GAO-15-404SP: Income security: 22. Supplemental Nutrition Assistance Program Fraud and Abuse

Income security > 22. Supplemental Nutrition Assistance Program Fraud and Abuse

States should be able to more effectively fight fraud among beneficiaries of the Supplemental Nutrition Assistance Program—which provided more than $76 billion in benefits in fiscal year 2013—by using data to better focus investigative efforts on high-risk households.

Why This Area Is Important

In fiscal year 2013, the federal government provided more than $76 billion in benefits to help about 48 million people purchase food through the Supplemental Nutrition Assistance Program (SNAP). Since fiscal year 2009, SNAP has experienced an over 50 percent increase in distributed benefits and an over 40 percent increase in recipients following the Great Recession. Rapid program growth can increase the potential for fraud unless appropriate agency controls are in place to help minimize these risks. Furthermore, program officials have had long-standing concerns that some recipients falsify information to improperly receive benefits, or misuse their benefits to solicit or obtain non-food goods, services, and cash—a practice known as trafficking.[1] The Office of Management and Budget has designated SNAP as a “high error” program due to the estimated dollar amount in improper payments for fiscal year 2013, which increased from $1.7 billion in 2009 to $2.6 billion in 2013.[2] According to a September 2012 U.S. Department of Agriculture Office of Inspector General report, the magnitude of program abuse due to recipient fraud is unknown because states do not have uniform ways of compiling the data that would provide such information.

The goal of SNAP, formerly known as the federal Food Stamp Program, is to help low-income individuals and households obtain a more nutritious diet. The federal government pays the full cost of the benefits. It also shares the responsibility and costs of administering the program with the states. Specifically, the Food and Nutrition Service (FNS), within the Department of Agriculture, is responsible for promulgating program regulations and ensuring that states comply with these regulations by issuing guidance and monitoring their activity. FNS also determines which retailers are eligible to accept SNAP benefits and investigates and resolves cases of retailer fraud. State officials, on the other hand, are responsible for determining the eligibility of individuals and households, calculating the amount of their monthly benefits, and issuing such benefits on an electronic benefit transfer (EBT) card in accordance with program rules. States are also responsible for investigating possible violations by benefit recipients and pursuing and acting on those violations that are deemed intentional.[3] States may pursue disqualification and repayment of ill-gotten or misused benefits in cases where a recipient has intentionally violated program rules. Intentional program violations include acts of fraud, such as making false or misleading statements in order to obtain benefits and trafficking. Trafficking activities may involve a recipient selling their EBT card to another person who does not return the card. A recipient may then report the trafficked EBT card as lost or stolen to state agencies or EBT management contractors and receive a new card that can be used for future transactions when the benefits are replenished the next month.



[1] Intentional program violations, such as trafficking, may result in temporary or permanent disqualification from the program. 7 U.S.C. § 2015(b), 7 C.F.R. § 273.16. Furthermore, under federal law, it is illegal for a person to knowingly use, transfer, acquire, or possess SNAP benefits in any manner that is contrary to the laws and regulations that govern the SNAP program. 7 U.S.C. § 2024(b). The statute applies to program recipients and retailers as well as people not participating in the program.

[2] This dollar amount represents benefits distributed in error due to administrative as well as recipient errors, not all of which can be attributed to fraud.

[3] 7 C.F.R. § 273.16.

What GAO Found

In August 2014, GAO reported that FNS requires that states examine replacement card data as a potential indicator of trafficking, but states reported difficulties using the data as a fraud detection tool. In 2014, FNS began requiring states to monitor replacement card data and send notices to those SNAP households requesting excessive replacement cards, defined as at least four cards in a 12-month period. Officials in the 11 states that GAO interviewed reported tracking recipients who make excessive requests for replacement EBT cards, as required by FNS, but said they have not had much success in detecting fraud through that method as many of the replacement card requests are due to unstable living situations or misunderstanding how to use the EBT card rather than trafficking. While 4 states reported that they had not initiated any trafficking investigations as a result of the monitoring, 5 states reported low success rates for such investigations, and 1 state had just started tracking the data. Only 1 state reported some success using the data to pursue trafficking. Furthermore, officials from 7 of the 11 states reported that the current detection approach specified by FNS often leads them to people who make legitimate requests for replacement cards for reasons such as unstable living situations or a misunderstanding of how to use the SNAP EBT card. FNS is aware of states’ concerns about the effectiveness of this effort, but it continues to stress that monitoring these data is worthwhile.

