Nutrition Assistance Program Report Series

The Office of Analysis, Nutrition and Evaluation

Food Stamp Program Report No. FSP-02-OEBT

 Evaluation of the Expanded Off Line 

EBT System in Ohio

Volume 2: 

Assessment of Statewide Operations

United State Food and

Department of Nutrition

Agriculture Service

May 2002
Evaluation of the 

Expanded Off-Line 

EBT System in Ohio

Volume 2:

Assessment of 

Statewide Operations

FNS 53-3198-4-022

May 2002

Prepared for

Jenny Genser, Project Officer

USDA/FNS/OANE

3101 Park Center Drive

Alexandria, VA 22302

Prepared by

Christopher Logan

Ellen Bobronnikov,

Abt Associates Inc.

Cheryl Owens, MAXIMUS

Cambridge, MA

Lexington, MA

Hadley, MA

Bethesda, MD

Washington, DC

Chicago, IL

Cairo, Egypt

Johannesburg, South Africa

Abt Associates Inc.

55 Wheeler Street

Cambridge, MA 02138
Abt Associates Inc. Acknowledgments

Acknowledgments

On behalf of the evaluation team, I would like to thank the many helpful individuals who provided 

information for this report and contributed comments on the drafts.

At the Ohio Department of Jobs and Family Services, special thanks go to Mr. David Schwartz, the 

Direction Card project director. Mr. John Skaggs, Mr. Paul Scanlon, Mr. Theunis Greyling, Ms. 

Kathy Kiger, and Ms. Elinor Kohler provided a great deal of additional information. I would also like 

to thank the many county staff members who provided information on their implementation efforts, 

particularly the EBT coordinators in the counties where interviews were conducted.

My thanks go to the members of the Citicorp EFS team who provided so much information and 

insight throughout the study. At Citicorp EFS, we benefited from the considerable help of Mr. Marc 

Abramson, project director, and Ms. Lucy Roberts, assistant project director. Thanks go as well to 

Mr. Charles Feicht, Mr. William Lothes, Mr. Joseph McCorkhill, and Mr. William Richards of CACI, 

and to the SVS project team, including Mr. Patrick Guenthner and Mr. John Bianco.

At FNS, I extend special thanks to Ms. Jenny Genser, the project officer for the evaluation. She has 

provided thoughtful guidance, feedback and support throughout this lengthy project. This report has 

greatly benefited from the input of several other FNS staff, including Mr. Steven Carlson, Mr. Tim 

English, Ms. Joyce Kohler, Ms. Julie Kresge, Mr. Tim O’Connor, and Dr. Carol Olander.

My thanks for hard work and thoughtful contributions go to my co-authors, Ms. Ellen Bobronnikov 

of Abt Associates Inc. and Ms. Cheryl Owens of MAXIMUS, the subcontractor for this project. I 

extend my special thanks for support, guidance and insights to Dr. Kirlin, the former project director 

and present technical reviewer. Last but not least, I wish to thank the production team of Ms. Eileen 

Fahey, Ms. Katheleen Linton and Ms. Susan Byers Paxson for their assistance and patience.

Christopher Logan

Project Director
Acknowledgments Abt Associates Inc.
Abt Associates Inc. Contents i

Contents

Executive Summary....................................................................................................................1

Patterns of Statewide EBT Use and Recipient Service ................................................1

Operational Costs......................................................................................................2

Projections of FSP Costs under Various Conditions.....................................................5

Benefit Loss and Diversion........................................................................................5

Feasibility Assessment..............................................................................................7

Chapter 1: Introduction...........................................................................................................11

Chapter 2: Pattern of Statewide EBT System Use and Recipient Service.................................13

2.1 Introduction......................................................................................................13

2.2 Benefit Issuance and Loading Activities.............................................................13

2.3 Card Issuance ...................................................................................................15

2.4 Recipient Transactions......................................................................................16

2.5 Blocked Recipient Transactions.........................................................................18

2.6 Customer Service..............................................................................................19

Chapter 3: Operational Costs ..................................................................................................23

3.1 Introduction ....................................................................................................23

3.2 Research Design and Data Sources...................................................................24

Vendor Data .............................................................................................. 24

CDJFS Data .............................................................................................. 25

ODJFS Data.............................................................................................. 26

Caseload Data ........................................................................................... 26

Inflation Adjustments................................................................................. 26

3.3 Overview of Operationa l Costs for Statewide Data Direction Card System and

Comparison to Costs for Dayton Pilot ............................................................... 26

Operational Costs for Ohio Direction Card.................................................. 26

Comparison of Ohio Direction Card and Dayton Pilot.................................. 26

3.4 Vendor Operational Costs for Statewide Data Direction Card System and 

Comparison to Costs for Dayton Pilot ............................................................... 30

Operational Costs for Ohio Direction Card Vendor Team............................. 30

Comparison of Vendor Operational Costs for Ohio Direction Card and

Dayton Pilot.............................................................................................. 30

3.5 Local Operational Costs for Statewide Data Direction Card System and 

Comparison to Costs for Dayton Pilot ............................................................... 34

Local Operational Costs for Ohio Direction Card......................................... 34

Comparison of Ohio Direction Card Local Operational Costs for Small and 

Large Counties.......................................................................................... 36

Sensitivity Analysis ................................................................................... 37

Comparison of Ohio Direction Card Local Operational Costs for Early and 

Late Implementers..................................................................................... 40

Comparison of Local Operational Costs for Ohio Direction Card and 

Dayton Pilot.............................................................................................. 40

Summary of Local Operational Costs.......................................................... 43
ii Contents Abt Associates Inc.

3.6 Ohio Department of Jobs and Family Services Operational Costs for Statewide 

Direction Card System and Comparison to Costs for Dayton Pilot ...................... 43

Operational Costs for Ohio Direction Card.................................................. 43

Comparison of State Operational Costs for Ohio Direction Card and 

Dayton Pilot.............................................................................................. 44

3.7 Comparison of Ohio Direction Card System with Other EBT Systems................ 44

Comparisons to Other EBT Evaluation Results............................................ 45

Comparison of Overall Operational Costs for the Off-line Ohio Direction 

Card System with Maryland and Wyoming EBT Demonstration Systems...... 46

Comparison of Vendor Operational Costs for Ohio Direction Card with 

Maryland and Wyoming EBT Demonstration Systems................................. 46

Comparison of Local Operational Costs for Ohio Direction Card with 

Maryland and Wyoming EBT Demonstration Systems................................. 50

Comparison of Vendor Costs for Ohio Direction Card with Current Contracts 

for Maryland, Pennsylvania, and Virginia ................................................... 51

Chapter 4: Projections of FSP Costs Under Various Conditions.............................................. 57

4.1 Introduction .................................................................................................... 57

Highlights................................................................................................. 59

4.2 Scenarios to Reduce Costs for the FSP.............................................................. 59

Larger Caseload ........................................................................................ 59

Addition of a Benefit Program to the EBT System? WIC and TANF............ 62

Decrease in the Cost of POS and Administrative Terminals.......................... 67

Changes in Card Costs............................................................................... 70

4.3 Comparison of Cost Project Scenarios............................................................... 73

Most Favorable Scenarios .......................................................................... 73

Most Likely Scenarios for the Ohio Direction Card System.......................... 75

Chapter 5: Benefit Loss and Diversion..................................................................................... 77

5.1 Introduction .................................................................................................... 77

Purpose........................................................................................................... 77

Highlights of Findings ..................................................................................... 79

Framework for Analysis................................................................................... 81

5.2 Excessive Benefit Authorizations...................................................................... 83

5.3 Excessive Redemptions.................................................................................... 88

5.4 Production and Handling Losses....................................................................... 94

5.5 Benefits Lost or Stolen from Recipients............................................................ 95

5.6 Benefits Used in an Unintended Manner ......................................................... 101

5.7 The Effects of Disasters on EBT Vulnerabilities.............................................. 107

5.8 Conclusions .................................................................................................. 108

Chapter 6: Feasibility Assessment.......................................................................................... 111

6.1 Introduction .................................................................................................. 111

6.2 Meeting the Needs of Recipients, Retailers and FSP Agencies.......................... 111

Recipient Perspective..................................................................................... 112

Retailers........................................................................................................ 114

Local, State and Federal FSP Agencies........................................................... 116

6.3 Sustainability ................................................................................................ 119
Abt Associates Inc. Contents iii

6.4 Transferability and Adaptability ..................................................................... 120

6.5 Cost-Effectiveness......................................................................................... 121

References ............................................................................................................... 125

Appendix A Ohio Direction Card Vendor Resource Costs

Appendix B Data Sources and Methods for Analysis of County Operational Costs

Appendix C Cost Projection Assumptions and Detailed Results
iv Contents Abt Associates Inc.

List of Exhibits

Exhibit 2-1 Number of Months Since Completion of Recipient Conversion as of the Start

of the Evaluation Period (March 1, 2000) ................................................................ 13

Exhibit 2-2 Statewide Benefit Issuance and Loading, Average Per Month,

March – June 2000 ................................................................................................ 14

Exhibit 2-3 Statewide Card Deployment, March – May 2000..................................................... 15

Exhibit 2-4 Monthly Issuance and Replacement Rates for Counties, March – June 2000.............. 16

Exhibit 2-5 Card Issuance Rates by County Quartile, March – June 2000.................................... 16

Exhibit 2-6 Statewide Recipient Transactions, March – June 2000 ............................................. 17

Exhibit 2-7 Statewide Blocked Recipient Transactions, March – June 2000 ................................ 19

Exhibit 2-8 Number of Recipient Calls Received Statewide, by Type of Assistance

Received, March – June 2000................................................................................. 20

Exhibit 2-9 Statewide Recipient Calls to Customer Service Operators, by Reason,

March – June 2000 ................................................................................................ 21

Exhibit 2-10 Number of Retailer Calls Received Statewide, by Type of Assistance Received,

March – June 2000 ................................................................................................ 21

Exhibit 2-11 Statewide Retailer Calls to Customer Service Operators, by Reason,

March – June 2000 ................................................................................................ 22

Exhibit 3-1 Ohio Direction Card: Overall Operational Costs and Level of Effort........................ 27

Exhibit 3-2 Comparison of Total Operational Costs Per Case Month for Ohio Direction

Card and Dayton Pilot............................................................................................ 28

Exhibit 3-3 Comparison of Total Vendor Operational Costs Per Case Month for Ohio

Direction Card and Dayton Pilot............................................................................. 32

Exhibit 3-4 County Operational Costs for Ohio Direction Card, by Labor Category..................... 36

Exhibit 3-5 Comparison of Local Operational Costs Per Case Month for Ohio Direction

Card by Function................................................................................................... 37

Exhibit 3-6 Relationship of Ohio Direction Card Operational Costs for Sample Counties

to County Caseload................................................................................................ 38

Exhibit 3-7 Ohio Direction Card Comparison of Total County Operational Costs Per Case

Month Excluding Extreme Sample Counties from Groups........................................ 39

Exhibit 3-8 Relationship of Ohio Direction Card Operational Costs for Sample Counties 

to Implementation Completion Date........................................................................ 41

Exhibit 3-9 Comparison of Local Operational Costs Per Case Month for Ohio Direction Card

and Dayton Pilot, by Labor Category...................................................................... 42

Exhibit 3-10 Ohio Direction Card: Operational Costs for Ohio Department of Jobs and

Family Services..................................................................................................... 45

Exhibit 3-11 Comparison of Total Operational Costs Per Case Month for Ohio Direction Card

and Maryland and Wyoming EBT Demonstration Systems....................................... 47

Exhibit 3-12 Comparison of Total Vendor Operational Costs Per Case Month for Ohio Direction 

Card and Maryland and Wyoming EBT Demonstration Systems............................... 47

Exhibit 3-13 Comparison of Local Operational Costs Per Case Month for Ohio Direction Card

and Maryland and Wyoming EBT Demonstration Systems, by Labor Category......... 50

Exhibit 3-14 Comparison of Vendor Contracts for Ohio Direction Card and Selected 

On-Line States....................................................................................................... 53
Abt Associates Inc. Contents v

Exhibit 4-1 Impact of Larger Caseload on Food Stamp Program (Costs per Case Month)............. 61

Exhibit 4-2 Impact of Adding WIC on Food Stamp Program (Costs per Case Month).................. 63

Exhibit 4-3 Impact of Adding TANF on Food Stamp Program (Costs per Case Month) ............... 66

Exhibit 4-4 Impact of Basing Quantity of Retailer Terminals on FNS’ Formula (Costs per

Case Month).......................................................................................................... 68

Exhibit 4-5 Impact of Reduced Equipment Costs (Costs per Case Month)................................... 69

Exhibit 4-6 Impact of Retailer Use of Integrated POS Equipment (Costs per Case Month) ........... 70

Exhibit 4-7 Impact of Implementation of Replacement Fees (Costs per Case Month)................... 72

Exhibit 4-8 Impact of Reduction in Cost of Direction Cards (Costs per Case Month)................... 73

Exhibit 4-9 “Low” Projections of EBT Costs under Various Conditions (Costs per Case Month).. 74

Exhibit 5-1 EXCESSIVE AUTHORIZATIONS: Benefits are authorized to the wrong people 

or in the wrong amount .......................................................................................... 89

Exhibit 5-2 EXCESSIVE REDEMPTIONS: Credits to the wrong people or in the 

wrong amount ....................................................................................................... 93

Exhibit 5-3 PRODUCTION AND HANDLING LOSSES: Benefits are lost or stolen before 

issuance and later redeemed................................................................................... 96

Exhibit 5-4 BENEFITS LOST OR STOLEN FROM RECIPIENTS: A person other than an 

authorized recipient redeems benefits that are lost or stolen.................................... 102

Exhibit 5-5 BENEFITS USED IN AN UNINTENDED MANNER: Benefits are used by 

recipients for unintended purposes........................................................................ 106

Exhibit 6-1 Advantages and Disadvantages of the Ohio Direction Card System for FSP

Recipients, as Compared with the Most Streamlined On-Line EBT Systems............ 112

Exhibit 6-2 Advantages and Disadvantages of the Direction Card System for FSP

Retailers, as Compared with the Most Streamlined On-Line EBT Systems.............. 115

Exhibit 6-3 Advantages and Disadvantages of the Direction Card System for FSP

Agencies, as Compared with the Most Streamlined On-Line EBT Systems.............. 117
vi Contents Abt Associates Inc.
Abt Associates Inc. Executive Summary 1

Executive Summary

This is the second volume of the final report of the Evaluation of the Expanded Off-Line Electronic 

Benefit Transfer (EBT) System in Ohio. As described in Volume 1, this system uses a smart card 

(i.e., an electronic transaction card with a built-in processor and memory) known as the Ohio 

Direction Card. Each food stamp transaction occurs through interaction between the smart card and 

the retailer’s point-of-sale (POS) terminal. In contrast, 42 States and the District of Columbia use online EBT systems, in which the POS terminal communicates on-line with a central computer to obtain 

authorization for each transaction. The Food Stamp Act (as amended in 1996) requires all States to 

implement EBT systems by October 2002, but the Act allows the States to choose either on-line or 

off-line EBT technology.

Beginning in July 1996, the Ohio Direction Card system was designed, developed and implemented 

by the Ohio Department of Jobs and Family Services (ODJFS), its team of contractors led by Citicorp 

Electronic Financial Services Inc. (Citicorp EFS), and the 88 County Departments of Jobs and Family 

Services (CDJFS). Since February 2000, all recipients in the Food Stamp Program (FSP) in Ohio 

have received their benefits via the Ohio Direction Card, except for certain recipients of Supplemental 

Security Income (SSI) who receive their FSP benefits as cash supplements to their SSI checks.

This volume presents the evaluation’s findings regarding the operations of the Ohio Direction Card 

system after the completion of the design, development and implementation stages described in 

Volume 1. These findings are based on an extensive array of data collected from existing reporting 

processes, special reports for the evaluation, and interviews with system officials. The data used in 

this report represent the Ohio Direction Card system as it operated in March through June 2000. As 

of March 1, 2000, 82 percent of food stamp recipients were in counties that had been fully converted 

to EBT for at least three months. The principal data collection for this volume took place from May 

through July 2000, although additional data were collected in the summer and winter of 2001. The 

evaluation results were compared with findings from the three most recent EBT system evaluations—

the studies of the statewide Maryland on-line EBT system, the Dayton, Ohio off-line EBT pilot 

system, and the Wyoming off-line EBT pilot system. Comparisons with the coupon issuance system 

were not included, because of the mandate for all States to implement EBT. 

Patterns of Statewide EBT System Use and Recipient Service

Reports produced by the Ohio Direction Card system provide insights into the patterns of system use 

by recipients. The system served an average of 257,600 FSP households per month during the 

evaluation period. About $44 million in food stamp benefits were made available each month. 

Recipients loaded about $43 million in benefits per month onto their cards, and $1 million in benefits 

per month were returned after reaching their expiration dates. On average, each recipient household 

made 6.8 purchases per month using retailer point-of-sale (POS) terminals, with an average value of 

$24 per POS purchase. Only 0.06 percent of transactions were manual purchases authorized by the 

EBT vendor’s customer service unit when the retailer could not perform a regular POS transaction. 

About 0.3 percent of POS transactions were blocked by system security measures, mostly because the 

cardholder entered the wrong personal identification number (PIN).

At the local CDJFS offices, one of the major recipient service tasks was issuing Ohio Direction Cards 

to new food stamp households and as replacements for lost, stolen or damaged cards. On average, 
2 Executive Summary Abt Associates Inc.

about 9,100 cards for new households and 8,500 replacement cards were issued each month. The 

statewide monthly replacement rate was 35 cards per thousand cases, but it ranged among the 

counties from 14 per thousand cases to 89 per thousand cases. The counties that implemented first 

tended to have the highest replacement rates. Over time, cards are increasingly likely to be replaced 

because of damage or loss. At the time covered by these data, the CDJFS often replaced recipients’ 

cards when they transferred, but subsequent system improvements eliminated this source of card 

replacements.

Customer service statistics provide a window on the needs for assistance encountered by recipients 

and retailers. The customer service center received, on average, about 157,000 calls per month from 

EBT recipients and 10,000 calls from retailers. About 84 percent of all recipient calls to the center 

were balance inquiries handled by the system’s audio response unit (ARU), which also handled 15 

percent of retailer calls. Customer service operators handled the remaining calls. Balance inquiries 

made up the vast majority (89 percent) of the recipient calls handled by customer service operators. 

The most common reasons for retailer calls to customer service operators were equipment and 

communications problems (43 percent) and inquiries about settlement (31 percent).

Operational Costs

For the period analyzed, the estimated total operational cost of the statewide Ohio Direction Card 

system averaged $1.7 million per month, or $6.56 per month per participating case. This cost 

includes both the expenses incurred directly by ODJFS and those billed by Citicorp EFS and the 

CDJFS to ODJFS, as shown in Exhibit ES-1. The estimated cost of ODJFS activities, including EBT 

unit staff and technical support, was $0.20 per case month. The estimated average operational cost 

billed to ODJFS by Citicorp EFS was $4.48 per case month. The estimated average CDJFS cost for 

EBT services was $1.88 per case month. ODJFS reimburses the CDJFS for FSP administrative costs, 

including EBT costs.

ODJFS paid Citicorp EFS $3.99 per case month for basic EBT services provided by Citicorp EFS and 

its subcontractors. (All costs presented on a per-case month basis were computed using the number of 

participating cases. Citicorp EFS’ monthly fee for these services was $3.80 for each household to 

which ODJFS issued benefits, including participating and non-participating households.) ODJFS also 

paid Citicorp EFS $0.49 per case month for costs added to the basic EBT service contract, including 

leases and maintenance on supplemental equipment and telecommunications fees. To address retailer 

concerns, ODJFS paid to equip 2108 more checkout lanes than required by the Federal formula for 

equipping FSP retailers. The billed vendor cost includes depreciation of the one-time cost of the 

supplemental equipment leases and an estimated monthly average cost of the maintenance and 

supplies for the equipment, both over a five-year period. 

The largest functional component of the vendor costs as billed to ODJFS was the estimated cost of 

$2.66 per case month for providing all POS and administrative terminals used in the system. This 

portion of the billed vendor cost covered leases, supplies and maintenance for both the equipment 

mandated by the basic contract and the supplemental equipment requested by ODJFS. (Evaluation 

data on vendor resource costs were used to break down the billed vendor costs into functional 

components.) The other components of billed vendor costs were administration and reconciliation 
Abt Associates Inc. Executive Summary 3

Exhibit ES-1

Ohio Direction Card Operational Costs 

Cost Category

Average Monthly 

Cost

Average Cost Per 

Case Montha

Billed Vendor Costs

Basic Monthly Feesb$1,028,304 $3.99

Additional Equipment for 2108 lanesc$47,618 $0.18

Maintenance and Supplies for Additional 

Equipmentd

$76,591 $0.30

Toll-free Access to Customer Service $2,035 $0.01

Total Billed Vendor Costs $1,154,547 $4.48

Local Costs

Labor $338,653 $1.31

Overhead $144,384 $0.56

Total Local Costs $483,038 $1.88

ODJFS Costs $50,989 $0.20

Total Costs $1,688,574 $6.56

a The number of cases used is 257,600, the average caseload between March and June 2000. 

b The basic charge per case is $3.80, but the higher cost per case reflects the fact that, on average, about 5 percent of cases with st aged 

issuances do not pick up benefits.

c The cost of equipment represents straight-line depreciation of lump-sum lease payments over a 5-year period.

d Maintenance cost is an average over a 5-year period, rather than just over the evaluation period.

($0.52 per case month), smart cards ($0.46 per case month), data center operations ($0.34 per case 

month), communications ($0.29 per case month), customer service ($0.14 per case month), and other 

costs ($0.07 per case month).

The estimated CDJFS cost of $1.88 per case month for Direction Card operations included labor costs 

and associated overhead. This figure represents a statewide average estimated from data collected in 

interviews with staff in five large CDJFS and five small CDJFS. The vast majority of this cost ($1.54 

per case month) was for specialized staff who issued cards, trained new recipients, and resolved 

problems. Supervisors to these staff accounted for $0.30 per case month, and the remaining $0.04 per 

case month was for the occasional assistance of caseworkers. 

The CDJFS costs included three categories of activity: card services, benefit services, and 

administration. Time spent on card-related activities (including recipient training, card issuance, and 

card trouble-shooting) cost $1.30 per case month. Dealing with benefit-related needs cost $0.30 per 

case month, and local administration cost $0.28 per case month. Large counties had an average cost 

of $1.76 per case month, whereas small counties had an average cost of $2.01 per case month, mainly 

because of differences in efficiency attributable to economies of scale. 

The estimated operational cost per case month of the statewide Ohio Direction Card system was 29 

percent less than the $9.22 per case month operational cost of the Dayton, Ohio off-line EBT pilot 
4 Executive Summary Abt Associates Inc.

system (as estimated in 1992 and adjusted to FY2000 dollars). The dramatically larger size of the 

Ohio Direction Card system enabled ODJFS to realize substantial economies of scale, particularly in 

project administration and data center operations. In addition, the Ohio Direction Card was a more 

mature and stable system than the Dayton pilot system (on which it was based). The costs of smart 

cards and other off-line EBT technology had declined since the time of the pilot. The overall CDJFS 

cost for the Ohio Direction Card was very similar to the $1.95 per case month CDJFS cost for the 

Dayton pilot, because greater efficiencies in the larger counties were offset by the addition of the 

smaller counties with their higher costs.

The operational cost per case month for the Ohio Direction Card system was 56 percent more than the 

$4.20 per case month cost of the Maryland on-line EBT demonstration system. The Maryland 

demonstration costs were estimated in 1993 by the last empirical evaluation of on-line EBT costs; the 

original results have been adjusted to FY2000 dollars. Both vendor and local agency costs were 

substantially less in the Maryland on-line demonstration system than in the Ohio Direction Card 

system. One reason is that off-line EBT hardware and software are more sophisticated and expensive 

than on-line EBT technology. Another reason is that the 1993 FSP caseload in Maryland was much 

higher, relative to the number of retailer checkout lanes and other key parameters, than the 2000 FSP 

caseload in Ohio. In addition, the Maryland demonstration system served cash assistance programs 

as well as the FSP, so POS equipment costs, card-related expenses and technical support costs were 

shared. Local agency costs were higher in the Ohio Direction Card system than in the Maryland 

demonstration system, because more problems in off-line EBT systems require the assistance of the 

local office.

On the other hand, the Ohio Direction Card operational cost per case month was 43 percent less than 

the inflation-adjusted cost of $11.61 per case month for the FSP portion of the Wyoming off-line EBT 

demonstration system. The Wyoming demonstration served both the FSP and the WIC program in a 

single county when it was evaluated in 1995; six other counties had only the WIC portion of the 

demonstration system. (Wyoming has since implemented a statewide off-line EBT system for the 

FSP and WIC on a multi-vendor contracting model.) Much of the difference in cost between these 

two systems can be attributed to the small scale and novelty of the Wyoming demonstration system. 

These effects were partially offset by the sharing of card and POS equipment costs in the Wyoming 

demonstration between the FSP, WIC, and the use of the smart card as a portable health record.

Analysis of vendor fees in three States with recent on-line EBT contracts suggests that the Ohio 

Direction Card is more expensive for a vendor to operate than comparable on-line EBT systems, 

under current conditions. The three States in the analysis were Maryland, Pennsylvania and Virginia, 

all of which have contracts that are similar to Ohio’s in size, prime contractor, and recipient service 

requirements. The size of the cost premium is uncertain, but it is likely $1 per case month or more. 

The largest factor explaining the observed cost differences is the cost of providing POS equipment to 

all FSP retailers. In on-line EBT systems, vendors equip only a fraction of the FSP retailers, because 

many retailers use multi-purpose POS terminals to accept credit and debit cards as well as EBT. 

ODJFS’ formula for providing retailer equipment is more generous than the FNS regulations, and 

ODJFS requires a higher standard for timeliness of equipment repair than most States. Card costs 

also contribute to the higher vendor costs in the Ohio Direction Card system, but these costs may be 

partially offset by the substitution of processing on the card for on-line processing by 

telecommunications networks and the host computer. 
Abt Associates Inc. Executive Summary 5

Although there are only a few full-service on-line EBT vendors, there has been even less competition 

in off-line EBT procurements, at least until the most recent solicitation by New Mexico and Texas. 

Thus, current on-line EBT vendor fees may be more competitively priced than the current fees for the 

Ohio Direction Card. There are concerns, however, that declining competition may lead to increased 

prices for on-line EBT services, relative to the level of service provided. Further analysis beyond the 

scope of this study, including sensitive vendor cost data for both types of systems, would be required 

to discern the cost impacts of differences in technology, level of service, and the vendor marketplace.

