BEFORE THE
 SENATE COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY
 
 APRIL 23, 1998

Good morning, Mr. Chairman and Members of the Committee. I am Yvette Jackson, Administrator of the U.S. Department of Agriculture's (USDA) Food and Nutrition Service (FNS).  Accompanying me today is Susan Carr Gossman, Deputy Administrator for the Food Stamp Program.

 A crucial part of the President's and Secretary Glickman's commitment to delivering nutrition assistance to needy Americans is ensuring that the integrity of the Food Stamp Program is protected from those who would abuse the program. It is our nation's most important nutrition program, and we make protecting its integrity our highest priority.  Fraud and abuse in the Food Stamp Program will not be tolerated.

Tomorrow marks my last day at the Food and Nutrition Service, and so I welcome this opportunity to appear before you today one last time--both to thank you for your unwavering bipartisan support for the Food Stamp Program during times of great change in our nation's approach to assistance programs, and also to reflect and share some thoughts on how much has been accomplished in just a few short years. We have:
            enacted and implemented major Food Stamp anti-fraud legislation;
  rapidly expanded electronic benefit transfer (EBT) systems;
  tightened eligibility screening for both recipients and retailers;
  aggressively pursued recipient claims collection activities; and
  dramatically increased penalties for recipients and retailers committing fraud.
 
EBT continues to be the most promising means of combating Food Stamp trafficking and has been a top priority for USDA since the first days of this Administration. Issuing food assistance benefits electronically has revolutionized the way we protect these benefits from fraud and abuse, by reducing street trafficking and by creating an electronic paper-trail linking those who cheat the program with the crime.

Electronic benefit delivery has been the key to delivering Food Stamp benefits efficiently, affordably and securely to recipients in a way that both improves the quality of service and reduces the stigma associated with paper coupons.  With EBT, recipients no longer have to worry about lost or stolen benefits as with paper coupons. One hundred percent of the benefits go to purchase food.  Cash change has been eliminated.

In 1992, barely one percent of all Food Stamp households nationwide were receiving their Food Stamp benefits electronically.  Today, forty percent of all households are using an EBT card at the grocery store to access their benefits. The number of States converting to EBT has grown dramatically, too.  Thirty-one States have now implemented Food Stamp EBT systems, in all or parts of their States.  Today, 35 percent of all benefits are issued electronically and, by the end of this year, that figure will rise to 50 percent.  All States will be issuing Food Stamp benefits electronically by the year 2002.

The Vice President has undertaken an initiative to encourage the use of EBT for multiple program delivery.   States are combining Food Stamp Program, Temporary Assistance for Needy Families, and other benefits on a single EBT card that adds the integrity benefits of EBT to other programs.

The welfare reform legislation has provided the Department with much sought after authority to strengthen enforcement of program integrity and eliminate fraud by ensuring that only legitimate stores participate in the program; by improving the agency's ability to monitor authorized firms; and by strengthening penalties against firms and recipients who violate program rules.  The Department now has authority to suspend retailers immediately for the most egregious of program offenses—trafficking in Food Stamp and EBT benefits.  We now have an important deterrent as well as a critical tool in the fight against fraud and abuse.  Yet more needs to be done to root out recipient and store fraud and maintain the public's confidence in this vital program.

FNS focuses on prevention—barring recipients who would abuse Food Stamps from getting an opportunity to do so. The agency discourages and prevents misuse of Food Stamps up front but, when deterrence fails, the agency aggressively pursues claims and penalties against wrongdoers.
Unreported income is a leading cause of ineligible households receiving benefits or eligible households receiving more benefits that they should.  FNS works closely with the States to reduce overpayments and payments to ineligible households, and I am pleased to report that, nationally, we have seen a dramatic improvement in payment accuracy.  The overpayment error rate for fiscal year 1996 was 6.92, a big improve- ment over just a few years ago.  Each year since fiscal year 1993, the overpayment error rate has declined, saving approximately $660 million in overpayments.

 In cases where households inadvertently or deliberately provide inaccurate information, FNS uses several methods to detect overpayments, to recover overpayments, and to penalize fraud.  We match Food Stamp rolls against other data bases that include information about recipients, social security numbers, wages, new hire registries, and motor vehicle data.  In addition, finger-imaging is a new fraud- detection tool that some States, such as Texas, are now testing.  As a result of legislation sponsored by members of this Committee, States also are now preparing to match nationwide information on prison inmates with Food Stamp caseloads.

 The Administration takes this effort very seriously. The receipt of Food Stamp benefits by prisoners – a group ineligible for them under the Food Stamp Act – compromises the integrity of the program.  The Administration is committed to cracking down on the receipt of Food Stamp benefits by prisoners and is currently developing plans to ensure that prisoner data collected by the Social Security Administration can be used to the fullest extent by the Food Stamp Program and other benefit programs to maintain program integrity by identifying and removing prisoners from the assistance rolls.

 Last month, GAO released a new report detailing the issuance of Food Stamp benefits to deceased individuals, and, again, Chairman Lugar, you moved quickly to sponsor legislation to facilitate the sharing of death information between the Social Security Administration, the Department of Health and Human Services, and State Food Stamp agencies so that when an eligible Food Stamp recipient passes away, the Food Stamp office will be informed.
Critical to the success of the Department's activities to combat fraud, Mr. Chairman, is our interaction and exchange of information with States.  To date, the State Exchange Program has made possible important Federal-State cooperative efforts that promote dialogue and the free flow of information on many Food Stamp Program management issues.

