[Congressional Record Volume 141, Number 124 (Friday, July 28, 1995)]
[Senate]
[Pages S10905-S10906]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                       FOOD STAMP FRAUD REDUCTION

 Mr. LEAHY. Mr. President, I am convinced that the single most 
important thing we can do to reduce fraud in the Food Stamp Program is 
to eliminate the use of paper coupons--and shift to electronic benefits 
transfer systems, also known as ``EBT.''
  I made that same point to this body on November 8, 1993. That was 
when I first introduced legislation to eliminate food stamp coupons in 
favor of EBT.
  I will introduce an updated version of that bill--which I hope can 
pass with the support of every Member of the Senate.
  I know that Senator Santorum recently spoke of the benefits of EBT, 
as demonstrated in a pilot project in Berks County, PA.
  The Majority Leader, Senator Dole, and I supported pilot testing EBT 
systems for food stamps in 1982.
  My bill eliminates the coupon system in 3 to 5 years. The present 
system is a clumsy dinosaur in need of overhauling by modern 
technology.
  By the year 2000, those paper coupons --which now cost the Government 
$50 million to $60 million a year to print and process--will be 
history.
  We will reduce fraud and save the Government money.
  My bill empowers retail stores, financial institutions, and the 
States to figure out the best way to move to an EBTS system. 

[[Page S 10906]]