Projections of FSP Costs Under Various Conditions

To probe the factors that shaped the FSP administrative costs of the Ohio Direction Card system, and 

to investigate how the system’s costs might be reduced, projections of costs were made for a series of 

hypothetical scenarios. These scenarios provide insights into how EBT cost savings for the FSP 

might occur with increases in the caseload served, addition of other benefit programs to the system, 

decreases in POS and administrative terminal costs, and changes in recipient services. For most 

scenarios, “high” and “low” projections were made, using different assumptions for critical 

parameters.

The scenario with a FSP caseload of 600,000 (the level for which the Ohio Direction Card system 

was designed) yields the lowest operational cost, $4.31 per case month for vendor, local and State 

operations with the more optimistic assumptions. The other scenarios with the most impact on FSP 

operational costs are (a) the addition of WIC benefits to the EBT system on a statewide basis; (b) the 

addition of Temporary Assistance to Needy Families (TANF) benefits on a statewide basis; and (c) 

the use of integrated POS equipment to accept commercial debit cards, credit cards and EBT cards in 

multi-lane stores. All of the scenarios with the most impact on FSP costs achieve much of their 

results through the sharing of POS terminal costs, and these scenarios generally achieve additional 

savings through the sharing of fixed central costs. On the other hand, none of the scenarios reduces 

local office costs to the level estimated for on-line EBT systems. 

None of the scenarios reduces the FSP EBT cost to the $3.92 per case month level that would 

represent cost-neutrality (i.e., total cost less than under the coupon system, after adjusting for 

inflation). FNS standards (based on prior coupon issuance costs in Ohio) capped FY2000 Federal 

reimbursements of FSP EBT costs at $1.96 per case month or 50 percent of actual costs, whichever 

was less. Thus, to the extent that FSP EBT costs exceeded $3.92 per month, ODJFS bore all of the 

additional costs, and the system was not cost-neutral. It is possible, but not certain, that some 

combination of the scenarios in this report might reduce FSP EBT costs to the cost-neutrality level. 

The Food Stamp Reauthorization Act of 2002 eliminated the cost-neutrality requirement for EBT 

systems, but the underlying issue of high costs for the Ohio Direction Card system remained.

Benefit Loss and Diversion

The evaluation assessed the vulnerabilities of the Ohio Direction Card system to benefit loss and 

diversion, and it compared these vulnerabilities to those of the Dayton, Ohio off-line EBT pilot 

system and the Maryland on-line EBT demonstration. As in the Dayton and Maryland evaluations, 

the risks were assessed for five categories of vulnerabilities: excessive authorizations of benefits to 

recipients, excessive redemption credits to retailers or banks, production and handling losses, benefits 

lost or stolen from recipients, and benefits used in an unintended manner (e.g., trafficking). The 
6 Executive Summary Abt Associates Inc.

assessments were based on nine interviews with a range of stakeholders and security specialists with 

knowledge of EBT, the Ohio Direction Card system, or off-line system and smart card technologies.

In general, the Ohio Direction Card system was judged to pose less risk of benefit loss to the FSP 

than either of the previously evaluated EBT systems or the current on-line EBT systems. The security 

features of the smart card environment contributed to the reduction in risk, as did Ohio Direction Card 

policies and procedures shaped by system features. 

The total estimated losses for the Ohio Direction Card system are just under 0.19 percent of benefits, 

including all potential losses to the FSP, retailer losses, and recipient losses. This figure is 

substantially less than the estimated total losses for the Maryland on-line demonstration, at 0.47 

percent of food stamp benefits, and it also represents a lower level of risk than in the Dayton, Ohio 

off-line pilot, which was estimated at less than 0.25 percent of benefits. The estimated FSP loss for 

the Ohio Direction Card is less than 0.01 percent of benefits, essentially the same as the 0.005 percent 

estimate for the Maryland on-line demonstration and less than the 0.03 percent estimate for the 

Dayton off-line pilot.

The most significant reductions in estimated loss were in the areas of excessive authorizations and 

excessive redemptions. The estimated reduction in vulnerability was attributed to procedural changes 

and additional system safeguards. A key factor in the reduction in estimated vulnerability for the 

authorization process is the addition of message authentication codes. The card uses the message 

authentication code to check whether it has already processed the authorization, thereby preventing 

duplicate posting of benefits, and whether the authorization data have been altered. Causes for 

reductions in redemption losses include the Direction Card system requirement that retailers obtain an 

authorization code before clearing daily transactions from their POS terminals. This control reduces 

the risk of a retailer losing sales by clearing a batch from the terminal before uploading the 

transactions to the processor. (This vulnerability represents a loss to the retailer, but it is included in 

the total estimated risk of redemption losses.)

Two factors virtually eliminated loss-prone manual voucher transactions. First, the off-line 

technology eliminated communication problems as a reason for manual vouchers. Second, ODJFS 

adopted a policy requiring retailers to bear liability for this type of transaction, because of the 

difficulty of verifying the recipient’s balance at the time of authorization. The off-line technology 

also eliminated another source of risk, the on-line systems’ option of key-entering the card number 

instead of electronically reading the card. 

On the other hand, the estimated risk of benefit diversion to unintended purposes is between 2.18 and 

3.67 percent of benefits, a range that is higher than the estimates from the previous EBT evaluations 

for a combination of historical and methodological reasons. Since the previous evaluations, there has 

been an extended period for perpetrators of fraud to learn how EBT systems operate and adapt their 

methods of trafficking and other forms of benefit diversion. Meanwhile, the available estimates of the 

overall rate of FSP trafficking have increased considerably. A 2000 FNS study of data on retailer 

characteristics and compliance investigation results estimated the rate of trafficking at 4.0 percent of 

benefits in the paper coupon system and 3.5 percent with a combination of paper coupons and EBT.

When the previous evaluation findings are updated to incorporate the new trafficking estimates, the 

estimated rate of benefit diversion in the Ohio Direction Card system is slightly less than the updated 

estimate of 3.69 percent of benefits for the Maryland on-line demonstration. This difference reflects a 
Abt Associates Inc. Executive Summary 7

smaller risk of redemption by unauthorized retailers in the Ohio Direction Card. Because of the 

increased experience of recipients and retailers, the benefit diversion estimate for the Direction Card 

is equal to or greater than the updated estimate of 2.18 percent for the Dayton off-line pilot. Study 

respondents believed that the familiarity of recipients and retailers with the system enables them to 

find methods of trafficking that are harder to detect.

The Ohio Direction Card system has a slightly lower risk of retailer loss than the Dayton pilot or the 

Maryland on-line EBT demonstration. This difference reflects an expectation of fewer processing 

errors, but it also reflects the greatly reduced incidence of manual transactions. During their 

respective evaluation periods, the Ohio Direction Card system had far fewer manual transactions (as a 

percent of all transactions) than the Maryland on-line EBT demonstration. Retailers are always liable 

for manual transactions in the Ohio Direction Card system, whereas these transactions are guaranteed 

under most conditions in on-line EBT systems. It is unclear whether the difference in manual 

transactions reflects a reduced need (because of the off-line technology), reluctance of retailers to 

process manual transactions because of liability, or a combination of these factors.

The experts interviewed for the study felt that, on balance, retailers in the Ohio Direction Card system 

are less likely to experience losses from manual sales than in on-line systems, despite the lack of a 

guarantee of funds for manual sales. The retailers’ liability for manual sales in the Ohio Direction 

Card system is offset by two factors: the elimination of technological problems that cause retailers to 

process manual sales and the policy restricting when manual sales are authorized.

Feasibility Assessment

Overall, the Ohio Direction Card system has successfully met the needs of recipients, retailers and 

FSP agencies. Recipients have been able to load benefits and redeem them for food with relatively 

few problems. Retailers have been provided sufficient equipment and training, and problems with 

POS equipment and system access are rare. FSP agencies have successfully adapted to their new 

roles and processes for card issuance, benefit issuance, settlement, reconciliation, and retailer 

management.

From the perspective of recipients, the Ohio Direction Card system has both advantages and 

disadvantages relative to on-line EBT systems as they operate in most States, particularly those States 

that have streamlined local operations to reduce costs. The Ohio Direction Card system offers a high 

level of recipient service, but recipients must go to local offices for card issuance, training, card 

replacement, and unlocking cards that have been flagged as suspicious. Many on-line EBT systems 

offer these services both in-person and by telephone or mail. Ohio recipients are less likely to 

encounter transaction delays and the need for manual transactions. On the other hand, they must wait 

longer for benefits to be available after new or replacement card issuance. Each recipient has a limited 

number of sites to load benefits, which expire if not picked up by the end of the month (as required bo 

ODJFS policy). Ohio Direction Cards cannot be used when traveling or moving out of state. 

Compared with recipients in on-line EBT States, Ohio recipients can expect a slightly lower risk of 

benefit loss or theft, but differences between card and host balances increase the likelihood of 

recipient confusion.

Retailers also face both advantages and disadvantages under the Ohio Direction Card system, as 

compared with the typical on-line EBT environment. Unlike in many on-line States, all retailers 
8 Executive Summary Abt Associates Inc.

receive free EBT equipment and on-site training, including low-volume stores, route vendors, and 

farmers’ markets. The State’s formula for providing this equipment is more generous than FNS 

regulations require. On the other hand, retailers have found it too costly to integrate the Ohio 

Direction Card system with their credit/debit terminals and cash registers, and the dedicated EBT 

equipment requires extra space and special training for personnel. Like the recipients, Ohio Direction 

Card retailers gain from not being dependent on telecommunications networks and host computers to 

complete transactions. Ohio retailers can accept out-of-state EBT cards only if they have suitable 

direct-connect or third-party processor commercial POS systems, and out-of-state retailers wishing to 

accept Ohio Direction Cards are constrained by the system’s lack of interoperability with their States’ 

EBT systems. The EBT vendor provides a high level of service, but retailers are dependent on the 

vendor because of the reliance on dedicated equipment. As previously discussed, the Ohio Direction 

Card system has a slightly lower risk of retailer loss from overdrafts on manual transactions. This 

difference may result from a reduced need for manual transactions, policies limiting when they can be 

authorized, reluctance of retailers to process manual transactions because of liability, or a 

combination of these factors. 

For local FSP offices, the Ohio Direction Card system provides a high level of equipment and 

support, and the equipment is in some ways more efficient than equivalent equipment for on-line EBT 

systems. On the other hand, the Ohio Direction Card system requires local staff to use costly 

supplemental equipment or hotline assistance to replace cards, change personal identification 

numbers, or change recipients’ issuance sites. The requirement to load benefits at a local site before 

they expire serves as a check on recipients who may move without reporting or may be participating 

fraudulently. On the other hand, the steps required to make benefits available to new recipients make 

this process less efficient and slower than in on-line EBT systems, and updates to the benefit issuance 

history are slower. 

From the broader perspective of all FSP administrative agencies, the principal advantage of the Ohio 

Direction Card system is the lack of reliance on on-line transaction processing by third-party 

processors, retailers’ in-house processing systems, telecommunications networks and host computers. 

As a result, the Ohio Direction Card system as a whole is operationally more stable and less prone to 

downtime than on-line EBT systems. Its cost structure is likely to be more stable as well, because it is 

less sensitive to variability in the volume, timing and routing of transactions. In addition, the Ohio 

Direction Card system appears to offer a slightly lower risk of benefit loss and diversion. Compared 

with on-line EBT systems, the Ohio Direction Card system is less vulnerable to interruption of benefit 

redemption in a short-term (1-3 day) disaster, because retailers can continue to process transactions 

without access to the EBT host computers (and even without regular electrical power). On the other 

hand, the Ohio Direction Card system is more likely to encounter problems with benefit issuance in a 

disaster, and mass card issuance for widespread disaster relief is more difficult. 

The principal disadvantage of the system to FSP agencies is that it has higher costs for 

implementation and operations due to the greater requirements for dedicated POS terminals, in-person 

recipient service, and card technology. The Ohio Direction Card system provides less timely 

information on card activity for program monitoring. The process of disconnecting terminated 

retailers is also slower, leaving more opportunity for retailer abuse. Some procedures for conducting 

retailer investigations in on-line EBT systems are more cumbersome or not feasible in the off-line 

environment.
Abt Associates Inc. Executive Summary 9

The Ohio Direction Card system appears to be able to operate in its current form for the foreseeable 

future, but there are some important challenges to be faced. The greatest issue is whether ODJFS will 

have more than one off-line EBT vendor team available in the future. The extent of competition will 

affect both future costs and the ability to continue operations if one firm left the market. In the longer 

term, developments in enhanced EBT and other smart card applications may provide ODJFS (and 

other States) more contracting options, such as a combined procurement for an off-line EBT and 

electronic service delivery (ESD) system. ODJFS also needs to address the obsolete operating system 

and telecommunications interface used in the CMS terminals, which are vital to card issuance and 

other recipient services.

There are a number of issues that would have to be addressed to adapt the Ohio Direction Card 

system to serve the FSP in another state. The main issue is that, like Ohio, other States adopting offline EBT would have to build the off-line POS terminal infrastructure largely from scratch, either on 

their own or in partnership with major retailers. Another issue is the lack of interoperability with online EBT systems. The rise of self-checkout systems may pose a problem for Ohio and other States, 

because self-checkout procedures are more dependent on integrated electronic payment systems than 

conventional procedures involving a cashier.

Similarly, there are important issues affecting the feasibility of extending the Direction Card system 

to other programs administered by ODJFS and similar agencies, particularly TANF. The costeffectiveness of off-line EBT is the largest issue for all of these programs. For TANF, the other key 

issue is finding a way to make cash available , when the most widely available systems for dispensing 

cash (ATMs) are not equipped to accept smart cards. The use of smart cards for child care assistance 

and other ODJFS programs is an interesting but unproven possibility.

For the WIC program, the technical feasibility of off-line EBT has been demonstrated in Wyoming, 

but there is still the challenge of bringing costs down to that of paper checks and vouchers. The WIC 

program has not yet demonstrated that an off-line EBT system will be acceptable to WIC retailers 

when implemented in a large state such as Ohio, with its numerous urbanized areas containing large 

concentrations of participants. Retailers’ acceptance will depend on the balance of two factors: the 

challenges of integrating WIC EBT processing with checkout counter operations and the gains from 

eliminating paper WIC food instruments. The FSP/WIC EBT pilot in Ohio and other States’ WIC 

EBT initiatives offer new opportunities for solutions to these problems.

Aside from the issue of cost, the Ohio Direction Card system appears to be a viable alternative to the 

prevalent on-line EBT systems. Neither type of system has a clear overall advantage in effectiveness. 

On balance, the Ohio Direction Card system appears to have more advantages than disadvantages for 

recipients. For retailers and FSP agencies, the preference depends on the importance attached to each 

system’s advantages and disadvantages.

The evaluation results indicate that achieving costs at the level of the standard based on paper 

issuance costs would require major changes in the FSP caseload or other fundamental parameters. 

The cost difference between the Ohio Direction Card system and comparable on-line EBT systems 

may be smaller than the gap between the Ohio Direction Card system’s costs and the paper issuance 

cost standard, but the evidence is far from clear. If concerns about diminishing competition among 

on-line EBT vendors are realized, the cost difference between off-line and on-line EBT systems could 

diminish.
10 Executive Summary Abt Associates Inc.

The evaluation results pose a challenge for Federal and State decision-makers considering the future 

of off-line EBT systems for the FSP. The choices could be made clearer through acquisition of more 

information on the reliability and user acceptance of the Ohio Direction Card system and current online EBT systems, and on the relationship of costs to service levels in on-line EBT systems. Unless 

the results point to a clear and considerable preference for the Ohio Direction Card system, there 

would remain the challenge of weighing and valuing the differences in effectiveness between the 

Ohio Direction Card system and on-line EBT systems. The evaluation results suggest that, in the near 

term, the net value of the Direction Card system’s advantages would have to be quite substantial to 

offset the current cost difference. Future public and private developments in smart card applications 

and in the marketplace for transaction processing services may change the balance and offer a more 

attractive environment for pursuing this robust but still emerging technology.
Abt Associates Inc. Chapter 1: Introduction 11

Chapter 1

Introduction

This is the second volume of the final report of the Evaluation of the Expanded Off-Line Electronic 

Benefit Transfer (EBT) System in Ohio. As described in Volume 1, this system uses a smart card 

(i.e., an electronic transaction card with a built-in processor and memory) known as the Ohio 

Direction Card. Each food stamp transaction occurs through interaction between the smart card and 

the retailer’s point-of-sale (POS) terminal. In contrast, 42 States and the District of Columbia use online EBT systems, in which the POS terminal communicates on-line with a central computer to obtain 

authorization for each transaction. The Food Stamp Act (as amended in 1996) requires all States to 

implement EBT systems by October 2002, but the Act allows the States to choose either on-line or 

off-line EBT technology.

Beginning in July 1996, the Ohio Direction Card system was designed, developed and implemented 

by the Ohio Department of Jobs and Family Services (ODJFS), its team of contractors led by Citicorp 

Electronic Financial Services Inc. (Citicorp EFS), and the 88 County Departments of Jobs and Family 

Services (CDJFS). Since February 2000, all recipients in the Food Stamp Program (FSP) in Ohio 

have received their benefits via the Ohio Direction Card, except for certain recipients of Supplemental 

Security Income (SSI) who receive their FSP benefits as cash supplements to their SSI checks.

This volume presents the evaluation’s findings regarding the operations of the Ohio Direction Card 

system after the completion of the design, development and implementation stages described in 

Volume 1. These findings are based on an extensive array of data collected from existing reporting 

processes, special reports for the evaluation, and interviews with system officials. The data used in 

this report represent the Ohio Direction Card system as it operated in March through June 2000. As 

of March 1, 2000, 82 percent of food stamp recipients were in counties that had been fully converted 

to EBT for at least three months. The principal data collection for this volume took place from May 

through July 2000, although additional data were collected in the summer and winter of 2001. The 

evaluation results were compared with findings from the three most recent EBT system evaluations—

the studies of the statewide Maryland on-line EBT system, the Dayton, Ohio off-line EBT pilot 

system, and the Wyoming off-line EBT pilot system. Comparisons with the coupon issuance system 

were not included, because of the mandate for all States to implement EBT.

Chapters 2 through 5 present the results of each line of analysis regarding Ohio Direction Card 

system operations, as follows:

• Chapter 2 provides statistical information on the patterns of system usage, problems experienced 

and requests for assistance by recipients and retailers.

• Chapter 3 provides estimates of the administrative costs of operating the Ohio Direction Card 

system. The chapter compares these estimated costs to those of the Dayton, Ohio off-line EBT 

pilot project, the Maryland on-line EBT demonstration, the Wyoming off-line WIC/FSP EBT 

demonstration, and current on-line EBT systems.
12 Chapter 1: Introduction Abt Associates Inc.

• Chapter 4 presents projections of how the operational costs of the Ohio Direction Card system 

might be reduced under a variety of scenarios, highlighting the factors with the most impact on 

these costs.

• Chapter 5 describes the differences in vulnerability to benefit loss and diversion between the Ohio 

Direction Card system, the Dayton off-line EBT pilot system, the Maryland on-line EBT 

demonstration system, and current on-line EBT systems. This chapter presents expert estimates 

of the expected levels of FSP losses, participant losses, and benefits diverted to unintended use.

Chapter 6 offers an overall assessment of the feasibility of the Ohio Direction Card system. This 

assessment summarizes and weighs the evidence from the evaluation regarding how well the system 

meets the needs of recipients, retailers, and FSP agencies. The chapter also discusses the 

sustainability of current operations, the potential for transferring the system to other States, and the 

possibilities for delivering other assistance programs via the Direction Card. The chapter concludes 

with an assessment of the system’s cost-effectiveness.

The appendices to this volume provide supporting information on the data collected and analysis 

methods used. Appendix A provides information on vendor cost data. Appendix B presents 

information on county-level cost data. Appendix C provides explanations and additional detail 

regarding the projections of system costs under alternative scenarios.
Abt Associates Inc. Chapter 2: EBT System Use and Recipient Service 13

Chapter 2

EBT System Use and Recipient Service 

2.1 Introduction 

This chapter examines patterns of use of the Ohio Direction Card system and recipient service during 

the evaluation period, March - June 2000, using statistics from system reports. As seen in Exhibit 2-

1, by the beginning of the evaluation period, all counties had completed recipient conversion, and 80 

percent of the counties, representing 82 percent of the food stamp caseload, had at least 3 months of 

operating experience. Almost 25 percent of the counties, with 37 percent of recipient households, had 

a year or more of experience. Thus, it is expected that operational activity during the evaluation 

period is a good indicator of future operational activity.

Exhibit 2-1

Number of Months Since Completion of Recipient Conversion as of the Start of the 

Evaluation Period (March 1, 2000)

Time Since Conversion Completed

Number of 

Counties

Percent of 

Counties

Percent of 

Caseload

2 or more years 9 10% 16%

18 months – 2 years 10 11% 7%

12-18 months 3 3% 14%

6-12 months 16 18% 29%

3-6 months 32 36% 17%

Less than 3 months 18 20% 18%

2.2 Benefit Issuance and Loading Activities

During the evaluation period, approximately $44,000,000 in food stamp benefits were issued each 

month electronically in over 320,000 issuance transactions, averaging $138 per issuance. (See 

Exhibit 2-2.) The regular monthly issuance of food stamp benefits was staggered over the first one to 

fifteen days of the month, depending on the schedule chosen by the county. On any business day 

during the month, supplemental benefits and other non-recurring benefits were issued in separate 

issuance transactions. 

Once benefits were issued, it was the client's responsibility to load benefits onto the card by making a 

balance inquiry or purchase request at a POS terminal. Benefits could be loaded at the County 

Department of Jobs and Family Services (CDJFS) office or at one of three retailer sites selected in 

advance by the recipients. Under ODJFS policy, all benefits had to be loaded by the last day of the 
14 Chapter 2: EBT System Use and Recipient Service Abt Associates Inc.

Exhibit 2-2

Statewide Benefit Issuance and Loading, Average Per Month, March – June 2000

Issuance Status

Number of 

Transactions

Total Value 

of Benefits

Percentage 

of Issued 

Benefits 

Loaded

Average 

Benefit 

Amount

Total issuances staged 320,140 $44,153,709 n.a. $138

Loaded on issuance date 101,672 $19,148,016 46.4% $188

Loaded within 1-2 days 79,289 $12,464,382 30.2% $157

Loaded within 3-5 days 49,809 $6,082,513 14.7% $122

Loaded within 6-10 days 27,709 $2,522,995 6.1% $91

Loaded within 11-20 days 15,974 $928,322 2.2% $58

Loaded within 21-30 days 4,510 $160,160 0.4% $36

Loaded over 30 daysa1 $40 0.0% $40

Issued but not loaded during month 41,009 $2,889,787 n.a. $70

Issued prior month(s), loaded during 

monthb

14,456 $1,718,196 n.a. $119

Expired (returned to state)c22,090 $1,004,821 n.a. $45

Proportion of issuances expired 4.5% 3.9%

a Benefits may be loaded over 30 days after the issuance date if issued on the first day of a 31-day month.

b Benefits issued after the 15th day of the month can be loaded until the end of the next month, at which time they expire. 

c Includes benefits issued in current and prior months that expired during the month. Benefits issued in the first 15 days of the month expire 

at the end of the month if they are not loaded by then. 

month, although the benefits did not have to be used during the month. That is, once posted to the 

card, unused benefits could be carried over from one month to the next. However, if a benefit was 

not loaded to the card by the end of the month, that benefit expired and was returned to ODJFS.1 The 

ODJFS policy on expiration of authorized benefits was essentially the same as it had been for 

recipients who were required to pick up benefits in person under the food stamp coupon system.2

As displayed in Exhibit 2-2, on average, 4.5 percent of issuances were not loaded each month, 

thereby expiring, which led to 3.9 percent of total benefits being returned to ODJFS. As in the 

coupon system, households may have failed to participate for a variety of reasons, such as moving out 

of state or feeling that they did not need the benefits. In some cases, issuances were not loaded up 

because recipients had initial benefits authorized but did not obtain Direction Cards. According to 

ODJFS, review of case records indicated that these instances were rare but no count was available.

 

1 Benefits issued after the 15th of the month expired at the end of the next month.

2 ODJFS did not have data on the proportion of benefits that expired under the coupon system.
Abt Associates Inc. Chapter 2: EBT System Use and Recipient Service 15

Benefit loading activity most often occurred within two days of issuance, although recipients 

continued to load their benefits throughout the month. The average issuance amount decreased as the 

loading period lengthened, suggesting that recipients with larger food stamp issuances loaded their 

benefits closer to the issuance date than those with smaller benefit allotments. 

2.3 Card Issuance

Ohio Direction Cards were issued to households that were newly determined eligible for food stamps 

and as replacements for existing cards, as shown in Exhibit 2-3. During the evaluation period, on 

average approximately 17,600 cards were issued each month. Of these, approximately 9,100 cards 

were issued for new households and 8,500 were issued as card replacements. Nearly 88 percent of 

the cards replaced were reported as lost or stolen, while less than 2 percent of cards replaced were 

reported as damaged. However, county officials speculated that recipients who damaged their cards 

often reported them as lost or stolen. Interviews with ODJFS and county officials identified several 

types of situations when functioning cards were replaced when there was a problem with the 

assignment of the payee or a transfer from one county to another.3

Exhibit 2-3

Statewide Card Deployment, March – May 2000

Reason for Card Issuance

Average Number of 

Cards Issued Per 

Month

Percent of Cards 

Issued/Replaced

Total number of cards issued 17,623 100.0%

New card setups 9,097 51.6%

Card replacements 8,526 48.4%

Card replacements detail:

Card chip failure 131 1.5%

Out of balance: not correctable 2 0.0%

Lost and stolen 7,472 87.6%

Other/Unknowna921 10.8%

a Functionin g cards were sometimes replaced as the easiest way to effect a transfer for a recipient moving to a new county or to solve 

certain problems with access to benefits. An unknown portion of the “other/unknown” replacements involved these situations.

On average, 72 cards were issued per thousand cases each month during the evaluation period, 

including 37 cards for new entrants and 35 for card replacements (see Exhibit 2-4). Among 

individual counties, the minimum monthly rate of card issuance was 39 per thousand cases and the 

maximum was 201 per thousand cases. The higher card issuance rates typically occurred in smaller 

counties, where small changes in the absolute number of cases receiving food stamp benefits had 

large impacts on the card issuance rates.4 As Exhibit 2-5 shows, the top two quartiles of counties (by 

caseload) had card issuance rates below the statewide average, while the bottom two quartiles had 

 

3

See Volume 1 for discussion of this issue.

4

Examples of situations that might cause high rates of new entrants in small counties include plant closings 

or seasonal influxes of migrant farm workers in rural communities.
16 Chapter 2: EBT System Use and Recipient Service Abt Associates Inc.

