Food Stamp Program: Information on Trafficking Food Stamp Benefits
(Letter Report, 03/26/98, GAO/RCED-98-77).

Pursuant to a congressional request, GAO reviewed food stamp trafficking
at the retail level, focusing on: (1) the extent of retailer trafficking
and the characteristics of the stores engaged in such trafficking; (2)
the roles and efforts of federal agencies in minimizing food stamp
trafficking by retailers; and (3) whether store owners or clerks were
generally caught for trafficking food stamps and the extent of
discipline for the trafficking.

GAO noted that: (1) according to the most recent Food and Nutrition
Service (FNS) study available, about $815 million, or about 4 percent of
the food stamps issued, was trafficked at retail stores during fiscal
year 1993; (2) supermarkets and large grocery stores redeemed 82.5
percent of all food stamp benefits and had a combined trafficking rate
of 1.9 percent of all benefits redeemed; (3) smaller grocery stores
redeemed 17.5 percent of the benefits and had a combined trafficking
rate of 13 percent of the benefits redeemed; (4) this study did not
reflect the electronic redemption of food stamps; (5) therefore, an
analysis of the extent of trafficking that includes electronic data may
detect that violations are now occurring at a greater or lesser rate;
(6) the Department of Agriculture and Department of Justice (DOJ) are
the principal federal agencies responsible for minimizing food stamp
trafficking by retailers; (7) within the Department of Agriculture
(USDA), both the FNS and the Office of Inspector General (OIG) are
responsible for identifying and investigating retail stores engaged in
trafficking; (8) FNS can take administrative actions against store
owners engaged in trafficking, including disqualifying them from
participating in the program and assessing fines; (9) OIG conducts
criminal investigations and can refer store owners or clerks engaged in
trafficking to DOJ or state or local governments for prosecution; (10)
during fiscal years 1990 through 1997, FNS identified food stamp
trafficking in over 5,700 retail stores, OIG investigated and reported
on 5,551 trafficking cases, and DOJ and state and local governments
prosecuted about 2,650 cases referred by OIG; (11) DOJ, in some
jurisdictions, will pursue civil actions against store owners to collect
money under the False Claims Act when it has not allocated resources to
conduct criminal prosecutions or when it has a case in which the
evidence for criminal prosecution is insufficient; (12) since 1992, when
USDA began referring cases to DOJ, 566 false claims totalling over $5.9
million have been settled; (13) in the 432 food stamp trafficking cases
GAO reviewed, store owners alone were caught trafficking in about 40
percent of the cases, and store owners and clerks together were caught
trafficking in 13 percent of the cases; and (14) FNS permanently or
temporarily disqualified the owners caught trafficking from
participating in the Food Stamp Program in 428 cases and assessed
financial penalities totalling $1.1 million against owners in 175 cases.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-98-77
     TITLE:  Food Stamp Program: Information on Trafficking Food Stamp 
             Benefits
      DATE:  03/26/98
   SUBJECT:  Program abuses
             Sanctions
             Law enforcement
             Welfare benefits
             Federal/state relations
             Fraud
             Food relief programs
             Retail facilities
IDENTIFIER:  Food Stamp Program
             
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Cover
================================================================ COVER


Report to the Committee on Agriculture, Nutrition, and Forestry, U.S. 
Senate

March 1998

FOOD STAMP PROGRAM - INFORMATION
ON TRAFFICKING FOOD STAMP BENEFITS

GAO/RCED-98-77

Trafficking Food Stamp Benefits

(150274)


Abbreviations
=============================================================== ABBREV

  EBT - electronic benefit transfer
  FNS - Food and Nutrition Service
  GAO - General Accounting Office
  OIG - Office of Inspector General
  STARS - Store Tracking and Redemption System
  USDA - U.S.  Department of Agriculture

Letter
=============================================================== LETTER


B-279120

March 26, 1998

The Honorable Richard G.  Lugar
Chairman, Committee on Agriculture,
 Nutrition, and Forestry
United States Senate

Dear Mr.  Chairman: 

