Fraud comes in many forms. When it happens in government programs meant to help poor people, some will look away because they support the goals of the program. Americans support the social “safety net” programs like the “Supplemental Nutrition Assistance Program” (SNAP) that give poor people money to buy healthy food. But as with any government benefit, the program is often a target for fraud.
The Government Accountability Institute investigated fraud in the SNAP program a few years ago. We focused on abuses we found with the electronic benefits transfer (EBT) cards used by the program to distribute these monthly food money benefits and produced a full report on our findings which you can read at that link. On the latest episode of the Drill Down, Peter Schweizer and Eric Eggers discuss fraud in the EBT SNAP program.
From the individual corruption where beneficiaries trade their card balances for cash to the larger scale fraud done by vendors, to the financial institutions that manage the card balances and the bureaucracies that disguise as “program errors” their own evidence of fraud, there are problems up and down the program.
Eric is a SNAP recipient himself, because his family has a foster child and receives SNAP funds to help care for that foster child. He has hands-on experience with how the program works and he helped research and write GAI’s report on EBT SNAP fraud a few years back.
Starting at the receiving end of the program, EBT SNAP has created its own underground economy. Ingenious recipients have figured out ways of selling their EBT cards, or conspired with shady vendors, to exchange their SNAP benefits for cash at fifty cents on the dollar. GAI’s 2018 report documented cases of this happening on a large scale, and it’s still going on.
The New York-based rapper Remy Ma even bragged about doing this on a podcast recently. She said on Revolt TV, “I love going to the ‘hood and, you know, buying people’s food stamps.” What she was describing is a well-known practice of buying $500 benefit cards from recipients for $250 cash. She doubles her money when she uses those cards to buy her own groceries, and the SNAP recipients walk away with $250 in cash they can spend on whatever they want, not just the supplemental food assistance the program is supposed to provide.
Eric notes that this problem got worse because of the COVID pandemic. The number of people receiving SNAP benefits increased by six million people, but the program cost has doubled to $108 billion. So, what’s really happening?
The individual states administer the SNAP program, whose funds come from the Food and Nutrition Service agency within the US Department of Agriculture. States are supposed to prevent fraud in the SNAP program by hiring investigators to root out crooked operators. But the safety measures undertaken because of COVID meant those investigators did far less investigating, which they do by visiting stores and interviewing vendors and recipients. Plus, those jobs were already understaffed even before the pandemic put restrictions on how investigators could do their jobs. Why?
It is because the states have no incentive to uncover large amounts of fraud in their own programs. In fact, the Department of Agriculture offers states bonuses for reporting low “error rates.,” So, what better way to report a low rate of fraud than not to look too hard to find it?
Eric speaks to the members of an association of welfare fraud investigators in Minnesota, who have shared stories of the kinds of fraud they have uncovered in their work. These even include fraudulently converting SNAP money through neighborhood lending operations called hawalas into funds that investigators suspect wind up going to international terror groups, including Hezbollah. GAI published a second report called “EBTerrorism” on just this issue.
Then, as Peter notes, there are the corporate beneficiaries – the large businesses that make money through the program. At one time this even included Wall Street heavyweights like JP Morgan. Today, a company called Conduit controls 45% of the market for the EBT cards used by the SNAP program. Like any credit card provider, Conduit makes money both on the cards they issue and on the individual point-of-sale swipes that card executes. Retail giant Amazon now accepts EBT so recipients can have their SNAP-funded groceries delivered. Walmart disclosed that it gets 4% of its revenue ($13 billion a year) comes from EBT card purchases in its stores. None of these large enterprises has any incentive to reduce the abuse of EBT cards.
So, to review…
- the administering agencies and federal departments have no incentive.
- The corporations have no incentive.
- The states have no incentive.
No one is looking out for the taxpayers while the program’s abuses continue and are getting worse. Can something be done?
One option is to restrict the types of foods that can be purchased with SNAP benefits, so it can’t be used to buy sugary sodas and drinks for example. But vendors hate that for obvious reasons.
Another possibility is to require the EBT cards including a photo ID so the card cannot be trafficked for half its value to another person, in the manner Remy Ma bragged about doing.
Peter suggests a third reform. Currently, unused benefits roll over and can be accumulated. Why not put a 45-day or 60-day limit on balance rollovers?