Exhibit 2-4

Monthly Issuance and Replacement Rates for Counties, March – June 2000

Number of 

Cards Issued 

Per County 

Per Month

Number of 

Cards Issued 

Per 1,000 

Cases

Number of 

New Entrants 

Per 1,000 

cases

Number of 

Replacements 

Per 1,000 

Cases

Minimum 14 39 0 14

Maximum 2,715 201 134 89

Average 211 72 37 35

Exhibit 2-5

Card Issuance Rates by County Quartile, March – June 2000

Range of 

Cases

Average 

Total Cards 

Issued per 

1,000 Cases

Average New 

Cards Issued 

per 1,000 

Cases

Average 

Replacement 

Cards Issued 

per 1,000 

Cases

First Quartile 2,402-34,459 71 37 33

Second Quartile 1,024-2,399 70 42 27

Third Quartile 566-1,008 77 48 29

Fourth Quartile 220-558 90 60 31

card issuance rates well above the statewide average. This difference was more pronounced for new 

card issuance rates, with a clear trend from a monthly rate of 37 cards per 1,000 cases for the largest 

quartile to a rate of 60 cards per 1,000 for the smallest.

The minimum number of card replacements per month per county was 14 per thousand cases, and the 

maximum was 89 per thousand cases. The counties that had been operating on the Direction Card 

system the longest had the highest card replacement rates. There are two factors that may have 

contributed to this trend. First, the replacement rate is likely to increase with the age of the card base 

because of cumulative exposure to damage and loss. Second, as the length of time for operations 

grows, increasing numbers of "new" cases are really returning households that have previously had 

Direction Cards. According to local staff, these returning households often need repla cements for lost 

or damaged Direction Cards. (Data to differentiate between these factors associated with age were not 

available.) As indicated in Exhibit 2-5, the smallest and largest counties had the highest replacement 

rates, but the average replacement rates varied less among quartiles than the average new card 

issuance rates.

2.4 Recipient Transactions

This section examines data on the five most common types of recipient transactions involving credits 

or debits to recipient accounts. These transactions are described below.
Abt Associates Inc. Chapter 2: EBT System Use and Recipient Service 17

• Purchase Transactions, in which recipients used their food stamp benefits to pay for programeligible food items.

• Issuance Transactions, in which recipients loaded their food stamp benefits to their Direction 

Cards. Recipients could pick up more than one issuance in a month, if a one-time issuance was 

authorized in addition to the regular monthly benefits.

• Refund Transactions, in which retailers paid back to recipients the value of returned items 

originally purchased with food stamp benefits.

• Manual Purchase Transactions, in which retailers obtained authorization for purchases through 

customer service operators. These transactions were used only when EBT terminals were not 

working. Recipients were limited to one manual purchase transaction not to exceed $50 

outstanding at any given time. 

• Purchase Reversal Transactions, in which cashiers negated just-completed purchase 

transactions while the cardholders were present.

As seen in Exhibit 2-6, purchase and issuance transactions represented the vast majority of recipient 

transactions. On average, recipient households made 6.85 purchase transactions and 1.03 issuance 

pickup transactions each month. The average purchase was for $24. Each recipient household 

received at least one issuance each month, and the additional 3 percent represents supplementary or 

other non-recurring issuances to recipients. A very small percentage of total purchase transactions 

(0.06 percent) were performed manually. Factors contributing to this low rate included the restrictive 

policy regarding when retailers could process some manual transactions, the requirement that retailers 

assume liability for manual transactions, and the fact that retailers needed only to have a working 

POS terminal to process a regular POS transaction. 5

Exhibit 2-6

Statewide Recipient Transactions, March – June 2000

Average 

Number of 

Transactions 

Per Month

Percent of 

Total 

Transactions

Average 

Dollar 

Value Per 

Transaction

Average 

Number of 

Transactions 

Per Case

Purchase Transaction 1,763,815 86.68% $24 6.85

Issuance Pickup Transaction 266,098 13.08% $145 1.03

Refund Transaction 3,667 0.18% $14 0.01

Manual Purchase Transaction 1,198 0.06% $29 0.00

Purchase Reversal Transaction 138 0.01% $38 0.00

Total 2,034,916 7.90

 

5

The Ohio Direction Card policy permitted manual transactions only when all of the retailer’s POS terminals 

were not operational and a service request had been placed. In on-line EBT States, retailers with 

operational POS terminals can conduct manual transactions if the host computer or telecommunications 

connection is down, as well as when POS terminals are down.
18 Chapter 2: EBT System Use and Recipient Service Abt Associates Inc.

2.5 Blocked Recipient Transactions

One important type of problem encountered by recipients was having transactions blocked because 

their cards were locked. Direction Cards were locked for one of three reasons: 1) the card could be 

locked due to three consecutive invalid PIN attempts; 2) the card could be "stale dated" if it has not 

been used for 90 consecutive days; or 3) the card could be locked due to a "negative file" flag if it 

was reported lost or stolen. 

• Invalid PIN Attempt - As a security measure to protect a recipient from unauthorized card 

access, the EBT system locked Direction Cards after three consecutive unsuccessful PIN 

attempts. If a recipient entered the PIN unsuccessfully two times, the card reader displayed 

INVALID PIN - REMOVE CARD. If the recipient did not remember the correct PIN, he or she 

could get help from the CDJFS to select a new PIN. If the recipient tried unsuccessfully to enter 

a PIN a third time, the card locked. 

• Stale Dated - If a Direction Card was presented after it had not been used for 90 consecutive 

days, the POS terminal locked the card. The EBT host system transmitted a message to the 

CRIS-E system indicating which cards had not had any activity for the last 60 days. CRIS-E 

issued a notification to the recipients stating if the card was not used or reported lost or stolen in 

the next 30 days, the cards would be locked. If the card remained inactive for an additional 30 

consecutive days, the EBT host system transmitted a second message to CRIS-E that the card was 

stale dated. 

• Negative Lock - If a card was reported lost or stolen, a negative file flag was placed on the 

recipient's account number and transmitted to the appropriate POS terminals 6 at the next 

settlement. Flagged cards that were presented at POS terminals were locked. A negative flag (or 

card block) could also be placed on a suspect card if customer service noticed unusual card 

activity. 

As can be noted from Exhibit 2-7, 52 percent of card locks were caused by invalid PIN attempts. 

While it was probably common for authorized users to enter an invalid PIN one or two times, less 

than 10 percent of invalid PIN attempts led to cards locking. Many of the invalid PIN locks probably 

resulted from attempts at unauthorized usage. Additionally, 34 percent of card locks were caused by 

stale dating, and 13 percent were caused by negative locks. During the evaluation period, 

approximately 2.7 percent of the average caseload of 257,600 experienced card locks each month. 

Overall, an average of 6,984 transactions per month were blocked, representing 0.3 percent of all 

recipient transactions. Recipients were instructed to bring locked cards to a CDJFS office, where 

Direction Card workers could unlock the cards, after verifying the cardholder's identity and

determining the cause of the problem.

 

6 Multi-lane stores, which were equipped with a personal computer with sufficient memory and processing 

capacity, received the entire statewide negative file during each daily settlement. However, single-lane 

stores received a regional negative file, which included only those cards reported as lost, stolen or damaged 

by recipients in the same or nearby counties.
Abt Associates Inc. Chapter 2: EBT System Use and Recipient Service 19

Exhibit 2-7

Statewide Blocked Recipient Transactions, March – June 2000

Type of Transactions

Average Number 

of Transactions 

Per Month

Percent of Total 

Reasons for Lock

Invalid PIN Attempts 47,817

Locks due to Invalid PINs 3,665 52%

Stale Date Locks 2,404 34%

Negative Locks 915 13%

Total Locks 6,984

Percent of Transactions Blockeda0.3%

a Base includes purchases, benefit loading, and purchase refunds

2.6 Customer Service

SVS maintained a customer service center for the Direction Card system at its telephone center in El 

Paso, Texas. Customer service was available 24 hours a day, seven days a week. Separate toll free 

numbers connecting to the center were provided to Direction Card recipients, retailers, and county 

staff. Examining the incidence of calls to the customer service center provides a good source of 

information on the types of assistance needed by recipients. 

When food stamp recipients called the customer service center, they were connected to an audio 

response unit (ARU). Callers were given three menu options: obtain card balance or other benefit 

information; report a card as lost, stolen, or damaged; or connect to a customer service agent. There 

were two groups of customer service agents. SVS had general customer service agents who 

responded to both EBT and non-EBT related issues. Additionally, SVS had specialized customer 

service agents who only responded to EBT-related calls and were more knowledgeable about the 

detailed aspects of the Direction Card system. Recipient calls to agents were either handled by a 

generalist or by a specialist, depending on the nature of the call and the call volume. Calls from 

county staff and retailers were always handled by the specialized customer service staff. 

The ARU menu for retailers focused on requests for information about the last settlement processed 

by the system. By connecting to a customer service agent, retailers could obtain settlement 

information, report equipment problems,7 or request documentation of prior EBT transactions. 

County staff could call customer service to request assistance with any of the Direction Card 

functions for which they were responsible. Most often they called to request authorizations for card 

replacements.8

 

7

The SVS customer service representatives forwarded any reports of equipment problems to CACI for 

response. Retailers directly contacted CACI to requests supplies.

8

The number of calls from county staff to the customer service center to request authorizations was available 

in system reports. However, there were no complete data on all county calls to the customer service center.
20 Chapter 2: EBT System Use and Recipient Service Abt Associates Inc.

Each month during the evaluation period, the customer service center received, on average, 

approximately 157,000 calls from Ohio EBT recipients (see Exhibit 2-8). Customer service agents 

answered 98 recipient calls for every 1,000 recipient households.9 The ARU handled the remaining 

calls, which amounted to 511 calls per 1,000 cases. Virtually all of the calls handled by the ARU 

were balance inquiries. Lost or stolen cards were very rarely reported via the ARU, according to SVS 

and ODJFS.

Exhibit 2-8

Number of Recipient Calls Received Statewide, by Type of Assistance Received, March –

June 2000

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Mar-00 Apr-00 May-00 Jun-00

ARU-Only

Operator calls

Exhibit 2-9 lists the reasons for recipient calls handled by customer service operators during the 

evaluation period, based on tracking data kept by the Direction Card system. Calls reporting lost or 

stolen cards represented 7.5 percent of calls to operators, and requests to change issuance sites were 

3.3 percent of the total. 

Despite the availability of the ARU, balance inquiries represented, by far, the most common reason 

for calls to customer service operators, 89 percent. This situation is found in on-line EBT systems as 

well. Officials believe that most of these calls were made by recipients checking to see whether their

next benefits were available for pickup. Another cause for these calls may have been the incidence of 

discrepancies between the balance reported by the ARU and recipients' expectations, based on their 

known transactions and expected issuances. Recipients in off-line systems may be more likely to be 

confused about their balances, because the information provided by the ARU (based on the host 

balance) sometimes lags behind the activity on the card. 

 

9

The available data may slightly underestimate the proportion of recipient calls handled by operators. If a 

recipient call did not have a defined reason code or require an operator authorization, it was not counted in 

the source used for this analysis. According to SVS, such calls were rare.
Abt Associates Inc. Chapter 2: EBT System Use and Recipient Service 21

Exhibit 2-9

Statewide Recipient Calls to Customer Service Operators, by Reason, 

March – June 2000

Major Reasons for Recipient Calls

Percent of Total 

Reasons for Callsa

Balance inquiry 89.0%

Report lost card 6.4%

Change issuance site 3.3%

Report stolen card 1.2%

Transaction inquiry 0.1%

Report returned card 0.1%

a The percentages presented are based on the frequencies of calls to the customer service operators by reason. In actuality, some calls 

involve more than one reason.

As shown in Exhibit 2-10, the customer service center received about 10,000 retailer calls per month. 

The specialized agents handled about 85 percent, and the ARU handled the rest. Retailers used the 

ARU to check their settlement totals.

Exhibit 2-10

Number of Retailer Calls Received Statewide, by Type of Assistance Received, 

March – June 2000

0

2,000

4,000

6,000

8,000

10,000

12,000

Mar-00 Apr-00 May-00 Jun-00

ARU-only Calls

Operator Calls
22 Chapter 2: EBT System Use and Recipient Service Abt Associates Inc.

Exhibit 2-11 lists the known reasons for retailer calls handled by customer service operators during 

the evaluation period. Reporting of equipment and communications problems represented 43 percent

of retailer calls to the customer service center; retailer settlement inquiries represented 31 percent of 

calls; and authorization for manual transactions represented 26 percent of calls. These data are based 

on the retailer calls to operators for which the reason was recorded. Due to limitations of the tracking 

system in place at the time of the evaluation, only 18 percent of operator calls had a recorded 

reason.

10 According to SVS, most calls that were not tracked involved requests for information that 

did not require a lookup on the EBT host, or else they were follow-up calls from retailers about 

previously reported problems.

Exhibit 2-11

Statewide Retailer Calls to Customer Service Operators, by Reason, March – June 2000

Major Reasons for Retailer Calls

Percent of Total 

Reasons for Callsa

Equipment/Communications Problems 43%

Retailer Settlement Inquiry 31

Manual Transactions 26%

a The percentages presented are based on the frequencies of calls to the customer service center by reason. In actuality, some calls 

involve more than one reason. About 82 percent of total retailer calls did not have a reason code at the time covered by the data.

 

10 SVS later installed new call management software that provides more complete and consistent data on 

retailer calls.
Abt Associates Inc. Chapter 3: Operational Costs 23

Chapter 3

Operational Costs

3.1 Introduction

A primary objective of this evaluation was to quantify the administrative costs associated with the 

statewide expansion of the off-line EBT system in Ohio. The evaluation examined design, 

development, implementation and operational costs of the Ohio Direction Card system. An analysis 

of the Direction Card operational costs is the subject of this chapter. Although this chapter presents 

descriptive results for actual operations, the following chapter presents cost projections under various 

operating conditions.

For the period analyzed, the estimated total operational cost of the statewide Direction Card system in 

Ohio was $1.7 million per month, or $6.56 per case month, including the shares of costs funded by 

the State and FNS.1 All operational costs presented for the Ohio Direction Card are averages over the 

period March - June 2000,2 the operational period for which data were obtained, unless otherwise 

noted. In the next section, the research design and data sources for the Ohio Direction Card system 

are discussed.

Following the presentation of research design and data sources, operational costs for the statewide 

Direction Card system are presented and compared to the costs of the off-line EBT pilot in Dayton. A 

comparison with the Dayton pilot system was one of the major objectives of this evaluation. The 

operational cost per case month of the statewide Ohio Direction Card system was 29 percent less than 

the operational cost per case month of the Dayton pilot, after adjusting for inflation. 3 Furthermore, 

vendor costs, local costs, and State costs for the Ohio Direction Card system were each lower than the 

costs for the pilot system (on a per-case month basis). The reduction in unit costs in the statewide 

system is due to the increased scale and maturity of the system, and to the decreased cost of 

technology. These comparisons help to shed light on the changes that took place in the expanded 

statewide system and the impact of these changes on operational procedures and costs.

Next, the operational cost estimates for the Ohio Direction Card system are compared to the findings 

of the two most recent empirical studies of EBT costs. The FSP operational costs of the off-line Ohio 

Direction Card system were compared to those of the Maryland on-line EBT demonstration from 

1993 and to those of the Wyoming off-line EBT demonstration from 1995, both of which were multiprogram systems. After adjustment for inflation, the total FSP operational cost of the Ohio Direction 

Card system was 56 percent more than the cost of the on-line Maryland EBT demonstration and 43 

percent less than the cost of the off-line Wyoming EBT demonstration (on a per-case-month basis).

 

1

For FY2000, FNS’ food stamp cost cap for Ohio was $3.92 per case month. For reported costs up to this 

cap, FNS reimburses 50 percent to the State. The evaluators did not rely on costs reported to FNS because 

of limitations in the underlying data. Refer to Appendix B.

2 Operational costs presented on a case month basis represent the cost per month over 257,600 cases, the 

average FSP caseload in Ohio between March and June 2000.

3 All inflation adjustments in this report use the Gross Domestic Product price deflator, which is used by 

FNS to adjust EBT cost caps. See the discussion of the research design for further information.
24 Chapter 3: Operational Costs Abt Associates Inc.

Finally, operational costs for the Ohio Direction Card system are compared to the 2000 costs of online EBT systems. Among the major policy issues for the expanded off-line EBT system in Ohio was 

the question of whether it is more or less expensive to implement and operate than the on-line FSP 

EBT systems now used in most states and the District of Columbia. As the first large-scale off-line 

EBT system for the FSP, the Direction Card system provided a far better test of this question than its 

off-line predecessors. Vendor operational costs of the off-line Ohio Direction Card system were 

compared to those of the on-line EBT systems in Maryland, Pennsylvania, and Virginia. The cost 

difference ranged from $1.03 to $2.24 per case month, suggesting that the Ohio Direction Card 

system was more expensive for a vendor to operate than comparable on-line systems, under the 

conditions at the time of the evaluation. These comparisons are not definitive, because they reflect 

only three States, and there are notable differences between Ohio and the other three States in 

important parameters other than technology. As discussed later in this report, comparisons of 

operational cost must be weighed against other differences between EBT systems, such as the ability 

to support additional applications. Nevertheless, these comparisons provide the most current 

information on the relative vendor costs of the Ohio Direction Card system and comparable on-line 

EBT systems.

3.2 Research Design and Data Sources

Operational cost data for the Ohio Direction Card system included costs incurred by the Ohio 

Department of Jobs and Family Services (ODJFS), the County Departments of Jobs and Family 

Services (CDJFS), and the state’s contractors for the Ohio Direction Card system, but they did not 

include any expenses incurred by FNS for oversight.4 The prime contractor was Citicorp Electronic 

Financial Services Inc. (Citicorp EFS); the subcontractors were CACI (the owner of the former 

Century Technologies Inc., or Centech), and Stored Value Systems Inc. (SVS).

Vendor Data

The vendor data presented in this chapter for the Ohio Direction Card system are the vendor charges 

that were billed to the state. Citicorp EFS’ fee for all operational EBT services covered by the basic 

contract with ODJFS was $3.80 per month for each recipient household credited with a food stamp 

issuance.5 This fee was presumably intended to include a margin of revenue over steady-state 

operational costs to recover implementation costs. (For the tasks accomplished in the design and 

development phase, Citicorp EFS received separate fees, as discussed in Volume 1.) ODJFS paid 

Citicorp EFS for leases, maintenance and supplies for additional POS equipment that was not 

required by Citicorp EFS’ original contract. ODJFS also reimbursed Citicorp EFS for the fees due to 

pay telephone owners for calls to the toll-free customer service number provided for recipients and 

retailers. Billed costs were obtained from Citicorp EFS invoices and supporting detail for the 

purchase of additional POS equipment, as provided by ODJFS. Vendor costs for the Dayton pilot 

 

4 All comparisons in this study exclude FNS costs, which were considered to be immaterial to future 

decisions about the choice of EBT technology. Previous EBT evaluations measured FNS costs, but these 

costs are excluded in comparisons presented in this report.

5

The fee schedule provided for reductions if the FSP caseload increased to 400,000 or more.
Abt Associates Inc. Chapter 3: Operational Costs 25

were based on the pilot evaluation conducted for FNS.6 Costs for the Dayton pilot were billed on a 

cost-plus-fixed-fee basis.

In order to understand how the money was expended and to make comparisons between the statewide 

system and the pilot, the costs billed to ODJFS by Citicorp EFS were also broken down by functional 

components. This allocation of billed costs was based on the distribution of the estimated resource 

costs for the vendor team (i.e., the value of the resources used to operate the EBT system, as opposed 

to the price billed to ODJFS). Therefore, the functional components of vendor costs for the Ohio 

Direction Card system (such as equipment maintenance) represent shares of billed costs, not actual 

resource costs.

To estimate the resource costs, all of the labor and non-labor resources used to operate the EBT 

system were identified, the best available information on the costs of these resources was collected, 

and cost estimates from these data were compiled. The primary source of data used in the estimates 

of resource costs was the financial reporting information for Citicorp EFS, SVS, and CACI. Citicorp 

EFS provided this information on a monthly basis. The resource cost estimates for Citicorp EFS’ 

labor and communications were based on actual reported costs, whereas additional analysis was 

conducted to estimate the resource costs of equipment depreciation, equipment maintenance, and 

smart cards. The resource cost estimate for equipment depreciation represents the lump-sum lease 

cost of equipment depreciated over a five-year life cycle. To take into account the increasing repair 

expense for aging equipment, the resource cost estimate for equipment maintenance represents an 

average cost over a five-year period for services provided by CACI and equipment manufacturers. 

SVS and CACI resource costs represent costs billed to Citicorp EFS; SVS used the expected resource 

costs for operations to break down the cost billed to Citicorp EFS into functional components. The 

basis for the resource costs is described in greater detail in Appendix A, which also presents the 

resource cost estimates.

CDJFS Data

Each county in Ohio administers the Food Stamp Program through its own CDJFS, under the 

supervision of ODJFS. Estimates of county operational costs were based on cost data gathered from 

CDJFS offices in ten sample counties where the evaluators conducted on-site post-implementation 

interviews.

The sample counties included five large and five small counties. They were distributed among the 

different regions of the state with a mix of urban and rural areas.

In the sample counties, EBT and other staff members were interviewed between May and July 2000. 

The two primary goals of each visit were: (1) to describe EBT operational processes, and (2) to 

determine the staffing level and associated labor costs. In each interview, the evaluators documented 

how the county was performing its role in EBT operations and identified the staff time to perform 

EBT functions. Overhead costs for each county’s EBT activities were imputed based on the 

distribution of labor costs, other direct costs, and total direct and indirect costs obtained from county 

cost allocation reports. Appendix B provides county-level cost detail based on the interview data, the 

 

6 G. Glickman et al., “The Impacts of the Off-line EBT Demonstration on the Food Stamp Program, Volume 

1—Impact on Administrative Costs”, Project Officer: M. Andrews. U.S. Department of Agriculture, Food 

and Nutrition Service, Office of Analysis, Nutrition and Evaluation, Alexandria, VA, 1994.
26 Chapter 3: Operational Costs Abt Associates Inc.

data used to impute non-labor and overhead costs for county EBT activities, a discussion of other data 

sources considered, and a description of the methodology used to estimate a statewide local 

operational cost.

ODJFS Data

ODJFS costs were obtained primarily through interviews with EBT and fiscal unit staff. ODJFS 

prepared a special summary of labor costs for regular employees and contract labor. State non-labor 

costs were obtained through interviews and through review of Central Accounting System (CAS) 

reports supporting the EBT costs reported by ODJFS to FNS. The available data did not provide a 

basis to estimate ODJFS overhead.

Caseload Data

The total statewide count of FSP cases on EBT was based upon the FNS-388 reports entitled “Food 

Stamp Program Integrated Information System Issuance and Participation Analysis.” County-level 

operational caseloads were based on ODJFS’ Public Assistance Monthly Statistics (PAMS) reports.

Inflation Adjustments

Cost data from previous studies were adjusted for inflation between the time of the original data 

collection and 2000, the year of operational data collection for the Ohio Direction Card system. The 

index of inflation was the price deflator for the Gross Domestic Product (GDP). FNS uses this 

measure of inflation annually to adjust each State’s EBT cost cap from its pre-EBT coupon issuance 

costs. For each set of previous EBT cost estimates, the inflation adjustment was equal to the percent 

change in the GDP price deflator from the original date to 2000. The tables in this chapter indicate 

the date of the original costs and the amount of inflation from that date to 2000.

3.3 Overview of Operational Costs for Statewide Direction Card 

System and Comparison to Costs for Dayton Pilot

Operational Costs for Ohio Direction Card

For the period analyzed, the average operational cost for the Ohio Direction Card system was $1.7 

million per month, or $6.56 per case month, as shown in Exhibit 3-1. The majority of the cost, $1.2 

million per month, or $4.48 per case month, was incurred for activities performed by the EBT vendor 

team. The cost of activities performed by the CDJFS was about $483,000 per month, or $1.88 per 

case month. The balance of about $51,000 per month, or $0.20 per case month, was for ODJFS 

activities. The components of each of these costs are discussed later in this chapter.

Comparison of Ohio Direction Card and Dayton Pilot

The operational costs of the statewide Direction Card system were compared with those of the offline EBT pilot conducted by FNS in Dayton (as shown in Exhibit 3-2).7

 Costs for the Dayton pilot 

 

7 All costs are presented in FY2000 dollars. The Dayton pilot costs were adjusted by an inflation factor of 

15.8 percent.
Abt Associates Inc. Chapter 3: Operational Costs 27

Exhibit 3-1

Ohio Direction Card: Overall Operational Costs and Level of Effort

Cost Category

Average Monthly 

Cost

Average Cost Per 

Case Montha

Billed Vendor Costs

Monthly Case Month Billingb$1,028,304 $3.99

Additional Equipment for 2108 lanesc$47,618 $0.18

Maintenance and Supplies for Additional 

Equipmentd

$76,591 $0.30

Toll-free Access to Customer Service $2,035 $0.01

Total Billed Vendor Costs $1,154,547 $4.48

Local Costs

Labor $338,653 $1.31

Overhead $144,384 $0.56

Total Local Costs $483,038 $1.88

Local FTE’s Per Monthe135.2

State of Ohio Costs

EBT Staff Labor $15,543 $0.06

Contract Labor $31,853 $0.12

Fiscal Labor $788 $0.00

Miscellaneous $324 $0.00

Data Processing $1,237 $0.00

Travel $1,245 $0.00

Total State Costs $50,989 $0.20

State FTE’s Per Monthe5.9

Total Costs $1,688,574 $6.56

a The number of cases used is 257,600, the average caseload between March and June 2000. Costs per case month less than $0.005 are 

shown as $0.00.

b The basic charge per case is $3.80, but the higher cost per case reflects the fact that, on average, about 5 percent of cases with staged 

issuances do not pick up benefits.

c The cost of equipment represents straight-line depreciation of lump-sum lease payments over a five-year period.

d Maintenance cost is an average over a five-year period, rather than just over the evaluation period.

e A full-time equivalent (FTE) represents 160 staff hours per month.
28 Chapter 3: Operational Costs Abt Associates Inc.

