Supplemental Nutrition Assistance Program
Payment Errors and Trafficking Have Declined, but Challenges Remain Gao ID: GAO-10-956T July 28, 2010The U.S. Department of Agriculture's (USDA) Supplemental Nutrition Assistance Program (SNAP) is intended to help low-income individuals and families obtain a better diet by supplementing their income with benefits to purchase food. USDA's Food and Nutrition Service (FNS) and the states jointly implement SNAP. Participation in the program has risen steadily over the last decade to an all time high of more than 33 million in fiscal year 2009, providing critical assistance to families in need. This testimony discusses GAO's past work on three issues related to ensuring integrity of the program: (1) improper payments to SNAP participants, (2) trafficking of SNAP benefits, and (3) categorical eligibility for certain individuals or households. This testimony is based on prior GAO reports on categorical eligibility (GAO-07-465), payment errors (GAO-05-245), and food stamp trafficking (GAO-07-53), developed through data analyses, case file reviews, site visits, interviews with officials, and a 50- state survey. GAO also updated data where available and collected information on recent USDA actions and policy changes.
The national payment error rate reported for SNAP, which combines states' overpayments and underpayments to program participants, has declined by 56 percent from 1999 to 2009, from 9.86 percent to a record low of 4.36 percent. This reduction is due, in part, to options made available to states that simplified certain program rules. In addition, FNS and the states GAO reviewed have taken several steps to improve SNAP payment accuracy that are consistent with internal control practices known to reduce improper payments such as providing financial incentives and penalties based on performance. Despite this progress, the amount of SNAP benefits paid in error is substantial, totaling about $2.2 billion in 2009 and necessitating continued top-level attention and commitment to determining the causes of improper payments and taking corrective actions to reduce them. FNS estimates indicate that the national rate of food stamp trafficking declined from about 3.8 cents per dollar of benefits redeemed in 1993 to about 1.0 cent per dollar during the years 2002 to 2005 but that trafficking occurs more frequently in smaller stores. FNS has taken advantage of electronic benefit transfer to reduce fraud, and in response to prior GAO recommendations, has implemented new technology and categorized stores based on risk to improve its ability to detect trafficking and disqualify retailers who traffic. FNS also received authority to impose increased financial penalties for trafficking as recommended; however, it has not yet assessed higher penalties because implementing regulations are not yet finalized. FNS is considering additional steps to encourage states to pursue recipients suspected of trafficking but limited state resources are a constraint. Categorically eligible households do not need to meet SNAP eligibility requirements because their need has been established under the states' Temporary Assistance for Needy Families (TANF) program. As of June 2010, 36 states have opted to provide categorical eligibility for SNAP to any household found eligible for a service funded through TANF and, in 35 states, there is no limit on the amount of assets certain households may have to be determined eligible, according to FNS. Households can be categorically eligible for SNAP even if they receive no TANF funded service other than a toll-free telephone number or informational brochure. However, the amount of assistance eligible households receive is determined using the same process used for other SNAP recipients. According to FNS officials, increased use of categorical eligibility by states has reduced administrative burdens and increased access to SNAP benefits to households who would not otherwise be eligible due to asset or income limits. However, little is known about the extent of its impact on increased access or program integrity. SNAP has played a key role in assisting families facing hardship during the economic crisis, but given fiscal constraints and program growth, it is more important than ever to understand the impact of policy changes, and balance improvements in access with efforts to ensure accountability. FNS generally agreed with GAO's prior recommendations to address SNAP trafficking and categorical eligibility issues and has taken action in response to most of them.
GAO-10-956T, Supplemental Nutrition Assistance Program: Payment Errors and Trafficking Have Declined, but Challenges Remain
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Testimony:
Before the Subcommittee on Department Operations, Oversight,
Nutrition, and Forestry, Committee on Agriculture, U.S. House of
Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery:
Expected at 10:00 a.m. EDT:
Wednesday, July 28, 2010:
Supplemental Nutrition Assistance Program:
Payment Errors and Trafficking Have Declined, but Challenges Remain:
Statement of Kay E. Brown, Director:
Education, Workforce, and Income Security Issues:
GAO-10-956T:
GAO Highlights:
Highlights of GAO-10-956T, a report to the House Subcommittee on
Department Operations, Oversight, Nutrition, and Forestry, Committee
on Agriculture.
Why GAO Did This Study:
The U.S. Department of Agriculture‘s (USDA) Supplemental Nutrition
Assistance Program (SNAP) is intended to help low-income individuals
and families obtain a better diet by supplementing their income with
benefits to purchase food. USDA‘s Food and Nutrition Service (FNS) and
the states jointly implement SNAP. Participation in the program has
risen steadily over the last decade to an all time high of more than
33 million in fiscal year 2009, providing critical assistance to
families in need.
This testimony discusses GAO‘s past work on three issues related to
ensuring integrity of the program: (1) improper payments to SNAP
participants, (2) trafficking of SNAP benefits, and (3) categorical
eligibility for certain individuals or households.
This testimony is based on prior GAO reports on categorical
eligibility (GAO-07-465), payment errors (GAO-05-245), and food stamp
trafficking (GAO-07-53), developed through data analyses, case file
reviews, site visits, interviews with officials, and a 50-state
survey. GAO also updated data where available and collected
information on recent USDA actions and policy changes.
