INVESTIGATION: USDA rarely ejects merchants from food stamp program
Isaac Wolf, SHNS
9:49 AM, Jan 6, 2013
9:54 AM, Jan 6, 2013
The U.S. Department of Agriculture says it works hard to prevent food-stamp fraud.
But, despite $330 million in annual food-stamp fraud, the agency overseeing the benefit program rarely ejects retailers with criminal histories -- rap sheets that, according to federal statute, should be grounds for dismissal from the Supplemental Nutrition Assistance Program, or SNAP.
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While no official estimate exists of the number of such miscreants in the ranks, Scripps Howard News Service easily found 19 current storeowners around the country whose criminal backgrounds should disqualify them, and another 27 stores whose owners have been caught violating the spirit of federal anti-fraud rules.
That is far more than the four retailers USDA permanently ejected in fiscal year 2011 from the $80 billion program. It is also more than the 13 permanently kicked out in 2010. Currently, about 244,000 retailers nationwide accept food stamps.
The USDA does little better at screening new applications from merchants seeking to join the assistance program. Out of the 48,058 food-stamp retailer applications the USDA received in fiscal 2011, it permanently rejected just 13 merchants because of criminal convictions or civil judgments.
With the federal food-stamp program continuing to lose hundreds of millions to fraud each year -- largely by recipients who collude with retailers -- critics say the USDA is failing to do what Congress has long directed of it: Keep lawbreakers from the ranks of its food-stamp merchants.
"The idea is to weed out the bad apples," said Michael Tanner, a senior fellow at the Cato Institute, a libertarian Washington think tank generally critical of government spending.
"If vendors are ripping off the taxpayers, this is a big problem. They shouldn't be part of the program."
One reason the USDA has ferreted out few merchants is because it does not conduct criminal-background checks, maintaining that it has no authority to use the FBI's comprehensive database, the National Crime Information Center.
But Scripps, which has no access to the FBI database either, was able to pinpoint merchants who should be ineligible to be in the program by comparing the USDA's current list of retailers with state and local court, police, business and health records.
Presented with a sample of the Scripps reporter's findings over the summer, the USDA said Thursday it has barred one of those merchants from taking food stamps for at least a year, and has begun the process to eject two more stores.
Matching the USDA's list with the FBI's computerized criminal data would be a relative snap compared to the painstaking research Scripps employed. And the USDA's own internal watchdog has long recommended that the agency do just that.
Now, responding to Scripps' ongoing investigative series on the USDA's efforts to crack down on food-stamp fraud, the federal agency says it is contacting the FBI's parent agency, the U.S. Department of Justice, for guidance.
"We are currently reaching out to DOJ to determine whether alternatives exist," USDA officials wrote in an email.
The USDA also told Scripps that, in the past, it had explored using commercial background check databases, but found they "did not prove fruitful, as misleading and false hits were predominant." The agency has also said it didn't want to "burden" merchants.
But were the agency to find and remove retailers with criminal histories, it could reduce fraud by "a couple hundred million" dollars a year, Tanner estimated.
The USDA's current means of screening prospective food-stamp merchants is an honor system, in which retailers are asked to say whether they have criminal pasts.
As far back as the 1977 Food Stamp Act, Congress expressed its intent that, in deciding whether to allow a retailer to participate in the program, regulators examine storeowners' "business integrity and reputation," according to the text of the law.
That law has developed, over the years, into a set of federal rules penalizing or blacklisting merchants who have criminal convictions or civil judgments that reflect a history of fraud or theft.
The purpose is to protect taxpayer dollars and the integrity of the food-stamp program from individuals who have already shown a propensity to act dishonestly.
But implementation of the so-called "business integrity" regulations has been nearly nonexistent because the USDA has avoided checking the backgrounds of merchants.
While saying that they take the rules seriously, USDA officials dismissed the idea that enforcement would save taxpayer dollars. Agency officials said that even if they removed stores engaging in fraud, individual recipients could still redeem their federal benefits elsewhere -- meaning that taxpayers wouldn't necessarily save any money.
"Business integrity denials or withdrawals do not necessarily involve SNAP fraud," the agency wrote in a statement to Scripps. "When a retailer is removed from the program for business integrity violations, SNAP recipients may still use their benefits to purchase eligible food items at other authorized SNAP retailers. In this sense, there are no ‘savings' associated with the removal of these businesses from the program."
But the USDA's own Office of Inspector General -- which investigates food-stamp fraud and serves as an agency watchdog -- has concluded otherwise. In 2008, the IG's office reported a link between storeowners with criminal histories and ongoing food-stamp fraud.
In the 2008 audit, the Inspector General's office investigated storeowners suspected of trafficking in food-stamp benefits and found that they had "falsely certified on their applications that they did not have a criminal record."
"These owners did not disclose their criminal record of convictions for offenses such as theft of property, false statement, larceny, and trafficking of a controlled substance," the IG's office wrote.
The watchdog office called on the USDA to start conducting regular criminal checks.
But the USDA responded, in the same report, that it would be "extremely difficult" to tap into the FBI database because it contends access is limited by law to criminal justice agencies.
In turn, the IG's office said the USDA should ask the Justice Department for authority to access the records.
The same concerns were raised at a U.S. House hearing in March, when Rep. Jackie Speier, D-Calif., asked why the USDA wasn't conducting criminal reviews.
"We are able -- I know in California -- to do background checks for child care providers," she said. "So I can't believe that the federal government, as talented as it is, cannot find a way to create a means by which this background check can take place." But the USDA has balked at taking action, and disputes the overall benefit of ousting those with criminal records because it would burden storeowners while saving little money.
Stores would have to "go through a process that adds to applicant burden, has an associated cost, and is questionable in its expected result," the agency said in response to the IG's audit in 2008.
The USDA at the time also cited storeowners who objected to having their fingerprints taken on privacy grounds.
(Email SHNS reporter Isaac Wolf at firstname.lastname@example.org.)