I-Team: Food stamp fraud continues despite electronic tracking

COLUMBUS, Ohio - One out of every six Hamilton County residents is on food stamps. It's a $216 million program in the county, $75 billion nationwide.

Even though people still refer to them as food stamps, Ohio did away with the paper coupons more than a decade ago. There was a robust, illegal market for food stamps in many local neighborhoods -- they were a de facto currency with their own exchange rate on the street.

Recipients of the Supplemental Nutrition Assistance Program (SNAP) now receive their benefits on an electronic card that works just like a debit card. These modern electronic benefit transfer, or EBT, cards were supposed to cut the potential for fraud in half.

Attempted purchases of restricted items like alcohol or tobacco will be denied by the system at major grocery stores thanks to a bar-code database.

Then why were 33,000 replacement cards ordered by Hamilton County food stamp recipients last year?

The Ohio Auditor of State, Dave Yost, wanted to know why more than 1,500 people in Hamilton County have ordered 10 replacement cards or more since 2006.

"I can understand why somebody who was maybe in an unstable environment or something might lose their card a couple times," said Yost. "But three times? 10 times? That's really remarkable. 15 or 20 times? There's something bad going on here."

The auditor reviewed records from the Ohio Department of Job & Family Services. His investigators found more than 17,000 food stamp recipients statewide have ordered 10 cards or more.

A large number of replacement cards ordered by an individual isn't always an indicator of fraud. One recipient in Hamilton County had the most replacement cards in the state -- 75 -- but he's a paranoid schizophrenic who won't use the benefits unless he gets a new card every month.

He may be the exception to the rule.

Investigators say the cards are easily traded just like the old food stamps. Trafficking in EBT cards happens in several ways, but in every case, an unscrupulous merchant is at the end of the final transaction.

Some small market owners will ring up cigarettes or beer as vegetables, for example. The food stamp recipients get their tobacco or alcohol, usually at an inflated price, and the merchant gets full reimbursement from the government.

Other times the store owners will offer cash for a card, often for pennies on the dollar. The recipient will get about $50 cash for $100 worth of benefits. The merchant then rings up a series of phantom purchases later on to redeem the full $100 from the government. For his $50 dollar investment, the store owner makes another $50 -- 100% profit.

There is little fear of getting caught because the handful of investigators operating statewide often have to witness a fraudulent transaction in order to make an arrest.

But the auditor has a better idea.

"Give me two cops, an accountant, and a computer geek at the state level," said Yost, "and that one squad in the course of a couple of years could take off a huge percentage of these rogue merchants."

No one is doing the data mining that could instantly reveal which merchants are buying all the cards.

Yost, himself a former county prosecutor, suggests cross-referencing the last few purchases made just before a card is reported missing or stolen. By looking only at recipients with 10 or more card replacements, the same merchants will begin popping up in the records.

The auditor says you wouldn't have to witnesses the transactions, because the recipients who've sold their cards would be willing to sign statements implicating the store owners to avoid prosecution themselves.

"Job & Family Services is right when they say that fraud is one to three percent," Yost said. "But we spend $3 billion a year in this state on food stamps. If you take three percent of that, that's $90 million every year of money that's supposed to be going to feed hungry kids. That's a lot of kids going to bed hungry every night."

The data already exists. Ohio has a contract with a private vendor to issue EBT cards, and that vendor sends a list to the state containing the names of everyone who has ordered 10 cards or more.

The state forwards that list to the 88 county departments of Job & Family Services.

In a sampling of 10 Ohio counties, the auditor discovered five did nothing with that list, and four didn't even know it existed. Only Hamilton County is actively reviewing the names to ask why someone would need up to 75 replacement cards.

The auditor insists the best way to solve the problem is to go after the merchants who traffic in EBT cards, which would strangle the flow of tax money diverted from hungry children.

"They're deliberately and callously exploiting the most vulnerable people in our society to make a buck," said Yost. "That is heinous. That is serious evil, and they're much more deserving of prosecution than the individual mom or disabled worker."

View the auditor's letter to Ohio Department of Job & Family Services here.

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