In general,  trafficking occurs when retailers exchange recipients’ SNAP benefits for  cash, often taking a fraudulent profit. FNS Estimates Suggest Retailer Trafficking Has Increased in Recent Years, but the Estimates Have Limitations

		FNS Estimates Indicate an Increase in Retailer Trafficking, but the Actual Extent of Trafficking Is Uncertain

FNS’s data indicate an increase in the estimated rate of retailer trafficking  in recent years. FNS officials stated the agency has not considered and does not intend to  consider changes to how it reports its trafficking estimates in the next  report. In addition, FNS has not evaluated the accuracy of its assumption of the  percentage of SNAP benefits trafficked by different types of stores, which  FNS developed over 20 years ago from anecdotal information. Among  stores that engaged in trafficking, FNS assumes that 90 percent of  benefits redeemed in small stores and 40 percent of benefits redeemed in  large stores were trafficked (see sidebar). Despite an increase in the availability of data on retailer trafficking over  the last 20 years, FNS officials have not evaluated the accuracy of this  key assumption and said that they have no plans to do so. According to OMB’s statistical  standards, assumptions should be reviewed for accuracy and validated  using available, independent information sources. Without FNS  evaluating its key assumption of the percentage of SNAP benefits  trafficked, the estimates it reports on the extent of program fraud are  potentially inaccurate. FNS Has Taken Some Steps That Generally Align with Leading Practices to Prevent, Detect, and Respond to Retailer Trafficking, but Has Not Pursued Others

		FNS Has Taken Steps to Address Retailer Trafficking, but Has Not Pursued Certain Prevention and Response Activities

			Preventing Trafficking in the Retailer Authorization Process

FNS has taken some steps to prevent retailer trafficking that align with  leading fraud risk management practices and our prior recommendations,  but has not pursued some opportunities for early oversight. Although FNS took these steps to identify risk levels for stores and target  its initial authorization activities accordingly, the agency is not currently  using this information to target its reauthorization activities to stores of  greatest risk. During reauthorization, FNS reviews previously approved stores for continued compliance with program requirements. Although the  agency’s policy and website both state that certain high-risk stores will be  reauthorized annually, FNS is currently reauthorizing all stores on the  same 5-year cycle, regardless of risk. FNS instead decided to annually reauthorize a sample of high-risk  retailers as a result of its assessment of the fiscal year 2013 cycle, but did  not follow through with those plans. Considering the benefits and costs of control  activities to address identified risks is a leading practice in GAO’s Fraud  Risk Framework. By not assessing the benefits and costs of reauthorizing  certain high-risk stores more frequently than other stores, FNS may be  missing an opportunity to provide early oversight of risky stores and  prevent trafficking. Responding to Retailer Trafficking

FNS’s efforts to respond to retailer trafficking generally align with leading  practices for fraud risk management. We recommended that FNS develop a strategy to  increase penalties for trafficking. The Food, Conservation, and  Energy Act of 2008 (known as the 2008 Farm Bill) gave USDA authority  to impose higher monetary penalties, as well as authority to impose both  a monetary penalty and program disqualification on retailers found to  have violated relevant law or regulations (such as those found to be  trafficking). The penalty would have been based on the store’s  average monthly SNAP redemptions and was intended to recoup  government funds diverted from their intended use. In proposing these  changes, FNS stated that they were necessary to improve program  integrity and deter retailers from committing program violations. Increasing penalties for retailer trafficking would serve as an  important tool to deter trafficking and safeguard federal funds. (Recommendation 1)
The Administrator of FNS should continue efforts to improve the agency’s  retailer trafficking estimates by evaluating (1) whether the factors used to  identify stores for possible investigation could help address the bias in its  sample, and (2) the accuracy of its assumption of the percentage of  SNAP benefits that are trafficked by different types of stores. (Recommendation 2)
The Administrator of FNS should assess the benefits and costs of  reauthorizing a sample of high-risk stores more frequently than other  stores, use the assessment to determine the appropriate scope and time  frames for reauthorizing high-risk stores moving forward, and document  this decision in policy and on its website.
Why GAO Did This Study

SNAP is the largest federally funded nutrition assistance program, providing about $64 billion in benefits to over 20 million households in fiscal year 2017. FNS oversees SNAP at the federal level and is responsible for authorizing and overseeing retailers. While most benefits are used as intended, some retailers have engaged in trafficking, which represents fraud and diverts federal funds from their intended use. GAO was asked to review FNS's efforts to address SNAP retailer trafficking since GAO's last report in 2006.
This report examines (1) what is known about the extent of SNAP retailer trafficking, and (2) the extent to which FNS has taken steps intended to improve how it prevents, detects, and responds to retailer trafficking. GAO reviewed relevant federal laws and regulations, FNS policies, and studies related to retailer trafficking; assessed FNS's use of statistical standards for federal agencies and selected leading practices in GAO's Fraud Risk Framework ; and interviewed FNS and USDA Office of Inspector General officials and key stakeholders.

What GAO Found

The U.S. Department of Agriculture (USDA) Food and Nutrition Service's (FNS) estimates of retailer trafficking—when a retailer exchanges Supplemental Nutrition Assistance Program (SNAP) benefits for cash instead of food—have limitations, though they suggest trafficking has increased in recent years, to $1 billion each year from 2012 to 2014. One key limitation of the estimates is that FNS has not evaluated the accuracy of its assumption about the percentage of SNAP benefits trafficked. FNS assumes that, among stores that trafficked, 90 percent of the benefits redeemed in small stores, and 40 percent in large stores, were trafficked. A former FNS official stated that this assumption is based on discussions with investigators in the 1990s when FNS first developed its approach to estimate trafficking, and that they have not since evaluated it for accuracy. However, there are options available for evaluating this assumption, such as reviewing SNAP transaction data from stores that are known to have trafficked. Statistical standards for federal agencies indicate that assumptions should be reviewed for accuracy and validated using available, independent information sources. By not evaluating this key assumption, FNS's commonly cited estimates of SNAP fraud are potentially inaccurate.
FNS has generally taken steps to address retailer trafficking that align with leading fraud risk management practices, but the agency has not pursued additional actions to prevent and respond to trafficking. For example:
Although FNS assigns a risk level to each store when it applies to participate in SNAP, it is not currently using this information to target its reauthorization activities to stores of greatest risk. During reauthorization, FNS reviews previously approved stores for continued compliance with program requirements. FNS currently reauthorizes all stores on the same 5-year cycle, regardless of risk, although its policy states that it will reauthorize certain high-risk stores annually. FNS officials planned to reauthorize a sample of high-risk stores each year, but said they did not follow through with those plans. Officials also stated that they did not document an analysis of the benefits and costs of this practice, which would be consistent with leading fraud risk management practices. As a result, FNS may be missing an opportunity to provide early oversight of risky stores and prevent trafficking.
The Food, Conservation, and Energy Act of 2008 gave USDA the authority to strengthen penalties for retailers found to have trafficked, but as of November 2018, FNS had not implemented this authority. FNS proposed a related rule change in 2012 and indicated the change was necessary to deter retailers from committing program violations, but the rule was not finalized. By failing to take timely action to strengthen penalties, FNS has not taken full advantage of an important tool for deterring trafficking.

What GAO Recommends

GAO is making five recommendations, including that FNS improve its trafficking estimates by, for example, evaluating the accuracy of its assumption of the percentage of benefits that are trafficked; assess the benefits and costs of reauthorizing a sample of high risk stores more frequently than others; and move forward with plans to increase penalties for trafficking. FNS generally agreed with GAO's recommendations.