Trafficking Accounts for a Relatively Small Percentage of the Total Program and Occurs Mostly in Small Stores

According to a 1995 FNS study, about $815 million, or about 4 percent of the food stamps issued, was trafficked—exchanged for cash—by about 9 percent of the authorized retailers during fiscal year 1993. Supermarkets and large grocery stores redeemed 82.5 percent of all food stamp benefits and had an average trafficking rate of 1.9 percent of the benefits redeemed. In contrast, smaller stores redeemed 17.5 percent of the benefits and had an average trafficking rate of 13.0 percent of the benefits redeemed. Therefore, an analysis of the extent of trafficking using electronic data may indicate that violations are now occurring at a greater or lesser rate. USDA Identifies Food Stamp Traffickers and Imposes Administrative Sanctions

Within USDA, FNS and the Office of Inspector General (OIG) are responsible for monitoring program compliance by the approximately 185,000 stores currently authorized to redeem food stamps. FNS takes administrative action against identified violators, such as disqualifying them from the program permanently or temporarily and/or imposing civil fines up to $40,000. Department of Justice Is Involved With Significant Food Stamp Trafficking Cases

The OIG has the sole authority for referring trafficking cases to federal, state, or local authorities for prosecution under criminal statutes. According to USDA data, during fiscal years 1990 through 1997, Justice and state and local governments prosecuted about 2,650 trafficking cases that had been investigated by the OIG, resulting in about 4,800 indictments, 4,300 convictions, and over $70 million in fines, restitutions, and recoveries. Justice can prosecute traffickers criminally and may pursue civil recovery under the False Claims Act. Since 1992, when USDA began referring cases to Justice, 566 false claims totaling over $5.9 million have been settled. Clerks Are Involved in Trafficking Food Stamps More Often Than Store Owners, and Penalties Vary

Our analysis of the 432 cases of food stamp trafficking shows that store owners alone were involved in 40 percent of the cases, clerks alone were involved in 47 percent of the cases, and store owners and clerks together were involved in 13 percent of the cases. In every case, FNS disqualified the store owner from participating in the Food Stamp Program or assessed a monetary penalty against the store owner. In addition, FNS assessed administrative financial penalties totaling $1,077,062 against store owners in 175 cases. Store clerks were caught trafficking by USDA investigators in 260 cases. Scope and Methodology

To identify information on the extent of retailer trafficking and the characteristics of the stores engaged in such trafficking, we obtained and used USDA’s 1995 report on the extent of trafficking in the Food Stamp Program and interviewed the USDA personnel responsible for that study. To determine the roles and efforts of various federal agencies in minimizing food stamp trafficking by retailers, we interviewed and obtained information from officials of the departments of Agriculture and Justice.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed food stamp trafficking at the retail level, focusing on: (1) the extent of retailer trafficking and the characteristics of the stores engaged in such trafficking; (2) the roles and efforts of federal agencies in minimizing food stamp trafficking by retailers; and (3) whether store owners or clerks were generally caught for trafficking food stamps and the extent of discipline for the trafficking.

What GAO Found

GAO noted that: (1) according to the most recent Food and Nutrition Service (FNS) study available, about $815 million, or about 4 percent of the food stamps issued, was trafficked at retail stores during fiscal year 1993; (2) supermarkets and large grocery stores redeemed 82.5 percent of all food stamp benefits and had a combined trafficking rate of 1.9 percent of all benefits redeemed; (3) smaller grocery stores redeemed 17.5 percent of the benefits and had a combined trafficking rate of 13 percent of the benefits redeemed; (4) this study did not reflect the electronic redemption of food stamps; (5) therefore, an analysis of the extent of trafficking that includes electronic data may detect that violations are now occurring at a greater or lesser rate; (6) the Department of Agriculture (USDA) and Department of Justice (DOJ) are the principal federal agencies responsible for minimizing food stamp trafficking by retailers; (7) within USDA, both the FNS and the Office of Inspector General (OIG) are responsible for identifying and investigating retail stores engaged in trafficking; (8) FNS can take administrative actions against store owners engaged in trafficking, including disqualifying them from participating in the program and assessing fines; (9) OIG conducts criminal investigations and can refer store owners or clerks engaged in trafficking to DOJ or state or local governments for prosecution; (10) during fiscal years 1990 through 1997, FNS identified food stamp trafficking in over 5,700 retail stores, OIG investigated and reported on 5,551 trafficking cases, and DOJ and state and local governments prosecuted about 2,650 cases referred by OIG; (11) DOJ, in some jurisdictions, will pursue civil actions against store owners to collect money under the False Claims Act when it has not allocated resources to conduct criminal prosecutions or when it has a case in which the evidence for criminal prosecution is insufficient; (12) since 1992, when USDA began referring cases to DOJ, 566 false claims totalling over $5.9 million have been settled; (13) in the 432 food stamp trafficking cases GAO reviewed, store owners alone were caught trafficking in about 40 percent of the cases, and store owners and clerks together were caught trafficking in 13 percent of the cases; and (14) FNS permanently or temporarily disqualified the owners caught trafficking from participating in the Food Stamp Program in 428 cases and assessed financial penalities totalling $1.1 million against owners in 175 cases.