The Food and Nutrition Service (FNS) of the U.S.  Department of
Agriculture (USDA), in partnership with the states, administers the
Food Stamp Program--the nation's largest food assistance program. 
About 1 out of every 10 Americans participates in the program by
redeeming food stamps--either through coupons or electronically--at
about 185,000 authorized retail stores.  In fiscal year 1997, the
program provided over $21 billion to about 23 million recipients. 
Our past reports have demonstrated that the system for delivering
food stamps has been vulnerable to significant fraud, waste, and
abuse.\1 The program prohibits the exchange of food stamp benefits
for cash--a process known as trafficking--and for nonfood items, such
as beer or tobacco products.  This report focuses on food stamp
trafficking at the retail level--store owners or clerks purchasing
stamps at a discount from recipients and redeeming them through USDA
at their full value. 

Because of the program's high costs and vulnerability to food stamp
trafficking at retail stores, you asked us to identify (1)
information on the extent of retailer trafficking and the
characteristics of the stores engaged in such trafficking, (2) the
roles and efforts of federal agencies in minimizing food stamp
trafficking by retailers, and (3) whether store owners or clerks were
generally caught for trafficking food stamps and the extent of
discipline for the trafficking.\2 As part of this review, we obtained
and analyzed information from USDA and the U.S.  Department of
Justice, and we examined 432 food stamp trafficking cases in which
the store owners were disqualified from the Food Stamp Program or
paid a civil money penalty in lieu of being disqualified between July
1, 1996, and June 30, 1997, in six states--California, Florida,
Georgia, New York, South Carolina, and Texas. 


--------------------
\1 See, for example, Food Assistance:  Reducing Food Stamp Benefit
Overpayments and Trafficking, (GAO/RCED-95-198, June 23, 1995). 

\2 We use "clerks" to refer to all store personnel other than the
owner. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

According to the most recent Food and Nutrition Service study
available, about $815 million, or about 4 percent of the food stamps
issued, was trafficked at retail stores during fiscal year 1993.\3
Supermarkets and large grocery stores redeemed 82.5 percent of all
food stamp benefits and had a combined trafficking rate of 1.9
percent of all benefits redeemed.  In contrast, smaller grocery
stores redeemed 17.5 percent of the benefits and had a combined
trafficking rate of 13 percent of the benefits redeemed.  This study
did not reflect the electronic redemption of food stamps, which is
becoming a widespread practice and which allows easier identification
and prosecution of food stamp trafficking.  Therefore, an analysis of
the extent of trafficking that includes electronic data may detect
that violations are now occurring at a greater or lesser rate. 

The departments of Agriculture and Justice are the principal federal
agencies responsible for minimizing food stamp trafficking by
retailers.  Within the U.S.  Department of Agriculture, both the Food
and Nutrition Service and the Office of Inspector General are
responsible for identifying and investigating retail stores engaged
in trafficking.  The Food and Nutrition Service can take
administrative actions against store owners engaged in trafficking,
including disqualifying them from participating in the program and/or
assessing fines.  The Office of Inspector General conducts criminal
investigations and can refer store owners or clerks engaged in
trafficking to the Department of Justice or state or local
governments for prosecution.  During fiscal years 1990 through 1997,
the Food and Nutrition Service identified food stamp trafficking in
over 5,700 retail stores, the Office of Inspector General
investigated and reported on 5,551 trafficking cases, and the
Department of Justice and state and local governments prosecuted
about 2,650 cases referred by the Office of Inspector General.  The
Department of Justice, in some jurisdictions, will pursue civil
actions against store owners to collect money under the False Claims
Act\4 when it has not allocated resources to conduct criminal
prosecutions or when it has a case in which the evidence for criminal
prosecution is insufficient.  Since 1992, when the U.S.  Department
of Agriculture began referring cases to Justice, 566 false claims
totaling over $5.9 million have been settled. 

In the 432 food stamp trafficking cases we reviewed, store owners
alone were caught trafficking in about 40 percent of the cases,
clerks alone were involved in 47 percent of the cases, and store
owners and clerks together were caught trafficking in 13 percent of
the cases.\5 The Food and Nutrition Service permanently or
temporarily disqualified the owners caught trafficking from
participating in the Food Stamp Program in 428 cases and assessed
financial penalties totaling $1.1 million against owners in 175
cases.  In addition, the courts assessed $1.4 million in financial
penalties against owners in 92 cases and sentenced owners to jail in
16 cases.  Store clerks--caught trafficking in 260 cases--were
subject to court-ordered actions in 43 cases.  These actions included
about $36,500 in financial penalties in 33 cases and jail sentences
in 9 cases. 


