Food Assistance:

Reducing Food Stamp Benefit Overpayments and Trafficking

T-RCED-98-37: Published: Oct 30, 1997. Publicly Released: Oct 30, 1997.

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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.

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.

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