In August 2014, GAO reported on an alternative, more targeted approach to analyzing high-risk replacement card data that may offer states a way to better use the data as a fraud detection tool. Specifically, GAO analyzed fiscal year 2012 replacement card data in three selected states—Michigan, Massachusetts, and Nebraska—using an approach aimed at better identifying SNAP households requesting replacement cards that are at higher risk of trafficking benefits. GAO’s approach took into account FNS’s regulation that defines excessive replacement cards as at least four requested in a year. However, GAO also considered the monthly benefit period of replacement card requests by focusing on SNAP households receiving replacement cards in four or more unique monthly benefit periods in a year. SNAP benefits are allotted on a monthly basis, and a recipient who is selling the benefits on their EBT card and then requesting a replacement card would generally have only one opportunity per month to do so. If a SNAP recipient is requesting a replacement card because they have just sold their EBT card and its associated SNAP benefits, it is unlikely that there would be more benefits to sell until the next benefit period. As a result, additional replacement card requests in the same benefit period may not indicate increased risk of trafficking. For SNAP households from the three selected states that received replacement cards in four or more monthly benefit periods, GAO then analyzed related purchase transaction data for trafficking indicators based on certain suspicious transaction types used by FNS and state SNAP officials. Through these analyses, GAO found that 73 percent of households that received replacement cards in four or more monthly benefit periods also made purchases indicating potential SNAP trafficking.

The current FNS regulation includes households for review that received at least four replacement cards at any time in the previous year, including households receiving four cards in the same monthly benefit period. However, GAO’s analysis indicates that the number of benefit periods with replacement cards may be a better indicator of trafficking risk than simply the number of requested replacement cards. Furthermore, this more targeted approach may reduce the number of households for further review.  For example, GAO’s approach in the three states reduced the number of households for further review by 33 percent compared to the current FNS regulation.

As reported in August 2014, GAO identified 7,537 SNAP recipient households in these three selected states that both received replacement cards in four or more monthly benefit periods in fiscal year 2012, and made transactions considered to be potential signs of trafficking around the time of replacement card issuance, as shown in the table below. These 7,537 households made over $26 million in total purchases with SNAP benefits during fiscal year 2012.

SNAP Households Receiving Excessive Replacement Cards and Making Transactions Potentially Indicative of Trafficking in Fiscal Year 2012

State

SNAP households with:

4+ replacement cards

Replacement cards
in 4+ benefit periods

Suspicious transactions
and cards in 4+ benefit periods

Michigan

8,190

4,935

3,183

Massachusetts

6,380

4,786

4,008

Nebraska

697

549

346

Total

15,267

10,270

7,537

Source: GAO analysis of Supplemental Nutrition Assistance Program (SNAP) transaction data.  |  GAO‑15‑404SP

GAO analyzed the data for trafficking indicators based on suspicious transaction types already used by FNS and state SNAP officials, such as unusually large-dollar transactions or even-dollar transactions. GAO found that by comparing the number of benefit periods with replacement cards and the total number of transactions flagged for potential trafficking, states may be able to better identify those households that may be at higher risk of trafficking. For example, as shown in the figure below, while there were 4,935 SNAP households in Michigan that received excessive replacement cards, GAO identified just 39 households that received excessive replacement cards and made transactions resulting in 10 or more trafficking flags. While state SNAP officials may not want to limit their investigations to such a small number of households, this type of analysis may help provide a starting point for identifying higher priority households for further review. The more targeted approach may also be particularly helpful given that states reported having limited resources for conducting investigations.

FNS officials stated that, in light of the challenges using replacement card data as a fraud detection tool, they are working on how to better link excessive replacement card requests to potential trafficking. To inform these efforts, FNS has commissioned a study focused on detecting indications of potential trafficking by those requesting excessive replacement cards. However, FNS officials reported that it is too early to provide additional guidance or draw conclusions about the effectiveness of current efforts, but said they intend to provide more guidance to states once they have further data to inform a fraud detection methodology. A crucial element to an effective fraud prevention framework is resources and tools to continually monitor and detect potential fraud. Given limitations to state investigative resources, efficient antifraud activities and detection tools are critical.

