Crackdown on Food Stamp Fraud: A $750m a Year Scam
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The Fiscal Times
May 24, 2012

Amid growing Republican complaints about fraud and waste in the burgeoning federal food stamp program, the Obama administration on Thursday took steps to go after merchants and beneficiaries who traffic in food stamp debit cards – an illegal practice that costs taxpayers hundreds of billions of dollars a year.

The Department of Agriculture announced it would be giving states more power to investigate individuals and families that repeatedly claim they have lost their benefit cards and seek replacements. Under the new procedures, the states would be allowed to demand formal explanations from people who seek replacement cards more than three times a year. Those who don't comply can be denied further cards.

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Food stamp beneficiaries receive a monthly Electronic Benefit Transfer (EBT) card that looks like a  commercial credit or debit  card, along with a PIN number for the account that must be used every time a food purchase is made.  The average benefit per card is about $132, and each time a purchase is made, the amount of the purchase is deducted from the total.

The typical fraud would go this way: A card holder would offer to sell the card to a merchant or someone else at a major discount – say $50 or $60 in cash for a card worth $100 – and provide them with the PIN number. The seller would tell the purchaser to use up the value of the card within a week, before the seller planned to notify the government that the card had been lost or stolen. By the time the government tried to change the PIN number, the value of the card had been used up.

Until now, the rules of the program did not give the states more leeway to target this sort of fraudulent activity. So when a state sees someone has repeatedly reported a lost or stolen card, they target them for investigation more easily, according to the agriculture department.

Washington Editor and D.C. Bureau Chief Eric Pianin is a veteran journalist who has covered the federal government, congressional budget and tax issues, and national politics. He spent over 25 years at The Washington Post.