[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
WASTE, FRAUD, ABUSE, AND MISMANAGEMENT
=======================================================================
HEARINGS
before the
TASK FORCE ON WELFARE
of the
COMMITTEE ON THE BUDGET
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
HEARINGS HELD IN WASHINGTON, DC: JULY 19 AND
SEPTEMBER 12, 2000
__________
Serial No. 10-6
Printed for the use of the Committee on the Budget
U.S. GOVERNMENT PRINTING OFFICE
65-618cc WASHINGTON : 2000
COMMITTEE ON THE BUDGET
JOHN R. KASICH, Ohio, Chairman
SAXBY CHAMBLISS, Georgia, JOHN M. SPRATT, Jr., South
Speaker's Designee Carolina,
CHRISTOPHER SHAYS, Connecticut Ranking Minority Member
WALLY HERGER, California JIM McDERMOTT, Washington,
BOB FRANKS, New Jersey Leadership Designee
NICK SMITH, Michigan LYNN N. RIVERS, Michigan
JIM NUSSLE, Iowa BENNIE G. THOMPSON, Mississippi
PETER HOEKSTRA, Michigan DAVID MINGE, Minnesota
GEORGE P. RADANOVICH, California KEN BENTSEN, Texas
CHARLES F. BASS, New Hampshire JIM DAVIS, Florida
GIL GUTKNECHT, Minnesota ROBERT A. WEYGAND, Rhode Island
VAN HILLEARY, Tennessee EVA M. CLAYTON, North Carolina
JOHN E. SUNUNU, New Hampshire DAVID E. PRICE, North Carolina
JOSEPH PITTS, Pennsylvania EDWARD J. MARKEY, Massachusetts
JOE KNOLLENBERG, Michigan GERALD D. KLECZKA, Wisconsin
MAC THORNBERRY, Texas BOB CLEMENT, Tennessee
JIM RYUN, Kansas JAMES P. MORAN, Virginia
MAC COLLINS, Georgia DARLENE HOOLEY, Oregon
ZACH WAMP, Tennessee KEN LUCAS, Kentucky
MARK GREEN, Wisconsin RUSH D. HOLT, New Jersey
ERNIE FLETCHER, Kentucky JOSEPH M. HOEFFEL III,
GARY MILLER, California Pennsylvania
PAUL RYAN, Wisconsin TAMMY BALDWIN, Wisconsin
PAT TOOMEY, Pennsylvania
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Task Force on Welfare
JIM NUSSLE, Iowa, Chairman
PAUL RYAN, Wisconsin, Vice Chairman EVA M. CLAYTON, North Carolina,
WALLY HERGER, California Ranking Minority Member
PETER HOEKSTRA, Michigan BENNIE G. THOMPSON, Mississippi
MAC COLLINS, Georgia JIM DAVIS, Florida
GERALD D. KLECZKA, Wisconsin
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Professional Staff
Wayne T. Struble, Staff Director
Thomas S. Kahn, Minority Staff Director and Chief Counsel
C O N T E N T S
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Page
Hearing held in Washington, DC, July 19, 2000: Food Stamp Fraud--
Why Trafficking Persists and What Can Be Done About It......... 1
Statement of:
Roger C. Viadero, Inspector General, U.S. Department of
Agriculture............................................ 5
Lawrence J. Dyckman, Director, Food and Agriculture Issues,
Resources, Community, and Economic Development Division, U.S.
General Accounting Office...................................... 13
Darrell Hartman, Director of Special Operations, Office
of Inspector General, Texas Department of Human
Services............................................... 20
Shirley R. Watkins, Under Secretary, Food, Nutrition, and
Consumer Services, U.S. Department of Agriculture...... 24
Sheila R. Zedlewski, Director, the Income and Benefits
Policy Center, the Urban Institute..................... 55
David A. Super, Esquire, General Counsel, Center on
Budget and Policy Priorities........................... 59
Prepared statement of:
Mr. Viadero.............................................. 7
Mr. Dyckman.............................................. 15
Mr. Hartman.............................................. 22
Food, Nutrition, and Consumer Services: The Extent of
Trafficking in the Food Stamp Program--An Update....... 24
Ms. Watkins.............................................. 39
Ms. Zedlewski............................................ 57
Mr. Super................................................ 61
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Hearing held in Washington, DC, September 12, 2000: Federal
Disability Benefits Still Being Paid to Drug Addicts and
Alcoholics..................................................... 75
Statement of:
James G. Huse, Jr., Inspector General, Social Security
Administration......................................... 78
Steven L. Schaeffer, Assistant Inspector General for
Audit, Social Security Administration.................. 79
Kenneth Nibali, Associate Commissioner for Disability,
Social Security Administration......................... 82
Prepared statement of:
Mr. Huse................................................. 78
Mr. Schaeffer............................................ 81
Mr. Nibali............................................... 84
Food Stamp Fraud: Why Trafficking Persists and What Can Be Done About
It
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WEDNESDAY, JULY 19, 2000
House of Representatives,
Committee on the Budget,
Task Force on Welfare,
Washington, DC.
The Task Force met, pursuant to call, at 2:05 p.m., in room
210, Cannon House Office Building, Hon. Jim Nussle (chairman of
the Task Force) presiding.
Members present: Representatives Nussle, Hoekstra, and
Clayton.
Mr. Nussle. The Task Force will come to order. Thank you so
much for bearing with us on the votes on the floor of the
House. We apologize for any inconvenience that's given to our
guests or our witnesses or any colleagues.
First I'd like to thank the ranking member for joining me
in this hearing today, this discussion about the Food Stamp
Program. My ranking member, Eva Clayton, is someone who I have
had the opportunity to work with on this committee as well as
on the Agriculture Committee. And she is probably one of the
Congress' foremost leading advocates and authorities on Food
and Nutrition Programs. And I am honored to have you sharing
this discussion today.
This is not a partisan discussion. The Budget Committee is
a committee that looks at macro issues, such as the
expenditures of tax dollars. We have looked through the budget.
There are a number of issues that we are looking at this year
that have received reports from different agencies. We're
looking through those to see what we can do in our effort to
maintain fiscal discipline and budget oversight.
Food stamp trafficking is one of the major culprits that
keep food stamps from providing daily nutrition needed so
desperately by millions of infants and young children. In our
hearing today, we'll address the current status of the ongoing
problem with the Food Stamp Program.
We will also consider whether the data from the EBT, or
electronic benefit transfer, system, now in place in most
States, many States, has enabled USDA better access to the
level of trafficking information and activity and how EBT data
can better be used to control trafficking in the future.
Additionally, we hope to examine the effectiveness of the
Department's efforts to control trafficking by imposing
sanctions and prosecuting those who have abused the program
through trafficking.
The Food Stamp Program was established to provide low-
income households with coupons or electric benefits, electronic
benefits, so they can be used to buy food at government-
approved grocery stores and mobile vendors. Unfortunately,
because food stamps are kind of a parallel currency in many
parts of our country, they are subject to the kinds of fraud
and misuse by beneficiaries, vendors, and others who may come
in contact with them.
Today we are specifically looking into the fraud and abuse
of the food stamp trafficking portion. Food stamp trafficking
generally begins when vendors accept food stamps in exchange
for cash at discounted rates.
According to a 1995 study by USDA, one that I remember when
I was on the Agriculture Committee, USDA's Food and Nutrition
Service said that about 815 million, or about 4 percent, of the
food stamps issued were trafficked by about 9 percent of the
authorized dealers in Fiscal Year 1993.
The study, which used data from a period when few States
had begun to use EBTs to deliver food stamps, was until
recently, really, the only measure that I am aware of about
trafficking of food stamps.
More recently, a report by Food and Nutrition Service,
dated March of this year but just released evidently just this
past week, as I understand it, contends the trafficking has
declined by 19 percent, or to about $660 million a year between
the period of 1996 to 1998.
It also reported a 24 percent decline in food stamps case
load from 10.8 million households per month from 1993 to about
8 million per month in 1998, a 16 percent decline in the number
of food stamp, retailers authorized to accept food stamps, and
a 50 percent changeover from paper food stamps to EBT systems.
To date, the report's conclusions and methodology have not
really been confirmed independently, but that will be part of
the discussion I am sure today.
Joining us we have a number of witnesses. And, instead of
individually introducing them, what I'd like to do is get to
their testimony. First I'd like to recognize the ranking member
for any comments that she would like to make at this time
before we get to witnesses.
Mrs. Clayton. Thank you, Chairman Nussle. I want to thank
you for organizing this hearing. I, too, want to compliment you
on your sense of fairness and congeniality in making sure we
have a full discussion of this issue.
Food stamp trafficking is more than a crime against this
nation. Food stamp trafficking is a crime against children.
It's a crime against families. It's a crime against the poor,
the needy, the hungry. And that is why we must do all that we
can to decrease and ultimately eliminate food stamp
trafficking.
We are making progress. The amount of trafficking is
declining. During the most recent 2 years, for which data is
available, food stamp trafficking amounted to about $600
million a year. That amount is roughly said to be 20 percent
below the trafficking in 1993, which stood at $815 million a
year.
The rate of trafficking is also declining. During the same
period, the amount of dollars trafficked compared to the
benefit issued declined by 8 percent from four cents on the
dollar to three and a half cents on the dollar.
And, importantly, Mr. Chairman, according to the Department
of Agriculture, the greatest reduction in the rate of
trafficking came from those stores that are most likely to
traffick. We are making progress. Yet, admittedly, we must do
more.
Six hundred million dollars in trafficking is unacceptable.
This amount of money needs to be used and is needed to feed
families who need food.
Still, the progress we have experienced has been due, in
part, to the fact that we have proposed legislation and
approved in the Agriculture Committee and approved by Congress
to end waste, fraud, and abuse in the Food Stamp Program.
We have made an effort to cut down on trafficking. One of
the greatest strides this Congress has taken in this area is to
mandate the conversion to electronic benefits transfer, EBT,
system to end by the Fiscal Year 2002.
To date, 37 States have converted to EBT systems statewide.
More than 70 percent of the food stamps issued are through EBT
systems. Yet, Mr. Chairman, when we consider the cuts in
funding for enforcement effort against food stamp waste, fraud,
and abuse, it becomes clear why progress has not been as rapid
as we would expect.
Over the past 5 years, the difference between the amount of
funds requested for food stamp administration and those funds
enacted has indeed been pronounced. Simply put, it makes little
sense to challenge a giant with a rock. That fable may have
worked in Biblical times, but it does not work in these times.
If we want to eliminate food stamp trafficking, we must put
the necessary resources behind the effort, but, Mr. Chairman,
there is another more compelling issue in this area that we
cannot and we must not ignore.
Every day in America, despite welfare reform or perhaps,
some would say, because of it, there are families who need food
stamps to eat but do not receive that assistance. Every day in
America, despite welfare reform or perhaps because of it, many
go hungry.
There is evidence of hunger in 3.6 percent of all
households in America. According to the report for Bread for
the World entitled ``Domestic Hunger and Poverty Facts,'' 31
million persons live in households that experience hunger or
risk hunger. That number has represented one in every ten
households in the United States, despite our great prosperity.
Many, too many, of the hungry are children. Close to four
million children are hungry. Fourteen million children, 20
percent of the population, are said to live in homes that are
called food-insecure homes. In food-insecure homes, meals are
skipped. Sizes of meals are reduced.
Again, according to Bread for the World, some of those
occupants really do not receive any food for a whole day or
days. More than 10 percent of all households in America are
said to be homes of food-insecure.
Because there is such hunger and such food insecurity,
there is also infant mortality, growth stunting, iron
deficiency, anemia, poor learning, and increased chances of
disease. Because there is this hunger and food insecurity, the
poor are more likely to remain poor, the hungry more likely to
remain hungry and the sick less likely to be well.
The harsh reality of our efforts to root out waste, fraud,
and abuse--and food stamps is that in all too many instances--
too many citizens who are eligible for food stamps, who need
food stamps do not get the benefits.
Indeed, according to the Department of Agriculture, only
two-thirds of those eligible for food stamps actually receive
them. And since the rise to welfare reform movement,
participation in food stamps has decreased by 33 percent. These
declines may be seen good for waste, fraud, and abuse, but they
have not been good for eligible children who need the food or
for the poor families or for those who are hungry. And, most
disturbing, these declines have included more of the poorest of
the poor.
Those least able to feed themselves constitute most of the
persons who no longer are receiving food stamps. Does it really
serve our purposes to encourage the space to kick people off
the food stamp roll by enticing space with a payment of 35
cents on the dollar for each recipient who no longer receives
food stamps without regards of those who may be hungry and who
are not served?
Should I be concerned that in my State of North Carolina,
over the last 5-year period from 1993 to 1998, food stamp
participation declined 103,000, from 630,000 to 520? What has
happened to those thousands of persons who were then needy, are
not needy? Should I assume they are no longer hungry? Then why
are they no longer participating? Should we applaud the
citizens of North Carolina or try to find out the extent of
hunger?
Is it proper to praise the State of Texas, where the number
of food stamp recipients was cut from $2.7 million to $1.4
million over a recent 5-year period? Two million Texans
according to the Department of Agriculture have trouble
consistently affording food and 950,000 of those suffer from
outright hunger.
Should we applaud the State of Maryland that among the 50
States is responsible for closing food stamp operations at
almost half of the nation's stores that have been closed?
What's happening to the people who need to use their food
stamps when, indeed, their neighborhood food store operation is
no longer authorized and none to replace it? Worse, what
happens in rural communities when the only store within miles
of the distance are no longer authorized and none to replace
it?
Over the recent 5-year period for which we have data, there
has been a decline of 16 percent, from 210,000 stores
nationwide to 117,000. Mr. Chairman, is our zeal to eliminate
food stamp trafficking--and I count myself in that zeal--a tool
to help or is it really an instrument that hurts? I repeat:
Food stamp trafficking is unacceptable. And we must do
everything to eliminate it. But we must be careful to keep the
consequences of our efforts in mind.
There was a 24 percent decline in food stamp caseload over
a recent 5-year period. How are those persons eating now, Mr.
Chairman? Hunger is indeed a condition of poverty.
For more than three decades, the Food Stamp Program has
been a cornerstone of America's fight against hunger and the
first line of defense. And as we seek to eliminate food stamp
trafficking, let us be careful not to eliminate our fight
against hunger. We must not produce unintended results denying
hungry families and children food they so desperately need.
Again, I thank you. And I applaud the success we have thus
far. I look forward to the testimony.
Mr. Nussle. I thank the gentle lady. We're just trying to
organize now that we have yet more votes. Our job is
interrupting our job. See how that works?
First of all, I ask unanimous consent that all members be
given five legislative days to submit statements for the
record. Without objection, so ordered. And the witnesses are
allowed to--we'll submit your entire testimony for the record.
And we would ask you to summarize.
What we would first like to do is to ask Mr. Viadero. He is
the Inspector General for the Department of Agriculture. My
understanding is you have a time constraint. Why don't we ask
you to provide your testimony? We'll ask you some questions.
And then we'll go to the rest of the panel.
So I'll turn it over to you. We'd ask if you can try and
keep it within about 5 minutes. That would be great. Thank you.
Mr. Viadero. Thank you, Mr. Chairman and Ms. Clayton. I
appreciate the consideration given to me in time for this.
STATEMENT OF ROGER C. VIADERO, INSPECTOR GENERAL, U.S.
DEPARTMENT OF AGRICULTURE; ACCOMPANIED BY LAWRENCE J. DYCKMAN,
DIRECTOR, FOOD AND AGRICULTURE ISSUES, RESOURCES, COMMUNITY,
AND ECONOMIC DEVELOPMENT DIVISION, U.S. GENERAL ACCOUNTING
OFFICE; DARRELL HARTMAN, DIRECTOR OF SPECIAL OPERATIONS, OFFICE
OF INSPECTOR GENERAL, TEXAS DEPARTMENT OF HUMAN SERVICES; AND
SHIRLEY R. WATKINS, UNDER SECRETARY, FOOD, NUTRITION, AND
CONSUMER SERVICES, U.S. DEPARTMENT OF AGRICULTURE
STATEMENT OF ROGER VIADERO
Mr. Viadero. Good afternoon, Mr. Chairman and members of
the Committee. We are pleased to be here today to testify on
trafficking in the Food Stamp Program, a topic of considerable
concern within my agency.
Before we begin, I would like to introduce members of my
staff who are with me today: Mr. Gregory Seybold, Assistant
Inspector General for Investigations; and Mr. James Ebbitt,
Assistant Inspector General for Audit.
The Food Stamp Program continues to be our nation's primary
nutritional safety net, with an excess of $15.8 billion in
benefits issued to an average of 18,200,000 people in Fiscal
Year 1999. The huge size of this program and its vulnerability
to fraud and abuse has caused the Office of Inspector General
to continue to devote a significant portion of its total
resources to the Food Stamp Program.
During 1999, we devoted approximately 80 investigative
staff years to the food stamp trafficking and theft
investigations, which is a drop of 70 staff years from 150
staff years in Fiscal 1996.
Also, in Fiscal 1999, we conducted 242 investigations and
obtained 391 criminal convictions; whereas, in Fiscal 1996, we
conducted 691 investigations, resulting in 593 convictions.
Although our resources have been limited, we continue to
investigate a wide variety of food stamp trafficking
activities. These investigations have targeted those who
defrauded the program of benefits distributed through the
electronic benefits transfer, EBT, system as well as those
distributed as food stamp coupons.
These investigations also often uncovered complex criminal
conspiracies involving individuals who use numerous legitimate
and phony businesses to gather and redeem benefits. Those
involved moved their trafficking operations from one authorized
store to another, used the names of bogus owners for their
stores, established counter-surveillance, and took other
measures to avoid detection.
These individuals were also often found to be involved in
other criminal activities, such as drug trafficking, thefts,
burglary, armed robbery, illegal firearms trafficking, money-
laundering, immigration fraud, and other violent crimes. I'll
cover all of these topics of criminal investigations we have
been conducting and update you on our Operation Talon
initiative.
We categorize food stamp trafficking activities primarily
in two categories: street trafficking and retail store
trafficking. While much of the country has moved to EBT, many
States are still using food coupons. This distribution system
has been shown to be highly vulnerable to trafficking, and we
continue to uncover immense frauds.
An example of such a case was recently completed in New
York City. In this investigation, we uncovered a food stamp
conspiracy involving 44 defendants in 3 boroughs of the city
who fraudulently redeemed food stamps in excess of $63 million
at 40 authorized stores.
Much of the money used in food stamp trafficking was
derived from drug trafficking. To promote the scheme and
conceal the illegal source of funds, defendants moved money in
bank accounts between stores and laundered large amounts of
currency to accounts in such areas as Florida and Puerto Rico
held in the name of the account holders who are truly and
rightfully citizens of the Dominican Republic. This case has
already resulted in 35 convictions, including 4 bank officials,
and more are expected.
A recent example of another OIG investigation conducted
with members of a Detroit, MI, task force led to the arrest and
conviction of 18 members of a major narcotics and food stamp
trafficking organization.
The head of the organization trafficked narcotics for more
than 20 years in the area. He was seemingly untouchable until
he mentioned that he was interested in buying food stamps,
which brought my organization into the investigation.
During the course of the investigation, he purchased
$23,000 in food stamps directly from an undercover officer. He
then sold narcotics to the officer and was arrested. However,
after being arrested and released on bond, he was murdered
gangland style along with his girlfriend. The rest of his
organization was arrested and convicted for drug and food stamp
trafficking.
My office has also continued to lead a special enforcement
initiative known as Operation Talon, which targets individuals
who are involved in food stamp fraud and wanted for other
crimes.
Under this initiative, social service agencies match their
food stamp recipient records with law enforcement agencies'
fugitive felon warrants. The Office of Inspector General and
other law enforcement officials then use the information to
locate and apprehend the fugitives. As of July 12, 2000,
Operation Talon has resulted in 6,360 arrests of fugitive
felons in more than 70 metropolitan areas, including numerous
violent and dangerous felons who were wanted for murder, child
molestation, rape, and kidnapping.
I want to address the EBT system for distributing food
stamp benefits and our efforts to combat trafficking in this
area. We have observed a significant positive impact on
trafficking in the Food Stamp Program as a result of EBT.
While paper coupons are generally not traceable to
individual recipients, the EBT system records the date, time,
amount, recipient, and store involved in each transaction. Our
investigators can then analyze this information to document
criminal violations and support criminal prosecutions.
As expected, EBT has dramatically reduced street
trafficking in the Food Stamp Program. EBT benefits are less
negotiable on the street and, thus, less likely to be used as a
second currency. Such trafficking, however, does continue to a
lesser degree and still requires my office's attention.
While EBT has eliminated many street traffickers, large-
scale trafficking by retailers continues to be widespread. In a
recent investigation in Houston, Texas, six family members were
convicted of food stamp fraud, money-laundering, and
conspiracy. Our investigation disclosed that these individuals
illegally purchased and redeemed in excess of two million
dollars in food stamp benefits via EBT.
In this scheme, recipients sold food stamp benefits for
cash at two unauthorized storefronts, whose employees
telephoned one of the authorized stores and gave the
recipient's EBT card number, the recipient's confidential
identification number, and the transaction amount to move funds
to the individual retailer account.
Mr. Chairman, this concludes my statement. I thank you
again for the opportunity to address this Committee. And I
would be pleased to answer any questions you or other members
of the Committee might have.
Mr. Nussle. I thank you for your testimony.
[The prepared statement of Roger Viadero follows:]
Prepared Statement of Roger C. Viadero, Inspector General, U.S.
Department of Agriculture
Good afternoon, Mr. Chairman, and members of the committee. We are
pleased to be here today to testify on trafficking in the Food Stamp
Program (FSP), a topic of considerable concern within my agency. Before
we begin, I would like to introduce members of my staff who are here
with me today: Gregory S. Seybold, Assistant Inspector General for
Investigations; and James R. Ebbitt, Assistant Inspector General for
Audit.
The FSP continues to be our nation's primary nutritional ``safety
net,'' with $15.8 billion in benefits issued to an average 18.2 million
people in fiscal year (FY) 1999. The huge size of this program and its
vulnerability to fraud and abuse has caused the Office of Inspector
General (OIG) to continue to devote a significant portion of its total
resources to work in FSP. In FY 1999, we committed roughly 39 percent
of our investigative resources to combat fraud in the program and 9
percent of our audit resources to protect program integrity.
Limited Resources
While we have committed a significant percentage of our special
agents to combating trafficking in the program, the number of agents
available for such assignments has declined significantly and steadily.
During FY 1999, we devoted approximately 80 investigative staff years
to food stamp trafficking and theft investigations. This was down from
about 150 staff years in FY 1996, or a drop of nearly 50 percent. This
decline was primarily a result of our shrinking staff--agents and
auditors reduced by approximately 25 percent since 1993--and
secondarily due to our shifting agents to investigations of criminal
activities that threaten the safety and health of the public, the
agricultural sector, and U.S. Department of Agriculture (USDA)
employees. Such matters included investigations of meat packers who
knowingly sold contaminated or unwholesome meat products to an
unsuspecting public and smugglers who brought in tens of thousands of
pounds of agricultural products that were infested with agricultural
pests, as well as an increasing number of threats, assaults, and
homicides involving USDA employees.
The substantial drop in resources that we have been able to devote
to combating trafficking in FSP has led to corresponding drops in our
numbers of investigations conducted and convictions obtained. In FY
1996, we conducted 691 food stamp trafficking and theft investigations,
which resulted in 593 criminal convictions of individuals and
businesses. In FY 1999, we conducted only 242 investigations and
obtained 391 criminal convictions.
Food Stamp Trafficking Investigations
With our limited resources we have continued to investigate a wide
variety of food stamp trafficking activities. These investigations have
targeted those who defrauded the program of benefits distributed
through the Electronics Benefits Transfer (EBT) system, as well as
those distributed as food stamp coupons, both of which are highly
vulnerable to criminal activity. These investigations, as in past
years, often uncovered complex, criminal conspiracies, involving dozens
of individuals who used numerous legitimate and phony businesses to
gather and redeem benefits. Those involved moved their trafficking
operations from one authorized store to another, used the names of
bogus owners for their stores, established counter surveillance and
took other measures to avoid detection by law enforcement authorities.
These individuals were also often found to be involved in other
criminal activity, such as drug trafficking, thefts, and violent
crimes. I will cover the types of criminal investigations we have been
conducting, update you on our ``Operation Talon'' initiative, and
briefly mention our audit work in this area.
Street and Retailer Trafficking
We categorize food stamp trafficking activities primarily into two
categories: street trafficking and retail store trafficking. Street
trafficking involves individuals who buy or barter food stamp benefits
for cash or other nonfood items away from Food and Nutrition Service
(FNS) authorized stores. These traffickers generally obtain benefits
from recipients at a substantial discount of their face value, in
exchange for cash, drugs, or other nonfood items, and then sell them to
FNS-authorized store retailers who redeem the benefits at full value,
or sell them to another retailer. As of September 30, 1999, 161,000
stores were authorized to receive and redeem food stamp benefits
whether in the form of paper coupons or EBT cards. Both the street
trafficker and retailer profit when they sell or redeem the benefits.
We further categorize trafficking activities into those that
involve food coupons and EBT. While much of the country has moved to
EBT, which I will discuss later, many States are still using food stamp
coupons. This distribution system has been shown to be highly
vulnerable to large-scale street-type and retailer trafficking, and we
continue to uncover immense frauds.
An example of such a case was recently completed in New York City.
In this investigation our investigators uncovered a food stamp
conspiracy involving 44 defendants in 3 boroughs who fraudulently
redeemed food stamps worth $63 million at 40 authorized stores. Money
used in the food stamp trafficking was derived from drug trafficking.
In order to promote the scheme and conceal the illegal source of funds,
defendants moved money in bank accounts between stores and laundered
large amounts of currency to accounts in Puerto Rico and Florida, held
in the name of account holders in the Dominican Republic. This case has
already resulted in 35 convictions, including four bank officials. More
are expected.
Two other examples of cases are those recently completed in
Illinois and Mississippi. An investigation in Chicago resulted in the
indictment of a food storeowner and his brother for conspiring to
fraudulently redeem more than $1.2 million in food stamps over 10
months. The brothers opened eight bank accounts around Chicago and
deposited the proceeds from illegally obtained food stamps that were
received from other merchants and food storeowners in exchange for
cash. A record analysis revealed that only approximately $295,000 of
the over $1.2 million redeemed through the store resulted from
legitimate sales. The owner, who fled the country prior to sentencing,
is a fugitive. His brother was convicted and sentenced to serve 37
months in prison and ordered to pay restitution of $1 million.
An investigation in Mississippi resulted in the sentencing of a
storeowner to 4 years and 3 months in prison after his conviction for
food stamp fraud, conspiracy, and witness tampering. He was also
ordered to pay $1.2 million in restitution. The individual had obtained
several authorizations to accept and redeem food stamps in different
names and at different locations, and with an accomplice, had illegally
redeemed food stamps worth about $1.3 million over a 21-month period.
The investigation also disclosed that this individual offered a gang
member $10,000 cash to kill his accomplice who had become a Government
witness against him. The accomplice pled guilty to food stamp
trafficking and was sentenced to 6 months in prison.
Other Criminal Activity
As is indicated by the investigations mentioned earlier, our
special agents often establish that individuals involved in food stamp
trafficking are also involved in a variety of other criminal
activities. Such activities include drug trafficking, burglary, armed
robbery, fencing of stolen property, illegal firearms trafficking,
money laundering, and immigration fraud. Through these investigations,
which are often worked with other law enforcement organizations, we are
able to remove from society those who defraud its programs and endanger
its citizens.
A recent example of such an OIG investigation, conducted with
members of a Detroit, Michigan, task force, is that which led to the
arrest and conviction of 18 members of an organization of a major
narcotics and food stamp trafficker. The head of the organization had
trafficked narcotics for over 20 years in the area and was seemingly
``untouchable'' until he mentioned that he was interested in buying
food stamps, which brought OIG into the investigation. Prior to this
time he had insulated himself from law enforcement by never conducting
any drug deals himself, only through his lieutenants. During the course
of the investigation he bought $23,000 in food stamps directly from an
undercover officer. He then sold narcotics to the officer, after which
he was arrested. However, after being released on bond, he was
murdered, gangland style, along with his girlfriend. The rest of his
organization was arrested in a citywide sweep. Their convictions for
drug and/or food stamp trafficking led to sentences that ranged from a
maximum of life in prison without parole to a minimum of 5 months in
prison. The owner of the authorized store who was involved pled guilty
to food stamp and drug trafficking. He is currently a fugitive. The
neutralization of this major drug trafficking enterprise significantly
stemmed the flow of narcotics in the Detroit area.
Another OIG investigation, which we conducted with a task force in
Indiana, resulted in the arrest and conviction of 14 individuals for
their involvement in the theft and trafficking of $728,000 in food
stamps from 4 county welfare offices. Sentences ranged up to 20 years
in prison, with $1.1 million in restitution ordered. The investigation
showed that street gang members stole the food stamps from county
welfare offices and traded them for cocaine, marijuana, firearms,
explosives, and cash.
Through another ongoing case we are currently working jointly with
Immigration and Naturalization Service (INS) and Internal Revenue
Service, we found that food stamps were trafficked in Rochester, New
York, and then laundered through approximately 20 authorized grocery
stores. This food stamp conspiracy was conducted to facilitate the
smuggling and illegal entry of approximately 50 foreign nationals from
Pakistan. The group was also involved in a marriage fraud scam and visa
fraud. Thirty-six of 38 indicted individuals have, thus far, been
arrested and another unindicted individual arrested. Ten other
individuals have also been detained for INS violations.
My office has also continued to lead a special law enforcement
initiative known as ``Operation Talon,'' which targets individuals who
are involved in food stamp fraud and wanted for other crimes. Under
this initiative, OIG has been the intermediary between social service
agencies across the country and State and local law enforcement
agencies. The social service agencies match their food stamp recipient
records with law enforcement agencies' fugitive records. Information on
fugitives is then shared with OIG and other law enforcement officials,
who use it to locate and apprehend the fugitives. As of July 12, 2000,
Operation Talon has resulted in 6,360 arrests of fugitive felons in
more than 70 metropolitan areas nationwide. These fugitives included
numerous violent and dangerous felons who were wanted for murder, child
molestation, rape, and kidnapping.
EBT Implementation
I have briefly addressed food coupons trafficking and some of the
other types of criminal activity associated with food stamp
trafficking, now I want to address the EBT system for distributing food
stamp benefits, and our efforts to combat trafficking in food stamp
benefits distributed through EBT.
As you know, the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996, also known as Welfare Reform, mandated that
all Food Stamp Program benefits be issued using an EBT system by 2002.
States have rapidly moved in that direction. Whereas about 75 percent
of the benefits were issued using paper food coupons in FY 1997, now
about 74 percent of FSP benefits are issued using EBT. Almost three out
of every four recipients receive their food stamp benefits via an EBT
system. Per FNS, as of April 2000, 41 States and the District of
Columbia use EBT systems. Thirty-seven of the systems have been
implemented statewide, including the District of Columbia. The
remaining States are in various stages of implementation, from
planning, to putting out requests for proposals, to contract approval.
Some of the States in this category, with average participation
exceeding 250,000 people, are Indiana, Michigan, Mississippi, and
Virginia. The two largest Food Stamp Program States are California and
New York. California currently has two counties operating a pilot
system and expects to award a statewide contract during 2000. The five
boroughs of New York City are issuing benefits via EBT with the
remainder of the State expected to be operational by 2001.
Positive Aspects of EBT
As EBT has been brought on-line across the country, we have
observed a significant, positive impact on trafficking in the FSP.
While paper food coupons are generally not traceable to individual
recipients, the EBT system records the date, time, amount, recipient,
and store involved in all benefit transactions. Our investigators
manipulate this information to identify likely trafficking by
authorized retailers and food stamp recipients. We also use the data to
document criminal violations and then use the data in criminal
prosecutions. In fact, we have been manipulating and using EBT data in
our criminal investigations since our first EBT investigation in
Reading, Pennsylvania, in 1991.
