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Supplemental Nutrition Assistance Program: Actions Needed to Better Measure and Address Retailer Trafficking

GAO-19-167 Published: Dec 14, 2018. Publicly Released: Jan 15, 2019.
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Fast Facts

Millions of households rely on the $64 billion Supplemental Nutrition Assistance Program, formerly known as food stamps, to buy food. But some stores are defrauding the program by "selling" cash instead of food. For example, a store might give a person $50 in exchange for $100 in benefits—then pocket the difference.

How widespread is this "retailer trafficking"? The Food and Nutrition Service (FNS) reports that $1 billion in benefits are trafficked annually. However, the real extent is uncertain and could be anywhere from $960 million to $4.7 billion.

We recommended ways to improve how FNS measures and addresses trafficking.

 

Illustration of a retailer exchanging SNAP benefits for cash.

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Highlights

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.

Illustration of Retailer Trafficking in the Supplemental Nutrition Assistance Program (SNAP)

Illustration of Retailer Trafficking in the Supplemental Nutrition Assistance Program (SNAP)

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.

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.

Recommendations

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.

Recommendations for Executive Action

Agency Affected Recommendation Status
Food and Nutrition Service The Administrator of FNS should present the uncertainty around its retailer trafficking estimates in future reports by, for example, including the full range of the estimates in the report body and executive summary. (Recommendation 1)
Closed – Implemented
FNS generally agreed with this recommendation, stating that it would present the uncertainty around the retailer trafficking estimates in the executive summary and main body of all future trafficking reports, instead of presenting the information in appendices, as it did in past reports. In September 2021, FNS published its latest trafficking report, covering the years 2015-2017. The report includes some additional information about the uncertainty of estimates in the report body--for example, tables in the report present ranges of estimates for the total amount trafficked, the overall trafficking rate, and number of stores involved in trafficking. In addition, a two-page research summary and the executive summary refer readers to information in the report and two appendices for a more detailed discussion about the uncertainty of the trafficking estimates.
Food and Nutrition Service 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)
Open
FNS generally agreed with this recommendation. FNS stated that it will evaluate whether incorporating additional factors, such as the Watch List score used to identify stores for possible investigation, could improve its estimation methodology. FNS also stated that it will work with the USDA OIG to better understand the methodology the OIG uses to estimate the share of benefits that are trafficked by a retailer who is prosecuted for trafficking, and determine whether it is feasible to apply a similar methodology to the transaction data maintained by FNS in order to improve the accuracy of its assumptions about the percentage of SNAP benefits that are trafficked. In September 2021, FNS said that the agency will evaluate the feasibility of this revised methodology for the next trafficking estimate study, which will cover years 2018 through 2020. The contract will likely be awarded in fiscal year 2022. GAO will consider this recommendation implemented when FNS provides information on the results of this evaluation.
Food and Nutrition Service 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. (Recommendation 3)
Open
FNS generally agreed with this recommendation. In August 2020, FNS stated that it included a sample of 471 high-risk stores that had not yet reached their 5-year reauthorization cycle in its fiscal year 2020 reauthorization pool. FNS planned to analyze the outcomes of these reauthorizations to determine the benefits and costs of reauthorizing some high-risk stores more frequently and determine the appropriate scope and time frames for reauthorizing these stores moving forward. However, in September 2021, FNS reported that the analysis had been delayed due to other priorities during the pandemic. The agency estimated that the analysis will be complete by August 2022. GAO will consider this recommendation implemented when FNS completes this work.
Food and Nutrition Service The Administrator of FNS should move forward with plans to increase penalties for retailer trafficking. (Recommendation 4)
Open
FNS generally agreed with this recommendation. In August 2020, FNS reported that it had developed a proposed rule to accomplish this change. However, in September 2021, the agency reported that the time frame for proposing the rule had been delayed due to other priorities during the pandemic. The agency expects the proposed rule to be published by December 2022.
Food and Nutrition Service The Administrator of FNS should establish performance measures for its trafficking prevention activities. (Recommendation 5)
Closed – Implemented
In the first quarter of fiscal year 2022, FNS began tracking a new performance measure on its internal scorecard related to preventing fraud or other program violations, including trafficking, through its retailer authorization process. Specifically, FNS began tracking the percent of store application and reauthorization decisions in which a supervisory review found that front-line staff failed to address risk factors for fraud in the the application. For example, in such cases, front-line staff may not have fully investigated whether a previously disqualified store owner was still part of the ownership team on the current application. Tracking performance on this measure should help FNS more fully assess the effectiveness of its retailer oversight activities and balance retailer access to the program with preventing retailer fraud.

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Topics

Compliance oversightElectronic benefits transfersFood assistance programsFraudNutrition assistanceProgram abusesProgram integrityProgram managementFood stamp traffickingCriminal investigations