2. We purchased guns, stereos, furniture, a saddle, CB radios, bicycles, sewing machines, and other general merchandise. 3. In a series of transactions with different people, we purchased a car, bought new tires for it, had major body work done, had it repainted, and had the transmission repaired. 4. We rented an apartment, furnished it, bought carpet and paid the rent and deposit on it. 5. We made numerous deals selling food stamps for cash, on the normal 50/50 basis. Another investigation by this office still holds the record for unique purchases for food stamps, that being a complete funeral, including embalming, coffin, vault and memorial service. The wide variety of services and goods available from so many sources in exchange for food stamps and the general knowledge of such availability among recipients gives evidence of a level of such trafficking that is clearly indicative of far too many food stamps being issued or at least being issued to people who do not truly need them. One area of real concern is the mail issuance of food stamps. Every month large numbers of recipients report food stamps mailed to their homes never arrived. The program replaces those stamps in most cases. The stamps are mailed by common mail. They can be depended on to arrive on the first or second of the month. They are left in mail receptacles, not personally delivered to recipients. Three problems have been found and prosecuted. 1. Thieves, following the mailman up and down his route, gathered stamps from 30-40 mail receptacles and sold them into the underground at 50 cents on the dollar. 2. Stamps reported as never arriving by recipients were found in the possession of the reporting recipients who were then prosecuted for fraud. 3. U.S. Postal employees have been caught and prosecuted for stealing the stamps out of the mail. During one nine-month period, a convinced food stamp fraud artist worked for our office, cooperating with the Office of the Inspector General, Atlanta Regional Office, in an undercover capacity. For nine months we had a window into the community of food stamp trafficking. Other than prosecutable cases ranging through all the types of fraud discussed already, we gained insight into the problem unique in source and depth. Some of what we saw we already knew, but learned of a much-broadened scope. 1. Food stamps are a currency, discounted except in legitimate use, but nearly as acceptable as cash by a large segment of the business population. 2. Knowledge of available outlets for nonfood purchases with food stamps is extremely widespread among recipients. 3. Cash-for-stamps trading is a major source of rent money where landlords won't take the stamps, themselves. 4. There are generally three levels in a food stamp transaction: recipient sells or trades to a non-authorized dealer at about 50 cents on the dollar; the non-authorized dealer sells to an authorized redeemer, usually in the 75-90 cents-per-dollar range; the authorized redeemer cashes the stamps at $1 for $1. 5. Small stores, authorized to redeem coupons for food, were more likely to make a business practice of selling ineligible items or buying stamps for cash, than larger units. Chains were least likely to deviate from legal practices. 6. Failure to require proper food stamp identification was near universal in the authorized stores, facilitating unauthorized holders in their illegal use of stamps. That such identification was seldom required was well-known throughout the community of users. 7. Recipients were nearly universally aware that they could make fraudulent applications, particularly omitting income and employment information, and that only in exceptional cases could any investigation be made. One convicted recipient pointed out that all she ever did if questioned closely was get indignant about being questioned. (She was convicted of having 8 open food stamp cases in 7 counties of North Florida.) 8. Recipients believed, generally, that local police posed no threat to fraudulent practices and expected nothing harsher than restitution if caught. In an investigation early this year, our investigators took an undercover policewoman to a local greyhound racing track. Over three nights, in about 12 hours of contact, she approached dozens of people offering to sell food stamps for cash. 1. Not a single person absolutely refused and those she did not deal with frequently lamented their lack of cash to do business. 2. Not one person reported the incident to track police. 3. Eight arrests were made for illegally purchasing food stamps. As the cases came to court, small fines and probations were the rule. One judge not only gave a defendant back the money she had illegally purchased the stamps with, but tried to give her the stamps she had illegally purchased. Fortunately, the police property unit adamantly refused to give the stamps over. This single series of events, the dog-track investigation/prosecution, shows just how many of the recipients' beliefs are to reality. It also showed an uncomfortably high degree of tolerance among the populace represented at that track and in the judicial system. Fraud is rampant in and around the food stamp program. The main reasons are the ease with which the program can be defrauded, the unlikelihood of detection and light punishment for those caught. The program is structured so as to almost insure theft and fraud; misallocates benefits to such a degree that a whole business has sprung up to absorb those wasted benefits; and has little or no self-preservation built-in. Why do banks, when cashing checks for customers, frequently refer to their records to be sure the customer has adequate funds on account to pay the draft? Simple. Because if people knew they didn't large number of customers would write drafts for more money than they had on account. Then if the bank didn't balance each day and debit the accounts, how long before the bank would go broke? How long before the honest customers lost their money to the dishonest? What has a bank to do with food stamps? Altogether too many food stamp program employees would ask that question, too. The answer is that food stamps are just as much money as the "real thing" banks handle. Unfortunately, the program doesn't treat it like money and there starts the problem. Honest "customers" already get smaller benefits because of the dishonest "customers". Recently, four cashiers in a Duval County food stamp office were caught for stealing food stamps. Two of those four had previous records for theft offenses, yet they were handling $500,000 in food stamps each month. The two with records were the ring-leaders. What employer would entrust $6,000,000 a year to an employee previously found guilty of theft? Only the food stamp program. Congress and USDA, because of the laws and regulations passed by each, has to shoulder the blame for much of the fraud. By program rules, and believe me the recipients know this, your "bankers" cannot check to see if a recipient has enough on deposit to "cash their check." I quote here from the official interpretation of how your "bankers" can verify "deposits" found in Roberts v. Austin, a decision of the United States Court of Appeals, Fifth Circuit; "When a household applies for food stamps, the completed application contains a large amount of personal information concerning the household's circumstances. This information is reviewed by the food stamp certification caseworker, in an 'official and confidential discussion of household circumstances,' with the applicant's 'right of privacy' protection during this interview. 7 C.F.R. § 273.2(e) "Verification is the proces of confirming the household statement about factors of eligibility through either documentary sources, collateral (third-party) contacts, or a home visit. The areas of verification and the means of verification are not left to the discretion of the certification worker. Pursuant to 7 C.F.R. § 273.2(f) in the absence of consent from the household a certification worker is not free to verify any factor of eligibility or to make contacts with third persons in order to verify information provided by the household. "The federal regulations governing verification expressly distinguish between factors of eligibility for which verification is mandatory (gross non-exempt income, alien status, utility and medical expenses), and all other factors of eligibility. For non-mandatory factors, the state agency, here HRS, can only require verification if the household's assertions are "questionable." 7 C.F.R. § 273.2(f) (1) and (2). Thus, if the caseworker has no reason to believe that the household's assertions are questionable regarding a non-mandatory factor, household composition for example, the caseworker cannot require verification of this factor, 7 C.F.R. § 273.2 (f)(2) and (i). "Where verification is allowed or required, the nature of verification is not left to caseworker discretion. The primary source of verification is documentary evidence provided by the household. 7 C.F.R. § 273.2(f)(4). If the household is unable to provide acceptable documentary verification, the caseworker may make use of a collateral contact. The caseworker, however is first required to ask the household to name and agree to a mutually acceptable collateral contact. 7 C.F.R. § 273.2(f) (b). If the household unreasonably refused to provide acceptable collateral contact verification, the application can be rejected or the case terminated. The caseworker, however, cannot proceed to contact a third party for verification without the permission of the household. We base this view of 7 C.F.R. § 273.2(b)(5) on the Department of Agriculture comments that accompanied promulgation of this section. "Many commentators recommend that the regulations prohibit the use of collateral contact without the express written consent of the household. Since the proposed regulations clearly state that the state agency must rely on the household to provide the name of a collateral contact, the Department believes the recommended change is unnecessary." 43 Fed. Reg. 47856, (Tuesday, October 17, 1978). Now, that's what the court says you wrote as the rules. The effect those rules have is to encourage recipients to lie, but be sure their lies are consistent, and omit rather than misquote or minimize income. Following those directions, no questionable information will reach the case worker and no verification will be attempted. This series of regulations is at the heart of high and soaring fraud rates. Substantially, you are telling people that if they lie well enough, you will not even allow a case worker to try to catch them. It is no coincidence that the largest number of cases of fraud involve unreported income or claiming non-existent household members. Our investigation in Nassau County, Florida, merely verified the information reported on applications. The investigation cost about $25,000. Benefits paid out were reduced from $109,479 monthly, at the start of the investigation, to $93.417 at its conclusion. Benefits had consistently been rising in Nassau County. The investigation saw a drop in monthly outlay of $16,062 (projected to one year amounts to $192,744/ amounted to more than 14 percent of the benefit) as people were disqualifed by investigation, voluntarily corrected misinformation in file in anticipation of investigation, or dropped out of the program. Additionally, over $27,000 in restitution was ordered. Mail issuance of food stamps is mandated by the program. If some government agency mailed millions of dollars in cash every month, in packets ranging from $10 to over $500, in envelopes easily identifiable, and all delivered on the first few days of the month, the leadership of that agency would soon return to the private sector or to a rest home. Yet every month, millions of dollars in food stamps are committed to the mails under those same conditions. Food stamps are cash. The same thing is happening to those food stamps that happen to mailed cash. They are being stolen and they disappear without a trace. In Duval County, Florida, in December, 1980, 9,038 recipients had their food stamps mailed. The total dollar food stamps mailed amounted to $687,254. $16,212 disappeared and had to be replaced by the program. December was about an average month, meaning that in one Florida county mail issuance losses approximate $195,000 a year. That amounts to about 2.4 percent of the total benefits paid, and if validly projected to the national level, constitutes a loss factor of something like $216,000,000 per year. A federal criminal statute makes it a felony to fraudulantly receive or traffic in more than $100 in food stamps. It's a good statute and makes nice reading, but it isn't worth the paper used to disseminate it. Passage of a federal statute assumes somebody in the federal government will be enforcing the statute. In this case, that duty falls chiefly on the Office of the Inspector General or USDA (OIG). My personal dealings with OIG have been through the Atlanta Regional Office. I have found total cooperation, fast response to requests for