FNS has also developed its own EBT data analysis computer program
for detecting potential fraudulent EBT activity, based on our original
EBT trafficking identification computer program. The FNS system, known
as the Anti-Fraud Locator Using EBT Retailer Transactions, or ALERT, is
now on-line and available in all FNS and OIG regions. We use both ALERT
and our own computer program in our investigations.
FNS is also using EBT data to disqualify violating retailers and
State authorities are using information obtained from EBT records to
disqualify large numbers of recipients who have sold their benefits.
The number of individuals disqualified as a result of OIG investigative
work has risen from fewer than 10 in FY 1994 to more than 10,000 since
FY 1997, almost entirely as a result of EBT investigations.
Investigation of EBT Traffickers
I am also pleased to report that implementation of EBT, as
expected, has dramatically reduced street trafficking in FSP benefits.
This has occurred because EBT benefits are less negotiable ''on the
street'' and, thus, less likely to be used as a ''second currency.''
Such trafficking, however, does continue to a lesser degree and still
requires OIG attention. For example, investigations in Cleveland,
Texas, resulted in the convictions of two individuals who exchanged
``crack'' cocaine for EBT food stamp benefits. The food stamp
recipients who purchased ``crack'' cocaine from these individuals gave
them their EBT cards and personal identification numbers, which allowed
the traffickers to use the cards and their benefits. One subject was
sentenced to 46 months in jail and the other to 18 months.
While EBT has eliminated many street traffickers, large-scale
trafficking by retailers continues to be widespread. Again, those
involved often traffic in immense quantities of benefits, have large
organizations, and often use sophisticated schemes to carry out the
crimes and to conceal their illegal activities.
A recent investigation in Houston, Texas, is a good example of
retailer trafficking in EBT benefits. The investigation resulted in the
conviction of six family members for food stamp fraud, money
laundering, and conspiracy. The 2-year long investigation disclosed
that these individuals illegally purchased and redeemed in excess of $2
million in food stamp benefits via EBT. In this scheme, recipients sold
food stamp benefits for cash at two unauthorized storefronts, whose
employees telephoned one of two authorized stores and gave the
recipient's EBT card number, the recipient confidential identification
number, and the transaction amount to employees at the authorized
store. The employee at the authorized store then manually entered the
information into the EBT access device to make it appear that the
recipient had actually purchased groceries at that location. The six
subjects were sentenced to prison terms ranging from 3\1/4\ years to
more than 8 years, and ordered to pay restitution of $2 million.
In another case, the owners of a store pled guilty in Federal Court
in Baltimore, MD, to fraud in EBT. The EBT records showed that during a
3-year period $975,000 worth of benefits was redeemed through this
store. However, bank records showed that nearly all of the funds
deposited into the account were removed through checks written to cash
or the owner, while only $103,000 in checks was written to wholesale
vendors. The total loss to the Government from 1995 to 1999 may have
been over a million dollars. Both co-owners confessed to the crimes.
One individual was sentenced to 21 months prison, the second to 5
months home detention. Both were ordered to pay $500,000 each in
restitution.
Audits of EBT Systems
In addition to conducting investigations of trafficking, we have
also taken a proactive role in attempting to limit fraudulent
activities in these programs. My office has taken an active role in
monitoring and reviewing EBT systems beginning in 1986 when we reviewed
the Reading, Pennsylvania, EBT pilot project. We view our role as
providing assurances to program managers that the systems are operating
as intended, or reporting the problems that need to be addressed so
that the systems operate properly. Reviewing EBT systems as they are
implemented has been a high priority for us and remains so.
Of the 41 States currently operating systems, OIG has conducted
reviews at 19, with reviews at 4 additional States and the District of
Columbia in process. We have concentrated our limited resources on
reviewing systems being implemented that will be issuing a larger
volume of program benefits.
This concludes my statement, Mr. Chairman. I thank you again for
the opportunity to address the Committee, and I would be pleased to
answer any questions you or other members of the committee might have.
Mr. Nussle. Is it possible to totally eliminate trafficking
within the Food Stamp Program? In your opinion, based on your
experience, do you believe that it's possible to have a more
dramatic decrease in this trafficking than what we have seen in
the reports that have been provided to Congress?
Mr. Viadero. In answer to the first part of the question, I
don't think we can realistically eliminate it. But can we have
a greater impact, a more significant impact? Can we get it down
to less than half of what it is? I say definitely yes.
The issue here is the amount of resources we have and we're
willing to put into this. My staff has been reduced by 24
percent in the last 5 years. I've had zero budget growth in the
last 5 years. These are very intensive investigations. And as
it stands right now on the EBT side, we very rarely open a case
where the amount of food stamp benefit to the authorized store
is not less than five times the amount of food sales.
So if an individual sells $100 worth of food, we see $500
worth of food stamp benefits being transacted there. Therefore,
that's the only way we can investigate. We're only doing high-
priority cases.
I'd like to do the simple, if you will, 50 to 100 thousand
dollar cases. Those are just too many to handle. For that, we
count on our friends at the State level to pick up the void and
at FNS to help us disqualify some of the stores.
We will say--and I think it should be understood from our
point--this is a very valuable and very successful program. I
have immediate family that have been on food stamps. It's a
good program. We just have to get the rascals out of it.
Mr. Nussle. I think your sentiments are joined by this
Committee that it is a valuable program providing food and
nutrition.
One of the issues, one of the questions that I am curious
about is in the area of enforcement. Do you find it at all
difficult to convince people within the U.S. Attorney's Office
to prosecute these kinds of cases?
I used to be a prosecutor. I did this at the State level.
There are obviously State welfare types of cases involving the
welfare system. They're not as interesting sometimes, as
glamorous as some of the other cases that are obviously very
pressing involving violence, involving drugs, involving some of
the mandatory cases that come through.
Is that an issue, having a difficult time just convincing
U.S. Attorneys and other prosecutors to prosecute these cases?
Mr. Viadero. Mr. Chairman, what we see is a difference,
district by district, in our ability to get these cases done.
For instance, when we go into the Southern District of Florida,
we don't have a great deal of success because of the
prosecutive minimum. OK?
If we go to the Southern District of New York, we don't
have any issues at all. The bulk of our cases in the New York
metro area are prosecuted at the United States Attorney's
Office.
The issue in Florida--and, again, it's a resource problem
on the part of the United States Attorney--is that they're
handling major drug trafficking cases and other interdiction
issues with Customs. However, the Dade County District Attorney
does prosecute all of our cases for us. Again, most of the
people will end up on probation because the Dade County Jail is
literally at 100 percent of capital offenders.
Mr. Nussle. Then my final question--and I have to run and
vote, and I am going to turn this over to Mr. Hoekstra from
Michigan--is on the issue of the EBT. Should we be doing more
to push toward that system?
You seem to very directly intimate that one of the aspects
of this is prosecution, which, of course, you're doing the best
you can to do, but the other side of this is to move to a
system that is a little bit more fraud-proof, such as EBT.
Would that be your recommendation to this Committee?
Mr. Viadero. Unequivocally so. EBT is the only way to go.
It's the smart way. Actually, we're entering the Twenty-First
Century. And we're slowly catching up to Twentieth Century
technology.
Mr. Hoekstra [presiding]. Excuse me for just a minute----
Mr. Viadero. Yes, sir.
Mr. Hoekstra [continuing]. I don't think either he or I
expected this kind of a break at this point in time.
One of the comments that Jim wanted for the record were
whether you were noting any trends in the kinds of trafficking
cases that you were uncovering. Has the value of the stamps
being trafficked increased in the kinds of cases you are seeing
relative to those in the past?
Mr. Viadero. Based upon what we see, EBT gives us a finite
amount because the computer records everything, as opposed to
having to go out and do the old, if you will, gumshoe-type
surveillance on traffickers in the street. What we see here,
though, is the fraud is removed from the street, taken off the
street, and put in a store, where it belongs. So, in essence,
the crooks have taken care of the Paperwork Reduction Act for
us.
The split on the street used to be the person trafficking
benefits would historically get 50 cents on a dollar. Since the
retailers now don't have to fill out any paperwork in an EBT
system, the person trafficking their benefits in EBT gets up to
70 cents on a dollar.
Mr. Hoekstra. OK. And I think that is all that we need from
you. We appreciate you being here. And my understanding is that
you've got another commitment and you will be excused from the
panel.
Mr. Viadero. Thank you very much, Mr. Chairman.
Mr. Hoekstra. Good. Thank you for being here.
Mr. Viadero. Yes, sir.
Mr. Hoekstra. Let me introduce the rest of the panel and
welcome you here. Our next witness will be Lawrence Dyckman,
who is Director, Food and Agricultural Issues, the General
Accounting Office.
He will be followed by Darrell Hartman, who is the Director
of Special Operations, Office of the Inspector General, Texas
Department of Human Services. Welcome. Thank you for being
here.
And our final witness will be Shirley Watkins, who is the
Under Secretary, Food and Nutrition and Consumer Services of
the U.S. Department of Agriculture.
Mr. Dyckman, we will begin with you. Thank you for being
here.
Mr. Dyckman. It is a pleasure to be here, sir. Would you
mind if I asked one of my colleagues, Ron Wood, to join me at
the table?
Mr. Hoekstra. That would be fine.
Mr. Dyckman. Thank you. Mr. Wood is an Assistant Director.
He has done much of the work we have done on food stamp
trafficking.
STATEMENT OF LAWRENCE DYCKMAN
Mr. Dyckman. It really is a pleasure to be here today to
present our observations on how to reduce trafficking of food
stamp benefits. As you know, the Food Stamp Program, one of the
nation's largest assistance programs for low-income Americans,
provided $16 billion in benefits to about 18 million recipients
in 1999. Unfortunately, though, like many programs, it is
susceptible to fraud, waste, and abuse.
Our testimony today will focus on three reports we have
issued over the last several years. Two of them deal with store
owners, and one of them deals with recipient trafficking.
In summary, we found that while USDA and its OIG have
identified thousands of store owners of trafficked benefits,
there are opportunities to identify additional store owners who
are likely to be engaged in trafficking by more effectively
using EBT data.
In this regard, under 1996 legislation, Federal agencies
may use EBT data alone without the expense of conducting an
undercover investigation to take action against store owners
violating the requirements of the Food Stamp Program.
However, we also found that even when store owners were
assessed financial penalties for trafficking, they generally
didn't pay. For example, from 1993 through 1998, USDA and the
courts assessed or levied about $78 million in financial
penalties and interest against store owners for violating food
stamp regulations, primarily for trafficking. However, they
collected only $11.5 million, or about 13 percent.
USDA wrote off as uncollectible another $49 million, or 55
percent, of the total amount. According to agency officials,
this small percentage of fines collected reflects the
difficulties involved in collecting this type of debt. And this
is true.
However, weaknesses in the agency's debt collection
procedures and practices also contributed to low collections.
We found that USDA had not consistently and aggressively
collected debt, assessed interest on unpaid debt, written off
uncollectible debt in a timely manner, or established
procedures to identify the causes of delinquencies and develop
countermeasures.
Now I would like to talk a little bit about recipient
trafficking. Although EBT data has been available in varying
degrees since 1993 to analyze food stamp transactions for
trafficking, USDA has only recently taken steps to encourage
States to target recipients engaged in this activity. As a
result, we found that most States with EBT systems were not
analyzing EBT data to identify potential traffickers.
Of the 29 States with statewide EBT systems as of April
1999, the last time we looked at this, only 4, Florida,
Missouri, South Carolina, and Texas, independently analyzed
their electronic databases to identify suspect recipients.
Additionally, since 1994, USDA's OIG has identified about
34,000 suspect traffickers in Maryland and provided this
information to State officials. All five of these States have
invested the resources to investigate suspect recipients and
disqualified those that engaged in trafficking.
The proof is very simple. During 1998 and 1999, these five
States were responsible for disqualifying about 99 percent of
the 7,000 or so individuals nationwide who were removed from
the Food Stamp Program for trafficking. Although not as
aggressive, nine other States have investigated suspect
recipients who were identified by other sources, such as USDA,
through its efforts to disqualify store owners. And these
States have disqualified some recipients engaged in
trafficking. The remaining 15 States did not disqualify any
recipients for trafficking during the 2-year period.
We have made a series of recommendations in these two
reports to improve debt collection activities; to increase EBT
analysis; and to help USDA and the States use EBT to identify
traffickers, both recipients and store owners.
Basically, USDA agrees with the recommendations and has
begun to take actions. We have not, unfortunately, had the time
to evaluate how well these actions have played out.
We would be happy to answer any questions. That concludes
my statement.
[The prepared statement of Lawrence Dyckman follows:]
Prepared Statement of Larry Dyckman, Director, Food and Agriculture
Issues, U.S. General Accounting Office
Mr. Chairman and members of the Task Force, thank you for the
opportunity to present our observations on how to reduce the improper
trafficking of food stamp benefits--exchanging food stamps for cash or
certain nonfood items. As you know, the Food Stamp Program, one of the
nation's largest assistance programs for low-income Americans, provided
$16 billion in benefits to about 18 million recipients in 1999. And,
like many programs, the Food Stamp Program is susceptible to fraud,
waste, and abuse. When benefits are improperly exchanged for cash, the
storeowner gives a recipient a discounted cash payment (often 50 cents
on the dollar) for food stamp benefits. The storeowner then redeems the
benefits at full face value from the government. Until the mid-1990's,
most recipients were provided coupons to purchase food, but currently
about 70 percent of all benefits are provided electronically through a
card that works much like a debit card at the grocery checkout counter.
All the transactions are recorded in databases that can be analyzed to
identify trafficking. The U.S. Department of Agriculture's (USDA) Food
and Nutrition Service (FNS), in partnership with the States,
administers the Food Stamp Program.
Our testimony today focuses on various aspects of the trafficking
problem that we have addressed over the past 3 years.\1\ In particular,
we have reported on first, Federal efforts to identify storeowners who
engage in trafficking, second, the amount of penalties assessed and
collected against these storeowners, and third, the extent to which
States with statewide electronic benefit transfer (EBT) systems are
identifying and disqualifying recipients who engage in trafficking.
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\1\ Food Stamp Program: Information on Trafficking Food Stamp
Benefits (GAO/RCED-98-77, Mar. 26, 1998); Food Stamp Program:
Storeowners Seldom Pay Financial Penalties Owed for Program Violations
(GAO/RCED-99-91, May 11, 1999); and Food Stamp Program: Better Use of
Electronic Data Could Result in Disqualifying More Recipients Who
Traffic Benefits (GAO/RCED-00-61, Mar. 7, 2000).
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In summary, we found the following:
FNS and USDA's Office of Inspector General (OIG) use a
variety of databases to analyze transaction patterns to identify
suspect traffickers. They then conduct costly and time-consuming
investigations to confirm actual trafficking. While FNS and the OIG
have identified thousands of storeowners who have trafficked benefits,
there are opportunities to identify additional trafficking storeowners
who are likely to be engaged in trafficking by more effectively using
EBT data. Under the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996, Federal agencies may use EBT data alone,
without the expense of conducting an uncover investigation, to take
action against storeowners violating the requirements of the Food Stamp
Program.
Storeowners generally did not pay the financial penalties
they were assessed for trafficking. For example, from 1993 through
1998, FNS and the courts assessed or levied about $78 million in
financial penalties and interest against storeowners for violating Food
Stamp Program regulations, primarily for trafficking. However, they
collected only $11.5 million, or about 13 percent of the total
penalties. FNS wrote off as uncollectible another $49 million, or 55
percent of the total assessed or levied. The remaining debt was pending
collection at the time of our review.
Most States with statewide EBT systems were not analyzing
EBT data to identify recipients who may have been trafficking food
stamp benefits. Of the 29 States with statewide electronic benefit
systems, as of April 1, 1999, only 4--Florida, Missouri, South
Carolina, and Texas--independently analyzed their electronic databases
to identify suspect recipients. Additionally, since 1994, USDA's OIG
has identified about 34,000 suspected traffickers in Maryland and
provided this information to that state. All five of these States
invested the resources to investigate suspect recipients and disqualify
those engaged in trafficking. During 1998 and 1999, these five States
were responsible for disqualifying about 99 percent of the 6,873
individuals nationwide who were removed from the Food Stamp Program for
trafficking.
In recent reports, we have recommended various ways that FNS can
improve its debt collection activities and better use electronic data
to identify suspected storeowner and recipient traffickers. We have
also recommended that FNS use electronic data to routinely develop
reliable estimates of the extent of trafficking and establish goals and
strategies for reducing recipient trafficking on the basis of these
estimates. Appendix I lists our recommendations and describes the
actions FNS has taken to address them.
Background
FNS administers the Food Stamp Program in partnership with the
states. It funds all of the program's food stamp benefits and about 50
percent of the states' administrative costs. FNS is primarily
responsible for developing the program's policies and guidelines,
authorizing retail food stores to participate in the program, and
monitoring storeowners' compliance with the program's requirements. Its
58 field offices assess financial penalties against storeowners who
violate program regulations.\2\ Storeowners violate the program's
requirements when they accept food stamps for nonfood items such as
paper towels, accept food stamp benefits when they are not authorized
to participate in the program, or traffick in food stamp benefits. The
States are specifically responsible for investigating recipients
alleged to be engaged in trafficking and for disqualifying those found
trafficking.
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\2\ Food stamp State agencies establish debts against program
recipients to recover benefits they receive in excess of the level that
was appropriate. According to FNS officials, debt owed by recipients is
approximately 95 percent of the agency's accounts receivable.
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According to a 1995 FNS study, about $815 million, or about 4
percent of the food stamps issued, was trafficked at 9 percent of
authorized retail stores during fiscal year 1993.\3\ The study found
that most trafficking occurred in small grocery stores. Last week, FNS
released an updated study.\4\ This study estimated that stores
trafficked about $660 million a year, or about 3\1/2\ cents of every
dollar of food stamp benefits issued, and that most trafficking
occurred in small stores. Our 1998 analysis of 432 trafficking cases
found comparable results--most trafficking occurred in small stores.
Data on the extent of trafficking between parties prior to reaching
authorized retailers are unavailable.
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\3\ The Extent of Trafficking in the Food Stamp Program, FNS, Aug.
1995. This study analyzed data from the Store Investigation and
Monitoring System database, which contains information on the stores
suspected of trafficking.
\4\ The Extent of Trafficking in the Food Stamp Program: An Update,
FNS, Mar. 2000.
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In addition to determining the eligibility of individuals applying
for food stamps, the States are responsible for investigating
recipients alleged to be engaged in trafficking and for disqualifying
those found trafficking. Typically, a recipient found guilty of
trafficking is disqualified from the program for 1 year for the first
offense, 2 years for the second offense, and permanently for the third
offense or for trafficking an amount that exceeds $500.\5\ To
disqualify an individual from the program, the States often conduct
costly, time-consuming investigations--interviews with the suspect,
undercover observations of transactions, and a more detailed analysis
of the recipient's shopping habits.
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\5\ In some States, trafficking can also be prosecuted in State
courts.
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Recipients use food stamp coupons or an electronic benefit transfer
card to pay for allowable foods. Food stamp electronic systems use the
same electronic fund transfer technology that many grocery stores use
for their debit card payment systems. After a food stamp recipient
receives a card and a personal identification number, the recipient
purchases food by authorizing the transfer of the food stamp benefits
from a Federal account to a retailer's account. At the grocery checkout
counter, the recipient's card is run through an electronic reader, and
the recipient enters a personal identification number to access the
food stamp account.
Under the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996, all States must implement EBT systems by
October 1, 2002, unless USDA waives the requirement. Currently, 37
States and the District of Columbia have statewide EBT systems.
Federal Efforts to Identify Storeowners Who Engage in Trafficking
FNS and USDA's OIG use a variety of sources, including EBT
databases and USDA's fraud hotline, to analyze transaction patterns to
identify suspect traffickers. This initial effort is generally followed
up with costly and time-consuming investigations, including undercover
investigations, to confirm actual trafficking. Through these efforts,
FNS and the OIG have identified thousands of storeowners who have
trafficked benefits. The OIG has reported that it spends about 50
percent of its investigative resources on addressing trafficking and
oversight of the Food Stamp Program--the single largest program
administered by USDA.
We found that FNS could have identified additional storeowners who
violated program regulations if it more effectively used EBT data. For
example, each month FNS prepares a list of hundreds of stores in each
region that appear to be highly likely to be violating program
regulations, such as trafficking. Two of the six FNS field offices we
visited further analyzed the data and took administrative action to
penalize offending storeowners. However, the four other FNS field
offices were not sure what to do with the data. Moreover, the head of
one of the field offices told us that 1 monthly report indicated that
over 100 of the stores in her area were probably engaged in
trafficking, but she lacked the resources to further analyze the data
on any of these stores and take action against them. Further, FNS had
no feedback system to inform headquarters of how many of the stores on
the list of likely traffickers were actually reviewed in detail. Such
information would enable headquarters officials to know the extent to
which the listings were examined. At the time of our review, FNS had no
assurance that the stores on the monthly lists were consistently
reviewed.
FNS had made limited use of this information because it had not
developed an effective plan for reviewing and acting upon the data,
including designating responsible staff. FNS officials told us that
they need more personnel to analyze the data on stores that are likely
to be trafficking food stamp benefits. Greater use of EBT data would
enable FNS to better leverage its enforcement resources. Moreover, the
Personal Responsibility and Work Opportunity Reconciliation Act of 1996
permits FNS to use EBT data alone, without the expense of conducting an
undercover investigation, to take action against storeowners violating
the requirements of the Food Stamp Program.
To improve FNS field offices' use of EBT data, we recommended that
FNS develop guidance for its field offices for use in reviewing EBT
data to identify and assess penalties against storeowners who violate
Food Stamp Program regulations. FNS agreed and has initiated corrective
actions to implement the recommendation.
Amount of Storeowner Financial Penalties Assessed and Collected
We found that FNS almost always assessed penalties against
storeowners when its investigations showed that storeowners had
violated requirements of the Food Stamp Program. However, storeowners
generally did not pay the financial penalties they were assessed for
trafficking. For example, from 1993 through 1998, FNS and the courts
assessed or levied about $78 million in financial penalties and
interest against storeowners for violating Food Stamp Program
regulations, primarily for trafficking. However, they collected only
$11.5 million, or about 13 percent of the total penalties. FNS wrote
off as uncollectible another $49 million, or 55 percent of the total
assessed or levied. The remaining debt was pending collection at the
time of our review.
According to agency officials, this small percentage of fines
collected (13 percent) reflects the difficulties involved in collecting
this type of debt, such as problems in locating debtors as well as
their refusal to pay.\6\ However, weaknesses in the agency's debt
collection procedures and practices also contributed to low
collections. For example, FNS has not consistently implemented Federal
policies, practices, and procedures that are designed to ensure the
effective management and collection of debt. FNS has not consistently
and aggressively collected debt, assessed interest on unpaid debt,
written off uncollectible debt in a timely manner, or established
procedures to identify the causes of delinquencies and develop the
correction actions needed.
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\6\ These problems are particularly acute for collecting debt from
storeowners who were penalized for unauthorized participation in the
Food Stamp Program. In these cases, FNS may not have information that
would facilitate debt collection, such as Social Security numbers,
because the storeowners never applied to FNS to become authorized
retailers. Furthermore, FNS cannot use one of its tools for encouraging
debt payment--threatening to remove the storeowner from the program--in
these types of cases.
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To improve FNS' debt collection activities, we recommended that FNS
develop the corrective actions needed to make its debt collection more
effective. FNS agreed and has initiated corrective actions to implement
the recommendation.
Extent to Which States Use EBT Systems to Identify and Disqualify
Recipients Who Traffick
Of the 29 States with statewide electronic benefit systems, as of
April 1, 1999, only 4--Florida, Missouri, South Carolina, and Texas--
independently analyzed their electronic databases to identify suspect
recipients. These States viewed this activity as essential to their
efforts to improve the integrity of the Food Stamp Program.
Additionally, since 1994, USDA's Office of Inspector General has
identified about 34,000 suspected traffickers in Maryland and provided
this information to that State.\7\ All five of these States relied upon
the results of detailed analysis of EBT databases to identify suspect
recipients and invested the resources necessary to investigate these
recipients and disqualify those engaged in trafficking. For example,
for fiscal years 1998 and 1999, these five States were responsible for
disqualifying about 99 percent of the 6,873 individuals nationwide who
were removed from the Food Stamp Program for trafficking benefits.
Although not as aggressive, nine other States investigated suspect
recipients--identified by other sources, such as FNS through its
efforts in disqualifying storeowners--and disqualified those who
engaged in trafficking. The remaining 15 States did not disqualify any
recipient for trafficking during the 2-year period.
---------------------------------------------------------------------------
\7\ The Office of Inspector General analyzes EBT data to generate a
list of all suspect recipients associated with storeowners who have
been convicted of trafficking. This list is more complete than the
information FNS would provide to States in connection with its
investigation of trafficking storeowners.
---------------------------------------------------------------------------
Florida and Texas analyze their EBT data to identify stores likely
to be engaged in trafficking and then identify likely trafficking
recipients using those stores. As a result, Texas identified hundreds
of recipients suspected of trafficking at stores identified as likely
to be engaged in trafficking. On the other hand, FNS generally limits
its identification of food stamp recipients to the few cases that it
needs to support its actions against a storeowner. After recipients are
identified as suspected traffickers, the States investigate to confirm
whether trafficking actually occurred before disqualifying those found
to be trafficking.
Other States take a different approach. For example, Missouri
identifies suspect recipient traffickers by profiling all recipients in
the EBT database without regard to specific stores. From January
through August 1999, Missouri identified about 500 recipients suspected
of trafficking food stamp benefits. Since 1994, Maryland has
disqualified about 7,700 recipients out of about 34,000 referred by OIG
as possible traffickers, including 3,000 during fiscal years 1998 and
1999. These referrals were associated with eight storeowners who were
convicted for trafficking.
Of the 15 States that had not taken any action against trafficking
recipients, 5 had received referrals of suspected recipients from FNS.
According to officials in these States, they did not investigate
suspect recipients because the investigations were time--e consuming
and costly and it was not cost-effective to do so. The officials in the
five States that disqualified about 99 percent of all those removed
from the program nationwide for trafficking agreed that acting against
suspect traffickers was not cost-effective. However, these officials
and FNS officials agree that identifying suspect recipients and
disqualifying those who traffic is an essential activity for
maintaining the integrity of the Food Stamp Program. They maintain that
their efforts act as a deterrent by discouraging other recipients from
engaging in trafficking. In this regard, FNS has established improving
the integrity of the program as a major goal in complying with the
principles of the Government Performance and Results Act of 1993
(Results Act).
Although EBT data have been available in varying degrees since 1993
to analyze food stamp transactions for trafficking, FNS has only
recently taken steps to encourage the States to target recipients
engaged in trafficking. In July 1999, FNS instructed its seven regional
offices to prepare plans on how to work with States to best use the EBT
data now available to identify, investigate, and disqualify trafficking
recipients. We reviewed the seven draft plans that were developed and
found that they were all different, but they generally included such
activities as defining the Federal and State roles for identifying
recipients suspected of trafficking and developing processes for
routinely sharing information. All these plans provide that FNS would
submit to the States the names of suspect recipients associated with
storeowners disqualified from the program. However, States could target
a more extensive list of suspect recipients for investigation. FNS'
plans do not set goals for the number of recipients to be investigated
and/or disqualified. Furthermore, none of the draft plans described how
they contributed to FNS' overall effort to reduce trafficking. The FNS
regions are just beginning to implement the plans.
In our March 2000 report, we reported that FNS was not able to
measure the effectiveness of its or the states' efforts in reducing the
overall level of trafficking because it lacked current, reliable
information on the extent of trafficking. FNS' estimate, developed in
1995, used 1993 data and did not rely on EBT data. With the
introduction of EBT systems in 1993, FNS has an important tool for
developing current estimates of the extent of trafficking at the local,
State, and national levels. Using these estimates, FNS could establish
goals for reducing trafficking on the basis, for example, of the value
of benefits trafficked each year. FNS could then develop strategies to
efficiently and effectively reduce trafficking and use EBT data to
measure the extent to which it was achieving its goals. On July 13,
2000, FNS released an update to its 1995 study. The new study estimated
stores to be trafficking at $660 million, about 3\1/2\ cents on every
dollar of food stamp benefits provided.
FNS' actions to help the States reduce recipient trafficking was
not being guided by the best available estimate of the extent of
trafficking, which would enable it to better set appropriate goals and
strategies, as prescribed by the Results Act. Instead, as proposed in
the draft regional plans, FNS would work with the States only to
investigate the number of suspect recipients identified as being
involved with specific trafficking storeowners. In its fiscal year 2000
performance plan, FNS' goal is to disqualify 1,201 stores annually. FNS
could realize this goal but not substantially reduce the overall level
of trafficking because the stores disqualified might be those stores
with relatively low levels of trafficking. FNS has not set priorities
for targeting the trafficking stores--for example, based on the volume
of transactions and/or the value of the benefits trafficked. If FNS set
such priorities and identified these storeowners, additional States
might have an incentive to examine more suspect recipients purchasing
at these stores because the likelihood of recipient trafficking would
be greater.
To help States improve their review of EBT data and to obtain a
reliable estimate of the extent of trafficking, we recommended that FNS
(1) determine the best techniques for using EBT data to identify
suspected recipient traffickers and work with States to implement these
techniques and (2) use EBT data to periodically develop reliable
estimates of the extent of trafficking and use these estimates to
develop goals and appropriate strategies for reducing trafficking. FNS
agreed and has initiated corrective actions to implement both of these
recommendations.
This concludes my statement. I would be pleased to answer any
questions that you may have.
Recommendations Contained in GAO Reports and Subsequent Agency Actions
Food Stamp Program: Storeowners Seldom Pay Financial Penalties Owed
for Program Violations, (GAO/RCED-99-91, May 11, 1999).
GAO Recommendations: To improve the integrity of the Food Stamp
Program, we recommended that the Secretary of Agriculture direct the
Administrator, Food and Nutrition Service (FNS), to:
Develop guidance that specifies its field staff's
responsibilities, duties, and guidelines in reviewing data on
electronic benefit transfers to identify and assess penalties against
storeowners who violate Food Stamp Program regulations;
Develop the corrective actions necessary, as required by
the Federal Claims Collection Standards, to help prevent delinquencies
and defaults, and determine the priority and resources it needs to
assign to make debt collection more effective; and
Complete the actions needed to refer delinquent debts with
storeowner taxpayer identification numbers to Treasury electronically
in a timely manner.
Agency Action: FNS agreed with each of the GAO recommendations and
has initiated actions to implement them. Regarding the first
recommendation, FNS has issued several policy memorandums to the field
and plans to issue a set of national guidelines for field staff use
when reviewing and analyzing EBT data. Regarding the second
recommendation, FNS has developed and implemented a strategy to refer
all appropriate delinquent retailer debt, including retailer Taxpayer
Identification Numbers, to the Treasury Department for collection.
Regarding the third recommendation, FNS is developing the computer
software necessary for the electronic transmission of retailer debt to
the Treasury Department.
Food Stamp Program: Better Use of Electronic Data Could Result in
Disqualifying More Recipients Who Traffic Benefits (GAO/RCED-00-61,
March 7, 2000).
GAO Recommendations: To improve the integrity of the Food Stamp
Program, we recommended that the Secretary of Agriculture direct the
Administrator of the Food and Nutrition Service to:
Work with the five States currently using EBT data to
determine the best techniques for using these data to identify
suspected recipient traffickers and work with the other States with
statewide EBT systems to implement the best techniques, as appropriate,
and
Use EBT data to periodically develop reliable estimates of
the extent of trafficking and use these estimates to develop goals and
appropriate strategies for reducing trafficking.
