Crackdown on Food Stamp Fraud: A $750m a Year Scam
Policy + Politics

Crackdown on Food Stamp Fraud: A $750m a Year Scam


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.


House Budget Committee Chairman Paul Ryan, R-Wis.,  says the food stamp program is rife with waste and fraud, and unveiled a budget earlier this year that would dramatically overhaul the program. Recently, the House Agriculture Committee made the first big down payment on Ryan’s plan of reducing the deficit and averting deep cuts in defense by approving $33 billion in food stamp savings over the next 10 years that would knock two million people off the rolls and likely reduce benefits for 44 million others.
“There are many legitimate reasons for replacing cards and the vast majority of recipients follow the rules,” Kevin Concannon, Agriculture Under Secretary for Food, Nutrition and Consumer Services, said today. “But we are concerned that a few bad actors are using replacement cards to exchange  [food stamp] benefits for cash, commonly referred to as trafficking.”
Trafficking is an illegal activity punishable by disqualification from the program, fines, and even criminal prosecution.  Over the last 15 years, the department  has aggressively implemented a number of measures to reduce the prevalence of trafficking in Supplemental Nutrition Assistance Program, as it is now called, from 4 percent down to 1 percent.

USDA officials say they are even getting complaints of people using websites like eBay and Craigslist to buy and sell food stamps. Food stamp fraud costs taxpayers about $750 million a year, or 1 percent of the $75 billion program.

Last month, a Quincy, Mass., store owner and 21 individuals were charged in connection with the fraudulent use of food stamp program cards according to the office of state Attorney General Martha Coakley. The individuals were charged with larceny over $250 for illegally selling their food stamp benefits at food stores and other establishments throughout the Boston area.

Then early this month, the owner of a St. Paul, Minn., market was sentenced to 41 months in prison on a conviction of food stamp fraud. The owner of the Stryker Avenue Market, Khaffak Sahib Ansari, 46, admitted that between January 2006 and October 2010, he exchanged food stamps for cash and ineligible merchandise. Federal authorities charged that Ansari trafficked more than $3 million in food stamp benefits.

The proposed new Agriculture Department rule gives states the option to require SNAP recipients to make contact with the state upon requesting an excessive number card replacements in a year. The proposal lets states set the threshold for contact but stipulates that it be no fewer than four requests in the 12 month period prior to the requests.

This will provide states the opportunity to determine whether the request is legitimate, or requires further investigation, according to Concannon. States using the option must also ensure that they protect vulnerable people who lose their cards but are not committing fraud .

The Agriculture Department also reported today that during the second quarter of the current fiscal year, it imposed sanctions through fines or temporary disqualifications on more than 198 stores had violated food stamp program rules and permanently disqualified over 366 stores for illegally exchanging benefits for cash.

Government spending on food stamps  and other “social safety net” programs for the poor, elderly and disabled generates considerable election year heat, especially in times of economic distress and soaring deficits. Former Republican House Speaker Newt Gingrich dubbed President Obama the “food-stamp president”  because the number of recipients has increased by 14.2 million during the past three years. Yet even more people were added to the program during the administration of Republican President George W. Bush.