[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




 
 FOOD STAMP FRAUD AS A BUSINESS MODEL: USDA'S STRUGGLE TO POLICE STORE 
                                 OWNERS
=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 8, 2012

                               __________

                           Serial No. 112-141

                               __________

Printed for the use of the Committee on Oversight and Government Reform


         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform



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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 8, 2012....................................     1

                               WITNESSES

The Honorable Kevin Concannon, Under Secretary for Food, 
  Nutrition and Consumer Services, U.S. Department of Agriculture
        Oral Statement...........................................     5
        Written Statement........................................     7
The Honorable Phyllis K. Fong, Inspector General, U.S. Department 
  of Agriculture
        Oral Statement...........................................    15
        Written Statement........................................    17
Ms. Jennifer Hatcher, Senior Vice President, Government and 
  Public Affairs, Food Marketing Institute
        Oral Statement...........................................    25
        Written Statement........................................    27
The Honorable Kenya Mann Faulkner, Inspector General, 
  Pennsylvania Office of Inspector General
        Oral Statement...........................................    35
        Written Statement........................................    37

                                APPENDIX

The Honorable Elijah E. Cummings, A Member of Congress from the 
  State of Maryland: Opening Statement...........................    65
The Honorable Gerald E. Connolly, A Member of Congress from the 
  State of Virginia: Written Statement...........................    67
News article,``Scripps Investigation Unveils Food Stamp Fraud''..    69
News article, ``Concannon: USDA Cracking Down on SNAP Fraud''....    72


 FOOD STAMP FRAUD AS A BUSINESS MODEL: USDA'S STRUGGLE TO POLICE STORE 
                                 OWNERS

                              ----------                              


                        THURSDAY, MARCH 8, 2012

                   House of Representatives
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The committee met, pursuant to call, at 9:30 a.m., in Room 
2154, Rayburn House Office Building, Hon. Darrell E. Issa 
[chairman of the committee] presiding.
    Present: Representatives Issa, Platts, Walberg, Meehan, 
DesJarlais, Gowdy, Farenthold, Cummings, Towns, Tierney, 
Connolly, Braley, and Speier.
    Staff Present: Michael R. Bebeau, Majority Assistant Clerk; 
Robert Borden, Majority General Counsel; Molly Boyl, Majority 
Parliamentarian; Lawrence J. Brady, Majority Staff Director; 
Ashley H. Callen, Majority Counsel; John Cuaderes, Majority 
Deputy Staff Director; Gwen D'Luzansky, Majority Assistant 
Clerk; Jessica L. Donlon, Majority Counsel; Adam P. Fromm, 
Majority Director of Member Liaison and Floor Operations; Linda 
Good, Majority Chief Clerk; Frederick Hill, Majority Director 
of Communications; Christopher Hixon, Majority Deputy Chief 
Counsel, Mark D. Marin, Majority Senior Professional Staff 
Member; Noelle Turbitt, Majority Staff Assistant; Rebecca 
Watkins, Majority Legislative Policy Director; Beverly Britton 
Fraser, Minority Counsel; Kevin Corbin, Minority Deputy Clerk; 
Ashley Etienne, Minority Director of Communications; Jennifer 
Hoffman, Minority Press Secretary; Carla Hultberg, Minority 
Chief Clerk; Brian Quinn, Minority Counsel; Steven Rangel, 
Minority Senior Counsel; Dave Rapallo, Minority Staff Director; 
and Davida Walsh, Minority Counsel.
    Chairman Issa. The Committee will come to order.
    The Oversight Committee exists to secure two fundamental 
principles: first, Americans have a right to know that the 
money Washington takes from them is well spent and, second, 
Americans deserve an efficient, effective government that works 
for them. Our duty on the Oversight and Government Reform 
Committee is to protect these rights. Our solemn responsibility 
is to hold government accountable to taxpayers, because 
taxpayers have a right to know what they get from their 
government. We will work tirelessly in partnership with citizen 
watchdogs to deliver the facts to the American people and bring 
genuine reform to the Federal bureaucracy.
    I will now recognize myself for an opening statement and, 
pursuant to the mission statement, would ask that the video be 
played, since it reflects the watchdog in question.
    [Video shown.]
    Chairman Issa. America deserves better.
    Just yesterday, one of our witnesses penned an op-ed that 
depicted the improvement in this SNAP program, proudly stating 
how much better it was. It is not for us today to question 
whether or not the program has improved; the question is in a 
day in which, in a moment's notice, in a few keystrokes, I can 
look at a storefront anywhere in America, find out who, what, 
where owns that, or, in this case, that Scripps Howard could do 
a few public record searches available to the Department of 
Agriculture and find out what they were doing wrong from open 
source. We need to do better.
    The hearing today is about children. The hearing today is 
about families. Ultimately, the food stamp program is about 
providing nutrition to people in need. Forty-two million people 
rely on the food stamp program. A few misuse the program. Our 
hearing today is not about the individuals who, out of 
desperation for drugs, alcohol, or just spending money, misuse 
food stamps; it is about America's responsibility, this 
Administration and this Congress's responsibility to make sure 
that the money or the benefit of the money gets to the people 
who are supposed to get it. It is not to buy alcohol, 
cigarettes, or drugs.
    A relatively few storefronts around America represent a 
considerable amount of fraud. Understand that a small amount of 
stores does not mean there is a small amount of fraud. People 
who want to use or misuse, I should say, the resources provided 
to them by the taxpayer in the way of food stamps seek out 
stores who will cheat. It is not an accident that you find out 
that somewhere in the neighborhood an entity will trade you 
$100 in food stamps for $50 in cash so you can go score. That 
score is bad enough, but let's understand somewhere there is a 
family that relied on food that instead got nothing.
    These companies and these individuals behind these 
companies need to be punished on a consistent basis. If in fact 
they are suspended, it needs to be for a period of time with an 
understanding of whether or not they are ever going to be able 
to sell again. If they are permanently excluded, then in fact 
permanent needs to mean permanent.
    More importantly, in this day and age of the ability to 
research, if you only have 100 people to track this huge amount 
of potential waste, one can make the other 99 more effective. 
The scandal we are looking at today is important because we 
know that 100 people working for the Secretary in fact found 
people who were stealing from the taxpayers and stealing from 
families who need that food and need that benefit. One of those 
100 assigned to do what whistleblowers have done for us in fact 
could have prevented many of these stores from being back in 
business. It is that simple.
    We will hear today, as we often do, if we only had more 
resources. This Committee has no more resources to provide. In 
fact, you are going to have to do more for less. That is more 
oversight, more accountability with less money available for 
that, and more need by people on the food stamp program.
    Ultimately, we are going to hear testimony on both sides 
saying we are doing a better job, and we are going to hear 
people saying you are not doing well enough. Both can be true. 
America, in fact, expects both to be true. Continuous 
improvement, but in fact never satisfied that we have done 
enough.
    With that, I recognize the Ranking Member for his opening 
statement.
    Mr. Cummings. Thank you very much, Mr. Chairman. I welcome 
today's opportunity to conduct oversight of the SNAP program, 
which has one of the most vital missions of any government 
program, and that is to prevent abject hunger in homes all 
across America. I am so glad that you said that this hearing, 
amongst other things, is about children.
    Mr. Chairman, thank you for agreeing to invite the 
Minority's witness, Ms. Jennifer Hatcher of the Food Marketing 
Institute. Since this hearing is about store owners, I thought 
it was appropriate to invite them. Ms. Hatcher's organization 
represents 26,000 supermarkets and food stores across the 
Country that implement the SNAP program on a daily basis.
    I also want to thank you for allowing our Minority witness 
to appear on the first panel with everyone else. You did not 
have to do that, but you did, and we are indeed grateful.
    Let me start by emphasizing a very critical point. Nearly 
half of the beneficiaries of the SNAP program are poor, hungry 
children. SNAP currently serves 46 million Americans with 
incomes at or below 130 percent of the poverty level. According 
to USDA, 47 percent are under 18 years old. SNAP also serves 
millions of people who are elderly or have disabilities.
    SNAP has never been more critical than it is today. The 
2008 financial crisis drove more Americans into poverty than 
any other time since we started tracking this data. The 
collapse of Wall Street and the evisceration of trillions of 
dollars in household savings forced millions of Americans to 
turn to this critical safety net, and it has been there for 
them.
    While the need for the SNAP program is at an all-time high, 
fraud within the program is at an all-time low. SNAP is one of 
the most efficiently run Federal programs, with one of the 
lowest fraud rates of any government benefits program. Fraud 
has declined from approximately 4 cents of every dollar 
expended in 1993 to only 1 cent of every dollar expended today.
    But I agree that that is not good enough. The Majority 
appears to be basing today's hearing on recent press stories 
about certain store owners who have been disqualified from the 
program but allegedly regain entry in some way. Although this 
would be problematic if true, we have not seen evidence to 
support allegations that there is a pervasive weakness in the 
program or the magnitude of fraud in the program may be much 
greater than initially reported.
    In fact, today we will hear just the opposite, that this 
press account has significant problems. The USDA has acted 
quickly to address the bad actors and the SNAP program 
continues to be an extremely well run program. Given the strong 
track record, I am concerned that the true purpose of this 
hearing may be to discredit the entire program in order to 
justify draconian cuts.
    Last year, every Republican member of this Committee voted 
to convert SNAP program into a block grant program and slash 
its funding by $127 billion over the next 10 years, a massive 
reduction of almost 20 percent.
    Again, I go back to what you said a little bit earlier, Mr. 
Chairman, in part, this is about children.
    This proposal was part of the plan proposed by Budget 
Committee Chairman Paul Ryan and adopted by the House 
Republicans last April. According to the Center on Budget, 
Policies and Priorities, this proposal will force up to 8 
million men, women, and children to be cut from the program or 
will severely reduce the amount of food they can buy. Where are 
these children supposed to go if they are hungry?
    I believe there is a compassion deficit here in Washington. 
Obviously, a dollar squandered in this program is a dollar that 
does not go to poorfamilies that desperately need food. But 
efforts to impose draconian cuts to this program will cause 
even greater harm to the very people who need the most help.
    So while I strongly support efforts to make the program 
more effective and efficient, and I strongly support the fact 
that we must root out fraud, I will do everything in my power 
to oppose efforts to use these isolated examples to discredit 
and gut the entire program.
    I look forward to a productive discussion today on ways to 
improve one of the most successful Federal programs to prevent 
poverty and hunger throughout these United States and with 
that, Mr. Chairman, I yield back.
    Chairman Issa. I thank the gentleman.
    Members will have seven days to submit opening statements 
for the record.
    We now recognize our first panel. Mr. Kevin Concannon is 
the Under Secretary for Food, Nutrition and Consumer Services 
at USDA. Prior to this service at the Department of 
Agriculture, he served as director of three different State 
government departments of health and human services, Maine, 
Oregon, and Iowa. Welcome.
    Ms. Phyllis Fong is the USDA Inspector General and has 
served the Department for 10 years. She is also concurrently 
serving as the first Chairperson of the Council of Inspectors 
General on Integrity, Efficiency, and, in fact, in that role 
you may be aware that this Committee would like to pass on to 
that Council greater authority, including potentially subpoena 
authority. That remains one of our long-term goals if we can 
convince the Senate of the importance of investing in 
inspectors general.
    Ms. Jennifer Hatcher is the Senior Vice President of 
Government and Public Affairs for the Food Marketing Institute. 
Prior to joining FMI, she served Chairman Spencer Bachus as his 
chief of staff.
    Lastly, Ms. Faulkner is Inspector General of the 
Commonwealth of Pennsylvania. Prior to becoming Inspector 
General, Ms. Faulkner was a law partner at the Philadelphia 
office of Ballard Spahr LLP. She has had a lengthy career in 
public service as an Assistant U.S. Attorney, Deputy Attorney 
General of Pennsylvania, and Philadelphia public defender. That 
is a lot to pack in a short time.
    If you would all rise. Pursuant to our Committee rules, all 
witnesses are to be sworn. Please raise your right hand.
    Do you solemnly swear or affirm that the testimony you are 
about to give will be the truth, the whole truth, and nothing 
but the truth?
    [Witnesses respond in the affirmative.]
    Chairman Issa. Let the record reflect all witnesses 
answered in the affirmative.
    This Committee historically tends to have a soft gavel. As 
I informed the witnesses ahead of time, we have a vote on a 
district work period, last working day. I know my people; they 
will not return. So in order to not have you wait an hour for a 
relatively small period afterwards, if we have not concluded by 
the time of the vote, we will end at that point.
    As a result, I will hold everyone on your side very close 
to the five minutes. I will hold my own people close to the 
five minutes not just for questions, but for your answers. So I 
ask all the members on the dais to please include time in your 
five minutes for both questions and a reasonable period for 
witnesses to answer.
    With that, Mr. Secretary, you are recognized for five 
minutes.