Agency Action: FNS agreed with both of the GAO recommendations and
has initiated actions to implement them. FNS stated that it fully
agrees with GAO's recommendation to work with the five States which
have been identified as currently using EBT data to identify suspected
recipient traffickers and with the other States with statewide EBT
systems to implement the best techniques, as appropriate. In the near
future, FNS expects to publish a final regulation on recipient claims,
which will provide an increased financial incentive for States to be
more aggressive in the pursuit of recipients who traffic in EBT
benefits. Under this new regulation, States will be able to retain 35
percent of each collection.
With regard to the second recommendation, FNS agreed and, in July
2000, has issued an update to its 1995 report on the extent of food
stamp trafficking. FNS also reported that it would use these estimates
to develop goals and appropriate strategies for reducing trafficking.
However, according to FNS, current law explicitly prohibits FNS from
using Food Stamp Program funds to conduct studies and evaluations. FNS
stated that restoration of funding to conduct this work is critical to
effective implementation of this recommendation.
Mr. Hoekstra. Good. Thank you very much.
Mr. Hartman.
Mr. Hartman. Thank you for the opportunity to speak before
you today about the Texas Electronic Benefit Transfer Program.
STATEMENT OF DARRELL HARTMAN
Mr. Hartman. We call it the Lone Star System. As indicated
by the name we gave it, we take a great deal of pride in the
Lone Star System. I'd like to give you a little history about
the program. Texas believed there was a better way to provide
food stamps to people in need and started looking into the
provision of such benefits through an electronic benefit
transfer system in the early 1990's.
As we looked at the program, it was easy to see that EBT
offered a win-win situation to all of those involved. Clients,
retailers, financial institutions, State agencies, Federal
partners, and the general public all benefitted through an
electronic delivery system.
A simpler, safer way for clients to receive and use their
food stamp benefits with increased dignity and reduced stigma,
an improved way to process transactions for the retailers, like
the way they do business for other transactions.
For financial institutions, it eliminated the paper system
and replaced it with an electronic one. And the general public
benefitted by government doing business in a cost-effective,
efficient manner that reduces fraud and abuse in a system.
So, as you can see, there are many reasons to do EBT. One
of them was related to program integrity. That's the one that
you have invited me here today to discuss. EBT, the Lone Star
card, provided us an opportunity to assure that taxpayers,
including the people who are receiving the benefits, could feel
comfortable that the program was running as it was intended,
providing supplemental nutrition to families and individuals in
need. So the State developed an innovative program to identify
retailers trafficking in food stamp benefits through the
electronic trail provided by the Lone Star card transactions.
Using existing personnel and off-the-shelf computer
technology, we began analyzing the EBT data to identify
patterns of suspicious transactions, such as retailers with
unusually high transaction amounts, retailers whose customers
often spend every penny in their account, retailers with
customers who make rapid, repeated transactions in a short time
frame, retailers with a lot of even dollar transactions, and
retailers with a high percentage of manual entry transactions,
where they don't swipe the card.
EBT provides the clues. It gives us the electronic audit
trail to go forward with investigations we would never have
known were needed. In Fiscal Year 1998, we conducted
approximately 100 retailer trafficking investigations. In
Fiscal Year 1999, we conducted approximately 125 trafficking
investigations. We identified several who were trafficking more
than a million dollars worth of benefits per year. We shut
those operations down and referred the traffickers for
prosecution and the stores to the Food and Nutrition Service
for administrative action.
There are still some schemes out there to defraud the
program, but it is tougher than it used to be. Perhaps more
importantly, the Food Stamp Program in Texas has the support of
the general public because they know people in need are
receiving the benefits they need and that traffickers are being
prosecuted.
Trafficking exists because there are retailers willing to
buy and clients willing to sell food stamp benefits at a
discount. We have found that the best way to identify
suspicious clients is to first identify retailers who are
trafficking. And through the process I've described, we have
closed the circle that is required for the program to be
defrauded, the circle which includes a retailer and a client
working together.
In Fiscal Year 1998, the Department completed almost 3,000
client trafficking investigations, in which 1.44 million
changed hands. Ninety-five percent of those clients signed a
waiver or were found to have committed an intentional program
violation through a hearing.
In Fiscal Year 1999, the Department completed close to
2,700 cases, of which 1.24 million changed hands. Almost all of
the cases the Department develops against clients are handled
through an administrative disqualification hearing. It is only
the most blatant cases involving large amounts of benefits that
the Department refers clients to a D.A. for felony prosecution.
As I mentioned earlier, we have partners in this effort to
assure integrity in the Food Stamp Program: FNS, the Office of
Inspector General at the USDA, and local law enforcement
agencies. We consider other States our partners as well and
have shared our innovative cost-effective initiative with them.
We travel to other States by invitation and host other
States in Texas who are interested in our program. Two key
elements are necessary for a strong anti-trafficking program.
First, good, supportive relationships with your regional FNS
office and the regional OIG are essential.
Texas appreciates the outstanding technical assistance and
support we receive from both of these offices. Second, it is
critical to have a deep commitment to program integrity, which
allows a State to devote staff and automation resources to
anti-trafficking effort.
In Texas, Commissioner Bost has made our efforts a top
priority. And the support provided by the management and
leadership of our State has been an important component of our
success.
In conclusion, we want to thank FNS for their recent rule
change, which allows States to establish claims on trafficking
cases. While Texas took the initiative to begin this program
because we believed it was the right thing to do, we are
encouraged that this initiative for States to participate in
developing comprehensive trafficking programs will reinforce
the importance and commitment to preserving the integrity of
the Food Stamp Program.
You can probably tell by now that in Texas, we believe in
the Food Stamp Program. We believe in the Lone Star System. And
we believe that through the use of a strong, smart anti-
trafficking program, which can be developed without expending a
lot of scarce tax dollars, Americans will support a program
which has integrity and cares for the nutritional needs of
those who deserve support.
Thank you again for inviting me to testify.
[The prepared statement of Darrell Hartman follows:]
Prepared Statement of Darrell Hartman, Office of the Inspector General,
Texas Department of Human Services
Background
Texas believed there was a better way to provide food stamps to
people in need, and started looking into the provision of such benefits
through an electronic benefit transfer system in the early 1990's.
As we looked at the program, it was easy to see that EBT offered a
win-win situation to all those involved. Clients, retailers, financial
institutions, State agencies, Federal partners, and the general public
all benefited through an electronic delivery system.
Key benefits included:
A simpler, safer way for clients to receive and use their
food stamp benefits with increased dignity and reduced stigma;
An improved way to process transactions for the
retailers--like the way they do business for other transactions;
For financial institutions, it eliminated the paper system
and replaced it with an electronic one; and
The general public benefited by government doing business
in a cost-effective, efficient manner that reduces fraud and abuse of
the system.
So, as you can see, there were many reasons to do EBT--one of them
was related to program integrity.
That is the one you have invited me to discuss today.
Getting Started
The Lone Star program was statewide by the fall of 1995. At that
time, over 2.5 million people were receiving over $2 billion in food
stamp benefits using the Lone Star card.
In Texas, we are committed to helping our neighbors in need. We are
also committed to providing that help with integrity. At the time,
there was a great deal of concern about fraud and abuse in the food
stamp program.
EBT--the Lone Star card--provided us an opportunity to assure that
taxpayers, including the people who were receiving the benefits, could
feel comfortable that the program was running as it was intended--
providing supplemental nutrition to families and individuals in need.
So the State developed an innovative program to identify retailers
trafficking in food stamp benefits through the electronic trail
provided by the Lone Star card transactions.
In the southwest region, the Food and Nutrition Service relies on
our system to identify clients that may be utilizing their benefits
inappropriately. Using existing personnel and off the shelf computer
technology, we began analyzing the EBT data to identify patterns of
suspicious transactions, such as:
Retailers with unusually high transaction amounts;
Retailers whose customers often spend every penny in their
account;
Retailers with customers who make rapid, repeated
transactions in a short time frame;
Retailers with a lot of even-dollar transactions (how
often does your grocery tab come out to an even $20 * * *, $50 * * *,
or $100?); and
Retailers with a high percentage of manual entry
transactions--where they don't swipe the card.
So, What Does It Mean?
EBT provides the clues. It gives us the electronic audit trail to
go forward with investigations we would never have known were needed.
In FY 1998, we conducted approximately 100 retailer trafficking
investigations. In FY 1999, we conducted approximately 125 retailer
trafficking investigations.
We identified several retailers who were trafficking more than a
million dollars worth of benefits per year. We shut those operations
down and referred the traffickers for prosecution and the stores to the
Food and Nutrition Service for administrative action.
But that is only a part of the picture. The big picture includes:
Savings associated with shutting down the trafficking
retailer. Not surprisingly, word travels fast when the State starts
identifying suspicious operations;
Savings associated with those who were trafficking out of
their apartments--they didn't even have retail outlets--but now we knew
because we had to install equipment to process the electronic
transactions; and
Savings associated with the significant reduction in
trafficking throughout the state.
There are still some schemes out there to defraud the program, but
it is tougher than it used to be to work the system.
Perhaps most importantly, the food stamp program in Texas has the
support of the general public because they know people in need are
receiving the benefits they need--and that traffickers are being
prosecuted.
What About the Client?
Trafficking exists because there are retailers willing to buy--and
clients willing to sell--Food Stamp benefits at a discount.
We have found that the best way to identify suspicious clients is
to first identify retailers who are trafficking.
And through the process I have described, we have closed the circle
that is required for the program to be defrauded--the circle which
includes a retailer and a client, working together.
In FY 1998, the Department completed almost 3000 client trafficking
investigations in which $1.44 million changed hands.
95 percent of those clients signed a waiver or were found to have
committed an intentional program violation through a hearing.
In FY 1999, the Department completed close to 2,700 cases in which
$1.24 million changed hands.
Almost all of the cases the Department develops against clients are
handled through an administrative disqualification hearing. It is only
in the most blatant cases, involving large amounts of benefits, that
the Department refers clients to a DA for a felony prosecution.
Our Partners
As I mentioned earlier, we have partners in this effort to assure
integrity in the Food Stamp program--FNS, the Office of Inspector
General at the USDA, and local law enforcement agencies.
We consider other States our partners as well and have shared our
innovative, cost-effective initiative with them. We travel to other
States by invitation, and host other States in Texas who are interested
in our program.
Two key elements are necessary for a strong anti-trafficking
program:
First--good, supportive relationships with your regional
FNS office and Regional OIG are essential. Texas appreciates the
outstanding technical assistance and support we have received from both
these offices; and
Second--it is critical to have a deep commitment to
program integrity which allows the State to devote staff and automation
resources to the anti-trafficking effort. In Texas, Commissioner Bost
has made our efforts a top priority and the support provided by the
management and leadership of our State has been an important component
of our success.
Conclusion
In conclusion, we want to thank the FNS for their recent rule
change which allows States to establish claims on trafficking cases.
While Texas took the initiative to begin this program because we
believed it was the right thing to do, we are encouraged that this
incentive for States to participate in developing comprehensive
trafficking programs will reinforce the importance and commitment to
preserving the integrity of the Food Stamp program.
You can probably tell by now that in Texas, we believe in the FS
program, we believe in the Lone Star system, and we believe that
through the use of a strong, smart anti-trafficking program (which can
be developed without expending a lot of scarce tax dollars) Americans
will support a program which has integrity and cares for the
nutritional needs of those who deserve support.
Once again, thank you for inviting me to speak to you today.
Mr. Nussle [presiding]. Thank you.
Ms. Watkins.
STATEMENT OF SHIRLEY WATKINS
Ms. Watkins. Mr. Chairman and members of this Committee, I
am Shirley Watkins, Under Secretary for Food, Nutrition, and
Consumer Services. I am honored to join you this afternoon as
your Task Force looks at USDA's premier program that has the
responsibility of providing the safety net for and the fight
against hunger: our Food Stamp Program.
This is a very crucial element of President Clinton's and
Secretary Glickman's commitment to delivering nutrition
assistance to needy Americans. And that is to protect the
integrity of the Food Stamp Program from those who would misuse
or abuse the program. We worked tirelessly to identify ways to
strengthen the program management and to keep public confidence
in this vital program very high.
Our mission at FNCS, Food, Nutrition, and Consumer
Services, is to reduce hunger and food insecurity in
partnership with cooperating organizations by providing
children and needy families access to food, a healthful diet,
and nutrition education in a manner that supports American
agriculture and inspires public confidence. And I think that is
the same thing that you have heard from Mr. Hartman, who has
indicated that Texas supports the Food Stamp Program and the
public confidence is a critical element of that.
The purpose for today's hearing is to discuss to what
extent trafficking exists. Last week we released a study
entitled ``Extent of Trafficking in the Food Stamp Program: An
Update.'' The study shows that the level of food stamp benefits
trafficked for cash dropped by 19 percent between 1993 and
1998. We estimate that stores trafficked about $660 million per
year, roughly 3.5 cents of every dollar of benefits issued.
Mr. Chairman, I would like to ask that the study be
included in the official record of today's testimony.
Mr. Nussle. It will be.
Ms. Watkins. Thank you.
[The FNCS study follows:]
The Extent of Trafficking in the Food Stamp Program: An Update
Executive Summary
Food stamps are intended for food. When individuals sell their
benefits for cash it violates the spirit and intent of the Food Stamp
Program as well as the law. This practice, known as trafficking,
diverts food stamps away from their purpose. It reduces intended
nutritional benefits and undermines public perceptions of the integrity
and utility of the program. A crucial question, therefore, is the
extent to which trafficking exists.
Several years ago, a method to calculate data-based estimates of
the prevalence of trafficking was developed by USDA. The Extent of
Trafficking in the Food Stamp Program\1\ used this method to analyze
over 11,000 completed undercover investigations of trafficking and
generate an estimate for calendar year 1993. This report duplicates the
precise methodology of the earlier analysis with more than 10,000 new
investigations to generate an estimate for the 1996-1998 calendar year
period. We find that:
---------------------------------------------------------------------------
\1\ Theodore F. Macaluso, The Extent of Trafficking in the Food
Stamp Program (Alexandria, VA: Food and Nutrition Service, USDA; 1995).
---------------------------------------------------------------------------
The amount of trafficking has decreased. Stores trafficked about
$660 million per year for cash from the government in the 1996-1998
period, a 19 percent decline from the $815 million trafficked in 1993.
The rate of trafficking has also decreased. The trafficking rate--
which compares dollars trafficked to benefits issued--declined 8
percent: from almost four cents of every dollar of food stamp benefits
issued to three-and-one-half cents of every dollar issued.
FNS concentrates its enforcement efforts on stores most likely to
traffic. In addition, the expansion of Electronic Benefit Transfer
(EBT)--which had grown to half of all issuance during this period--
makes certain forms of trafficking harder to conduct and large-scale
trafficking easier to detect. For these reasons, we find the largest
reduction in the trafficking rate among the store categories most
likely to traffic--privately owned stores, especially small ones that
do not stock a full line of food.
When we repeat our analysis of where store violations occur the
overall pattern remains unchanged:
Dramatic differences exist among store types: the percent
of redemptions that are trafficked ranged from nearly zero to over
fifteen percent across store categories.
The stores which redeem the overwhelming majority of food
stamp benefits continue to have very low trafficking rates.
Acknowledgments
The author wishes to express his appreciation to the many
individuals who contributed to this report. Richard Mantovani, Ph.D,
Hoke Wilson and Tigran Markaryan at Macro International successfully
compiled and merged the data summarized here, faithfully reproduced the
original methodology, made thoughtful suggestions, and responded
promptly to the author's numerous requests for additional information
and analyses.
Steven Carlson, Director of the Family Programs Staff in the Office
of Analysis, Nutrition and Evaluation (OANE), Food and Nutrition
Service, provided guidance and commented thoughtfully on drafts of the
text. Ken Offerman, also of OANE, managed the contractual support for
the project, performed considerable legwork in tracking down data, and
also commented thoughtfully on drafts. Finally, the staff of the
Benefit Redemption Division of the Food Stamp Program provided many
comments and corrections and helped to make this a comprehensive--and
better--report.
Introduction
Food stamps are intended for food. When individuals sell their
benefits for cash it violates the spirit and intent of the Food Stamp
Program as well as the law. This practice, known as trafficking,
diverts food stamps away from their purpose. It reduces intended
nutritional benefits and undermines public perceptions of the integrity
and utility of the program. A crucial question, therefore, is the
extent to which trafficking exists.
Several years ago, a method to calculate data-based estimates of
the prevalence of trafficking was developed by USDA. The Extent of
Trafficking in the Food Stamp Program\2\ used this method to analyze
over 11,000 completed undercover investigations of trafficking and
generate an estimate for calendar year 1993.\3\ The report found that:
---------------------------------------------------------------------------
\2\ Theodore F. Macaluso, The Extent of Trafficking in the Food
Stamp Program (Alexandria, VA: Food and Nutrition Service, USDA; 1995).
\3\ Both the earlier report and this one intentionally use
calendar, rather than fiscal, years for the analysis. There are two
reasons for this. First, it is necessary to combine investigations from
several years to achieve a sufficient number of cases for analysis, so
the choice of a fiscal or calendar metric is arbitrary. Second, the use
of calendar year reinforces the fact that we are providing estimates,
rather than administrative data (which typically is presented on a
fiscal year basis).
---------------------------------------------------------------------------
About $815 million was trafficked for cash from the
government by food stores during 1993. This amounted to just under four
cents of every dollar of food stamp benefits issued.
Significant differences across types of food retailers
existed: supermarkets had very low trafficking rates, non-supermarkets
had substantially higher trafficking rates.
The food stores which redeemed the overwhelming majority
of food stamp benefits had very low trafficking rates.
This report updates the earlier analysis with more than 10,000 new
investigations to generate an estimate for the 1996-1998 calendar year
period. We continue to estimate three basic measures of trafficking:
1. the amount of trafficking (i.e., the total sum of dollars
trafficked, which depends partly upon the total sum of benefits issued
and partly upon the next measure, the rate of trafficking);
2. the rate of trafficking (the proportion of total benefits issued
which were trafficked), and
3. the store violation rate (the proportion of all authorized
stores that engage in trafficking).
While all three measures are important for different purposes, the
second measure--the rate of trafficking--is the one that provides an
approximation of FNS' relative success in controlling trafficking. The
trafficking rate is independent of the size of the program (i.e., the
total sum of benefits issued) or the relative market share of different
types of retailers (which is not reflected in the store violation
rate).
We undertook an update because there have been several significant
developments which may affect each of these measures of trafficking.
These developments include the following:
A 24 percent decline in food stamp caseload: from 10.8
million households per month in 1993 to 8.2 million in 1998. The
caseload decline resulted in an 11.3 percent decline in total benefits
issued. This is likely to reduce the total dollar amount of trafficking
(since total benefits issued decreased), but is unlikely--by itself--to
change the trafficking rate (i.e., the proportion of benefits issued
that are trafficked).\4\
---------------------------------------------------------------------------
\4\ There has been speculation that able-bodied adults without
dependents (ABAWDS) are more likely to traffic than other program
participants. If this were true, then welfare reform time limits on the
duration of participation by ABAWDS might be expected to reduce the
rate of trafficking. However, the evidence available to USDA indicates
that no one category of participant is either more or less prone to
traffic than any other category.
---------------------------------------------------------------------------
A 16 percent decline in the number of food retailers
authorized to accept food stamps: from about 210,000 in 1993 to 177,000
in 1998. The decline in participating retailers may change the store
violation rate depending upon whether stores willing to traffic left
the program at a faster (or slower) rate than non-trafficking stores.
However the influence of this factor on changes in the rate of
trafficking will depend upon two things: (i) whether trafficking-prone
stores that remain on the program changed their trafficking activity;
and (ii) whether food stamp participants choose to shop at trafficking-
prone stores or not.
A 50 percent change-over from paper food coupons to
electronic benefit transfer (EBT). The Personal Responsibility and Work
Opportunities Reconciliation Act of 1996 mandates that all States
convert from paper food stamp coupons to electronic benefit issuance by
2002. By September 1998 slightly more than half of all food stamp
benefits were issued and redeemed electronically. Under EBT certain
forms of trafficking are harder to conduct and large-scale trafficking
is easier to detect. Therefore, we would expect its expansion to reduce
the rate of trafficking (i.e., the proportion of benefits issued that
are trafficked).\5\
---------------------------------------------------------------------------
\5\ EBT also provides new ways to catch any trafficking that does
occur. A new system, labeled ALERT, analyzes EBT transaction data to
catch some trafficking stores without the need for in-person
investigations. These cases are still relatively new and are not
incorporated here. FNS is working on developing a new trafficking
measure to better reflect the impact of Electronic Benefit Transfer.
ALERT data will be included in the new measure.
---------------------------------------------------------------------------
The combined effect of these developments is hard to predict.
Fortunately, one additional factor that could affect results--the
quality of FNS undercover investigations--appears to have remained
stable: there has been no meaningful change in the quantity or quality
of FNS investigations. The total number of investigations, the number
in which any food stamp violation is disclosed (``positives'') and the
raw number in which trafficking is found have each remained relatively
constant from 1993 through 1998 (Chart 1).
Approach
This update uses the same methodology as the earlier report to
ensure consistent comparisons. The method focuses on authorized food
retailers because all trafficking must eventually flow through a food
retailer authorized to participate in the Food Stamp Program. The
reason is obvious, but worth pointing out explicitly: authorized food
retailers are the only ones who can redeem food benefits for cash from
the government.\6\
---------------------------------------------------------------------------
\6\ While food retailers constitute the overwhelming majority of
authorized redeemers of food stamp benefits, the Food Stamp Program has
also authorized a few food wholesalers to accept food stamp benefits.
For simplicity, we refer to all authorized entities as retailers.
---------------------------------------------------------------------------
Because authorized food retailers are the only ones who can redeem
food benefits for cash from the government, knowing the prevalence of
trafficking among retailers tells us the maximum amount of dollars
diverted from food benefits by trafficking for cash.\7\
---------------------------------------------------------------------------
\7\ Trafficked coupons are not always redeemed for cash from the
government. Owners of small authorized or unauthorized stores,
restaurants, and the like can pretend to be recipients and illegally
use food stamps to buy food at supermarkets for resale in their stores.
We label this ``evasion trafficking'' (since it is a form of tax
evasion) and discuss its impact on our estimate at the end of this
paper.
---------------------------------------------------------------------------
The Food and Nutrition Service (FNS) maintains a staff of
investigators who work undercover to determine whether authorized food
stores sell ineligible items or engage in trafficking. Stores caught
violating are fined or removed from the program and in some instances
prosecuted.
For the update, we followed the same approach used in the earlier
report:\8\
---------------------------------------------------------------------------
\8\ There is one trivial difference: the earlier report involved
data on investigations started by January 1, 1991 and completed by
March 1994 which were combined with redemption data from 1993 and
presented as a single result for calendar 1993; this update involves
data on investigations completed between January 1996 through December
1998 combined with redemptions from 1996-1998, which we annualize and
present as a single result for the 1996-1998 period. Because
trafficking was less of a focus of investigators in the 1980's than it
is now, the earlier report involved a cut-off on the start of
investigations to ensure that the investigators' focus was on
trafficking (rather than sale of ineligible items). Such a restriction
is no longer needed.
---------------------------------------------------------------------------
First, we sorted a database of 10,354 completed
investigations across five specific dimensions that categorize store
types and store locations.\9\
---------------------------------------------------------------------------
\9\ We obtained all investigations included in the FNS Store
Investigation and Monitoring System (SIMS) database for calendar years
1996 through 1998. A small fraction of these investigations were of
stores that could not be matched to zip codes in the redemption file
and therefore were not used in the analysis. Inspection of these
dropped investigations indicated (1) that the proportion of trafficking
to non-trafficking outcomes in these investigations was similar to the
data used for the analysis and (2) the cases were distributed across
the data in such a way that it is implausible that they would change
any substantive findings. The total number of SIMS investigations and
the number used in the analysis were as follows:
1996: SIMS--3,709; Analysis file--3,690.
1997: SIMS--3,624; Analysis file--3,601.
1998: SIMS--3,095; Analysis file--3,063.
Total: SIMS--10,428; Analysis file--10,354.
The five dimensions we employ consist of three that categorize
stores (type of store, ownership, and amount of food stamp business)
and two that categorize the zip code in which each store was located
(degree of urbanization, percent of households in poverty). Specific
definitions employed are as follows:
Type of Store. Store types on the FNS application form were
collapsed to the following seven categories (to ensure an adequate
number of cases of each type):
Supermarket--any store identifying itself to FNS as a supermarket
or grocery with gross sales over $2,000,000.
Large grocery--any store identifying itself to FNS as a supermarket
or grocery with gross sales between $500,000 and $2,000,000.
Small grocery--any store identifying itself to FNS as a supermarket
or grocery with gross sales under $500,000.
Convenience--any store identifying itself to FNS by this title,
regardless of gross sales.
Specialty--any store identifying itself to FNS by this title,
regardless of gross sales. They are almost always single product line
stores such as meat markets, fish markets, dairy stores, etc.
Gas/Grocery--any store identifying itself to FNS by this title,
regardless of gross sales.
Other Types--any store identifying itself to FNS by a title
different than any of the preceding, regardless of gross sales.
Examples include produce stands, general stores, combination grocery/
bars, health/natural food stores, milk and/or bread routes.
Ownership. Ownership types on the FNS application form were
collapsed to the following two categories (to ensure an adequate number
of cases of each type).
Public--any store identifying itself to FNS as a public corporation
(i.e., a retailer whose stock trades publicly).
Private--any store identifying itself to FNS as other than publicly
owned. This includes private (i.e., closely held) corporations as well
as partnerships, sole proprietorships, co-ops, etc.
(``Franchise'' is a separate category on the FNS application, not
an ownership type: both public and private ownership categories include
stores that report themselves as franchises.)
Amount of Food Stamp Business. Stores were categorized into deciles
on the basis of food stamp redemptions. The purpose was statistical,
rather than analytical, to ensure that large disparities in redemptions
by stores do not distort results.
Urbanization. Based on census data for the zip code in which the
store is located. Four categories were employed: 0 to 10 percent urban
population, 11 to 50 percent, 51 to 90 percent, and over 90 percent.
Poverty. Based on census data for the zip code in which the store
is located. Four categories were employed: 0 to 10 percent of
residential population below poverty, 11 to 20 percent, 21 to 30
percent, and over 30 percent.
---------------------------------------------------------------------------
Second, for each specific category of store and location
we compiled national data from calendar years 1996 through 1998 on the
total number of stores and the total food stamp redemptions in that
category.
Third, we analyzed the investigation outcomes and
calculated the weighted trafficking and store violation rates within
each category.\10\ We weighted the investigation data to accurately
represent the national figures.\11\ We calculated two of our three
measures: the trafficking rate, a redemption-based rate to reflect
dollar diversions, and the store violation rate, a store-based rate to
identify the kinds of stores that contain the most violators.
---------------------------------------------------------------------------
\10\ For calculating trafficking rates, the number of
investigations in each store category are large enough to give high
confidence in the estimates (ranging from a low of 369 to a high of
3,665 by store type).
\11\ Statistically, the FNS investigation data base encompasses a
sufficient number of cases to be used as a post-stratified sample of
the national ``population'' of retailers. By categorizing the
investigated stores on the five dimensions described in note 8 and
weighting the stores, by category, to reflect the national population
of retailers, by category, we are able to draw valid conclusions about
the national situation.
---------------------------------------------------------------------------
Finally, we multiplied the redemption-based trafficking
rate against the total food stamp redemptions in each category and
summed across all categories to obtain the first of our three measures:
the amount of trafficking, which provides an estimate of dollars
diverted from food benefits by trafficking in the Food Stamp
Program.\12\
---------------------------------------------------------------------------
\12\ The specific calculation was a two-stage one. The first stage
combines the data on the trafficking rates by type of store and store
location with national redemption data to yield an estimate of the
gross redemptions by authorized food stores found trafficking. The
second stage accounts for the fact that some of the gross redemptions
are legitimate food sales. To ensure consistency with the earlier
estimate, we continue to use the assumption that legitimate food sales
account for 60 percent of the gross redemptions among supermarkets and
large grocery stores caught trafficking and treat 40 percent of their
gross redemptions as trafficked. Among all other types of food stores,
we assume that only 10 percent of the gross redemptions are legitimate
food sales among stores that do not stock a full line of food (i.e.,
small grocery, convenience, specialty food, gas/grocery, and ``other''
stores) and treat 90 percent of their gross redemptions as trafficked.
---------------------------------------------------------------------------
Findings
About $660 million per year was diverted from food benefits by
trafficking between 1996 and 1998. This amounts to three-and-one-half
cents of every benefit dollar issued (Table 1).
Our methodology yields a cautious estimate that is likely to best
represent the maximum dollars diverted from food benefits per year by
direct trafficking in 1996-1998.
TABLE 1.--TRAFFICKING CONTINUES TO BE LOW AMONG SUPERMARKETS AND LARGE GROCERY STORES BUT SUBSTANTIALLY HIGHER
AMONG SMALL STORES AND STORES THAT DO NOT STOCK A FULL LINE OF FOOD
----------------------------------------------------------------------------------------------------------------
1993 1996-1998
-----------------------------------------------------------------------------------
Type of store Store Estimated Store Estimated
violation Trafficking trafficking violation Trafficking trafficking
rate rate amount ($000) rate rate amount ($000)
----------------------------------------------------------------------------------------------------------------
Supermarkets................ 4.2 1.7 $282,058 5.3 1.9 $279,163
Large Groceries............. 6.7 3.7 46,632 9.8 3.2 35,255
Subtotal................ 5.0 1.9 $328,690 6.7 2.0 $314,418
Small Groceries............. 12.8 15.7 177,809 14.4 15.8 154,109
Convenience................. 8.1 9.6 78,090 11.7 10.8 66,809
Specialty................... 17.6 14.2 117,004 10.7 8.1 55,782
Gas/Grocery................. 8.7 10.4 27,528 12.8 9.7 21,784
Other Types................. 10.2 12.4 82,605 16.2 9.4 43,892
Subtotal................ 10.7 13.0 $483,036 13.0 11.5 $342,376
All Stores.................. 9.4 3.8 $811,726 11.7 3.5 $656,794
----------------------------------------------------------------------------------------------------------------
Notes: The 1996-1998 data have been annualized--see footnote 8.
Trafficking violation rates are calculated separately for stores and redemptions. The store violation rate is
the percent of investigated stores caught trafficking weighted by the national distribution of stores. The
trafficking rate is the percent of trafficked redemptions in investigated stores, weighted by the national
distribution of redemptions. The apparent anomaly between the two rates--i.e., the store-based rate was higher
in 6 of 7 store types while the redemption-based rate is lower both overall and in 4 of 7 store types--
reflects the fact that the two rates measure different aspects of trafficking.
Trafficking and Change in Benefits Issued
Compared to 1993, the 1998 figure represents a 19 percent decline
in the dollar amount of benefits trafficked. As expected, we find a
similarity among the changes in caseload, total redemptions, and the
amount of trafficking (Chart 2):
However, the decline in caseload and total redemptions is far from
a complete explanation of changes over this period of time: we also
find an 8 percent decline in the rate of trafficking, which is
independent of benefits issued. The trafficking rate decreased from 3.8
percent of benefits issued in 1993 to 3.5 percent of benefits issued in
1998 (Table 1).
trafficking and change in the authorized retailer population
The 16 percent decline in number of authorized retailers also does
not appear to explain the improvement in the trafficking rate: we
actually find an increase in the store violation rate between 1993 and
1998 (Table 1 and Chart 3).
Trafficking and Type of Food Retailer
Part of the explanation for the improvement in the trafficking rate
is to be found in two critical facts:
(1) trafficking continues to vary by type of store;
(2) stores that redeem the most, traffic the least.
Tables 1 and 2 show that:
Supermarkets and large grocery stores redeemed 84 percent
of all benefit dollars but few of those dollars are trafficked.