What GAO Found:
The national payment error rate reported for SNAP, which combines
states‘ overpayments and underpayments to program participants, has
declined by 56 percent from 1999 to 2009, from 9.86 percent to a
record low of 4.36 percent. This reduction is due, in part, to options
made available to states that simplified certain program rules. In
addition, FNS and the states GAO reviewed have taken several steps to
improve SNAP payment accuracy that are consistent with internal
control practices known to reduce improper payments such as providing
financial incentives and penalties based on performance. Despite this
progress, the amount of SNAP benefits paid in error is substantial,
totaling about $2.2 billion in 2009 and necessitating continued top-
level attention and commitment to determining the causes of improper
payments and taking corrective actions to reduce them.
FNS estimates indicate that the national rate of food stamp
trafficking declined from about 3.8 cents per dollar of benefits
redeemed in 1993 to about 1.0 cent per dollar during the years 2002 to
2005 but that trafficking occurs more frequently in smaller stores.
FNS has taken advantage of electronic benefit transfer to reduce
fraud, and in response to prior GAO recommendations, has implemented
new technology and categorized stores based on risk to improve its
ability to detect trafficking and disqualify retailers who traffic.
FNS also received authority to impose increased financial penalties
for trafficking as recommended; however, it has not yet assessed
higher penalties because implementing regulations are not yet
finalized. FNS is considering additional steps to encourage states to
pursue recipients suspected of trafficking but limited state resources
are a constraint.
Categorically eligible households do not need to meet SNAP eligibility
requirements because their need has been established under the states‘
Temporary Assistance for Needy Families (TANF) program. As of June
2010, 36 states have opted to provide categorical eligibility for SNAP
to any household found eligible for a service funded through TANF and,
in 35 states, there is no limit on the amount of assets certain
households may have to be determined eligible, according to FNS.
Households can be categorically eligible for SNAP even if they receive
no TANF funded service other than a toll-free telephone number or
informational brochure. However, the amount of assistance eligible
households receive is determined using the same process used for other
SNAP recipients. According to FNS officials, increased use of
categorical eligibility by states has reduced administrative burdens
and increased access to SNAP benefits to households who would not
otherwise be eligible due to asset or income limits. However, little
is known about the extent of its impact on increased access or program
integrity.
SNAP has played a key role in assisting families facing hardship
during the economic crisis, but given fiscal constraints and program
growth, it is more important than ever to understand the impact of
policy changes, and balance improvements in access with efforts to
ensure accountability.
What GAO Recommends:
FNS generally agreed with GAO‘s prior recommendations to address SNAP
trafficking and categorical eligibility issues and has taken action in
response to most of them.
View [hyperlink, http://www.gao.gov/products/GAO-10-956T] or key
components. For more information, contact Kay Brown at (202) 512-7215
or brownk@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
Thank you for inviting me here today to discuss issues related to the
integrity of the U.S. Department of Agriculture's (USDA) Supplemental
Nutrition Assistance Program (SNAP), formerly the Food Stamp Program.
SNAP is intended to help low-income individuals and families obtain a
better diet by supplementing their income with benefits to purchase
food. Participation in SNAP has risen steadily over the last decade in
response to economic conditions and has played a critical role in
assisting families facing hardship. In fiscal year 2000, SNAP provided
about $15 billion in benefits to about 17 million individuals while in
fiscal year 2009, it provided more than $50 billion in benefits to
nearly 34 million individuals. The recent economic crisis has sharply
increased demand for such assistance, with participation in SNAP
increasing by 22 percent from June 2008 to June 2009 alone. Currently,
almost 1 in every 11 Americans participates in the program. Further,
the American Recovery and Reinvestment Act of 2009 provided a
temporary across-the-board increase to the SNAP benefit amount.
[Footnote 1] This recent growth highlights the importance of ensuring
program integrity. Every year, more than $1 billion in benefits are
paid incorrectly. Further, SNAP recipients exchange hundreds of
millions of dollars in benefits for cash instead of food with
authorized retailers across the country, a practice known as
trafficking. In addition, concerns have been raised about a policy
option allowing states to give households automatic eligibility for
SNAP if they are eligible for minimal services financed with Temporary
Assistance for Needy Families (TANF) funds (a type of categorical
eligibility).
The information I am presenting today is based on past work, updated
with current information where available, on three issues related to
ensuring integrity of the program: (1) improper payments to SNAP
participants, (2) trafficking of SNAP benefits, and (3) categorical
eligibility for SNAP benefits.[Footnote 2] The payment error and
trafficking findings are based on past analyses of program quality
control data, case file reviews, data analysis of the Food and
Nutrition Service (FNS) retailer database, and interviews and site
visits with program stakeholders, including federal agency and state
and local officials. The categorical eligibility findings are based on
a 2007 survey of state SNAP administrators, an analysis of household
characteristic data collected from 21 states, and interviews and site
visits with federal and state officials. More complete information on
the scope and methodology for our prior work is available in each
published report. In addition, we updated data where available,
reviewed recent USDA policy changes and actions taken in response to
our recommendations, and discussed the implications of these actions
and changes with USDA officials. We also reviewed relevant federal
laws and regulations. We conducted this work in accordance with
generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings
and conclusions based on our audit objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and
conclusions.
Background:
SNAP is jointly administered by FNS and the states. FNS pays the full
cost of SNAP benefits, shares the states' administrative costs, and is
responsible for promulgating program regulations and ensuring that
state officials administer the program in compliance with program
rules. States administer the program by determining whether households
meet the program's eligibility requirements, calculating monthly
benefits for qualified households, and issuing benefits to
participants through an Electronic Benefits Transfer (EBT) system.