                       WITNESS STATEMENTS

           STATEMENT OF THE HONORABLE KEVIN CONCANNON

    Mr. Concannon. Thank you for the opportunity to join you 
today, and let me thank Inspector General Fong, who is a strong 
and independent oversight agent at the USDA.
    The mission of the Supplemental Nutrition Assistance 
Program, or SNAP, is to help low income people get the food 
they need while they get back on their feet, and it has never 
been more important in the lives of Americans than now. So 
strong administration and oversight, including accurate 
payments and proper use of benefits, are just as critical.
    The focus of today's hearing is about USDA's oversight and 
management of the retailers that are authorized to redeem SNAP 
benefits across the United States. Particular emphasis is being 
given to recent news stories, the result of several months of 
intensive investigative journalism by a team of reporters at 
Scripps Howard news service that focused on retailers that had 
previously been disqualified from SNAP for trafficking. 
Trafficking is the sale or purchase of SNAP benefits for cash, 
an illegal activity punishable by disqualification, fines, and 
criminal prosecution.
    While we recognize the importance of the issues raised by 
Scripps, I want to set the record straight about several facts. 
As with other leads we receive from the public, we took the 
information Scripps brought to our attention very seriously. We 
immediately began our own investigation into the stores that 
were referred to us. Our results suggest that the issues may 
not be as widespread as reported by Scripps, as many of the 
cases they raised have not proven to have integrity problems. 
Of the 36 owners Scripps referred to FNS as suspicious, our 
investigation found that over three-quarters had no connection 
to the disqualified owner or were not authorized at SNAP 
stores. The remaining quarter have been either disqualified, 
charged, or withdrawn from SNAP. One is under criminal 
investigation by the OIG.
    That said, we still believe broader action was needed. We 
increased security measures to keep out previously disqualified 
owners, including more robust review of applicants' public 
records and shorter time period authorizations for stores and 
locations with previous disqualifications.
    Prior to these reports, FNS has been upgrading its 
electronic transaction data mining technology to better detect 
suspicious SNAP redemptions and we are preparing to post 
information regarding the owners of permanently disqualified 
stores to GSA's excluded party list system, a Federal list to 
protect other Federal agencies. We are also developing rules 
that will increase penalties for trafficking stores.
    Combating fraud has long been a USDA priority over the last 
15 years, and I believe the charts are rotating up here. You 
will see one of those charts reflects various initiatives we 
have taken over the years. We are not yet satisfied and USDA 
continues to work closely with our partners to fight 
trafficking. In fiscal year 2011, FNS reviewed over 15,000 
stores, conducted nearly 5,000 undercover investigations, and 
sanctioned or punished 2,000 retailers.
    While USDA has direct responsibility for overseeing SNAP 
retailers, our integrity work includes every aspect of SNAP 
administration. By overseeing and working closely with our 
partners, including State and local governments, USDA strives 
to ensure that scarce taxpayer resources are managed with 
integrity and accountability.
    First, over the past decade we have made major improvements 
in SNAP payment accuracy. Over 98 percent of SNAP clients are 
indeed eligible and accuracy in 2010 reached 96 percent, a 
historic high. 2010 errors were less than billions than they 
would have been under the 2000 year rate.
    Second, USDA also oversees and provides guidance to States 
to find and hold accountable recipients who commit fraud. USDA 
recently issued new policy to clarify that even the intent to 
sell benefits, for example, by offering a SNAP card on a social 
media site like Craig's List, can lead to disqualification.
    Last year I wrote to all of the Nation's governors, 
individually, asking them to make SNAP integrity a priority. We 
have also engaged the retail community in this effort. I have 
personally met with State commissioners around the Country to 
enlist their support, including a greater focus on recipient 
trafficking and increased partnership with law enforcement.
    To conclude, fraud is neither new nor static. While a vast 
majority of retailers and clients follow the rules, a few bad 
actors will always seek to exploit SNAP. But the program is too 
important for taxpayer investment, too great to tolerate fraud. 
As in cybersecurity, we must be vigilant and continuously 
update systems to find and thwart new fraud schemes. USDA will 
continue to crack down on violators. We welcome our partners' 
constructive engagement in this effort.
    Thank you very much.
    [Prepared statement of Mr. Concannon follows:]

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    Chairman Issa. Thank you.
    Ms. Fong?

           STATEMENT OF THE HONORABLE PHYLLIS K. FONG

    Ms. Fong. Thank you, Mr. Chairman, Ranking Member Cummings, 
and members of the Committee. At the outset, I want to express 
my appreciation to you, Mr. Chairman, and to many of the 
distinguished members of this Committee for your support of the 
Federal IG community over the past several years. You have a 
noteworthy record of bipartisan support for IG contributions 
and you have demonstrated time and again through legislation, 
hearings, and speeches your interest in our work. So on behalf 
of the entire community, I want to thank all of you for your 
support.
    Today you have invited me to testify about USDA IG's work 
to protect the integrity of the SNAP program. To put this in 
context, the IG office at USDA is responsible for providing 
oversight to all USDA programs, which currently number over 
300. Of course, SNAP is the largest program in our portfolio, 
with over $70 billion, and it has drawn much of our attention 
over the past few years.
    In the last two years alone we have devoted almost half of 
our investigative resources to addressing SNAP fraud, with 
measurable results. We currently have over 900 cases open. Over 
600 of these cases involve retailers in some way. My written 
statement provides some examples of our most significant cases 
involving disqualified retailers.
    But I want to emphasize, more than the cases that we do, 
that the core problems in this program are not new, namely, 
there will always be people willing to commit fraud and to 
traffic in SNAP benefits, even though the specific schemes 
themselves may take different forms. So we, as an IG office, 
have been working on these issues with FNS, our partners, and 
with State and local agencies for many years to address these 
issues, and I can assure you that we have cases right now going 
on in every region of the Country and our agents are 
continually adjusting their work to deal with new schemes as 
they arise.
    While it is important to investigate, prosecute, and bring 
to justice wrongdoers, these actions alone will not fix the 
problem. It is critical that we also focus our efforts on 
looking at how retailers bypass the system that we have put in 
place to control access and to try and figure out what can be 
done to improve the program for the future.
    To this end, we have issued several audits over the past 
few years with recommendations for corrective actions. We have 
been working with FNS and our partners at USDA to address these 
issues. In particular, we recommend that retailer applicants 
need to have clean backgrounds, with no history of criminal or 
illegal activity. There needs to be a way to do that. We also 
believe that USDA should make better use of suspension and 
debarment appropriately to ensure that disqualified retailers 
do not participate in government programs in the future.
    So, to conclude, we strongly believe that retailer 
integrity is a critical component of ensuring an effective SNAP 
program that delivers nutritious food to people who need it. In 
our experience, unscrupulous retailers are at the heart of most 
of the trafficking schemes that we have seen. So we look 
forward to continuing our work with FNS, with our State and 
local partners to address this fraud where it occurs and 
improve the integrity of this very important program.
    Thank you for your interest, and we look forward to 
addressing your questions.
    [Prepared statement of Ms. Fong follows:]

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    Chairman Issa. Thank you.
    Ms. Hatcher?