--------------------
\3 The Extent of Trafficking in the Food Stamp Program, FNS (Aug. 
1995).  This study analyzed data from the Store Investigation and
Monitoring System database, which contains information on the stores
suspected of trafficking. 

\4 The False Claims Act (31 U.S.C.  3729) provides that individuals
who present a false claim for payment (i.e., a food stamp coupon or
an electronic benefit transfer card used in a trafficking exchange)
from the U.S.  government are subject to a fine and damages. 

\5 There may be more than one owner or clerk in a single case, and
each may receive multiple penalties. 


   BACKGROUND
------------------------------------------------------------ Letter :2

The Food Stamp Program helps recipients--individuals and families
with low incomes--to obtain a more nutritious diet by providing food
stamp benefits to supplement the funds they have to spend on food. 
Recipients must use their food stamp benefits to purchase only
allowable food products from retail food stores that FNS authorizes
to participate in the program. 

FNS administers the program in partnership with the states.  FNS
funds all of the program's food stamp benefits and about 50 percent
of the states' administrative costs.  FNS is primarily responsible
for developing the program's policies and guidelines, authorizing
retail food stores to participate in the program, and monitoring
retailers' compliance with the program's requirements.  The states
are responsible for handling the day-to-day operation and management
of the program, including such duties as certifying the eligibility
of individuals or households to participate in the program,
delivering the benefits to recipients, and monitoring recipients'
compliance with the program's requirements. 

Recipients use food stamp coupons or an electronic benefit transfer
(EBT) card to pay for allowable foods.  EBT systems that provide food
stamp benefits to recipients use the same electronic funds transfer
technology that many grocery stores use for their debit card payment
systems.  A food stamp recipient receives an EBT card and a personal
identification number, and the recipient authorizes transfer of the
food stamp benefits from a federal account to a retailer account to
pay for the food received.  At the grocery checkout counter, the
recipient's card is run through an electronic reader and the
recipient enters the secret personal identification number to access
the food stamp account. 

The Personal Responsibility and Work Opportunity Reconciliation Act
of 1996 mandates that all states implement EBT systems before October
1, 2002, unless USDA waives the requirement.  As of March 1998, 16
states had implemented EBT systems statewide.  Twelve of these states
deliver multiple program benefits with their EBT systems, including
other federal and state programs.  Additionally, 14 states use EBT
systems in selected counties, and most of these states are in the
process of expanding these systems statewide.  All the remaining
states are in the process of implementing EBT systems.  Collectively,
EBT systems supply about 40 percent of all food stamp benefits. 


   TRAFFICKING ACCOUNTS FOR A
   RELATIVELY SMALL PERCENTAGE OF
   THE TOTAL PROGRAM AND OCCURS
   MOSTLY IN SMALL STORES
------------------------------------------------------------ Letter :3

According to a 1995 FNS study, about $815 million, or about 4 percent
of the food stamps issued, was trafficked--exchanged for cash--by
about 9 percent of the authorized retailers during fiscal year 1993. 
Supermarkets and large grocery stores redeemed 82.5 percent of all
food stamp benefits and had an average trafficking rate of 1.9
percent of the benefits redeemed.  In contrast, smaller stores
redeemed 17.5 percent of the benefits and had an average trafficking
rate of 13.0 percent of the benefits redeemed.  Table 1 shows the
percentage of benefits redeemed and trafficking rates by type of
store. 