Exhibit 3-2

Comparison of Total Operational Costs Per Case Month for Ohio Direction Card and Dayton 

Pilot

Adjusted Costs in Year 

2000 Dollarsa

Cost Category

Ohio 

Direction 

Card (MarJune 2000)

Dayton 

Pilot (AugDec 1992)

Percent 

Change from 

Dayton Pilot 

to Ohio 

Direction Card

Billed Vendor Costsb

Administration/Reconciliation $0.52 $1.26 –59%

Customer Service $0.14 $0.42 –66%

Data Center Hardware/Software $0.34 $2.56 –87%

POS/Administrative Terminals $2.66 $0.95 181%

Communications $0.29 $0.56 –48%

ACH Expenses $0.06 $0.05 35%

Card Costs $0.46 $1.02 –55%

Total Billed Vendor Costs $4.48 $6.81 –34%

Local Costsc

Loaded Labor Costs $1.88 $1.95 –4%

Total Local Costs $1.88 $1.95 –4%

State Costsd

Labor $0.19 $0.41 –55%

Non-Labor $0.01 $0.05 –76%

Total State Costs $0.20 $0.46 –57%

Total Costs $6.56 $9.22 –29%

a The Dayton pilot costs were adjusted by an inflation factor of 15.8 percent.

b Vendor costs for the Ohio Direction Card cost represent an allocation of billed costs based on a resource cost distribution. Vendor costs 

for the Dayton pilot were billed on a cost-plus-fixed-fee basis.

c Local costs for the Dayton pilot include a subcontractor for card issuance and training. All local labor costs include loading for indirect 

costs.

d State labor cost for Ohio Direction Card represent labor costs for all EBT staff, contract staff, and fiscal staff. Nonlabor costs for the Ohio 

Direction Card include data processing, travel and miscellaneous direct costs.
Abt Associates Inc. Chapter 3: Operational Costs 29

represent average operational costs over the evaluation period, August to December 1992, following 

the completion of the pilot conversion.8 Similarly, as mentioned above, costs for the Direction Card 

system represent average operational costs over the period March - June 2000, following the 

completion of the statewide conversion.

The estimated operational cost for the Ohio Direction Card system, $6.56 per case month, was 29 

percent less than the operational cost for the Dayton pilot of $9.22 per case month. There are three 

intrinsic differences between the Ohio Direction Card system and the pilot system that were expected 

to lead to lower costs in the Ohio Direction Card system.

• Larger Scale ? First, the Ohio Direction Card system, which operated in all 88 counties 

in Ohio, was a much larger system than the Dayton pilot, which operated in less than one 

full county. The statewide system served almost 25 times the number of cases as the 

pilot system. Cost savings were expected from the statewide rollout due to economies of 

scale, particularly in the areas of project administration and data center costs.

• More Mature System ? Additional cost savings in the statewide system were expected 

due to the fact that it was a more mature system, having been built on the Dayton pilot 

system9 and having had a longer period to determine and implement more effective 

systems for managing operations. Moreover, “learning curve” effects would be expected 

to lead to a higher level of efficiency for county, state and vendor workers.

• Decreased Cost of Technology ? Finally, since the time of the Dayton pilot, 

technological developments have led to reductions in the cost of the administrative 

equipment used to read smart cards, the cost of the cards themselves, and the cost of 

operating the data center.

On the other hand, whereas the statewide system served all regions of the state, including many rural 

areas, the Dayton pilot served a densely populated urban area, and thus had a higher level of 

utilization for retailer terminals.

The following section describes in more detail specific differences between the systems and how 

these differences affected vendor costs.

 

8 Although the evaluation report notes that the EBT operating costs fell substantially in the months following 

the evaluation period, this period is the only period for which complete, concurrent cost data were 

collected, and the pilot evaluation places primary emphasis on the costs for this period.

9

The Ohio Direction Card system was built on the Dayton pilot project system, known as the PayEase 

system, which was used to deliver FSP benefits to a segment of the food stamp population in Montgomery 

County. The PayEase EBT system became operational in March 1992 and ran through December 31, 1996, 

when the area was converted to the Direction Card system. Before the State and vendors could begin 

statewide expansion, they needed to modify the design of the existing EBT system and develop new 

software, as discussed in Volume 1 of this report.
30 Chapter 3: Operational Costs Abt Associates Inc.

3.4 Vendor Operational Costs for Statewide Direction Card 

System and Comparison to Costs for Dayton Pilot

Operational Costs for Ohio Direction Card Vendor Team

For the period analyzed, the billed operational cost for Citicorp EFS and its subcontractors was, on 

average, $4.48 per case month, as shown in Exhibit 3-2. The Ohio Direction Card billed costs include 

four components: (1) the monthly case month billings for the services and equipment covered in the 

original contract between ODJFS and Citicorp EFS, (2) depreciation for the additional POS 

equipment that the State chose to provide beyond FNS’ equipment requirements, (3) maintenance and 

supplies for the additional equipment, and (4) the fee for calls from pay telephones to the toll-free 

customer service number.

Citicorp EFS’ monthly fee was $3.80 for each household, with an issuance credited to the Direction 

Card.10 Approximately 5 percent of these issuances, however, were never picked up. FNS defines 

the number of cases to be the number of households that pick up their benefits for the month. 

Therefore, the basic vendor cost per case, counting only households that pick up their benefits in the 

caseload, was not $3.80, but rather $3.99.

In addition to its case month billings, Citicorp EFS billed ODJFS for additional equipment and 

maintenance costs for retailer equipment beyond the level specified in the contract. Under its 

deployment formula, FNS calculates the minimum number of EBT-only POS terminals that States 

must provide to food stamp retailers that do not choose to provide their own equipment. The quantity 

of retailer equipment specified in the contract was based on this formula. For many retailers, 

however, this leads to less than full-lane coverage for food stamp EBT purchases. In order to help 

satisfy the concerns of the Ohio Grocers Association (OGA), the State of Ohio agreed to provide 

2108 additional terminals to retailers under an alternate formula. The monthly depreciation of the 

additional equipment over a five-year life cycle was $0.18 per case month.11 The average monthly 

cost of maintenance and supplies for the additional equipment over a five-year period was $0.30 per 

case month.

The final component of billed vendor costs was $0.01 per case month to defray the fees paid to 

telephone owners for calls to the toll-free customer service lines. This charge was not a component of 

the original contract, because the Federal Communications Commission (FCC) established this 

requirement after the contract was awarded.

Comparison of Vendor Operational Costs for Ohio Direction Card and Dayton Pilot

Vendor costs for the Ohio Direction Card system and the Dayton pilot each represented over twothirds of total system operating costs. Thus, in examining the evolution of costs from the Dayton 

 

10 At the beginning of the contract, Citicorp EFS’ monthly fee was $2.99 for each household with an issuance 

credited to the Direction Card. In September 1998, due to a substantially reduced FSP caseload, Citicorp 

EFS’ fee was raised to $3.80 for future billed cases. Because most counties had not yet been converted, the 

number of cases billed at $2.99 accounts for less than 3 percent of the expected total billed cases 

throughout the contract.

11 Because the State made lump -sum payments to lease the terminals, the lease cost was treated the same as a 

purchase that was depreciated over five years.
Abt Associates Inc. Chapter 3: Operational Costs 31

pilot system to the statewide Direction Card system, it is crucial to compare the components of 

vendor costs for the systems.

The vendor operational costs of the Ohio Direction Card system were 34 percent less than in the 

Dayton pilot. Furthermore, whereas the vendor fee for the statewide system included a component to 

recover implementation costs, the pilot system vendor billed separately for implementation costs. As 

discussed in the overview section above, a lower overall cost was expected for the statewide system.

Exhibit 3-3 provides a detailed comparison of billed vendor costs between the Ohio Direction Card 

system and the Dayton pilot, using functional breakdowns derived from resource costs. Of the total 

vendor operational cost of $4.48 per case month for the Ohio Direction Card, $2.66 was estimated to 

cover the cost of the leases, installation,12 and maintenance for the retailer POS equipment and 

administrative terminals for CDJFS offices. The next largest component of the vendor cost was 

administration and reconciliation at $0.52 per case month. The remaining components of this cost, 

sorted in order of expense, were as follows:

• EBT smart cards;

• Data center hardware, software, maintenance, and labor for programmers and operators to 

support the EBT host computer;

• Communications charges including telecommunications equipment and charges for the 

host, POS terminals, and customer service;13

• Customer service labor costs for support to recipients, retailers, and CDJFS offices; and

• Automated clearinghouse (ACH) expenses for credits to retailers' depository institutions.

A comparison of the primary components for the Ohio Direction Card system and the Dayton pilot 

system follows. These components are ordered as in Exhibit 3-3.

The cost per case month of administration and reconciliation for the Ohio Direction Card system was 

59 percent less than for the Dayton pilot. This category includes project management, reporting, and 

reconciliation to account for both issued and expired benefits. The cost difference in this category 

may be explained by both scale and system maturity. Administration and reconciliation functions are 

particularly affected by scale, because there is a certain amount of administration and reconciliation 

that must occur regardless of the size of the project. The cost to do these tasks is a smaller portion of 

a statewide project than of a pilot project. The maturity of the system also probably led to decreased 

costs for the Ohio Direction Card system because administration and reconciliation functions were 

likely able to be performed more efficiently. The evaluators, however, did not have the data to 

differentiate the effects of scale and system maturity on costs.

There was also a significant reduction in the cost per case month of customer service for the Ohio 

Direction Card system from the pilot system. In this category, there was a 66 percent reduction in 

 

12 Installation of POS terminals was only for new retailers. The cost of installation of terminals for statewide 

rollout was included in implementation costs.

13 Retailers paid for the local telephone service linking POS terminals to the EBT host.
32 Chapter 3: Operational Costs Abt Associates Inc.

Exhibit 3-3

Comparison of Total Vendor Operational Costs Per Case Month for Ohio Direction Card and 

Dayton Pilot

Adjusted Costs in Year 2000 Dollarsa

Cost Category

Ohio Direction 

Card Cost Per 

Case Month (MarJune 2000)b

Dayton Pilot Cost 

Per Case Month 

(Aug-Dec 1992)b

Percent 

Change from 

Dayton Pilot 

to Ohio 

Direction Card

Administration/Reconciliation $0.52 $1.26 –59%

Customer Service $0.14 $0.42 –66%

Data Center Hardware/Software 

Labor $0.16 $1.63 –90%

Hardware $0.11 $0.49 –78%

Hardware Maintenance $0.02 $0.09 –78%

Software Maintenance $0.05 $0.35 –84%

Total Data Center Hardware/Softwarec$0.34 $2.56 –87%

POS/Administrative Terminals

Hardware $0.88 $0.76 15%

Installation and Maintenanced$1.78 $0.19 861%

Total POS/Administrative Terminals $2.66 $0.95 181%

Communications $0.29 $0.56 –48%

ACH Expenses $0.06 $0.05 35%

Card Costs $0.46 $1.02 –55%

Total Costs $4.48 $6.81 –34%

a The Dayton pilot costs were adjusted by an inflation factor of 15.8 percent.

b Vendor costs for the Ohio Direction Card cost represent an allocation of billed costs based on a resource cost distribution. Vendor costs 

for the Dayton pilot were billed on a cost-plus-fixed-fee basis.

c Data center costs for the Dayton pilot include part of the POS maintenance costs.

d Ohio Direction Card billed maintenance cost reflects estimated average resource cost for 5-year period.

cost for the Ohio Direction Card. In the Dayton pilot, there were, on average, about 190 calls each 

month to customer service agents from recipients, retailers, and county staff per 1,000 cases during 

the operations period. In the statewide system, this number had decreased to approximately 121 calls 

per 1,000 cases per month. This change is consistent with the increased use of the Audio Response 

Unit (ARU) for balance inquiry calls. Furthermore, the statewide system used two levels of customer 

service—less expensive, temporary staff to respond to basic questions from recipients, and more 
Abt Associates Inc. Chapter 3: Operational Costs 33

expensive and knowledgeable staff to respond to counties, retailers, and more complicated questions 

from recipients. In contrast, the Dayton pilot needed a more flexible and therefore expensive staff.14

The largest reduction in costs for the Ohio Direction Card system—87 percent—was seen in the data 

center. Part of the cost difference may be due to accounting differences: the Dayton pilot cost listed 

in this category may have included a portion of the POS maintenance. A significant cost reduction, 

however, was expected in the statewide system, because the total cost to operate the data center had a 

large fixed-cost component. Although the total caseload increased by almost 25 times, the data center 

cost increased by less than three times.

On the other hand, the cost per case month of POS and administrative terminals for the Ohio 

Direction Card system was significantly greater than for the Dayton pilot. Although the cost of the 

hardware for the Ohio Direction Card was only 15 percent higher than for the Dayton pilot, the cost 

of installation and maintenance of the POS and administrative terminals for the Ohio Direction Card 

system was over eight times greater than for the pilot system. 

This apparent difference in costs reflects both actual operational conditions and differences in the 

approach to estimating the costs. As mentioned above, because the overall state of Ohio was less 

densely populated than the Dayton area, the number of retailer terminals required per case for the 

Ohio Direction Card system was significantly greater than the number required for the Dayton pilot.15 

Offsetting this difference, however, the cost of equipment decreased, particularly for single-lane 

retailers, and the proportion of single -lane retailers increased.16

The difference in the cost of the installation and maintenance of terminals was magnified by three 

differences in the way that these costs were defined and measured. First, the price of maintenance for 

the Dayton pilot reflected the cost of maintenance on terminals during their first year of use, whereas 

the cost of maintenance for the statewide system reflected an average over five years, the usual 

lifetime for POS equipment. As the terminals aged, they developed more problems and the cost of 

maintenance increased. For example, for the Ohio Direction Card, the resource cost of maintenance 

during the fifth year of life of the terminals was over eight times greater that the cost of maintenance 

during the first year. Second, over 20 percent of the cost of maintenance for the Ohio Direction Card 

was for off-site repair services. This aspect of maintenance was not identified in the data for the 

Dayton pilot, when equipment may have been covered under warranty during the initial postimplementation period. Third, some of the POS maintenance cost for the Dayton pilot may have been 

 

14 The cost per call to customer service for the Dayton pilot was estimated to be $2.19, whereas the cost per 

call for the Ohio Direction Card system was estimated to be $1.01.

15 In the Dayton pilot, each retailer terminal served, on average, 43 FSP households, whereas in the Ohio 

Direction Card system, each retailer terminal served only 25 households. The statewide decline in FSP 

participation from 1992 to 2000 contributed to the lower ratio of FSP households to terminals.

16 Multi-lane retailers were more expensive to equip than single-lane retailers because they were provided 

with a local area network-based POS configuration. The average billed cost per lane decreased from 

$1,055 in the Dayton pilot to $837 in the Ohio Direction Card system. The cost to equip a single-lane 

retailer decreased from $1,100 in the Dayton pilot to $770 in the Ohio Direction Card system. The 

proportion of single-lane retailers increased from 62 percent in the Dayton pilot to 74 percent in the Ohio 

Direction Card system.
34 Chapter 3: Operational Costs Abt Associates Inc.

included in the costs for administration and reconciliation or data center operations, because some 

repairs were done by the prime contractor’s technical staff.

There is anecdotal evidence that the number of EBT-equipped retailer lanes increased after the 

evaluation period. According to Citicorp EFS, major retailing chains built larger new stores and 

expanded older ones. Some retailers that had previously declined to participate in the Ohio Direction 

Card system requested equipment. These trends did not affect the billed costs, but they affected the 

resource costs and may influence billed costs under the State’s next contract.17

Finally, the cost of cards for the Ohio Direction Card system was 55 percent less than for the Dayton 

pilot. This change can be explained by two factors. First, due to technological advances, it was less 

expensive to produce smart cards. Second, in the statewide system, the quantity of cards required was 

significantly greater than the number that was required for the demonstration project. These two 

factors made it possible for the Citicorp EFS to purchase the cards for the Ohio Direction Card system 

at a lower unit cost. The cards used during the Dayton pilot were purchased at almost $10 per card, 

whereas the cards used during the Ohio Direction Card system were purchased at $4 per card.

3.5 Local Operational Costs for Statewide Direction Card System 

and Comparison to Costs for Dayton Pilot

Local Operational Costs for Ohio Direction Card

In Ohio, the 88 CDJFS had direct responsibility for local FSP administration. Within the Ohio 

Direction Card system, CDJFS staff had three primary areas of responsibility: (1) training recipients, 

issuing cards, and solving card problems (including unlocking cards and replacing lost or stolen 

cards); (2) benefit maintenance and problem-solving related to the Direction Card;18 and (3) Direction 

Card administration (including reporting and daily settlement of the administrative terminals). The 

primary local staff who administered the Ohio Direction Card program included the following:

• Assistance Control Office (ACO) workers, who provided EBT training to recipients and 

assisted those with account balance problems.19 The ACO workers also provided 

authorization for replacement of cards and performed any administrative actions that 

changed the balance on a recipient’s card. For example, ACO workers did coupon 

conversions as a way of facilitating return of benefits.

 

17 The evaluation did not attempt to quantify impact of changes in the number of retailer terminals on vendor 

resource costs. These changes would only affect the distribution of billed vendor costs, not the total.

18 Benefit maintenance and problem solving includes tasks such as responding to benefit-related questions; 

helping recipients perform benefit inquiries, transaction histories, or issuance transactions; getting involved 

in disputed transactions between recipients and retailers; and performing coupon conversions or return of 

benefits. Benefit problems regarding eligibility for benefits or amounts authorized were directed to 

caseworkers. Questions regarding the non- receipt of authorized benefits were directed to county Direction 

Card staff or to the customer service unit.

19 One county used a contractor to train recipients during EBT implementation, as described in Volume 1. All 

other recipient training in Ohio was conducted by CDJFS personnel.
Abt Associates Inc. Chapter 3: Operational Costs 35

• Fiscal Control Office (FCO) workers, who performed all terminal-based transactions that 

updated the Direction Card or the EBT host computer, including card issuance, card 

unlocks, and card replacement.

• Direction Card Supervisors, who oversaw the Direction Card program and performed 

monthly reporting. Supervisors also assisted with troubleshooting and provided backup 

to the ACO/FCO staff as necessary.

Many Direction Card staff were trained to perform both ACO and FCO functions, and these staff 

sometimes alternated between roles. Furthermore, in small counties, there often was one Direction 

Card staff member who did most ACO and FCO functions. The Accounting Office was usually 

responsible for the security and accountability of the inventory of smart cards maintained in the 

office. In some counties, this was handled by the FCO or supervisor. Other local support staff (such 

as receptionists and clerks) also assisted the ACO and FCO staff with operational functions and 

provided backup as necessary. Finally, in some counties, caseworkers provided assistance solving 

benefit problems related to the Direction Card.20

Referring back to Exhibit 3-1, the average EBT operational cost for all counties in the Ohio Direction 

Card system was $1.88 per case month. This cost was a weighted average of total operational costs, 

including labor and overhead, from ten sample counties where interviews were conducted. Appendix 

B provides data on operational costs and labor hours for the ten sample counties and the data that 

were used to impute overhead costs for county EBT activities. Of the total, $1.30 per case month was 

for recipient training, card issuance, card replacements, and card unlocks; $0.30 was for benefit 

maintenance and problem solving; and the remaining $0.28 was for administration.

The evaluators also examined the division of labor for the Ohio Direction Card. Of the total $1.88 

per case month, 82 percent of the cost was attributable to ACO, FCO, and other support staff; 16 

percent of the cost was attributable to EBT supervisors; and the remaining 2 percent of the cost was 

attributable to caseworkers (see Exhibit 3-4). The ACO and FCO staff did the vast majority of direct 

client interaction for issues related to the Direction Card. The cost for EBT supervisors reflects only 

the time that they spent performing direct EBT operational functions, such as assisting the ACO and 

FCO staff or performing end-of-day settlements. The time that EBT supervisors spent performing 

overhead functions such as managing the ACO and FCO staff or Direction Card reporting was not 

directly included, because it was assumed to be included in overhead charges.

 

20 Although caseworkers were instructed to direct all Direction Card questions to EBT staff, caseworkers in 

some counties assisted with Direction Card questions. Most counties reported that the time spent by 

caseworkers on Direction Card issues was negligible. Of the ten CDJFS that provided cost data, only two 

CDJFS identified caseworker costs.
36 Chapter 3: Operational Costs Abt Associates Inc.

Exhibit 3-4

County Operational Costs for Ohio Direction Card, by Labor Category

82%

16%

2%

ACOs/FCOs/Other Support

EBT Supervisors

Caseworkers

Comparison of Ohio Direction Card Local Operational Costs for Small and Large Counties

To examine the relationship of caseload size to local operational costs, the evaluators compared 

CDJFS costs for the Ohio Direction Card between small and large counties.21 As presented in Exhibit 

3-5, large counties had a smaller average cost per case month than small counties: $1.76 and $2.01, 

respectively. This difference held true for each of the functions of Direction Card operations. 

In larger counties, Direction Card workers were usually able to work more efficiently, because they 

tended to have a relatively steady flow of work on Direction Card issues. These counties often 

trained several recipients at once, and there were dedicated staff members who worked exclusively on 

solving card problems. In smaller counties, there was typically only one primary Direction Card 

worker, who might only see five to ten recipients sporadically throughout the day. Recipients were 

typically trained individually, and staff had less experience with solving card problems. 

In fact, the difference in productivity between small and large counties was even greater than the 

difference in cost. This is due to the fact that the average pay rate for local staff was higher in large 

counties than in small counties.22 Small counties worked 0.62 person-months per 1,000 cases on 

operational functions, whereas large counties only worked 0.44 person-months per 1,000 cases. 

Thus, there was a 41 percent difference in productivity, but only a 19 percent difference in cost.

 

21 Small counties were defined as having fewer than 10,000 cases, and large counties were defined as having 

greater than 10,000 cases based on caseloads as of April 1997.

22 The average monthly pay rate was $3,387 per full-time equivalent in small counties and approximately 

$4,000 in large counties.
Abt Associates Inc. Chapter 3: Operational Costs 37

Exhibit 3-5

Comparison of Local Operational Costs Per Case Month for Ohio Direction Card by Function

Function

Small Counties 

(<10,000 Cases 

as of Apr 1997)

Large Counties 

(>10,000 Cases 

as of Apr 1997) Statewide

Card Issuance, Maintenance, and Problem 

Solving

$1.35 $1.25 $1.30

Benefit Maintenance/Problem Solving $0.33 $0.27 $0.30

Administration $0.33 $0.24 $0.28

Total $2.01 $1.76 $1.88

Level of Effort (person-months per 1000 cases) 0.62 0.44 0.52

The general association between cost and size can also be seen in Exhibit 3-6, which displays the cost 

per case month of the ten sample counties sorted by their size. Five out of ten counties had costs 

between $1.50 and $1.75 per case month. Two small counties had costs above $2.00 (as did one large 

county), and two large counties had costs below $1.50.

Although the size of the caseload served by the county does seem to have affected operational cost, 

there were other factors that influenced the cost as well. Among the ten sample counties, the county 

with the largest caseload had the second largest cost per case. This county is in a high-density, highpoverty urban region. As part of its recipient service strategy, this county had numerous CDJFS 

offices, which in some respects were similar to smaller county offices in terms of EBT staffing 

productivity.

To determine the effects that such outliers may have had on the estimate of the statewide operational 

cost, a sensitivity analysis was performed on the data, as discussed in the following section.

Sensitivity Analysis

Because the statewide estimates of county costs were based on data from only 10 out of 88 counties, 

the data were analyzed to determine the sensitivity of the results to excluding the counties with the 

highest and lowest costs per case month. In addition to performing the analysis on the statewide data, 

the analysis was performed on the subgroups of small and large counties (see Exhibit 3-7).23 For the 

small and large county groups, the evaluators examined the effects of excluding: (1) the county with 

the highest cost per case month, (2) the county with the lowest cost per case month, and (3) the 

counties with the highest and the lowest costs per case month. The statewide analysis examined the 

overall effects of dropping the specified counties from each of the subgroups.

 

23 The evaluators estimated statewide costs and costs for the small and large county subgroups by weighting 

the sample county data to each of the group totals. Each large sample county had less influence than each 

small sample county, because the large sample counties represented a larger proportion of the large county 

subgroup than the small sample counties did of the small county subgroup.
38 Chapter 3: Operational Costs Abt Associates Inc.

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

Exhibit 3-6

Relationship of Ohio Direction Card Operational Costs for Sample Counties to County Caseload

Total 

Cost 

Per 

Case 

Month

Average Number of Cases Per Month
Abt Associates Inc. Chapter 3: Operational Costs 39

Exhibit 3-7

Ohio Direction Card Comparison of Total County Operational Costs Per Case Month 

Excluding Extreme Sample Counties from Groups

Sample Counties Used for Estimationa

Small Counties 

(<10,000 Cases 

as of Apr 1997)

Large Counties 

(>10,000 Cases 

as of Apr 1997) Statewide

Based on All Sample Counties $2.01 $1.76 $1.88

Excluding Counties with Highest Cost Per 

Case Month

$1.77 $1.40 $1.57

Excluding Counties with Lowest Cost Per 

Case Month

$2.13 $1.89 $1.99

Excluding Counties with Highest and Lowest 

Cost Per Case Month

$1.84 $1.57 $1.69

Median Cost per Case Month of Sample 

Counties

$1.76 $1.63 $1.69

a Counties with the highest or lowest cost per case month within the small county group and within the large country group were 

excluded. Statewide costs represent a weighted average of costs in the small and large counties included in each estimate.

The first scenario examined the effects of excluding the county with the highest cost per case from 

each of the two subgroups. Excluding these two counties substantially reduced the estimated 

statewide cost, from $1.88 to $1.57 per case month. Both of the counties that were excluded were 

influential outliers. The small county that was excluded had a 40 percent higher operational cost than 

the next highest county in its group, and the large county that was excluded had a 77 percent higher 

operational cost than the next highest cost county in its group.

The second scenario examined the effects of excluding the county with the lowest cost per case from 

each of the two subgroups. Excluding these two counties modestly increased the estimated statewide 

cost from $1.88 to $1.99 per case month. The small county that was excluded only had a 5 percent 

lower operational cost than the next lowest cost county in its group. Although the large county that 

was excluded had a 37 percent lower operational cost than the next lowest county in its group, 

removing it did not have as great an impact on the statewide cost.

The final scenario examined the effect of excluding all four of the counties with the highest and 

lowest costs, three of which were influential outliers with operational costs at least 45 percent higher 

or lower than the median cost. This scenario resulted in decreasing the estimated statewide cost from 

$1.88 to $1.69 per case month.

The unweighted median operational costs for the large and small county subgroups were $1.63 and 

$1.76 per case month, respectively, with an overall median cost of $1.69 per case month. The 

medians provide additional perspective on the potential influence of outliers.
40 Chapter 3: Operational Costs Abt Associates Inc.

This analysis suggests that outlie rs in the sample data may have influenced the results. If the results 

were overly influenced by outliers, the actual statewide average from a larger sample might have been 

closer to the $1.69 per case month sample median. Nevertheless, the evaluators chose to rely upon the 

statewide estimates based upon all of the sample data for two reasons. First, the evaluators did not have 

sufficiently strong reasons to determine that the outlier values resulted from measurement error or 

unique circumstances. Second, the largest outlier was also the largest county in Ohio, with almost 40 

percent more food stamp cases served than any other county in Ohio, and this county’s cost could not 

be ignored. In weighting the sample data to estimate the statewide average, the evaluators treated this 

county as a separate stratum, so its influence was not exaggerated by the weighting procedure.