Program Participation:
As shown in figure 1, program participation has increased sharply from
fiscal years 1999 to 2009, and indications are that participation has
continued to increase significantly in fiscal year 2010. According to
FNS, the downturn in the U.S. economy, coupled with changes in the
program's rules and administration, has led to an increase in the
number of SNAP participants.
Figure 1: SNAP Participation Has Increased Over the Last Decade:
[Refer to PDF for image: line graph]
Fiscal year: 1999;
Number of participants: 18.2 million.
Fiscal year: 2000;
Number of participants: 17.2 million.
Fiscal year: 2001;
Number of participants: 17.3 million.
Fiscal year: 2002;
Number of participants: 19.1 million.
Fiscal year: 2003;
Number of participants: 21.3 million.
Fiscal year: 2004;
Number of participants: 23.9 million.
Fiscal year: 2005;
Number of participants: 25.7 million.
Fiscal year: 2006;
Number of participants: 26.7 million.
Fiscal year: 2007;
Number of participants: 26.5 million.
Fiscal year: 2008;
Number of participants: 28.4 million.
Fiscal year: 2009;
Number of participants: 33.7 million.
Source: GAO analysis of FNS data.
[End of figure]
Determination of Eligibility and Benefits:
Eligibility for SNAP is based primarily on a household's income and
assets. To determine a household's eligibility, a caseworker must
first determine the household's gross income, which cannot exceed 130
percent of the federal poverty level for that year as determined by
the Department of Health and Human Services. A household's net income
cannot exceed 100 percent of the poverty level (or about $22,056
annually for a family of four living in the continental United States
in fiscal year 2010). Net income is determined by deducting from gross
income a portion of expenses such as dependent care costs, medical
expenses for elderly individuals, utilities costs, and housing
expenses.
A household's assets are also considered to determine SNAP eligibility
and SNAP asset rules are complex. There is a fixed limit, adjusted
annually for inflation, on the amount of assets a household may own
and remain eligible for SNAP. Certain assets are not counted, such as
a home and surrounding lot. There are also basic program rules that
limit the value of vehicles an applicant can own and still be eligible
for the program.
Categorical Eligibility for SNAP:
Federal regulations require states to make households categorically
eligible for SNAP if the household receives certain cash benefits,
such as TANF cash assistance or Supplemental Security Income. States
must also confer categorical eligibility for certain households
receiving, or authorized to receive, certain TANF non-cash services
that are funded with more than 50 percent federal or state maintenance
of effort (MOE) funds and serve certain TANF purposes.[Footnote 3] In
addition, in certain circumstances, states have the option to confer
categorical eligibility using TANF non-cash services funded with less
than 50 percent federal TANF or state MOE funds. The intent of
categorical eligibility was to increase program access and reduce the
administrative burden on state agencies by streamlining the need to
apply means tests for both TANF and SNAP.
FNS's Quality Control (QC) System:
Improper payments (or payment errors) occur when recipients receive
too much or too little in SNAP benefits. FNS and the states share
responsibility for implementing an extensive quality control system
used to measure the accuracy of SNAP payments and from which state and
national error rates are determined. Under FNS's quality control
system, the states calculate their payment errors annually by drawing
a statistical sample to determine whether participating households
received the correct benefit amount. The state's error rate is
determined by dividing the dollars paid in error by the state's total
issuance of SNAP benefits. Once the error rates are final, FNS is
required to compare each state's performance with the national error
rate and imposes financial penalties or provides financial incentives
according to legal specifications.[Footnote 4]
Trafficking and FNS Authorization and Monitoring of Retailers:
Trafficking occurs when SNAP recipients exchange SNAP benefits for
cash instead of food with authorized retailers.[Footnote 5] Under the
EBT system, SNAP recipients receive an EBT card imprinted with their
name and a personal account number, and SNAP benefits are
automatically credited to the recipients' accounts once a month. In
legitimate SNAP transactions, recipients run their EBT card, which
works much like a debit card, through an electronic point-of-sale
machine at the grocery checkout counter, and enter their secret
personal identification number to access their SNAP accounts. This
authorizes the transfer of SNAP benefits from a federal account to the
retailer's account to pay for the eligible food items. The legitimate
transaction contrasts with a trafficking transaction in which
recipients swipe their EBT card, but instead of buying groceries, they
receive a discounted amount of cash and the retailer pockets the
difference.
FNS has the primary responsibility for authorizing retailers to
participate in SNAP. To become an authorized retailer, a store must
offer, on a continuing basis, at least three varieties of foods in
each of the four staple food categories--meats, poultry or fish;
breads or cereals; vegetables or fruits; and dairy products--or over
50 percent of its sales must be in a staple group. The store owner
submits an application and includes relevant forms of identification
such as copies of the owner's Social Security card, driver's license,
business license, liquor license, and alien resident card. The FNS
field office program specialist then checks the applicant's Social
Security number against FNS's database of retailers, the Store
Tracking and Redemption System, to see if the applicant has previously
been sanctioned in the SNAP program. The application also collects
information on the type of business, store hours, number of employees,
number of cash registers, the types of staple foods offered, and the
estimated annual amount of gross sales and eligible SNAP sales.