                                Table 1
                
                  Benefit Redemptions and Trafficking
                   Rates for Stores in the Food Stamp
                                Program

                                                  Trafficking rates
                              Percentage              (percent)
                        ----------------------  ----------------------
                                           All                     All
                        All stores    benefits  All stores    benefits
Type of store           in program    redeemed  in program    redeemed
----------------------  ----------  ----------  ----------  ----------
Supermarkets\a                15.3        76.5         4.2         1.7
Large groceries\b              6.9         6.0         6.7         3.7
======================================================================
Subtotal                      22.2        82.5         5.0         1.9
Small groceries\c             18.8         5.4        12.8        15.7
Convenience\d                 27.7         3.8         8.1         9.6
Specialty\d                    8.7         3.9        17.6        14.2
Gas and groceries\d           10.3         1.2         8.7        10.4
Other types\e                 12.3         3.2        10.2        12.4
======================================================================
Subtotal                      77.8        17.5        10.7        13.0
======================================================================
Total                        100.0       100.0         9.4         3.8
----------------------------------------------------------------------
Note:  The study cited several factors that could result in
underestimating or overestimating the extent of trafficking and
assumed that these factors tend to counterbalance one another.  The
study presented no information on how changes in these factors affect
the estimates. 

\a Stores with gross sales over $2,000,000. 

\b Stores with gross sales from $500,000 to $2,000,000. 

\c Stores with gross sales under $500,000. 

\d These stores placed themselves in this category regardless of
gross revenues. 

\e These stores include produce stands and health or natural food
stores. 

Source:  The Extent of Trafficking in the Food Stamp Program, FNS
(Aug.  1995). 

In addition, this study found that privately owned stores had much
higher trafficking rates than publicly owned stores (i.e., retailers
whose stock is traded publicly).  For example, publicly owned stores
had an average trafficking rate of .2 percent of redemptions.  In
comparison, privately owned stores had an average trafficking rate of
5.3 percent of redemptions.  Like FNS, we found, in our analysis of
the 432 cases of food stamp trafficking, that most trafficking
occurred in small privately owned retail stores.  About 98 percent of
the stores engaged in trafficking were small groceries.  Only seven
stores, about 2 percent, were supermarkets with over $2 million in
gross sales. 

The amount of trafficking may have changed since FNS conducted its
1995 study, which did not consider the effect of EBT.  Since then,
about 40 percent of food stamp benefits nationwide are supplied
electronically, which allows easier identification of food stamp
trafficking.  Therefore, an analysis of the extent of trafficking
using electronic data may indicate that violations are now occurring
at a greater or lesser rate. 


   USDA AND JUSTICE ARE PRIMARILY
   RESPONSIBLE FOR MINIMIZING FOOD
   STAMP TRAFFICKING
------------------------------------------------------------ Letter :4

USDA is primarily responsible for monitoring the Food Stamp Program
to detect trafficking and for imposing administrative sanctions. 
Justice is responsible for prosecuting cases referred to it by
federal agencies.  Each agency's responsibilities are summarized
below. 


      USDA IDENTIFIES FOOD STAMP
      TRAFFICKERS AND IMPOSES
      ADMINISTRATIVE SANCTIONS
---------------------------------------------------------- Letter :4.1

Within USDA, FNS and the Office of Inspector General (OIG) are
responsible for monitoring program compliance by the approximately
185,000 stores currently authorized to redeem food stamps.  While
both agencies identify and investigate possible food stamp
trafficking, FNS has the sole authority to impose administrative
sanctions on violators, and the OIG concentrates on potential
criminal investigations. 

FNS and OIG identify possible violators through several sources: 
allegations from USDA's hotline and analyses of data in FNS' Store
Tracking and Redemption System (STARS) and EBT systems.  Of these
sources, STARS provides the most comprehensive information.  FNS and
the OIG use this system to monitor stores' redemptions of food stamps
and to identify retailers for investigation.  STARS has a profile of
each store, including sales volume, and tracks monthly food stamp
redemptions.  FNS uses this system to ensure that store owners caught
trafficking and disqualified from the Food Stamp Program do not
reenter the program.  However, FNS officials told us that they do not
currently track clerks caught trafficking to keep them out of the
program or to help prosecute repeat offenders.  They said that FNS
plans to implement a system later this year to track these clerks. 