  My bill specifically gives businesses and States the lead roles in 
this conversion.
  Because the Federal Government saves so much money through EBT, I 
want USDA to pay 100 percent of the costs of the point-of-sale 
equipment that goes into the stores, unless the store wants to obtain 
its own equipment. The bill encourages stores, but does not require 
them, to buy their own point-of-sale equipment.
  Under current law and most welfare reform proposals, States have to 
pick up half those costs.
  I also believe USDA should provide the cards to States at no cost to 
the State. Under current law, USDA picks up the tab for coupon costs 
and should do the same for cards.
  The point-of-sale terminals should also be available for use by the 
State for State assistance programs.
  Many grocery stores already use electronic systems to read credit 
cards and debit cards. I do not want us to reinvent the wheel--my bill 
piggy-backs the Food Stamp Program onto existing technology.
  I intend to incorporate this bill either into the food stamp title of 
the farm bill or into the budget reconciliation bill.
  Food stamps are America's largest child nutrition program. Over 80 
percent of food stamp benefits go to families with children. Most of 
the rest of the benefits go to the disabled or the elderly.
  I want you to join with me in assuring that nutrition benefits go to 
needy families--not to criminals who are stealing taxpayer money.
  Just about everybody agrees that EBT will reduce fraud dramatically.
  The inspector general of USDA has testified that EBT ``can be a 
powerful weapon to improve detection of trafficking and provide 
evidence leading to the prosecution of traffickers.''
  The U.S. Secret Service says that ``[t]he EBT system is a great 
advancement generally because it puts an audit trail relative to the 
user and the retail merchant.''
  Under President Bush, USDA noted that ``the potential savings are 
enormous'' if EBT is used in the Food Stamp Program.
  A more recent Office of Technology Assessment report determined that 
a national EBT system might reduce levels of food stamp fraud losses 
and benefit diversion by as much as 80 percent. Think about that--EBT 
could reduce food stamp fraud losses and benefit diversions by as much 
as 80 percent.
  Alan Greenspan has described the potential advantages offered by EBT 
for the Food Stamp Program, including reducing costs in food stamp 
processing by the Federal Reserve System.
  Perhaps nothing is totally fraud-proof, but EBT is clearly much 
better than the current system of paper coupons. When a small store 
stocked with cigarettes and a few stale candy bars starts ringing up 
food stamp sales in the thousands of dollars, it is pretty obvious that 
the Government is being taken for a ride.
  With the electronic card, EBT transactions can be constantly 
monitored by law enforcement agencies. Paper coupon transactions 
cannot.
  If we had to reinvent the Food Stamp Program today, would anyone 
insist on paper coupons, instead of EBT?
  Under the current program, USDA prints more than 375 million food 
stamp booklets per year, which amounts to 2.5 billion paper food 
coupons for food stamp households to use at retail stores.
  These coupons are used once, except for $1 coupons which may be used 
to make change--and the change is often spent on non-food items.
  The 2.5 billion coupons issued per year are mailed, shipped, issued 
to participants, counted, canceled, redeemed through the banking system 
by Treasury, shipped again, stored, and then destroyed.
  Some States mail them out each month and pay the postage, for which 
they receive a partial Federal reimbursement. Coupons are lost or 
stolen in the mails.
  Some States issue coupons at State offices, which is labor-intensive. 
The total Federal and State cost is up to $60 million per year.
  EBT has another benefit--it eliminates cash change. Food stamp 
recipients can get cash change in food stamp transactions if the cash 
does not exceed $1 per purchase. This system allows food stamp benefits 
to be diverted to the purchase of non-food items.
  While we may disagree over food stamp benefit levels and eligibility 
rules, I hope we can all agree that transferring food stamp benefits 
electronically is much better than using paper coupons.
  The bill amends the Food Stamp Act to require that the Secretary of 
Agriculture no longer provide food stamp coupons to States within 3 
years of enactment.
  Any Governor may grant his or her State an additional 2-year 
extension and the Secretary can add another 6-month extension, for a 
maximum of 5\1/2\ years.
  At the end of that time, States no longer would receive coupons. Food 
benefits instead would be provided through electronic transfer, or in 
the form of cash if authorized by the Food Stamp Act.
  For example, under a bill reported out of the Senate Agriculture 
Committee by Senator Lugar on June 14, 1995, States can cash out food 
stamp benefits as part of a wage supplementation program.
  As in the food stamp bill reported out of the Agriculture Committee 
by Senator Lugar, States will not be liable for losses associated with 
lost or stolen EBT cards.
  The bill makes households liable for most EBT losses; however, they 
are not liable for losses after they report the loss or theft of the 
EBT card.
  As under current law, States are liable for their own fraud and 
negligence losses.
  My bill provides that regulation E will not apply to food stamp EBT 
transactions.
  In general, regulation E provides that credit or debit card users are 
liable for only the first $50 in unauthorized uses of lost or stolen 
credit cards as long as such a loss is reported in a timely manner.
  The card issuer is liable for the rest of the loss.
  Under current law the State is considered the card issuer for food 
stamp EBT purposes. Regulation E has been a major impediment to 
implementation of EBT by States.
  While the risks are much lower for the Food Stamp Program than for 
credit cards since EBT food cards only contain the balance of the 
unused food benefits rather than a credit line, States are still 
worried about liability and oppose the application of regulation E.
  The bill also provides that each recipient will be given a personal 
code number [PIN] to help prevent unauthorized use of the card.
  Under the bill, in an effort to reduce the costs of implementing a 
nationwide EBT system, States will look at the best way to maximize the 
use of existing point-of-sale terminals. States will be able to follow 
existing technology, rather than reinvent the wheel.
  Stores which choose not to invest in their own systems will be 
reimbursed for card readers for Federal and State benefits only. 
Current law, which requires States to pay half that cost, will be 
amended to have USDA pay all those costs.
  If the store decides at a later date that it needs a commercial 
reader, the store will have to bear all the costs.
  In very rural areas, or in other situations such as house-to-house 
trade routes or farmers' markets, manual EBT systems will be used.
  This restriction--in which the Government pays only for Government 
benefits readers and the upgrade at store expense--will encourage the 
largest possible number of stores to invest in their own point-of-sale 
equipment.
  That is clearly the best option.
  To the extent needed to cover costs of conversion to EBT, the 
Secretary may charge a transaction fee of up to 2 cents per EBT 
transaction, taken out of benefits. Households receiving the maximum 
benefit level may be charged a lower per transaction fee than other 
households.
  In implementing the bill, the Department of Agriculture will have to 
consult with retail stores, the financial industry, the Federal EBT 
task force, the inspector general of USDA, the U.S. Secret Service, the 
National Governors' Association, the Food Marketing Institute, and 
others.
  I believe this legislation will be an important tool as we try to 
improve the Food Stamp Program.


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