                 STATEMENT OF JENNIFER HATCHER

    Ms. Hatcher. Good morning, Mr. Chairman and members of the 
Committee. On behalf of the Food Marketing Institute and the 
families served by the 25,000 stores operated by our members, I 
want to thank you for the opportunity to testify today. My name 
is Jennifer Hatcher and I am Senior Vice President for 
Government and Public Affairs at FMI. For the past 13 years, 
through the transition from paper food stamps to electronic 
benefits transferred, and now the new program named SNAP, I 
have worked on these issues.
    SNAP EBT is a positive example of a public-private 
partnership that works, and that adds efficiency and reduces 
fraud for all stakeholders in the program. Supermarket 
retailers are proud of our partnership with USDA and the State 
agencies to deliver safe, healthy, and affordable foods to 
customers in need of assistance. Unfortunately, the number of 
customers in need is higher today than it has ever been. In 
large part due to the conversion to electronic delivery of 
benefits rather than paper food stamps, a significant portion 
of the fraud has been removed from the system.
    Many supermarkets remember vividly situations where paper 
food stamps were being sold by criminals in front of the store. 
Paper stamps provided anonymity for the perpetrators of these 
illegal transactions. EBT ties any fraudulent activity to a 
particular transaction, customer, and store location. This has 
taken the criminal element out of our store parking lots.
    Electronic delivery has also provided State agencies with a 
better mechanism to compare transaction activity and look for 
duplication across State lines, particularly with States that 
share a common border. Some States have employed mathematicians 
to electronically identify potentially fraudulent patterns of 
sales.
    EBT has also improved efficiency and cut down on the 
potential for human clerical error. SNAP EBT transactions are 
protected by a user's personal identification number, PIN, so 
that they are much more secure than paper or even credit cards.
    FMI members take the responsibility as authorized food 
stores for the delivery of these benefits very seriously. Being 
an authorized SNAP retailer is part of their identity and their 
reputations in their communities, which is very important for 
them to protect. After reviewing the Scripps report and the 
associated list of disqualified retailers, we found no FMI 
members on the list, and agree that those who impugn the 
integrity of the program should be removed.
    Fighting fraud before it happens is critical, and I thought 
I would share some of the steps our supermarket members take to 
prevent fraudulent activity in their stores.
    First, and most important, is training. FMI member 
companies conduct onsite and offsite training for both their 
associates and their managers in the rules and regulations that 
govern SNAP transactions. There is a 76-page manual on the 
website that we consult on a daily basis for all of the rules 
and regulations governing the program. There is also a 25-page 
guide for retailers and a 17-minute training video in multiple 
languages that can be utilized for these purposes. Several of 
our members have also set up their own internal audits to 
ensure they are in compliance and that each of their 
transactions is in compliance.
    The vast majority of our members utilize computer systems 
that allow them to program via UPC code eligible and ineligible 
food items, and then lock the point of sale purchase system 
should someone attempt to purchase an ineligible item with SNAP 
benefits.
    FMI also publishes and sends to our members on a regular 
basis the names and contact information of the USDA FNS 
regional offices and the State administrators for SNAP EBT. 
Both FMI and our members make the USDA fraud hotline number 
available to their associates and managers through each of 
these training materials.
    There is one more issue that I feel I need to raise in the 
context of this hearing, and that is the extreme concentration 
of benefits issuance at the first month in a number of States. 
There are a number of issues that spreading the issuance of 
SNAP benefits across the entirety of the month, instead of just 
on the first day, could help accomplish, and we think a 
reduction in fraud may be an additional positive result of this 
change.
    Thank you for inviting FMI to share our thoughts on 
identifying and reducing fraud in the SNAP program. Our 
industry is committed to ensuring a pleasant and efficient 
shopping experience for all our customers and we welcome the 
opportunity to work with the Committee and the Department to 
move towards additional efficiencies in the SNAP program. Thank 
you.
    [Prepared statement of Ms. Hatcher follows:]

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    Chairman Issa. Thank you.
    Ms. Faulkner?

         STATEMENT OF THE HONORABLE KENYA MANN FAULKNER

    Ms. Faulkner. Thank you. Good morning, Chairman Issa and 
Honorable Members of the Committee on Oversight and Government 
Reform. I would like to thank you for the opportunity to 
address this Committee on the Pennsylvania Office of Inspector 
General's proactive and progressive steps it takes to deter and 
combat fraud in the Supplemental Nutrition Assistance Program, 
or, as we refer to it, SNAP.
    Let me first say that Pennsylvania Governor Tom Corbett 
believes it is important for Pennsylvania to provide health and 
human services such as SNAP to its truly deserving citizens. 
Individuals who engage in fraud take away those limited 
resources from the neediest of Pennsylvanians.
    As Inspector General, it is the mission of my office to 
uncover fraud, waste, and abuse within SNAP to hold those 
individuals who have committed fraud within the program 
accountable for their actions, and to recover overpaid tax 
dollars. The Office of Inspector General conducts its mission 
to combat SNAP fraud by operating several fraud investigative 
programs within its Bureau of Fraud Prevention and Prosecution. 
These programs are the Field Investigation, Fraud 
Investigation, and SNAP Trafficking programs. These programs 
are operated in coordination with the Pennsylvania Department 
of Public Welfare, which we refer to as DPW, which administers 
the Supplemental SNAP Assistance Program.
    The Office of Inspector General's approach to combating 
fraud begins with the application for SNAP benefits. Through 
our field investigation program, when DPW refers an application 
or re-application for SNAP benefits and suspects fraud or 
receives inconsistent or incomplete information, it refers the 
application to my office, the Office of Inspector General. The 
OIG investigates all applicant circumstances and provides DPW 
with its findings. Based on these findings DPW may deny 
benefits or approve benefits at a reduced amount. This same 
referral process exists for active recipients of SNAP benefits 
where DPW becomes aware of circumstances in a recipient's 
ongoing case.
    This proactive approach to combating SNAP fraud before 
benefits are authorized or investigating ongoing cases to 
ensure that only those entitled to benefits are actually 
receiving them is a critical function of my office.
    As a best business practice, there is greater efficiency in 
denying or reducing incorrectly authorized benefits versus 
attempting to collect overpayment benefits. In fiscal year 
2010-2011, the OIG conducted approximately 22,308 field 
investigations where SNAP benefits were involved. The cost the 
taxpayers avoided based on the OIG's investigations where SNAP 
benefits were either denied, closed, or reduced was a little 
over $19 million.
    Not all fraud, however, can be prevented by the OIG's Field 
Investigation program. When DPW becomes aware of circumstances 
which affect a recipient's past benefits, it will calculate an 
overpayment of SNAP benefits and refer that overpayment to my 
office, the OIG, for investigation.
    The OIG and its Fraud Investigation program conducts 
investigations on overpaid SNAP benefits and determines if the 
overpayment was due to the recipient's willful intent to 
defraud the program. Investigations where the OIG is able to 
substantiate that fraud occurred either criminally prosecuted 
or adjudicated through an administrative hearing. Court or 
administrative findings of intentional program violations 
include orders to fully repay restitution to the Commonwealth 
or carry a program disqualification for the defendants.
    The OIG follows Federal regulations in the progressive 
disqualification penalties for intentional program violations, 
with the first violation carrying a 12-month disqualification 
period. In the fiscal year 2010-2011 for SNAP overpayment 
claims, the OIG conducted approximately 3,335 investigations 
which involved SNAP benefits. The OIG filed 613 criminal 
complaints for a total restitution of a little over $1.4 
million.
    The OIG disqualified 822 defendants as a result of its 
criminal charges, which resulted in a little over $1.6 million 
in cost savings from preventing further program participation. 
The OIG filed 180 administrative hearings with a total 
restitution amount of $322,463. The OIG disqualified 172 
defendants as a result of its civil proceedings, which resulted 
in approximately $496,000 in cost savings from preventing 
further program participation, which includes figures from SNAP 
trafficking program.
    In addition to efforts to combat SNAP fraud at the 
application stage or through prosecuting overpayments, the OIG 
focuses on fraud which is occurring through recipients who sell 
or exchange their SNAP benefits to negotiate them into cash 
services, credit, or anything other than food, which is defined 
as SNAP trafficking in my agency. The practice of SNAP 
trafficking is actively pursued in Pennsylvania and has been 
done so for many years in Pennsylvania to maintain the 
integrity of SNAP benefit distribution by ensuring the 
credibility of the vendors and the recipients. The OIG operates 
a small but dedicated unit to operate its SNAP Trafficking 
program and works integrally with the USDA and the Nutrition 
Service, the USDA Office of Inspector General, as well, and 
local district attorneys to identify store owners and 
recipients who engage in SNAP trafficking.
    This active participation between the USDA and OIG is a 
chief reason why Pennsylvania has success in targeting SNAP 
trafficking. The USDA is responsible for disqualifying 
individual store and store owners, and filing criminal charges 
against them for engaging in SNAP trafficking. But, as you 
know, it takes the active participation of recipients of SNAP 
benefits for SNAP trafficking to occur. The OIG's 
responsibility in its partnership with USDA is to actively 
pursue the recipients who trafficking their benefits and hold 
them accountable for their actions, including criminal 
prosecution, obtaining repayment of illegal transacted 
benefits, and disqualification from the program.
    [Prepared statement of Ms. Faulkner follows:]

