I-Team: Who's minding the store when it comes to retail food stamp fraud?

High-tech detection system ignores red flags
Posted at 2:23 PM, May 10, 2018
and last updated 2018-05-10 19:47:37-04

CINCINNATI -- Retail food stamp fraud has occurred for years in Ohio without the federal government knowing about it, the I-Team has discovered.

The Department of Agriculture says it has a high-tech network that can identify possible fraud, then alert investigators. But an I-Team investigation revealed that federal agents in Ohio have learned about years of fraud from informants, not the taxpayer-funded system designed to alert them.

Three years ago, federal agents, state police and Butler County deputies raided U.S. Beef in Fairfield after undercover investigations recorded illegal trafficking of Electronic Benefit Transfer (EBT) cards provided by the Supplemental Nutrition Assistance Program -- also known as SNAP -- the modern version of food stamps.

Watch WCPO video from the raid on U.S. Beef:


Authorities said the fraud at U.S. Beef amounted to $906,000. On a national scale, food stamp fraud documented by the federal government totaled $560 million last year and $592 million in 2016 – out of $63 billion in benefits.

“They're gypping the system making all of us pay for this and it's not intended for that,” Butler County Sheriff Richard Jones said.

In the U.S. Beef case, the evidence included a detailed analysis of SNAP sales showing the company had quadrupled the combined total of three comparable companies.

“That seems like a glaring red flag,” U.S. Attorney Benjamin Glassman told the I-Team. “Absolutely. That is strong evidence of fraud.

But the USDA's ALERT system, which "monitors electronic transaction activity and identifies suspicious stores for analysis and investigation," apparently never identified that as possible fraud.

The 18-month investigation began with a tip from a confidential informant who revealed that U.S. Beef employees bought EBT cards for half their value, then billed the government for the full amount, according to the criminal complaint.

U.S. Beef’s co-owners and managers Scott Traum and Joey Lightcap-Traum, along with employees Dalton Traum, Keith Blankenship and Jordan Kaiser, received sentences of at least a year in prison.

“If you do have a confidential informant who is able to get essentially on the inside of the organization, and especially if you're able to record those interactions, it can make for a very compelling criminal case,” Glassman said.

Even with USDA’s ALERT System, Glassman insisted the massive SNAP program -- with 263,000 retailers and 7 million transactions a day -- is an enormous challenge to monitor.

“It would be great if we had the technological means to catch everyone the moment a fraud occurs,” Glassman said, “but we don't.”

Recently unsealed federal court records show the problems continue.

In a search warrant filed three months ago, a USDA agent revealed an investigation had uncovered $9 million in SNAP fraud by Ohio Direct Distributors of Massillon, Ohio. The agent alleged the fraud began in 2011 and lasted for six years.

Court records show the investigation began with tips from two individuals, not the USDA ALERT system.

Glassman declined to comment on that case because charges haven’t been filed.

“Any offense that’s gone undetected by law enforcement for any amount of time is frustrating,” Glassman said, “but I do have confidence that those major frauds will be discovered, they will be investigated, and we will prosecute the offenders and put them in prison.”

The I-Team requested comment from the USDA, but it declined. 

Kurt Reiber, president and CEO of Freestore Foodbank in Cincinnati, says SNAP needs better monitoring for fraud.

“I think it's important for the retailers, the Foodbank, the Feeding America network and Congress to work together to solve this problem,” Reiber said.

But Reiber is quick to point out that the $592 million in documented fraud represents less than 1 percent of the $63 billion in SNAP benefits.

“I think we're doing a lot of good things and I don't think we should throw the baby out with the bath water,” Reiber said.

Reiber says the fraud hurts families who use their benefits properly because it can reinforce false stereotypes about SNAP recipients, who typically receive about $4 a day for food.