aid, and a continuous attempt by those people to fight food stamp fraud in every way they can. They do suffer under a few impediments, however. OIG investigators are not sworn law officers, do not carry guns, and do not have arrest powers. They frequently investigate in undercover capacities, exposing themselves to every form of criminal element, without benefit of being "real" law enforcement personnel. OIG is responsible for enforcement of all USDA-related programs. Food stamps are probably their biggest single responsibility, but they are also responsible for Farmer's Home Loan violations, among others. Just considering those two programs, you cannot believe that the 54 agents assigned to the Atlanta region, covering eight states, constitute anything like an adequate enforcement agency. Without question, OIG does very well with its resources, but if you really want to stop fraud in the food stamp program you must be willing to fund an adequate enforcement arm. Federal criminal statutes assume that the Justice Department will prosecute those arrested for violations. Simply put, at least in Florida, it is unrealistic to expect the United States Attorneys to prosecute large numbers of food stamp fraud cases, when they could use extra help just to keep up with drug importation prosecutions. Early on, I said much of the problem starts with allowing recipients to apply for benefits with the sure and near-certain knowledge that they are not going to be investigated and that what they tell the agency will be the information on which their benefits are calculated. From that flows fraudulent applications and from them flow fraudulent benefits. Fraudulent benefits, because they are not needed for food purchases, enter into the trafficking area and create a whole new problem. The experience of Nassau and Clay Counties, in our circuit, lead to two recommendations I believe will significantly reduce fraudulent benefits and thereby fraudulent trafficking. 1. Inform every recipient that each material, qualifying factor on the application will be independently verified within 30 days of the application and periodically reviewed for accuracy. 2. Make those applications available to local law enforcement for purposes of enforcement of local welfare fraud laws. The first recommendation is most important because it is a preventive measure. If recipients/applicants were on notice that each factor would be checked, a significant number would never risk the consequences of discovery. Now, they can rightly believe there is very little risk. The second recommendation enforces the first, and brings in a new deterrent factor. You will never scare off prospective fraud by threatening an investigation of a Nassau County food stamp application by the Atlanta Office of the Inspector General. However, when you tell a resident of Fernandina Beach, who lives six doors from a Nassau County Sheriff's Deputy, that the Nassau Sheriff can and will investigate fraud in food stamp applications, the deterrent effect is greater. Verification of material information on a food stamp application need never be degrading. Little more is needed than the same verification required for a credit application. At least the same level of investigation as one for credit should be expected by one seeking public aid. Thank you for this opportunity to discuss what I consider to be a major problem. [Subsequent to the hearing on April 2, 1981, Senator Helms asked Mr. Atwater the following written questions. Mr. Atwater's answers thereto follow:] Hon. JESSE HELMS, FOURTH JUDICIAL CIRCUIT OF FLORIDA, Committee on Agriculture, Nutrition, and Forestry, DUVAL COUNTY COURTHOUSE, DEAR SENATOR HELMS: I have received and herein reply to three questions posed as a follow-up to my Senate Committee testimony. It was my pleasure to testify and even more pleasurable to receive supportive comments from the Senators attending. Question 1. In your testimony, you indicated some problems with mail issuance in Duval County. Do you have statistics indicating the degree of losses reported since mail issuance was begun as compared with before such issuance? Answer. There was no appreciable difference in losses reported by recipients, unrelated to mail issuance, during the period after mail issuance commenced compared to the prior period. There is a tendency for reported losses to increase, slightly, over time. Mail issuance losses are illustrated by the chart attached hereto. Notice the significant variation between losses in the urban Duval County as compared to rural Clay and Nassau Counties. Since there are five food stamp offices in Duval County, there is less need to mail the stamps, as most recipients are quite close to an office, yet here the percentage and total dollar loss is highest. Question 2. You indicated during your testimony that you have had instances of repeat offenders involved in fraud. Do you have any recommendations as to what measures would serve as sufficient deterrents to repeated fraudulent activity? Answer. Repeat offenders occur in any criminal activity and most states now have recidivist statutes. In the food stamp program, the simple answer is disqualification, total and permanent. Question 3. It is my understanding that you have observed experiences in which households of recipients cited for fraud have actually received increased benefits after that member was removed from eligibility. If this is correct, could you outline how such an anomaly could occur? Answer. The best instance would be where the head of household reports some, but not all, earned income. If a head of household with six children and a spouse reported enough income to register an affect on the entitlement, his arrest and removal from the house while imprisoned for food stamp fraud, causing the loss of the reported income, would leave a household with six, instead of seven members. No benefit would be paid for the lost family member, but the loss of reported income could allow an increase in benefit. STATEMENT OF JIM BATES, SUPERVISOR, COUNTY OF SAN DIEGO, SAN DIEGO, Calif. Mr. Chairman, members of the committee, my name is Jim Bates. I am a member of the County Board of Supervisors in San Diego, California. I appreciate this opportunity to appear today before your committee to report on San Diego's participation in the food stamp work fare demonstration project sponsored by the United States Department of Agriculture (USDA). I will take this occasion to urge you to include workfare in future food stamp program legislation. I will also present to you |