Federal investigators have uncovered a gigantic food-stamp rip-off, but it's not being perpetrated by the legendary welfare recipient who buys unauthorized goods with food stamps intended for groceries. The culprits are local banks, Federal Reserve banks and the Agriculture Department, and their dereliction of duty has cost the taxpayers millions of dollars.
The food-stamp program, which means the difference between starvation and survival for millions of poor Americans, is administered by USDA's Food and Nutrition Service (FNS). Retailers accept the stamps as payment for market-basket necessities, and turn them over to local banks for cash. The local banks then turn their food stamps in to Federal Reserve banks for cash.
Despite the opportunity for fraud, the FNS apparently relied heavily on an honor system, according to a USDA inspector general's audit obtained by our reporter Karen Talley. How badly the agency's faith was misplaced is clear from the inspector general's findings:More than $202 million apparently was paid to local banks for nonexistent food stamps during one six-month period. Exactly how much of the $202 million involved fraud cannot be determined, auditor Neal Renken explained, because of sloppy bookkeeping by the banks and the FNS. The food-stamp system invites counterfeiters because the agency hasn't kept pace with the threats posed by sophisticated color-copy machines. FNS officials told investigators that as far as the new copying machines go, "they anticipate no problem with counterfeiting in the future because counterfeiting in the past has been nonexistent."
But Secret Service experts told the inspector general that food-stamp forgeries have increased dramatically in recent years. A copy-machine company representative assured auditors that food stamps "can be duplicated easily and accurately." The FNS wastes $2 million a year by its inefficient method of counting $5 and $10 food stamps. A change in the counting method could correct this, and proper policing would reduce fraud possibilities. Federal Reserve banks are paid $12 million a year to destroy used food stamps -- but private companies cannot bid on the job. Perhaps the agency's biggest failure in the fight against food-stamp fraud was the FNS bank-monitoring system set up to lead the attack. The program cost at least $2 million and failed to do its job, the inspector general reported. "Why have the system?" the auditor asked.
"Inaccurate and incomplete" information was fed into the computer monitor -- or no information at all. A total of $244 million in deposits never made it into the system, for example. And one deposit of $52,400 was entered as $5,240,000.
FNS Administrator Robert Leard submitted a response to the audit acknowledging the need for "major redesign" of the food-stamp redemption system. He resigned that post a week later, but said it had "absolutely nothing" to do with the inspector general's probe. The agency says it is taking steps to address the criticisms.