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    Chairman Issa. Thank you.
    I will now recognize myself for five minutes.
    Ms. Faulkner, a lot of what you were talking about, of 
course, are people who receive the benefit and abuse it. That 
represents a large part of the State's role, is to make sure 
that the food, we still use the term stamps, but that SNAP 
program funds get to the ultimate recipient, which is usually 
family members, is that correct?
    Ms. Faulkner. That is correct.
    Chairman Issa. Now, in your enforcement, the fact that 
these are basically credit cards that are digitally monitored 
and that you can track, that has dramatically made your job 
more accurate, hasn't it, than the old days of paper?
    Ms. Faulkner. Yes, it has.
    Chairman Issa. Well, that begs the question, I think, well, 
Ms. Hatcher, I have been at the grocery store when I have seen 
the exclusion of unauthorized materials, where every grocery 
store I have gone to has the software where they simply say, 
yes, that is fine you have just credited $35, but you still owe 
us $6.50 for the cigarettes, or whatever. That is great. Do 100 
percent of your members have that? And if not, why not?
    Ms. Hatcher. A hundred percent of our members that have 
electronic point-of-sale systems would have some ability to 
download that, and we are increasing that number. I would have 
to get back with you on the exact number, percentage of stores, 
but it is over 90 percent for sure.
    Chairman Issa. That is excellent.
    Well, Mr. Concannon, every grocery store I go to these days 
is electronic. Not every liquor store I go to is electronic. 
One of the basic questions is, if you cannot reduce fraud to an 
acceptable level, to make your IG happy, if you will, is it 
that important that every liquor store, and I use the term 
liquor store very specifically, because sometimes people want 
to call themselves convenience stores. But we all know, as the 
ratio gets close to your minimum food to cigarettes and 
alcohol, your fraud level goes up. No question at all; it is 
well understood. Is that one of the areas in which the test 
must be higher and the tolerance for any slippage must be 
lower?
    Mr. Concannon. I appreciate the question, Mr. Chair, and to 
the point you make, stores, by Federal requirement in the Farm 
bill, must provide a certain number of foods in the food group, 
and it is what we refer to as the depth of stock requirements. 
I am very interested, I know Secretary Vilsack is as well, in 
increasing the obligation on stores that have more foods than 
those minimums that currently meet it for stores that maybe 
their real interest is in selling tobacco or selling alcohol to 
folks. They can't buy that with their SNAP card, but it is 
encouraging people to come into those locations.
    Chairman Issa. I appreciate that.
    Now, both your op-ed, which I would ask unanimous consent 
be placed in the record, without objection, and your statement 
quite frankly give a fairly rosy picture, and in the case of 
your comments on Scripps Howard it was a little bit like the 
Ranking Member's thanking us for the hearing and then saying we 
want to starve the children implications in everything 
Republicans do in the budget. Scripps Howard exposed, at least 
in some cases, fraud you were not aware of, is that correct?
    Mr. Concannon. Yes, they did, in a very small number of 
cases. And I want to correct the record because the Scripps 
Howard piece mistakenly made the notion----
    Chairman Issa. No, I appreciate that, and you said that in 
your op-ed, you've said it in your opening statement.
    Mr. Concannon.--stores are taken out of the program, not 
the physical location----
    Chairman Issa. Right. My time is limited.
    Mr. Concannon. Okay.
    Chairman Issa. And you were invited here not to be 
mistreated, but you were invited here because we are concerned 
and we really don't want to have our whistleblower bashed, even 
if there was 1 percent accuracy; and there appears to be far 
more than 1 percent accuracy.
    Here is the question I have for you, and it is the only 
question I am going to make today, and I think Ms. Fong will 
particularly appreciate it. The rest of government uses 
permanent exclusion and debarment fairly aggressively. It is 
not an easy task, but it guarantees that those who have cheated 
the American people as vendors are not just removed for a 
period of time from your program, but in fact are removed from 
eligibility government-wide. Why do you not use it broadly, and 
will you begin using debarment, or do you believe you don't 
have the authority to?
    Mr. Concannon. There are many compelling reasons why we do 
not currently use it. We are able to take stores, we have taken 
stores out this very week for simply trafficking or for 
misleading us in their application, falsification. We don't 
have to hold hearings. During the pendency of that, we give 
stores 10 days to respond to us. We take them out. If we use 
debarment, we have to go through a whole extended hearing 
process.
    Now, as well, when we take these stores out, most of the 
stores we are talking about are small stores; they rarely 
interact with other parts of government. They don't have 
pharmacies, they are not stores that government doesn't buy 
liquor from liquor stores, to use the earlier reference point. 
It is far more efficient for us to do this.
    Now, I will say this. We have completed requirements with 
the General Services Administration to allow our agency to now 
start filing excluded parties listing, which means once that 
company is on that list, they can't do business with any part 
of the Federal Government. This is a more efficient way to do 
it, and in the meantime we can take bad actors out.
    Chairman Issa. Ms. Fong, my time has expired, but it looks 
like you have at least a partial answer beyond that.
    Ms. Fong. Thank you. We feel very strongly that USDA, as a 
whole, needs to do a better job with suspension and debarment. 
We believe that there may be some room here to work with FNS to 
really get the best possible system in place, and I think 
excluded parties program disqualification and suspension and 
debarment are all necessary remedies to be looked at, and we 
feel strongly about that.
    Chairman Issa. Thank you.
    The Ranking Member is recognized for five minutes.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    Let me make it very clear that if there is one dime of 
money that is not going where it is supposed to go, there is 
nobody I think in this room, and particularly not on this side 
of the aisle or the other, that would stand for that. I want an 
even higher standard than the 1 percent. I want zero. At the 
same time, though, I want to make sure that we have balance in 
this whole process when we have taken $127 billion out of a 
program. We want to make sure that the people who need the 
program are taking advantage of and have an opportunity to get 
the funds that they need.
    Now, Secretary Concannon, I want to thank you for your 
testimony, and again going back to what I just said, House 
Republicans have cut $127 billion out of this program. That 
means that they would eliminate food assistance to some 8 
million people, according to the Center on Budget and Policies. 
Mr. Concannon, according to your agency's data, nearly half of 
the SNAP beneficiaries are under the age of 18, is that right?
    Mr. Concannon. Correct, sir.
    Mr. Cummings. And I want to go back for a moment because 
there is something that the Chairman didn't give you a chance 
to answer, but I think I know what you were trying to get to. 
Sometimes you have a store that is disbarred. This goes with 
the owner, is that right?
    Mr. Concannon. That is correct, sir.
    Mr. Cummings. So it is sort of like, when I was practicing 
law, if somebody, say, for example, had a liquor license and 
they were a bad actor, they then sold it or whatever, then the 
new person comes in and that's a new situation, is that right?
    Mr. Concannon. Correct.
    Mr. Cummings. So some of the Scripps article was about 
folks who had been taken out, but then the store was owned by 
somebody else, and then that came under a whole new situation, 
is that right?
    Mr. Concannon. Correct. Some of those articles that were 
referenced to me suggested that, again, the location and the 
owner were one and the same when they came back in. We have 
231,000 locations in the United States authorized for this. The 
majority of them are small stores, and that is invariably where 
these problems occur, in small stores. And of that 231,000 over 
the years, we have taken out permanently some 8,300 stores over 
a 10-year period. And in about just over 1,200 locations of 
that 8300 different owners came and are operating the program.
    So it is not the same as saying that same person came back, 
but in fairness to Scripps Howard, they found a small number in 
that 36 that I showed here earlier that had slipped back into 
the program by falsifying their applications, and we have 
strengthened, on the basis of working just in the past two 
months, strengthened the requirements for a variety of vetted 
pieces of information that will assure usw that there is no 
connection whatsoever to a prior owner.
    Mr. Cummings. Now, let me give you some interesting 
information. My good friend, Senator DeMint down in South 
Carolina, introduced legislation to cut SNAP benefits provided 
under the Recovery Act. The Pennsylvania Governor, Tom Corbett, 
announced a plan to disqualify anyone under the age of 60 who 
has more than $2,000 in savings and assets, which would prevent 
families from working towards self-sufficiency. The mayor of 
Philadelphia called this proposal ``one of the most mean-
spirited and asinine proposals to come out of Harrisburg in 
decades.'' Other States have pursued similar proposals. In 
Georgia a bill was introduced to require beneficiaries to 
obtain mandatory ``personal growth'' activities.
    Now, Mr. Concannon, do you know what these personal growth 
activities are and do you know how they would be implemented on 
a national level or the State level?
    Mr. Concannon. I am unfamiliar with that. I have seen 
references to that in the media, but I am unfamiliar with the 
specifics of the bill.
    Mr. Cummings. Now, we all know that there will be instances 
of fraud and we all agree that we need to be vigilant to 
prevent fraud before it happens and prosecute it in all of 
these cases. But according to your data fraud rates in this 
program have been going down, not up, is that right?
    Mr. Concannon. That is correct.
    Mr. Cummings. Do you concur with that, Ms. Fong, they have 
been going down?
    Ms. Fong. We are aware of FNS's studies that say that. We 
have not personally assessed those studies, and we plan to do 
some work on that.
    Mr. Cummings. Okay.
    Now, Mr. Concannon, they have dropped to an all-time low 
record of less than 1 percent, is that right?
    Mr. Concannon. Correct, sir.
    Mr. Cummings. All right.
    I know the Chairman got about a minute and a half longer, 
but----
    Chairman Issa. [Remarks made off microphone.]
    Mr. Cummings. Would you just answer that?
    Mr. Concannon. We have been working very closely with 
States across the Country both to reduce what is called the 
improper payment level, meaning individuals get more than they 
should or less than they should. That is less than 4 percent, 
what was traditionally an 8 percent number.
    In the case of trafficking, as was mentioned earlier I 
think by the Chair, in the era of paper coupons was much more 
widespread. The electronic benefit card has considerably 
brought that down. That and other work with States. One percent 
was the last study we did. We are going to do another study 
later this year to update that on trafficking. But it is 1 
