Welcome to the Pondera FraudCast, a weekly blog where we post information on fraud trends, lessons learned from client engagements, and observations from our investigators in the field. We hope you’ll check back often to stay current with our efforts to combat fraud, waste, and abuse in large government programs.
It has been an interesting few weeks for the Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp program, with two high profile busts. Both cases illustrate common schemes used to defraud the SNAP program, which distributed over $70 billion in food-purchasing assistance last year to 44 million Americans.
In Georgia, two convenience store owners used stolen identities to apply for SNAP benefits which were then loaded onto EBT cards (similar to credit cards) and mailed to addresses they controlled. Once received, they swiped the cards at their own convenience stores and pocketed over $800,000 before being caught. The U.S. Attorney assigned to the case said, “They used the SNAP system as an ATM for their personal gain, diverting critical benefits that help those who need assistance in our communities.”
Then, in Delaware, seven case workers at the Department of Health and Social Services were indicted for creating 100 fake accounts and cashing $959,000 in benefits. After creating the accounts, the case workers had the EBT cards mailed to state service centers where they simply intercepted them and used the cards themselves. Their scheme was detected when a supervisor noticed incomplete application data for one of the cards.
The Georgia case illustrates just how easy it can be (at least for a time) to use stolen identities to defraud government programs. Even if the suspects hadn't owned the convenience stores, it would not have been difficult for them to find one that would pay them a discounted price in cash for their cards.
The Delaware case is one we commonly see across states and programs where unscrupulous employees use their knowledge of the system to defraud their own government agency. Large amounts of money, combined with loose supervision, often prove too tempting for those with questionable morals.
A quick check of the government’s fraud reporting website, paymentaccuracy.gov, reveals that improper payment rates for SNAP are still not posted because of reporting problems. I look forward to updated numbers when they are available because even a small number like the 3.2% reported rate for 2014 translates to over $2.2 billion per year in improper payments.
A few months ago, I wrote an article offering our support to the USDA Food and Nutrition Service (FNS) as it rolls out a new program offering online access to groceries for Supplemental Nutrition Assistance Program (SNAP) recipients. My main concern with the new initiative was that FNS cannot provide an accurate SNAP fraud rate because of unreliable data coming in from the states. And we all know that offering goods and services online presents even more opportunities for fraud.
Now Congress is asking FNS additional questions in a letter sent to them on February 8th. Outlining the lawmakers’ concerns, the letter points out that as many as 10% of retailers who accept SNAP EBT cards participate in illegal trafficking schemes. These schemes pay recipients a discounted amount of cash or unapproved grocery items in exchange for their cards. They go on to point out that total annual fraud in the program is over $858 million.
The massive size of the SNAP program is one of the major reasons, historically at least, it is so difficult to detect fraud. In 2016, the program distributed $67 billion in benefits to 44 million Americans through 260,000 authorized retailers. Interestingly though, as much as 85% of the retailer fraud is committed by small grocery and convenience stores, or even flea markets like the one in Opa-Locka, FL that we recently wrote about.
With the advent of cloud computing and advanced analytics solutions, FNS now has access to the tools required to make a real difference in their fight against fraud. And by addressing the retailer side of the equation, they will also find, through association, many of the fraudulent individuals in the system as well. It would certainly make sense for FNS to leverage modern fraud detection technologies at the same time that they offer online access to groceries.
It is also important to note that the number of SNAP program retailers and recipients, while large, is very manageable. Consider that at Pondera we’ve performed equally complex fraud analytics on Medicaid programs with as many as 200,000 providers and Unemployment Insurance systems with over 1,000,000 employers. And when one considers that the overwhelming majority of SNAP trafficking fraud occurs in a concentrated subsection of small and medium retailers, the problem becomes even more manageable.