More recently, FNS and the OIG have begun using data from state EBT
systems to identify possible cases of food stamp trafficking.  More
specifically, all states using EBT systems must provide their data on
food stamp transactions to FNS for analysis.  These data include the
date, time, and amount of the sale; the store authorization number
and cashier number; and the recipient's identification number.  Both
FNS and OIG personnel analyze the EBT data using a computer program
that identifies individual transactions or transaction patterns that
indicate trafficking may be occurring.  The use of EBT data has a
particular advantage:  Under the Personal Responsibility and Work
Opportunity Reconciliation Act of 1996, federal agencies may use EBT
data alone, without the expense of conducting an undercover
investigation, to take action against retailers violating the
requirements of the Food Stamp Program.  USDA has cited the
implementation of EBT systems as a significant step forward in
identifying and combating food stamp trafficking. 

Once retail stores are identified as possible violators, FNS'
Compliance Branch, the OIG, or both conduct an investigation. 
Violations of the Food Stamp Act include trading food stamp benefits
for cash (at a discount, such as 70 cents on the dollar) or for
nonfood items.  FNS takes administrative action against identified
violators, such as disqualifying them from the program permanently or
temporarily and/or imposing civil fines up to $40,000.  FNS also
refers cases to the OIG when it believes that a significant amount of
trafficking has been occurring at a store and that a more complex
case needs to be developed for prosecution. 

FNS investigated over 38,700 retail stores during fiscal years 1990
through 1997 and found violations of the Food Stamp Program in about
17,600 stores.  Table 2 shows that FNS identified over 5,700
trafficking cases during this period.  It also shows that for the
same period, the OIG accepted only about one-fifth of those cases for
investigation, primarily because it did not have the resources to
investigate a larger number of cases.  The FNS cases not investigated
by the OIG were returned to FNS, which can take administrative action
against the violators. 



                                Table 2
                
                Number of FNS Trafficking Cases Referred
                     to and Accepted by the OIG for
                  Investigation, Fiscal Years 1990-97

                               Number of food stamp trafficking cases
                              ----------------------------------------
                                                          OIG accepted
                                                     FNS           for
                                Identified      referred  investigatio
Fiscal year                         by FNS        to OIG             n
----------------------------  ------------  ------------  ------------
1990                                   358           288           156
1991                                   531           377           230
1992                                   763           582           188
1993                                   841           588           129
1994                                   902           543           121
1995                                   877           563           154
1996                                   743           355            94
1997                                   712           436           137
======================================================================
Total                                5,727         3,732         1,209
----------------------------------------------------------------------
Sources:  FNS' Compliance Branch and USDA's OIG. 

Within USDA, the OIG is responsible for all criminal investigations
and for coordinating the trafficking cases with the Department of
Justice and other federal, state, and local agencies.  The OIG
investigates cases referred from FNS and initiates its own
investigations using sources similar to FNS'.  Table 3 shows that
during fiscal years 1990 through 1997, the OIG reported on 5,551
investigations. 



                                Table 3
                
                 Number of Food Stamp Trafficking Cases
                Received and Reported on by USDA's OIG,
                          Fiscal Years 1990-97

                                         New cases          Cases with
Fiscal year                             received\a      reports issued
------------------------------  ------------------  ------------------
1990                                           917                 642
1991                                         1,133                 750
1992                                         1,236                 850
1993                                         1,291                 761
1994                                         1,162                 677
1995                                         1,216                 627
1996                                         1,003                 670
1997                                           868                 574
======================================================================
Total                                        8,826               5,551
----------------------------------------------------------------------
Note:  Actions relating to some trafficking cases carry over into the
following fiscal year. 

\a Indicates trafficking cases referred to the OIG, including those
opened and those declined. 

Source:  USDA's OIG. 

In addition to the investigations conducted by FNS and the OIG, the
states sometimes work with these federal agencies to investigate
retailers' fraud or abuse in the program.  For example, under
agreements with states' law enforcement agencies, FNS provides the
states with food stamp coupons to use in conducting their own
trafficking investigations.  According to FNS, although it has
established agreements with 32 states, only 10 have conducted
sustained efforts against food stamp trafficking. 