percent. It is one of the best records among Federal programs.
    Mr. Cummings. But that is not good enough for you, is it?
    Mr. Concannon. It is not. I am not satisfied with that, 
even.
    Mr. Cummings. Very well. Thank you.
    Chairman Issa. The gentleman from Tennessee, Mr. 
DesJarlais, is recognized for five minutes.
    Mr. DesJarlais. Thank you, Mr. Chairman, and thank you all 
for being here today. I think that this is one thing that we 
can agree on on both sides of the aisle. We don't want to see 
hungry children. We don't want to see hungry people. We live in 
a Country that is fortunate enough to be able to share and help 
these people, and it is unfortunate that here in Congress it is 
so common for Democrats and Republicans to make accusations 
against one another when really we agree that, on all these 
programs that are designed to help people, we want to do the 
very best we can to make sure that those in need are the ones 
getting the help.
    So if we can tone down the political rhetoric and look at 
how we can do the very best we can to make sure that not a 
single calorie is taken away from those in need, then we can 
get a lot further than arguing and making accusations. I know 
that is the case in Medicare, it is the case in Medicaid, it is 
Social Security disability. So often one side accuses the other 
of trying to go over the top, but oftentimes that is for 
political reasons. And these aren't Democrat issues or 
Republican issues; these are people issues. So again I 
appreciate you being here today.
    Ms. Fong, if we are going to try to do the very best, 
whether it is 1 percent, 5 percent, a half a percent, we need 
to find out what the problems are and how to solve them, so can 
you tell me what is the most typical kind of fraud that you see 
in the food stamp program?
    Ms. Fong. Well, we have a number of schemes that we see. 
Most of them focus on trafficking, which is a situation where a 
recipient goes to a retailer and tries to cash in the card for 
money, in which case both parties come away feeling that they 
have gotten a good bargain. There are numbers of ways that this 
happens. We have seen different schemes over the years where 
retailers and recipients get very creative about shopping the 
card, as it were.
    Mr. DesJarlais. Okay. Do people who illegally traffic food 
stamps, do they tend to be people that also try to commit fraud 
in other government assistance programs like Section 8 housing 
or Medicaid?
    Ms. Fong. I don't believe we have any data on that, 
although I will say that we do, on occasion, joint 
investigations with other government agencies such as HHS, 
which manages the Medicaid-Medicare program, and sometimes 
there will be recipients who are involved in all of those 
programs.
    Mr. DesJarlais. How much money could a store owner who 
traffics in food stamps likely make illegally?
    Ms. Fong. Well, I think you would want to look at it on 
sort of a per benefit basis. It can range. There are some very 
small retailers who, in the context of their business, will 
make thousands of dollars. There may be other larger retailers 
or smaller ones who engage in multiple transactions who can 
benefit by hundreds of thousands of dollars or even millions. 
And some of our investigative results will show restitution 
sentences that can range from hundreds of thousands to 
millions.
    Mr. DesJarlais. Okay. Just so we kind of know if there are 
citizen watchdogs and people out there that are looking for 
this type problem, can you give us an example of the most 
elaborate scam involving store owners that your office has 
investigated?
    Ms. Fong. Well, I think we certainly have a number of cases 
going on. Most recently we have seen situations where there 
have been runners employed who will take cards from recipients 
and take them to many different retailers and swipe those cards 
to get benefits, and there will be maybe a group of retailers 
who work together to do this. So there are some very 
complicated schemes there.
    Mr. DesJarlais. Ms. Faulkner, you probably also have seen 
this type of thing. Could you share maybe what one of the most 
egregious fraud cases that you are aware of? And then when that 
happens, do you frequently see children deprived when their 
guardians engage in SNAP fraud?
    Ms. Faulkner. I think any time there is fraud, children are 
involved, especially when it relates to the SNAP program. But 
what I would like to share with you is one of the more 
sophisticated trends, and I think Inspector General Fong 
touched upon it. In a program such as SNAP, a recipient will go 
to a restaurant or a bar, and this is not a place where they 
would accept EBT cards, but they would go there and the 
restaurant or bar would go to a grocery store and buy, say, 
$200 worth of groceries for the bar or restaurant, and then 
they would give the recipient half, 75 percent, something off 
of the EBT card. And really it cuts out, you never really see 
the bar or restaurant transaction; what you see is the 
recipient using to buy $200 worth of groceries at this 
particular grocery store.
    That is a little hard to track, and being stricter on the 
retailers will help this problem because you cut out that 
restaurant that is being used to get the money. So we see that 
in Pennsylvania sometimes.
    Mr. DesJarlais. Well, I see time has expired, but thank you 
all for what you to do make sure that those people in need get 
the food that they need.
    I yield back.
    Mr. Gowdy. [Presiding] The Chair thanks the gentleman from 
Tennessee and recognizes the gentlelady from California, Ms. 
Speier.
    Ms. Speier. Thank you, Mr. Chairman.
    I want to compliment the Chair of this Committee in 
recognizing the important function we have to look at 
government programs and evaluate the fraud.
    Having said that, I want to compliment everyone on the 
panel. I think you have a 98 percent grade, and a 98 percent 
grade is something we should be applauding. A 1 percent fraud 
rate is just remarkable, and I am very impressed by what you 
are doing.
    Here is my question. Are we spending more with the budgets 
for fraud detection and the IG than we are generating in 
restitution or repayments? Yes, Inspector General Fong?
    Ms. Fong. I would be happy to comment on that. I will say 
that our budget in the IG's office is around $85 million a 
year, and we bring in, on average, $14 or $15 for every dollar 
that is appropriated to us.
    Ms. Speier. Okay, so you are valuable in what you are 
doing.
    Here is my concern. There has been a recommendation, I 
think by the IG, that you review retailer applications for 
criminal records. Makes a lot of sense. Why aren't you doing 
it?
    Mr. Concannon. Thank you very much. We have received that 
recommendation that we rely upon something called the NCIC, the 
National Crime Information Center, data. I was a former State 
director and I used that system through the State police in the 
States that I was in. One has to be a law enforcement agency in 
order to access those data; we can't do it as the FNS. The OIG, 
if it had the resources, it could possibly do so, but we are 
not allowed to. You have to be a law enforcement agency to get 
into that database.
    Ms. Speier. All right, I understand what you are saying, 
Under Secretary.
    So this is to General Fong, then. How would you suggest we 
review the criminal records, then? What do we need to do in 
order to accomplish that? And will it give us enough bang for 
the buck? If we invest in doing that, will we save a 
significant amount so that it would be worth our while to do 
it?
    Ms. Fong. That is a very complex question, and the Under 
Secretary is absolutely right, we have been back and forth on 
this issue as to the best way to get criminal background 
information. I think right now the application form has been 
revised to require certification under penalty of criminal 
prosecution, and I think that is a very good move. I think we 
can continue our discussions on this. Right now we do not have 
the authority as the IG's office to run these kinds of NCIC 
checks for a program purpose, so we will need to do some 
further consultation.
    Ms. Speier. Well, we are able, I know, in California to do 
background checks for childcare providers, 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. So I would encourage the Committee to pursue this and 
find a way to achieve that.
    The other issue that I wanted to draw attention to was this 
issue of suspension and debarment. As I understand it, there 
were 615 wholesalers and retailers convicted, but none of them 
have been suspended or debarred, and the rationale for not 
doing this is that it is costly. Well, democracy is costly. I 
don't think we can use the argument that it is costly. If we 
have evidence of convictions and these retailers have violated 
the laws and we don't debar them, then shame on us.
    Anyone want to respond to that?
    Mr. Concannon. If I can try to answer that. The preamble to 
the new departmental regulations on debarment excludes the SNAP 
and WIC program transactions because of statutory language that 
provides for comprehensive statutory disqualifications. In 
everyday English let me say that we rely upon our taking owners 
of stores and corporate groups out of the program, and as I 
mentioned earlier in my testimony, we have been negotiating 
with the General Services Administration to have these folks 
listed on a listing that they operate where people who are 
permanently barred from doing work with the government, they 
cannot. They will now be listed on this list that goes to all 
Federal agencies.
    So in our view we will achieve what debarment is intended 
to, but it will allow us to take them out without extended due 
process hearings that drag this out on and on, and allow people 
to stay in the program during that time.
    Ms. Speier. All right, my time has expired. Thank you, Mr. 
Chairman.
    Mr. Gowdy. I thank the gentlelady from California.
    The Chair would now recognize the gentleman from 
Pennsylvania, former United States Attorney, Mr. Meehan.
    Mr. Meehan. Thank you, Mr. Chairman. You sit well in that 
seat.
    I am very appreciative of all of the panel for the work 
that you do, the significantly important work that you do, and 
I want to attach myself to the comments of Dr. DesJarlais 
earlier in our shared interest, first, and most importantly, in 
delivering these services appropriately to those most in need. 
So to the extent that we are able to effectively root out the 
fraud, more is available for those purposes.
    Ms. Faulkner, I noticed there was some testimony, I did 
want to correct the record to the best of my understanding. 
There was some testimony today about the Pennsylvania 
administration's guidelines with regard to points at which 
there would be determinations of eligibility, and I know that 
there was an original proposal, but to the best of my 
understanding, there was also some collaboration on the part of 
the governor's office and that they have made a significant 
change with regard to that guideline so that it is far more 
realistic in terms of--is that accurate?
    Ms. Faulkner. Yes. What I would like to say is that 
everyone has been referring to the asset test.
    Mr. Meehan. Correct.
    Ms. Faulkner. Which was always in place in Pennsylvania 
until 2008. But the asset test is apples and oranges. We are 
talking about fraud and the asset test is something different. 
But, yes, the governor reinstated and increased the threshold 
to $9,000 and to $5,500. So it has been increased. It was 
always in place and, really, it is apples and oranges from 
fraud to what we are talking about here today.
    Mr. Meehan. I just wanted to make sure that that was clear.
    I want to express my deep appreciation. In a very short 
