Substantial increase in federal funding for the investigation and prosecution of fraud.

Replacement of most itemized deductions in the program with standard deductions thereby eliminating some errors and preventing less needy families who previously had many deductions from qualifying for the program.

Elimination of vendor fraud and handling of cash through elimination of the food stamp purchase requirement.

1979 In 1979, Congress passed Public Law 96-58 which amended the Food Stamp Act of 1977 to further tighten the management of the program. These provisions included the following:

The Secretary of Agriculture or States are authorized to require social security numbers and access is provided to certain HEW data relevant to determining eligibility.

Individuals disqualified for fraud and wishing to reenter the program are required to repay the fraudulent amount either in cash or through reduction in their coupon allotment.

States will be allowed to keep 50 percent of the money they recover or collect in the pursuit of fraud.

Any striker who does not meet the eligibility requirements of the program including those for income, assets, and work registration—will Not be allowed to participate and receive any benefits.

1980 Congress' most recent amendments to the 1977 Food Stamp Act were signed into law this past May as part of P.L. 96-249. With the passage of this third major piece of food stamp legislation within the past 4 years, a total of 6.0 million people are now no longer eligible for food stamps.

Enactment of these 1980 Food Stamp Act Amendments will allow for the achievement of the following savings which will add up to over $520 million in fiscal year 1981:

Annual rather than semi-annual adjustment of food stamp allotment and standard deduction. Also, the next adjustment of the shelter deduction will be deferred until January 1, 1981.

Combined savings-$375 million in fiscal year 1981.

Impact-Average reduction of $2.75 per person per month in all participants' benefits for six months of every year.

Lowering the fiscal year 1981 poverty line net income limit for food stamps in fiscal year 1981 from approximately $8200 to $7450 for a 4-person household. This would eliminate the practice of updating the poverty line by more current CPI data. Savings-$65 million in fiscal year 1981.

Impact-650,000 of presently participating persons with the highest net incomes made ineligible.

Eliminate all students, except those under 18 or over 60, disabled, with dependents, working 20 hours a week, in a work study program, or going to school as part of the Work Incentive Program (WIN).

Savings-$60 million in fiscal year 1981.

Impact-150,000 students-75 percent-who currently participate in the program eliminated.

Reduction of limit on assets from $1,750 to $1,500 for all households except those of two or more containing an elderly person.

Savings-$20 million in fiscal year 1981.

Impact-Persons with liquid assets over $1,500 made ineligible for food

stamps.

In addition to the provisions listed above which sharply narrow the eligibility of participants, the 1980 Food Stamp Act contains far reaching management improvement provisions which must be given an opportunity to become effective. Among these provisions are the following:

Incentives for States to reduce error by offering increases in Federal administrative cost-sharing to be provided from one of three bonus plans; effective October 1, 1980.

Institution of an error rate sanction system which will penalize States which fail to make significant progress in reducing high error rates. The USDA Inspector General has recommended this concept as "the most effective device we know of to make those States and projects with poorly managed operations take an aggressive interest in improving the program." Estimated savings-$90 million in fiscal year 1981.

For purposes of verification of information on a household's income, or to determine a household's eligibility to receive food stamps, including the specific allotment, information could be obtained from the Social Security Administration. This would enable the States to catch incorrect reporting or underreporting of income.

75 percent Federal funding for computerization costs incurred by State agencies to improve Food Stamp Program operations and lower error rates.

State option of retrospective accounting and monthly reporting of income by households.

Income and resources of ineligible individuals in a household must be considered in determining the household's eligibility and allotment.

Requirement that all certified eligible households (other than those certified at home or by mail) have photo ID's in project areas in which the Secretary, after consultation with the Inspector General, finds that mandating such a procedure in the project area would help protect the program's integrity.

Any information obtained in determining a person ineligible because of their status as an illegal alien must be reported to the Immigration and Naturalization Service.

States would be permitted to expand their use of third-party information or documentation to establish the accuracy of statements of food stamp applications by inquiring into household size and any other factor shown to be subject to substantial error in connection with error-prone household profiles developed from quality control statistics.

Senator LEAHY. We have taken of the very best ideas that the experts have had to offer, and we have added a few of our own, and I think this is a story that you and I should be taking to the American public.

