counterfeiting, embezzlement, and theft of stamps as well as authorization-to-purchase cards. An audit of Honolulu for May, 1974, showed that 49 percent of the cases involved some type of error. Program losses for that month were $51,000. The auditor found that . . . "necessary claim determinations were not being prepared and collection efforts to recover overissues of bonus coupons were usually not attempted. There was an absence of control over ATPs returned as undeliverable in the mail. Some recipients received duplicate benefits. . .' In Santa Clara County, California, in June and July 1974, USDA auditors found a program loss of $260,700 from coupon overissuance, or eight percent of the total bonus amount. The four most common reasons for overissuance were found to be: (1) recipient understatement of gross income., (2) recipient overstatement of deductions from gross income (in order to become eligible), (3) overdue recertifications, because certified recipients returned tardily for recertification, once having been certified, (4) clerical errors. In total, the Office of Audit conducted 709 audits of the Food Stamp Program in fiscal year 1975. They found 676 had discrepancies, and only 33 were error free. There were 52 major discrepancies of the types contained in the 14 audit reports furnished to the Treasury Department, attached in Appendix B.16 QUALITY CONTROL AND FOOD STAMP ADMINISTRATION One of the most important indications of program error is USDA's quality control data, even though these data cover only non-publicassistance recipients, or only 51 percent of food stamp recipients. These data indicate error in three ways. They show: (1) the amount of incorrect certifications, or the number of recipients who are ineligible. (2) the amount of error in the issuance of food stamps, or the number of cases in which too many, or too few, food stamps were issued based on the caseworker's calculations. (3) the amount of error caused by welfare agency administrators, and error caused by recipients. These three aspects of error revealed by the Quality Control Program are summarized by the table at Exhibit 17.17 Of the cases surveyed, 17 percent were ineligible because of error in certification. More than half of these, or 8.8 percent, were clearly ineligible because they had misrepresented their income or some other fact. The remainder of these were ineligible because of computational errors or technical omissions in the certification process, and because they had failed to register for work, as the program requires. The fact that the survey showed 8.8 percent of the nation's food stamp recipients were ineligible because of misrepresentations or misstatements could, I suppose, be read as an indication that this is an efficient program. I do not read that statistic that way. It means that nearly 700,000 non-public assistance food stamp recipients in the period surveyed were misrepresenting their personal situations, and were incorrectly eligible. 14 See p. 81. 17 See p. 48. I particularly do not accept that statistic as an indicator of a wellrun program in light of data on the second type of error-issuance error. The survey found that food stamps were incorrectly (over or under) issued in 54 percent of the cases surveyed. Stamps were issued to the 17.3 percent of the surveyed participants who were ineligible, as indicated above, and another 26 percent were eligible but received more stamps than they were entitled to. Combine 17.3 and 26 percent and we discover that stamps were overissued to a nationwide total of 43.3 percent of the households. In almost 30 percent of the cases surveyed, the errors were caused by misstatements by individuals. And I must note again that this quality control survey only covered slightly more than half of the participants. Slightly less than half of the participants in the food stamp program are receiving some form of public assistance (Exhibit 18).18 These people are automatically eligible for food stamps, under the current program. Thus if some of them are ineligible for public assistance, they would also be ineligible for food stamps as well. These quality control data cannot reflect this element of ineligibility in the program and it is difficult to estimate it. Again the point is that the current program provides extensive opportunity for error. The District of Columbia food stamp application form is a booklet of seven pages, requiring answers to dozens of questions and sub-questions, depending on the applicant. The program manual used by caseworkers in one State is over 160 single-spaced pages. When a caseworker must certify or reject an individual for the program within 30 days (and provide a hearing in case of rejection), there is a great deal of pressure to accept information as it is supplied by applicants. But the application forms and instruction manuals are created only because they are necessary in the administration of a very complex program. These forms permit an applicant to establish his eligibility by establishing his gross income, then to apply specific deductions against it. These are two major areas in which the current program permits administrative error and opportunity for deliberate or inadvertent misstatements by individuals. MAJOR PROBLEMS OF THE CURRENT PROGRAM In addition to improved procedures for discovering and countering outright abuse of the Food Stamp Program, there are several areas in which tightening of the law would be beneficial. Reform in these areas would help to reduce the potential for abuse, would insure more equal treatment for people with similar resources, and would lower costs through program simplification. I would like to discuss several of these problems as indicative of areas where reform is most needed. DETERMINATION OF RESOURCES The calculation of a family's resources is one area for potential complexity and possible errors and abuse. Non-welfare food stamp recipients can have liquid resources up to $1,500 per household, except for households with two or more people in which one is 60 years old or older, which may have resources up to $3,000. But not counted as resources are a participant's house, lot, one licensed vehicle, 18 See p. 48. and other vehicles if they are needed for employment. Also, personal belongings and household goods, the cash value of life insurance policies and pension funds, and income producing property are not counted. The resources test creates inequities. It permits people who have a fair amount of wealth in these types of fixed assets to qualify. For example, it hypothetically would be possible for a recipient to have two expensive cars, a very valuable house, a boat, vacation property, other income producing property, a life insurance policy and a pension fund, and expensive household goods and personal belongings and still qualify for food stamps if his assets were not out of keeping with those of other families in his community-provided that his current income fell sufficiently to permit him to qualify. This can occur because of the limited nature of the current assets test. DETERMINATION OF GROSS AND NET INCOME Establishing gross income creates another set of complexities. Even determining the types of income is a problem. Earnings by a child under 18 who is a student at least half of the time do not count as family income. Neither does earned income which is less than 10 percent of total income up to a maximum of $30 per month. Part of the money received from one or two roomers or boarders is not counted as income. Each of these determinations provides opportunities for caseworker and recipient error. The Food Stamp Program also does not test prior income, only the absence of a current income. This