In addition to approving retailers to participate in the program, FNS
has the primary responsibility for monitoring their compliance with
requirements and administratively disqualifying those who are found to
have trafficked SNAP benefits. FNS headquarters officials collect and
monitor EBT transaction data to detect suspicious patterns of
transactions by retailers. They then send any leads to FNS program
specialists in the field office who either work the cases themselves
or refer them to undercover investigators in the Retailer
Investigations Branch to pursue by attempting to traffic SNAP benefits
for cash.
States Have Made Significant Progress in Reducing Payment Errors:
The SNAP Payment Error Rate Has Declined to a Record Low:
The national payment error rate --the percentage of SNAP benefit
dollars overpaid or underpaid to program participants--has declined by
about 56 percent over the last 11 years, from 9.86 percent in 1999 to
4.36 percent in 2009, in a time of increasing participation (see
figure 1).[Footnote 6] Of the total $2.19 billion in payment errors in
fiscal year 2009, $1.8 billion, or about 82 percent, were
overpayments. Overpayments occur when eligible persons are provided
more than they are entitled to receive or when ineligible persons are
provided benefits. Underpayments, which occur when eligible persons
are paid less than they are entitled to receive, totaled $412 million,
or about 18 percent of dollars paid in error, in fiscal year 2009.
Figure 2: SNAP Payment Errors Have Dropped to a Record Low:
[Refer to PDF for image: multiple line graph]
Fiscal year: 1999;
Combined payment error rate: 9.86%;
Overpayment error rate: 7.01%;
Underpayment error rate: 2.85%.
Fiscal year: 2000;
Combined payment error rate: 8.91%;
Overpayment error rate: 6.51%;
Underpayment error rate: 2.4%.
Fiscal year: 2001;
Combined payment error rate: 8.66%;
Overpayment error rate: 6.47%;
Underpayment error rate: 2.19%.
Fiscal year: 2002;
Combined payment error rate: 8.26%;
Overpayment error rate: 6.16%;
Underpayment error rate: 2.1%.
Fiscal year: 2003;
Combined payment error rate: 6.64%;
Overpayment error rate: 5.05%;
Underpayment error rate: 1.59%.
Fiscal year: 2004;
Combined payment error rate: 5.88%;
Overpayment error rate: 4.48%;
Underpayment error rate: 1.41%.
Fiscal year: 2005;
Combined payment error rate: 5.84%;
Overpayment error rate: 4.53%;
Underpayment error rate: 1.31%.
Fiscal year: 2006;
Combined payment error rate: 5.99%;
Overpayment error rate: 4.82%;
Underpayment error rate: 1.17%.
Fiscal year: 2007;
Combined payment error rate: 5.64%;
Overpayment error rate: 4.58%;
Underpayment error rate: 1.06%.
Fiscal year: 2008;
Combined payment error rate: 5.01%;
Overpayment error rate: 4.01%;
Underpayment error rate: 1%.
Fiscal year: 2009;
Combined payment error rate: 4.36%;
Overpayment error rate: 3.53%;
Underpayment error rate: 0.82%.
Source: GAO analysis of FNS data.
[End of figure]
The decline in payment error rates has been widespread despite the
significant increase in participation. Error rates fell in almost all
states, and 36 states reduced their error rates by over 50 percent
from fiscal years 1999 to 2009. In addition, 47 states had error rates
below 6 percent in 2009; this is an improvement from 1999, when 7
states had error rates below 6 percent. However, payment error rates
vary among states. Despite the decrease in many states' error rates, a
few states continue to have high payment error rates.
Program Simplification Has Been Shown to Reduce Error Rates, but the
Program Remains Complex:
State use of simplified reporting options has been shown to have
contributed to the reduction in the payment error rate. Several
options are made available to the states to simplify the application
and reporting process, and one such option is simplified reporting.
[Footnote 7] Of the 50 states currently using simplified reporting, 47
have expanded it beyond earned income households, according to a
recent FNS report. Once a state has elected to use simplified
reporting, eligible households in the state need only report changes
occurring between certification and normally scheduled reporting if
the changes result in income that exceeds 130 percent of the federal
poverty level.[Footnote 8] This simplified reporting option can reduce
a state's error rate by minimizing the number of income changes that
must be reported between certifications and thereby reducing errors
associated with caseworker failure to act, as well as participant
failure to report changes.
Despite these simplified reporting options, program eligibility
requirements remain complex. This complexity increases the risk that
caseworkers will make errors when considering all the factors needed
to determine eligibility. Our previous work has shown that the
financial eligibility of an applicant can be difficult to verify in
means-tested programs, further increasing the risk of payment to an
ineligible recipient.[Footnote 9] For example, caseworkers must verify
several types of household assets to determine eligibility and benefit
amounts, such as bank accounts, property, and vehicles. While
additional efforts to simplify the program may further reduce payment
error, it could also reduce FNS' ability to target the program to
individual families' needs. Moreover, participant-caused errors, which
we earlier reported constitute one-third of the overall national
errors, are difficult to prevent.
FNS and States Have Taken Steps to Increase Payment Accuracy:
We found that FNS and the states we reviewed have taken many
approaches to increasing SNAP payment accuracy, most of which are
consistent with internal control practices known to reduce improper
payments.[Footnote 10] Often, several practices are tried
simultaneously, making it difficult to determine which have been the
most effective.