      DEPARTMENT OF JUSTICE IS
      INVOLVED WITH SIGNIFICANT
      FOOD STAMP TRAFFICKING CASES
---------------------------------------------------------- Letter :4.2

The OIG has the sole authority for referring trafficking cases to
federal, state, or local authorities for prosecution under criminal
statutes.  Criminal penalties can include fines of up to $250,000
and/or jail sentences of up to 20 years.  According to USDA data,
during fiscal years 1990 through 1997, Justice and state and local
governments prosecuted about 2,650 trafficking cases that had been
investigated by the OIG, resulting in about 4,800 indictments, 4,300
convictions, and over $70 million in fines, restitutions, and
recoveries.  Justice can prosecute traffickers criminally and may
pursue civil recovery under the False Claims Act.  Justice has 93
U.S.  attorneys, one in each federal judicial district, who decide
whether to prosecute individual cases of food stamp trafficking.  In
addition, Justice's Civil Division also has the authority to
prosecute traffickers.  According to Justice officials, U.S. 
attorneys have wide discretion to establish priorities based on the
needs of their local jurisdictions and the guidelines set forth in
The Principles of Federal Prosecution, as well as various national
initiatives and priorities.  Therefore, U.S.  attorneys prosecute
some food stamp trafficking cases while referring others to state or
local prosecutors.  However, we noted that many food stamp
trafficking cases are not prosecuted by federal, state, or local
prosecutors. 

In the absence of criminal prosecution, both the OIG and FNS refer
significant trafficking cases to the Department of Justice for action
under civil statutes.  Civil money penalties, which come under the
False Claims Act, can include fines of between $5,000 to $10,000 plus
damages of three times the amount of food stamps involved in the
trafficking.  During fiscal year 1997, 82 settlements of false
claims, which USDA had referred to Justice, amounted to civil money
penalties of about $1.2 million.  Since 1992, when USDA began
referring cases to Justice, 566 false claims totaling over $5.9
million have been settled. 


   CLERKS ARE INVOLVED IN
   TRAFFICKING FOOD STAMPS MORE
   OFTEN THAN STORE OWNERS, AND
   PENALTIES VARY
------------------------------------------------------------ Letter :5

Our analysis of the 432 cases of food stamp trafficking shows that
store owners alone were involved in 40 percent of the cases, clerks
alone were involved in 47 percent of the cases, and store owners and
clerks together were involved in 13 percent of the cases.\6 In every
case, FNS disqualified the store owner from participating in the Food
Stamp Program or assessed a monetary penalty against the store owner. 
Additionally, federal, state and local courts took action against
store owners in 92 cases and store clerks in 43 cases.  Court-ordered
penalties ranged from fines to jail sentences. 

FNS took administrative action against the store owners in all 432
cases we reviewed.  The large number of actions against store owners
reflects the fact that, under the Food Stamp Program, store owners
are legally responsible for any trafficking occurring in their
stores, regardless of who was involved.  Specifically, store owners
in 410 cases were permanently disqualified from the program, owners
in 18 cases were temporarily disqualified, and owners in 4 cases paid
civil money penalties to FNS in lieu of being disqualified.\7 In
addition, FNS assessed administrative financial penalties totaling
$1,077,062 against store owners in 175 cases.  (See app.  I for more
information on the administrative actions FNS took against the 432
store owners.)

In addition to FNS' administrative penalties, federal, state, or
local courts took action against store owners in 92 of the 432 cases
we reviewed.  In 16 cases, store owners were sentenced to jail.  Most
of these store owners were sentenced to less than 1 year in jail,
although sentences ranged from 1 day to 2,310 days.  Store owners
were fined by courts in 53 cases, and in 30 cases owners were
assessed fines of less than $1,000.  Owners in 18 cases were assessed
fines ranging from $1,001 to $10,000, and owners in 5 cases were
assessed fines of over $10,000.  The two largest fines were $240,745
and $24,040.  According to FNS and OIG officials, the lack of
resources at the OIG to conduct investigations to develop sufficient
information necessary for prosecution and conviction has limited the
number of court actions taken.  (See app.  II for more details of the
court actions taken against the 432 store owners.)

The following examples illustrate the court actions taken against
store owners for trafficking: 

  -- One store owner redeemed $4,145 in food stamp benefits for
     $2,050 in cash and was sentenced to 1 day in jail;

  -- another store owner redeemed $4,639 in food stamps for $2,783 in
     cash and received no punishment other than permanent
     disqualification; and

  -- another store owner redeemed $8,620 in food stamps for $4,310 in
     cash and received no punishment. 

