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Gov't Report: Feds Are Letting 'Permanently Disqualified' Retailers Slide on Food Stamp Fraud

"As a result, the integrity of SNAP is at risk because FNS does not consistently provide deterrents for trafficking."

LOS ANGELES, CA - JUNE 17: Members of Progressive Democrats of America and other activists hold a rally in front of Rep. Henry Waxman's office on June 17, 2013 in Los Angeles, California. The protestors were asking the congressman to vote against a House farm bill that would reduce federal spending on the Supplemental Nutritional Assistance Program by $20.5 billion and affect food stamps and other services for the poor. Credit: Getty Images

Many food retailers -- including those already "permanently disqualified"-- continue to commit food stamp fraud, and the federal government is doing very little to prevent or penalize it, according to a government review.

LOS ANGELES, CA - JUNE 17: Members of Progressive Democrats of America and other activists hold a rally in front of Rep. Henry Waxman's office on June 17, 2013 in Los Angeles, California. Credit: Getty Images.

Fraudulent participation in the Supplemental Nutrition and Assistant Program (SNAP) from stores has gotten worse as the numbers using food stamps has grown, according to a report by the Department of Agriculture's Office of Inspector General found.

“As a result, the integrity of SNAP is at risk because FNS does not consistently provide deterrents for trafficking,” the IG report states.

The report comes in the midst of the debate in Congress on whether to make food stamps part of the farm bill – favored by most Democrats and some Republicans – on whether to make food stamp spending a separate appropriation from agriculture spending.

The IG did its own sampling of 316 retailers during the investigation. Among other things, the IG investigation determined that the FNS – an agency within the USDA – could have potentially collected $6.7 million in penalties had the rules against fraud been enforced. Further, the report found that 51 ineligible store owners redeemed $5.3 million from the SNAP program since 2006.

The probe also found that 586 store owners who were “permanently disqualified” from participating in the SNAP program continued without consequence and “a single retail store can be permanently disqualified multiple times for trafficking.”

"Retail store owners permanently disqualified from SNAP due to trafficking sometimes attempt to circumvent the disqualification by establishing 'straw ownerships,'" the report said. “This often involves transferring or selling the firm to a spouse or relative. FNS regulations prohibit this practice, and also prohibit authorization of a new owner who was part of the disqualified firm during the time the violations occurred."

This is part of the problem of poor enforcement, the report adds.

“Our review of 316 retail store locations identified 90 locations that had two or more firms permanently disqualified,” the IG says. “FNS had subsequently authorized all of these locations under new ownership. This occurred because FNS does not have the authority to permanently disqualify a troubled store location that has a repeat history of trafficking violations. The permanent disqualification only applies to the owner at each subject location. At the same time, FNS does not have the legal authority to implement additional safeguards for high-risk locations associated with multiple permanent disqualifications, which could deter future trafficking.”

The report notes a 41 percent increase in the retail authorization over the last five fiscal years. In 2012 the FNS distributed $75 billion in SNAP benefits with 246,000 retailers.

“Permanent disqualification is reserved for the most serious cases, such as trafficking, and stands as the maximum disqualification period permitted by the Act and FNS program regulations,” the report explains. “A firm can be disqualified permanently if personnel of the firm—such as a clerk, other employee, or management and owners—commit a flagrant violation.”

The IG called for the USDA to do a review of policies and seek legislative change from Congress to combat fraud.

“FNS should comprehensively review its policies and procedures, seek legislative change to retain a portion of retailer penalties, require background checks for retailers, strengthen internal guidance, make improvements to its automated retailer data system, create and strengthen safeguards for high-risk stores, and require more supervisory reviews,” the IG report says. “FNS should also review the owners we identified to determine if they need to be penalized or disqualified from SNAP.”

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