In the past few years we have increased the financial incentives to the States to pursue fraud and abuse. We have established an error-rate sanction system and penalized States for higher error rates.

We have eliminated nearly all college students from the program. You would not know that to hear some of the rhetoric, and we have seen to it that the Department tightened verification, and we have mandated a variety of other important reforms.

It is about time we get some credit for the good work we have already accomplished.

In my own State, when people come to me and tell me of the welfare fraud, and I commented in a hearing here the other day, that we had more people drive up in Cadillacs, apparently according to the reports that I have received, with their food stamps than the number of Cadillacs that have been sold in the State of Vermont in the last 10 or 20 years.

If they have eyewitness account of fraud, I just tell people to report it to the U.S. attorney. I must admit that many times when I hear: "Well, I did not see it, but Joe who works near me at the factory, his cousin was talking at a family reunion, and his brother sure saw it."

That does not mean there is no fraud at all. I was a prosecutor for 9 years. I know when there is fraud, one of the best ways to stop it is to prosecute it.

People abusing this program-prosecute them, throw them in jail, but do not penalize the handicapped, the elderly working poor, and those who are trying to follow it honestly, and properly.

When we talk about the purchase stamp requirement, let us not lose sight of the fact that if we go to that, there will be far more stamps available. There will be far more stamps under purchase requirement, because of the way the system works. In the testimony that we have received in this committee, it is clear that one of the biggest areas of concern is in large city banks holding the money without paying any interest to the U.S. Government by holding it longer than the regulations require, and it was I think an eye opener to this committee, Mr. Chairman.

Now, it will take time for many of our recent actions to take effect. You and I and the American public are patiently waiting to see the results of our latest work, but I submit much of the spade work on this program has been done already, and we should concentrate more on fine tuning our efforts.

In that regard I should express our concern about our upcoming discussion of food stamps.

It would appear that several of the administration's proposals would hurt some very deserving people.

The administration's program would mainly penalize people who work full time already, can hardly meet expenses, in other words, the working poor, people who are encouraged to get back to work and off welfare.

Another group of persons likely to be affected by this proposal is military personnel. That is one of the things that nobody wants to talk about. We want to pretend that this does not happen, but it is estimated that 20,000 or more members of the Armed Forces and their families get food stamps.

You want to talk about need in our society, just take a look at the military. Not one of us would describe these persons as those who shirk work, or would apply for help unless they are truly needy. These are among the most patriotic people in this country.

Mr. Chairman, the military personnel most likely to participate in the food stamp program have annual incomes just above the 130 percent poverty level cutoff line that is being proposed, so a significant number of military people could thus be affected by the proposal.

and

These are the persons we would throw off the program, these persons at this income level who finally do need assistance, all they need is a little help. Another of the President's proposals that concerns me would reduce the food stamp level due to school lunch participation by children. It is something that will cost more to administer and ignores the reality that children in this country have special needs. For these children about the only decent meal they get all day is through the school lunch program. Those of us who have children, and many of us have, know what it costs to feed a hungry child, we know what it is like, and we live at the more affluent end of society.

At this point I would like to raise a concern I have about the testimony of the General Accounting Office in this matter.

I have read your testimony, I am aware of what I consider to be some serious flaws and the evidence presented, particularly on school lunches, and I will elaborate on that at the appropriate time.1

In the meantime I look forward to today's hearing, the material I have for the record is here, and now I would like to go into the questions with the time I have left.

In doing that, I might say to the Inspector General's Office, that I think everyone of us share the concern in this and every other program. All of us are taxpayers and, none of us like to see fraud. Does the Office of Inspector General have a position on restoring the purchase requirement of the food stamp program?

1 See p. 360 for Senator Leahy's comments of the GAO testimony.

Mr. MAGEE. Through a variety of sources. First of all, the most obvious source is to engineer a large-scale theft from an issuing office or from the mails, or from air shipments or from post offices, or whatever, in terms of stealing cartons that contain thousands and thousands of food stamps.

Typically, these are then fanned out all over the country. The groups that deal in this are sophisticated, they know we are in existence, they know we monitor the Federal Reserve banks, and it is not unusual to find a suitcase full of food stamps transported from say San Francisco to New York.