In comparison to supermarkets and large grocery stores,
trafficking rates among small stores and stores that do not stock a
full line of food are 4 to 8 times higher.
TABLE 2.--DISTRIBUTION AND MARKET SHARES OF AUTHORIZED FOOD STAMP RETAILERS
----------------------------------------------------------------------------------------------------------------
1993 Percent of all 1996-1998 Percent of all
Type of store ---------------------------------------------------
Stores Redemptions Stores Redemptions
----------------------------------------------------------------------------------------------------------------
Supermarkets................................................ 15.3 76.5 14.9 78.3
Large Groceries............................................. 6.9 6.0 7.0 5.8
Subtotal................................................ 22.2 82.5 21.9 84.1
Small Groceries............................................. 18.8 5.4 20.0 5.2
Convenience................................................. 27.7 3.8 26.8 3.3
Specialty................................................... 8.7 3.9 9.0 3.7
Gas/Grocery................................................. 10.3 1.2 11.9 1.2
Other Types................................................. 12.3 3.2 10.4 2.5
Subtotal................................................ 77.8 17.5 78.1 15.9
All Stores.................................................. (\1\) 100.0 (\2\) 100.0 (\3\) 100.0 (\4\) 100.0
----------------------------------------------------------------------------------------------------------------
Table notes:
1. Based on a total of 200,568 authorized food retailers redeeming
at any point during 1993.
2. Based on a total of $21.1 billion.
3. Based on 237,824 unique food retailers redeeming at any point
during the 1996-1998 period.\13\
---------------------------------------------------------------------------
\13\ We processed all stores received from FNS redemption files but
used only the ones with a match to zip code data in the analysis.
Stores that had no redemptions were dropped from the analysis (unless
they had been investigated, in which case they were retained). For each
specific year the total number of authorized retailers received and
total number in our analysis file are as follows:
1996: Received--205,318; Analysis file--202,850
1997: Received--196,408; Analysis file--193,510
1998: Received--184,055; Analysis file--180,857
---------------------------------------------------------------------------
4. Based on total of $56.16 billion over the 3 years.\14\
---------------------------------------------------------------------------
\14\ For each specific year the sum of redemptions (total dollars)
was:
1996: Received--$21,713,774,005; Analysis file--$21,580,132,008
1997: Received--$18,463,396,131; Analysis file--$18,322,710,580
1998: Received--$16,433,240,311; Analysis file--$16,260,221,191
---------------------------------------------------------------------------
Between 1993 and 1998 there was a modest increase in the relative
market share of supermarkets and large grocery stores--the stores least
likely to traffic (Chart 4).
Notes: Unlike earlier charts, in which each column was a different
year (1993 or 1998), in this chart each column is the difference
between the two periods. The ``large store'' category includes both
supermarkets and large grocery stores; ``small stores'' are everything
else. Market share is defined as the percentage of redemptions
accounted for by the given category of store.
Food retailers owned by public corporations (i.e., owned by a
company whose stock trades publicly) continue to have lower trafficking
rates than privately owned stores (Table 3). The public corporation
category includes many of the major national supermarket chains, many
convenience store chains, and many grocery marts associated with
national gasoline retailers.\15\
---------------------------------------------------------------------------
\15\ We categorize stores according to how they categorized
themselves in FNS authorization data. Examples of public corporations
are major supermarket chains, like Albertson's and Safeway and gas-and-
go mini-marts operated by companies like Texaco or Mobil. Many major
supermarket chains, such as the Publix chain in Florida, are private
corporations. IGA stores which have the appearance of a chain but are
not public also fall under non-public ownership. Stores that most
readers consider ``franchises'' may fall under either the public or
non-public heading, depending on how they categorized themselves to
FNS. Southland's 7-Eleven chain are classified under public
corporations.
---------------------------------------------------------------------------
In 375 investigations of public corporations, FNS
undercover investigators found trafficking involved about 4 percent of
publicly owned stores.
Among privately owned food retailers, FNS undercover
investigators found trafficking in almost thirteen percent of stores.
TABLE 3.--PUBLICLY OWNED FOOD RETAILERS DISPLAY LOW TRAFFICKING RATES; PRIVATELY OWNED RETAILERS, ESPECIALLY NON-
SUPERMARKETS, ARE SUBSTANTIALLY MORE LIKELY TO ENGAGE IN TRAFFICKING
----------------------------------------------------------------------------------------------------------------
Trafficking when store is publicly Trafficking when store is
owned privately owned
-----------------------------------------------------------------------
Type of store Store violation Trafficking rate Store violation Trafficking rate
rate ------------------ rate -----------------
------------------ ------------------
1993 1998 1993 1998 1993 1998 1993 1998
----------------------------------------------------------------------------------------------------------------
Supermarkets............................ 0.0 (\1\) 4 0.0 (\1\) 3 5.4 5.7 2.6 1.3
.7 .0
Large Groceries......................... 0.0 0.0 0.0 0.0 6.8 9.9 3.8 3.3
Other Types (small groceries, 1.7 4.3 1.8 4.6 12.0 14.0 15.1 12.3
convenience stores, gas/grocery,
specialty foods, etc...................
All Stores.............................. 1.2 4.4 0.2 3.0 10.7 12.7 5.3 3.7
----------------------------------------------------------------------------------------------------------------
\1\ See footnote 20.
Trafficking violation rates are calculated separately for stores and redemptions. The store violation rate is
the percent of investigated stores caught trafficking weighted by the national distribution of stores. The
trafficking rate is the percent of trafficked redemptions in investigated stores, weighted by the national
distribution of redemptions.
The store categories most likely to traffic continue to be small
privately owned stores and privately owned stores that do not stock a
full-line of food (Table 4):
Among these stores more than 1 of every 8 benefit dollars
redeemed was trafficked.
While these categories account for about 71 percent of all
stores they account for only 14 percent of all redemptions.
TABLE 4.--SMALL PRIVATELY OWNED STORES HAVE THE HIGHEST TRAFFICKING RATES BUT REDEEM ONLY 14 PERCENT OF ALL
BENEFITS ISSUED
----------------------------------------------------------------------------------------------------------------
Trafficking rates Percent of all Percent of all
(redemptions) stores redemptions
Category of store -------------------------------------------------------------------------
1993 1998 1993 1998 1993 1998
----------------------------------------------------------------------------------------------------------------
Publicly Owned Stores................. 0.2 (\1\) 12.8 12.8 28.0 30.0
Large Private Stores.................. 2.7 1.5 17.2 16.5 56.2 55.8
Private--other stores................. 15.1 12.3 70.0 70.7 15.8 14.2
All stores............................ 3.8 3.5 100.0 100.0 100.0 100.0
----------------------------------------------------------------------------------------------------------------
\1\ See footnote to Table 3.
Trafficking, FNS Enforcement and EBT
FNS concentrates its enforcement efforts on stores most likely to
traffic. In addition, the expansion of Electronic Benefit Transfer
(EBT) makes certain forms of trafficking harder to conduct and large-
scale trafficking easier to detect. For these reasons, it should not be
surprising that we find the largest reduction in the trafficking rate
among the store categories most likely to traffic--privately owned
stores, especially small ones that do not stock a full line of food
(Chart 5).
Trafficking and Store Location
The 1993 report examined the prevalence of trafficking by
neighborhood and found that trafficking is more frequent among stores
located in the poorest of poor neighborhoods. The 1993 report also
found only a mild relationship between trafficking rates and a store's
location in an urban neighborhood. These two findings continued to be
true in the 1996-1998 period.
Stores in the poorest of poor neighborhoods continue to be more
likely to engage in trafficking than stores located elsewhere, although
the difference between rich and poor neighborhoods has decreased
somewhat (Table 5). Few recipients are likely to sell food stamp
benefits for less than they can buy in food, unless the need for cash
is overwhelming. It is no surprise, therefore, to find that the rate of
trafficking (i.e., proportion of benefits trafficked) continues to vary
widely by the economic status of neighborhoods.
TABLE 5.--TRAFFICKING IS MORE FREQUENT IN THE POOREST OF POOR NEIGHBORHOODS
----------------------------------------------------------------------------------------------------------------
Trafficking rates Percent of all
-------------------------------------------------------------------
Percent of households in poverty in Zip Code Store violation Trafficking Stores Redemptions
where store is located rate rate -------------------------------
------------------------------------
1993 1998 1993 1998 1993 1998 1993 1998
----------------------------------------------------------------------------------------------------------------
0 to 10 percent............................. 4.6 9.5 1.7 2.0 30.3 26.5 27.2 23.2
11 to 20 percent............................ 8.7 10.7 4.1 3.1 38.9 40.5 38.9 40.1
21 to 30 percent............................ 13.0 13.2 3.8 3.3 20.1 20.5 20.1 21.6
Over 30 percent............................. 19.2 16.8 7.6 7.1 13.8 12.4 13.8 15.1
All Stores.................................. 9.4 11.7 3.8 3.5 100.0 100.0 100.0 100.0
----------------------------------------------------------------------------------------------------------------
Although some urban areas are widely perceived as having more crime
than rural areas, we found only a mild relationship between the
trafficking rate and urbanicity. The Bureau of the Census classifies
zip codes by the urban/rural percentage of residents in the zip code.
The trafficking rates by urban/rural percentage in the zip code in
which a store is located show a modest increase in highly urban areas
(Table 6).
TABLE 6.--THE TRAFFICKING RATE IS SLIGHTLY HIGHER IN HIGHLY URBAN AREAS
------------------------------------------------------------------------
Trafficking rates
---------------------------------------
Stores located in Zip Codes Store violation Trafficking rate
where percent urban is rate -------------------
--------------------
1993 1998 1993 1998
------------------------------------------------------------------------
0 to 10 percent................. 6.1 12.9 3.5 2.4
11 to 50 percent................ 8.6 11.6 3.1 2.5
51 to 90 percent................ 7.1 10.9 2.8 3.0
90 to 100 percent............... 12.1 11.6 4.4 3.9
------------------------------------------------------------------------
While trafficking rates remain low and do not vary sharply by
urbanicity, between 1993 and 1998 we find a large increase in the store
violation rate in rural and lower-urban areas (Chart 6). Table 5
indicates a similar increase in the store violation rate outside of the
poorest areas. The reason for these changes in store behavior is
unknown.\16\
---------------------------------------------------------------------------
\16\ The increase in store violation rates outside of high poverty
and highly urban areas may have occurred for several reasons. For
example, the results are possible if the decline in authorized
retailers differed by area. Alternatively, the results may reflect the
expansion of EBT, either if the EBT switch-over forces violators into
nearby non-EBT areas (and those areas are less than 90 percent urban
and/or the population in poverty is under 21 percent) or if rural or
higher-income States are implementing EBT at a slower rate. It is also
unclear at this stage whether the increase is occurring among all non-
urban stores or only those located along highways through rural areas.
FNS is developing a new trafficking measure to better reflect the
impact of Electronic Benefit Transfer. These--and other--potential
explanations will be analyzed as part of that effort.
Stores in low trafficking areas continue to redeem the majority of
food stamp benefits.
Twelve percent of the nation's authorized food retailers
are located in high poverty/high trafficking areas, 88 percent are
located in lower poverty/low trafficking areas.
Eighty-five percent of redemptions flow through stores
located in neighborhoods where less than 30 percent of the population
is below poverty.
Conclusion and Implications for Program Integrity
The rate of trafficking has decreased over this period. Although
the data available are not sufficient to determine causality, the
direction and nature of the decrease are consistent with two facts:
The stores which redeem the majority of food stamp
benefits continue to be stores with the lowest trafficking rates.
Overall, 84 percent of food stamp benefits are redeemed in store
categories with the lowest rates of trafficking.
Electronic Benefit Transfer accounted for over half of all
issuance during the measured period.
EBT has expanded even more since these data were collected and it
now represents over seventy percent of all food stamp issuance.
Finally, during this period the store violation rate increased in
rural and lower-poverty areas. While this change should be monitored,
its significance is muted by the fact that the proportion of benefits
trafficked in such areas (the rate of trafficking) is low.
Technical Discussion
When we look at additional considerations that bear on trafficking,
we find two factors which would tend to increase our estimate and two
others that would tend to decrease it. It is important to discuss each
of these additional considerations explicitly.
Sources of Underestimation
1. Our procedure underestimates two aspects of the trafficking
problem. The first aspect leading to underestimation is evasion
trafficking:
Among small retailers that are family-owned or where
ownership is closely held, some violators do not redeem coupons for
cash from the government (direct trafficking) but buy food stock for
resale from large stores with trafficked coupons (a form of tax evasion
we label ``evasion trafficking''). Evasion trafficking is a gray area,
since the practice does not necessarily involve discounting: a small
firm makes an illicit profit at the least risk of detection if it
accepts food stamps at full value for food from legitimate recipients,
but uses them (illegally) to buy food at supermarkets for resale.
In our estimate we are most concerned about evasion
trafficking when it is linked to discounting (i.e., the firm buys food
stamp benefits at a discount). We have no data to estimate the extent
of evasion trafficking by unauthorized food stores or restaurants.
However, evasion trafficking by authorized retailers is partially
captured by our estimating procedure, when the trafficking involves
discounting. The data we use to estimate direct trafficking adequately
capture the rate at which all authorized stores engage in discounting.
What the data fail to do is account for redemptions that are unreported
by authorized discounting firms that buy food for resale with the
coupons. If unreported redemptions could be measured, then the evasion
trafficking factor would increase the national estimate of dollars
diverted from food benefits by trafficking but would not change the
store-based violation rates useful for targeting future action.
Engaging in evasion trafficking was relatively easy with
food coupons but is substantially more difficult under EBT.\17\ Because
the only ones to find evasion trafficking cost-effective are small
privately owned stores who have not yet switched to EBT, the potential
impact of this factor is limited to a shrinking subset of the privately
owned small-store component of our estimate.
---------------------------------------------------------------------------
\17\ The store owner would need to have possession of multiple EBT
cards and make multiple trips to supermarkets (a small-store owner
using more than one card to pay for a large purchase transaction would
involve the supermarket in a violation that is readily detectable
through the ALERT system; supermarkets are unlikely to accept that
risk). Not only would the store owner need to have several cards and
use them at several places (or on different days), for the practice to
be worth the risk of getting caught the balances left on the cards
would need to be large (which is not usually the case).
---------------------------------------------------------------------------
2. The second potential cause of underestimation is network
trafficking:
Some violating stores will traffic with strangers while
others restrict their illegal activities to people they know (which we
label ``network trafficking''). Investigators can and do catch this
type of trafficking, but it requires a harder investigation.
As a result, some network trafficking is included in our
estimate (because our investigations include some cases where the
network was penetrated and trafficking was caught). But other instances
of network trafficking are not included in our estimate (because
investigators were unable to penetrate the network and make the case).
This source of underestimation applies to all components of our model.
If investigators could catch all instances of network trafficking, the
national estimate of trafficking diversions would increase.\18\
---------------------------------------------------------------------------
\18\ An additional potential consideration is the quality of the
investigation. Even when retailers are willing to traffic with
strangers, investigators with greater experience and adequate time and
resources to establish a case are likely to catch more trafficking than
investigators with less experience, time and resources. We believe the
overall quality of investigations in our sample is high for two
reasons. First, FNS investigative procedures provide adequate time and
resources to establish a case. Second, in the earlier report we only
used cases from 1991 and later, to ensure that investigators had at
least 2 years of experience in establishing trafficking cases (or were
hired with the understanding that trafficking cases were highest
priority). In this report, most investigators have at least 6 years of
experience in establishing trafficking cases, which strengthens our
confidence in these estimates.
---------------------------------------------------------------------------
Sources of Overestimation
1. However, our procedure also overestimates other aspects of the
trafficking problem. A first source of overestimation is the procedure
used to determine legitimate food sales.
With extremely rare exceptions, stores that engage in
trafficking also sell food and we must allocate some proportion of
their total redemptions to legitimate food sales and the balance to
trafficking.\19\ We purposefully used very low figures to estimate the
percentage of legitimate food sales by violating stores--this procedure
serves our goal of assuring an estimate of the maximum benefits
diverted by trafficking. The estimate of trafficking diversion would be
lower to the extent that our method to estimate legitimate food sales
was more precise.
---------------------------------------------------------------------------
\19\ On rare occasions phantom stores--i.e., fronts that take
coupons but do not have a food business--are found. This phenomenon is
likely to decrease in the future for two reasons: (1) FNS has expanded
its staff resources to visit more stores in person; (2) EBT requires a
visit from the EBT vendor to install terminals and the vendor will not
install a terminal if they have questions about the legitimacy of the
business.
---------------------------------------------------------------------------
This consideration is especially relevant to the large-
store components of our model (where most redemptions occur). We
reviewed investigator reports in connection with cases of supermarket
trafficking.\20\ In supermarkets the percentage of total redemptions
our methodology attributes to trafficking (40 percent) is about four
times higher than experienced FNS field investigators attribute to
trafficking (10 percent or less) when recommending sanctions or
participating in other legal proceedings.
---------------------------------------------------------------------------
\20\ In 1993 USDA investigators found no instances of trafficking
at publicly owned supermarkets. Between 1995 and 1998, however, four
cases of trafficking occurred in publicly owned supermarkets. Because
there are relatively few investigations of supermarkets and because the
redemptions flowing through supermarkets are so large, these four cases
have a large apparent impact on trafficking rates. To be consistent, we
report the trafficking rates exactly as computed in the first
trafficking report. However, an examination of the four cases indicates
that the procedures used in the earlier report significantly overstate
the amount of redemptions trafficked in supermarkets. Relevant
considerations include the following:
Only a very small number of supermarket cases detect
trafficking in any 1 year. Combining the data from the earlier report
with this update, we found the following cases of trafficking in
publicly owned supermarkets: 0 in 1993, 0 in 1994, 1 in 1995, 2 in
1996, 0 in 1997, 1 in 1998.
Two of the four cases appear to involve the actions of a
single clerk. In one of those cases, the clerk was not even at the cash
register when the transaction took place. Two of the four cases,
however, involved a lower-level manager at the store.
In three of the four cases, redemptions at the supermarket
were in a pattern of significant decline; two of the three were being
closed. It is possible that upper management gave decreased attention
to employee actions in such an atypical environment. (This speculation
will be evaluated as additional supermarket trafficking cases emerge
over the next several years.)
The percentage of redemptions attributed to trafficking in
these four stores by the investigators was substantially lower than the
percentage we use in our calculations. In the first report when
trafficking was found at a supermarket or large grocery we attributed
40 percent of the total redemptions in the store to trafficking. In
these four instances of trafficking, investigators estimated that 10
percent or less of total redemptions were trafficked.
In light of the above, the true rate of redemptions
trafficked in supermarkets is likely to be substantially below the 3
percent figure in Table 3.
---------------------------------------------------------------------------
To be consistent with the 1993 figures, we keep our method
the same in this update report--but it is likely that the percentage of
a store's redemptions we attribute to trafficking substantially
overestimate trafficking, especially in supermarkets. Additional work
is being conducted to determine whether better estimates can be
created.
2. Another major source of overestimation is that investigations
are a non-random sample of stores.
Our estimating procedure relies on investigations targeted
to find fraud: our estimate would decrease substantially if
investigators had randomly selected average stores, rather than
selected suspicious stores on purpose.
Of our four technical considerations, this is arguably the
one with the largest impact on our estimate and applies to all
components of our model.
Ms. Watkins. We can credit much of the decline to a strong
economy and the enactment of welfare reform which resulted in a
drop in the food stamp rolls. However, we can also credit our
expansion, which you heard today, of EBT, electronic benefits
transfer, and the continued aggressive enforcement efforts.
In addition, in spite of our limited resources, USDA has
instituted several initiatives to combat trafficking and other
violations. And I would like to cite six of those for you.
Number one, the Personal Responsibility and Work
Opportunity Act of 1996 provided the Department with much
needed authority to strengthen enforcement of program integrity
and eliminate fraud by strengthening those penalties, not only
against the recipients but against retailers as well. And, as a
result, the Department now has and is using this authority to
suspend retailers immediately for the most egregious program
offenses: trafficking in food stamps and in EBT benefits.
The second one is that retailer oversight is a Federal
responsibility. And it begins with the screening of retailers,
seeking approval to accept food stamps or EBT cards at their
stores by the Food and Nutrition Service.
All of our retailers are essential partners in the Food
Stamp Program. Store authorization to participate is a
privilege and not a right. And to participate, a store owner
applies directly to one of our field offices, providing that
office with detailed information on the store's sales, the food
stock, and general business operations.
And, to the extent possible, when we have the resources
available, the FNS field staff conducts site visits prior to
authorizing a store to ensure that that establishment is, in
fact, a food store and not a liquor store, not a dry cleaner's,
and not an empty store front, or someone acting as a front for
illegal activities.
Currently there are 170,000 authorized retailers
participating in the Food Stamp Program nationwide. We recently
began using contracted staff in cooperation with our own staff
to start performing some of those pre and post-authorization
visits to gather information on the nature of the business that
is actually being conducted by the stores. But still, in spite
of our rigorous screening procedures, some authorized stores
have owners or employees willing to sell ineligible items or
engage in trafficking.
Nationwide, FNS has a staff of only 46 Compliance Branch
investigators that are dedicated to uncovering abuse by
authorized retailers. Nevertheless, in the last 5 years, FNS
has investigated over 24,000 stores suspected of violations
across the country. And we do this by targeting our efforts on
stores that are suspected of conducting illegal activities.
We found violations in 44 percent of the investigations.
Agency investigators discovered trafficking, as opposed to the
sale of ineligible items, in over 3,500 stores.
The third area: We are actively pursuing civil prosecution
through the U.S. Department of Justice under the Civil False
Claims Act against stores that are found trafficking in food
stamps.
The fourth area that we're working on is issuing food
assistance through electronic benefits. And that is also
changing and improving the way we protect benefits from fraud
and abuse by reducing street trafficking and by creating an
electronic paper trail, linking those who cheat the program
with crime.
Maryland, New Jersey, New Mexico, South Carolina, and Texas
have all used the EBT data to identify recipient trafficking.
You have heard from Texas. And you would hear similar kinds of
evidence from the other States that I just mentioned.
To date, we estimate that 75 percent of all households are
using an EBT card to access their benefits. Forty States plus
the District of Columbia have now implemented food stamp EBT
systems in either all or part of their states.
And all States should have EBT up and running
electronically by 2002. We have already sent letters to the 12
States that are still waiting to implement EBT and encouraging
those governors and those commissioners to work with us so that
we can implement and have all States operating effectively by
2002.
Number five: Several years ago FNS successfully implemented
an automated EBT anti-fraud system called ALERT. And that ALERT
system records the EBT transactions electronically. It
provides: a record of the store; the date; the time; the
purchase amount; the recipient's card number; and the point-of-
sale terminal, the POS.
The ALERT's computerized system examines and analyzes this
data very quickly, identifies suspicious patterns, and it
expedites our ability to investigate, process, and remove those
stores who do violate the regulations for the program.
And, finally, the Department is conducting a series of
national food stamp conversations around the country. The third
one will be held tomorrow in New York. And we're soliciting
input and ideas so that we can build on the successes in the
program to reach all eligible individuals and families. We also
want to simplify the program while at the same time maintaining
the stewardship and effective measures of program performances.
I will be chairing these conversations. I chaired the one
here in Washington. We had one last week in Atlanta, and then
we will have three more, one in Kansas City, one in Los
Angeles, and one in Dallas.
In closing, I want to thank you, Mr. Chairman and members
of this Committee for your interest and your commitment and
cooperation in working with the Department of Agriculture to
protect the integrity of this program. We are very proud of the
Food Stamp Program, and we want to assure you that we will do
everything that's possible to protect the integrity of this
program.
That concludes my prepared remarks, and I would be happy to
answer any questions that you may have.
[The prepared statement of Shirley Watkins follows:]
Prepared Statement of Shirley R. Watkins, Under Secretary, Food,
Nutrition, and Consumer Services, U.S. Department of Agriculture
Good morning, Mr. Chairman and members of the committee. I am
Shirley Watkins, Under Secretary for Food, Nutrition and Consumer
Services at the U.S. Department of Agriculture (USDA). I am pleased to
join you this afternoon as your Task Force looks at the Food Stamp
Program.
A crucial part of the President's and Secretary Glickman's
commitment to delivering nutrition assistance to needy Americans is
ensuring the integrity of the Food Stamp Program by protecting it from
those who would misuse or abuse it. The Food Stamp Program is our
nation's most important nutrition program, and protecting its integrity
is one of our highest priorities. Food stamps are intended for food,
and we do not and we will not tolerate fraud and abuse in the Food
Stamp Program. We work tirelessly to identify ways to strengthen
program management and keep public confidence high in this vital
program.
When individuals or retailers sell benefits for cash, it violates
the intent and the spirit of the Food Stamp Program as well as the law.
This practice, known as trafficking, reduces intended nutritional
benefits and undermines the public's perceptions of the integrity and
utility of the program.
The crucial question, I believe, for today's hearing, is to what
extent does trafficking exist. Last week, we released a study, entitled
``Extent of Trafficking in the Food Stamp Program: An Update,'' which
shows that the level of food stamp benefits trafficked for cash dropped
by 19 percent from 1993 to the period from 1996 to 1998. We estimate
that stores trafficked about $660 million per year. Furthermore, the
trafficking rate--which compares dollars trafficked to benefits
issued--declined 8 percent: from almost four cents of every dollar of
food stamp benefits issued to three-and-one-half cents of every dollar
issued. (Mr. Chairman, I ask that the study be included for the
record.) While we can credit much of the decline on a strong economy
and the enactment of welfare reform resulting in a drop of the food
stamp rolls, certainly our expansion of Electronic Benefit Transfer, or
EBT, and continued enforcement efforts have contributed as well.
In addition, USDA, in spite of scarce resources, has instituted
several initiatives to combat trafficking and other offenses:
1. The Personal Responsibility and Work Opportunity Act of 1996
provided the Department with much needed authority to strengthen
enforcement of program integrity and eliminate fraud by strengthening
penalties not only against recipients, but against retailers as well.
As a result, the Department now has and is using this authority to
suspend retailers immediately for the most egregious program offenses--
trafficking in food stamp and EBT benefits.
2. Retailer oversight is a Federal responsibility, and begins with
the Food and Nutrition Service (FNS) screening retailers seeking
approval to accept food stamps or EBT cards at their stores. Although
retailers are essential partners in the Food Stamp Program, store's
must meet all legal requirements in order to participate in the
program. In order to participate, a store owner applies directly to one
of our field offices, providing that office with information on the
store's sales and food stock, and other business information.
To the extent possible and where resources are available, FNS field
staff conduct store visits prior to authorizing a store in order to
make sure the store is, in fact, a real food store and not a liquor
store, a dry cleaners, or an empty storefront devoted to illegal
activities. Currently, there are 170,000 authorized retailers
participating in the food stamp program nationwide. We recently began
using contract staff in coordination with our own staff to perform pre-
and post-authorization visits to stores to gather information for us on
the nature of the business actually being conducted by a store. Still,
in spite of our rigorous screening efforts, some authorized stores have
owners or employees willing to sell ineligible items or engage in
trafficking.
FNS has a staff of 46 compliance branch investigators nationwide
dedicated to uncovering abuse by authorized retailers; and, during the
last 5 years, FNS has investigated over 24,000 stores nationwide
suspected of violations. By targeting our efforts on stores suspected
of illegal activities, we found evidence of violations in 44 percent of
the investigations. Agency investigators uncovered trafficking--as
opposed to sales of ineligible items--in over 3500 of these stores.
3. FNS' is actively pursuing civil prosecution through the U.S.
Department of Justice under the Civil False Claims Act against stores
found trafficking in food stamps.
4. Issuing food assistance benefits electronically is also changing
and improving the way we protect benefits from fraud and abuse by
reducing street trafficking and by creating an electronic paper-trail
linking those who cheat the program with the crime. Maryland, New
Jersey, New Mexico, South Carolina and Texas have all used EBT data to
identify recipient trafficking. EBT is key to delivering food stamp
benefits efficiently, affordably and securely to recipients. In 1992,
barely 1 percent of all food stamp households nationwide were receiving
their food stamp benefits electronically. Today, we estimate 75 percent
of all households are using an EBT card to access their benefits. Forty
States plus the District of Columbia have now implemented food stamp
EBT systems, in all or parts of their States, and all States will be
issuing food stamp benefits electronically by the year 2002.
5. Several years ago, FNS successfully deployed an automated EBT
anti-fraud system called ``ALERT.'' The ALERT system records EBT
transactions electronically so that we have a record of the store, the
date, the time, the purchase amount, the recipient's card number and
the point of sale terminal. ALERT's computerized system examines and
analyzes this data, quickly identifying suspicious patterns and
speeding our ability to investigate, process and remove cheating stores
from the program.
6. Finally, the Department is conducting a series of national food
stamp conversations around the country this summer to solicit input and
ideas so that we can build upon the successes in the program to reach
all eligible individuals and families; simplify the program while
maintaining prudent stewardship; and effectively measure program
performance. As a matter of fact, I will be chairing the next
conversation tomorrow in New York City.
In closing, I want to thank you, Chairman Nussle, and members of
this committee, for your interest, commitment and cooperation in
working with the Department to protect the integrity of the Food Stamp
Program.
Mr. Chairman, this concludes my prepared remarks. I would be happy
to answer any questions you may have.
Mr. Nussle. Thank you very much. And, as I stated, all of
the witnesses' testimony and any statements by members will be
put in the record at their appropriate point. We appreciate all
of your testimony.
I would like to first turn to the ranking member, Ms.
Clayton, for any questions she has for this panel.
Mrs. Clayton. Thank you.
I would like to ask the Inspector General if--you commented
on the result of----
Mr. Nussle. He actually left.
Mrs. Clayton. I am sorry.
Mr. Nussle. He had to leave. I don't mean to interrupt.
Mr. Dyckman. Mr. Wood is with me. I am with the General
Accounting Office. My apology.
Mrs. Clayton. I apologize. I just looked at the chair, not
that you aren't better looking. But, anyhow, forgive me for
that.
[Laughter.]
Mr. Dyckman. Well, we auditors look the same, I know.
Mrs. Clayton. Well, I wasn't going to say that. But, at any
rate, is there anyone who can answer if there's any data to
substantiate what all of you now have claimed, that having the
EBTs you are able to actually identify quicker because you have
that system?
And I guess the testimony from the gentleman from Texas was
that they investigated I guess quicker and had some prosecution
as a result of that. But is that across the board or is that
spotty?
Mr. Dyckman. Let me just make a comment that there is no
question that EBT is an extremely valuable tool for
investigators. What is somewhat disconcerting, though, is that
you would have expected that the rate of trafficking would have
decreased substantially----
Mrs. Clayton. I would have, too.
Mr. Dyckman [continuing]. But that has not occurred. I
mean, there has been about an 8-percent decrease in the rate of
trafficking between 1993 and 1998. A part of that might be
because that data is not exclusively based on EBT
investigations, but from an investigative standpoint, it is a
lot easier to identify potential recipient traffickers and
store owners. Unfortunately, there is still a significant
amount of trafficking.
Ms. Watkins. There is a 19 percent decline in trafficking
between 1996 and 1998. I think we are seeing some decline in
trafficking and the rate of trafficking.
Obviously when you start looking at all of the States that
have EBT and putting those measures in place, I am sure we're
going to see an even greater decline in trafficking.
Mrs. Clayton. No. I had said in my testimony there were 37.
You said there were 40. So I think Mr. Dyckman's comment is
even more revealing having 40 States with statewide systems and
not to see any more decline.
Do you see the vulnerability of the EBT system that is
still lousy as the intent to commit crime is so pervasive that
they will indeed continue?
Mr. Dyckman. It's a quick payoff. But in order for EBT to
be effective, it has to be used more. We have recommended that
and I think the Department is moving in that direction.
Mrs. Clayton. When you say ``to be used,'' what does that
mean? I thought they were using it.