Comparison of Ohio Direction Card Local Operational Costs for Early and Late Implementers

To assess the possible influence of operating experience on operational costs, the relationship 

between cost and implementation completion date was examined. Because there is often a learning 

curve associated with working with new systems, it might be expected that counties with more 

operating experience would have lower operational costs on a per case basis. Exhibit 3-8 displays the 

cost per case of the ten sample counties in relation to the implementation completion date. As shown 

in the exhibit, seven of the ten counties, with implementation completion dates ranging from January 

1998 to January 2000, have costs within or close to the $1.50 to $2.00 per case month range. Of the 

remaining three counties, the county that completed implementation the earliest had the highest 

operational cost ($2.90 per case month), and a county that completed implementation over a year later 

had the lowest operational cost ($0.90 per case month). The variation in the costs per case of the 

sample data independent of the implementation completion date is not indicative of operating 

experience influencing operational costs. Other factors may have offset learning-curve effects on 

county costs.

In order to determine with certainty the relationship of operating experience to operational costs, the 

analysis would have had to examine costs for the same counties at two different points in time. For 

this evaluation, this kind of analysis was not possible under this contract. Nevertheless, the 

evaluators suspect that, as operational experience increases, total cost decreases until a steady-state 

period is reached. This conclusion is based primarily upon anecdotal information from interviews 

with County Direction Card staff. Furthermore, the decrease in operational costs for Montgomery 

County from the pilot period to the current evaluation period (as discussed below) is another 

indication that operational experience may affect costs.

Comparison of Local Operational Costs for Ohio Direction Card and Dayton Pilot

Local EBT operations for the Dayton pilot were conducted by Montgomery County staff, as well as 

by two employees from a subcontractor organization that assisted with ACO and FCO functions.

The local operational cost for the Dayton pilot was only slightly higher than the statewide average 

local cost of the Ohio Direction Card system—$1.95 per case month versus $1.88 per case month (see 

Exhibit 3-9). This cost difference is negligible when considering two limitations of the data: first, 

that the cost for the Ohio Direction Card was estimated with sample data from 10 out of the 88 

counties, and the actual cost may be slightly higher or lower, as the sensitivity analysis demonstrated. 

Second, there may have been differences between the two evaluations in how some of the costs were 

measured.
Exhibit 3-8

Relationship of Ohio Direction Card Operational Costs for Sample Counties to Implementation Completion Date

Total 

Cost 

Per 

Case 

Month

Date Conversion Completed

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

Sep-97 Jan-98 May-98 Sep-98 Jan-99 May-99 Sep-99 Jan-00 May-00

27 Chapter 3: Operational Costs Abt Associates Inc.
42 Chapter 3: Operational Costs Abt Associates Inc.

Exhibit 3-9

Comparison of Local Operational Costs Per Case Month for Ohio Direction Card and Dayton 

Pilot, by Labor Category

Adjusted Costs in Year 2000 Dollarsa

Labor Category

Ohio Direction 

Card 

(Mar-June 2000)

Montgomery 

County 

Direction Card 

(Mar-June 2000)

Dayton Pilot

(Aug-Dec 1992)

ACO/FCO/Other Support $1.54 $1.42 $1.48

EBT Supervisorsb$0.30 $0.00 $0.05

Caseworkersc$0.03 $0.00 $0.27

Subcontractord N/A N/A $0.16

Total Cost Per Case Month $1.88 $1.42 $1.95

a The Dayton pilot costs were adjusted by an inflation factor of 15.8 percent.

b Supervisor cost reflects time performing direct EBT operational functions. Supervisor cost for management is included in loading for 

indirect costs. In Montgomery County, supervisors did not perform any direct EBT operational functions for the Direction Card system.

c In the Dayton pilot, caseworker costs may have included some eligibility-related costs.

d Subcontractor in Dayton pilot provided card issuance and client training services.

Although a larger cost difference may have been expected, because the procedures in the Ohio 

Direction Card system were probably more efficient than in the pilot system, two additional factors 

may account for the results. First, the statewide local cost for the Ohio Direction Card reflects a mix 

of large and small counties, whereas the Dayton pilot was conducted in a large urban county with 

substantial economies of scale. Second, Montgomery County (where Dayton is situated) has 

generally proven to be an efficient site among the large counties, with relatively low local costs 

($1.42 per case month). It can be noted that Montgomery County’s operational costs for the Ohio 

Direction Card system were significantly lower than for the Dayton pilot, suggesting an increase in 

efficiency within this county’s operations.24

The cost of EBT supervisors providing direct EBT operational services was much lower for the 

Dayton pilot than for the Ohio Direction Card. The supervisor cost varied greatly among counties, 

depending on the level and structure of staffing. For example, small counties with only one primary 

Direction Card worker sometimes required significant supervisory support for assistance and backup. 

In Montgomery County, however, supervisors did not provide direct EBT services, and a lead 

Direction Card worker performed some of the supervisory duties. For the Dayton pilot, the project 

 

24 Although the Montgomery County Direction Card system included the entire county, and the Dayton pilot 

included only part of the county, there was not a substantial difference in the size of the caseloads served 

by the two systems. Due to the decline in caseload, the number of cases supported by the Montgomery 

County Direction Card system (13,035 cases) was approximately 20 percent greater than the number 

supported by the Dayton pilot (10,930 cases).
Abt Associates Inc. Chapter 3: Operational Costs 43

was still in an early phase, so some supervisory support may have been used for direct EBT 

operational services.25

Caseworker costs for the Ohio Direction Card were much lower than for the Dayton pilot. As 

mentioned above, caseworker costs for the Ohio Direction Card system were minimal, because caseworkers were instructed to direct all Direction Card questions to EBT staff. During the Dayton pilot, 

intake caseworkers spent a significant amount of time with clients discussing the EBT program in the 

intake interview and answering questions related to EBT issues. This role was turned over to the 

ACO in the statewide Ohio Direction Card system. Furthermore, for the Dayton pilot, caseworker 

costs may include some eligibility-related costs. A primary goal of the evaluation of the pilot system 

was to compare costs of the off-line system to those of the paper system, in which caseworkers had 

more responsibility for troubleshooting issuance problems. Therefore, the definition of issuancerelated caseworker functions for the pilot evaluation probably included some activities that were 

treated as eligibility-related (and therefore unrelated to EBT) in the statewide evaluation. The data 

from the pilot do not permit separation of eligibility-related costs from issuance-related costs.

To compare the local costs associated with the performance of direct EBT operational functions for 

the Dayton pilot to those of the Montgomery County or statewide Direction Card systems, the cost of 

subcontractor support must be added to the cost of ACO, FCO, and other support staff. A 

subcontractor in the Dayton pilot provided card issuance and client training services. Including this 

element, the cost for the Dayton pilot of $1.64 per case month was 15 percent greater than the labor 

cost in Montgomery County with the Direction Card system, but just 6 percent greater than the cost of 

the statewide system.

Summary of Local Operational Costs

The total local operational cost did not change dramatically over time (a reduction for the statewide 

Direction Card system of $0.07 per case month, contrasted with a reduction in vendor costs of $2.33). 

The primary component of local costs was the cost of recipient training, card issuance, and card 

maintenance. On average, large counties had lower costs than small counties, but there was a good 

deal of variation within each group. There was mixed evidence regarding whether local operational 

costs decreased over time due to learning curve effects. Although the cross-county comparison did 

not support this hypothesis, the Montgomery County data did.

3.6 Ohio Department of Jobs and Family Services Operational 

Costs for Statewide Direction Card System and Comparison 

to Costs for Dayton Pilot

Operational Costs for Ohio Direction Card

The ODJFS administers the Food Stamp Program and handles all EBT contract management 

functions. During the evaluation period, the ODJFS EBT unit provided support and oversight for 

county operational activities, vendor oversight, and technical support for the CRIS-E/Direction Card 

systems interface. ODJFS fiscal staff performed EBT reconciliation and reporting functions.

 

25 The available documentation does not make clear whether the supervisory costs for the Dayton pilot 

represent direct services, overhead functions, or a combination of the two.
44 Chapter 3: Operational Costs Abt Associates Inc.

The average EBT operational cost for ODJFS was about $51,000 per month,26 excluding costs billed 

to the agency by Citicorp EFS and reimbursements to the CDJFS for their costs, as shown in Exhibit 

3-10. The majority of this cost, approximately $32,000 per month, was for contract labor. 

Employees of the CRIS-E support contractor provided technical support for EBT operations at 

ODJFS. The next largest component was ODJFS EBT staff labor at about $16,000 per month. 

ODJFS' remaining direct costs were for fiscal staff labor, CRIS-E CPU usage, travel and 

miscellaneous items. The monthly level of effort was 5.9 full time equivalents, and the cost was 

$0.20 per case month.

Comparison of State Operational Costs for Ohio Direction Card and Dayton Pilot

During the Dayton pilot, ODJFS’ primary involvement was in project management and oversight. 

ODJFS was also responsible for changes in Ohio’s CRIS-E system to support the implementation of 

the EBT system, but a subcontractor was used for most of the programming necessary to develop the 

interface between CRIS-E and EBT system.

For the Ohio Direction Card System, ODJFS took on a much larger role and had a more formalized 

structure. ODFJS’ additional responsibilities included providing dedicated county support, fiscal 

support, and contract management.

Despite its greatly expanded role, ODJFS’ operational cost per case fell by over 50 percent, from 

$0.46 in the Dayton pilot to $0.20 in the Ohio Direction Card system. The primary reason for the cost 

reduction was the difference in scale between the systems. The Ohio Direction Card system served 

almost 25 times the number of cases as the Dayton pilot. State-level labor costs were not very 

sensitive to scale, so the State realized substantial economies of scale on a per-case month basis.

3.7 Comparison of Ohio Direction Card System with Other EBT 

Systems

The comparison of the Ohio Direction Card system with other EBT systems was one of the major 

objectives of this evaluation. The off-line Ohio Direction Card system was the first large-scale offline EBT system for the FSP, and it was therefore an important benchmark of the cost of off-line EBT 

systems. As described below, the evaluators used both previous evaluation results and current 

reported EBT vendor fees from on-line EBT systems for comparison purposes.

 

26 The ODJFS data center operates and maintains the State’s integrated public assistance system (known as 

the Client Registry Information System – Enhanced, or CRIS-E). This system interfaces with the EBT 

service provider’s computer system on a daily and monthly basis to effect the transfer of issuance data and 

other information necessary to operate the EBT system. The CRIS-E charges for EBT include only batch 

processing. All county CRIS-E utilization costs, including the modest requirements for EBT, are included 

in the State’s reported Automated Data Processing (ADP) costs for the FSP.
Abt Associates Inc. Chapter 3: Operational Costs 45

Exhibit 3-10

Ohio Direction Card: Operational Costs for Ohio Department of Jobs and Family Services

Cost Category Average Monthly Cost

ODJFS Labor $15,543

Contract Labor $31,853

Fiscal Labor $788

Miscellaneous $324

CPU Usage $1,237

Travel $1,245

Total Costs $50,989

Total Cost Per Case Montha$0.20

Total FTE’s Per Month 5.9

a The number of cases used is 257,600, the average caseload between March and June 2000, the operational period for which data 

were obtained.

Comparisons to Other EBT Evaluation Results

From a methodological perspective, the evaluation of the on-line EBT system demonstration in 

Maryland offers perhaps the most comparable data.27 Like the Ohio Direction Card system, the 

Maryland EBT demonstration was the first statewide implementation of its kind. In both states, all 

recipients were trained at local FSP offices and retailer equipment was installed exclusively for EBT 

use (although multi-purpose terminals were later installed after the evaluation period in Maryland.) 

The scope of the vendor contracts was essentially the same, encompassing terminal deployment and 

maintenance, host processing, telecommunications, customer service, and supplying cards. 

Furthermore, the Maryland evaluation used a similar resource cost method, a similar functional 

framework, and a sample designed to yield estimates of local office costs for metropolitan and nonmetropolitan counties.28

Several important differences between the Maryland on-line EBT demonstration system and the Ohio 

Direction Card system also need to be considered in making comparisons. The Maryland costs came 

from 1993. Maryland’s FSP caseload during the evaluation period was a little more than half of 

Ohio’s 2000 FSP caseload (142,500 versus 257,600); thus, the Ohio EBT system provided greater 

economies of scale. This difference is offset, however, by the fact that Maryland included cash 

assistance in its EBT system, thereby reducing the FSP’s share of the costs of EBT cards and other 

shared resources. In fact, the combined (duplicated) caseload of all programs in the Maryland EBT 

 

27 C. Logan et al., “The Evaluation of the Expanded EBT Demonstration in Maryland, Volume 2: System 

Impacts on Program Costs and Integrity”, Project Officer: M. Andrews. U.S. Department of Agriculture, 

Food and Nutrition Service, Office of Analysis, Nutrition and Evaluation, Alexandria, VA, 1994.

28 The “metropolitan” counties in Maryland included both large and mid-sized counties located in 

metropolitan areas.
46 Chapter 3: Operational Costs Abt Associates Inc.

demonstration was nearly 257,000 during the evaluation period. Furthermore, in 1993, the FSP 

participation level was generally higher than in 2000 (both in Maryland and in Ohio), and therefore 

there was more intensive utilization of POS terminals and other resources.

It should also be noted that because the Maryland demonstration was the first statewide EBT system, 

the relationship between billed vendor costs and actual resource costs was likely tenuous, because the 

vendor had no prior experience in pricing. In Maryland’s current EBT system, there is a new vendor, 

so the evaluation data are not representative of current vendor costs.

The other evaluation that was used for comparison is that of the Wyoming WIC/FSP off-line EBT 

demonstration. 29 This evaluation reflects a similar technology and a similar research methodology, 

and the data are more recent (from 1995). On the other hand, the Wyoming demonstration system 

was radically different from the Ohio system for two reasons. First, because the Wyoming system 

served WIC as well as the FSP, costs were shared by the programs and allocated accordingly. 

Second, the evaluation data reflected a demonstration that included just 2200 FSP households and 

2200 WIC households.30 Therefore, the Wyoming demonstration data will be used for comparison 

purposes with even more caution than the Maryland demonstration data.

Comparison of Overall Operational Costs for the Off-line Ohio Direction Card System with 

Maryland and Wyoming EBT Demonstration Systems

The total operational cost for the Ohio Direction Card system, $6.56 per case month, was 56 percent 

more than that of Maryland’s on-line EBT demonstration system at $4.20 per case month (see Exhibit 

3-11).31 The reasons for this overall difference are examined below, as are the specific differences 

between the systems. The operational cost per case month for the Ohio Direction Card system was 

substantially lower than the operational cost for the Wyoming off-line EBT demonstration, which was 

$11.61 per case month. This result was not unexpected: as discussed above, demonstration projects 

in limited areas are typically more expensive than statewide systems due to their smaller scale and 

less mature systems. 

Comparison of Vendor Operational Costs for Ohio Direction Card with Maryland and Wyoming 

EBT Demonstration Systems

Comparison of Ohio Direction Card and Maryland EBT Demonstration Systems—Off-Line Versus 

On-Line

The total vendor operational cost for the Ohio Direction Card system was higher than that of the 

Maryland EBT demonstration system, $4.48 per case month versus $3.15 per case month (see Exhibit 

3-12). The component of cost that contributes most to this difference is the cost of the POS and

 

29

 W. Hamilton et al., “Costs and Impacts of the Wyoming Smartcard EBT System”, Project Officer: J. 

Kresge. U.S. Department of Agriculture, Food and Nutrition Service, Office of Analysis, Nutrition and 

Evaluation, Alexandria, VA, 1997. 

30 The Wyoming WIC/FSP off-line EBT system has since rolled out on a statewide basis, with the State 

serving as prime contractor.

31 All costs are presented in current FY2000 dollars. The costs for the Maryland and Wyoming EBT 

demonstration systems were adjusted by inflation factors of 13.1 percent and 8.4 percent, respectively.
Abt Associates Inc. Chapter 3: Operational Costs 47

Exhibit 3-11

Comparison of Total Operational Costs Per Case Month for Ohio Direction Card and Maryland 

and Wyoming EBT Demonstration Systems

Adjusted Costs in Year 2000 Dollarsa

Cost Category

Ohio Direction 

Card (Mar-June 

2000)

Maryland EBT 

Demonstration

(Jul-Sep 1993)

Wyoming EBT 

Demonstration

(Oct 1995)

Billed Vendor Costsb$4.48 $3.15 $8.01

Local Costsc$1.88 $0.75 $2.51

State Costs $0.20 $0.29 $1.09

Total Costs $6.56 $4.20 $11.61

a The costs for the Maryland and Wyoming EBT demonstratio n systems were adjusted by inflation factors of 13.1 percent and 8.4 percent, 

respectively.

b Vendor costs for the Ohio Direction Card system include all operational costs billed to ODJFS. FSP vendor costs for Maryland 

demonstration were determined by allocating total billed costs in proportion to the program’s share of resource costs. Vendor costs for 

Wyoming demonstration were billed on a cost-plus-fixed-fee basis; the evaluation allocated a share of billed vendor costs to the FSP in 

proportion to the program’s share of resource use.

c Local costs for Maryland demonstration represented local Department of Social Service costs. Local costs for Wyoming demonstration 

included subcontractor for card issuance and training.

Exhibit 3-12

Comparison of Total Vendor Operational Costs Per Case Month for Ohio Direction Card and 

Maryland and Wyoming EBT Demonstration Systems

Adjusted Costs in Year 2000 Dollarsa

Cost Category

Ohio Direction 

Card Cost Per 

Case Month

(Mar-June 2000)

Maryland 

Demonstration Cost 

Per Case Month 

(Jul-Sep 1993)

Wyoming 

Demonstration 

Cost Per Case 

Month 

(Oct 1995)

Administration/Reconciliation $0.52 $0.34 $0.46

Customer Service $0.14 $0.58 $1.39

Data Center Hardware/Software $0.34 $0.96 $2.69

POS/Administrative Terminals $2.66 $0.60 $1.57

Communications $0.29 $0.60 $1.55

ACH Expenses $0.06 $0.03 $0.21

Card Costs $0.46 $0.04 $0.15

Total $4.48 $3.15 $8.01

a The costs for the Maryland and Wyoming EBT demonstration systems were adjusted by inflation factors of 13.1 percent and 8.4 percent, 

respectively. Vendor costs for Ohio Direction Card cost represented an allocation of billed costs based on a resource cost distribution. 

Vendor costs for Maryland demonstration were taxpayers’ share of resource costs, not actual billed costs. Vendor costs for Wyoming 

demonstration were billed on a cost-plus-fixed-fee basis.
48 Chapter 3: Operational Costs Abt Associates Inc.

administrative terminals. The cost of the equipment and maintenance is over four times greater, or 

over two dollars more per case month, for the Ohio Direction Card system than the Maryland EBT 

demonstration system. Moreover, the cost of terminals in the Maryland EBT demonstration system 

also included the local telephone service linking retailers to the system’s in-state telecommunications 

hubs, whereas the retailers bore the cost in the Ohio Direction Card system. 

Two primary factors contribute to this large cost difference. First, the hardware and software 

necessary to support off-line technology is substantially more sophisticated, and thus more expensive, 

than that necessary to support on-line technology. Second, in 1993, when the Maryland evaluation 

took place, food stamp caseloads were almost twice as high as they were in 2000, during the 

evaluation period for the Ohio Direction Card system. In fact, the number of participants served by 

the average EBT terminal in the Maryland system was over three times the number in the Ohio 

Direction Card system.32 Additionally, as with most of Maryland’s demonstration costs, cost sharing 

with AFDC did lead to some additional cost savings.

Card costs for the Ohio Direction Card system were $0.46 per case month, whereas they were $0.04 

per case month for the Maryland EBT demonstration. In the on-line Maryland EBT demonstration 

system, food stamp recipients were issued magnetic stripe cards, which held only the identifying 

information about the recipient needed for access to the account on the EBT host computer. On the 

other hand, the Ohio Direction Card system issues recipients more sophisticated smart cards with 

embedded microprocessor and memory chips. These cards have greater capabilities than magnetic 

stripe cards, but they also cost much more—$4 apiece for the smart cards versus $0.57 apiece for 

Maryland’s magnetic stripe cards (in 2000 dollars). In the Maryland demonstration system, costsharing with AFDC led to further savings in the card cost, which was divided according to caseload at 

a time when about half of the food stamp caseload was on AFDC.

Other costs, however, were lower for the Ohio Direction Card system. For example, customer service 

costs for the Ohio Direction Card were significantly lower than for the Maryland demonstration 

system, $0.14 per case month versus $0.58 per case month. A lower level of customer service cost 

was expected relative to an on-line system, because there was less that customer service could do, 

with all card replacements and much of the problem-solving requiring assistance from the EBT staff 

at the local offices.

Similarly, data center and communications costs for the Ohio Direction Card were lower than for the 

Maryland demonstration, $0.34 and $0.29 per case month, respectively, versus $0.96 and $0.60 per 

case month.33 In an on-line system, data are sent to the EBT system’s host computer during each 

transaction over a regular or dedicated telephone line; in an off-line system, data are stored on the 

card, and no phone call to the host computer is needed to authorize a purchase transaction. Instead, 

the EBT terminal dials into the system host computer once a day to transmit information about that 

day’s EBT transactions. This fundamental difference reduces the amount of communications network 

usage necessary and the hardware and labor requirements at the data center.

 

32 In the Maryland EBT demonstration, each EBT terminal served on average 85 participants, whereas in the 

Ohio Direction Card system, each EBT terminal served, on average, only 28 participants.

33 For the Maryland EBT demonstration, there was some ambiguity as to what got classified as data center 

costs and what got classified as administration/reconciliation costs. A portion of the data center cost may 

represent administration/reconciliation activities.
Abt Associates Inc. Chapter 3: Operational Costs 49

Comparison of Ohio Direction Card and Wyoming EBT Demonstration—Statewide 

Implementation Versus Pilot Area System

The total vendor operational cost for the Ohio Direction Card system was much less than that of the 

Wyoming EBT demonstration, $4.48 per case month versus $8.01 per case month. Furthermore, the 

FSP cost for the Wyoming demonstration already accounts for cost reductions due to significant cost 

sharing with the WIC program. As discussed earlier in the comparison of the Ohio Direction Card 

system with the Dayton pilot, much of the difference in the cost between the two systems can be 

attributed to the demonstration effects of scale and system instability.

The role of scale is particularly important for the data center, which has a large fixed cost component, 

so that the cost per case of a project serving a pilot area tends to be much greater than that of a 

statewide project. During the demonstration, the Wyoming EBT system served only one pilot county 

for both FSP and WIC, plus six other pilot counties for WIC. The cost of the data center for the 

Wyoming demonstration was $2.69 per case month. This cost was almost eight times the $0.34 per 

case month cost for the Ohio Direction Card. The higher level of support for the less mature 

Wyoming demonstration system also contributed to this difference.

The communications costs were also substantially higher for the Wyoming demonstration—$1.55 per 

case month versus $0.29 per case month for the Ohio Direction Card. Most of this difference was 

probably due to the difference in scale between the systems. Both systems used leased lines for 

communicating FSP issuance authorizations from the state headquarters to the EBT host. Although it 

is likely that the cost per line was similar, the cost for the Ohio Direction Card system was spread 

over substantially more cases.

34

Similarly, the cost of customer service was substantially higher in the Wyoming demonstration—

$1.39 per case month versus $0.14 per case month in the Ohio Direction Card. This difference 

reflects the benefits of a more stable system, including less time per case spent answering calls for 

assistance and the ability to use less-expensive personnel to handle more routine calls. The greater 

scale of the Ohio Direction Card system may have contributed to this cost difference by enabling 

more efficient use of facilities, staff, and supervisors.

Conversely, some of the costs of the Wyoming demonstration were particularly low due to costsharing with other programs. For example, although card costs for a pilot system are typically much 

higher than for a sta tewide system due to quantity discounts, the cost in the Wyoming demonstration 

was only $0.15 per case month, much lower than the cost for the Ohio Direction Card of $0.46 per 

case month. Card costs in Wyoming were split among three programs that shared the card.35 Half of 

the card cost was allocated to the Health Passport; of the remaining cost, WIC was allocated 50 

percent of the cost of cards that were used by households enrolled in both the FSP and WIC. 

Additionally, 70 percent of administration and reconciliation costs were paid by WIC. Depreciation 

 

34 The cost per leased line was not available to verify this interpretation.

35 Wyoming’s smart card was designed to work with the FSP, WIC, and the “Health Passport” program. A 

significant portion of the smart card’s memory was also devoted to the storage of “Health Passport” 

information for up to four children (for example, immunization records). Although at the time of analysis 

the main function of the Health Passport capacity was to facilitate transfers between WIC clinics within the 

EBT demonstration area, more applications were planned for the future.
50 Chapter 3: Operational Costs Abt Associates Inc.

and maintenance of retail equipment in dual program stores were split between programs according to 

the number of POS transactions (82 percent FSP, 18 percent WIC).

Comparison of Local Operational Costs for Ohio Direction Card with Maryland and Wyoming 

EBT Demonstration Systems

Exhibit 3-13 presents the local operational costs for the Ohio, Maryland, and Wyoming EBT systems. 

As with vendor costs, the local operational cost for Ohio Direction Card, $1.88 per case month, was 

higher than the local cost of $0.75 per case month for the Maryland EBT demonstration, and lower 

than the local cost of $2.51 per case month for the Wyoming EBT demonstration. The comparisons 

between the Wyoming EBT demonstration and the other two EBT system must be viewed with care. 

The Wyoming cost data came from one local office, whereas the local cost data for Ohio and the 

Maryland demonstration came from representative statewide samples of local offices. Conclusions 

about these comparisons are tentative because of the limited data from Wyoming.

Exhibit 3-13

Comparison of Local Operational Costs Per Case Month for Ohio Direction Card and Maryland 

and Wyoming EBT Demonstration Systems, by Labor Category

Adjusted Costs in Year 2000 Dollarsa

Labor Category

Ohio Direction Card 

(Mar-June 2000)

Maryland EBT 

Demonstration

(Jul-Sep 1993)

Wyoming EBT 

Demonstration

(Oct 1995)

Caseworkersb$0.03 $0.23 $0.17

EBT Supervisorsc$0.30 N/A N/A

ACO/FCO/Other Clerical $1.54 $0.52 $1.59

Subcontractord N/A N/A $0.74

Total $1.88 $0.75 $2.51

N/A = not applicable.

a The costs for the Maryland and Wyoming EBT demonstrations were adjusted by inflation factors of 13.1 percent and 8.4 percent, 

respectively.

b In the Ohio Direction Card system, only two counties were able to identify caseworker costs. The other eight counties reported that the 

time spent by caseworkers on Direction Card issues was negligible. The statewide estimate reflects the weighted average of these ten 

counties.

c Supervisor costs in Maryland and Wyoming demonstrations are included in other labor costs.

d Subcontractor in Wyoming demonstration provided card issuance and client training services.

In the Ohio Direction Card system, local agencies spent $1.13 per case month more than in the 

Maryland EBT demonstration. This difference in local costs accounts for approximately half of the 

overall difference between the systems. (The difference in vendor costs accounts for $1.33, and State 

costs for the Ohio Direction card system were slightly lower than those of the Maryland 

demonstration.)
Abt Associates Inc. Chapter 3: Operational Costs 51

The percentage difference in local costs between the two systems, however, was substantially greater 

than the percentage difference in the other cost components. The local cost for the Ohio Direction 

Card system was two-and-one-half times greater than that of the Maryland demonstration.