Hopefully, they can move these things through the system and have them credited before a special agent compares the serial numbers and finds that they are stolen stamps, this is what they are hopeful of.

The second most common way is through the ATP. The ATP, unfortunately, is the thing of value and is not always treated as a thing of value by the State and local offices that maintain stocks.

They can be counterfeited, they can be stolen, they can be manipulated by people that work within State and county elements, and if anyone knows what information is entered and what kind of typewriter or what kind of a device is needed to enter data, they have a system to either use that ATP in hand delivery, or for that matter generate a fictitious household into the computer system. There are other means to generate a flow of food stamps that can then be fenced off into the retail elements I have mentioned before. There are also problems with counterfeiting, but I would hasten to say, and I feel confident in speaking for the Secret Service in this regard, while it is a crime, and while it is one that surfaces and gets considerable attention, it does not seem to represent a particularly substantial drain in terms of dollars in the food stamp program.

The problem with the counterfeit in the food stamp program is that if it slips through the system and gets through the Federal Reserve and is credited against the Agriculture account it is almost always destroyed within days and you have no evidence. But the principal source, in addition to the two that I mentioned, that is the theft from the mails, the theft from issuing offices, the misuse of ATP's, it then comes down to the street criminal.

Punks have long preyed on mailboxes of persons who they know receive welfare checks, public assistance checks, social security checks, and so forth, and in the larger cities they do not wait until those things are in the mailbox, they rob the mail carriers, or they rob the storage box that the mail carrier has his bag in.

They well know the authorization-to-participate card is another item that is delivered to a home address, and so therefore we have a constant problem with small thieves who have acquired ATP's, either selling the ATP's, or misrepresenting themselves as recipients, and presenting the ATP's at coupon-issuing offices with the coupons.

Once they get the coupons, they have to find some place to fence them, and the only legitimate way to fence a food coupon is through a retailer, or a wholesaler, who is accredited by the USDA to accept and redeem food stamps.

The CHAIRMAN. Many of our correspondents, and I am speaking primarily of local administrators of the program, have described food stamps as a second currency.

Do you agree with that?

Mr. MAGEE. I certainly do.

I certainly agree with that.

I can tell you and give you an example. You can remember the gasoline coupon situations in World War II. I spent over 20 years in the Army in the Army's Criminal Investigation Division in overseas areas, and wherever there was a substitute for money, that was used for example to pay the military forces, or whether there were ration coupons that limited the purchase of cigarettes, for example, almost inevitably it became a second currency for all practical purposes.

The CHAIRMAN. Let me mention another scenario that had been reported to us by countless persons, as one complaint, or as one constructive suggestion, depending on how you look at it, and that is that less sophisticated entrepreneurs simply go around and buy "extra" food stamps for 50 cents on the dollar, which these entrepreneurs turn around and sell in quantity to grocery stores for 75 or 80 cents on the dollar.

Is that the way it works?

Mr. MAGEE. I want to first say that I cannot even estimate the percentage of recipients that engage in that kind of layout. I can tell you since the inception of the food stamp program, our first experience with it, the trafficking or discounting of coupons for cash has been a common occurrence, in the sense that there are recipients who need or seek to buy something that they cannot legitimately exchange food stamps for, and whether they are discounting to one of these persons that you described, or whether they are discounting to the retail store operator in order to encourage the transactions of ineligible items really makes little difference, but there is no question that has been one of the undesirable byproducts of the food stamp program. But I hasten to say that I have no reason to believe that that at all approaches the dollar drain from the issuance of benefits beyond which a person might be entitled, or these other internal fraud areas that I just described.

The CHAIRMAN. Well, of course there will be a certain amount of fraud in applications or misrepresentation, otherwise how do they get these?

Mr. MAGEE. Well, Senator, it is not so much additional. I do not think it is extra stamps. I think you are dealing with the circumstances where the original recipient may not be the person who is the trafficker.

It may be somebody in the household who takes the stamps and sells the stamps.

I do not think we can conclude the person who has as a main concern, the nutrition of the family is necessarily the one who engages in this kind of traffic, but there are husbands who rob the wife's purses, and there are children who rob the bureau drawers in all classes of our society, and what I want to say there is no question there is a discounting for cash of food stamps, but we have