Mr. Dyckman. EBT data has to be analyzed at the State level
much more on a broad scale than it has. As of a year ago, only
four or five States were actively using EBT to aggressively
identify traffickers.
Mrs. Clayton. I see.
Mr. Dyckman. As more and more States use this and Ms.
Watkins has indicated a couple of more States, I believe, I
would hope to see, we would hope to see, a decline in
trafficking. Clearly it's more difficult not to be caught if
you have an electronic trail, but you have to have some degree
of resources spent at the State and at the Federal level to
pursue that.
Mrs. Clayton. My concern in my written statement was that I
want to make sure we reduce and eliminate trafficking because I
think any dollar misspent is a dollar taken away from the poor.
Mr. Dyckman. There is no question about it.
Mrs. Clayton. At the same time, I wanted to make sure as we
move in that direction, that there is a balance. It's like you
have a flood. And there are some people who are illegal
standing in line but a lot of people who desperately need help
from the Red Cross. And I just want to make sure that in our
zeal to make sure that the trafficking is not occurring, that
we are not eliminating people who are eligible.
Mr. Hartman, can you assure us that you have that kind of
balance in Texas or other States? Since you are the only State
here, what would you say to us to make sure that it ought to be
there for that sensitivity indeed to catch the people who are
taking the monies but not at the expense that everybody
suspects or people who are hungry actually go unassisted and we
feel good because our rolls are down but, yet, there are hungry
people?
Mr. Hartman. When we first began our project to try to
identify clients involved in trafficking, we were very careful
to make sure that we went after clients where we had very
substantial evidence against them for trafficking.
In fact, when we set our parameters, we doubled the
suspicious transactions that we needed. And, instead of going
with one, we went with three. We wanted to make sure that we
gave every benefit of a doubt to a client who may have had one
suspicious transaction. We wanted to make sure they had several
before we looked at them.
When we first began our program, we started mailing out
waivers to the clients, saying that we believed on this day, at
this time, you trafficked in this amount of benefits at this
store. And we were very specific with the information we
provided to them.
And, as our statistics indicate, about 70 percent of the
clients that we mailed the waivers to signed the waiver and
acknowledged that they were involved in trafficking, and
voluntarily allowed us to disqualify them from program
participation.
Now, we only disqualified the adult member who was
trafficking, not the remainder of the household. So it's only
that adult that is disqualified. The remainder of the cases
were sent for an administrative hearing.
In total, about 95 percent of all of the client cases that
we have identified either signed the waiver or were found
guilty in a hearing. We think that's a very good indication
that we are targeting the right folks and that we're not
including recipients who are not involved in trafficking.
Mrs. Clayton. Is your trafficking program separate from
your whole food stamp administration or is there a dedication
of resources? You have a very effective program in trafficking.
Do you have a dedicated staff for that investigator to work
which is different from eligibility and assistance?
Mr. Hartman. Yes, ma'am. Our Office of Inspector General in
Texas handles all of the fraud investigations of program abuse
in the Department of Human Services. This includes food stamps.
In OIG, we have certain investigators that are dedicated to
working the majority of their time in food stamp trafficking.
One of the reasons is that it takes an expertise to be able
to do that. We need investigators who are able to go in and
work undercover, and not everyone can do that. So we have a
limited number. We have less than 10 statewide who are devoted
to actually conducting retailer trafficking investigations.
Now, once we identify the retailer, we shut them down. We
send the case to FNS and FNS takes them administratively off
the program and we prosecute the retailer. It's at that point
that we go back and identify the clients who trafficked at that
store. We then handle the clients administratively.
We prepare cases administratively. We mail the waivers to
the clients. We give them the chance if they want to
voluntarily withdraw themselves or voluntarily give their
consent for disqualification. Those are handled by
administrative investigators, but our actual on-the-street food
stamp trafficking is done by a very limited number of Office of
Inspector General staff.
Mrs. Clayton. If your retailer is investigated and found
trafficking, he is disqualified, but is he also prosecuted?
Mr. Hartman. Yes, ma'am. In Texas, we have a State law that
allows us to prosecute food stamp trafficking. In fact, the
State law was implemented back in the 1970's, shortly after the
Food Stamp Program began. In 1995-1996, our State legislature
amended it to include electronic benefits transfer.
The majority of retail investigations we work in Texas are
worked in cooperation with USDA-OIG staff and with local law
enforcement. We file those cases with our State district
attorneys. We file criminal charges, and we prosecute felony
charges on them.
We then refer the retailer to FNS for them to handle
administratively. FNS authorizes the retailer, and only they
can remove them from authorization.
Mrs. Clayton. Thank you, Mr. Inspector General.
Mr. Nussle. Mr. Hoekstra.
Mr. Hoekstra. I thank the Chair for yielding.
Ms. Watkins, is the estimated rate of food stamp
trafficking around three and a half percent? Is that the number
that you're using?
Ms. Watkins. The estimated rate of trafficking that we have
seen between the period of 1996 and 1998 is stores traffick
about $660 million. That's the estimated amount. And the
trafficking rate?
Mr. Hoekstra. Yes. Of the dollars that are being put into
food stamps, how much of that is being trafficked?
Ms. Watkins. That's three and a half cents on the dollar.
Mr. Hoekstra. OK. Three and a half percent. Is the rate the
same for a State like Texas as what it might be as the national
average? Are you seeing a better rate in Texas because of the
EBT and because of your enforcement mechanisms or don't you
have a way of measuring that? Do either one of you have a
response to that?
Mr. Hartman. I can tell you that since we started this in
1995, we have definitely seen a drop in the flagrant offenders
for EBT trafficking. I am talking about retailers who were
doing just huge amounts. They would buy from anyone. They were
doing 80 to 100 thousand dollars a month in business that was
straight trafficking.
Those have really disappeared. It took us about 3 years to
weed them all out. Trafficking continues to exist, but it's
much more subtle. The retailers that are involved in
trafficking are much more careful because of our enforcement
actions.
Mr. Hoekstra. So you would expect that you're less than
three and a half cents on a dollar, but you're not sure?
Mr. Hartman. I can tell you that it's better than it was in
1995. I really couldn't tell you how many cents on the dollar.
I have no information to support that one way or the other. But
I can assure you that in Texas, due to our enforcement efforts,
we have made a definite impact. We have made a very positive
impact against food stamp trafficking.
Mr. Hoekstra. Mr. Dyckman, does GAO have any way of
comparing the States that are vigorously enforcing through the
use of EBT as to whether there is a better rate there versus
those States that do not?
Mr. Dyckman. Unfortunately, we don't. Let me just say
something about the rate. It is based on a study that, quite
frankly, has some assumptions that may or may not be true.
I take umbrage with that rate of 3 or 3.5 percent. It is
based on a set of assumptions that the study and the authors by
their own admission point out might be higher or lower. I
personally do not have 100 percent confidence that that is an
accurate reflection. There is an assumption that trafficking
occurs at the same ratio in stores that are investigated and in
those that are not investigated. And that just seems
counterintuitive.
So while we will use this rate as a yardstick, it is a very
rough yardstick in my opinion.
Mr. Hoekstra. OK. Thank you.
Mr. Dyckman, under the Government Performance and Results
Act, I mean--maybe, Ms. Watkins, you would want to address this
as well. Have you established a plan to--recognizing that the
3.5 percent may or may not be a valid number, have you, though,
based on that methodology established a target of reducing that
3\1/2\ percent to 1 percent or 2 percent and the steps that
would be implemented to get us there or what are the targets
and the goals that the Department has established for the Food
Stamp Program and the fraud within the Food Stamp Program?
Ms. Watkins. I would have to go back and look at our
strategic plan. And I am not certain that I could provide you
that information and let you know if we established a target
for trafficking, but I am not certain of that. And I would want
to be sure that I could give you the correct information. I'll
be glad to provide that answer to you, and we can go back and
look at our strategic plan.
We do have targets for everything. And I can't believe that
we don't have targets for that. I just don't know what they
are, but I'd be glad to provide that for you.
Mr. Hoekstra. OK. Mr. Dyckman.
Mr. Dyckman. Mr. Wood.
Mr. Hoekstra. OK.
Mr. Wood. I would like to respond briefly to that. In our
March report, we did address the goals that had been
established in FNS's performance plan for 2000. And one of the
things we observed is that the goal of increasing the integrity
in the Food Stamp Program was based upon sanctioning, meaning
going after and investigating 1,201 stores.
What we observed and believe is a better goal or strategy
would have been to reduce trafficking, have a better estimate
of total trafficking, and target your resources to reducing
trafficking by going after the priority stores.
While you could investigate 1,201 stores and meet your goal
100 percent, but they may be the low-priority stores as far as
trafficking. So it would be much better to use EBT data more
effectively and target the stores that are more extensively
involved in trafficking and try to reduce trafficking at these
stores. Set your goal that you are trying to reduce trafficking
to and the strategies needed to achieve the goal.
Mr. Hoekstra. What I think you just said is that this was a
measurement of activity perhaps and not a measurement of
results.
Mr. Dyckman. That is correct, sir.
Mr. Hoekstra. OK.
Mr. Dyckman. And clearly going after the store owners is
the least costly and most leveraged way of using your resources
because if you do not have a store that cooperates, recipients
cannot traffick.
Mr. Hoekstra. Good. Thank you.
I yield back.
Mr. Nussle. Thank you, Mr. Hoekstra.
Let me play a little different role here, and my statement
still stands. This is a very important program. I don't want
anything I am about to say to pollute that particular fact.
Let's just take a look at this from a little different angle.
We've got a $19 billion company. We're the board of
directors here. And we discovered in 1993--actually, in 1995
that in 1993, we were losing $815 million. All right? In the
year 2000, we decided to do a study and look at the period of
time from 1996 to 1998, a 2-year period, and 2 years after the
information was stale found out that we had some improvement,
now down to $660 million we were losing as a company. That's
the concern I've got. I can't imagine why anyone would have to
check the records about what is an acceptable level of
trafficking.
Now, I understand it is impossible--I prosecuted. And trust
me. I prosecuted in Manchester, Iowa. And most people have a
fairly Norman Rockwellian view of the Midwest and think there
isn't much that goes on out there, but there is.
So I understand it's going to go on. We're going to have
trafficking. But I cannot imagine how in the world we are as a
country allowing an acceptable level to be 3.5 percent or
almost close to a billion dollars worth of trafficking to go on
in this country and to not have a fairly clearly defined action
plan in order to get that done. That concerns me. But, more
importantly than that, it concerns me that there is debate over
the information that's used. That concerns me.
You know, should we use the EBT data? Should we use some
other data? We're looking 2 years prior. We don't know what the
trafficking is today. We know based on the report that was
written and done in March but not released until last week. We
know what the previous 2 years trafficking was all about, but
we don't know what it is today. That concerns me a lot.
Now, I'd be happy to let you comment on that. And please do
not misunderstand what I am saying, Madam Secretary. I am not
suggesting that you're not concerned about that. I am not
suggesting that at all. I am not suggesting you have any lack
of concern for the people that are trafficking or for the
clients that you are serving, for the beneficiaries that we are
all serving.
I am not suggesting that at all, but what I am just curious
about is that there isn't more of an urgency over this. I mean,
in 1993, when Ms. Clayton and I sat on that committee and heard
about this and asked for--the first one was a congressionally
mandated study, if I am not mistaken, the one in 1993, due in
1995. That's not. I see some people shaking their heads.
We asked for it. I am sure it was a combined effort, if
nothing else. But this last one, it just doesn't seem like
there's much urgency. Am I wrong about that?
Ms. Watkins. I share your concern. I think it's a valid
concern, and we have requested funding in the budget years
since I've been there so that we would have additional staff
because you do need resources in order to identify and to work
on these issues.
Just as Mr. Viadero said earlier, as did Mr. Hartman, these
are very, very valid concerns for all of us, and we are not
taking it lightly. But when you have limited resources, we
don't have the availability of funds to do research to
determine whether or not there are problems.
And I would agree with you we need some way of determining
more quickly what is going on now. You have a $19 billion
business. You need to know what is going on today, and you
don't need to be working off of 1998 figures.
Mr. Nussle. Right.
Ms. Watkins. We don't have the capabilities to pull
information. We are working to see how we can get data more
quickly. Obviously with the new technology that's available, we
should be able to respond more quickly to problems of
trafficking and to some other issues.
It is a concern of mine. It's a concern of the Secretary's.
And we have requested funding to look at these issues so that
we can get something done about it. So you have a valid
concern. And as this Committee looks at it, I think it's
something that you can help us work on.
Mr. Nussle. All right. What is your request for next year?
What do we need to do? Let's lay out a plan.
Ms. Watkins. Let's lay out a plan. For the 2001 budget
year, in the FPA account, we asked for an additional five
million dollars.
Mr. Nussle. Five million. And what will that get us?
Ms. Watkins. That would give us 69 staff-years to support
our integrity activities.
Mr. Nussle. And what will we get as a result of that as far
as a reduction in the amount of trafficking or an increase in
investigations or implementation of EBT? What will be the year-
end goal based on that increase?
Ms. Watkins. The year-end goal would help us provide more
staffing for our investigative team that does all of the small
trafficking. The IG's office does the large, the really large,
trafficking areas, and we handle all of the smaller ones.
Obviously that adds up. So we would be able to reduce that
trafficking amount. So we could reduce the trafficking.
Now, for EBT implementation, that is another part of our
budget process. And that's working with the States so they can
get EBT up and running by 2002.
Mr. Nussle. Yes. But the concern I have is, even if we
increase it, let's double that. Let's give you ten million. All
right? let's double that. What is the manageable expectation
that we are shooting for? I mean, does your staff have with you
the goal for our trafficking level that is part of your
strategic plan?
Ms. Watkins. I didn't know----
Mr. Nussle. I can't believe you do not have that with you.
Ms. Watkins. Well, I did not bring it. If I had known you
wanted, that I would have had the strategic plan with me. I did
not bring the strategic plan. If I could provide----
Mr. Nussle. I am not suggesting you don't have one. Lay out
in here----
Ms. Watkins. Oh, yes, we do.
Mr. Nussle. I am sure you do. You lay out in here five
different steps. And I assume these are the steps that you are
hoping to take in order to reduce trafficking.
Ms. Watkins. The steps that we have identified today in the
testimony are things that we are already doing. Obviously there
are additional things that we can do.
Mr. Nussle. OK.
Ms. Watkins. Yes.
Mr. Nussle. And that's what I am searching for. Such as?
What are we going to do?
Ms. Watkins. That's the reason why I said I will provide
you the data--I don't want to give you the information that I
would pull out of the air without actually getting that off of
the strategic plan. And I will provide that for you, the actual
steps that they take.
Mr. Nussle. You didn't bring that along today?
Ms. Watkins. No, I did not. And, Mr. Chairman, if I had
known----
Mr. Nussle. You started by saying you worked tirelessly.
Ms. Watkins. That's exactly right. And if I had known, if
your staff had told me, that you wanted the strategic plan, I
would have provided that and I would have come in here with a
strategic plan and all the steps. And you would have had that.
And I will provide that for you.
Mr. Nussle. And you have one written?
Ms. Watkins. Pardon me?
Mr. Nussle. There is one already completed?
Ms. Watkins. Oh, yes. We----
Mr. Nussle. Is there somebody who can at least give me a
ballpark of what we're talking about? This is the only hearing
we're going to have on this for a little while. And I am
interested in at least a couple of things that we can report to
our colleagues that we're going to be working on because just
to say that there was a problem 2 years ago and just to say
that that's the first time we've known about that since 5 years
ago concerns me.
And I can tell just by the conversation we're having here
that you're a sincere, thoughtful person who is very interested
in solving this. I can tell that. So based on what you already
know, I know you can pull a few of these off the cuff. I just
know that.
Ms. Watkins. I have learned from my years in working at
USDA and the many times that I have testified before
congressional committees it's best to provide you the accurate
information. I am not going to sit here and give you any false
information or guess. I want to give you accurate information,
and I will provide that for you. I hope you understand. I just
don't want to give you any false information and give you false
expectations.
Mr. Nussle. Well, no. And I am not interested in false
information. I just am very surprised that--and I am not
suggesting this in any kind of way to be concerned about you
personally or your agency, but I am very surprised that on a
hearing involving trafficking to discuss a report that has just
been released that is now almost 4 months old that also as part
of that, you aren't prepared to discuss what you and the United
States Department of Agriculture are prepared to do about that
and any recommendations that you have because I will just tell
you--and this is the concern that we have almost constantly.
I cannot go forward to the Agriculture Committee or to the
Appropriations Committee on Agriculture and suggest that five
million dollars is going to solve anything unless I know the
rest of it. And so that part does concern me.
I have some other questions, but I would be happy to turn
it over to Ms. Clayton or Mr. Hoekstra if they have any follow-
up as well. Ms. Clayton.
Mrs. Clayton. I do. Thank you.
It's not necessary to try to resurrect you, Ms. Watkins,
because I think you can do that yourself, but let's act off of
what you did present us. You gave the things you are now doing.
And one of them was that the retail oversight is a Federal
responsibility.
Can you tell us--and maybe you don't have the information.
Perhaps others on the panel may have. To what extent can you
tell us the percentage of stores that are investigated prior to
authorization?
You said you now have this authority. You can investigate
stores prior to authorizing them if there are fronts or liquor
stores, dry cleaners. To what extent have you investigated
them? And is there any data there?
Ms. Watkins. Let me just ask the staff on the number,
actual number, that we go in on----
Mrs. Clayton. Actually, you have a number as a percent. You
had 24,000 stores nationwide. I am sorry. I am misreading it.
Ms. Watkins. We have investigated the 24,000 stores.
Mrs. Clayton. Yes, who are suspected of violation.
Ms. Watkins. Right.
Mrs. Clayton. The question is----
Ms. Watkins. You want to know the----
Mrs. Clayton. What's the result of that? You investigate
them, and what happened?
Ms. Watkins. Once those stores are investigated, if we have
or if they are suspected of trafficking, in all of those, we
have found evidence of about 44 percent of those investigations
where they were actually trafficking.
Mrs. Clayton. OK. Now, what kind of resources do you have
now that result in those kind of results? The question the
Chairman asked--now, again, I am not asking you for any
numbers, but it would seem to me if you have been asking for
resources and you have had limited and here is what your
results are, now you are asking for additional resources.
So there is an expectation I think from increased results
or as a result of having new staff to go along with that. At
least these activities will be enhanced, even if you didn't do
other activities.
Ms. Watkins. The activities would be enhanced, Mrs.
Clayton. What we are hopeful is that if we get additional
staff, we'll be able to provide more people, who will be able
to not only help the contracted services, but our field offices
would be expanded to go out and do the investigations and to
review those stores before they are actually authorized.
The States are working with our regional staff. The
regional staff is providing some training. And for many of
them, that is an ongoing activity. But when you go in with the
small regional field office staffs that we have, they go in to
actually do some of the pre and post-reviews before stores are
authorized.
Mrs. Clayton. Right.
Ms. Watkins. And that's a pretty awesome number with the
small staff that we have in our field office. So that was why
the request was made to get additional staff, so we would be
able to review those stores before they were actually
authorized.
Mrs. Clayton. Well, there is valid reason for wanting to
prevent crime, rather than just prosecute crime. Even a
prosecutor knows there is value in prevention. But, again, if
you know what the result of that prevention has been, then
obviously you can make a better case for getting more resources
to prevent it.
I just think there is some value in having some numerical
expectation of the activities you now have with scarce
resources. As I said in my opening remarks, I think if we
really want to, you know, slew this lion, this giant of
trafficking, we have to have enough resources to do that. But
in having resources, we want the resources with an expectation
of achieving and eventually eliminating, achieving in a certain
period of time.
And I think what Mr. Hartman demonstrated, although he
couldn't tell specifically how many in Texas, what he knew is
that his effort had been successful in getting the big
offenders or those who indeed were so flagrant and arrogant and
persistent they have ceased.
I mean, I know the percentage. So you know with more
effort, you eliminate more. So I think there is some value in
approaching this in a numerical way, rather than just a general
way. I think the persistence for wanting numbers has some
validity for it and just makes the case better.
I think all of us want to achieve eliminating traffick
because I've stated what my preference is, to make sure we have
balance in that because I get, you know, mighty nervous, Mr.
Hartman, when I see you reduce your level so low.
I get very nervous in my own State when they reduce their
level because I know that 3.6 million people out there whom we
can document that are hungry. So I want to make sure as we
reduce the traffick, I want the resources to go to those who
are hungry. But I don't want us in our zeal to ignore that
there are people who really need to have food and assistance in
that area.
Mr. Chairman, those are the end of my questions.
Mr. Nussle. Mr. Hoekstra.
Mr. Hoekstra. I thank the Chair.
I just want to bring out one point. And, Mr. Dyckman, maybe
you can correct me if I am wrong.
When we're talking about the Department of Agriculture, one
of the things that we do have to keep in mind is that they
received a disclaimer of opinion on their financial audits,
which means, at least as we have taken a look at the Department
of Education and as we have taken--my experience out of the
private sector is that almost any of the numbers that you look
at as you go through the Department and the agency, you need to
be a little bit suspicious of because the auditors have said
that the internal financial controls, the reporting systems
lack the integrity and the security that they demand as they go
through the audit to tell you that those numbers are actually
an accurate reflection of the current conditions or the
performance during the previous year of that department or
agency. Is that not correct?
Mr. Dyckman. That is correct, sir.
Mr. Hoekstra. Yes. And I think other than not even turning
in a report, which would be the worst situation which we have a
few departments and agencies that miss that criteria, the
Agriculture Department would fall into the next level of
concern, which is a disclaimer of opinion, which is I think a
very negative, a very bad position to be in, which says that
the books are in such a condition, in such a state that the
auditors even feel uncomfortable rendering an opinion.
And I know that from our work at the Department of
Education, which is actually one level above that, they
received a qualified opinion. And that's pretty ugly, the
performance over there.
So I just want to get that in the record that as we talk
about the performance, we have to recognize that we're not
necessarily even working off of a clean set of books with
people telling you that these numbers accurately reflect what's
going on. So it's even one more caveat as we move forward.
I hope that the Department has an aggressive plan in place
to get a clean audit one of these days so that we can have a
high degree of confidence that the numbers that we're talking
about actually reflect what's going on.
Ms. Watkins. I am smiling because I can sit here and tell
you that since I've been the Under Secretary in Food and
Nutrition and Consumer Services, we're one of the agencies at
USDA that has received a clean opinion.
Mr. Hoekstra. Well, I am glad you have because, as a whole,
the Department has not. Congratulations to you in that work.
And I hope that the rest of the agency----
Ms. Watkins. And we have done so for the last two and a
half years. So I am real proud of that.
Mr. Hoekstra. And I hope that the rest of the agency or the
rest of the Department of Agriculture learns from what you're
doing in your niche of that agency because the bottom line is
still for the entire Department the auditors are saying, you
know: We're concerned, and we're not ready to even render an
opinion.
I yield back. Thanks.
Mr. Nussle. Thank you, Mr. Hoekstra.
I, too, want to compliment you on that, on the fact that if
you're receiving clean audits, that's certainly what we're
hoping to achieve because we want to be able to measure that.
I think there's some encouragement, though, in one of the
areas. And part of the reason I asked you the questions about
the action plan is that--and maybe this is just me being
suspicious. But somebody who can pull out of their hat, so to
speak, next year's budget request, my guess is you could also
probably come up with a strategic plan for me today, too. But
I'll get off of----
Ms. Watkins. I will. And I'll have it here this afternoon.
Mr. Nussle. All right. Well, I will get off of that for
just a moment, but I am interested in seeing that.
One of the things I would like to ask Mr. Dyckman and his
folks is the whole issue of just data and oversight and how
often should we be looking at the information. How often would
you recommend to the Secretary to be doing that or to us in
Congress?
How often should we be doing these kinds of reports that
seem to me at least--and it does seem also to the Secretary--I
don't want to put words in your mouth, but seem to be too few
and too far between.
Mr. Dyckman. I think the issue of food stamp trafficking
and the financial consequences of that and the social
consequences of that, which are even more important, are
critical for our periodic oversight.
And I would suggest that on an annual basis, the Department
reports to the Congress what progress it has made in getting
rid of the unscrupulous storeowners and reducing trafficking.
And to do that, you have to have reliable figures.
Now, I am not saying it is easy. It is a difficult task to
estimate nationwide trafficking. I mean, the data does not
exist in EBT. You have to come up with projections. But if you
could routinize that at the Department and if the Department
could make that a high priority and have an outcome-oriented
approach to that and if Congress could have annual oversight
hearings on that subject, I think everyone will be better
served.
Mr. Nussle. Another issue that comes up--and this will
maybe end up being in the form of a recommendation. It starts
with a curiosity. As I read the report, my understanding is
that 14 percent of all of the food stamp benefits--and hear me
out here because if these aren't right, I want to make sure I
get this right--14 percent of all of the food stamp benefits go
through stores that have been profiled by your report to be the
kinds of stores that are likely to engage in trafficking. And I
want to make sure I am using that correctly.
Obviously 14 percent are the ones that you would suggest
are ones that are probably in a category that are typically
engaging in this kind of activity. All right? But of the stores
most likely to traffick, they include 71 percent of all of the
stores that are certified. And I see your staff is shaking
their heads. So I think I am saying that right.
Now, let me make sure I am getting that right. Fourteen
percent of all of the benefits go through 71 percent of stores.
And those 71 percent of the stores are likely to be
trafficking.
Now, one of my immediate questions that come to mind is:
Shouldn't we be changing the criteria of the kind of stores
that we're authorizing and in order to try and eliminate from
the certification process, stores that you perceive to be
likely kinds of operations to be trafficking?
And you mentioned a few storefront kinds of operations that
are mobile or that are involved in liquor or other kinds of
activities. I mean, one of the criteria I would hope is part of
the strategic plan is just a consideration for a change in what
seems to be a pretty target-rich environment. And those are the
71 percent of the stores that are certified that seem to be
likely for one reason or another.
Is that a fair place to begin at least part of our search?
Ms. Watkins. That is a fair place to begin in looking at
the kinds of stores that are there and looking at the
assessment that we use. So yes, that is fair.
Mr. Nussle. And then the other question or point I'd like
to just ask or have you comment on is this issue of the annual
review. I mean, I am very troubled, and I can tell by the way
you presented it you seem to be troubled by the fact that we're
getting a report from 2 years ago.
Mrs. Clayton. Mr. Chairman.
Mr. Nussle. Yes. I am sorry.
Mrs. Clayton. Can I ask----
Mr. Nussle. I would yield, yes.
Mrs. Clayton. On your first question----
Mr. Nussle. Yes.
Mrs. Clayton [continuing]. About the typical profile store,
I guess I would just want to enter into the record there are
some stores who are in poor areas. And then you have a question
here: Is more crime more likely to happen in rural areas or in
urban areas? I didn't want his response to assume that these
stores either had one flavor or another or a poor area.
Then another question says ``trafficking more frequently in
the poorest of poor neighborhoods.'' Table 16 says, ``The
trafficking rate is slightly higher in urban areas.''
Now, is there a disaggregation of the--the stores that have
that profile, are they more likely to be in any one of those
areas? Are they in all three of those areas?
If you look at the poorest of the poor areas, some shoddy
things go on in some poor areas. But also occasionally some
shoddy things go on in non-poor areas. But it is understood
where you have operations with chain stores in more affluent
areas, you may have less trafficking in that area.
I just want to make sure we understand that there are some
culture issues around those, too.
Mr. Nussle. No question. And that's why I was very careful
when I asked the question. I mean, I do not want to--because
you and I both represent similar kinds of areas in that you
don't necessarily have a Safeway or a Giant or whatever out in
the middle of--you know, it may be a Mom and Pop kind of an
operation.
But if Mom and Pop have got--what was that figure?--
$295,000 running out the back door, I mean, Mom and Pop need to
have--I mean, that sounds quaint and Norman Rockwellian, but we
have got to figure out a way to deal with it.
So my only point was: Is the criteria on the front end for
certification one of the areas within the strategic plan that
you're considering some type of changes and improvement? And
you indicated that that was one of the areas that you were
looking at.
The last issues--I am sorry--that I wanted to just touch
base on was the whole issue of the reporting and oversight,
both on your part and our part. It was suggested by the folks
at the General Accounting Office that we should do this on an
annual basis. Is that possible? Can we begin that kind of a
process?
You came in in 1997. It seems to me that you have tried to
enforce that. It sounds like it's one of the first things that
you did. My understanding is the report that was released here
this last week is a report that you requested. This isn't
Congress. This isn't Eva Clayton and Jim Nussle and Peter
Hoekstra asking for it. You did this, and I commend you for it.
Is there a way that we can help you other than you
mentioned a little bit of money. We'll talk about that. Is
there anything else that we need to do in order to get these
kinds of annual reports with better information and better data
so that we can look into this more deeply next time?
Ms. Watkins. Currently we don't have the authority to
continue to do the kind of report that I requested. Of course,
when I started and requested this kind of information, we had
the legislative authority to use some of our funding to do
studies like this.
This would have to be requested that ERS would do this kind
of study for us on an annual basis as a part of the research
and the data collection and analysis. So I think it's feasible,
but that request would need to be made from Congress to ERS to
get accomplished for us.
Mr. Nussle. Is that GAO's understanding as well?
Mr. Dyckman. It is a little murky here, Mr. Chairman. The
Department claims that they do not have authority to spend
research on food and nutrition issues, but they do spend. They
do perform research on food and nutrition issues.
And, quite frankly, I do not have a definitive opinion on
that. It is a murky area. I suspect that they can do this, but
I am reluctant to give you a final answer today.
Mr. Nussle. But you're saying you don't.
Ms. Watkins. I can read the language, Public Law 106-78,
October 22, 1999, prevents us from funding any of the
developmental work needed to use EBT data to develop any
reliable measures on trafficking. And it states, ``Food Stamp
Program for necessary expenses to carry out the Food Stamp Act,
7 U.S.C. 2011, provided that none of the funds made available
under the head shall be used for studies and evaluation.''
Mr. Nussle. Well, now, how does that square, then, with the
new ALERT Program?
Ms. Watkins. We have----
Mr. Nussle. My understanding is that that is in an attempt
to use exactly the EBT data in order to provide that kind of
information so that you can process and investigate and
research what is happening.
Ms. Watkins. Well, we can't do any research. We can't do
any studies and evaluations. And according to Congress, that's
a part of research and studies and evaluations. We can't use
our funds in FNS for any studies and evaluations. It would have
to be done through ERS. And that's why I am saying request for
ERS to do it.
It can be done. ERS would have to be directed to use some
of the funding to do that.
Mr. Nussle. OK. Are there any other questions or anything
else that members would like to--I really appreciate you
allowing us to ask a couple of rounds of questions, be a little
bit less formal today and do that. I know all of the members,
including myself, would be very interested in any
recommendations you would make.
And I am very serious about what I stated. We feel that
this is a responsibility that we all share. We want to make
sure that the young people, in particular, but everybody who is
in need of food and nutrition services get those services that
they deserve. That's the reason we have the program, but we
want to stop the nonsense that's out there, too, and the crime.
And so anything we can do to work together on that to help
implement your strategic plan, we'll look forward to working
with you. And we thank all of the witnesses for their
information and their testimony today. And we'll dismiss you at
this point.
Thank you.
Ms. Watkins. Thank you.
Mr. Dyckman. Thank you.
Mr. Nussle. And now we'd like the second panel to come
forward. The two witnesses that we have on the second private
sector panel--we had a governmental panel. Now we have a
private sector panel. We have invited a couple of people, and I
see that we have one that may have changed.
So I'll introduce that Ms. Sheila Zedlewski, who is the
Director of the Income and Benefits Policy Center of The Urban
Institute, is with us; and from the Center on Budget and Policy
Priorities, Mr. David Super. Is that correct?
Mr. Super. Yes. Thank you.
