Food Stamp Fraud Gets High-Tech

The Supplemental Nutrition Assistance Program, or SNAP, began as the Food Stamp Program (FSP) in 1939, and was set up to aid hungry low-income Americans during the Great Depression. In 1964, FSP got a makeover and adopted a way to get much-needed food to these Americans, a mechanism that became more commonly known as “food stamps.”

January 2012 

By Laura Telford 

The Supplemental Nutrition Assistance Program, or SNAP, began as the Food Stamp Program (FSP) in 1939, and was set up to aid low-income Americans during the Great Depression. In 1964, FSP got a makeover and adopted a way to get much-needed food to these Americans, a mechanism that became more commonly known as “food stamps.” The Food Stamp Act of 1977 fostered significant changes in program regulations, eligibility, and administration. In the 1990s, food stamps were overhauled once again, and SNAP benefits are now distributed on electronic benefits transfer (EBT) cards instead of the easily transferred paper coupons.

The USDA Food and Nutrition Service (FNS) oversees SNAP via 53 state government agencies. Once an applicant is approved to receive food stamp benefits, he is issued an EBT card, which is essentially a debit card for purchasing food. Each month, a predetermined amount of food benefits is made available to the participant.

Food stamp recipients can use their benefits to purchase food at licensed stores (which include most grocery stores). The SNAP recipient swipes their EBT card at the cash register, just like a debit or credit card, and enters a PIN. The information is transferred to the processing facility to determine the validity of the card, the level of available benefits, and whether or not the retailer is authorized by the FNS.

Participants can use SNAP to buy any food or food product for human consumption, and seeds and plants for use in home gardens to produce food. The types of items that may not be purchased with SNAP benefits include alcohol and tobacco; ready-made, hot foods; vitamins; pet food; and non-food items (except seeds and plants).
 

Food Stamp Trafficking 

Though the use of electronic benefits transfer (EBT) cards has helped curb the illegal trafficking of food stamp/SNAP benefits, it has by no means eliminated it completely. Some SNAP recipients sell their EBT cards for cash for less than face value. This activity is known as food stamp trafficking.  

A common food stamp trafficking scheme is when a recipient of SNAP benefits uses his EBT card to obtain cash from a participating store. The disreputable salesperson rings up a small purchase, then adds an extra amount to the total that is deducted from the card. For example, the SNAP customer purchases a drink for $1.99, the cashier charges his EBT card $41.99, pockets $20 and hands $20 to the customer. In this way, a SNAP recipient receives funds that are designated for food purchases only. The customer is then free to use the cash however he wants — and the salesperson pockets his share.

Fighting Food Stamp Trafficking
The U.S. Department of Agriculture’s Food and Nutrition Service uses the electronic “audit trail” from EBT transactions to identify trafficking and other suspicious activity. The Anti-Fraud Locator using EBT Retailer Transactions (ALERT) system monitors electronic transaction activity and identifies suspicious stores for analysis and investigation — a process sometimes known as data mining. According to an FNS SNAP trafficking fact sheet (“USDA Takes Aggressive Action to Fight Trafficking," PDF):

Of the 234,000 retailers on the program during FY 2010, more than 14,000 were put on a watch list for further review by FNS compliance staff.

FNS is enhancing ALERT with more advanced technology and analytical tools. The new system will allow FNS to quickly implement improved fraud detection scans as new schemes are identified and help focus investigative resources on the highest priority cases. State-of-the-art enhancements will include:

Geospatial analysis to aid compliance staff in visualizing complex store location data

Link and social network analysis and predictive models to identify retailers who are most likely to engage in trafficking

Trend analysis to quickly identify retailers with unusual spikes in SNAP redemptions

FNS has a dedicated team of more than 100 analysts and investigators across the country dedicated to SNAP retailer compliance. They analyze retailer data, conduct undercover investigations and process cases — including fines and administrative disqualifications — against violating retailers.

In 2010, FNS investigators conducted more than 5,000 investigations of stores suspected of trafficking or other program violations.

In 2010, 931 retailers were permanently disqualified from SNAP for trafficking and another 907 retailers were sanctioned for lesser violations.

FNS also works with state law enforcement authorities to provide them with SNAP benefits that are used in sting operations, supporting anti-trafficking actions at the local level.

The move from easily misused paper food stamps to the digitally traceable EBT cards has resulted in a reduction in fraudulent misuse of SNAP benefits. But as fraudsters continue to race against technology, technology must stay one step ahead.