Congress Finds Rampant Fraud
In USDA’s Nutrition Programs

WASHINGTON —(AP)— Fraud is rampant in the nation's two main low-income nutrition programs, which last year served more than 30 million people, congressional investigators have found. Thousands received benefits who were ineligible either because of errors or cheating.

The $21 billion food stamps program and $4.1 billion Women, Infants and Children nutrition program are major sources of income for farmers and the food industry and generally enjoy strong support in Congress. But many lawmakers say repeated evidence of fraud and mismanagement could undermine their support.

"The neediest citizens in our society are hurt most by this corruption," said Rep. Bob Livingston, R-La., chairman of the House Appropriations Committee. "We cannot afford for hundreds of millions of dollars to be spent on people who aren't even eligible."

Reports issued last week by the General Accounting Office on food stamps and by investigators for Livingston's committee on WIC determined that both programs are plagued by retail stores that don't really sell much food.

These small, privately owned stores often traffic in food stamps and to a lesser extent in the WIC program through organized crime rings that illegally offer recipients percentages of their coupons' face value in cash, then charge the government full cost.

The GAO study of food stamps estimated that illegal trafficking occurs at about 13 percent of smaller stores, compared with only two percent of supermarkets or chains. In all, the most recent figures indicate about $815 million in food stamps is exchanged illegally for cash by retailers.

The House investigation found that WIC fraud frequently occurs in the same businesses as food stamp trafficking, but the major problem there is overcharging for food rather than exchanging cash for benefits.

Still, at a typical store in Michigan, Secret Service agents discovered that little food was ever sold as people traded in WIC benefits for cash. The scam created a potential health problem for anyone who bought food there.

"There was a tremendous quantity of expired, spoiled and rotten food on the shelves," the House report says. "The risk was that some of this food, including baby formula, could have been purchased unwittingly by some mother."

In the same case, investigators found that drugs and guns were sold in connection with WIC transactions.

But fraud by retail stores is far from the only problem.

In food stamps, the GAO estimated about seven percent of the benefits issued in 1996 — or $1.5 billion — went to people who earn too much money or received more stamps than they merited. About a quarter of the cases involved intentional cheating.

Reasons the reports laid out for the problems include supply of inaccurate income information by recipients, their receipt of food stamps from two states, and errors by caseworkers. Prisoners and even dead people have been discovered on the rolls.

In the Women, Infants and Children program, House investigators estimated that ineligible people cost the Treasury at least $225 million a year. In many cases, recipients are taken at their word as to income levels, with no system in place to verify claims. States also are given latitude to set eligibility guidelines.

Yvette Jackson, administrator of the Agriculture Department's food and nutrition service, said Friday her agency is stepping up its checks on the 186,700 stores that redeem food stamps. But she said the best hope of combating illegal trafficking is use of electronic benefit transfers, which all states must use by 2002 instead of paper coupons.

Although the transfers won't necessarily stop trafficking, they do make it easier for authorities to track illegal activity and provide a paper trail to be used in prosecuting crimes. A program aimed at rooting out these retailers has disqualified 125 over two years, Jackson added.

"EBT continues to be the most promising means of combating food stamp trafficking," Jackson said.

To catch ineligible people, she said the agency is checking its rolls against other databases such as motor vehicle data and registers of new job hires. She said more than 106,000 recipients were disqualified last year.

WIC is much further behind in implementing an EBT system to detect fraud. The Appropriations Committee report recommends tougher penalties as a deterrent, but the Agriculture Department abandoned such rules in 1991 under heavy pressure from retail store lobbyists.

Julie Paradis, a top WIC official at the Agriculture Department, said the agency plans to propose similar regulations this fall and has asked Congress to allow better verification of income. WIC must be reauthorized this year.

"We'd like to be able to do a better job," she said. "There has to be strong program integrity."