Mr. Nussle. OK. And so why don't we ask Ms. Zedlewski to
present her testimony at this time. Your entire testimony will
be entered into the record. We would like you to summarize, if
you can, and do it within about a 5-minute period.
Ms. Zedlewski. Thank you. Thank you for the opportunity to
address the Committee.
STATEMENT OF SHEILA R. ZEDLEWSKI, DIRECTOR, THE INCOME AND
BENEFITS POLICY CENTER, THE URBAN INSTITUTE; ACCOMPANIED BY
DAVID A. SUPER, ESQUIRE, GENERAL COUNSEL, CENTER ON BUDGET AND
POLICY PRIORITIES
STATEMENT OF SHEILA ZEDLEWSKI
Ms. Zedlewski. The Food Stamp Program, a cornerstone of the
income security policy in the United States since 1961, was
designed to ensure that all Americans have enough to eat. Yet,
the program is falling farther and farther short of this
mission. Many families are leaving the Food Stamp Program, even
though many report difficulties paying for food and are
eligible to receive benefits.
States face a delicate balance between implementing
initiatives to reduce trafficking and errors in the program and
encouraging more low-income families who qualify for benefits
to participate.
I'd like to draw your attention to six important issues.
First, recent declines in program participation have exceeded
what we could expect from a strong economy or changes in
program rules.
Many witnesses this afternoon have highlighted the recent
steep declines in food stamp participation. Indeed, the strong
economy can take credit for an important share of this decline.
However, a considerable body of research now shows the declines
have far exceeded what can be explained by economic factors or
program changes enacted as part of welfare reform in 1996.
Second, the need for food assistance persists among
American families, as has also been stated earlier. For
example, last year, three out of ten children in the United
States lived in families that reported they either worried
about or experienced difficulty in affording food, according to
The Urban Institute's 1999 national survey of America's
families. The percent reporting difficulties affording food was
down only slightly, by 3 percentage points, from levels
reported in the same survey 2 years earlier. Half of children
with families below 200 percent of poverty lived in families
with some food insecurity.
Third, food stamps offer an effective income supplement for
working poor families. Many parents, especially single mothers
who recently left welfare, work full-time and still earn less
than the poverty line for their families. Food stamps can
provide an important supplement to their incomes until they
move up in the labor market.
For example, a single parent with two children working
full-time at a minimum wage job for a year would earn an income
of around 75 percent of poverty. She could also receive about
$3,000 in food stamps for her family, increasing her family's
income to about 94 percent for that year.
Despite the potential value of food stamps, many families
do not enroll. We at The Urban Institute have recently
estimated that program participation nationally for all
households was about 50 to 55 percent in 1997, down
considerably from earlier years.
Participation rates are especially low for working poor
families. The evidence is strong. For example, my own research
has shown that most families who left welfare also left the
Food Stamp Program, even though they were still income-eligible
for benefits. A particularly troubling finding was that only
one-half of families who left welfare with incomes below 50
percent of poverty received food stamps.
State studies that used matched administrative data to
investigate food stamp participation of welfare leavers
confirmed this finding. Most find that only about half
participate in food stamps in the first quarter after leaving
welfare and participation drops off further with time.
Fifth, program complexity discourages families'
participation. Recent focus group discussions among working
poor and poor elderly households confirmed earlier studies
about what we know about reasons for low participation.
Families often lack information about the program. They
perceive they don't need these benefits. They think the costs
of participating is too high or they have negative feelings
about the program.
In short, the program is so complex that many families do
not know they are eligible. They report confusion about
eligibility rules, resource and income limits, and deductions.
Some families are deterred from applying for benefits because
the process is time-consuming and complicated. It's often
difficult to get to the welfare office. The process id
demeaning. And many offices are unsafe.
Finally, program improvements must include more effective
outreach. Reaching out to individuals who may be eligible for
food stamps must become a priority for the Federal, State, and
local government agencies.
States can receive a 50 percent Federal match for funding
outreach activities, but only 9 States applied for these funds
in 1999. Most of these States contract with nonprofit
community-based organizations to provide outreach to help
families with the application process, their document
preparation, and translation services.
States can also extend office hours in the morning,
evening, or weekends to lessen the burden on working families.
They can collaborate with other programs serving low-income
families, such as job training centers, HeadStart programs, and
WIC offices, to inform families about the full set of work
supports available to them.
Many State agencies also need to make administrative
changes to ensure that families who leave welfare or get
diverted continue to receive benefits as long as they are
eligible.
These program innovations will take time, investment by the
States, and commitment by caseworkers. Federal administrative
funds and encouragement will be essential to ensure that the
Food Stamp Program works for working poor families.
I thank you again for the opportunity to address this
Committee.
[The prepared statement of Sheila Zedlewski follows:]
Prepared Statement of Sheila R. Zedlewski,\1\ Director, the Income and
Benefits Policy Center, the Urban Institute
Thank you for the opportunity to address the Committee about
current trends in the Food Stamp Program (FSP). The Food Stamp Program,
a cornerstone of income security policy in the US since 1961, was
designed to ensure that all Americans have enough to eat. Yet the
program is falling farther and farther short of this mission. Many
families are leaving the food stamp program even though many report
difficulties paying for food and are eligible to receive benefits.
---------------------------------------------------------------------------
\1\ This statement reflects the views of the author and does not
necessarily represent the views of the Urban Institute, its sponsors,
or its Board of Trustees.
---------------------------------------------------------------------------
I'd like to draw your attention to six important issues:
1. Recent declines in program participation have exceeded what we
could expect from a strong economy or changes in program rules.
As you are well aware, total food stamp program participation has
declined from 28 million persons in 1994 (the program's peak) to 17
million persons in March 2000 (38 percent).\2\ Indeed the strong
economy can take credit for an important share of this decline.
However, a considerable body of research shows that declines in
participation have far exceeded what can be explained by economic
factors or program changes enacted as part of Federal welfare reform in
1996.
---------------------------------------------------------------------------
\2\ Monthly caseload data, the Food and Nutrition Service, 2000.
---------------------------------------------------------------------------
2. The need for food assistance persists among American families.
For example, last year 3 out of 10 children in the US lived in
families that reported they either worried about or experienced
difficulty affording food according to the Urban Institute's 1999
National Survey of America's Families.\3\ The percent reporting
difficulties affording food was down only slightly (by 3 percentage
points) from levels reported in the same survey 2 years earlier. Half
of children in families with incomes below 200 percent of poverty lived
in families with some food insecurity.
---------------------------------------------------------------------------
\3\ The National Survey of America's Families (NSAF) is a
nationally representative survey of over 44,000 non-aged families. The
survey was conducted in 1997 and 1999 at the Urban Institute as part of
a large, multi-year study called Assessing the New Federalism.
---------------------------------------------------------------------------
3. Food Stamps offer an effective income supplement for working
poor families.
Many parents, especially single mothers who recently left welfare,
work full time and still earn less than the poverty line for their
family. Food stamps can provide an important supplement to their
incomes until they can move up in the labor market. For example, a
single parent with two children working full time at a minimum wage job
for the year would earn an income around 75 percent of poverty. She
could also receive about $3,000 in food stamps for her family,
increasing her family's income to about 94 percent of poverty.\4\
---------------------------------------------------------------------------
\4\ Calculation assumes no income beyond earnings, a maximum child
care cost deduction for children older than two, and no excess shelter
cost.
---------------------------------------------------------------------------
4. Many low-income families who qualify for food stamps do not
receive benefits.
Despite the potential value of food stamp benefits, many families
do not enroll in the program. Historically, program participation rates
have been around 70 percent, but the rate has fallen in recent years.
We recently estimated that program participation for all households was
just above 50 percent in 1997.\5\ Participation rates are especially
low for working poor families. As families have left welfare to join
the ranks of the working poor, they are leaving behind food stamp
benefits.
---------------------------------------------------------------------------
\5\ The Urban Institute's Transfer Income Model, version III, based
on the March 1998 Current Population Survey.
---------------------------------------------------------------------------
The evidence is strong. For example, my own research has shown that
most families who left welfare also left the food stamp program even
though most were still eligible for benefits.\6\ A particularly
troubling finding was that only one-half of families who left welfare
with incomes below 50 percent of poverty continued to receive help from
food stamps.
---------------------------------------------------------------------------
\6\ Zedlewski, Sheila and Sarah Brauner, 1999. ``Declines in Food
Stamp and Welfare Participation: Is There a Connection?'' Washington
DC. The Urban Institute.
---------------------------------------------------------------------------
States studies that use matched administrative data to investigate
food stamp participation of welfare leavers confirm this finding. Most
find that only about half participate in food stamps in the first
quarter after leaving welfare and participation drops off further with
time.\7\
---------------------------------------------------------------------------
\7\ Acs, Gregory and Pamela Loprest. 2000. ``Studies of Welfare
Leavers: methods, Findings, and Contributions to the Policy Process,''
Paper prepared for the National Research Council's Panel on Data and
Methods for Measuring the Effects of Changes in Social Welfare
Programs, Washington, DC. The Urban Institute.
---------------------------------------------------------------------------
More recently, an econometric study completed by the Economic
Research Service estimated that 55 percent of the total decline in
participation from 1994 to 1998 was due to a decline in the proportion
of low-income people (income below 130 percent of poverty) who
participate in the FSP. They conclude that ``this pattern corroborates
other evidence that a large number of low-income families are
disappearing from the food stamp rolls.'' \8\
---------------------------------------------------------------------------
\8\ Wilde, Parke et al. 2000. ``The Decline in Food Stamp Program
Participation in the 1990s.'' U.S. Department of Agriculture, Economic
Research Service, Food Assistance and Nutrition Research Report Number
7, Washington, DC. USDA.
---------------------------------------------------------------------------
5. Program complexity discourages participation.
Recent focus group discussions among working poor and poor elderly
households confirmed earlier research about reasons for low
participation: families often lack information about the program; they
perceive that they do not need benefits; they don't think applying for
a small amount of benefits is worth it; they think the cost of
participating is too high; and they have negative feelings about
participating in the program.\9\
---------------------------------------------------------------------------
\9\ McConnell, Sheena and Michael Ponza. 1999. ``The Reaching the
Working Poor and Poor Elderly Study: What We Learned and
Recommendations for Future Research,'' Mathematica Policy Institute
8305-013 for the USDA.
---------------------------------------------------------------------------
In short, the program is so complex that many families do not know
that they are eligible. They report confusion about eligibility rules,
resource and income limits, and deductions. Some families report that
they are deterred from applying for benefits because the process is
time consuming and complicated, it is difficult to get to the welfare
office, the process is demeaning, and the office is unsafe.\10\
---------------------------------------------------------------------------
\10\ See ``Food Stamp Program Client Enrollment Assistance
Demonstration Projects: Final Evaluation Report,'' 1999, Food and
Nutrition Service, USDA (July) for a discussion of these issues.
---------------------------------------------------------------------------
6. Program improvements must include more effective outreach.
Reaching out to individuals who may be eligible for food stamps
must become a priority for federal, states, and local community
agencies. States can receive a 50 percent Federal match for funding
outreach activities, but only nine states applied for these funds in
1999.\11\ Most of these states contract with non-profit community-based
organizations to provide outreach services. They assist families with
the application process, documentation preparation, and provide
translation services. States also can extend office hours in the
morning, evening or weekends to lessen the burden on working families.
They can collaborate with other programs serving low-income families
such as one stop job training centers, Head Start programs, and WIC
offices to inform families about the entire set of work supports
available to them. Many state agencies also need to make administrative
changes to ensure that families who leave welfare or get diverted from
welfare continue to receive food stamps as long as they are eligible.
---------------------------------------------------------------------------
\11\ These states are Arizona, Connecticut, Kentucky,
Massachusetts, New Hampshire, New York, Tennessee, Vermont, and
Washington.
---------------------------------------------------------------------------
Program innovations will take time, investment by the state, and
commitment by caseworkers. Federal administrative funds and
encouragement will be essential to ensure that the Food Stamp Program
works for working poor families.
Mr. Nussle. Thank you.
Mr. Super.
Mr. Super. Thank you very much, Mr. Chairman,
Representative Clayton, Representative Hoekstra. I appreciate
the opportunity to address these important issues involving the
Food Stamp Program before you today.
STATEMENT OF DAVID SUPER
Mr. Super. My name is David Super. I am General Counsel of
the Center on Budget and Policy Priorities. The center is a
nonprofit organization that conducts research and analysis on
an array of policy issues at both the Federal and State levels.
We receive no government funding.
As an organization concerned about low-income people
struggling to feed their families, we feel very strongly that
no food stamps ought to be issued to ineligible people. We are
equally concerned that when food stamps are issued correctly,
that they not be misused through trafficking.
Although trafficking in properly issued food stamps does
not constitute a monetary loss to the Federal Government and
eliminating all trafficking would not produce any budgetary
savings, trafficking does undermine public trust and should be
vigorously pursued. And we appreciated hearing about the
efforts earlier that a number of the other witnesses and
agencies were engaging to that effect.
Just as we're concerned about improper issuances and
improper use of benefits, we are also concerned that when
eligible families are in need of food stamps, that they have a
fair option to obtain those benefits. We applaud the Committee
for its interest in all of these challenges facing the Food
Stamp Program today.
With regard to trafficking, we were pleased to read in
USDA's report that the overwhelming majority of food stamp
benefits continue to be used for their intended purposes and
that the incidence of food stamp trafficking appears to be
declining.
Any trafficking is too much, but it's heartening to see
progress being made. This may well be a result of the
bipartisan anti-fraud provisions of the 1996 welfare law as
well as greater movement toward EBT and some of FNS' efforts
that were described earlier to partner with States and others
to bring more resources to bear against the traffickers.
We hope the Congress and the administration will work
together to make further progress in this area, in particular,
by providing FNS with the resources it needs, both for
additional compliance and enforcement staff and also for a
research budget that could, among other things, help the agency
understand better how traffickers operate.
We also hope that Congress and the administration will work
together to ensure that food stamps are available to eligible
low-income families that need them. In their May 1999 report
entitled ``Welfare Reform Has Already Achieved Major Successes:
A House Republican Assessment of the Effects of Welfare
Reform,'' Speaker Hastert, Representatives Nancy Johnson, Bill
Archer, and Clay Shaw make the point that food stamp benefits
play an important part of the Federal Government's commitment
to making work pay. Food stamps can supplement the low wages
that many families moving from welfare to work are earning.
Leaders of both political parties and officials of
conservative and liberal think tanks alike have urged that a
family working full-time throughout the year should not have to
live in poverty. This goal largely shaped the bipartisan
expansions of the Earned Income Tax Credit through the late
1980's and early 1990's so that the EITC is now designed so the
full-time year-round minimum wage work plus food stamps plus
the EITC bring a family of four to or very close to the poverty
line. If you take food stamps out of that equation, the family
falls at least one-fifth short of the poverty line.
In the report on welfare reform last year, Speaker Hastert,
Representatives Johnson, Archer, and Shaw noted that, quote,
``Caseload data from the Food Stamp Program and the Medicaid
Program seem to indicate that many adults and children who meet
the demographic income and resource standards for these
benefits are not receiving them. There is concern among program
administrators and other experts that there are probably many
children eligible for Medicaid and food stamps who are not
receiving them,'' unquote.
The evidence suggests that the decline in food stamp
participation is significantly larger than can be explained by
the economy and food stamp changes in the welfare law. The
reduction in food stamp spending in recent years--and we have
provided a chart to the Committee to demonstrate this--has been
far greater than Congress sought or anticipated when it enacted
the 1996 law, even after adjusting for the improved economy.
In a report last year, GAO reported, quote, ``There's a
growing gap between the number of children living in poverty,
an important indicator of children's need for food assistance,
and the number of children receiving food stamp assistance,''
unquote. We have conducted a similar analysis going from the
peak in food stamp participation in 1994 and reached results
very similar to those of GAO.
Overall the number of people living below the poverty line
fell 9.4 percent, or 3.6 million people, between 1994 and 1998,
while the number of people receiving food stamps in an average
month fell nearly 30 percent, or over 8 million people, during
that same period.
This difference is far greater than the 1.5 million illegal
immigrants and childless adults whom CBO estimated became
ineligible for food stamps at the end of 1997 as a result of
the 1996 law.
We found a similar decline in the percentage of poor
children receiving food stamp assistance. Using census data,
the number of children receiving food stamps as a percentage of
those children living in poverty was 88 percent in 1994 and
1995. By 1998, it was down to just 72 percent, a significant
drop. It's important to search for the causes of this
unprecedented decline in food stamp participation.
Overall, it shows that nonimmigrant families, families not
affected by the changes in immigrant eligibility account for
almost three-fifths of the decline in food stamp participation
from 1994 to 1998.
It appears that families that are either being diverted
from cash assistance or leaving welfare are losing food stamps
at the same time or shortly thereafter. For these families, the
transition from welfare to work is going to be more difficult,
and that could undermine the success of welfare reform efforts
around the country.
We're also troubled to see that a three-quarters decline in
the number of low-income U.S. citizen children participating in
food stamp programs that live in immigrant households. These
children because they're U.S. citizens did not lose
eligibility, although household members may have as a result of
the 1996 legislation. And, yet, the number of them
participating has dropped by three-quarters. We believe this
requires further investigation.
Finally, it appears that some efforts that States are
engaging in with the very best of intentions to reduce their
error rates may inadvertently be making food stamps less
accessible to the working poor.
Some States now require these families to take time off
from work and reapply for food stamps and provide extensive
documentation of their eligibility once every 3 months.
Naturally, missing this amount of time for work is burdensome
and costly to the working families and can undermine their
relationships with their employers and jeopardize their
opportunities to advance in the workplace. Families subject to
these short certification periods may soon decide that the cost
of participating in food stamps is too great.
As a final one of our chart shows, States that have
substantially increased the proportion of families, working
families with kids that have to reapply every 3 months or less
have had a 24 percent decline in participation among working
families with kids compared to a national average of about 5
percent. We need to find ways to better serve these families.
In conclusion, the Food Stamp Program plays a vital role in
providing a nutritional floor under the nation's poor. Former
Senate Minority Leader Robert Dole once called the program the
most important social program since Social Security to continue
to fulfill its mission, we need to strengthen the program's
integrity to improve its service to working poor families, to
gain a deeper understanding of the causes of the larger than
anticipated declines in food stamp participation, and to
respond accordingly to these challenges.
Thank you very much again for the opportunity to testify
today. I'd be pleased to answer any questions you might have.
[The prepared statement of David Super follows:]
Prepared Statement of David A. Super, General Counsel, Center on Budget
and Policy Priorities
Mr. Chairman, Representative Clayton, members of the committee,
thank you very much for inviting me to testify before you today on the
important issues confronting the Food Stamp Program. I am David Super,
General Counsel of the Center for Budget and Policy Priorities. The
Center is a non-profit organization that conducts research and analysis
on an array of policy issues at both the Federal and state levels. We
receive no government funding.
As an organization concerned about low-income people who are
struggling to feed their families, we feel strongly that no food stamps
ought to be issued to ineligible persons.
We are equally concerned when food stamps that are issued correctly
are misused through trafficking. Although trafficking in properly
issued benefits does not constitute a monetary loss to the Federal
Government, and eliminating all trafficking would not produce any
budgetary savings, trafficking does undermine the public trust and
should be vigorously pursued.
And just as we are concerned about improper issuances and improper
use of benefits, we are also concerned that eligible families in need
of food stamps have a fair opportunity to obtain those benefits. We
applaud the Committee for its interest in all of these challenges
facing the Food Stamp Program today.
With regards to trafficking, we were pleased to read in USDA's
recent study that the overwhelming majority of food stamp benefits
continue to be used for their intended purposes and that the incidence
of food stamp trafficking appears to be declining. Any trafficking is
too much, but it is heartening to see progress is being made. This may
well be in part the result of the bipartisan anti-fraud provisions of
the 1996 welfare law, the greater movement toward electronic benefit
transfer (EBT), and FNS's greater efforts to partner with states and
others to attack trafficking.
We hope that Congress and the Administration will work together to
make further progress in this area, in particular by providing FNS with
the resources it needs both for additional compliance and enforcement
staff and for a research budget that could, among other things, help
the agency understand more about how food stamp traffickers operate.
We also hope that Congress and the Administration will work
together to ensure that food stamps are available to eligible low-
income families that need them. In their May 1999 report entitled,
``Welfare Reform Has Already Achieved Major Successes: A House
Republican Assessment of the Effects of Welfare Reform,'' Speaker
Hastert and Reps. Nancy Johnson, Bill Archer and Clay Shaw make the
point that food stamp benefits are an important part of the Federal
Government's ``commitment to making work pay.'' \1\ Food stamps can
supplement the low wages that many families moving from welfare to work
are earning.
---------------------------------------------------------------------------
\1\ Representatives Nancy L. Johnson, Bill Archer, E. Clay Shaw,
Jr., and J. Dennis Hastert, ``Welfare Reform Has Already Achieved Major
Successes: A House Republican Assessment of the Effects of Welfare
Reform,'' May 27, 1999, p. 29.
---------------------------------------------------------------------------
Leaders of both political parties and officials of conservative and
liberal think tanks alike have urged that if a family works full time
throughout the year, the family should not have to live in poverty.
This goal shaped the largely bipartisan expansions of the earned income
tax credit (EITC) throughout the late 1980's and early 1990's. The EITC
is now designed so that full-time year-round minimum-wage earnings plus
the EITC and food stamps bring a family of four to the poverty line.
In the report on welfare reform they released last year, Speaker
Hastert and Reps. Johnson, Archer and Shaw note that ``caseload data
from the food stamp program and the Medicaid program seem to indicate
that many adults and children who meet the demographic, income, and
resource standards for these benefits are not receiving them. * * *
[T]here is concern among program administrators and other experts that
there probably are many children eligible for Medicaid and food stamps
who are not receiving them.'' \2\
---------------------------------------------------------------------------
\21\ Op cit., p. 31.
---------------------------------------------------------------------------
The evidence suggests that the decline in food stamp participation
is significantly larger than can be explained by the economy and the
food stamp changes in the welfare law. The reduction in food stamp
spending in recent years has been far greater than Congress sought or
anticipated when it enacted the 1996 welfare law, even after adjusting
for the improved economy.
In a report issued last year, the GAO reported: ``there is a
growing gap between the number of children living in poverty--an
important indicator of children's need for food assistance--and the
number of children receiving food stamp assistance.''
We have conducted a similar analysis going back to the peak in food
stamp participation in 1994 and reached results very similar to GAO's.
Overall, the number of people living below the poverty line fell 9.4
percent, or 3.6 million people, between 1994 and 1998 while the number
of people receiving food stamps in the average month fell nearly 30
percent, over eight million people, during the same period. The
difference was far greater than the 1.5 million legal immigrants and
childless adults whom CBO estimated became ineligible for food stamps
by the end of 1997 as a result of the 1996 welfare law.
We also found a substantial decline in the percentage of poor
children receiving food stamp assistance. Using Census data on the
number of poor children and USDA data on food stamp participation, we
found that in 1994 and 1995, there were 88 children receiving food
stamps for every 100 children below the poverty line. By 1998, we
estimate there were just 72 children receiving food stamps for every
100 poor children.
It is important to search for the causes of this unprecedented
decline in program participation among eligible low-income households.
Overall, the data show that non-immigrant families with children have
accounted for almost three-fifths of the decline in food stamp
participation from 1994 to 1998. As research by the Urban Institute and
others has shown, a great many of the families that have left welfare
for low-paying jobs remain eligible for food stamps but no longer
receive benefits. It appears that low-income families that are being
diverted from cash assistance programs are also failing to apply for
food stamps, and that families leaving welfare are losing food stamps
at the same time or shortly thereafter. Without food stamps, the
transition from welfare to work for these families will be
substantially more difficult, and the success of welfare reform efforts
may be imperiled.
Also troubling is the three-quarters decline in the number of low-
income U.S. citizen children receiving food stamps in households
containing immigrant members. Citizen children remain eligible for food
stamps, and many need this assistance to ensure that they go to school
alert and ready to learn. We need to understand better why they are no
longer receiving food stamps and work together to ensure they receive
this assistance if they need it.
Finally, it appears that some state practices designed to reduce
error rates may be inadvertently making food stamps much less
accessible to the working poor. Some states now require these families
to take time off from work once every 3 months to reapply for food
stamps and to provide extensive documentation of their eligibility.
Naturally, missing this amount of time from work is burdensome to these
working families and can undermine their relationships with their
employers. Families subject to these short certification periods may
soon decide that the cost of continuing to receive food stamps is too
great. In states that have required a substantially higher proportion
of working families with children to reapply every 3 months, the
decline in participation among these families has been 24 percent,
compared with a national average decline among these families of just 5
percent. We need to find better ways to serve these families.
In conclusion, the food stamp program plays a vital role in
providing a nutritional floor under the nation's poor. Former Senate
Majority Leader Bob Dole once called it the most important social
program since Social Security. To continue to fulfill its mission, we
need to strengthen the program's integrity, to improve its service to
working poor families, to gain a deeper understanding of the causes of
the larger-than-anticipated declines in food stamp participation, and
to respond appropriately to these challenges. Thank you very much again
for the opportunity to testify before you today. I would be pleased to
answer any questions that I can.
DECLINE IN PROPORTION OF POOR CHILDREN RECEIVING ASSISTANCE 1994-1998
[Percentage]
------------------------------------------------------------------------
Cash
Food stamps assistance
------------------------------------------------------------------------
Percentage of Poor Children Receiving 88 58
Benefits, 1994.........................
Percentage of Poor Children Receiving 72 41
Beneifts, 1998.........................
------------------------------------------------------------------------
Mr. Nussle. Thank you both.
Ms. Clayton, do you have questions for this panel?
Mrs. Clayton. Well, I want to thank you first for allowing
both of these witnesses to testify. I think they bring a
different dimension to our whole issue of making sure that we
use the resources well.
The reason I wanted, Mr. Chairman, to have their statement
on the record is that as we try, indeed, to make sure that the
monies that are allocated, approved, and authorized by Congress
be spent correctly and not in trafficking or misused,
mismanaged, we also want to make sure that we have a
compelling, urgent need to make sure we reach out and serve the
people the bill was originally designed.
I think in both of their testimony, they will show that,
indeed, the program has been the cornerstone of responding to
the nutritional needs of America, but there has been a drastic
decline in some ways which is unexplainable, though there have
been efforts.
In Ms. Zedlewski's testimony, she gave five different
reasons of what she thought what was happening in those areas.
But, again, in the spirit of the Chairman's request to the last
panel, if we want this program to be responsive to those
citizens who are eligible and for which it was originally
authorized, what would you recommend to us that we should do?
And I'll get, Mr. Super, in a few minutes to you, but I
would be interested in your particular analysis, where you say
the working families indeed were having far more difficulty in
getting resources.
Ms. Zedlewski. Right. This has been true throughout, as
long as we know, in the program that eligible families who work
are much less likely to participate in the Food Stamp Program
than others.
And there have been a lot of anecdotal stories about why
that is true. Food stamp offices are typically open between 9
and 5, when people are working. The process takes place in a
welfare office. I would contrast this with the Women, Infants
and Children [WIC] nutrition program, where participation has
actually been increasing. Families can go into a community
health office and get WIC benefits. The process is easier.
When you talk to States about trying to increase
participation among working poor families, they turn to the
cost of doing this. It costs extra money to have caseworkers
available outside of regular hours, to outstation workers, to
issue contracts to community service agencies to help families
stay in the system.
I think that States need to be encouraged to do this, and
need to be encouraged to take advantage of the Federal monies
that are put out there for outreach. There is a 50 percent
Federal match. But, as I said, only nine States right now are
really engaged in these kinds of new outreach services.
It's a tough issue. It's a tough administrative problem.
And the States, as you know, are also dealing with some very
new procedures around their TANF programs. But I think this has
to be part of the package of services that's offered to working
poor families, as an important supplement to their incomes. And
it needs to be made easier for families who are qualified to
get the benefits. It's going to cost a little more
administrative money.
Mrs. Clayton. Did I understand you to say that there's a
match to be offered from the Federal Government to States if
States wanted to take this initiative?
Ms. Zedlewski. That's right. States need to submit a
special plan on new outreach efforts. And there's a 50/50 match
with Federal/State moneys sharing the extra administrative cost
equally.
Mrs. Clayton. Mr. Super? You gave some startling traffick
scenarios, where, actually, the poorest of the poor were
receiving less and children were receiving less. Can you give
us any reason why you think that is happening? Children of
immigrant families, you said, the poorest of the poor and
children in general are receiving less in 1996 than they are
now.
Mr. Super. Yes.
Mrs. Clayton. I am sorry. They're receiving less now than
they were in 1996.
Mr. Super. Yes. I think that there are a number of factors
that are probably fitting into this. Certainly with regard to
those immigrant children, I think that there has been a lot of
misunderstanding about the eligibility rules that were put in
in 1996.
I think that there may be a perception the families have
where there is an immigrant present, that they may be
undermining their immigration status, even though they're
legally here if they get assistance for the children and the
family. There may be a number of other concerns along those
lines with regards to them.
With regards to the group that constitutes the great bulk
of the participation decline, the families with kids where
there are no immigrants present, I think that's a combination
of people not understanding that they are eligible, that some
of the changes that have been made on the cash assistance side,
which were designed to get people to work, were never intended
to take food stamps away from people who are, in fact, working
but still making very low wages.
I think it's also that there are people who are leaving
cash assistance programs who are not understanding that they
can retain their food stamps and, indeed, their Medicaid and
child care benefits when they leave if they've still got a very
low income. And I think it is some of the practices that have
been pursued to reduce the error rates, such as these very
short certification periods, such as asking people to bring in
extensive documentation from their employers, where people may
not want to let their employer know that they're receiving food
stamps and those sorts of things that are now causing problems.
Mrs. Clayton. Have you done any documentation to make a
comparison between the utilization of Medicaid by persons
leaving welfare and persons leaving welfare or using food
stamps? Are people accessing the health care services for their
children when they begin work but are no longer eligible for
cash assistance more than they are doing for food stamps or
less or about the same?
Mr. Super. It's very difficult to compare. There are a
number of State studies of people leaving cash assistance that
have been done. Some of them are pretty good. Some of them the
data is not so good, and they show differing rates.
The best study or the most comprehensive one that I am
aware of that might answer that question was actually done by
The Urban Institute. So if I could?
Mrs. Clayton. Yes. Ms. Zedlewski.
Ms. Zedlewski. Thank you. Yes, we have looked at that
issue. And there was a decline in Medicaid coverage as families
left welfare. It wasn't as steep as the decline in food stamp
benefits.
More recently, the Federal Government in partnerships with
private foundations and community agencies has really been
working hard at outreach to low-income families about continued
eligibility for Medicaid and SCHIP for their children.
My understanding is the latest data show that this trend
has turned around. So it gives me some encouragement and
optimism that, in fact, we can decouple these work support
programs, such as health insurance and food assistance from
welfare. As families move into work, there are ways to keep
them attached to these other important supports.
Mrs. Clayton. Mr. Chairman, I thank you for your
forbearance, but let me just make this statement. I think one
of the things we wanted to add into the record is that food
stamps as well as Medicaid are there to assist people to make
that transition from welfare to work because what you will find
is that the cost of food and the cost of health for their
families will drive them back to that.
So if we're not working in an effective way to make these
programs effective for them, we are not even serving welfare
reform well because we're making such an expensive issue to be
able to have independents say, ``I can't afford to take my kid
to the doctor. I can't afford food. So why shouldn't I just
stay on--because the job I have, it doesn't provide for all of
those goods.''
So I think it's a compelling case for us to make sure that
there's outreach and the people who are eligible for that and
who are working indeed are getting those resources. So I think
that's a mismanagement of funds when we don't do this.
Mr. Nussle. Clearly. And that's why I knew that when we set
up this hearing today that having you on the panel with me
would provide that focus and that interest. We are talking
about people here.