Targeting Potential Supplemental Nutrition Assistance Program (SNAP) Benefit Trafficking Using Replacement Card and Transaction Data to Identify Higher Risk Households in Michigan, Fiscal Year 2012

Targeting Potential Supplemental Nutrition Assistance Program (SNAP) Benefit Trafficking Using Replacement Card and Transaction Data to Identify Higher Risk Households in Michigan, Fiscal Year 2012

Actions Needed

To help states better pursue SNAP recipient fraud, GAO recommended in August 2014 that the Secretary of Agriculture direct the Administrator of FNS to

  • establish additional guidance to help states analyze SNAP transaction data to better identify SNAP recipient households receiving replacement cards that are potentially engaging in trafficking, and assess whether the use of replacement card benefit periods may better focus this analysis on high-risk households potentially engaged in trafficking.

According to a September 2012 U.S. Department of Agriculture Office of Inspector General report, the magnitude of SNAP program abuse due to recipient fraud is unknown because states do not have uniform ways of compiling the data that would provide such information. As a result, the extent of recipient fraud that may be detected through an effective replacement card tool is also unknown. For these reasons, GAO cannot quantify the potential financial benefits associated with the recommended actions.

How GAO Conducted Its Work

The information contained in this analysis is based on findings from the product listed in the related GAO products section. To determine how selected state agencies are pursuing SNAP recipient fraud, GAO interviewed knowledgeable state and local officials in 11 states about their recipient antifraud work and obtained related documentation. These 11 states were selected based on geographic dispersion, SNAP payment error rates, percentage of the total number of SNAP households nationwide, and the percentage of recipients they reported as disqualified from the program due to noncompliance. GAO selected the 11 states to review to achieve variation on each of these selection criteria. To assess the effectiveness of replacement card data as a state fraud detection tool, GAO analyzed replacement card data for SNAP households in 3 of the 11 selected states—Michigan, Massachusetts, and Nebraska. GAO selected these three states to include high, medium, and low percentages of the total number of SNAP households nationwide. GAO analyzed fiscal year 2012 data to determine the number of households receiving replacement cards in four or more monthly benefit periods. GAO then obtained fiscal year 2012 transaction data from FNS for those households and analyzed the transaction data for suspicious transactions indicating potential trafficking that occurred during the same benefit period when a household received a replacement card. GAO tested the transaction data for six different suspicious transaction types that were reported as commonly used by FNS and state SNAP officials to identify potential trafficking. At the request of SNAP officials to maintain confidentiality over their fraud detection methods, GAO did not include descriptions of all six transaction tests in the report.

Table 17 in appendix V lists the programs GAO identified that might have opportunities for cost savings.

Agency Comments & GAO Contact

In commenting on the August 2014 report on which this analysis is based, FNS agreed with the recommendation and reported that efforts are under way to address it. For example, as of August 2014, FNS had commissioned studies to help inform its efforts to assist states in developing better recipient fraud detection tools, including potentially issuing new guidance.

GAO provided a draft of this report section to FNS for review and comment. FNS provided written comments. In their comments FNS stated that they are continuing efforts to help states better identify trafficking and effectively utilize replacement card data as a potential indicator. Specifically, FNS reported completing its analysis of recipient fraud prevention and detection in 2 of 7 state agencies currently being reviewed (New York and Pennsylvania) in 2014, resulting in over 100 recommendations to strengthen state trafficking prevention strategies. Furthermore, FNS reported that it conducted data mining activities of state household and SNAP transaction data in these two states to create models to help better detect program fraud.  FNS also reported that an analysis conducted with their contractor indicated replacement card data was the single greatest indicator of potential trafficking in New York.  FNS reported that it will provide additional technical assistance in fiscal year 2015 to help states implement the results of these studies.  Furthermore, FNS stated that it is continuing the effort to study fraud prevention in 2015 and plans to deliver final reports for the remaining 5 state agencies being reviewed, including South Carolina, Wisconsin, California (Los Angeles County), Kansas, and Texas, by September 30, 2015.

For additional information about this area, contact Seto J. Bagdoyan at (202) 512-6722 or bagdoyans@gao.gov.