Local costs for off-line systems are likely to be significantly higher than local costs for on-line 

systems, because of several factors that require more in-person assistance. In many on-line EBT 

systems, the EBT contractor issues cards and provides training materials by mail, and the customer 

service center can solve the majority of recipients’ problems. In contrast, off-line EBT systems 

virtually require in-person training and card issuance, because of the greater value and complexity of 

the card. In addition, if recipients are allowed to select their local issuance sites, this task must be 

done when the card is issued, and often requires the assistance of a knowledgeable local staff 

member. Lastly, problem-solving in off-line systems more often requires access to the card, either to 

diagnose a card problem or to check the card balance.

It can be noted, however, that the caseworker cost for the Maryland EBT demonstration was over 

seven times greater than that of the Ohio Direction Card system. As mentioned above, the 

caseworker cost for the Ohio Direction Card system was minimal, because caseworkers were 

instructed to direct all Direction Card questions to EBT staff. In the Maryland demonstration, it was 

the caseworkers’ responsibility to make referrals for new recipients, authorize replacement cards, and 

to provide explanations on the system. Differences in measurement approach also may have 

contributed to the difference in these costs between the Ohio and Maryland off-line EBT systems.36

Although caseworker costs for the Wyoming EBT demonstration system made up a significantly 

smaller proportion of total local costs than the Maryland demonstration, they were greater than in the 

Ohio Direction Card system. The local office in Wyoming had less mature operations, so 

caseworkers may have been more actively involved in helping recipients with EBT issues. 

Constraints on the availability of specialized EBT staff in Wyoming may also have contributed to the 

higher level of caseworker costs. As previously noted, differences in measurement approach also 

may have contributed to the difference in these costs between the Ohio and Wyoming off-line EBT 

systems.

Comparison of Vendor Costs for Ohio Direction Card with Current Contracts for Maryland, 

Pennsylvania, and Virginia

The preceding discussion does not address the question that may be of greatest interest to many EBT 

officials: How do the costs of the Ohio Direction Card system compare with those of current on-line 

EBT systems? This question is difficult to address, because there are no extant data on current online EBT costs derived from sources comparable to the information collected for this evaluation. 

States report their EBT operational costs to FNS, but examination of these data and the underlying 

cost reporting processes suggests that they do not provide comparable data to the complete array of 

vendor, local, and State costs obtained by the evaluation for the Ohio Direction Card system.

 

36 The Maryland and Wyoming EBT evaluations defined EBT caseworker functions more broadly, including 

some types of problem-solving that were treated as eligibility functions in the Ohio evaluation. The 

definition reflected in the Ohio local EBT costs is more consistent with the usual State and local 

conceptions of EBT functions.
52 Chapter 3: Operational Costs Abt Associates Inc.

The following section provides a partial response to the need for comparison with current on-line 

EBT system costs. The discussion focuses on vendor fees, the main component of EBT operational 

costs and the one for which suitable data were available.37

Exhibit 3-14 summarizes the EBT vendor fees and related parameters in the Ohio Direction Card 

system and the on-line EBT systems in Maryland, Pennsylvania, and Virginia. The vendor fees are as 

of 2000. The contract terms and system features discussed below are current as of the date of this 

report. These three States were selected for comparison because they established their vendor fees in 

1999 or later, so the EBT marketplace was similar to when Ohio’s vendor fees were revised in 1998. 

Of equal importance, the principal parameters that shape the vendor fees were similar to those of the 

Ohio Direction Card system, as discussed below. (Several other States would meet these criteria, but 

their vendor fees were not available.) The Maryland fees also provide a perspective on the previous 

evaluation data from the Maryland demonstration. Virginia’s EBT system was not operational in 

2000, but the vendor fees had been finalized.

The exhibit and the following discussion provide some basic insights into the current cost differences 

between the Ohio Direction Card and the selected on-line EBT systems. This high-level analysis 

should be viewed with caution, because the selected States are not necessarily representative of all 

on-line EBT states. About half of the States with statewide on-line EBT contracts have, like the 

selected States, procured their contracts on their own. The other half of the States with statewide 

contracts have procured EBT contracts through multi-state alliances intended to obtain more 

favorable prices and other contract terms.38 (Subsequent contract negotiations, however, have 

proceeded on a state -by-state basis.) Furthermore, each contract has a variety of supplemental fees 

and other provisions that affect the bottom-line cost of EBT services and the value of the services 

provided, although these fees are generally small relative to the basic per-case-month fee. Lastly, the 

discussion in this section relies on insights into the vendors’ cost structure developed by past FNS 

evaluations and other studies of the economics of EBT. Lacking access to detailed and confidential 

vendor cost data from the three selected States, the discussion is somewhat speculative, but its basic 

assumptions are well established in the literature.39

Current vendor fees in the three on-line States range from $2.24 per case month in Pennsylvania, the 

largest of the three, to $3.45 per case month in Virginia,40 which has the most recent pricing of the 

three. The current Maryland fee of $2.81 represents an 11 percent reduction from the $3.15 fee 

during the demonstration period (adjusted for inflation).

 

37 State Agencies report total EBT costs to FNS, including vendor charges and costs for state and local 

operations. The available data, however, do not support analysis of state and local costs.

38

 U.S. Department of Agriculture, Food and Nutrition Service, “Food Stamp Program Electronic Benefit 

Transfer Project Status, January 2002”. Accessed on-line at http://www.fns.usda.gov/fsp/EBT Status 

Report – January 2002.htm.

39 For a discussion of the factors shaping EBT vendor pricing, see Phoenix MAXIMUS, “Electronic Benefits 

Transfer Alternatives Analysis,” Project Officer: Tim O’Connor. U.S. Department of Agriculture, Food 

and Nutrition Service, Office of Analysis, Nutrition and Evaluation, Alexandria, VA, 2000. 

40 The Virginia vendor fee applies to caseloads in the range of 150,000 to 200,000. Although the FY2000 

FSP caseload average was 150,452, the caseload dropped to 149,595 in FY2001. At this level, the vendor 

fee is $3.70 per case month.
Abt Associates Inc. Chapter 3: Operational Costs 53

Exhibit 3-14

Comparison of Vendor Contracts for Ohio Direction Card and Selected On-Line States

Contract Feature

Ohio 

Direction 

Card Maryland Pennsylvania Virginia

Vendor fee per case montha$4.48b$2.81 $2.24c$3.45d

Average monthly FSP 

households, FY2000 

279,174 101,048 352,491 150,452

EBT prime contractor Citicorp EFS Citicorp EFS Citicorp EFS Citicorp EFS

Year current fee set 1998 1999 2000 2001

Price per case month varies 

with caseload

Yes - tiered 

fee schedule

Yes - tiered 

fee schedule

Yes -

combination 

of lump sum 

and fee per 

case month

Yes - tiered fee 

schedule

Programs served (FY2000) FSP FSP, TANF, 

other cash 

assistance

FSP, TANF, 

other cash 

assistance

FSP

Vendor implementation costs 

included in operational fee

Equip and 

train 

retailers, 

local offices

Replace 

recipient 

cards and 

local office 

equipment

Equip and 

train retailers, 

local offices; 

issue cards 

and train 

recipients

Equip and train 

retailers, local 

offices; issue 

cards and train 

recipients

EBT-only POS terminal 

deployment (free to retailer)

All retailers; 

greater of 

FNS or State 

formula 

amount 

provided

Retailers 

without 

multipurpose 

terminals; 

FNS formula

Retailers 

without 

multipurpose 

terminals; 

FNS formula

Retailers without 

multipurpose 

terminals; FNS 

formula with cap 

on total EBT-only 

terminals

Number of FSP households 

per retailer (FY2000)

50.0 42.7 51.8 35.8

Card issuance and PIN 

assignment/ selection

Cards issued 

by local 

office staff; 

PIN selected 

at issuance

Cards issued 

by local 

office staff; 

PIN selected 

at issuance

Cards issued 

by local office 

staff; PIN 

selected at 

issuance

Cards issued by 

mail with 

assigned PIN; 

PIN changed at 

local office if 

desired

a On-line State vendor fee calculations may have varied in terms of how case counts are calculated. The actual fee per participating 

case, as defined by FNS, may have been slightly higher to the extent that fees were charged for cases that received some EBT 

services but did not receive benefits during the month (e.g., cases with debits against previous months’ benefits).

b Includes base fee of $3.99 per participating case per month, $0.01 per case month for toll-free access from pay phones, and $0.48 per 

case month for supplemental equipment depreciation and maintenance.

c Includes base fee of $1.623 per case month (FY2000) and estimated cost of $0.621 per case month for lump-sum adjustment to base 

fees. For this estimate, the total lump sum adjustment of $18.4 million was spread over the 84 months of the entire contract term and 

divided by the FY2000 average FSP caseload.

d Base fee per case month for caseload of 150,000 to 200,000. Base fee for 100,000 to 150,000 cases is $3.70 per case month. 

FY2001 caseload was 149,595.
54 Chapter 3: Operational Costs Abt Associates Inc.

The basic parameters of the Ohio, Maryland, Pennsylvania, and Virginia vendor contracts are similar 

in a number of important respects.

• All four States are relatively large, with 100,000 or more FSP cases.

• All four States use the same prime EBT contractor.

• All four States operate under prices established in 1998 or later, when the decline in FSP 

caseloads and its impact on EBT costs was already well-recognized. These contracts also 

reflect diminished competition among EBT vendors.

• Three of the four States have tiered pricing schedules tied to caseloads. Pennsylvania 

does not, but the effective cost per case varies with caseload because its pricing includes 

lump sum adjustments in addition to the base fees established in its original contract 

terms.

The Ohio and Virginia EBT systems serve only the FSP; the Maryland and Pennsylvania systems 

serve both the FSP and cash assistance programs. Thus, the Maryland and Pennsylvania fees for FSP 

EBT reflect some cost-sharing with the cash assistance programs, although this cost-sharing does not 

necessarily reflect resource use as did the previous Maryland evaluation results.

One key element of vendor fees shared by Ohio, Pennsylvania, and Virginia is the recovery of 

implementation costs that were not separately billed by the vendor. In all three States, the vendor 

provided equipment and training for local offices and retailers. In addition, the vendor in 

Pennsylvania and Virginia issued cards and trained recipients for EBT conversion. In contrast, the 

current Maryland vendor entered a State where all recipients and retailers had already been converted. 

Therefore, the vendor provided much more modest implementation services to replace current 

recipients’ cards and convert local offices to use new administrative terminals and software. Thus, 

like the Ohio Direction Card vendor fees, the Pennsylvania and Virginia vendor fees presumably 

include a profit factor to recover at least part of the vendor’s implementation cost. This cost probably 

was similar to or greater than the vendor’s implementation cost in Ohio (on a per-case basis), because 

the vendor (not the local offices) provided initial card issuance and recipient training.

Independent of the greater cost per terminal of off-line technology, there are three reasons why POS 

terminal costs for the Ohio Direction Card are greater than for the three on-line States. First, all three 

on-line States use a combination of multi-purpose and EBT-only terminals, and the EBT vendor does 

not pay for the use of multipurpose terminals deployed by or on behalf of merchants. In contrast, the 

Ohio Direction Card system uses no multi-purpose terminals, so the vendor has to provide EBT-only 

terminals to all authorized merchants. Second, the three on-line States provide EBT-only terminals 

according to the minimum standards set by FNS regulations,41 whereas Ohio provides these terminals 

according to a more generous State formula. This formula led the State to deploy 2108 additional 

terminals, and contributed $0.48 per case month to the billed vendor cost for Ohio. Third, ODJFS 

requires the vendor to repair or replace malfunctioning POS equipment within three hours, whereas 

the three on-line States have less stringent requirements.

 

41 The Virginia vendor contract stipulates a maximum number of EBT-only POS terminals covered by the 

basic fee per case month, with a monthly charge for each additional POS terminal above the maximum.
Abt Associates Inc. Chapter 3: Operational Costs 55

The impact of these differences is partially offset by the fact that Ohio has a somewhat greater density 

of recipients relative to retailers than Maryland and Virginia. In 2000, Ohio had about 50 FSP 

households for every retailer, only a little less than Pennsylvania’s ratio of 51; Maryland’s ratio was 

43, and Virginia’s was 36. Thus, the cost of equipping each retailer in Ohio is spread over more FSP 

households than in Maryland and Virginia, and about the same number as in Pennsylvania.

The difference between the State deployment formula and the FNS formula accounts for $0.48 of the 

difference in the cost per case month. This factor suggests that the cost differences associated with 

the lack of multipurpose POS equipment and the repair time standard are also substantial, but that the 

available data did not permit a quantitative estimate.

Card costs are probably another factor contributing to the difference in vendor fees between the Ohio 

Direction Card system and the three sample on-line EBT systems. The card costs in the original 

Maryland on-line EBT system were $0.42 per case month less than the Ohio Direction Card system, 

after adjusting for inflation. This difference was due both to the lower cost of magnetic stripe cards 

and the sharing of card costs between the FSP and cash assistance programs in Maryland. Card costs 

in the current on-line systems may be slightly more or less than the Maryland demonstration 

estimates, but there is almost certainly a similar difference in card costs between current off-line and 

on-line systems.

Ohio, Maryland, and Pennsylvania issue all recipient cards with recipient PIN selection at local 

offices; Virginia issues cards by mail with assigned PINs and optional PIN selection at local offices. 

This difference probably has a very modest impact on the vendor’s operational costs. The vendor 

supplies the cards in all four States. The Virginia system requires the vendor to bear the additional 

cost of mailing the cards to individual recipients. This cost may be offset by lower requirements for 

supplying EBT equipment to local offices, given their reduced role.

Without a good deal of additional data, it is not possible to pinpoint which of the other significant 

differences between off-line and on-line EBT systems contribute to the difference in vendor fees. 

There are several factors that may contribute to lower costs in current on-line systems.

• Administration and reconciliation costs for on-line EBT systems may be reduced by the 

fact that the overall scale of EBT operations (including all States served by the vendor 

team) is much greater.

• Differences in system configuration might make on-line system costs for administration 

and reconciliation higher or lower, depending on the relative importance of two factors: 

the time lags in transaction processing and settlement in off-line systems, and the greater 

number of processors involved in on-line systems.

• Cards, POS terminals and other resources in on-line systems are shared between the FSP 

and cash assistance programs.

Although there are only a few full-service on-line EBT vendors, there has been even less competition 

in off-line EBT procurements, at least until the most recent solicitation by New Mexico and Texas. 

Thus, current on-line EBT vendor fees may be more competitively priced than the current fees for the 

Ohio Direction Card. There are concerns, however, that declining competition may lead to increased 

prices for on-line EBT services, relative to the level of service provided. This potential factor is 

particularly difficult to assess without access to vendors’ sensitive internal cost data.
56 Chapter 3: Operational Costs Abt Associates Inc.

On the other hand, some of the differences between off-line and on-line EBT systems may offset 

these factors. The differences in POS and card costs may be partially offset by lower costs for 

telecommunications and data processing, because off-line technology eliminates resource requirements for on-line processing.

The original Maryland evaluation data suggest that centralized customer service costs may be higher 

in on-line EBT systems, perhaps because the vendor’s customer service unit can resolve more 

problems than in the off-line environment. Further evidence that customer service costs are 

substantial in on-line systems comes from the concern cited by on-line EBT vendors about the 

unexpectedly high level of these costs.

The preceding discussion suggests the following conclusions:

• Under current conditions at the time of the evaluation, the Ohio Direction Card system is 

more expensive for a vendor to operate than comparable on-line systems.

• These data alone do not provide a definitive indication of the size of the cost premium for 

the Ohio Direction Card system. The cost difference ranges from $1.03 to $2.24 per case 

month. These differences are only suggestive, because there are notable differences 

between Ohio and the other three States in important parameters other than technology.

• The POS equipment depreciation and maintenance costs associated with the need to 

equip all FSP retailers probably represent the largest single explanation for the observed 

cost differences. These differences reflect the differences in technology, the exclusive 

use of EBT-only terminals, and ODJFS’ decision to provide more than the minimum 

mandated number of terminals. The POS terminal repair time standard in Ohio is

probably another factor contributing to the cost differences.

• Card costs also contribute to the higher vendor costs in the Ohio Direction Card system, 

but these costs may be partially offset by the substitution of processing on the card for 

on-line processing by telecommunications networks and the host computer.

• Further analysis beyond the scope of this study, including sensitive vendor cost data, 

would be required to discern the cost impacts of other differences in technology, level of 

service and the vendor marketplace.

The vendor cost difference between the Ohio Direction Card and the regional EBT system alliances 

may be more or less than the difference discussed above. On the one hand, the larger scale of the 

regional alliances reduces some costs. On the other hand, compared with both the Ohio Direction 

Card and the States in the preceding comparison, the alliances generally shift more operational 

responsibility to the vendor, particularly for card issuance and replacement, through the application of 

waivers to recipient service requirements. States have adopted centralized recipient service methods 

permitted under waivers, such as issuing cards and providing training by mail, to reduce the overall 

costs of EBT implementation and operations. Nevertheless, the shift of these services from local 

offices to the vendor increases the vendor’s share of the costs, albeit modestly.
Abt Associates Inc. Chapter 4: Projections of FSP Costs Under Various Conditions 57

Chapter 4

Projections of FSP Costs Under Various Conditions

4.1 Introduction

The previous chapter of this report examined the FSP administrative costs of the Statewide Ohio 

Direction Card system as it operated in 2000, after the completion of recipient conversion. This chapter 

probes the factors that shaped those costs and how the system’s operational costs might be reduced under 

a series of alternative scenarios. Unlike the estimates of actual costs in the preceding chapter, the 

projections in this chapter are explicitly hypothetical and subject to greater uncertainty.

One purpose for the cost projections is to explore the relative impacts of the numerous dimensions on 

which the Ohio Direction Card system differs from other EBT systems. The comparisons in the 

preceding chapter indicate that the FSP operational costs of the Ohio Direction Card system are greater 

than those of comparable on-line EBT systems. Too few data points were available, however, to 

discriminate among the effects of differences in scale, technology, cost-sharing among programs, and 

retailer equipment requirements. Instead, by varying those factors individually, the projections in this 

chapter provide insights into the potential impact of each factor on the off-line system’s operational costs 

for the FSP.

The other purpose of this chapter is to explore the conditions most likely to reduce FSP costs for the Ohio 

Direction Card and achieve cost-neutrality. Until 2002, the Food Stamp Act (as amended) required EBT 

systems to be cost-neutral to the federal government, using the issuance costs of the paper coupon system 

as the benchmark. FNS set an annual cap on Federal reimbursements for each State’s EBT costs based on 

the State’s pre-EBT coupon issuance costs, adjusted for inflation. In general, FNS reimbursed 50 percent 

of allowable State FSP administrative costs. Thus, if the FSP EBT costs incurred by the State were less 

than or equal to twice the amount of the FNS EBT cost cap for the State, then the State’s EBT system was 

operating on a cost-neutral basis. For Ohio in FY2000, the FNS EBT cost cap was $1.96 per case month, 

so the cost-neutrality standard was $3.92 per case month. The Food Stamp Reauthorization Act of 2002 

eliminated the cost-neutrality requirement for EBT systems, but the inflation-adjusted paper issuance cost 

remains a useful benchmark.

1

The estimated administrative costs for the Direction Card system substantially exceeded the $3.92 per 

case month level that would represent cost-neutrality (i.e., cost per case month less than under the coupon 

system, after adjusting for inflation). For the period analyzed, the estimated operational cost of the Ohio 

Direction Card system was $6.56 per case month, about 67 percent more than the cost-neutral level. 

Although the cost cap protected FNS from absorbing any excess administrative costs, changes to the 

system to reduce operational costs would clearly be beneficial to the State.

EBT cost savings for the FSP might occur for four main reasons. First, increases in the caseload would 

lead to decreased costs on a per case basis among both fixed and quasi-fixed program components. In 

1994, the time of the Direction Card RFP, the FSP caseload was 522,528, over twice the level of 257,600 

 

1

The FY 2002 cost-neutrality standard for Ohio is $4.12.
58 Chapter 4: Projections of FSP Costs Under Various Conditions Abt Associates Inc.

at the time of the current evaluation. Second, if additional benefit programs were added to the EBT 

system, some of the costs would be shared with the other programs. Sharing individual components, such 

as cards, or system-wide functions, such as management, would reduce the cost to each program. Third, 

decreases in the cost of POS and administrative terminals, the largest component of cost for the Ohio 

Direction Card system, would lead to direct FSP savings. Finally, changes in recipient services, such as 

implementing card replacement fees, might lead to savings as well as changed recipient behavior.

The specific conditions examined in this chapter are listed below. 

• Larger FSP caseload, at the level for which the Ohio Direction Card system was designed.

• Addition of WIC to EBT system on a statewide basis in Ohio.

• Addition of TANF to EBT system on a statewide basis in Ohio.

• Quantity of retailer terminals based on the FNS formula, so that the state does not pay for 

additional retailer equipment.

• Reduction in cost of terminals, including POS and administrative terminals.

• Retailers with multi-lane stores have integrated equipment (capable of working with 

commercial debit and credit cards as well as EBT smart cards) in lieu of EBT-only equipment 

provided at the State’s expense.

• Reduction in cost of Direction Card.

• Implementation of a card replacement fee for lost and stolen cards, and for cards damaged 

by users.

The projections of EBT administrative costs in this chapter were made using a series of spreadsheets to 

construct “what-if” scenarios, where each of the operational cost components2 was examined individually 

to simulate the expected impact of the above conditions. Each of these “what-if” scenarios examined the 

effect of a single condition on off-line EBT costs. In practice, multiple single -condition scenarios 

occurring simultaneously might lead to even greater cost savings, but the effects of these conditions are 

not necessarily independent. The analysis did not address the possible interactions.

For most scenarios, the chapter presents “low” and “high” projections. In order to determine a range of 

potential cost savings for each of the conditions, optimistic assumptions that would be favorable to the 

FSP were used to provide the “low” estimates of costs. More conservative, but still optimistic 

assumptions were used to provide the “high” projections. Those assumptions were chosen to highlight 

the influence of substantial changes in critical parameters, even when such changes may not be likely in 

the near future.

 

2

These costs were based on the operational cost estimates presented in the previous chapter, which used billed 

costs as the basis for the vendor costs. Thus, the vendor costs in this chapter are projections of what the vendor 

would bill to the State.
Abt Associates Inc. Chapter 4: Projections of FSP Costs Under Various Conditions 59

Highlights

The specific results of the cost projections are sensitive to the underlying assumptions, but several key 

points emerge from the analysis.

• The scenario with the FSP caseload at the level for which the Ohio Direction Card system 

was designed yields the lowest operational cost, $4.31 per case month with the more 

optimistic assumptions.

• The other scenarios with the most impact on FSP operational costs are those that involve the 

addition of WIC or TANF and the scenario with integrated POS equipment for multi-lane 

stores.

• All of the scenarios with the most impact on FSP costs achieve much or all of their results 

through the sharing of POS terminal costs, the largest component of vendor costs.

• The lowest-cost scenarios generally achieve additional savings through the sharing of fixed 

costs for central management, technical support and data processing facilities, highlighting 

the importance of the system’s operational scale (including FSP caseload and non-FSP uses, 

if any).

• None of the scenarios reduces local office operational costs to the level estimated by on-line 

EBT system evaluations. This portion of the system’s cost may be the most difficult to 

reduce.

• None of the individual scenarios reduces the FSP operational cost to the $3.90 per case month 

level that would represent cost-neutrality. It is possible, but not certain, that some 

combination of these scenarios might have this result.

In the following section, each of the “what-if” scenarios is described including the major assumptions 

used, the line items that were affected, the estimates of cost savings, and the projected total cost to the 

FSP. The first three scenarios (larger caseload, addition of WIC, and addition of TANF) deal with 

changes that affect many of the cost elements. The remaining scenarios primarily affect one cost element. 

The results of the scenarios are discussed in the chapter’s final section. Appendix C provides more 

detailed information about the assumptions used in each of the scenarios.

4.2 Scenarios to Reduce Costs for the FSP

Larger Caseload

The analysis of FSP administrative costs was based on costs from the spring of 2000, the latest period for 

which data were available, at which time Ohio’s FSP caseload was 257,600. In FY 1994, the time of the 

expansion RFP, Ohio’s average monthly FSP caseload was 522,538. All systems for the Ohio Direction 

Card were designed to support a caseload of 600,000. Many of the support systems—including POS and 

administrative terminals, the largest component of the administrative costs—have virtually fixed costs, in 

the sense that the resources required to serve the FSP in Ohio would not vary if the caseload were 

substantially larger. As a result, the decrease in caseload has led to a significant increase in the costs per 

case month.
60 Chapter 4: Projections of FSP Costs Under Various Conditions Abt Associates Inc.

To simulate the effects of the decline in the Ohio FSP caseload on the operational costs of the Direction 

Card system, scenarios representing high and low expected costs were constructed. Both scenarios 

assumed a FSP caseload of 600,000. This level of participation could occur in the future if the eligible 

population increased (e.g., in a major recession) or if the rate of participation rose. The estimated 

participation rate of eligible persons in Ohio was 80 percent in 1994 versus 58 percent in 1998 (the latest 

data available).3

To project the FSP costs with a caseload of 600,000, the actual EBT operational costs were divided into 

three categories: fixed, quasi-fixed and variable. In these projections, as in other projections in this 

chapter, all fixed costs stay constant with the increased caseload, so that there is a decrease in the costs 

per case. Variable costs increase proportionately with the additional cases, so that the cost per case is not 

affected. Quasi-fixed costs have cost components that could be fixed or variable. The high scenario 

assumes that some components of the quasi-fixed costs are variable, whereas the low scenario holds 

quasi-fixed costs constant. For example, in the high scenario, State and vendor administration costs are 

treated as 50 percent fixed and 50 percent variable, as are vendor reconciliation and data center labor. 

These costs are treated as fully fixed in the low scenario.

The high scenario also assumes that the number of POS and administrative terminals increases by 10 

percent, because additional food stamp revenue in retail stores might lead to increased equipment 

allowances under the FNS formula.4 The low scenario assumes that the level of POS and administrative 

terminals stays constant, and that any increases in equipment mandated by the FNS deployment formula 

are met by the additional equipment already purchased by the State beyond FNS’ required level.

As shown in Exhibit 4-1, the high scenario results in an estimated cost reduction of $1.70 per case month, 

bringing the total cost per case month to $4.86. The low scenario results in an estimated cost reduction of 

$2.25 per case month, bringing the total cost per case month to $4.31.