I know you were in the audience when we had the green
eyeshades on. And we do that very often. We're very good at it.
When we're in Congress, we talk about the bottom line a lot,
what is the budget, what is this, what is that.
And what we're talking about here is people. I mean, are
the kids getting the necessary nutrition that they need? Are
the parents able to provide that assistance? Are they able to
provide and make the transition from welfare to work? Because
while we are certainly hopeful that we have a program in place
that can provide the assistance to kids and to families when
they need it, we also hope they get off it, not just for the
sake of getting off it but because we understand that that
independence that a family has of being able to find a job, of
being able to provide for their family, being able to pass on
those kinds of self-reliance attitudes to their children is a
pretty important value I think that is shared by all of us that
helped to write the welfare law.
The question I have--and I don't mean to zero in quite so
focused on one thing, but today's hearing is about trafficking,
waste, fraud, and abuse. And so please for a moment just
provide it as a given that it is our hope that every single
person who is eligible is able to reach the benefits that we
are providing. Otherwise why are we providing them? Of course,
we want them to get to them.
The question I have is: Do you--and I heard a little bit of
it today, and I am just interested in any expansion you'd
provide on this. Do you perceive that if we begin fighting
waste and fraud and abuse of this system and trafficking of
food stamps, in particular, that there will be those who
decide, for one reason or another, to just say, ``Hey, get me
out of this program. I am not going to do it'' other than the
ones who are doing it already illegally?
I mean, I have a little bit of sympathy. I have sympathy
for the kids that they're victimizing. I don't have a lot of
sympathy for the adults that are going out and trafficking. I
have sympathy for their kids. And so I am not talking about
participation rates among those who are thrown out of the
system because they violated it, appropriately thrown out
because they violated it.
What I am talking about is what you're hinting at, I think.
And that is: Do participation rates come down because we start
getting tougher because the Department gets tougher on
trafficking? Is that what you're telling us today? Either one
can----
Ms. Zedlewski. I think this is a really complex topic,
obviously. As it was said earlier today--and I truly believe
this--as you reduce trafficking, you can increase the American
confidence in this program. You can increase its acceptance as
a work support for low-income families as you reduce the
negativity that seems to surround the program.
However, when we're talking about implementing procedures
that investigate a lot of innocent clients in the Food Stamp
Program, that, in fact, can have the opposite effects. I think
there's a delicate balance between how zealous you get in terms
of looking at trafficking when you're going after the clients
who are in the system and not discouraging participation among
eligible families.
I think the bigger issue perhaps in terms of program
participation is something that David alluded to earlier. One
of the reasons why working families are thought to participate
at much lower rates is that when you work, your income
fluctuates over time. Your earnings can fluctuate from day to
day, from week to week.
And States have had to be very careful to get frequent
reports from recipients who have earnings, sometimes requiring
certified statements from their employer and having them come
in every 3 months face to face to make sure that they're still
eligible.
So when we're talking about keeping the error rate down,
sometimes we can implement systems that make it much more
difficult for working poor families to maintain these benefits.
Perhaps there can be a balance between that and making the
offices more accessible, like expanding the time that they're
open, increasing the number of places you can go to update
certification, allowing clients to update information via the
phone and so on.
Maybe we can keep it all in balance. But, as I said, I
think reducing the trafficking and any illegal activities
surrounding the program could, in fact, increase the public's
confidence in this program and would not deter participation.
It's the negativity that you want to reduce in the program.
Mr. Nussle. Do you have any--and, again, part of what I see
here--and we just heard a number today that it's potentially
3.5 percent or somewhere in the neighborhood of $660 million a
year. You know, I'd love to take that $660 million and make
sure that all the kids you're talking about are getting a
nutritious set of meals during the day.
And so immediately what we think of sometimes--and that's
why I am asking the question--is let's just crack down on this
side, take the 660 million, put it over on this side, and make
sure more kids get food.
And what you're telling me and what I am looking for is: Do
you have any evidence to suggest that on the trafficking side,
not so much the eligibility side because certainly there are
people--and we're not talking about eligibility fraud because
there are people who go out and hide income and do that. We're
not talking about that because that does happen. That's kind of
a separate subject to some extent. I am talking about somebody
who is already eligible but is doing something wrong or a store
that is either allowing it to happen or perpetrating it on
their own.
At that level of trafficking, at that criminal activity
level, do you anticipate that if, in fact, the Department
cracks down, as they are telling us today that they're going
to--they're working on a strategic plan to do that--and if we
continue to persuade our colleagues to work at efforts to crack
down, do you see that or do you have evidence to suggest that
that will further have a chilling effort on the participation
rates in food stamps overall?
Do you have evidence to that effect or is that just a
general concern you have? I share your concern is the reason I
ask it, but is it evidentiary or is it just supposition to some
extent?
Ms. Zedlewski. Well, the evidence that we have is through a
lot of focus groups with low-income families who are not
participating in the program and talking to them across the
country about why it is they don't participate in the country.
Mr. Nussle. OK.
Ms. Zedlewski. So I am associating those kinds of
comments----
Mr. Nussle. Sure.
Ms. Zedlewski [continuing]. With what might happen if there
were further crackdowns.
Mr. Nussle. Do you see a difference between EBT situations
versus paper transaction coupon situations?
Ms. Zedlewski. Well, I think EBT, in fact, should have had
a positive effect on participation. It was hypothesized that it
would. In other words, families would be going into a grocery
store with a plastic card, instead of obvious food stamps.
My understanding is that there isn't any real evidence that
EBT has increased program participation, but EBT cards I think
in general are good for clients, are good for the program. It's
much more a modern way of issuing these kinds of benefits.
Mr. Nussle. Do you find it's a less onerous way of
gathering information, too? For instance, if we started to
relax some of the informational barriers that appear to be
there the Department is suggesting are there between the EBT
and some mandate by Congress that they can't use that for
research, if we would relax that, for some reason, would that
in your opinion be a less onerous way to collect that data than
individual interviews and paperwork transactions?
Ms. Zedlewski. I think there's a lot of important
information that you could gain from analysis of the EBT data
in terms of the kinds of nutrition families are getting, as
well as some of the other things that were mentioned earlier
today.
Mr. Nussle. OK. Mr. Super, do you have anything you would
like to add to this conversation? I don't mean to exclude you
from this.
Mr. Super. Mr. Chairman, I think I would agree with
everything that Ms. Zedlewski said about this. I think a sound,
a sensible anti-fraud or anti-trafficking effort should not
have an adverse effect on participation.
And just to give you an example of what I mean by that, a
story that was told to me by a State anti-fraud investigator,
one of the things that they looked for in finding suspicious
evidence of possible trafficking is someone who has many, many
transactions in the same day. That's not seen as normal
activity, and that raises red flags.
They called someone in. And it turned out it was someone, a
senior citizen, who was utterly incapable of understanding the
balance information that EBT gave them. So they got all their
groceries up to the front. And they'd run each one of them
through until they ran out of funds. Once they found that out,
they, of course, didn't proceed further.
As long as you have people using common sense and
distinguishing between that sort of a situation and the
situation where there is actual abuse going on, then I don't
see a problem.
Indeed, I think, for just the reason Ms. Zedlewski said, it
would be helpful if we could give the public confidence that
when they see food stamps being used, that they know that they
are being used appropriately.
Mr. Nussle. Actually, your example sounds like maybe the
poster child for EBT and the use of that information because
that probably could not have been discovered as fast if it was
done with a coupon transfer.
Mr. Super. Yes. I mean, the potential for using EBT
information to zero in on the problematic retailers and get
them out of the program is fabulous and used sensibly, as in
the example I gave, where you don't bother with people who just
can't quite handle the technology but you use that--and
probably the next person who had that same flag they called in
may well have been a trafficker and they got rid of them--that
I think is a very exciting possibility.
Mr. Nussle. Do you have anything else you would like to
add, Ms. Clayton, before we wrap up the hearing?
Mrs. Clayton. I would just like to ask the issue about
reports and doing research and analysis that the Secretary said
she is prohibited from. And she read from the 1999 bill.
Do either of you have comments about that or is there a way
we can get around that, why that is--if there is such valuable
information to come from analyzing use of the electronic card,
it seems to me that prohibition is denying us some critical
information, a tool, not only for getting at the trafficking
but also for utilization, other reasons.
Mr. Super. Yes. Congresswoman Clayton, if I may borrow the
Chairman's analogy of a corporation that is having financial
difficulties, when the appropriations language was put in
prohibiting FNS from spending its money on research, in some
sense, we took away their research and development arm. And if
a corporation is having trouble, that's the very time when you
want them doing research.
Now, they're allowed to operationalize things that they
already know how to do. And that ALERT system is one example.
But in times past, FNS' Office of Analysis and Evaluation was
ahead of the game. They understood problems before other people
did. They were years ahead of the program in finding these
problems and identifying solutions and helping the operational
people go after them before they got out of hand.
And for the past several years, the agriculture
appropriations law has not allowed them to do that sort of
work. And I think the more years that goes on, the farther
behind we become.
Mr. Nussle. Yes. It's interesting. I was just checking with
the staff about how that little rider got in there. I found
out. It wasn't me, but I probably supported it. You may have
even supported it, too, but it was in an effort to stop some--
it sounded like maybe some political activity that was going on
down at the Department or some focus groups. And so you put a
provision in there. And now the Department is not doing any
research. So we've got to figure out a way to put the governor
on a little bit but loosen it a little bit.
So we will work on that, but suffice it to say I appreciate
the testimony that this panel has given us. It's been very
enlightening. We appreciate your interest and work in this area
and concern. And I appreciate the participation of members.
We will call this hearing to a close. And hopefully we will
have another opportunity to discuss this in a little bit more
detail in a little while. There's some discussion about maybe
one more hearing on this subject. And so we will look forward
to that opportunity in the future.
The Task Force will stand adjourned. Thank you.
[Whereupon, the foregoing matter was concluded at 4:25
p.m.]
Federal Disability Benefits Still Being Paid to Drug Addicts and
Alcoholics
----------
TUESDAY, SEPTEMBER 12, 2000
House of Representatives,
Committee on the Budget,
Task Force on Welfare,
Washington, DC.
The Task Force met, pursuant to call, at 1:20 p.m., in room
210, Cannon House Office Building, Hon. Jim Nussle (chairman of
the Task Force) presiding.
Chairman Nussle. Good morning--or good afternoon. It is
still good morning for some of us. I apologize for running a
little bit behind. We have had some weather problems in the
country, as some of you know, and I spent the night at O'Hare
last night and so my clock has been turned back just slightly.
So I apologize for the delay.
Mrs. Clayton will be here in a moment, and we will also be
recognizing her. I appreciate Mr. Collins of Georgia being here
as well today.
I would like to begin this today by talking a little bit
about the fact that in 1996 the Congress passed and the
President signed into law comprehensive reform of our Nation's
welfare system. And while the intentions were good when it was
created in 1965 after 30 years of the old welfare system, we
had basically more poverty, more despair and hopelessness
within our country from those who seem to be locked within that
system. The failed, old system placed a real disincentive on
working and keeping the family together.
In 1996, reforms transformed welfare from a failed, very
impersonal Washington-dictated system to a much more
personalized, more effective and hopefully more compassionate
system based on individual States and their communities. We
have witnessed the most dramatic decline in welfare caseloads
in the history of the Federal welfare programs, cutting the
number of recipients in half.
Since 1996, more than 6 million Americans are off welfare
and enjoying the rewards of hard work and a well-deserved
paycheck. In fact, the number of Americans on welfare is now at
the lowest levels since 1965. This remarkable turnaround has
created some unique problems of its own, but they are problems
we are all happier in addressing, I believe, than the original
problems themselves. For example, the city of Milwaukee,
Wisconsin, has had to revamp its public bus routes, as we
understand--and schedules--because so many more people are
going to work than there were 4 years ago.
With all of that being said, however, we are here today to
look at a concern about a provision that I believe was really a
component of welfare reform, but which was approved and signed
into law separately from the actual 1996 welfare reform bill
and has not been adequately enforced or certainly not in a
timely manner and it is costing American taxpayers millions of
dollars each year.
Public Law 104-121 eliminated drug addiction and alcoholism
as conditions for which individuals could legally qualify for
SSI, Supplemental Security Income, and Social Security
disability insurance benefits. Substance abusers who have other
medical conditions that would qualify them for benefits remain
eligible, but eligibility was terminated for those who would
not be disabled if they stopped abusing drugs and alcohol.
The history of whether substance abuse in and of itself
should qualify as a disabling condition goes back to the
creation of the SSI program. The compromise struck in the 1972
legislation requires persons whose sole qualification for SSI
was addiction to have benefits paid through representative
payees. But there was no restriction on who that payee might be
and it was often a relative or friend of the recipient. There
were even horror stories about benefits being paid directly
to--in some instances, even bars and taverns.
Congress attempted--and Congress', I should say, first
attempt to make some changes--came in 1994. Legislation was
enacted to limit the period of time persons could remain
eligible for SSI and DI benefits based solely on substance
abuse. The 1994 bill also finally strengthened the
representative payee requirements and required recipients to
participate in drug or alcohol abuse treatment, but those
changes did not go far enough.
There were many in Congress who always believed that it was
inappropriate to be providing SSI or DI benefits to a person
based solely on their drug or alcohol addiction. Obviously it
wasn't fair to the taxpayer, but even more importantly it was
not fair to those beneficiaries.
There is no shortage of examples of drug addicts and
alcoholics receiving their checks and using those funds
specifically to satisfy and further their addiction. In many
cases, it was as if the Federal Government was contributing to
their addiction and in some cases it has ended in tragedy and
death.
I remember reading an article that quoted an assistant
director of the drug treatment facility who saw a number of SSI
and DI recipients repeatedly in his treatment facility with
little or no hope of conquering their addictions. According to
that person on the front lines of the drug battle, he never saw
a disability recipient successfully complete the drug treatment
program and he placed some of the blame on the monthly check
that the drug addict basically could count on receiving from
the Federal Government to help fund their addiction.
In 1996, changes ended this vicious cycle and it directed
the Social Security Administration to terminate SSI and DI
benefits for any beneficiary for whom drug addiction or
alcoholism was material to the funding of their disability. As
of May, 1997, SSA had notified more than 200,000 individuals
that their benefits would terminate under the new welfare law.
In May of this year, the SSA Inspector General issued an
audit detailing the implementation of this provision of the
1996 law. The report estimated that thousands of SSI and DI
beneficiaries whose sole disabling condition was drug addiction
and alcoholism remained on the benefit rolls despite having
their eligibility terminated by the new welfare law. Based on a
sample of cases reviewed, the IG audit estimated that between
1997 and the completion of the audit, more than 3,000
individuals had received more than $40 million in SSI or DI
benefits to which they were not entitled. And under current
procedures, SSI will not seek to recover any of those overpaid
benefits.
I believe treatment must be available to the recovering
alcoholic and drug addict. If they need and want help, that
assistance should be available to them. But a monthly cash
payment from the Federal Government is not the way to help an
alcoholic or drug addict battle his or her disease.
This is not just me saying this. These are the people that
are on the front lines who make that point. This point is made
by the fact that after 4 years of payments, these same
individuals still have the same problem.
Each dollar used inappropriately in payments to these
people could have been better used in their treatment or to
provide assistance to other people with disabilities.
We are here today to review the audit report, to learn why
these thousands of drug addicts and alcoholics continued to
receive disability benefits for more than 4 years after the law
was changed terminating their benefits. We also will seek to
determine what steps SSA is taking to address the findings of
the audit report and to assure that provisions of the 1996
welfare law are fully implemented.
Joining us today at the hearing is James Huse, Jr.--, am I
pronouncing that right?
Mr. Huse. Yes, sir.
Chairman Nussle [continuing]. Who is the Inspector General
of the Social Security Administration; Steven Schaeffer, who is
the Assistant Inspector General for audit of the Social
Security Administration; Kenneth--and you're going to have to
help me with this----
Mr. Nibali. Nibali.
Chairman Nussle [continuing]. Kenneth Nibali, Associate
Commissioner for Disability for the Social Security
Administration. I appreciate all three of you coming here
today.
Before we begin with the testimony, Mr. Collins, do you
have any opening statement that you would like to make at this
time?
Mr. Collins. I don't believe so, sir.
Chairman Nussle. Thank you.
Without objection, all Members will be given 5 legislative
days to revise and extend their remarks and submit extraneous
written material. Is there any objection to that?
Also, the witnesses themselves, I would ask you to
recognize that your written statement will be placed into the
record, and you may summarize if you care to and pull out the
points that you believe are most important.
Hearing no objections to that, I will call on Mr. Huse,
Jr., the Inspector General, and ask you for your testimony.
Welcome and thank you.
STATEMENT OF JAMES G. HUSE, JR., INSPECTOR GENERAL, SOCIAL
SECURITY ADMINISTRATION
Mr. Huse. Thank you, Mr. Chairman, and Mr. Collins.
Mr. Collins. Nice to see you again, sir.
Mr. Huse. Good to see you again, sir.
Thank you for this opportunity for us to discuss the
Federal disability benefits being paid to drug addicts and
alcoholics.
As you are aware, our office is responsible for preventing
fraud, waste and abuse in the Social Security Administration's
programs and operations. An important part of our efforts
involves performing independent and objective audits aimed at
effecting positive change and improvement. In May, 2000, we
released our audit report entitled implementation of drug
addiction and alcoholism provisions of Public Law 104-121. Our
objective in this audit was to determined whether SSA
identified and terminated benefits to all beneficiaries for
whom drug addiction or alcoholism was a contributing factor
material to the finding of disability.
We conducted this audit to ascertain the agency's
compliance with the Contract With America Advancement Act of
1996 which prohibits the payment of disability insurance
benefits and Supplemental Security Income benefits if drug
addiction or alcoholism is the primary reason the individual is
disabled. To establish materiality, SSA needed to evaluate
medical evidence to determine if the individual would not be
disabled if he or she stopped using drugs or alcohol.
After this evaluation, the law requires SSA to terminate
payments to individuals whose disabilities were based on drug
addiction and alcoholism alone. In addition, if individuals
appealed their terminations timely, this law required SSA to
conduct medical redeterminations by January 1, 1997.
Our audit concluded that SSA did not identify and terminate
benefits to all beneficiaries for whom drug addiction and
alcoholism was a contributing factor, material to the finding
of disability.
Assistant Inspector General for Audit, Steven Schaeffer,
will provide you with a more comprehensive explanation of our
findings. At this point, I would like to allow Mr. Schaeffer to
present his statement.
[The prepared statement of James G. Huse, Jr., follows:]
Prepared Statement of James G. Huse, Jr., Inspector General, Social
Security Administration
Chairman Kasich and members of the Task Force, thank you for
inviting me to discuss the issue of Federal Disability Benefit payments
for drug addicts and alcoholics. As you are well aware, our office is
responsible for preventing and detecting fraud, waste, and abuse in the
Social Security Administration's programs and operations. An important
part of our efforts involves performing independent and objective
audits aimed at affecting positive change and improvement.
In May 2000, we released our audit report entitled ``Implementation
of Drug Addiction and Alcoholism Provisions of Public Law 104-121''.
Public Law 104-121, also known as the Contract with America Advancement
Act of 1996, prohibits the payment of Social Security Disability
Insurance benefits and Supplemental Security Income benefits if drug
addiction or alcoholism is a contributing factor material to finding a
claimant disabled. The objective of our audit was to determine whether
SSA identified and terminated benefits to all beneficiaries for whom
these prohibitions applied.
Our audit concluded that SSA did not identify and terminate
benefits to all beneficiaries for whom drug addiction and alcoholism
was a contributing factor material to the finding of disability.
Assistant Inspector General for Audit Steven Schaeffer will provide you
with a more comprehensive explanation of our findings. At this point I
would like to allow Mr. Schaeffer to present his statement. I would
also like to thank the Subcommittee for its interest in our work and
efforts to prevent and detect fraud, waste and abuse in SSA's programs
and operations.
Chairman Nussle. Mr. Schaeffer.
STATEMENT OF STEVEN L. SCHAEFFER, ASSISTANT INSPECTOR GENERAL
FOR AUDIT, SOCIAL SECURITY ADMINISTRATION
Mr. Schaeffer. Mr. Chairman, Mr. Collins, it is a pleasure
to be here to discuss this important topic with you.
By May 30, 1997, SSA had notified approximately 209,000
individuals that their benefits would be terminated due to drug
addiction or alcoholism. Of these 209,000 identified
individuals, 67 percent actually had their benefits terminated
by SSA, 31 percent appealed the DAA termination and continued
to receive benefits based on a disability other than drug and
alcohol abuse, and 2 percent continued in benefit status
because they were incorrectly identified as DAA cases.
In September 1998, we began an audit to determine if the
Social Security Administration had identified and terminated
benefit payments to all individuals where DAA was a
contributing material factor to that individual's disability.
We learned that SSA only used one criteria for identifying DAA
cases for review. However, using an additional code, we focused
on approximately 20,000 individuals whose cases we believed
might be indicative of drug addiction or alcoholism. After
reviewing a sample of these cases, we found that DAA was in
fact the primary reason for disability in many cases.
In December, 1998, SSA disagreed and asserted that based
upon data contained in their information systems, disability
determinations for 16,677 of these individuals did not consider
DAA. For the remaining 3,269 individuals, SSA informed us that
it did not have sufficient information to determine whether or
not DAA was the reason that they were determined to be
disabled.
In March 1999, we expressed our concerns to SSA regarding
its assertions and we expressed our intent to proceed with a
review of a sample of the approximately 20,000 beneficiaries
who appeared to be receiving benefits based on DAA even though
the law prohibited such payments. Following our review, we
concluded that SSA did not identify and terminate benefits to
all individuals where DAA was material to their disability
determination. We then estimated that approximately 3,200
individuals were paid around $39 million in DI and SSI
benefits.
In one example, an individual in our sample was selected
for review because he was receiving benefits and had a
diagnosis code for alcohol substance addiction. Our review of
information provided by SSA indicated that DAA was in fact the
contributing factor for the disability finding. Specifically,
the case folder contained a document that stated, ``Substance
abuse is a substantial reason for the finding of disability and
the conferring of benefits in this case.'' Additionally, a
report from SSA's Disability Review Section stated that DAA was
a contributing factor and the claimant was determined to be an
alcoholic.
For this particular case, there was no documentation to
indicate that SSA reviewed this individual's medical condition
after the passage of Public Law 104-121. Further, SSA's records
showed that SSA did not review this case between SSA's DAA
determination in 1993 and our audit work in 1998. SSA did not
identify this case when the new law was passed in 1996 because
the agency only looked at certain indicators and not the entire
record. Therefore, benefits were not terminated and this
individual received a total of $11,736 in SSI payments between
the effective date of Public Law 104-121, January 1997, and
December, 1998.
Additionally, we found that cases were miscoded in SSA's
information systems showing DAA, even though DAA was not
material to the disability determination. Based on our review,
we estimate that 14,420 SSA beneficiaries do not have the
correct diagnosis codes, DAA indicators, or both, on their
records to show that DAA was not material to their disability
determination. Incorrect coding such as this could impact the
agency's ability to identify cases affected by new legislation,
as was the case with Public Law 104-121. Additionally,
incorrect coding could also impact on SSA's ability to profile
cases for continuing disability reviews which determine whether
beneficiaries continue to be disabled.
We provided SSA with four recommendations to improve its
implementation of the DAA provisions of Public Law 104-121 and
to help reduce SSA's incidence of paying benefits to ineligible
individuals. We specifically recommended that SSA review the
10,611 SSI cases that SSA asserted were either properly handled
or miscoded and apply the provisions of Public Law 104-121
where appropriate.
Two, when conducting the next scheduled CDRs for the 6,066
DI cases in our extract, ensure that the benefits are
terminated if DAA is material to the finding of disability.
Three, ensure that the 3,269 cases SSA agreed to review are
completed, the coding corrected and the benefits terminated
where appropriate.
Four, modify its systems so that the primary diagnosis
codes for alcohol or drug addiction will no longer be accepted.
In response to our draft report, SSA agreed with our
recommendations and stated that corrective actions were
initiated and in some cases completed. Specifically, SSA stated
that all the reviews specified in our first three
recommendations were completed or initiated. Regarding our
fourth recommendation, SSA stated that in August 1999 systems
modifications were completed to eliminate erroneous entries in
its systems. SSA stated that when a case is denied because DAA
was the reason for the disability, the use of alcohol or drug
addiction codes is appropriate.
I would like to thank the subcommittee for its interest in
improving SSA's implementation of the DAA provisions. This
issue represents a successful illustration of the role of the
OIG at SSA and the importance of cooperation between the OIG
and the agency, resulting with SSA immediately implementing
some of the corrective actions. The agency's aggressive action
limited further incorrect payments from being made.
Thank you for your time and interest in this subject. I
would be glad to respond to any questions you may have.
Chairman Nussle. Thank you very much.
[The prepared statement of Steven L. Schaeffer follows:]
Prepared Statement of Steven L. Schaeffer, Assistant Inspector General
for Audit, Social Security Administration
It is a pleasure to be here to discuss this important topic with
you. By May 30, 1997, SSA had notified 209,374 individuals that their
benefits would be terminated due to drug addiction or alcoholism (DAA).
Of these 209,374 identified individuals:
67 percent actually had their benefits terminated by SSA;
31 percent appealed the DAA termination and continued to
receive benefits based on a disability other than DAA; and
2 percent continued in benefit status because they were
incorrectly identified as DAA cases.
In September 1998, we began an audit to determine if the Social
Security Administration (SSA) had identified and terminated benefit
payments to all individuals where DAA was a contributing material
factor to that individual's disability. We learned that SSA only used
one criteria for identifying DAA cases for review. However, using an
additional code, we focused on 19,946 individuals whose cases we
believed might be indicative of drug addiction or alcoholism. After
reviewing a sample of these claims, we found that DAA was in fact the
primary reason disability in many cases. In December 1998, SSA
disagreed and asserted that, based upon data contained in their
information system, disability determinations for 16,677 of the
individuals did not consider DAA. For the remaining 3,269 individuals,
SSA informed us that it did not have sufficient information to
determine whether or not DAA was the reason they were determined to be
disabled.
In March 1999, we expressed our concerns to SSA regarding its
assertions, and we expressed our intent to proceed with a review of a
sample of the 19,946 beneficiaries who appeared to be receiving
benefits based on DAA even though the law prohibited such payments.
Following our review, we concluded that SSA did not identify and
terminate benefits to all individuals where DAA was material to their
disability determination. We then estimated that 3,190 individuals were
incorrectly paid $38.7 million in DI and SSI benefits.
In one example, an individual in our sample was selected for review
because he was receiving benefits and had a diagnosis code for Alcohol
Substance Addiction. Our review of information provided by SSA
indicated that DAA was in fact, the contributing factor for the
disability finding. Specifically, the case folder contained a document
that stated, ``Substance abuse is a substantial reason for the finding
of disability and the conferring of benefits in this case.''
Additionally, a report from SSA's Disability Review Section stated that
DAA was a contributing factor and the claimant was determined to be an
alcoholic.
For this particular case, there was no documentation to indicate
that SSA reviewed this individual's medical condition after the passage
of Pub. L. No. 104-121. Further, SSA's records showed that SSA did not
review this case between SSA's DAA determination in 1993 and our audit
work in 1998. SSA did not identify this case when the new law was
passed in 1996 because the Agency only looked at certain indicators and
not the entire record. Therefore, benefits were not terminated and this
individual received a total of $11,736 in SSI payments between the
effective date of Pub. L. No. 104-121 (January 1997) and December 1998
(the date the case was selected for review).
Additionally, we found that cases were miscoded in SSA's
information systems showing DAA, even though DAA was not material to
the disability determination. Based on our review, we estimate that
14,420 SSA beneficiaries do not have the correct diagnosis codes, DAA
indicators, or both, on their records to show that DAA was material to
their disability determination. Incorrect coding such as this could
impact SSA's ability to identify cases affected by new legislation, as
was the case with Pub. L. No. 104-121. Additionally, incorect coding
could also impact on SSA's abiltiy to profile cases for continuing
disability reviews (CDRs), which determine whether beneficiaries
continue to be disabled.
We provided SSA with four recommendations to improve its
implementation of the DAA provisions of P.L. 104-121, and to help
reduce SSA's incidence of paying benefits to ineligible individuals. We
recommended that SSA:
1. Review the 10,611 SSI cases that SSA asserted were either
properly handled or miscoded and apply the provisions of Pub. L. No.
104-121 where appropriate.
2. When conducting the next scheduled CDRs for the 6,066 DI cases
in our extract, ensure that benefits are terminated if DAA is material
to the finding of disability.
3. Ensure that the 3,269 cases SSA agreed to review are completed,
the coding corrected, and the benefits terminated where appropriate.
4. Modify its systems so that primary diagnosis codes for Alcohol
or Drug Addiction will no longer be accepted.
In response to our draft report, SSA agreed with our
recommendations and stated that corrective actions were initiated, and
in some cases, completed. Specifically, SSA stated that all the reviews
specified in our first three recommendations were completed or
initiated. Regarding our fourth recommendation, SSA stated that in
August 1999, systems modifications were completed to eliminate
erroneous entries in its systems. SSA stated that when a case is denied
because DAA was the reason for the disability, the use of alcohol or
drug addiction codes is appropriate.
I would like to thank the Subcommittee for its interest in
improving SSA's implementation of the DAA provisions. This issue
represents a successful illustration of the role of the OIG at SSA, and
the importance of cooperation between the OIG and the Agency, resulting
with SSA immediately implementing some of the corrective actions. The
Agency's aggressive action limited further incorrect payments from
being made. Thank you for your time and interest in this subject matter
and I would be glad to respond to any questions that you may have.
Chairman Nussle. Commissioner Nibali.
STATEMENT OF KENNETH NIBALI, ASSOCIATE COMMISSIONER FOR
DISABILITY, SOCIAL SECURITY ADMINISTRATION
Mr. Nibali. Thank you, Mr. Chairman, Mrs. Clayton is here
now, and Mr. Collins. I am pleased to be here today to discuss
issues relating to the Social Security Administration's
implementation of the drug addiction and/or alcoholism
provisions of Public Law 104-121. I am a careerist with SSA for
29, years and I am most currently the Associate Administrator
for Disability.
While SSA worked aggressively to successfully implement
this legislation, we are appreciative of the work by the
Inspector General to identify potential concerns with our
implementation and give us the opportunity to address those
concerns.
I will briefly discuss the history of these conditions, the
steps we took to implementation the legislation, the recent
review and report by the IG and our actions and results. Again,
I would like to thank the Inspector General for their help in
implementing this legislation.
As you noted, Mr. Chairman, the original legislation passed
by Congress in 1972 to create the SSI program required that
disabled individuals whose DAA condition was material to their
disability accept treatment, if available, and have their
benefits paid to a representative payee.
The provisions did not apply to the Social Security
disability insurance beneficiaries at that time. All SSI cases
in which alcohol and/or drug addiction was material to the
finding of disability were flagged with special DAA codes. Then
the Social Security Independence and Program Improvement Act of
1994 placed additional requirements on individuals disabled due
to DAA. Among other things, it extended the treatment
participation requirements to the Social Security disability
beneficiaries whose substance abuse was material to their
disability, and therefore, special DAA codes were also applied
to those cases to indicate DAA materiality.
Then, 2 years later, all benefits to individuals disabled
solely due to DAA were eliminated in Public Law 104-121, which
became law on March 29, 1996. Among other things, for
individuals whose DAA is a contributing factor material to the
finding of disability, this law prevented DI and SSI
eligibility effective with all claims adjudicated on or after
March 29, 1996, and for individuals already receiving benefits
based on DAA, SSA was required to notify beneficiaries of the
new provisions and to complete new medical determinations by
January 1, 1997. Additionally, beneficiaries who have a DAA
condition and are incapable of managing their benefits are
required to have a representative payee and to be referred to
the appropriate State agency for treatment.
