Failure to police the store owners who served as enablers for food stamp fraud cost the government at least $12 million on top of the money lost to scams, according to investigators looking into problems in the federal Supplemental Nutrition Assistance Program.
The Agriculture Department’s Food and Nutrition Service office lacks “clear procedures and guidance to carry out key oversight and enforcement activities related to retailer fraud,” said a report from the agency’s internal watchdog, the inspector general.
“As a result, the integrity of [the food stamp program] is at risk because FNS does not provide sufficient deterrents to trafficking,” inspectors said.
For failing to clamp down on a black-market trade that wastes taxpayer money, the Food and Nutrition Service wins the first Golden Hammer of the year, a weekly award handed out by The Washington Times to highlight examples of fiscal fraud, waste and abuse.
The inspector general’s investigators said $5.3 million worth of waste was because businesses that had been permanently disqualified from the program were still able to redeem SNAP benefits. The other $6.7 million was from uncollected fees: If a disqualified store owner tries to sell the business, the government is supposed to be paid a fee for time remaining on the suspension.
Investigators also found 51 cases in which store owners simply transferred control of their businesses to close family or friends in an attempt to circumvent their disqualifications, and the Food and Nutrition Service never caught the switch. Two brothers in Pennsylvania kept transferring control of their company to each other every time one of them was disqualified.
Fraud in SNAP rose last year, though with some estimates placing the amount at 1 percent of all funding, defenders say, the program remains one of the most efficient in all of government.
But the Agriculture Department estimates that it distributed more than $75 billion in SNAP benefits in 2012 to low-income households, and a number that large means even minor examples of fraud or abuse can mean millions of dollars slip through the cracks.
Investigators think the Food and Nutrition Service missed out on $6.7 million in penalties it should have collected and was bilked a further $5.3 million by stores that should have been ineligible for SNAP yet were allowed to participate.
Food and Nutrition Service officials said the inspector general was conducting its evaluation while the agency was reorganizing the oversight of SNAP retailers, and contended that significant improvements have been made.
“FNS is disappointed that the audit’s broad findings did not make clear the substantive work and change that was occurring and accomplished by the agency during the audit period,” a response from the office said.
USDA and the inspector general disagreed over some of the rules surrounding the program. Investigators found 586 store owners who were allowed to continue participating in SNAP at new locations after their other stores were “permanently disqualified.”
The Food and Nutrition Service argued that this was not a mistake and that store owners are allowed to participate in SNAP after illicit activity so long as they were not directly involved.
But part of the problem investigators found was that the Food and Nutrition Service wasn’t performing basic oversight such as criminal background checks before allowing retailers to participate in SNAP.
There is a burgeoning black-market trade for SNAP benefits, popularly known as food stamps, though paper has made way for electronic transactions. The most common kind of fraud is from individuals buying and selling benefits, with stores acting as intermediaries and skimming off profits.
Investigators said the Food and Nutrition Service has been improving its oversight of stores participating in SNAP, including requiring high-risk businesses to reapply for the program annually instead of once every five years as is normal.
Fraud in some instances has begun to bypass the stores altogether, with individuals taking to websites such as Facebook and Craigslist to sell their benefits.
The House Oversight and Government Reform Committee held a hearing in 2012 to address USDA’s oversight of SNAP, prompting the inspector general to investigate the exact problems and numbers involved with the waste.
Committee Chairman Darrell E. Issa, California Republican, wrote a series of letters to Agriculture Secretary Thomas J. Vilsack demanding more information on fraud in the program.
“Ensuring the integrity of SNAP is critical because of both the important purpose the program serves … and the enormous size of the program,” Mr. Issa wrote. “Any credible allegation of taxpayer dollars wasted or defrauded as a result of mismanagement by USDA … must be resolved immediately.”