* Tracking state performance. FNS staff use Quality Control (QC) data
to monitor states' performance over time; conduct annual reviews of
state operations; and where applicable, monitor the states'
implementation of corrective action plans.[Footnote 11] FNS, in turn,
requires states to perform management evaluations to monitor whether
adequate corrective action plans are in place at local offices to
address the causes of persistent errors and deficiencies. In addition,
in November 2003, FNS created a Payment Accuracy Branch at the
national level to work with FNS regional offices to suggest policy and
program changes and to monitor state performance. The branch
facilitates a National Payment Accuracy Work Group with
representatives from each FNS regional office and headquarters who use
QC data to review and categorize state performance into one of three
tiers.[Footnote 12] Increased intervention and monitoring approaches
are applied when state error rates increase and states are assigned to
tier 2 or tier 3.
* Penalties and incentives. FNS has long focused its attention on
states' accountability for error rates through its QC system by
assessing financial penalties and providing financial incentives.
However, since 2000, USDA leadership has more explicitly established
payment accuracy as a program priority. High level USDA officials
visited states with particularly high error rates, and FNS has
collected a higher percentage of penalties from states compared with
prior years. For example, from fiscal year 1992 to 2000, FNS collected
about $800,000 in penalties from states. In the next 5 years, FNS
collected more than $20 million from states.
In fiscal year 2009, 3 states (Maine, West Virginia, and New Mexico)
were notified that they had incurred a financial liability for having
a poor payment error rate for at least two consecutive years. An
additional 9 states and territories (Connecticut, Maryland, Indiana,
Wisconsin, Louisiana, Texas, Iowa, Alaska, and Guam) were found to be
in jeopardy of being penalized if their error rates do not improve.
Ten states and territories received bonus payments for the best and
most improved payment error rates in fiscal year 2009 (Delaware,
Florida, Georgia, Guam, Maine, Nebraska, Ohio, South Dakota,
Washington, Wisconsin).
* Information sharing. FNS also provides and facilitates the exchange
of information gleaned from monitoring by training state QC staff,
presenting at conferences, publishing best practice guides, supporting
the adoption of program simplification options, and providing states
policy interpretation and guidance.
At the time of our 2005 study, states we reviewed adopted a
combination of practices to prevent, minimize, and address payment
accuracy problems, such as:
* Increasing the awareness of, and the accountability for, payment
error. For example, some states set error rate targets for their local
offices and hold staff accountable for payment accuracy.
* Analyzing quality control data to identify causes of common payment
errors and developing corrective actions.
* Making automated system changes to prompt workers to obtain complete
documentation from clients.
* Developing specialized change units that focus on acting upon
reported case changes.
* Verifying the accuracy of benefit payments calculated by state SNAP
workers through supervisory and other types of case file reviews.
Despite this progress, the amount of SNAP benefits paid in error is
substantial, totaling about $2.2 billion in 2009. This necessitates
continued top-level attention from USDA management and continued
federal and state commitment to determining the causes of improper
payments and taking corrective actions to reduce them.
Estimates Suggest Trafficking Has Declined, but FNS Could Further
Enhance Program Integrity:
FNS Estimates Suggest That the Rate of SNAP Trafficking Has Declined:
The national rate of SNAP trafficking declined from about 3.8 cents
per dollar of benefits redeemed in 1993 to about 1.0 cent per dollar
during the years 2002 to 2005, as shown in table 1. However, even at
that lower rate, FNS estimates that about $241 million in SNAP
benefits were trafficked annually in those years. FNS has not
completed an updated estimate of trafficking since 2005.
Table 1: FNS Estimates Suggest That the Trafficking Rate Has Declined:
Millions of dollars:
Calendar year period: 1993;
Estimated trafficking rate percentage: 3.8%;
SNAP benefits issued annually: $21,100;
Estimated amount of benefits trafficked annually: $812.
Calendar year period: 1996-1998;
Estimated trafficking rate percentage: 3.5%;
SNAP benefits issued annually: $19,627[A];
Estimated amount of benefits trafficked annually: $657.
Calendar year period: 1999-2002;
Estimated trafficking rate percentage: 2.5%;
SNAP benefits issued annually: $16,139[A];
Estimated amount of benefits trafficked annually: $393.
Calendar year period: 2002-2005;
Estimated trafficking rate percentage: 1.0%;
SNAP benefits issued annually: $23,213[A];
Estimated amount of benefits trafficked annually: $241.
Source: FNS studies and GAO calculation.
[A] FNS reported that it annualized redemption data over the period of
the study but did not provide the annualized figures. We calculated
the 3 and 4 year average of benefits redeemed for comparative purposes.
Note: The data from 2002-2005 are the most recent available.
[End of table]
Overall, we found that the estimated rate of trafficking at small
stores was much higher than the estimated rate for supermarkets and
large groceries, which redeem most SNAP benefits. The rate of
trafficking in small stores was an estimated 7.6 cents per dollar and
an estimated 0.2 cents per dollar in large stores in 2005.
FNS Has Used EBT Data to Improve Retailer Monitoring:
With the implementation of EBT, FNS has supplemented its traditional
undercover investigations by the Retailer Investigations Branch with
cases developed by analyzing EBT transaction data. The nationwide
implementation of EBT, completed in 2004, has given FNS powerful new
tools to supplement its traditional undercover investigations of
retailers suspected of trafficking SNAP benefits. FNS traditionally
sent its investigators into stores numerous times over a period of
months to attempt to traffic benefits. However, in 1996 Congress gave
FNS the authority to charge retailers with trafficking in cases using
evidence obtained through an EBT transaction report,[Footnote 13]
called "paper cases." A major advantage of paper cases is that they
can be prepared relatively quickly and without multiple store visits.