As has been noted, SSA took immediate steps to implement
the legislation. We immediately instructed our disability
adjudicators on how to process DAA cases under the new law,
including the prohibition against allowing benefits in any case
where DAA was material to the finding of disability. In June
1996, over 209,000 beneficiaries with special DAA codes were
notified that their disability benefits would terminate
effective January 1, 1997, due to the change in the law, and
they could request a new medical determination.
We received about 141,000 responses to the over 209,000
initial notices. What that meant is for the 68,000 individuals
who did not respond to the initial notice, eligibility for
disability benefits was terminated effective January 1, 1997.
Then SSA made medical decisions in about 131,000 cases.
After all appeals, benefits had been ceased to an
additional 50,000 of those individuals and continued on the
basis of another disability for 81,000. So the bottom line is
that out of all 209,000 identified DAA beneficiaries, SSA has
ceased benefits for about 123,000 beneficiaries and continued
benefits based on another disability for about 86,000
beneficiaries.
As has been noted, in November, 1998 the Inspector General
questioned whether some individuals were being paid benefits on
the basis of DAA. OIG projected that almost 20,000
beneficiaries with a diagnosis of DAA or a DAA code were still
receiving benefits and asked us to respond. After some
discussions with OIG, SSA immediately started a review process
through a combination of expedited, continuing disability
reviews and other expedited folder reviews. And then, as has
been said, on May 12, the Inspector General issued the report;
and it identified the 20,000 cases that OIG had questioned and
projected the numbers that Mr. Schaeffer just gave you, that
3,190 individuals may be being paid benefits that should have
been terminated for DAA materiality.
OIG made a number of recommendations again, as Mr.
Schaeffer pointed out, involving reviewing these cases and
modifying our systems so that the diagnosis codes would no
longer be accepted. We did agree with all those
recommendations. We released cases for priority review, we
accelerated continuing disability reviews for others. The
results are these: That out of the almost 20,000 individuals
identified by the Inspector General, we found a total of 339 to
be still improperly receiving benefits because of DAA
materiality, and those benefits should have been ceased and
have been ceased now.
Additionally, in August 1999, we completed modifying our
systems to preclude a DAA diagnosis in all cases except
denials. The Inspector General did SSA a good service by
identifying this group of cases involving DAA that were not
reviewed and suggested that we implement system audits to be
assured that no DAA cases can be paid benefits. We took action
as soon as the IG brought this to our attention. Again, the
bottom line is that benefits have been terminated for 123,000
individuals out of those 209,000 originally coded as DAA.
Again, we would like to thank the Inspector General and his
office for their help in the implementation of this.
That concludes my statement. I would be happy to answer any
questions you might have.
[The prepared statement of Kenneth Nibali follows:]
Prepared Statement of Kenneth Nibali, Associate Commissioner for
Disability, Social Security Administration
Mr. Chairman and members of the Task Force, I am pleased to be here
today to discuss issues relating to the Social Security
Administration's (SSA's) implementation of the drug addiction and/or
alcoholism (DAA) provisions of Public Law 104-121. While SSA worked
aggressively to successfully implement this legislation, we are
appreciative of the work by the Inspector General to identify potential
concerns with our implementation and give us the opportunity to address
those concerns. I will discuss the history of these provisions, the
steps we took to implement the legislation, the recent review and
report by the Inspector General of implementation, and our actions and
results pursuant to his recommendations. Again, I want to thank the
Inspector General and his office for helping us implement this
legislation.
Background
The original legislation passed by Congress in 1972 to create the
Supplemental Security Income (SSI) program required that disabled
individuals whose DAA condition was material to their disability accept
treatment if available and have their benefits paid to a representative
payee. These two special requirements did not apply to SSI recipients
who were determined to be disabled independently of their substance
addictions (e.g., recipients who were disabled due to heart disease).
Nor did they apply to Social Security Disability Insurance (SSDI)
beneficiaries. All SSI cases in which alcohol and/or drug addiction was
material to the finding of disability were flagged with special DAA
codes.
P.L. 103-296
The Social Security Independence and Program Improvements Act of
1994, P.L. 103-296 enacted August 15, 1994, placed additional stringent
requirements on individuals disabled due to DAA. Among other things, it
extended the treatment participation requirements to SSDI beneficiaries
whose substance abuse was material to their disability, required
suspension of benefits for noncompliance with treatment, and limited
payment of benefits to SSI recipients disabled due to DAA to 36 months.
For DI beneficiaries disabled due to DAA benefits were limited to 36
months during which treatment was available. Our efforts to identify
and code all DAA cases intensified. Special DAA codes were also applied
to SSDI cases to indicate DAA materiality.
P.L. 104-121
All benefits for individuals disabled solely due to DAA were
eliminated in Public Law 104-121, the Contract with America Advancement
Act of 1996 which became law on March 29, 1996. Among other things, for
individuals whose DAA is a contributing factor material to the finding
of disability, this law prohibited DI and SSI eligibility effective
with all claims filed or finally adjudicated on or after March 29,
1996. This prohibition was effective January 1, 1997, for individuals
already receiving benefits based on DAA. SSA was required to notify
current beneficiaries of the new provisions by June 27, 1996, and
complete new medical determinations by January 1, 1997 for affected
current beneficiaries who requested such a determination by July 29,
1996. Benefits (including Medicare and Medicaid) would stop unless the
new determination showed that DAA was not material to the finding of
disability (i.e., beneficiaries had to be disabled regardless of any
DAA condition). Additionally, beneficiaries who have a DAA condition
and are incapable of managing their benefits are required to have a
representative payee and to be referred to the appropriate State agency
for treatment.
SSA took immediate steps to implement the legislation. We
immediately instructed our disability adjudicators on how to process
DAA cases under the new law, including the prohibition against allowing
benefits in any case where DAA was material to the finding of
disability. We were able within days of enactment to mail information
across the country to several hundred organizations within the
disability community--including legal aid and advocacy groups, payees,
and county and state welfare agencies--informing them of the new law
and what they could do to help their clients navigate the appeals
process.
In June 1996, over 209,000 beneficiaries with special DAA codes
were notified that their disability benefits would terminate effective
January 1, 1997, due to the change in the law and that they could
request a new medical determination.
We received about 141,000 responses to the over 209,000
initial notices. Of these, about 131,000 cases required a medical
decision. Of the remaining 10,000 cases: about half had benefits
terminated for some non-DAA reason before a DAA medical decision was
made; about 4,000 had been incorrectly coded as DAA on SSA's systems;
and almost 900 were found eligible for other benefits based on age. For
the 68,000 individuals who did not respond to the initial notice,
eligibility to disability benefits was terminated effective January 1,
1997.
SSA made medical decisions in about 131,000 cases. After
appeals, benefits were continued based on another disability in about
81,000 cases and 50,000 were ceased.
Out of all the 209,000 identified DAA beneficiaries, SSA
ceased benefits for about 123,000 beneficiaries and continued benefits
based on another disability (or based on age) for about 86,000
beneficiaries.
Benefit payments continued past January 1997 for beneficiaries
whose timely filed appeals were still pending, but the vast majority of
terminations were effectuated by January 1, 1997.
By the end of 1998, with the exception of a few appeals, the
209,000 identified DAA beneficiaries had either established that DAA
was not material to their disability or had their benefits stopped.
OIG Review and Report and SSA's Actions
In November 1998, SSA's Office of the Inspector General (OIG)
questioned whether some individuals were being paid disability benefits
on the basis of DAA. OIG found that almost 20,000 beneficiaries with a
diagnosis of DAA or a DAA code were still receiving benefits and asked
SSA to respond.
In response to the OIG inquiry, SSA immediately started a review
process through a combination of expedited continuing disability
reviews (CDRs) and other expedited folder reviews.
Subsequent to the OIG review, on May 12, 2000, the Inspector
General issued the report Implementation of Drug Addiction and
Alcoholism Provisions of Public Law 104-121. The report noted that SSA
had not identified every beneficiary for whom DAA was a contributing
factor material to the finding of disability, identified the almost
20,000 cases OIG had questioned, and projected that an estimated 3,190
individuals may be being paid benefits who should have been terminated
for DAA materiality.
OIG made a number of recommendations to SSA involving reviewing
cases and modifying our systems so that DAA diagnosis codes would not
be accepted. We agreed with all of the recommendations. Because we had
begun action as soon as OIG had questioned us about beneficiaries with
DAA coding, I am happy to report that we had already corrected many of
the problems by the time the report was issued, and since then have
corrected the rest. We released cases for priority review and
accelerated continuing disability reviews for others. The results are
that a total of 339 of the almost 20,000 individuals identified by the
Inspector General were found to be improperly receiving benefits
because of DAA materiality and thus benefits have been ceased.
Additionally, in August 1999, we completed modifying our systems to
preclude a DAA diagnosis in all cases except denials.
The Inspector General did SSA a good service by identifying this
group of cases involving DAA that were not reviewed and suggesting that
we implement system edits to ensure that no DAA cases can be paid
benefits. In retrospect we can see that we should have initially
reviewed even those cases where our systems coding showed that a
determination had already been made that DAA was not material. We took
action as soon as the Inspector General brought this to our attention.
The bottom line is that SSA implemented the DAA legislation timely and
terminated benefits to more than 123,000 out of the over 209,000
individuals originally coded as DAA.
Conclusion
We at SSA are proud of the actions we have taken to implement the
DAA legislation. While regretting that we did not locate the final few
hundred individuals until the Inspector General brought this to our
attention, I cannot say enough about the dedicated employees in SSA and
the State DDSs who handle our disability program.
Again, I would like to thank the Inspector General and his office
for their help in our implementation of this legislation. By
identifying cases that were incorrectly coded and needed review, they
provided us a valuable service. That concludes my statement. I would be
happy to answer any questions you might have.
Chairman Nussle. Thank you very much.
Before I do my questions, Mrs. Clayton has joined us. As I
said at the last hearing, there is nobody in the Congress who
on an individual basis is more aggressive in championing the
individual rights of people who are disabled and in need of
government assistance.
I appreciate your involvement in the hearing today. If you
have any opening statement or anything that you would like, or
if you have questions, I will refer to you at this time.
Mrs. Clayton. I will wait for my turn.
Chairman Nussle. Thank you.
Mr. Collins, do you have any questions for these witnesses?
Mr. Collins. Not at this time.
Chairman Nussle. First of all, let me just walk through a
couple of things here real quick that I want to make sure I am
following.
First of all, I appreciate the testimony of the witnesses.
It does appear, as you referred to, Commissioner Nibali, that
this is a very good example of where the OIG has provided
oversight within an agency, made recommendations and corrective
matters have been taken and have been followed through on. I
congratulate you on that teamwork. Certainly whenever you talk
about a law that was passed in 1996 and an end result that was
taken all the way to the year 2000, you can imagine that there
would probably be frustration; but I am sure you share in that
frustration.
Part of my question is a general, possibly procedural
question: Why would it take so long? Can you walk us through--
can you walk the committee through why something like that--it
would seem to me, if it is coded, if there is a coding issue
where you have 209,000 people where if you pull up their files
that say DA or A, or both, that it would be fairly easy to make
a determination and make the kind of corrective matters back in
1996 or 1997.
Could you walk us through a little bit about why it took
all the way to now to successfully complete this?
Mr. Nibali. Yes, sir.
I think your summation is essentially the story. We did
identify the individuals who we had coded on our system that we
believed were subject to the legislative changes that Congress
passed. We did it very quickly. The law gave us approximately 9
months to identify, to give legal notice to these individuals,
and then to get a substantial number of them in and have their
cases decided. And we did that.
The majority of these cases were in fact decided by January
1, 1997, as the legislation called for, the clear majority.
Particularly in the disability arena, additional cases can take
some amount of time just because of the need to be fair and
humane to people, get the information that is required, and
this group in particular is a group that is not always easy to
get the right information out to make all the decisions that
should be made.
Chairman Nussle. Just so we are clear on the numbers, just
so I am understanding what you are saying, that is that part of
your testimony where you say 68,000 people did not respond and
were immediately taken off at that point in time, and there
were 131,000 that required an appeals process and that is what
you are referring to?
Mr. Nibali. Yes, and most of that 131,000 were adjudicated
in that same time period. So in addition to the 68,000, another
a 50,000 were taken off the rolls, roughly, in that time period
through that process, again a challenging piece of legislation
to implement in a relatively short period of time. We were very
interested some doing it correctly and within the time frames
allocated, and we substantially did that.
Again, I would just point out that we did remove 123,000
individuals from the rolls. As you just pointed out, 68,000 of
those were because, in fact, they did not appeal; that could be
for a variety of reasons, but still that was the sum total.
What we are talking about in the substantial remaining
period of that time is, yes, we did think we had it right. We
looked at our codes, et cetera. This is where the partnership
you just spoke of was a real benefit to us.
The Inspector General's staff looked at cases. We had some
questions, as Mr. Schaeffer acknowledged, about some of their
early reactions to the 20,000 some cases that they identified.
There are other codes, diagnosis codes we call them, on our
records. It indicates that a drug abuse and alcohol situation
is present, but it did not indicate that that was the basis
that we were paying that case on.
The Inspector General did some of the reviews they talked
about. It raised some further issues. That is when we agreed
with them that to be sure because we did not want to spend any
money of the American taxpayers' dollars that are paid in, that
we should not under the legislation, we thought we ought to go
back and review those cases. That is what we did in that
remaining period of time.
Chairman Nussle. Thank you.
Mrs. Clayton.
Mrs. Clayton. Commissioner, admittedly the 19,000 was
raised, but also admittedly apparently by your figures out of
that now, you know there are 339 that probably would be denied;
is that what you are saying?
Mr. Nibali. They have been denied.
Mrs. Clayton. They have been denied?
Mr. Nibali. Yes, terminated.
Mrs. Clayton. Is that to suggest that of the other 19,946,
that the others were just miscoded and therefore there isn't a
reason to be concerned?
Mr. Nibali. Well, there are a variety of things there. The
bulk of those individuals, whether ``miscoding'' is exactly the
term or not, we have straightened out our coding and we have
determined that they properly belong on the rolls, again under
the definition of that 1996 law that DAA is not material to
their disability, meaning they would be disabled under another
disability.
Now, it is not all of those people, because a number of
folks we in fact terminated because as we did those continuing
disability reviews, we accelerated them at the suggestion of
the Inspector General. We always find some number of people who
in fact medically improve, we find some people who die, we find
some people who are no longer eligible for other reasons,
whether it is income and resources or issues like that.
There are other folks that were removed from the rolls, but
the bulk of those people were determined to be disabled under
another disability.
Mrs. Clayton. You feel the recommendations that the audit
reports made, that you are able to meet those recommendations
and there is a time frame for it?
Mr. Nibali. Yes, I believe we certainly met the
recommendations and I believe we did it in a very timely
fashion, because once having been advised by the Inspector
General that they had these concerns, as again Mr. Schaeffer
noted, we had some back-and-forth about exactly which cases
needed to be looked at and whether they needed to be looked at.
But in fact even in that interim period of time we started
identifying cases and started putting things in process, so we
could do, for example, continuing disability reviews on cases.
So, therefore, I believe we acted in about as quick a manner as
possible once those cases were identified and we agreed to
relook at them.
Mrs. Clayton. So would you conclude, although there was a
problem, there is no problem now?
Mr. Nibali. Yes. What we conclude is that, as I was
discussing with Mr. Nussle, the clear majority of these cases
were properly identified and were from the original legislation
back in 1996 and 1997--209,000 people looked at, 123,000
terminated. Based on the additional questions raised by the
Inspector General, we have now looked at that remaining batch
of cases, and we are very confident that we have a good
resolution of all the cases for DAA.
Mrs. Clayton. In fact you have a system that at least can
monitor with certainty that you are reviewing it, right?
Mr. Nibali. Yes. In fact, our continuing disability review
process is calling cases up pretty much on a routine basis
every 3 years unless there is some reason to do it longer than
that. That always gives us an opportunity to in fact identify
if there are any other issues that need to be addressed. But in
this way, working with the Inspector General, we actually
accelerated some of that so we took care of those very quickly.
Mrs. Clayton. Part of the ability to do that is, obviously,
having the resources that are needed to do that. I know it is
not uncommon to have the Social Security Administration to take
a long time to determine someone is disabled. I'm not sure why
we should expect that it would be easier and quicker to go
through the same process. It took a long time to determine the
eligibility now to go through, if you are fair in that process
to determine that they are not eligible at the time.
So we have some cases--I almost know every Congressperson,
we are not unique to this, we have cases that are 2 and 3 years
old, and in fact they come to us as a last resort in that area.
So I am not terribly disturbed if indeed there is some small
percentage of individuals who may be on the rolls who almost
may have an alcohol or drug abuse problem, and there is a code
that says they may not be eligible. Would I rather them not get
it, the law says.
Of course we want to follow the law, but I would rather
there is due process in making sure that they are not eligible;
I would err on the side of due process.
I would just raise for balance that you certainly do due
diligence in determining whether people are eligible in the
first instance; and I would say to the Inspector General, you
are right to investigate and make sure we are following the
law, but I would also call into question if we are indeed doing
due diligence and persistence in making sure that people who
are trying to get assistance, who need it desperately in that
area.
Let me just ask a question of Mr. Schaeffer.
Mr. Schaeffer, the Commissioner feels that the
recommendations you have made have all been followed. Do you
share his evaluation that they have all been followed and
timely?
Mr. Schaeffer. We certainly think that some of the
recommendations have been followed and implemented timely.
Whether they have all been actually implemented successfully,
we haven't done any follow-up work to verify that and we have
planned audit work that we will start next calendar year. We
will take a look at the work that was actually done in this
area and make an independent evaluation of whether or not
everything that needed to be done was in fact done.
Mrs. Clayton. How do you see the missing DI codes affecting
SSA's ability to profile beneficiaries in the disability
review?
Mr. Schaeffer. We did a companion report to this. In that
companion report we identified, based on SSA's records, over a
million codes of the 11 million people that were on the SSR,
Supplemental Security Record, or the Master Beneficiary Record
having a disability as having incorrect diagnostic codes or
missing the codes.
What that impacts is that when you pass a piece of
legislation like this legislation here, if you go to implement
that legislation, in this case remove people from the rolls, if
that code isn't correct you may expend resources examining
somebody that you shouldn't be examining because they don't
have a drug and alcohol problem. If they are identified that
way, then you looked at a case that you didn't need to look at
and that uses administrative resources. On the other hand, if
it is not coded correctly and they do have a problem, then you
are not even looking at that one to begin with.
That is what we see as the problem. That if you are going
to expend the resources to code the records with the diagnostic
code, then you want to make sure that those diagnostic codes
are correct. Because at some point later on you are going to
use that information to profile the type of continuing
disability review that you are going to do. Obviously,
depending upon the type of disability a person has, the person
may get a mailer--they are just sent a mailer if there is
little likelihood that they are going to improve--or you may
ask them to come in and present additional evidence on their
continuing disability review.
There could be errors on both sides. You could require
somebody to come in who is hopelessly disabled, and that is not
a good use of administrative resources. On the other hand, if
you have a person that is receiving a mailer but their
disability is of the type that you should be conducting a full
CDR, then you are missing an opportunity to perhaps remove
somebody from the rolls who has improved.
In our opinion, it is critical for the agency to do what is
necessary to ensure that its diagnostic codes are encoded
correctly at the time they are entered into the system.
Mrs. Clayton. Does that require additional resources for
capacity and design for the coding? I am assuming that 209,374
cases had to have some coding program, some program with a
coding assistance to identify them; and I am assuming the new
law requires a distinction of being able to distinguish between
those who would have this problem; and that wouldn't be readily
available if the law wasn't there before.
Mr. Schaeffer. In this particular case, I would say it was
a matter of a compliance for certain types of the cases. When
the cases were originally established, they didn't have an
indicator for DAA. They used a different code. But when they
made their selection of which ones they were going to look at,
they did not use the only code that was available. So that the
20,000 cases that we selected to look at, we selected those
cases that we thought were most problematic, which included not
only the criteria that the agency used but some additional
information that was already in their database that they could
have used and if they would have used would have caused those
cases to be looked at, too.
The 20,000, it was really only 10 percent of the 200,000
cases that they did, in fact, look at. In that instance, that
information was available to them at the time that they made
their selection criteria.
Chairman Nussle. Mr. Collins, do you have any questions?
Mr. Collins. In the overall number of people that you
examined the disability, how did you determine the 209,000
people? What was in their record that would make you look at
those specific people? How would you pull 209,000 out of how
many million you have that are drawing?
Mr. Nibali. We pulled them based on the indicator on the
system that said DAA was material to their finding of
disability. That was what the law asked for us to review, and
that's what we reviewed.
I think what Mr. Schaeffer was just explaining is that the
vast majority of cases that needed to be reviewed were
correctly identified on the system. We pulled them. We worked
them. I told you what the results were, that a significant
number of people came off the rolls.
What the issue that the Inspector General raised is about
this potential additional 10 percent of cases that did not have
that code in this computer system but had some other indicators
that DAA was present in that case, and their suggestion was
that we should look at those cases as well.
I would just explain, kind of in relation to what Mrs.
Clayton was saying, and I appreciate your acknowledgment of
what it takes to work these cases, is that it's a fairly
devastating thing--I would say a very devastating thing--for
people to get these notices that your benefits are being
terminated, you have to come in and file. We try to be as
judicious as possible about what cases we select to subject to
that kind of review, and we selected the cases that our system
told us with 90 plus percent, even accepting these 20,000 as
potentials, 90 plus percent identified very well on our system.
The question was, should we have done these additional cases
from the beginning as well? We have done them now.
Mr. Collins. How did you get into this report, Mr. Huse?
Mr. Huse. We plan our audit work through several channels.
Anytime the Congress passes new legislation that requires
compliance by the agency, it is appropriate for us as the
oversight entity in the Social Security Administration to take
a look at implementation, and that was one driver here.
The other was we get a lot of anecdotal and allegation
information that comes to us that indicated that perhaps the
universe was not as wide as it could have been in the
implementation of this law, which also gets into the decision
to put this into our audit work plan. When we do that, though,
we communicate the audit work plan to the agency so there is no
surprise about what we're going to take a look at. But that is
how it is done.
Mr. Collins. Very good. Thank you, Mr. Chairman.
Chairman Nussle. Thank you.
I would like to go one step further now, if I may. As I
understand it, in the 1972 law, in order for a person who has
the substance abuse issue to receive a benefit, they are also
supposed to have a representative payee. What has continued----
Mr. Nibali. If I may.
Chairman Nussle. Yes.
Mr. Nibali. Under the law, they have to have a rep payee if
they are determined to be incapable of handling their own
affairs, not just that they are DAA.
Chairman Nussle. I guess what I'm getting at here is what
is the current status of that law with regard to people who are
partially--because, of course, now no one is supposed to be on
the benefit that is DA or A. So someone who has partial
substance abuse issues, what is the obligation for SSA
currently to have rep payees for these beneficiaries?
Mr. Nibali. SSA field office personnel follow the current
law and some rather extensive guidelines that we have been
issuing over the years. That requirement is that when DAA--you
are absolutely correct. Obviously, we do not pay people on the
basis of DAA, but DAA can still be present in other cases for
other disabilities. When that is the case, we ask the field
office to make a determination as to the capability of that
person to handle their own financial affairs to receive those
benefits. That determination is made based on interviews with
the individuals involved and often involves a referral for a
doctor to make an assessment of the capability of that
individual to handle their own benefits. Having made that
capability determination, if the determination is that the
person should not and is not able to handle their own affairs,
then a representative payee is selected.
Actually, the 1994 legislation set up a specific set of
criteria right in the legislation for the preferred order of
rep payees for individuals with DAA conditions. Those start off
generally with organizations as rep payees. And organizations
particularly that are used to dealing with individuals like
that, they can be private, they can be Federal or State or
local kinds of organizations. But actually, in terms of the DAA
rep payees, the family members actually come far down on that
list versus where they come for the normal rep payee positions.
That is generally because these are extremely stressful
situations for individual family members to try to handle the
financial affairs of individuals with drug and alcohol abuse,
and I think everyone pretty much agrees that there are better
results when you have an organization that is capable of
handling that.
Chairman Nussle. Do you happen to know how many current
beneficiaries are in a situation like that where they have a
rep payee that have some type of substance abuse?
Mr. Nibali. Yes, I do.
Chairman Nussle. That is fine. While they are looking at
that, let me ask you another question.
Mr. Nibali. I don't have the exact number. Would you please
less us provide that for the record?
Chairman Nussle. Do you have a percent? I am just
interested in a ballpark.
Mr. Nibali. What we know is it is the minority of
individuals that have a rep payee.
Chairman Nussle. What is the obligation on the part of SSA
to encourage, demand, instruct treatment with regard to the
moneys that have been provided through SSA for people who are
having a substance abuse issue?
Mr. Nibali. We very much understand that obligation. That
is required again by the legislation. When we do find
individuals incapable of handling their own affairs, we make
referral of those individuals for services. So that is a
routine part of what is done when we are in that process of
dealing with DAA people.
Chairman Nussle. But it is primarily those who are also
determined to require a rep payee. In other words, it is rare
for there to be a situation where someone is requiring--where
you have directed treatment at the same point that they don't
have a rep payee? In other words, they go hand in hand. In
order for you to get treatment, you also have a rep payee. Is
that basically what you are telling us?
Mr. Nibali. I have been corrected. We refer everyone.
Chairman Nussle. For treatment?
Mr. Nibali. Yes, for treatment.
Chairman Nussle. But not all of them will have a rep payee?
Mr. Nibali. No, only those who will then be determined to
be incapable of handling their own affairs.
Chairman Nussle. I realize you've got many issues here, but
are you also able to determine, when you say all of them are
directed, all of them are instructed, is there a follow-up
process to determine whether or not anything has occurred with
regard to treatment?
Mr. Nibali. Under the 1994 legislation, you may recall
there was a fairly extensive referral and monitoring activity
set up. That is no longer in existence under the 1996
legislation. We have annual accounting from rep payees for that
portion of the individuals we are talking about. They have to
do annual reporting to us so that we have some idea of what is
going on with that piece of it. But generally when the
referrals are made for treatment for these individuals, we do
not have the mandate or provided the resources to do the kind
of follow-up that was under the 1994 legislation.
Chairman Nussle. Mr. Huse, the two questions I have for you
is, first of all, and I believe you touched on it briefly with
Mr. Collins, but you are planning a follow-up audit with regard
to or follow-up with regard to the recommendations that have
been made? And I assume that requires or suggests another
report that you are going to come out with, is that correct?
Mr. Huse. Yes, Mr. Chairman, that is in our audit plan for
next year.
Chairman Nussle. What will that focus on? Do you have a
determination yet of what that will primarily focus on?
Mr. Huse. It will go to the actual discharge of these
recommendations and whether we saw what we suggested was done.
Basically, that is how we do it.
Chairman Nussle. I guess part of what I am getting at is I
am wondering if some type of oversight with regard to rep
payees is necessary. Has that been something that the IG's
office has looked into at all?
Mr. Huse. In other hearings this year, we have testified on
our rep payee system and rep payee issues. This is a piece of a
much greater issue, but the answer is yes, and we continue to
do that. We have quite a bit of work ongoing with the agency to
address that, too. That I'm sure Mr. Nibali could speak to.
Chairman Nussle. Then the only other question I had is in
regard to back benefits and prosecution or some type of attempt
to reimburse the government and the SSA for benefits that have
been paid erroneously. I preface this, as I did the last time
at our food stamp hearing by suggesting--I prosecuted for a few
years and have some brief understanding of the difficulty in
this area with regard to benefits, particularly welfare
benefits and trying to recoup them. But I am just wondering
what system, if any, is in place for that purpose, in trying to
get back any benefits that were paid erroneously.
Mr. Nibali. Obviously, we have no desire to pay any
benefits that should not have been paid and, where possible,
would have liked to have recovered them. What we are dealing
with here are very specific legal protections for individuals,
and it is basically a matter of due process. Because they were
receiving benefits, because we had not given them a timely
notice as we did with the original individuals, et cetera, we
were not able to go back and eliminate those benefits until
they had had their chance for a review and a hearing and
therefore could only terminate the benefits from the time we
made the decision. And that was discussed at great lengths with
our general counsel. That was the result of his research, that
we were precluded from going back and recapturing any of those
benefits.
Chairman Nussle. I realize that is in the initial phase,
when you made the 68,000 no response, that is obvious, as well
as the due process of those 131,000. But what about the--and I
am going to get the number wrong, I am sure--but 13,000 that
were identified through--or was it 1,300? But it was that last
category----
Mr. Nibali. The 339.
Chairman Nussle. Is that what it was?
Mr. Nibali. Yes.
Chairman Nussle. What about in those particular cases, is
there a follow-up that can be done there in regard to back
benefits?
Mr. Nibali. No, we would be precluded the same way from
recapturing those back benefits.
Chairman Nussle. Mrs. Clayton, do you have any follow-up
questions?
Mrs. Clayton. I guess once a prosecutor, always a
prosecutor.
Chairman Nussle. Well, I had to ask the question.
Mrs. Clayton. Following that line of questioning, is this a
different procedure than it is for others? Again, our
congressional experience in our constituent work wherein
inadvertently or by some error if people have been overpaid
based on a rate they shouldn't have been paid, they have had to
pay it back, is there a general rule about who is responsible
as to whether you have to pay it back?
I know in this case--I have been reading the background--
that unless there was notice--in fact, one of the questions I
guess I was prepared to ask you if you hadn't offered the
information, given the numbers, if you hadn't given them due
notice, you couldn't get the moneys back. But you gave them
notice. In fact, you have terminated them. Is there a general
principle in the Social Security Administration about
reimbursement when you find that there has been an omission or
inadvertence of paying too much on a rate, perhaps in other
programs that are different from this? Is this a unique piece
here that you have to give notice?
Mr. Nibali. It is a little unique. What we are dealing with
are specific protections that have come out from court
decisions, particularly related to individuals already
receiving benefits. And this is particularly in the SSI part of
the program where this stems from--they are called Goldberg-
Kelly rights. We need to give people their opportunity to a
hearing before those benefits can be stopped.
I believe--one answer to the general question is certainly
if individuals have been overpaid in any way under Social
Security, there are many times where we can and do not only
attempt but do in fact collect benefits overpaid. But there are
general----
Mrs. Clayton. Even if it is the administration's
responsibility?
Mr. Nibali. Yes. Generally, the rule is if the person was
not at fault and they are unable to repay us, then it is
generally excluded from trying to collect it. But if those
conditions don't exist, then we do make an effort to recapture
the benefits.
Chairman Nussle. Certainly that is part of what I was--I
would certainly understand that part of the issue here is
ability to repay. I am not discounting that at all. But when
there was--my question went more to, and I think Mrs. Clayton
zeroed in on it much better than I was able to, and that is, if
general notice is given to those 209,000 people, then even
after adjudication and receiving those monthly checks--let's
say notice was given in, you said January 1996, I believe you
said?
Mr. Nibali. I think around June or so.
Chairman Nussle. OK, June 1996, if determination, final
adjudication is made in December that they were ineligible,
then what happens to the June, the July, the August, September,
October and November payments?
Mr. Nibali. In that case, sir, actually by the law itself,
their benefits continued until January 1, 1997. That was the
earliest we cut anybody's benefits off.
Chairman Nussle. So that was part of the issue there. So
none of those would have gone beyond that January, 1997, date?
Mr. Nibali. They could not have been terminated sooner than
that.
Chairman Nussle. I appreciate you making that clear.
Any other questions from members of the committee?
Again, I want to thank you and compliment you on the
teamwork that it appears that you have put together in order to
accomplish this. As I said when I opened, I am sure that there
will be frustration in just the amount of time it takes, but I
think you have made it clear some of the issues and why that
occurred.
I appreciate your testimony today. If there is no other
business, then we will adjourn. Thank you.
[Whereupon, at 2:15 p.m., the Task Force was adjourned.]