time you have really developed quite a reputation for the very 
good work that you are doing in that office.
    Ms. Faulkner. Thank you.
    Mr. Meehan. And I am particularly interested in the work 
that relates to this concept that between 8 and 15 percent of 
the fraud is associated with trafficking. It would seem to me 
that this is a choke point that we would really be able to work 
on. Now, are there some things that you do that you see 
characteristics that take place when there is trafficking that 
help you to identify those that may be the most suspect?
    Ms. Faulkner. What we have been doing in Pennsylvania is we 
have a dedicated unit. We have the Fraud, but we have OSC, 
which is really just a unit that focuses on SNAP. And what we 
find in Pennsylvania is that that has been growing, the fraud 
hasn't been reducing.
    So we have worked with Federal and local DA's offices to 
try to reduce what is going on with the retailers and the 
recipients, and what we find is that once the Federal 
Government determines who the stores are, we then come in and 
tell them who the recipients are in order to close the loop, 
because the recipient is the one who really starts the ball 
rolling in this.
    Mr. Meehan. It would seem to suggest, if you are seeing an 
increase, then that is sort of contrary to some of the 
important progress that we have been able to make through the 
electronic process. But you have given testimony earlier that 
creative criminals can always find ways around a system, so are 
you looking for patterns and other kinds of things that help us 
get to those? I am really particularly interested in the 
retailers, because they are the ones that are facilitating the 
ability.
    Ms. Faulkner. I am sorry to interrupt. One of the things we 
did notice with the retailers is that they would have whole 
dollar amounts; you would go to the store and see $100 used. 
And that was one of the things that they used to determine 
whether this could be some type of fraud. So we do follow that. 
People going to the same stores all the time. Those are just 
indicators; they are not always determinative.
    But we look at those things to see if trafficking is 
occurring there. And we have, like I said, a small unit in the 
office right now, a supervisor and three people working on this 
entirely. We are hoping to expand it more. That is what we see 
in Pennsylvania, that there is a need to investigate this more. 
I can't talk about the Federal Government or other States, but 
in Pennsylvania we see a need to----
    Mr. Meehan. Do States work with other States so that while 
you are looking at patterns within your own State, are you able 
to check with New Jersey or Delaware or Maryland in any way to 
determine whether you are matching your efforts to see if there 
are patterns that exist among some of the same individuals?
    Ms. Faulkner. Well, I think the concern is--I did reach out 
to New Jersey. They handle their SNAPs differently. Every State 
is different. So while I have personally done some reaching 
out, I have not been able to connect in sort of determining 
whether there are patterns in States.
    Mr. Meehan. Well, thank you. As a former prosecutor, I am 
sort of quite surprised by the concept that we aren't able to 
take the very simple information that is contained in the NCIC, 
one of the fundamental databases that we use oftentimes. I 
would really appreciate the work of you individuals to help us 
identify what we can do. I would be delighted to work with the 
gentlelady from California to assist you in those efforts.
    If we can facilitate the basis to do what seems like a very 
common sense thing, I would ask your assistance in following up 
in submitting to us whatever recommendations you have that 
would make it easier, and I once again applaud the work of each 
of you for the efforts that you do. Thank you.
    Mr. Gowdy. I thank the former distinguished U.S. attorney 
from Pennsylvania, Mr. Meehan, and now would recognize the 
gentleman from New York, Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let me begin with you, Mr. Concannon. Can you explain to me 
what kind of quality control system the SNAP program uses to 
ensure that only people who are truly eligible for SNAP are 
actually receiving it? What do you have in place to detect it?
    Mr. Concannon. Thank you very much. As was mentioned at the 
outset, I was the State Health and Human Services Director for 
25 years in three States, and of all of the Federal and State 
benefit programs that are administered, the Food and Nutrition 
Service, long preceding my time here, puts a particular 
emphasis on what is referred to as the quality control error 
rate, meaning people need to be eligible for the program, so 
they have to demonstrate, in fact, their eligibility by virtue 
of pay stubs or other sources of information.
    We also have to make sure that when I present myself, I am 
who I say I am. And that QC program, that error rate has gone 
from historically up in the 8 to 9 percent range down to below 
4 percent, and that has been achieved by encouraging States to 
use multiple databases. So, for example, in the States that I 
worked in, when somebody would come in and apply, Mr. Concannon 
would check against the Labor Department, we check against IRS, 
we can check against the child support program list for new 
hires every State has to maintain.
    Social Security has something called the Social Security 
list; the U.S. Department of Health and Human Services has 
another list, the acronym of which is PARIS; and now some 47 
States rely on that database alone. Back in 2000, only 16 
States used it. And the Office of Inspector General, among 
others, has urged us to make sure that States make use of these 
particular databases. So there are a variety of ways to assure, 
one, I am who I am and that when I report my income it is that 
which is truly income that is coming into my household.
    Mr. Towns. Let me ask you this. How does the SNAP error 
rate compare to other Federal programs?
    Mr. Concannon. I believe, I haven't really tracked them 
lately, but I can tell you that I think it is one of the best 
among Federal, State benefit programs. And I know that at a 
State level, governors' offices, I know this very directly, pay 
careful attention when the QC error rate is made known to each 
State. We do this individually. We punish the States that fall 
below a certain minimum around QC error rates and we reward 
States who do an outstanding job in that regard.
    Mr. Towns. Let me ask Ms. Fong, I think it was you that 
mentioned the amount of indictments. My question to you would 
be what is the conviction rate? You know, sometimes we read 
about indictments and that is all we hear, and sometimes people 
get all excited because there was an indictment, but there is 
no conviction. So what is your conviction rate?
    Ms. Fong. I would be happy to provide that for the record, 
but my recollection of the data is that we have a very high 
conviction rate. It is a significant percentage of our 
indictments.
    Mr. Towns. The reason I raise this question, I was sort of 
thinking in terms of the question that the gentlewoman from 
California raised in terms of your budget versus the amount of 
money that you bring in, because I was just wondering about 
that other piece, which is not a part of your budget, that 
would also be a certain amount; I'm not sure how much. So I was 
just sort of looking to see in terms of the profit involved 
here based on your budget, based on the amount that you are 
actually retrieving.
    Ms. Fong. I am just retrieving some data here. Just to give 
you a general sense of it, in the last few years our monetary 
results in SNAP alone have been almost $30 million. And I think 
I should just make sure that I provide that for the record, but 
our conviction rate is close to 50 percent.
    Mr. Towns. Right. And the reason I ask this, you know, I 
don't view this Committee as one of those ``I gotcha'' 
committees; I view it as a committee that is working to save 
the Government money and to make certain that people that are 
supposed to get service, that they get service, and that we 
have an obligation and responsibility on this side of the aisle 
to work with you to try to make certain that that happens.
    And I want you to know that is my reason for being on it 
for, like, 30 years. That is my purpose, and I hope my purpose 
never changes.
    Thank you very much, Mr. Chairman.
    Mr. Cummings. Would the gentleman yield?
    Mr. Towns. I would be delighted to yield.
    Mr. Cummings. Just real quick.
    Mr. Concannon, you said punish the States that have bad 
error rates. How do you punish them?
    Mr. Concannon. We have sanctioned States or punished them 
both by we can recover, we can penalize them financially. We 
send them letters, warning letters saying basically you are 
falling below a certain threshold. Now, our goal, obviously, is 
to get that error rate down so that we provide technical 
assistance and training, but we put them on notice, and over a 
period of five or so years I think we have sanctioned some 17 
States. I will make sure I verify that, but that is what I 
recall.
    I know we take, it can be a financial penalty. We do pay 
attention to the performance of States because we know it 
affects the very consumers that members have been asking about 
here this morning.
    Mr. Gowdy. I thank the gentleman.
    When this Committee was looking at Medicare and Medicaid 
fraud, I distinctly remember the hearing because there was 
outrage, appropriate outrage that the entities that had engaged 
in the fraud were still doing business with the government. I 
think the gentleman to my right expressed very appropriate 
outrage.
    So my question, Ms. Fong, is the same as Mr. Cummings' was 
then. When you have recidivists, repeat offenders, what do we 
need to change about the debarment process so that that is the 
default, instead of disqualification? Because disqualification 
is an insufficient penalty, to me, for recidivist offenders.
    Ms. Fong. I believe that the government suspension and 
debarment process is an effective process, and USDA has 
implemented regulations and, as a whole, the Department could 
do a better job of implementing that. I think that there are 
concerns, as the Under Secretary has expressed, about 
timeliness and length of time.
    I think we need to engage in those discussions because my 
understanding is that if you have somebody convicted of a 
criminal felony, that disqualification, while it may be 
effective vis-a-vis the food stamp program, it is not really as 
effective for other government programs. And if you have a 
criminal conviction, it should be a pretty quick process, 
because the conviction, in and of itself, is sufficient 
evidence to proceed, so it should not take a long time to do 
this, maybe a month, two months.
    Mr. Gowdy. Well, let me say this. I distinctly remember 
spending four days in a courtroom prosecuting a lady for 
disturbing a school, and I spent three days in a courtroom 
prosecuting someone for throwing an iced tea cup at a DEA 
agent. So resources and time should not be the only barometer 
by which we decide whether a case should be prosecuted or not, 
or else we would never prosecute petty crimes. So whatever 
needs to be changed in the process, I hope you will give all of 
us that have expressed an interest in it a list so we can put a 
little more teeth into the punishments when people systemically 
defraud the Government.
    I want to move to the gentlelady from California and Mr. 
Meehan's point about NCIC. You know, NCIC has arrests that 
don't result in convictions; it has pardons, it has 
expungements; it has other information that law enforcement may 
have an interest in seeing, but they are not convictions.
    But the remedy is very easy, because schools do it and 