These EBT cases now account for more than half of the permanent
disqualifications by FNS. Although the number of trafficking
disqualifications based on undercover investigations has declined,
these investigations continue to play a key role in combating
trafficking. However, as FNS's ability to detect trafficking has
improved, the number of suspected traffickers investigated by other
federal entities, such as the USDA Inspector General and the U.S.
Secret Service, declined, according to data available at the time of
our review. These entities have focused more on a smaller number of
high-impact investigations. As a result, retailers who traffic are
less likely to face criminal penalties or prosecution.[Footnote 14]
FNS Has Taken Action to Improve Retailer Monitoring and Increase
Trafficking Penalties:
In response to our prior recommendation that FNS improves analysis and
monitoring, FNS has implemented new technology to improve its ability
to detect trafficking and disqualify retailers who traffic, which has
contributed to more sophisticated analyses of SNAP transactions and
categorization of stores based on risk. Specifically, FNS implemented
a revised store classification system to systematically compare
similar stores in order to better identify fraudulent transaction
activity for investigation. FNS also increased the amount of data
available to review and changed its monitoring of transaction data
from reviewing monthly data to reviewing these data on a daily basis.
FNS also implemented a new tool that assesses each retailer's risk of
trafficking. FNS reports that these changes have assisted with early
monitoring and identification of violating stores and allocation of
its monitoring resources.
Consistent with our recommendation that FNS develop a strategy to
increase penalties for trafficking, FNS received new authority to
impose increased financial penalties for trafficking. The Food,
Conservation, and Energy Act of 2008 expanded FNS authority to assess
civil money penalties in addition to or in lieu of disqualification
[Footnote 15]. It also provided authority for FNS, in consultation
with the Office of the Inspector General, to withhold funds from
traffickers during the administrative process, if such trafficking is
considered a flagrant violation. Regulations to implement this
provision are being developed and FNS expects the proposed rule to be
published in July 2012. According to FNS, the rule that will address
addition of monetary sanctions to disqualification is targeted for
publication in September 2011. Until the policy is implemented, the
impact of this change will not be known.
Despite Progress, Vulnerabilities Still Exist:
Despite the progress FNS has made in combating retailer trafficking,
the SNAP program remains vulnerable.
Program vulnerabilities we identified include:
* Limited inspection of stores. FNS authorizes some stores with
limited food supplies so that low-income participants in areas with
few supermarkets have access to food, but may not inspect these stores
again for 5 years unless there is some indication of a problem.
* Varied state efforts. Some states actively pursue and disqualify
recipients who traffic their benefits while inaction by other states
allow recipients suspected of trafficking to continue the practice. We
recommended in our October 2006 report that FNS promote state efforts
to pursue recipients suspected of trafficking by revisiting the
incentive structure to incorporate additional provisions to encourage
states to investigate and take action against recipients who traffic.
We also recommended that FNS ensure that field offices report to
states those recipients who are suspected of trafficking with
disqualified retailers. However, FNS officials told us they have taken
few recent steps to increase state efforts to pursue recipients
suspected of trafficking, in part because of state resource
constraints, but will continue to examine the impact of financial
incentives in preparation for the expected upcoming program
reauthorization.
States Can Provide Automatic SNAP Eligibility to Individuals
Authorized to Receive TANF Services:
Many States Confer Categorical Eligibility Using No Asset Limit and
Income Limits Above Regular SNAP Rules:
States that confer TANF non-cash categorical eligibility use a variety
of TANF services to qualify participants for SNAP benefits. According
to FNS, as of June 2010, 36 states are using broad-based policies that
could make most, if not all, TANF non-cash households categorically
eligible for SNAP because the households receive TANF/MOE funded
benefits, such as brochures or information referral services. This is
an increase from the 29 states that conferred this type of categorical
eligibility at the time of our 2007 report. Other states have more
narrow policies in place that could make a smaller number of
households categorically eligible for SNAP because they receive a
TANF/MOE funded benefit such as child care or counseling.
These categorically eligible households do not need to meet SNAP
eligibility requirements such as the SNAP asset or gross income test
because their general need has been established by the TANF program.
For example, in 35 of the states that confer categorical eligibility
for all TANF services, there is no limit on the amount of assets a
household may have to be determined eligible, according to a FNS
report. In addition, the gross income limit of the TANF program set by
these states ranged from 130 to 200 percent of the federal poverty
level, according to a FNS report. As a result, households with
substantial assets but low income could be deemed eligible for SNAP
under these policies.
Even though households may be deemed categorically eligible for SNAP,
the amount of assistance households are eligible for is determined
based on each household's income and other circumstances using the
same process used for other SNAP recipients. Some families determined
categorically eligible for the program could be found eligible for the
minimum benefit. However, FNS noted in a recent report that families
with incomes above 130 percent of the federal poverty level and high
expenses (shelter costs, dependent care expenses, and medical costs)
could receive a significant SNAP benefit.