Unlike store owners, store clerks who violate food stamp trafficking
laws are not subject to FNS' administrative actions.\8 Clerks,
however, can be prosecuted in federal, state, or local courts.  Store
clerks were caught trafficking by USDA investigators in 260 cases. 

However, clerks received court-ordered actions in 43 cases, or about
17 percent of those cases.  Financial penalties for 33 cases totaled
$36,541, ranging from $50 to $2,793.  Jail sentences in nine cases
ranged from 1 day to 3-1/2 years, although most sentences were for
less than 1 year.  (See app.  III for more information on the court
actions taken against the store clerks.)

The following examples illustrate the court actions taken against
clerks for trafficking: 

  -- One store clerk redeemed $390 in food stamp benefits for $200 in
     cash and was sentenced to 1 day in jail;

  -- three clerks in one store redeemed $5,600 in food stamp benefits
     for $3,440 in cash, and none were punished; and

  -- one clerk redeemed $885 in food stamp benefits for $532 in cash
     and was not punished. 


--------------------
\6 To determine who--the store owner and/or clerk--was caught and who
was disciplined for trafficking in selected states, we examined the
files from FNS' field offices that related to the 432 food stamp
trafficking cases in which the store owners were disqualified from
the Food Stamp Program or paid a civil money penalty in lieu of being
disqualified between July 1, 1996, and June 30, 1997, in six
states--California, Florida, Georgia, New York, South Carolina, and
Texas. 

\7 See app.  I for a definition of civil money penalty and fiscal
claim. 

\8 FNS lacks the authority to take administrative action against
clerks because it has no direct agreement with them. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :6

We provided a draft of this report to the U.S.  Department of
Agriculture for its review and comment.  We met with Food and
Nutrition Service officials, including the Director, Benefits
Redemption Division, and officials from the Office of Inspector
General, including the Director, Program Investigations Division. 
The Department concurred with the report's findings.  We also
provided Department of Justice officials an opportunity to comment on
the sections of the report dealing with Justice.  The officials of
both departments provided a number of editorial and technical
comments, which we have incorporated into the report where
appropriate. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :7

To identify information on the extent of retailer trafficking and the
characteristics of the stores engaged in such trafficking, we
obtained and used USDA's 1995 report on the extent of trafficking in
the Food Stamp Program and interviewed the USDA personnel responsible
for that study.  This study was a one-time study to estimate the
extent of trafficking.  We also collected information on the impact
EBT has had on identifying food stamp trafficking by contacting USDA
officials in eight states that had statewide EBT systems at the time
we began our review. 

To determine the roles and efforts of various federal agencies in
minimizing food stamp trafficking by retailers, we interviewed and
obtained information from officials of the departments of Agriculture
and Justice.  Specifically, we gathered information on their
responsibilities relating to food stamp trafficking and obtained data
on the number of trafficking cases the two agencies have identified
and for which the store owners and clerks were punished, either
administratively or through the courts over the last 8 years. 

To determine whether store owners or clerks were generally caught for
trafficking food stamps and the extent of discipline for the
trafficking, we reviewed USDA's files in six states--California,
Florida, Georgia, New York, South Carolina, and Texas--to identify
who committed the trafficking, who was disciplined, and what
disciplinary action they received.  We selected these states because
they currently distribute about 40 percent of the total food stamp
benefits and because some of these states delivered benefits by
statewide EBT systems while others did not.  We obtained a computer
printout from FNS headquarters of all trafficking cases in those six
states in which a store owner was disqualified from the Food Stamp
Program between July 1, 1996, and June 30, 1997.  We then worked with
personnel in FNS' regional and state offices to identify additional
cases in which store owners paid a civil money penalty in lieu of
being disqualified from the program.  We also worked with these
officials to verify the accuracy and completeness of the data. 

We conducted our review from April 1997 through March 1998 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :7.1

As arranged with your office, unless you publicly announce its
content earlier, we plan no further distribution of this report until
30 days from the date of this letter.  At that time, we will make
copies available to appropriate congressional committees; the
Secretary of Agriculture; the Attorney General of the United States;
and other interested parties.  We will also make copies available to
others on request. 