churches do it and after-school programs do it: just have one 
NCIC-trained operator on site and then redact the non-
convictions. The notion that we can't do background checks on 
people who want to do business with the Government, people do 
them all the time for schools, churches. Everyone does it.
    So redact the information. Go to a law enforcement agency 
that does track convictions; go to the clerk of court's office. 
There is a way to get that information other than NCIC. And if 
there needs to be an exception to NCIC for government agencies 
that are looking at fraud, I can't speak for the gentleman from 
Maryland, but I would be happy to do that, and I don't think 
law enforcement would resist it one bit.
    Ms. Fong, you mentioned a 50 percent conviction rate. I 
would have been run out of office if I had a 50 percent 
conviction rate, and I don't think Mr. Cummings would have been 
hired as often as he was hired if he had one. That strikes me 
as a low conviction rate. Is it because you are negotiating a 
civil punishment instead of a criminal punishment? Does the 
statute need to be changed? What needs to be done so we don't 
swing and miss half the time?
    Ms. Fong. Let me take a look at that data, because I want 
to make sure that I get you the right percentage, and I will 
provide that for the record. And when we do that, we will also 
provide you with our insights on that.
    Mr. Gowdy. All right. And my final question for you is 
this: If I wrote the numbers down right, you said there are 900 
cases, 600 of which are against retailers. I think your 
energies and efforts should be directed towards retailers, but 
not to the total exclusion of individuals who are providing a 
market, if you will, for this kind of fraud. So what do your 
numbers look like on prosecuting individuals who either sell 
their cards for cash or otherwise engage in fraudulent 
activity?
    Ms. Fong. Let me just generally address the approach that 
we take on law enforcement. We focus our efforts on the 
retailers because when we go to the U.S. attorney's offices for 
Federal prosecutions, they have certain thresholds for 
prosecution which involve dollar amounts, et cetera.
    So the dollar amounts tend to be on the retailer side, 
which are much higher. When it appears that there are 
recipients involved, as there usually are, we partner with the 
State prosecutors because those tend to be violations of State 
and local laws. So our most effective approaches are when we do 
joint work, where we take the retailers to the Federal 
prosecutors, the State prosecutors work on the individual 
recipients, and we can approach all of those as a global kind 
of approach.
    Mr. Gowdy. That sounds like a perfect marriage. And you are 
going to need witnesses against the retailers, and sometimes 
the recipients make very good witnesses.
    With that, the gentleman from Massachusetts, Mr. Tierney.
    Mr. Tierney. Thank you very much, Mr. Chairman. This is 
exactly the type of oversight that we need to be doing on 
programs. If we are going to have programs where everybody 
agrees that we need to reduce hunger and that we agree that 
fraud can't be allowed, if we are going to have the public 
support behind it, then I think this is a good thing for this 
Committee to be doing on that basis.
    In my district, the 6th District of Massachusetts, we have 
a lot of tremendous groups working very, very hard to try to 
reduce hunger on that. The have seen a 40 percent increase in 
people accessing soup kitchens and pantries. With the economy 
the way it is, it has been very, very difficult for them. 
Massachusetts is the only State that I am aware of that 
actually has a line item for this type of issue under the 
Massachusetts Emergency Food Assistance Program, but they have 
sort of level budgeted.
    So all of my folks that are working real hard on this, when 
they see a proposal or a 20 percent cut in the SNAP program, it 
is panic, because they want to make sure that fraud isn't an 
issue as well, but they want to make sure that they have the 
resources. When I hear the numbers of 4 percent down to as low 
as 1 percent on fraud, but 20 percent cut in the budget, I 
understand why they are looking that way.
    We have over 15,000 people in our district that benefit 
from these programs. I guess 35 percent of them have a 
household member over 60; 41-plus percent have a household 
member under 18. So we are talking seniors and children, so it 
is important that we get this right.
    Julie Fontaine, who does our Open Door program up there 
covers Amesbury to Beverly, they serve about 5,400 individuals, 
about 2,200 families, basically. But then we have Haven for 
Hunger, Bootstraps. We have a lot of people working very hard 
on that.
    So we need to know that we are focusing and this is a 
situation on fraud that we need to do.
    But I do make the note, Mr. Chairman, this Committee has a 
broader portfolio. On the subcommittee on which I sit, we have 
been looking at contracts in Afghanistan, and I just know that 
on food service I have asked the subcommittee chairman to have 
a hearing on that. We just recently had a situation where the 
Defense Logistics Agency thought that they were overpaying the 
food distributor in Afghanistan $787 billion and have asked for 
that money back. That is serious, serious money.
    So we need to do it on this program and I am impressed, Mr. 
Concannon, that you are continually working on this and your 
numbers are keeping it down, and we need to do it right across 
the board on that because we can't allow it to happen.
    The focus here, what I am hearing, is you think you have it 
down well below 4 percent, maybe as low as 1 percent, is that 
correct?
    Mr. Concannon. Correct.
    Mr. Tierney. And you are trying to get all the new 
permutations of how people might do fraud. Do you have a new 
website?
    Mr. Concannon. We have a new website we started up a month 
ago and later this spring we will be promulgating regulations 
that increase the financial penalties. When a store is taken 
out of the program and it is sold to a new owner, I have been 
interested in increasing the financial penalties so people 
don't just say, well, it was the cost of doing business; I will 
flip the store. So we continue to add layers.
    Mr. Tierney. You also had an issue with Facebook and 
Craig's List and those issues. How did you attack that?
    Mr. Concannon. We did. We notified--and that is what the 
inspector general was talking about, new types of fraud. That 
is an example. We have had several examples that way recently 
and we have written to Craig's List, some of the other social 
media sites, but we have also amended our regulations so even 
the simple intent, the expressed intent to sell your benefits 
constitute a violation. We consider that trafficking; you will 
be out of the program.
    Mr. Tierney. And you have tried to increase some of the 
fines for falsifying information, things of that nature?
    Mr. Concannon. We have indeed. We have strengthened, again, 
the requirements and look for a variety, require a variety of, 
for example, tax--these are particularly from stores to the 
earlier comments that were made--on looking for additional 
corroborating information beyond what we have traditionally 
sought, and especially so in locations where we have had prior 
issues.
    These kinds of issues of trafficking and fraud tend to 
congregate in the same location, so we want those spots get 
moved up on our high-risk profiles, but we also want to make 
sure that we are exhausting every available source of 
information to us.
    Mr. Tierney. And I think the acting chairman's comments on 
the debarment issue, that contractor in Afghanistan that was 
overcharging $787 million, they are still operating on a single 
course contract; they don't even have to compete for the 
contract and they are still in business, so I know that your 
efforts at debarring people is important to this Committee, 
both sides of the aisle, and moving forward on that. I hope 
that you do proceed.
    But I am hearing from Pat Baker, who does our Mass. law 
reform, tells me you are doing a very good job, and they are 
adamant to work with you on that. But people are clever and 
they keep coming up with different ways.
    One of the ones that they have noticed recently crosses the 
border between abuse or people who abuse the system. They are 
finding that some women who are supporting their children on 
this are being threatened and sometimes even physically 
attacked by people to get them to turn over their electronic 
card. Are you addressing that issue at all? Has anybody come 
across that? Because apparently it is more prevalent.
    Mr. Concannon. That would be the kind of incident where we 
have a number of partnerships with what we call State law 
enforcement bureaus as well, and we would definitely want to 
know about that because that absolutely is the worst kind of 
extortion. So we would want to work closely as Inspector 
General Faulkner mentioned, we work very closely with State 
agencies in a variety of things, but that would be horrific. We 
would be happy to pursue that.
    Mr. Tierney. Good. Well, thank you all. I think it is 
important that do.
    Thank you, Mr. Chairman.
    Mr. Gowdy. I thank the gentleman from Massachusetts and I 
apologize to the gentleman from Virginia and the gentleman from 
Texas because I got the order out of whack. So I would now 
recognize the gentleman from Virginia, as I should have, and 
then the gentleman from Texas.
    Mr. Connolly. Mr. Chairman, thank you. No need for an 
apology. I know the pressure sitting in that chair.
    [Laughter.]
    Mr. Connolly. But you are always gracious and I thank you.
    Mr. Concannon, I am old enough to remember some 
groundbreaking books like Nick Katz's Let Them Eat Promises and 
Michael Harrington's The Other America, and the groundbreaking 
work done by the United States Congress, especially by then 
Senator George McGovern on a bipartisan basis with then Senator 
Bob Dole to establish the food stamp program to address a 
pervasive problem of hunger and malnutrition in the United 
States. Has the food stamp program in fact successfully 
addressed the issue of hunger and malnutrition in the United 
States?
    Mr. Concannon. I believe the food stamp program has been 
one of the most effective line efforts to reduce hunger in the 
Country, and it also has reduced poverty. We know even the 
Census Bureau, in the last year, pointed out that last year 
alone 4 million additional Americans would have sunk below the 
poverty line absent the food stamp program.
    As has been mentioned here today, almost half, 47 percent 
of the beneficiaries of food stamps are children; another 8 
percent are senior citizens over 60; about 20 percent of the 
households have a person with disabilities. And increasingly 
these days the food stamp program is serving households in 
which 41 percent of the household members live in a household 
where one of the adults is earning, that is, is in the 
workforce.
    And I refer to that group of beneficiaries as often the new 
faces of SNAP. These are folks who have been displaced in this 
difficult economy. They may not be getting as many hours at 
their work, so it is really important that the SNAP program be 
responsive.
    Across the Country, SNAP is now serving 72 percent of the 
eligibles in the Country, and that has been moving upwards from 
in the mid-50s, then the mid-60s, now 72 percent; and we are 
serving more than 90 percent of the eligible children across 
the Country. There are a few States that are still far below 
the rest of the Country that we continue to dialogue with and 
work closely with, but the program really is responding as it 
should to the needs of folks in this Country. It is the most 
