantial share of its audit and investigative resources to identifying program irregularities, especially trafficking; (14) EBT systems have the potential to reduce some aspects of the fraud, waste, and abuse in the Food Stamp Program, but not others; (15) by providing a clear paper trail of all food stamp transactions, EBT systems help reviewers identify trafficking activities and remove or prosecute retailers engaged in such activities; (16) EBT systems also address problems associated with food stamp theft; and (17) EBT cannot address problems associated with determining eligibility or benefit levels.