 GAO's reports have identified some cost-effective ways States can utilize automated data to improve the integrity of the Food Stamp Program. GAO's work has been, and continues to be, a source of assistance to our work protecting the program's integrity.

 Another area of importance is the States' efforts to collect claims against recipients.  Uncollected claims represent a substantial loss of money to the Federal government, a result that undermines public support.  Establishing claims and collecting them requires a substantial commitment on States' part, beginning with the identification of an erroneous payment.

 The GAO reports we are discussing today provide us with some examples of how Food Stamp benefits come to be improperly issued to households.  Food Stamp recipients are already required by law to report changes in their household composition to the food stamp office.  However, they do not always do so, as is evidenced by some households continuing to receive benefits for a household member who is incarcerated or deceased.

For many years, States have had difficulty recovering claims from recipients who refused to respond to written requests to pay up. As a result primarily of the Federal Tax Refund Offset Program, recipient repayments have greatly increased in recent years.  States collected a total of $186 million in recipient claims in fiscal year 1997--nearly double the pre-offset collections of 1991.  Of the $186 million collected, fraud claims represented $60 million; claims for inadvertent household errors (recipient mistakes) represented $104 million; and claims for State agency mistakes $22 million.  Of the total, $60 million represent either federal offsets or voluntary payments triggered by the threat of these offsets.  When the Department of Treasury completes implementation of the Debt Collection Improvement Act of 1996, we will also be able to collect recipient claims from other Federal payments.

 We have increased recipient fraud disqualifications; they are up twelve percent from over 94,124 in fiscal year 1996 to almost 106,000 in fiscal year 1997. New electronic benefit transfer (EBT) systems are proving especially useful.  Maryland, New Jersey, New Mexico, South Carolina and Texas have all used EBT data to identify recipient trafficking.  EBT helps us identify trafficking patterns that previously may have gone undetected, because it enables us to identify suspicious patterns for investigation and prosecution.

 While States use EBT to identify and investigate recipients suspected of trafficking, we at the Federal level have had enormous success using EBT to identify and take swift action against retailers who are cheating the program.  To understand how this works, let me take a minute to describe how stores participate in the program.

   Retailer oversight is a Federal responsibility, and begins with FNS screening retailers seeking approval to accept Food Stamps or EBT cards at their stores.   Although food vendors are essential partners in the Food Stamp Program, store authorization to participate is a privilege, not a right.  To participate, a store owner applies directly to one of our field offices, providing that office with information on the store's sales and food stock, the owners' social security numbers and business tax returns, and other business information.

 To the extent possible and that our resources allow, FNS field staff conduct store visits prior to authorizing a store, in order to make sure the store is, in fact, a real food store, not a liquor store or a dry cleaners, or an empty storefront devoted to illegal activities.  Currently, there are 186,700 authorized retailers participating in the Food Stamp Program nationwide.  Last year, we hired contract staff to perform pre- and post- authorization visits to stores to gather information for us on the nature of the business.  This year, there will be approximately 35,000 pre- and post- authorization store visits that we have contracted for, and we expect this effort to improve overall retailer integrity significantly.

 Still, in spite of our screening efforts, some authorized stores have owners or employees willing to sell ineligible items or engage in trafficking, allowing recipients to exchange their benefits for fifty cents on the dollar in cash.

FNS has a staff of 48 Compliance Branch investigators specifically dedicated to uncovering abuse by authorized retailers.  During the last five years, the Compliance Branch has investigated over 23,000 stores nationwide suspected of violations, and found evidence of violations in 45 percent of the investigations.  In over 7,000 of the cases, evidence gathered was enough to disqualify the stores or demand a civil money penalty in lieu of a disqualification.  These retailers violating program requirements redeemed over $900 million in Food Stamp benefits annually.  The Compliance Branch investigators uncovered trafficking—as opposed to sales of ineligible items—in over 4,000 of these stores.

FNS' Compliance Branch has also been actively pursuing with the U.S. Department of Justice federal civil prosecution under the False Claims Act against stores found trafficking in Food Stamps, which we estimated in 1993 as $815 million annually. Since this initiative began in 1992, there have been 566 negotiated settlements or judgments on FNS Compliance Branch cases, with settlements/judgments totaling over $5.8 million.

EBT continues to be the most promising means of combating Food Stamp trafficking.  Last year, FNS successfully deployed an automated EBT anti-fraud system called "ALERT."  The ALERT system records EBT transactions electronically so we have a record of the store, the date, the time, the purchase amount, and the recipient's card number and the point of sale terminal.  ALERT's computerized system examines and analyzes this data, quickly identifying suspicious patterns and speeding our ability to investigate, process and remove cheating stores from the program.

 Two years ago, FNS began aggressive efforts to sanction stores based on the pattern of individual EBT transactions, resulting in over 125 stores being disqualified from the program.  We look to this figure to grow as the use of ALERT becomes more widespread.
In closing, I want to thank you, Chairman Lugar, and members of this Committee, for your interest, commitment and cooperation in working with the Department to protect the integrity of the Food Stamp Program.  Your support for this crucial program has been greatly appreciated.

 Mr. Chairman, this concludes my prepared remarks.  I would be happy to answer any questions you have at this time.