inclusive of both State and Federal feeding programs.
    Mr. Connolly. So if I understand your testimony, in the 40-
plus years since we started this program, it has in fact 
achieved its desired result in reducing hunger and malnutrition 
in rural and parts of urban America, as well as reducing the 
poverty rate in the United States.
    Mr. Concannon. Yes, indeed. A measure that the Federal 
Government uses that we publish reports on annually is food 
insecurity, and we have data that points to the impacts of the 
food stamp program, as it is still known in 20-something 
States.
    Mr. Connolly. And what percentage of food stamp recipients 
are children?
    Mr. Concannon. Forty-seven percent.
    Mr. Connolly. Forty-seven percent. And that translates into 
how many people?
    Mr. Concannon. Well, there are 46 million people, so in 
round figures it is somewhere around 21 or 22 million.
    Mr. Connolly. Children.
    It is too bad the title of this hearing is Food Stamp Fraud 
as a Business Model: USDA's Struggle to Police Store Owners, 
because it seems to suggest or one could infer from that title 
that we have already prejudged the case and apparently fraud is 
rampant, and it kind of begs the question of the purpose and 
original mission of this program, and whether it, in fact, has 
achieved that mission, some fraud that has to be stamped out 
notwithstanding.
    But let me ask you a question. Given that title, what 
percentage of SNAP funds were improperly issued last year? This 
Committee, the subcommittee I sit on, has looked at improper 
payments. What percentage of the total program has been 
classified as improper payments?
    Mr. Concannon. Last year we achieved record low. We and 
States--I should point out we work closely, all of our benefits 
are extended through States and we achieved an improper payment 
rate of 3.81 percent. About 3 percent of that was overpayments 
and just under 1 percent of that was underpayments, meaning the 
beneficiary, based on his or her income or household income, 3 
percent of them received more than they should have; less than 
1 percent received less. This is part of our quality control 
effort.
    Mr. Connolly. And of that total--I am sorry, we are 
running----
    Mr. Concannon. Okay.
    Mr. Connolly. Mr. Chairman, your pitch hitter, Mr. 
Chairman, offered to give one extra minute, I think.
    Chairman Issa. [Presiding] He is so much kinder than I 
would be.
    [Laughter.]
    Mr. Connolly. I lucked out, Mr. Chairman, that is right. So 
I would ask the Chair to honor that request.
    But 3.8 percent, roughly, of improper payments, so all of 
that was not fraud?
    Mr. Concannon. Correct.
    Mr. Connolly. What percentage of fraud again?
    Mr. Concannon. The fraud figure that we have is 1 percent.
    Mr. Connolly. And have we reduced improper payments over 
the last decade or is that going up?
    Mr. Concannon. We have considerably--that is one of the 
charts that I think we handed out. We have reduced it 
considerably over the past decade and continue to focus on it, 
as well as reducing fraud in the program also.
    Mr. Connolly. So it is good that this Committee is having 
this hearing to absolutely highlight there are still problems, 
and our goal should always be to get it to zero. But let's not 
overstate the problems and let's not lose sight of the mission, 
especially at budget time, when some people might be thinking 
of $100 billion cut in the program.
    Ms. Fong, you mentioned to us that you still think that Mr. 
Concannon's operation still could do a better job of debarment 
and suspension, correct?
    Ms. Fong. That is correct.
    Mr. Connolly. Mr. Concannon, could you address that in my 
final question?
    Mr. Concannon. Well, as I mentioned----
    Chairman Issa. In your second overrun minute.
    Mr. Connolly. I am sorry, Mr. Chairman.
    Chairman Issa. Go ahead, please.
    Mr. Concannon. Thank you. Well, I mentioned earlier that we 
believe that the approach that we take of moving people out of 
the program immediately is a more effective way and to most of 
the beneficiaries, the stores, I should say, that we are 
concerned with don't do other business with the Federal 
Government. But even to cover that we have been working with 
the General Services Administration to have these stores or 
companies put on the excluded parties list system, which will 
prevent them from being able to participate with other 
government programs.
    Now, we are also continuing to have dialogue with the 
Office of the Attorney General to see if there are ways we can 
do both. Our desire--we don't have an aversion to the debarment 
process; it is that it slows it down, and we like the authority 
we have right now. When we find that a store has misled us 
about their business relationships or where they have been 
debarred before, we can take them out of the program. We send 
them a letter, we give them 10 days; they are out. I don't have 
to give them more hearings, I don't have to give them more due 
process; they are gone.
    Mr. Connolly. Mr. Chairman, I thank you for your 
consideration.
    Chairman Issa. Of course. And because I know you want full 
disclosure, Ms. Faulkner, I think you had something to say on 
those questions too.
    Ms. Faulkner. I wanted to talk about what my SNAP 
trafficking program has found in the fiscal year 2010-2011. We 
conducted 584 just SNAP trafficking investigations. We 
scheduled 158 administrative hearings with a total restitution 
we received back of over $250,000. We disqualified 77 
recipients of SNAP benefits who committed trafficking 
violations, which really gave us a cost savings of close to 
$500,000. And that is with the limited staff that we have.
    So in Pennsylvania, as I stated earlier, we are seeing more 
fraud, we are, and that we have little staff. We hope to get a 
little bit more, but that was our 2010-2011 alone, and we don't 
expect it to go down.
    Chairman Issa. I know Ms. Fong has previously said that you 
don't necessarily concur with those figures independently at 
this point, and I would only ask that since the Secretary said 
that they are going to redo them again, I would hope that we 
could expect them to be mutually agreed to by metrics that then 
you could essentially concur with.
    Ms. Fong. Yes. We have some work planned for this year to 
take a look at the methodology and those numbers.
    Chairman Issa. Thank you.
    We now go to the gentleman from Texas, Mr. Farenthold.
    Mr. Farenthold. Thank you, Mr. Chairman.
    I would like to deal with something that I hear about from 
my constituents, and that is the stretching of actually items 
that qualify under the program. For instance, I received a 
photograph from a constituent of a sign outside of a place that 
prepares pizzas to order, they just don't cook them. So 
apparently it qualifies under the letter of the law, but 
certainly I wouldn't think under the spirit of the law.
    The sign out there says Accepts the Lone Star Card, which 
in Texas is our method for doing that. You also see an instance 
of grocery stores and convenience stores also offering quite a 
few hot food items that I would think would not qualify under 
the program.
    I guess I will address this to Ms. Fong. What are you all 
seeing with respect to that and what can we do to combat that?
    Ms. Fong. We, as far as I know, have not received any 
allegations along those lines that would indicate fraud or 
criminal activity. I would defer to the Under Secretary because 
I think it is really a policy question.
    Mr. Farenthold. All right. Mr. Secretary?
    Mr. Concannon. I would be happy to try to answer it. To the 
second part of your question, when you look at, first of all, 
consumers in the program cannot buy hot foods, period. They can 
buy frozen foods, and there are pizza chains that have been 
admitted into the program over time. I mentioned earlier in my 
testimony one of the definitions of who is eligible for the 
program in terms of the 231,000 providers is set in the statute 
through the Farm Bill, and it requires a minimum number of 
certain food groups, it is that we refer to as the depth of 
stock requirement; and I would like to see that strengthened 
because----
    Mr. Farenthold. Let me follow up on that maybe with Ms. 
Hatcher, because we have the technology now in place through 
UPC codes that we can actually determine what items are 
qualified and don't qualify, and I guess, if you wanted to get 
into a Big Brother scenario, could actually probably link up 
who is buying what. And with the cost of UPC readers $20, $30 
to hook up to a PC, I can't imagine any store being too small 
to implement it. Do you see some technological solutions to 
these problems?
    I will let you answer it and then I will come back to the 
Under Secretary.
    Ms. Hatcher. Sure. Well, I guess the question about hot 
foods, that one is already taken care of now because our 
members, and we educate them very clearly, hot foods are not 
eligible, and we code in anything that is a hot food item as 
ineligible in the store. Then I think his question on the pizza 
thing, it would depend exactly. If it is a frozen pizza in the 
frozen section, then it would be eligible; if it is a heated 
pizza that is in the deli area, it would not be eligible.
    Mr. Farenthold. It just strikes me a made to order pizza 
cooked or not cooked is stretching it.
    Mr. Under Secretary, I guess my question to you is do you 
see a technological solution? Again, another complaint that I 
hear consistently from constituents is people will go in and 
buy highly processed food with low nutritional value. I don't 
want to get into the business of dictating what people do and 
don't eat, but to some degree our money, our rules. I mean, 
what do you see as an optimum situation there?
    Mr. Concannon. Unfortunately, on the processed food 
question, I am not talking about those mini carrots that come 
from larger carrots, I am talking about processed food that has 
too much sodium and too many trans fats and so on, all of us, 
unfortunately, as Americans eat more processed food than any 
Country in the world.
    So we are trying, through another part that I have 
responsibility for, the Center for Nutrition Policy, to 
encourage Americans to eat healthier, more fruits and 
vegetables, My Plate, it is a very simple but I think a very 
effective icon. And we are also encouraging access to farmer's 
markets for, in your case, Lone Star beneficiaries to try to 
nudge them, direct them to buying healthier, often locally 
grown foods.
    But I still remain very interested in increasing the 
requirement for these small stores to have better choices of 
fresh fruit, healthier foods for people, rather than just the 
overabundance of processed food.
    Mr. Farenthold. All right, I see my time has expired. Thank 
you very much.
    Chairman Issa. I thank the gentleman. All time has expired.
    I want to thank our panel of witnesses. I think this was 
informative. Contrary to what might have been perceived, this 
was a limited hearing, limited to businesses who in fact 
defraud the government and deny our children, that 22 million 
or more children, the receipt of the actual food rather than 
trading 50 for 100.
    Our intention is to allow for at least five days for 
members who are not able to get here for questions to 
supplement by asking all of you questions. Would you agree to 
respond to them if you get them in writing?
    Mr. Concannon. Certainly.
    Chairman Issa. I want to thank you. I also would like to 
ask unanimous consent that any witness who thinks of something 
that you didn't say that wants to supplement their own record 
be allowed to do so. Without objection, so ordered.
    We stand adjourned.
    [Whereupon, at 11:08 a.m., the committee was adjourned.]

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