Please contact me at (202) 512-5138 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix IV. 

Sincerely yours,

Robert A.  Robinson
Director, Food and
 Agriculture Issues


FNS' ADMINISTRATIVE ACTIONS TAKEN
AGAINST STORE OWNERS IN THE 432
TRAFFICKING CASES REVIEWED
=========================================================== Appendix I

                                         Total
                                        claims     Average    Range of
                         Number of          or    claim or   claims or
Type of punishment           cases   penalties     penalty   penalties
----------------------  ----------  ----------  ----------  ----------
Permanent                      410
 disqualification
Less than permanent             18
 disqualification
Fiscal claim\a                 149    $122,885        $825     $100 to
                                                               $14,082
Civil money penalty\b           36    $954,177     $26,505   $1,500 to
                                                               $80,000
----------------------------------------------------------------------
Note:  Many of the store owners in the 432 cases received multiple
sanctions--428 were disqualified and 4 received only financial
penalties. 

\a A fiscal claim for the full value of the food stamp benefits
misused is established when a store has been involved in the misuse
of food stamp benefits. 

\b A civil money penalty is imposed against an authorized store in
lieu of disqualification or against a disqualified owner who sells
the store before the expiration of the disqualified period. 

Source:  GAO's analysis of 432 FNS cases of food stamp trafficking in
six states. 


COURT ACTIONS TAKEN AGAINST STORE
OWNERS IN 92 OF THE 432
TRAFFICKING CASES REVIEWED
========================================================== Appendix II

                                         Total
                         Number of   claims or
Type of punishment           cases   penalties     Average       Range
----------------------  ----------  ----------  ----------  ----------
Fine                            53    $368,732      $6,957     $100 to
                                                              $240,745
Restitution                     37    $671,206     $18,141     $155 to
                                                              $333,255
Court cost                      15      $3,141        $209     $100 to
                                                                  $621
False claim                     26    $327,800     $12,608     $103 to
                                                               $80,000
Special assessment              12      $2,545        $212      $45 to
                                                                $1,700
Jail time                       16  6,388 days    399 days        1 to
                                                            2,310 days
Probation                       46       1,542   34 months        6 to
                                        months               60 months
Community service                5       1,440   288 hours       50 to
                                         hours                   1,100
                                                                 hours
Criminal action                 16          \a          \a          \a
 pending
----------------------------------------------------------------------
Note:  Many store owners received multiple sanctions. 

\a Not applicable. 

Source:  GAO's analysis of 432 FNS cases of food stamp trafficking in
six states. 


COURT ACTIONS TAKEN AGAINST STORE
CLERKS IN 43 OF THE 432
TRAFFICKING CASES REVIEWED
========================================================= Appendix III

                                         Total
                                        claims
                         Number of          or     Average
Type of punishment           cases   penalties   per clerk       Range
----------------------  ----------  ----------  ----------  ----------
Fine                            32     $20,128        $530      $50 to
                                                                $1,500
Restitution                     19     $13,300        $578      $50 to
                                                                $2,793
Court cost                      11     $ 2,313        $154      $87 to
                                                                  $207
Special assessment               6       $ 800        $114      $50 to
                                                                  $200
Jail                             9  3,277 days    328 days        1 to
                                                            1,290 days
Probation                       33       1,254   30 months        6 to
                                        months               60 months
Home detention                   2    120 days     60 days     60 days
Community service                3   450 hours   150 hours      100 to
                                                             200 hours
Criminal action                  8          \a          \a          \a
 pending
----------------------------------------------------------------------
Note:  Some clerks received multiple penalties, and some cases
involved more than one clerk. 

\a Not applicable. 

Source:  GAO's analysis of 432 FNS cases of food stamp trafficking in
six states. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C. 

Ron E.  Wood, Assistant Director
Richard B.  Shargots
John K.  Boyle
Jacqueline A.  Cook
Dennis P.  Dunphy
William F.  Mayo
Carol Herrnstadt Shulman


*** End of document. ***