Households can be categorically eligible for SNAP even if they receive
no TANF funded service other than a toll-free telephone number or
informational brochure. For example, one state reported to FNS that it
included information about a pregnancy prevention hotline on the SNAP
application to confer categorical eligibility. Other states reported
providing households brochures with information about available
services, such as domestic violence assistance or marriage classes, to
confer categorical eligibility. Receipt of the information on the SNAP
applications or on the brochures can qualify the household to be
categorically eligible for SNAP benefits. However, the amount of the
SNAP benefit is still determined in accordance with SNAP rules by the
eligibility workers using information on income and expenses.
In 2007, we reported that six states may not have been following
program regulations because they were not using certain TANF noncash
services to confer SNAP categorical eligibility.[Footnote 16] These
services included child care, transportation, and substance abuse
services, which may have been funded by more than 50 percent federal
TANF or state MOE funds. In addition, some states reported that they
did not specifically determine whether an individual needs a specific
TANF noncash service before conferring SNAP eligibility. We
recommended that FNS provide guidance and technical assistance to
states clarifying which TANF noncash services states must use to
confer categorical eligibility for SNAP and monitor states' compliance
with categorical eligibility requirements. In September 2009, USDA
released a memorandum encouraging states to continue promoting noncash
categorical eligibility. FNS reported that four of the six states
currently are using the required noncash services to confer
categorical eligibility.
FNS and States Cite Several Advantages to Use of Expanded Categorical
Eligibility:
FNS has encouraged states to adopt categorical eligibility to improve
program access and simplify the administration of SNAP. According to
FNS officials, increased use of categorical eligibility by states has
reduced administrative burdens and increased access to SNAP benefits
to households who would not otherwise be eligible for the program due
to SNAP income or asset limits. Adoption of this policy option can
provide needed assistance to low-income families, simplify state
policies, reduce the amount of time states must devote to verifying
assets, and reduce the potential for errors, according to FNS. FNS
recently also encouraged states that have implemented a broad-based
categorical eligibility program with an asset limit to exclude
refundable tax credits from consideration as assets.
In our previous work, we found that many of the states' SNAP officials
surveyed believed eliminating TANF non-cash categorical eligibility
would decrease participation in SNAP.[Footnote 17] Many of the states'
SNAP officials we surveyed also believed that eliminating TANF non-
cash categorical eligibility would increase the SNAP administrative
workload and state administrative costs. Some common reasons state
officials indicated for the increase in SNAP administrative workload
were:
* increase in verifications needed,
* increase in error rates as required verifications increase,
* changes to data systems,
* increase in time to process applications, and:
* changes to policies and related materials.
While FNS and the states believe categorical eligibility has improved
program access and payment accuracy, the extent of its impact on
access and program integrity is unclear.
Concluding Observations:
Over the past few years, the size of the Supplemental Nutrition
Assistance Program has grown substantially, both in terms of the
number of people served and the amount paid out in benefits, at a time
when the slow pace of the economic recovery has left many families
facing extended hardship. At the same time, due largely to the efforts
of FNS working with the states, payment errors have declined and
mechanisms for detecting and reducing trafficking have improved.
However, little is known about the extent to which increased use of
categorical eligibility has affected the integrity of the program.
Further, improper payments in the program continue to exceed $2
billion and retailer fraud remains a serious concern, highlighting the
importance of continued vigilance in ensuring that improvements in
program access are appropriately balanced with efforts to maintain
program integrity. As current fiscal stress and looming deficits
continue to limit the amount of assistance available to needy
families, it is more important than ever that scarce federal resources
are targeted to those who are most in need and that the federal
government ensure that every federal dollar is spent as intended.
Mr. Chairman, this concludes my prepared statement. I will be happy to
answer any questions you or members of the Subcommittee may have.
Contact and Acknowledgments:
For future contacts regarding this testimony, please contact Kay Brown
at (202) 512-7215 or e-mail brownke@gao.gov. Key contributors to this
testimony were Kathy Larin, Cathy Roark, and Alex Galuten.
[End of section]
Related GAO Products:
Domestic Food Assistance: Complex System Benefits Millions, but
Additional Efforts Could Address Potential Inefficiency and Overlap
among Smaller Programs. [hyperlink,
http://www.gao.gov/products/GAO-10-346]. Washington, D.C.: April 15,
2010.
Improper Payments: Progress Made but Challenges Remain in Estimating
and Reducing Improper Payments. [hyperlink,
http://www.gao.gov/products/GAO-09-628T]. Washington, D.C.: April 22,
2009.
Food Stamp Program: FNS Could Improve Guidance and Monitoring to Help
Ensure Appropriate Use of Noncash Categorical Eligibility. [hyperlink,
http://www.gao.gov/products/GAO-07-465]. Washington, D.C.: March 28,
2007.
Food Stamp Program: Payment Errors and Trafficking Have Declined
despite Increased Program Participation. [hyperlink,
http://www.gao.gov/products/GAO-07-422T]. Washington, D.C.: January
31, 2007.
Food Stamp Trafficking: FNS Could Enhance Program Integrity by Better
Targeting Stores Likely to Traffic and Increasing Penalties.
[hyperlink, http://www.gao.gov/products/GAO-07-53]. Washington, D.C.:
October 13, 2006.
Improper Payments: Federal and State Coordination Needed to Report
National Improper Payment Estimates on Federal Programs. [hyperlink,
http://www.gao.gov/products/GAO-06-347]. Washington, D.C.: April 14,
2006.
Food Stamp Program: States Have Made Progress Reducing Payment Errors,
and Further Challenges Remain. [hyperlink,
http://www.gao.gov/products/GAO-05-245]. Washington, D.C.: May 5, 2005.