The high scenario vendor cost of $2.84 per case month may somewhat optimistic as the upper bound of 

the cost that the vendor might bill at the larger caseload. In contrast, the contract between Citicorp EFS 

and the State of Ohio originally set the vendor fee at $2.99 per case month, before the decline in the FSP 

caseload and the State’s decision to deploy additional POS terminals.5 Thus, the high scenario appears to 

be more optimistic than Citicorp EFS’ original pricing assumptions for the Ohio Direction Card system, 

particularly because the high scenario includes the additional POS terminals. Furthermore, Citicorp EFS 

has indicated that the vendor team’s costs would have been higher than its projections, even if the Ohio 

FSP caseload had not declined. Citicorp EFS identified customer service and POS terminal replacement 

as two areas of greater-than-expected costs. For the long run, the projections are more plausible, as long 

as increases in efficiency can be expected.

 

3 Allen Schirm, “State Food Stamp Participation Rates in 1998,” Project Officer: Christine Kissmer. U.S. 

Department of Agriculture, Food and Nutrition Service, Office of Analysis, Nutrition and Evaluation, 

Alexandria, VA, 2001.

4

The FNS deployment formula determines the minimum number of EBT POS terminals that States must provide 

to food stamp retailers that do not choose to provide their own equipment. The formula allocation for a store is 

a non-linear function of the number of lanes, the FSP sales, and the total food sales.

5 As noted in Chapter 3, Citicorp EFS’ basic fee was increased to $3.80 per case month in 1998, not including the 

charges for the additional equipment requested by ODJFS.
Abt Associates Inc. Chapter 4: Projections of FSP Costs Under Various Conditions 61

Exhibit 4-1

Impact of Larger Caseload on Food Stamp Program (Costs per Case Month)

600,000 Casesa

Cost Category

Actual 

Conditions

High 

Scenario

Low 

scenario

Difference 

Between 

Actual 

Costs and 

High 

Scenario

Difference 

Between 

Actual 

Costs and 

Low 

Scenario

Local Costs

Labor for Card Related Issues $1.295 $1.295 $1.295 $0.000 $0.000

Labor for Benefit Related 

Issues $0.300 $0.300 $0.300 $0.000 $0.000

Administrative Labor $0.279 $0.279 $0.120 $0.000 $0.159

Total Local Costs $1.875 $1.875 $1.716 $0.000 $0.159

State Costs

EBT Staff Labor $0.060 $0.043 $0.026 $0.017 $0.034

Contract Labor $0.124 $0.088 $0.053 $0.035 $0.071

Fiscal Labor $0.003 $0.002 $0.001 $0.001 $0.002

Miscellaneous $0.001 $0.001 $0.001 $0.000 $0.001

CPU Usage $0.005 $0.003 $0.002 $0.001 $0.003

Travel $0.005 $0.003 $0.002 $0.001 $0.003

Total State Costs $0.198 $0.141 $0.085 $0.056 $0.113

Vendor Costs

Administration/Reconciliation $0.517 $0.363 $0.290 $0.154 $0.227

Customer Service $0.143 $0.143 $0.140 $0.000 $0.003

Data Center $0.345 $0.298 $0.200 $0.047 $0.145

POS/Administrative Terminals $2.664 $1.258 $1.144 $1.406 $1.520

Communications $0.289 $0.289 $0.246 $0.000 $0.043

ACH Expenses $0.062 $0.027 $0.027 $0.036 $0.036

Card Costs $0.461 $0.461 $0.461 $0.000 $0.000

Total Vendor Costs $4.482 $2.840 $2.508 $1.642 $1.974

Grand Total $6.555 $4.856 $4.308 $1.699 $2.247

a See text for assumptions used in high and low scenarios.
62 Chapter 4: Projections of FSP Costs Under Various Conditions Abt Associates Inc.

Addition of a Benefit Program to the EBT System—WIC and TANF

Another way of reducing costs to the FSP would be to add other benefit programs to the Direction Card 

system. This would allow costs to be shared among programs. As discussed in the previous chapter, a 

WIC off-line EBT pilot that used the Direction Card began operations in Montgomery County in October 

2000, and the State may expand the system to other counties and eventually statewide. Furthermore, the 

contract between ODJFS and Citicorp EFS also included an option to add TANF cash benefits to the 

Direction Card system. Other applications that might be considered for addition to the Direction Card 

system include portable health records (such as the Health Passport tested by the Western Governors 

Association), transit fares cards, and program attendance recording. 6 The following section focuses on 

the ways in which FSP cost elements would be affected by cost sharing with WIC and TANF.

Addition of WIC to Ohio Direction Card System

In October 2000, the Ohio Department of Health (ODH) and ODJFS began operating a combined 

WIC/FSP off-line EBT system in Montgomery County, as a pilot test for possible statewide 

implementation. The combined WIC/FSP pilot system was fully implemented in May 2001.

The state and local departments responsible for the WIC EBT program were different from those 

responsible for the FSP. The state-level organization responsible for the WIC EBT program was the 

ODH. Local WIC clinics were responsible for participant training, card issuances, card unlocks and 

replacements, and other problem solving.

Although there was not expected to be a cost impact to the FSP at the state level, there were cost-sharing 

opportunities at the local level. For the period analyzed, approximately 17 percent of FSP households 

also received WIC benefits. The relatively low number of joint participants (i.e., participants in both WIC 

and FSP) results in the expectation that a FSP/WIC EBT system would have a limited impact on the cost 

to FSP for recipient services.

The cost projections for the FSP/WIC EBT system in Exhibit 4-2 represent expectations for a statewide 

system. These projections reflect the structure of the FSP/WIC pilot and a limited amount of information 

about local FSP office effort in the pilot environment. Nevertheless, these projections are not intended to 

represent actual FSP costs for pilot operations. Furthermore, the projections allocate shared costs 

according to rules based on the usage of the affected resources; actual cost allocation rules might be quite 

different.

Joint participants could use either the WIC or FSP office for all card functions, as is the case in the 

current pilot. The high scenario assumes that half of the joint participants pick up their cards, get trained, 

and obtain card-related services at a local WIC clinic, so that WIC bears these costs. For the high 

scenario, the FSP cost savings at the local level were estimated to be $0.11 per case month. The low 

scenario assumes that WIC is the lead program and all joint participants pick up their cards, get trained, 

and obtain card-related services at a local WIC clinic. This scenario also assumes that WIC 

 

6 Wyoming’s smart card was designed to work with the FSP, WIC, and the Health Passport program. 

Cleveland’s rapid transport authority and ODJFS have discussed a possible test of a fare card using the 

Direction Card platform. Smart cards also have other potential uses such as a mechanism for recording program 

attendance in training or child care assistance programs.
Abt Associates Inc. Chapter 4: Projections of FSP Costs Under Various Conditions 63

Exhibit 4-2

Impact of Adding WIC on Food Stamp Program (Costs per Case Month)

WIC Includeda

Cost Category

Actual 

Conditions

High 

Scenario

Low 

Scenario

Difference 

Between 

Actual 

Costs and 

High 

Scenario

Difference 

Between 

Actual 

Costs and 

Low 

Scenario

Local Costs

Labor for Card Related Issues $1.295 $1.190 $1.084 $0.105 $0.211

Labor for Benefit Related Issues $0.300 $0.300 $0.300 $0.000 $0.000

Administrative Labor $0.279 $0.279 $0.279 $0.000 $0.000

Total Local Costs $1.875 $1.770 $1.664 $0.105 $0.211

State Costs

EBT Staff Labor $0.060 $0.060 $0.060 $0.000 $0.000

Contract Labor $0.124 $0.124 $0.124 $0.000 $0.000

Fiscal Labor $0.003 $0.003 $0.003 $0.000 $0.000

Miscellaneous $0.001 $0.001 $0.001 $0.000 $0.000

CPU Usage $0.005 $0.005 $0.005 $0.000 $0.000

Travel $0.005 $0.005 $0.005 $0.000 $0.000

Total State Costs $0.198 $0.198 $0.198 $0.000 $0.000

Vendor Costs

Administration/Reconciliation $0.517 $0.430 $0.393 $0.088 $0.125

Customer Service $0.143 $0.140 $0.108 $0.003 $0.035

Data Center $0.345 $0.345 $0.244 $0.000 $0.101

POS/Administrative Terminals $2.664 $2.317 $1.388 $0.346 $1.276

Communications $0.289 $0.287 $0.234 $0.001 $0.055

ACH Expenses $0.062 $0.062 $0.062 $0.000 $0.000

Card Costs $0.461 $0.441 $0.421 $0.020 $0.040

Total Vendor Costs $4.482 $4.023 $2.851 $0.459 $1.631

Grand Total $6.555 $5.991 $4.713 $0.564 $1.842

a See text for assumptions used in high and low scenarios.

pays the full cost of combined cards. For the low scenario, the cost savings at the local level are 

estimated to be $0.21 per case month.

Assuming that a single vendor would be responsible for providing both WIC and FSP EBT services, there 

would be more opportunities for sharing of vendor costs. The shared cost elements would include 

administration, customer service, data center operations, communications facilities, and cards. Customer 
64 Chapter 4: Projections of FSP Costs Under Various Conditions Abt Associates Inc.

service costs would be shared to the extent that card-related calls from joint participants would involve 

both the FSP and WIC.

The largest area of potential vender cost savings to the FSP is in the cost of POS terminal depreciation 

and maintenance. The two programs share the same retailer equipment, although WIC requires scanners 

in addition. The cost projections assume that the cost of the retailer equipment and maintenance is split 

between the programs according to each program’s share of total retailer transactions. In determining 

how to split the number of transactions, it is important to keep in mind that each WIC transaction involves 

significantly more information than an individual FSP transaction, because data on each food item 

purchased in a WIC transaction must be recorded on the POS system and later uploaded to the host 

computer during settlement. (There was an average of 7.7 food items purchased per WIC transaction.) 

The high scenario allocates POS costs to WIC based on WIC’s share of total transactions (15 percent), 

whereas the low scenario allocates WIC’s share of POS costs in proportion to the item-weighted WIC 

share of total transactions (58 percent).7 The high scenario leads to a savings to the FSP of $0.35 per case 

month for POS terminal depreciation and maintenance, whereas the low scenario leads to FSP savings of 

$1.28 per case month.

With the combined impact on local operations and vender cost, the high scenario leads to overall FSP 

savings of $0.56 per case month and a total cost to the FSP of $5.99 per case month. The low scenario 

leads to overall savings of $1.84 per case month and a total cost to the FSP of $4.71 per case month. 

Most of these savings are attributable to the sharing of POS equipment. Other important areas of costsharing include local card-related labor, vendor administration and reconciliation, and data center 

operations. The wide range of the savings projections indicates substantial uncertainty about the likely 

impact of adding WIC on FSP EBT costs. In particular, the FSP savings are quite sensitive to the rules by 

which shared costs are allocated.

Addition of TANF to EBT System

As mentioned above, the contract between ODJFS and Citicorp EFS included an option to add TANF 

cash benefits to the Direction Card system. Food stamp programs are commonly combined with TANF in 

on-line EBT systems. There would be challenges, however, associated with implementing TANF on the 

Direction Card system. For off-line EBT systems, TANF cash benefits are more difficult to deliver, 

because automated teller machines (ATMs) do not accept smart cards. Thus, the options for providing 

access to cash benefits via the current Ohio Direction Card are (a) retrofitting ATMs, (b) enlisting food 

stamp retailers as cash issuance sites, or (c) recruiting and equipping other cash issuance sites, such as 

check cashers or non-food retailers.8 Settlement of cash benefit transactions is another area where off-line 

EBT systems face greater challenges than on-line systems, because of cash management issues around 

card balances. These challenges and funding constraints led ODJFS to choose not to add TANF to the 

 

7

In the item-weighted calculations, each WIC transaction has a weight of 7.7, whereas each FSP transaction has 

a weight of 1, under the assumption that the data for a WIC item are comparable to the data for a FSP purchase. 

This is a hypothetical formula to approximate allocation of costs based on the programs’ usage of POS terminal 

memory, telecommunications networks, and host computer resources.

8 As discussed in Chapter 6, the system could use a hybrid card with a magnetic stripe for access to TANF 

benefits at ATMs and conventional POS terminals, but ODJFS does not want to introduce an on-line element to 

the system. In addition, a hybrid card would not allow the same opportunities for sharing the costs of cards, 

POS equipment, and other resources.
Abt Associates Inc. Chapter 4: Projections of FSP Costs Under Various Conditions 65

Direction Card, but such a multi-program system is technically feasible and may eventually be 

implemented. The development of commercial smart card payment systems would serve as a catalyst for 

this enhancement.

TANF, unlike WIC, is administered through the same local and state agencies as the FSP, so there is more 

potential for cost sharing. The Direction Card staff who work with FSP recipients would also provide 

EBT services to TANF recipients. In addition, a portion of the administration effort is assumed to be 

common to both programs. Only about 20 percent of FSP participants, however, also receive TANF 

benefits,9 so as with WIC, cost sharing has a limited impact on the cost to FSP of recipient services.

The high scenario assumes that half of the cost for joint (FSP and TANF) participants to pick up their 

cards, get trained, and obtain card-related services is allocated to TANF. The scenario assumes that half 

of the local administration labor is program-specific, and half is common to both programs. Under both 

high and low scenarios, the cost of all administration, management, and technical support labor that is 

common to both programs is allocated between the programs according to each program’s share of the 

total unduplicated caseload, with dual-program cases split evenly between programs for the calculation of 

shares. For the high scenario, the FSP cost savings at the local level are estimated to be $0.15 per case 

month, as shown in Exhibit 4-3.

The low scenario takes the “best case” assumption that TANF is the lead program, so the total cost for 

joint participants to pick up their cards, get trained, and obtain card-related services is allocated to TANF. 

This scenario also assumes that all of the local administration labor is common to both programs. For the 

low scenario, the FSP cost savings at the local level are estimated to be $0.30 per case month.

At the State level, the high scenario assumes that half of the cost for project management and technical 

support is program-specific and half is common to both programs. For the high scenario, the FSP cost 

savings at the State level are estimated to be $0.02 per case month. The low scenario assumes that the 

entire State cost for project management and technical support is common to both programs. For the low 

scenario, the FSP cost savings at the State level are estimated to be $0.05 per case month.

The opportunities for vendor cost savings with the addition of TANF would be parallel to the savings 

with WIC. As with WIC, the largest area of savings to the FSP is in the cost of POS terminal 

depreciation and maintenance. The FSP and TANF would use the same retailer equipment in locations 

that delivered both types of benefits. To estimate the cost savings to the FSP, it is assumed that the cost 

of the retailer equipment and maintenance is allocated between the programs according to each program’s 

share of total retailer transactions.10 Other shared vendor costs include

 

9

The caseload data obtained from ODJFS for March through June 2000 data imply a higher-than-expected 

number of TANF-only participants, but they are the best available data.

10 In order to estimate the FSP share of total transactions, the evaluators assumed that TANF households would 

use their Direction Cards twice a month to withdraw funds for rent or other large payments and twice a month 

to withdraw smaller amounts. These assumptions are based on cash transaction patterns in the Maryland EBT 

demonstration. The high scenario assumes that one of the large monthly withdrawals would occur at a check 

casher and the other three withdrawals would occur in food retailers. Taking into account the 7.9 FSP 

transactions per case and the relative numbers of FSP and TANF cases, this scenario leads to an FSP share of 

total transactions of 88 percent. The low scenario assumes that all four cash withdrawals per month occur in 

food retailers. This scenario leads to an FSP share of total transactions of 85 percent.
66 Chapter 4: Projections of FSP Costs Under Various Conditions Abt Associates Inc.

Exhibit 4-3

Impact of Adding TANF on Food Stamp Program (Costs per Case Month)

TANF Includeda

Cost Category

Actual 

Conditions

High 

Scenario

Low 

scenario

Difference 

Between 

Actual 

Costs and 

High 

Scenario

Difference 

Between 

Actual 

Costs and 

Low 

Scenario

Local Costs

Labor for Card Related Issues $1.295 $1.180 $1.065 $0.115 $0.231

Labor for Benefit Related Issues $0.300 $0.300 $0.300 $0.000 $0.000

Administrative Labor $0.279 $0.245 $0.211 $0.034 $0.069

Total Local Costs $1.875 $1.725 $1.576 $0.150 $0.299

State Costs

EBT Staff Labor $0.060 $0.053 $0.045 $0.007 $0.015

Contract Labor $0.124 $0.108 $0.093 $0.015 $0.030

Fiscal Labor $0.003 $0.000 $0.003 $0.003 $0.000

Miscellaneous $0.001 $0.001 $0.001 $0.000 $0.000

CPU Usage $0.005 $0.004 $0.004 $0.001 $0.001

Travel $0.005 $0.004 $0.004 $0.001 $0.001

Total State Costs $0.198 $0.174 $0.150 $0.024 $0.048

Vendor Costs

Administration/Reconciliation $0.517 $0.457 $0.432 $0.061 $0.086

Customer Service $0.143 $0.140 $0.120 $0.003 $0.024

Data Center $0.345 $0.345 $0.319 $0.000 $0.026

POS/Administrative Terminals $2.664 $2.316 $2.231 $0.348 $0.432

Communications $0.289 $0.287 $0.266 $0.002 $0.023

ACH Expenses $0.062 $0.062 $0.062 $0.000 $0.000

Card Costs $0.461 $0.440 $0.374 $0.022 $0.087

Total Vendor Costs $4.482 $4.047 $3.803 $0.435 $0.679

Grand Total $6.555 $5.946 $5.529 $0.609 $1.026

a See text for assumptions used in high and low scenarios.

administration, customer service, data center operations, communications, and cards. The assumptions 

for these costs are the same as for the WIC scenarios. The high scenario leads to FSP vendor cost savings 

of $0.44 per case month, whereas the low scenario leads to FSP vendor cost savings of $0.68 per case 

month.
Abt Associates Inc. Chapter 4: Projections of FSP Costs Under Various Conditions 67

Overall, the high scenario yields an FSP cost of $5.95 per case month, and the low scenario yields a FSP 

cost of $5.53 per case month. The FSP savings projections are $0.61 and $1.03 per case month, 

respectively. Thus, adding TANF to the Ohio Direction Card system could substantially reduce FSP 

costs, but this approach alone appears unlikely to make the system cost-neutral. If the caseload overlap 

between the FSP and TANF were much greater, as it was before the 1996 welfare reforms, the savings 

from a shared EBT system would be greater.

Decrease in the Cost of POS and Administrative Terminals

The depreciation and maintenance of POS and administrative terminals accounted for the largest 

component of estimated operational costs for the Ohio Direction Card system? 40 percent of the total 

cost. Terminal cost could account for an even larger share in the future, because of the addition of new 

lanes in participating stores and the return or replacement of stores that initially did not participate in the 

Direction Card system. Thus, this is an important area to probe for potential cost savings. This report 

examines three scenarios in which equipment costs would be decreased: (1) basing the quantity of retailer 

terminals on the FNS formula; (2) a reduction in the unit cost of the equipment used to read and update 

cards; and (3) use of integrated equipment for EBT and commercial transactions, by retailers with multilane stores.11

Follow FNS’ Formula for Number of Terminals

The FNS deployment formula determines the minimum number of EBT-only POS terminals that States 

must provide to food stamp retailers that do not choose to provide their own equipment. The quantity of 

retailer equipment required by Citicorp EFS’ contract was based on this formula. The State of Ohio, 

however, agreed to lease an additional 2108 terminals to provide further lane coverage. If the State had 

not provided the additional equipment, the total depreciation and maintenance cost for POS and 

administrative terminals would have been reduced by $0.48, bringing the total cost per case month to 

$6.07. (This scenario is shown in Exhibit 4-4.)

Reduction in Cost of Terminals

As smart cards gain popularity in this country, technological developments and market forces may lead to 

reductions in the unit cost of the equipment used to read and update the cards. Exhibit 4-5 shows 

projections of the effects of 25 and 50 percent reductions in the unit cost of POS and administration 

terminals, assuming no change in the number of units. The 25 and 50 percent reductions lead to decreases 

in operational costs of $0.22 and $0.44 per case month, respectively, bringing the total operational cost 

per case month to $6.33 and $6.11.

Integrated Retailer Equipment

Eventually, it is expected that major retailers will choose to install integrated POS systems that are 

capable of working with both commercial debit/credit cards and EBT smart cards. During the 

implementation period for the Ohio Direction Card system, an “integrated” solution was made available 

to retailers in lieu of the system’s “stand-beside” POS configurations, in response to retailers’ concerns 

regarding scarce counter space in the checkout lanes, and to facilitate a more efficient checkout process. 

 

11 For the scenarios dealing with specific components of EBT costs, only one set of projections was made, unless 

there was substantial uncertainty about the assumptions.
68 Chapter 4: Projections of FSP Costs Under Various Conditions Abt Associates Inc.

Exhibit 4-4

Impact of Basing Quantity of Retailer Terminals on FNS' Formula (Costs per Case Month)

Cost Category

Actual 

Conditions

Following FNS 

Formula for 

Number of 

Terminals

Difference 

between 

Baseline and 

Scenario

Local Costs $1.875 $1.875 $0.000

State Costs $0.198 $0.198 $0.000

Vendor Costs

Administration/Reconciliation $0.517 $0.517 $0.000

Customer Service $0.143 $0.143 $0.000

Data Center $0.345 $0.345 $0.000

POS/Administrative Terminals $2.664 $2.181 $0.482

Communications $0.289 $0.289 $0.000

ACH Expenses $0.062 $0.062 $0.000

Card Costs $0.461 $0.461 $0.000

Total Vendor Costs $4.482 $4.000 $0.482

Grand Total $6.555 $6.073 $0.482
Abt Associates Inc. Chapter 4: Projections of FSP Costs Under Various Conditions 69

Exhibit 4-5

Impact of Reduced Equipment Costs (Costs per Case Month)

Reduced Cost of POS and 

Administrative Equipment

Cost Category

Actual 

Conditions

High 

Scenarioa

Low 

Scenariob

Difference 

Between 

Actual 

Costs and 

High 

Scenario

Difference 

Between 

Actual 

Costs and 

Low 

Scenario

Local Costs $1.875 $1.875 $1.875 $0.000 $0.000

State Costs $0.198 $0.198 $0.198 $0.000 $0.000

Vendor Costs

Administration/Reconciliation $0.517 $0.517 $0.517 $0.000 $0.000

Customer Service $0.143 $0.143 $0.143 $0.000 $0.000

Data Center $0.345 $0.345 $0.345 $0.000 $0.000

POS/Administrative Terminals $2.664 $2.443 $2.222 $0.221 $0.441

Communications $0.289 $0.289 $0.289 $0.000 $0.000

ACH Expenses $0.062 $0.062 $0.062 $0.000 $0.000

Card Costs $0.461 $0.461 $0.461 $0.000 $0.000

Total Vendor Costs $4.482 $4.261 $4.041 $0.221 $0.441

Grand Total $6.555 $6.334 $6.114 $0.221 $0.441

a High scenario assumes a 25 percent reduction in the cost of equipment.

b Low scenario assumes a 50 percent reduction in the cost of equipment.

The integrated solution would have allowed retailers to modify their existing POS systems, many of 

which accept credit cards and debit on-line cards, to accept the off-line Direction Card. This approach 

would have required retailers to attach a smart card reader to either their in-lane debit/credit terminals or 

their electronic cash registers (ECRs).12 Retailers that chose an integrated solution would have needed to 

modify their existing systems’ software. A detailed specification has been available to retailers to assist 

them in identifying the necessary modifications. To date, however, no retailers have selected the 

integrated solution approach. According to ODJFS and Citicorp EFS, retailers have not found that the 

benefits of an integrated solution would be sufficient to justify the integration costs, unless there was 

sufficient demand for acceptance of other smart cards.

 

12 PIN pads would also be required if not already present.
70 Chapter 4: Projections of FSP Costs Under Various Conditions Abt Associates Inc.

Exhibit 4-6 presents the projected effect of all large retailers (multi-lane stores) choosing an integrated 

solution, in which case they would be responsible for all equipment and maintenance costs associated 

with the systems, as is the case with on-line EBT systems.13 During the evaluation period, 63 percent of 

EBT POS terminals were in multi-lane stores. The projections assume that all of these terminals are 

replaced by integrated POS systems at no cost to the government or the EBT vendor, ignoring the costs of 

transitioning from the current network of entirely dedicated EBT terminals. Under this assumption, 

operational costs are reduced by $1.62 per case month, and the total operational cost is $4.93 per case 

month.

Exhibit 4-6

Impact of Retailer Use of Integrated POS Equipment (Costs per Case Month)

Cost Category

Actual 

Conditions

Retailer Use of 

Integrated POS 

Equipment

Difference 

between 

Baseline and 

Scenario

Local Costs $1.875 $1.875 $0.000

State Costs $0.198 $0.198 $0.000

Vendor Costs

Administration/Reconciliation $0.517 $0.517 $0.000

Customer Service $0.143 $0.143 $0.000

Data Center $0.345 $0.345 $0.000

POS/Administrative Terminals $2.664 $1.041 $1.622

Communications $0.289 $0.289 $0.000

ACH Expenses $0.062 $0.062 $0.000

Card Costs $0.461 $0.461 $0.000

Total Vendor Costs $4.482 $2.860 $1.622

Grand Total $6.555 $4.933 $1.622

Changes in Card Costs

The previous scenarios examined changes in retailer equipment costs. Another substantial portion of the 

operational cost is for card issuance, where there are some opportunities for savings based on changes in 

policy or market conditions. This section investigates the following scenarios: (1) implementation of a 

card replacement fee, and (2) a reduction in the cost of the Direction Card.

 

13 In some on-line EBT states, such retailers receive transaction fees for the use of their equipment.
Abt Associates Inc. Chapter 4: Projections of FSP Costs Under Various Conditions 71

Card Replacement Fee 

Lost, stolen, or damaged cards represent a common problem preventing recipients from using their 

benefits. During the evaluation period, county offices replaced cards for about 3.1 percent of the 

caseload, on average, each month. ODJFS and the CDJFS considered recipients to be responsible for 

most card replacements, although other factors contributed to the incidence of damaged or malfunctioning 

cards. ODJFS obtained FNS approval to implement a $10 fee for replacement of lost or stolen cards or 

cards damaged by user abuse. Most CDJFS supported this plan, with the hope of improving recipient 

accountability for cards. As of May 2002, ODJFS had tested the card replacement fee procedure in one 

county and was planning to implement the card replacement fee statewide.

During the evaluation period, the vendor bore the additional cost of the replacement cards. The plans for 

the card replacement fee, however, would provide the vendor a share of the fee equal to the card cost, plus 

an allowance for handling costs, for a total of $4 per card. The remaining fee would go to the State to 

defray the local staff costs reimbursed with FSP funds.14

Exhibit 4-7 provides projected costs with the imposition of a $10 card replacement fee under two 

scenarios. The high scenario assumes no reduction in replacements; the low scenario assumes a 25 

percent reduction. Under the high scenario, with no reduction in replacements, there is no effect on local 

costs, but State costs are decreased by $0.24 per case month, and vendor costs are decreased by $0.19 per 

case month. Under the low scenario, with a 25 percent reduction in replacements issued by local staff, 

local costs are decreased by $0.15 per case month. State and vendor costs are reduced by $0.18 and $0.19 

per case month, respectively. The smaller change in State costs under the low scenario reflects the 

reduced amount of fees. Vendor savings are the same under both scenarios because the fee exactly offsets 

vendor’s costs for each replacement card.