is called the prospective accounting period. It permits a person to have had a high salary for several months or even years before he applies for stamps. But if he has no income on the day he applies, he may well be eligible to receive stamps. Another area open to error and abuse is the provision that permits deductions from a family's gross income in order to establish net income, which is the basis for establishing eligibility. In applying to the caseworker for certification for stamps. the recipient can deduct certain expenses from his gross income to obtain net income. For example, deductions can include: child support and alimony payments, expenses associated with family disasters (fires, floods, and theft), part of housing costs, education expenses, union dues, medical bills, and payroll deductions. Thus some families with heavy expenditures on these items can benefit from the Food Stamp Program while other families with the same after tax income but without these expenditures cannot. Since many of these expenditures are a matter of personal preference, such as relatively high housing expenditures or school tuition, inequities among families are created, and some middle income families can become eligible for the program. As a result of these deductions and of the prospective accounting period, some households receive more in benefits because of the monthly income test than their annual income would seem to warrant, and others gain access to the program who would not appear sufficiently needy to qualify at all. Thus, only about 4.5 percent of households receiving food stamps in July, 1974 had a monthly income for July of more than $625 (an annual rate of $7,500). But 10.2 percent of these same households receiving food stamps in July had an annual income over the preceding 12 months which averaged more 60-358-763 than $7,500. And 3 percent, or an estimated 500,000 people lived in households which had incomes averaging more than $12,000. By comparison, for the year ending in March, 1975, 15.4 percent of food stamp households exceeded a $7,500 annual income and 5 percent, or an estimated 1.1 million people were in households whose incomes exceeded $12,000 over the year (Exhibit 19).19 The $16,000 example so widely quoted and advertised, is difficult to construct, but as this Committee knows, it can be constructed. The fact is that the program provisions result in use of the program by many who are not ordinarily considered needy. THE TEMPORARILY UNEMPLOYED The eligibility requirements of the current program also permit students, strikers, and others who are voluntarily unemployed to participate in the program. With regard to students, the problem is that many can qualify for food stamps if they do not receive parental support and if they claim large deductions for housing payments, utilities, and education expenses from their limited or nonexistent income during the school year. This test permits many to qualify. I'd like to give you an example from my mail: A man from Chicago wrote me that while in his junior year at Illinois State University, he decided to write a paper on the Food Stamp Program for his social work class. He filled out an application for the program as part of his research to see how the program works. He didn't expect to be certified, since his father was in an upper middleincome bracket. Nonetheless, he was certified to receive $38 per month in food stamps, which was soon raised to $42. As a result of his experience, several of his friends applied for food stamps. In his own words, "To say the least, we ate like kings." Though the number of students using the program appears to be very small, their participation has been widely observed and criticized and has become an often-cited stigma of the Food Stamp Program, thus hurting those who really need it. The Food Stamp Program also has been used by persons on strike, though as this Committee is aware, it is very difficult to determine the exact extent of such use. The problem with making food stamps available to strikers, as I see it, is that the Government ends up assisting the strike through its food support program. It inadvertently becomes a party in the labor dispute on one side of the argument. We must ask whether this is what we intended food stamps to be used for. A retroactive accounting period for income determination, as proposed by the President, would help to solve this problem. THE NEED FOR REFORM In sum, my review of the program has revealed serious problems of uncontrolled growth, abuse and misuse, coupled with a lack of enforcement of program regulations. These problems make reform essential in the interest of the needy recipient and the U.S. taxpayer alike. Our approach to reform must proceed on two fronts: 19 See p. 48 (1) the immediate reforms we can make now, to make the program less wasteful and more responsive to the purpose for which it was designed-to provide the truly poor an opportunity to purchase the food they need; and (2) a longer-term effort to rationalize our entire national welfare structure to meet the basic income-maintenance needs of the poor without unnecessary overlap and cost. FOOD STAMP REFORM I support strongly the fundamental objective of the Food Stamp Program. We have an obligation to the poor to provide the ability to have a nutritionally adequate diet. But I believe we can do this and cost savings as well. The kinds of cost increases we have experienced in this program are neither inevitable nor necessary if we make the commitment to structure an effective and efficient program. Neither can we accept as inevitable or necessary the large projected increases for our total national transfer payment programs. I believe that it is immediately necessary: (1) to reform the program to ensure that it is not used by high (2) to simplify the eligibility requirements in order to reduce (4) reduce its use as an income supplement by those voluntarily I suggest that the food stamp reform effort should have two main purposes. First national eligibility criteria should be revised to simplify the program and to ensure that its benefits are focused on low-income families. Second, I suggest that systems by which the program is administered and policed, need thorough review and strengthening. President Ford has proposed a major reform of the Food Stamp Program. He has asked that the program be simplified, eligibility criteria tightened, and benefits redirected toward lower income participants. He proposes that public assistance recipients should no longer be automatically eligible so that all applicants have to meet income eligibility criteria to obtain food stamps. The President also proposes that the food stamp purchase requirement should be retained so that recipients have to make a financial commitment to raise their purchases of food in exchange for receiving bonus stamps. The amount that recipients would pay for the stamps would be 30 percent of their income. Dropping the purchase requirement could lead to another large expansion in participation and costs. It might also significantly weaken a major objective of the current program to increase the amount of food consumed by the poorsince only the bonus value of the stamps need be spent for food. The current system of itemized deductions from gross income for expenses such as medical and educational fees, child care, support payments and excess shelter costs, would be replaced by a standard $100 deduction for every household or $125 for families with at least one member over 60 years of age. This reform will make the distribution of benefits among food stamp households more equitable and reduce the opportunities for application error. Most important, all 1 |