Food Stamp Program: Farm Bill Options Ease Administrative Burden, but
Opportunities Exist to Streamline Participant Reporting Rules among
Programs. [hyperlink, http://www.gao.gov/products/GAO-04-916].
Washington, D.C.: September 16, 2004.
Food Stamp Program: States Have Made Progress Reducing Payment Errors,
and Further Challenges Remain. [hyperlink,
http://www.gao.gov/products/GAO-05-245]. Washington, D.C.: May 5, 2005.
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, § 101 (2009).
[2] GAO, Food Stamp Program: States Have Made Progress Reducing
Payment Errors, and Further Challenges Remain, [hyperlink,
http://www.gao.gov/products/GAO-05-245] (Washington, D.C.: May 5,
2005); GAO, Food Stamp Trafficking: FNS Could Enhance Program
Integrity by Better Targeting Stores Likely to Traffic and Increasing
Penalties, [hyperlink, http://www.gao.gov/products/GAO-07-53]
(Washington, D.C.: Oct. 13, 2006). GAO, Food Stamp Program: FNS Could
Improve Guidance and Monitoring to Help Ensure Appropriate Use of
Noncash Categorical Eligibility, [hyperlink,
http://www.gao.gov/products/GAO-07-465] (Washington, D.C.: Mar. 28,
2007).
[3] TANF funding includes both TANF block grant and state maintenance
of effort (MOE) funds - nonfederal funds that states are required to
spend in order to receive the entire federal TANF block grant. FNS
regulations state that households in which all members are receiving
benefits or services from a program designed to meet the program goals
of TANF and which are funded with more than 50 percent of federal TANF
or state maintenance of effort funds are generally categorically
eligible for SNAP. A state may, at its discretion, in certain
circumstances, confer categorical eligibility to households in which
all members are receiving similar benefits or services from a program
funded with less than 50 percent federal TANF or state maintenance of
effort funds.
[4] The SNAP error rate is calculated for the entire program, as well
as every state, and is based on overpayments to those who are eligible
for smaller benefits, overpayments to those who are not eligible for
any benefit, and underpayments to those who do not get as much as they
should.
[5] In fiscal year 2009, about 190,000 retailers were authorized to
accept SNAP benefits.
[6] Our 2003 analysis of FNS' quality control data found that almost
two-thirds of SNAP payment errors are caused by caseworkers, usually
when they fail to act on new information or when they make mistakes
when applying program rules, and one-third are caused by participants,
when they unintentionally or intentionally do not report needed
information or provide incomplete or incorrect information.
[hyperlink, http://www.gao.gov/products/GAO-05-245]. We did not update
this analysis for this testimony.
[7] The Farm Security and Rural Investment Act of 2002 (2002 Farm
Bill) also gave states the option of adopting provisions that could
simplify program administration and possibly reduce error rates. These
options include simplifying income and resources, housing costs,
deductions, reporting requirements, and utility allowances. Pub. L.
No. 107-171, Title IV (2002). See GAO, Food Stamp Program: Farm Bill
Options Ease Administrative Burden, but Opportunities Exist to
Streamline Participant Reporting Rules among Programs, [hyperlink,
http://www.gao.gov/products/GAO-04-916] (Washington, D.C.: Sept. 16,
2004).
[8] Households subject to reporting on a periodic basis must submit
reports not less often than once every 6 months.
[9] See GAO, Improper Payments: Progress Made but Challenges Remain in
Estimating and Reducing Improper Payments. [hyperlink,
http://www.gao.gov/products/GAO-09-628T]. Washington, D.C.: April 22,
2009.
[10] See GAO, Strategies to Manage Improper Payments: Learning From
Public and Private Sector Organizations, [hyperlink,
http://www.gao.gov/products/GAO-02-69G] (Washington, D.C.: October
2001).
[11] States with error rates of 6 percent or more are required to
develop and implement corrective action plans to improve payment
accuracy that are monitored by the FNS regional offices.
[12] Tier 1 states have an error rate under 6 percent, and tier 2
states have an error rate of 6 percent or greater but do not fall into
tier 3. States are assigned to tier 3 when the lower limit of their
error rate estimate at the 90 percent confidence level is higher than
105 percent of the national error rate estimate.
[13] Pub. L. No. 104-193, § 841 (1996).
[14] On top of civil penalties, retailers who traffic may be
permanently disqualified from participating in the program. A civil
penalty may be imposed in lieu of permanent disqualification, however,
in certain circumstances in which the store owner was not aware of and
was not involved in the trafficking. In addition, individuals who are
determined to have intentionally committed an act in violation of the
SNAP statutes (such as by trafficking) lose eligibility to participate
in the program for a specified period of time, depending on the
circumstances. There are also potential criminal penalties (including
fines and possible imprisonment) for knowingly trafficking.
[15] Pub. L. No. 110-234, § 4132 (2008).
[16] [hyperlink, http://www.gao.gov/products/GAO-07-465].
[18] Our analysis of data from states in 2006 showed that a vast
majority of TANF noncash households may remain eligible for SNAP
benefits without noncash categorical eligibility because their income
and/or asset levels are within the regular SNAP limits. Other
households may lose eligibility for SNAP because their income and/or
asset levels are too high. [hyperlink,
http://www.gao.gov/products/GAO-07-465].
[End of section]
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