Food Stamp Fraud as a Business Model: USDA’s Struggle to Police Store Owners

Chairman Issa Hearing Preview Statement

According to USDA’s own accounting estimates, 15% of all convenience and small grocery stores that accept food stamps participate in food stamp trafficking.  A typical example of fraud by a store owner in the program would involve ringing up items prohibited by the food stamp fraud, like beer and cigarettes, as vegetables.  In other instances, merchants pay cash for a card, sometimes for pennies on the dollar and pocket the profit.

The federal government’s food stamp program – SNAP – is a program designed to help individuals and families receive one of the most basic forms of assistance: food.  It is the second largest assistance program for low income families behind Medicaid.

Thursday’s hearing will focus on the testimony of officials about why USDA is struggling to police these unscrupulous stores who engage in fraud.  Unfortunately, skyrocketing fraud and a dysfunctional enforcement system is handicapping the program’s ability to help those in need – families and children. This dysfunction has allowed merchants who break the rules back into the program even after they’ve been kicked out.

Since 2008, individuals receiving benefits increased from approximately 28 million in 2008 to approximately 45 million last year.  As a result, the cost of the program has more than doubled, to approximately $75 billion in 2011. 

Over the past ten years, USDA disqualified “an average of 830 retailers” each year for engaging in trafficking.  An investigation by Scripps Howard News Service found that roughly 1,500 – nearly a third of store owners thrown out of the program over the past five years – have been let back in..  Moreover, according to USDA’s Office of the Inspector General, USDA is failing to debar individuals and entities that are repeatedly disqualified from the program. 

When it comes to programs funded with taxpayer dollars, we need to demand that the highest standard of accountability and diligence is exercised to prevent fraud and abuse.  The fact of the matter is there are many questions about the USDA’s effort to stop fraud, how it plans to change things, and clear weaknesses in the enforcement system.  The most vulnerable in our society are depending on these benefits, and USDA needs to make administering this program properly a top priority.