	Background

The federal Food Stamp Program is intended to help low-income  individuals and families obtain a more nutritious diet by supplementing  their income with benefits to purchase nutritious food such as meat, dairy  products, fruits, and vegetables, but not items such as soap, tobacco, or  alcohol. States Have Made Progress Reducing Payment Errors, and Further Challenges Remain

The national payment error rate for the Food Stamp Program combines  states’ overpayments and underpayments to program participants and has  declined by about 40 percent, from 9.86 percent in 1999 to a record low of  5.84 percent in 2005, in a time of increasing participation. FNS and the  states we reviewed have taken many approaches to improving food stamp  payment accuracy, most of which are parallel with internal control  practices known to reduce improper payments. If the 1999 error rate had been in effect in 2005, the program  would have made payment errors totaling over $2.8 billion rather than the  $1.7 billion it experienced. In fiscal year 2005, food stamp payment errors  totaled about $1.7 billion in benefits. However, payment error rates vary among states. These include practices to improve accountability, perform  risk assessments, implement changes based on such assessments, and  monitor program performance. FNS has taken advantage of EBT and other new  technology to improve its ability to detect trafficking and disqualify  retailers who traffic, while law enforcement agencies have investigated  and referred for prosecution a decreasing number of traffickers, instead  focusing their efforts on fewer high-impact investigations. FNS Estimates Suggest That the Rate of Food Stamp Trafficking Has Declined and That It Occurs More Frequently in Smaller Stores

The national rate of food stamp trafficking declined from about 3.8 cents  per dollar of benefits redeemed in 1993 to about 1.0 cent per dollar during  the years 2002 to 2005, as shown in table 1. Despite the Progress That Has Been Made against Trafficking, Vulnerabilities Still Exist in the Program

Despite the progress FNS has made in combating retailer trafficking, the  Food Stamp Program remains vulnerable because retailers can enter the  program intending to traffic and do so, often without fear of severe  criminal penalties, as the declining number of investigations referred for  prosecution suggests. Concluding Observations

Improper food stamp payments and trafficking of benefits have declined in  a time of rising participation, and although progress has been made,  ensuring program integrity will continue to be a fundamental challenge  facing the program. To reduce program vulnerabilities and better target its limited compliance- monitoring resources, we recommended in our October 2006 report on  trafficking that FNS develop additional criteria to identify stores most  likely to traffic; conduct risk assessments, using compliance and other  data, to systematically identify stores and areas that meet these criteria,  and allocate resources accordingly; and provide more targeted and early  oversight of stores determined most likely to engage in trafficking. To provide further deterrence for trafficking, we recommended that FNS  work to develop a strategy to increase the penalties for trafficking,  working with the Inspector General as needed, and consider developing  legislative proposals if the penalties entail additional authority. They stated that they believe they do have a strategy for  targeting resources through their use of EBT transaction data to identify  suspicious transaction patterns. We believe that FNS has made good  progress in its use of EBT transaction data. However, it is now at a point  where it can begin to formulate more sophisticated analyses. GAO-07-53. GAO-05-245. Food Stamp Program: States Seek to Reduce Payment Errors and  Program Complexity. Food Stamp Program: Information on Trafficking Food Stamp Benefits.
Why GAO Did This Study

The U.S. Department of Agriculture's (USDA) Food Stamp Program is intended to help low-income individuals and families obtain a better diet by supplementing their income with benefits to purchase food. USDA's Food and Nutrition Service (FNS) and the states jointly implement the Food Stamp Program, which is to be reauthorized when it expires in fiscal year 2007. This testimony discusses our past work on two issues related to ensuring integrity of the program: (1) improper payments to food stamp participants, and (2) trafficking in food stamp benefits. This testimony is based on a May 2005 report on payment errors (GAO-05-245) and an October 2006 report on trafficking (GAO-07-53). For the payment error report, GAO analyzed program quality control data and interviewed program stakeholders, including state and local officials. For the trafficking report, GAO interviewed agency officials, visited field offices, conducted case file reviews, and analyzed data from the FNS retailer database.

What GAO Found

The national payment error rate for the Food Stamp Program combines states' overpayments and underpayments to program participants and has declined by about 40 percent between 1999 and 2005, from 9.86 percent to a record low of 5.84 percent, due in part to options made available to states that simplified program reporting rules. In 2005, the program made payment errors totaling about $1.7 billion. However, if the 1999 error rate was in effect in 2005, program payment errors would have been $1.1 billion higher. FNS and the states we reviewed have taken several steps to improve food stamp payment accuracy, most of which are consistent with internal control practices known to reduce improper payments. These include practices to improve accountability, perform risk assessments, implement changes based on such assessments, and monitor program performance. FNS estimates indicate that the national rate of food stamp trafficking declined from about 3.8 cents per dollar of benefits redeemed in 1993 to about 1.0 cent per dollar during the years 2002 to 2005 and that trafficking occurs more frequently in smaller stores. FNS has taken advantage of electronic benefit transfer and other new technology to improve its ability to detect trafficking and disqualify retailers who traffic. Law enforcement agencies have investigated and referred for prosecution a decreasing number of traffickers; they are instead focusing their efforts on fewer high-impact investigations. Despite the progress FNS has made in combating retailer trafficking, the Food Stamp Program remains vulnerable because retailers can enter the program intending to traffic and do so, often without fear of severe criminal penalties, as the declining number of investigations referred for prosecution suggests. While both payment errors and trafficking of benefits have declined in a time of rising participation, ensuring program integrity remains a fundamental challenge facing the Food Stamp Program. To reduce program vulnerabilities and ensure limited compliance-monitoring resources are used efficiently, GAO recommended in its October 2006 trafficking report that FNS take additional steps to target and provide early oversight of stores most likely to traffic; develop a strategy to increase penalties for trafficking, working with the Inspector General as needed; and promote state efforts to pursue recipients suspected of trafficking. FNS generally agreed with GAO's findings, conclusions, and recommendations. However, FNS believes it does have a strategy for targeting resources through their use of food stamp transaction data to identify suspicious transaction patterns. GAO believes that FNS has made good progress in its use of these transaction data; however, it is now at a point where it can begin to formulate more sophisticated analyses.