Thus, the total effect of the implementation of a replacement fee with no change in the number of 

replacements is a decrease in the cost per case month of $0.43, bringing the total cost to $6.13 per case 

month. With a 25 percent reduction in card replacements, the overall decrease is $0.51 per case month, 

leading to a total cost of $6.04 per case month.

Reduction in Cost of Direction Card 

With technological developments and wider use of smart card technology, the cost of the smart card is 

expected to fall. If the cost per card fell from the evaluation period level of $4 to $3, the Direction Card 

system operating cost would fall by $0.12 per case month, to $6.44 per case month, as shown in Exhibit 

4-8. A reduction to $2 per card would reduce the system operating cost by $0.23 per case month to $6.32 

per case month.

 

14 The State would reimburse 50 percent of its share of the fees to FNS, in proportion to FNS’ share of FSP 

administration expenses.
72 Chapter 4: Projections of FSP Costs Under Various Conditions Abt Associates Inc.

Exhibit 4-7

Impact of Implementation of Replacement Fees (Costs per Case Month)

With Replacement Fees

Cost Category

Actual 

Conditions

High 

Scenarioa

Low 

Scenariob

Difference 

Between 

Actual 

Costs and 

High 

Scenario

Difference 

Between 

Actual 

Costs and 

Low 

Scenario

Local Costs

Labor for Card Related Issues $1.295 $1.295 $1.151 $0.000 $0.145

Labor for Benefit Related Issues $0.300 $0.300 $0.300 $0.000 $0.000

Administrative Labor $0.279 $0.279 $0.279 $0.000 $0.000

Total Local Costs $1.875 $1.875 $1.730 $0.000 $0.145

State of Ohio Costs

Labor $0.187 $0.187 $0.187 $0.000 $0.000

Other Direct Costs $0.011 $0.011 $0.011 $0.000 $0.000

Replacement Card Fees $0.000 -$0.241 -$0.181 $0.241 $0.181

Total State Costs $0.198 -$0.043 $0.017 $0.241 $0.181

Vendor Costs

Administration/Reconciliation $0.517 $0.517 $0.517 $0.000 $0.000

Customer Service $0.143 $0.143 $0.143 $0.000 $0.000

Data Center $0.345 $0.345 $0.345 $0.000 $0.000

POS/Administrative Terminals $2.664 $2.664 $2.664 $0.000 $0.000

Communications $0.289 $0.289 $0.289 $0.000 $0.000

ACH Expenses $0.062 $0.062 $0.062 $0.000 $0.000

Card Costs $0.461 $0.273 $0.273 $0.188 $0.188

Total Vendor Costs $4.482 $4.294 $4.294 $0.188 $0.188

Grand Total $6.555 $6.126 6.041 $0.429 $0.514

a High scenario assumes no reduction in the number of card replacements.

b Low scenario assumes a 25 percent reduction in the number of card replacements.
Abt Associates Inc. Chapter 4: Projections of FSP Costs Under Various Conditions 73

Exhibit 4-8

Impact of Reduction in Cost of Direction Cards (Costs per Case Month)

Reduction in Card Costs

Cost Category

Actual 

Conditions

High 

Scenarioa

Low 

Scenariob

Difference 

Between 

Actual 

Costs and 

High 

Scenario

Difference 

Between 

Actual 

Costs and 

Low 

Scenario

Local Costs $1.875 $1.875 $1.875 $0.000 $0.000

State Costs $0.198 $0.198 $0.198 $0.000 $0.000

Vendor Costs

Administration/Reconciliation $0.517 $0.517 $0.517 $0.000 $0.000

Customer Service $0.143 $0.143 $0.143 $0.000 $0.000

Data Center $0.345 $0.345 $0.345 $0.000 $0.000

POS/Administrative Terminals $2.664 $2.664 $2.664 $0.000 $0.000

Communications $0.289 $0.289 $0.289 $0.000 $0.000

ACH Expenses $0.062 $0.062 $0.062 $0.000 $0.000

Card Costs $0.461 $0.346 $0.231 $0.115 $0.231

Total Vendor Costs $4.482 $4.367 $4.251 $0.115 $0.231

Grand Total $6.555 $6.440 $6.324 $0.115 $0.231

a High scenario assumes a Direction Card cost of $3.

b Low scenario assumes a Direction Card cost of $2.

4.3 Comparison of Cost Projection Scenarios

Exhibit 4-9 summarizes the “low” projections of costs for the Ohio Direction Card system under the 

scenarios discussed in this chapter. The figures explore the potential to bring down costs for the Ohio 

Direction Card system, both closer to the level of the FNS cost cap and closer to the costs of on-line EBT 

systems.

Most Favorable Scenarios

The scenario that has the largest impact is the one with the FSP caseload of 600,000. With all other 

conditions unchanged, the operational cost per case month for the Direction Card system is reduced from 

$6.56 to $4.51, a decrease of more than 30 percent. This scenario demonstrates the effects of economies 

of scale on the cost per case month. Since the period covered by the evaluation’s cost estimates, the FSP 

caseload in Ohio has increased: the February 2002 caseload was 324,323, an increase of 26
74 Chapter 4: Projections of FSP Costs Under Various Conditions Abt Associates Inc.

Exhibit 4-9

“Low” Projections of EBT Costs under Various Conditions (Costs per Case Month)

Cost Category

Actual 

Conditions

With 600,000 

Cases (Low 

Scenario)

With WIC 

(Low 

Scenario)

With TANF 

(Low 

Scenario)

Following 

FNS Formula 

for Number 

of Terminals

50 Percent 

Reduction in 

Cost of 

Terminals

Retailers 

Use 

Integrated 

Equipment

$10 Card 

Repl. Fee 

and 25 

Percent 

Fewer 

Replacements

50 Percent 

Reduction in 

Card Costs

Local Costs

Labor for Card Related Issues $1.295 $1.295 $1.084 $1.065 $1.295 $1.295 $1.295 $1.151 $1.295

Labor for Benefit Related 

Issues $0.300 $0.300 $0.300 $0.300 $0.300 $0.300 $0.300 $0.300 $0.300

Administrative Labor $0.279 $0.120 $0.279 $0.211 $0.279 $0.279 $0.279 $0.279 $0.279

Total Local Costs $1.875 $1.716 $1.664 $1.576 $1.875 $1.875 $1.875 $1.730 $1.875

State Costs

EBT Staff Labor $0.060 $0.026 $0.060 $0.045 $0.060 $0.060 $0.060 $0.060 $0.060

Contract Labor $0.124 $0.053 $0.124 $0.093 $0.124 $0.124 $0.124 $0.124 $0.124

Fiscal Labor $0.003 $0.001 $0.003 $0.003 $0.003 $0.003 $0.003 $0.003 $0.003

Miscellaneous $0.001 $0.001 $0.001 $0.001 $0.001 $0.001 $0.001 $0.001 $0.001

CPU Usage $0.005 $0.002 $0.005 $0.004 $0.005 $0.005 $0.005 $0.005 $0.005

Travel $0.005 $0.002 $0.005 $0.004 $0.005 $0.005 $0.005 $0.005 $0.005

Replacement Card Fees $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 $0.000 -$0.181 $0.000

Total State Costs $0.198 $0.085 $0.198 $0.150 $0.198 $0.198 $0.198 $0.017 $0.198

Vendor Costs

Administration/Reconciliation $0.517 $0.290 $0.393 $0.432 $0.517 $0.517 $0.517 $0.517 $0.517

Customer Service $0.143 $0.140 $0.108 $0.120 $0.143 $0.143 $0.143 $0.143 $0.143

Data Center $0.345 $0.200 $0.244 $0.319 $0.345 $0.345 $0.345 $0.345 $0.345

POS/Administrative Terminals $2.664 $1.144 $1.388 $2.231 $2.181 $2.222 $1.041 $2.664 $2.664

Communications $0.289 $0.246 $0.234 $0.266 $0.289 $0.289 $0.289 $0.289 $0.289

ACH Expenses $0.062 $0.027 $0.062 $0.062 $0.062 $0.062 $0.062 $0.062 $0.062

Card Costs $0.461 $0.461 $0.421 $0.374 $0.461 $0.461 $0.461 $0.268 $0.231

Total Vendor Costs $4.482 $2.508 $2.851 $3.803 $4.000 $4.041 $2.860 $4.289 $4.251

Grand Total $6.555 $4.308 $4.713 $5.529 $6.073 $6.114 $4.933 $6.036 $6.324
Abt Associates Inc. Projections of FSP Costs Under Various Conditions 75

percent above the March-June 2000 average. Thus, ODJFS and the Citicorp EFS team may already have 

realized some of the cost savings indicated by this scenario, but more dramatic participation growth 

would have to occur to reach the scenario’s assumption of 600,000 cases.

The scenario that has the next-largest impact is the addition of WIC to the Direction Card system, under 

the low-cost assumptions that retailer-related costs are divided between the programs according to itemweighted transactions and that WIC is the lead program and pays for all card-related costs. This scenario 

reduces the cost per case month for the Direction Card system from $6.56 to $4.71, a decrease of 28 

percent. If the Ohio WIC pilot is technically and economically successful, it is likely that the system will 

eventually be expanded statewide. It is unclear, however, how costs would be divided between the two 

programs. The expected cost for the FSP would likely be somewhere between the high and low scenarios 

of $5.99 and $4.71 per case month.

Another scenario that had a substantial effect on the costs of the Ohio Direction Card system was the 

scenario that assumed that large retailers use integrated POS systems, eliminating the EBT-only terminals 

in multi-lane stores. This scenario reduces the cost per case month for the Direction Card system from 

$6.56 to $4.93, a decrease of 25 percent. This scenario demonstrates the large impact of POS equipment 

costs on the total cost per case month.

Most Likely Scenarios for the Ohio Direction Card System

The most likely scenario to occur is the implementation of a $10 replacement card fee. The 

implementation of this fee could bring down total costs for the Ohio Direction Card system by 8 percent 

to $6.04 per case month. It is also likely that the unit costs of smart cards and terminals will fall. Under 

the optimistic projection assumptions, combined reductions in these costs could bring down the operating 

cost by as much as $0.67 per case month.15

All of the above scenarios are used to assess the potential effects of a single condition on the costs to the 

Ohio Direction Card system. In practice, however, multiple conditions may occur simultaneously which 

could reduce the costs of the Ohio Direction Card system even further. This evaluation did not 

investigate the effects of multi-factor scenarios. The effects of some of the scenarios described are 

independent from each other, and the cost savings could be added to determine the result of multiple 

conditions (e.g., declines in the costs of smart cards, POS equipment, and administrative terminals). On 

the other hand, some scenarios would have overlapping impacts, so their effects would not be additive. 

For example, both the FSP/TANF scenario and the integrated POS system scenario affect POS equipment 

costs in different ways, so the combined effect of these scenarios in tandem would be less than the sum of 

their individual effects.

 

15 The total effect of the low scenarios for reduced card and terminal costs is $0.67 per case month. These 

scenarios would have additive effects if they occurred simultaneously.
76 Chapter 4: Projections of FSP Costs Under Various Conditions Abt Associates Inc.
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 77

Chapter 5

Benefit Loss and Diversion

5.1 Introduction

Purpose

The issuance of paper food stamp coupons has long been criticized as being susceptible to the loss 

and diversion of benefits from the purchase of eligible food items. Electronic benefits transfer (EBT) 

was conceived as not only providing an efficient method to issue and redeem food stamp benefits, but 

also as a means to significantly reduce benefit loss and diversion. Like cash, paper food stamp 

coupons are anonymous and difficult to trace through various transactions to their origin. EBT 

systems, like their financial credit and debit counterparts, have the ability to electronically record and 

report transactions at the cardholder, retailer, county and state levels. 

Past studies sponsored by the U.S. Department of Agriculture (USDA) have assessed the levels of 

benefit loss and diversion in the paper food stamp process, the on-line EBT demonstration in 

Maryland1 and the off-line EBT pilot in Dayton, Ohio.2 The EBT evaluations were completed in 

1994, before the widespread implementation of EBT, and both the on-line and off-line studies 

evaluated EBT systems in limited geographic areas during pilot operations. 

The prior EBT evaluations measured vulnerabilities to benefit loss and diversion in five main areas:

A. Excessive Authorizations: Benefits that are made available to the wrong people or in an 

amount that exceeds the authorized benefit level. This category involves the benefit 

issuance process and entails the potential for losses to the FSP. Excessive benefits made 

available to recipients can result in losses to retailers, in cases of errors in processing 

credits to recipients or retailer liability for overdrafts on manually authorized sales.

B. Excessive Redemptions: Credits to the wrong people or in the wrong amount. This 

category involves the settlement process and also entails the potential for loss to the FSP 

or to retailers.

C. Production and Handling Losses: Benefits that are lost or stolen before issuance and 

are later redeemed. These losses involve outsiders penetrating the EBT system and 

causing losses to the FSP or to retailers.

D. Benefits Lost or Stolen From Recipients: A person other than an authorized recipient 

redeems benefits that are stolen or found, resulting in a loss to the recipient. 

 

1 C. Logan et al., op. cit.

2 G. Glickman et al., op. cit.
78 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

E. Benefits Used in an Unintended Manner: Benefits that are used by recipients for 

unintended purposes. The exchange of benefits for cash (trafficking) is the largest 

component of this vulnerability in EBT systems. 

Each of these five areas was broken down into specific categories of program vulnerability, for the 

purposes of estimating risks and comparing different systems. Categories A through C entail the risk 

of losses that increase the costs of the FSP, whereas Categories D and E entail the diversion of funds 

from their intended use with no direct financial cost to the FSP. Categories A, B, and C entail 

potential losses to retailers. Category D entails potential losses to recipients.

The Ohio Direction Card system has specific system, policy and procedural controls that have been 

implemented to deter benefit loss and diversion. Some of these features are common to all EBT 

systems, whether they are on-line or off-line, and whether they use magnetic stripe or smart card 

technologies. Other off-line system and smart card features are very different from their on-line, 

magnetic stripe card counterparts. 

Since the original studies took place, EBT systems have grown to a much larger scale of operations, 

and processors have adapted their controls to the greater potential consequences for lapses of security. 

All EBT processors are now required to have annual examinations by independent auditors to verify 

the effectiveness of their controls on issuance, redemption and settlement functions (a process known 

as SAS 70 Examinations).3

The Ohio Direction Card system has security features, policies, and procedures, in addition to SAS 70 

requirements, that are different from the original demonstration system. These changes have been 

initiated to prevent errors noted during the demonstration and because of the availability of additional 

security features associated with newer smart card technologies. 

This chapter compares the Ohio Direction Card system’s vulnerability to fraud, abuse and benefit 

diversion with the losses estimated to have occurred during the off-line pilot conducted in Dayton, 

Ohio and during the on-line demonstration in Maryland. This chapter also provides a general 

comparison of the vulnerabilities and security features of current off-line and on-line EBT 

environments. As with the previous evaluations, this study focuses on the same five areas of 

vulnerability. In addition, respondents in this study were asked to provide comments on the perceived 

vulnerabilities of off-line and on-line EBT systems during times of disaster.4 

The assessments in this chapter were based on nine interviews with a range of stakeholders and 

security specialists with knowledge of EBT, the Ohio Direction Card system, or off-line system and 

smart card technologies. As described later, each respondent answered a standard series of questions 

about the vulnerabilities of the Ohio Direction Card system to each category of benefit loss and 

 

3 American Institute of Certified Public Accountants, “Statement on Auditing Standards (SAS) No. 70, 

Service Organizations” and “Review Guidelines for Service Organizations Providing Electronic Benefits 

Transfer Services for Government Programs in Accordance with SAS-70,” 1999. See also Office of 

Management and Budget, “Circular A-133, Compliance Supplement, Appendix VII, SAS 70 Examinations 

of EBT Services Organizations,” Washington, DC, 2002.

4 U.S. Department of Agriculture, Food and Nutrition Service, Food Stamp Program, “EBT Disaster Plan 

Guide,” Alexandria, VA, 2000. 
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 79

diversion. These answers provided both qualitative information on the nature of the vulnerabilities 

and quantitative estimates of the risk of loss or diversion for each category. 

The quantitative estimates of risk in this report and the rankings of EBT systems according to risk 

represent the consensus of the experts interviewed by the researchers. Therefore, all loss and 

diversion estimates for the Ohio Direction Card entail an unknown amount of error, due to the 

judgmental nature of the expert responses. The number of decimal places in the estimates reflects the 

small size of the estimates and does not necessarily imply a commensurate level of precision. (For 

example, an estimate of 0.01 percent does not necessarily imply that the risk was measured with a 

tolerance of plus or minus 0.005 percent.) Similar uncertainty applies to the previous studies, which 

used the same methods.

This chapter’s quantitative estimates do not represent empirical measures of the actual incidence of 

benefit loss and diversion, and they should be viewed with an understanding of their limitations. Due 

to the nature of EBT and the Food Stamp Program environment, precise estimates of the actual 

incidence of benefit loss and diversion are very difficult or impossible to obtain. Rather, the 

quantitative risk estimates provide a way to assess the relative importance of qualitative differences in 

controls between the Ohio Direction card and its predecessors. For this reason, comparisons of the 

components of each category of risk use a qualitative scale. Furthermore, the estimates represent 

long-run averages, not actual experience to date. In the long run, large one-time losses might be 

offset by extended periods with no losses.

Highlights of Findings

In general, the Ohio Direction Card system was judged to pose less risk of benefit loss to the FSP 

than either of the previously evaluated EBT systems or the current on-line EBT systems. The security 

features of the smart card environment contributed to the reduction in risk, as did Ohio Direction Card 

policies and procedures shaped by system features. Key differences from the on-line EBT 

environment include the security features of the smart card, the virtual elimination of the use of 

manual vouchers, and the non-acceptance of malfunctioning cards by retailers. 

All EBT systems have been strengthened since the demonstration evaluations by the addition of two 

new automated processes. FNS provides EBT system operators the capability to verify retailer 

authorization through electronic access to the Federal REDE database. The security and 

accountability of the settlement process have been enhanced through the adoption of the Accounting 

Management Agent (AMA) and Automated System for Agency Payments (ASAP), with the ability to 

provide electronic batch files of settlement data. EBT systems in general have been further 

strengthened by new EBT security measures, as described in and verified by the SAS 70 audit 

requirements. 

More difficult to assess, particularly within the limitations of this evaluation, are the losses incurred 

by cardholders and retailers. For example, retailers bear the risk associated with a manual 

transaction. In some cases retailers are willing to accept these risks for purposes of customer 

satisfaction and do not report subsequent losses to the State. A cardholder may incur a loss, such as a 

retailer overcharge, and may not notice it on the receipt or may not report it to the State. These losses 

are discussed within this chapter, but they cannot be evaluated with any measure of certainty when 

such losses are unreported or are not tracked by the State or the EBT processor. Unlike previous 
80 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

evaluations, this study did not include surveys of recipients or retailers to obtain information on 

participant losses and other costs of participation.

The total estimated losses for the Ohio Direction Card system (based on the expert interviews) are 

just under 0.19 percent of benefits, including all potential losses to the FSP, retailers, and recipients 

(Categories A through D). This figure is substantially less than the estimated total losses for the 

Maryland on-line demonstration, at 0.47 percent of food stamp benefits, and it also represents a lower 

level of risk than in the Dayton, Ohio off-line pilot, which was estimated at less than 0.25 percent of 

benefits. The estimated FSP loss for the Ohio Direction Card is less than 0.01 percent of benefits, 

essentially the same as the 0.005 percent estimate for the Maryland on-line demonstration and less 

than the 0.03 percent estimate for the Dayton off-line pilot.

The most significant reductions in estimated loss were in the areas of excessive authorizations 

(Category A) and excessive redemptions (Category B). The estimated reduction in vulnerability was 

attributed to procedural changes and additional system safeguards. A key factor in the reduction in 

estimated vulnerability for the authorization process is the addition of message authentication codes. 

The card uses the message authentication code to check whether it has already processed the 

authorization, thereby preventing duplicate posting of benefits, and whether the authorization data 

have been altered. An important source of the reduction in redemption losses is the Direction Card 

system requirement for retailers to obtain an authorization code before clearing daily transactions 

from their POS terminals. This feature reduces the risk of a retailer losing sales by clearing a batch 

from the terminal before uploading the transactions to the processor. (This vulnerability represents a 

loss to the retailer, but it is included in the total estimated risk of redemption losses.)

Two factors virtually eliminated loss-prone manual voucher transactions. First, the off-line 

technology eliminated communication problems and host outages as a reason for manual vouchers. 

Second, ODJFS adopted a policy requiring retailers to bear liability for this type of transaction, 

because of the difficulty of verifying the recipient’s balance at the time of authorization. The off-line 

technology also eliminated another source of risk, the on-line systems’ option of key-entering the card 

number instead of electronically reading the card. 

On the other hand, the expert interviews yielded an estimated risk of benefit diversion to unintended 

purposes (Category E) of 2.18 to 3.67 percent of benefits. This range is higher than the estimates 

from the previous EBT evaluations, for a combination of historical and methodological reasons. 

Since the previous evaluations, there has been an extended period for perpetrators of fraud to learn 

how EBT systems operate and adapt their methods of trafficking and other forms of benefit diversion. 

Meanwhile, the available estimates of the overall rate of FSP trafficking have increased considerably. 

The most recent FNS studies of data on retailer characteristics and compliance investigation results 

estimated the rate of trafficking at 4.0 percent of benefits in the paper coupon system and 3.5 percent 

with a combination of paper coupons and EBT.5 These findings suggest that the overall rate of 

trafficking has declined since the introduction of large-scale EBT systems, but the recent FNS 

estimates are still much higher than the figures used by earlier evaluations.

 

5

Theodore F. Macaluso, “The Extent of Trafficking in the Food Stamp Program: An Update.” U.S. 

Department of Agriculture, Food and Nutrition Service, Office of Analysis, Nutrition and Evaluation, 

Alexandria, VA, 2000.
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 81

When the previous evaluation findings are updated to incorporate the new trafficking estimates, the 

estimated rate of benefit diversion in the Ohio Direction Card system is slightly less than the updated 

estimate of 3.69 percent of benefits for the Maryland on-line demonstration. This difference reflects a 

smaller risk of redemption by unauthorized retailers with the Ohio Direction Card. Because of the 

increased experience of recipients and retailers, the benefit diversion estimate for the Direction Card 

is equal to or greater than the updated estimate of 2.18 percent for the Dayton off-line pilot. Study 

respondents believed that the familiarity of recipients and retailers with the system enables them to 

find methods of trafficking that are harder to detect.

The Ohio Direction Card system has a slightly lower risk of retailer loss than the Dayton pilot or the 

Maryland on-line EBT system. This difference reflects an expectation of fewer processing errors, but 

it also reflects the greatly reduced incidence of manual transactions. During their respective 

evaluation periods, the Ohio Direction Card system had far fewer manual transactions (as a percent of 

all transactions) than the Maryland on-line EBT system. Retailers are always liable for manual 

transactions in the Ohio Direction Card system, whereas these transactions are guaranteed under most 

conditions in on-line EBT systems. It is unclear whether the difference in manual transactions 

reflects a reduced need (because of the off-line technology), reluctance of retailers to process manual 

transactions because of liability, or a combination of these factors.

The experts interviewed for the study felt that, on balance, retailers in the Ohio Direction Card system 

are less likely to experience losses from manual sales than in on-line systems, despite the lack of a 

guarantee of funds for manual sales. The retailers’ liability for manual sales in the Ohio Direction 

Card system is offset by two factors: the elimination of technological problems that cause retailers to 

process manual sales and the policy restricting when manual sales are authorized.

Compared with on-line EBT systems, the Ohio Direction Card system is less vulnerable to 

interruption of benefit redemption in a short-term (1-3 day) disaster, because retailers can continue to 

process transactions without access to the EBT host computers (and even without regular electrical 

power). On the other hand, the Ohio Direction Card system is more likely to encounter problems 

with benefit issuance in a disaster, and mass card issuance for widespread disaster relief is more 

difficult. 

Framework for Analysis

This evaluation was performed by conducting a series of interviews with a range of stakeholders and 

system security specialists with knowledge of EBT, the Ohio Direction Card system, and/or off-line 

system and smart card technologies. Interviewees were selected in order to provide a full range of 

information concerning all five areas of vulnerability that were identified in the previous evaluations. 

Interviews included representatives from the following agencies and corporations:

• USDA Office of Inspector General, Regional Investigations

• USDA Office of Inspector General, Audits, Mid-Atlantic and Mid-West Regions

• USDA FNS Compliance Branch

• Ohio Department of Jobs and Family Services

• Citicorp EFS and Stored Value Systems (SVS), the Ohio EBT vendors

• Deluxe Data Systems, an on-line EBT vendor

• Schlumberger, the Ohio EBT smart card vendor
82 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

• Booz•Allen and Hamilton, Inc., FNS’ technical assistance provider for EBT system reviews

• Microsoft Corporation, a developer of smart card systems.

Each respondent was given, in advance of the interview, a survey guide with program and system 

information. This information included: the vulnerabilities of the Food Stamp Program to fraud, 

abuse and benefit diversion; the system and security controls of the off-line and on-line 

demonstrations and the Ohio Direction Card system; and the results of the two previous EBT 

evaluations. Respondents were asked to read the information and to evaluate the vulnerability of the 

current environment based on their knowledge and the results of past evaluations. 

After providing sufficient time to read the guide and accompanying information, respondents were 

interviewed through the use of telephone conference calls. Respondents were asked to provide hard 

data, where possible. However, due to the nature of the evaluation, most responses – as expected –

were subjective estimates, based on the respondents’ general knowledge, experience and 

expectations. Some respondents had experience only in certain areas of vulnerability and responded 

only to those areas. For example, the FNS Compliance Branch respondent had experience in 

trafficking and benefit diversion but little experience in system controls, while the Microsoft 

respondent had knowledge of system and smart card security controls but no direct experience with 

EBT or food stamp trafficking. 

The results of the original evaluations of the Dayton off-line pilot and the Maryland on-line 

demonstration were gathered through a similar approach. Interviews with stakeholders, such as those 

listed above, as well as surveys of cardholders and retailers were conducted and the results were 

compiled and presented as estimates of the EBT systems’ vulnerability to fraud, abuse and diversion. 

Some of the responses were based on extant data and first-hand knowledge, but most responses were 

based on best estimates and extrapolations of experiences. 

The estimates obtained from the previous evaluations were presented to respondents for the current 

study. Respondents were asked to review vulnerabilities and to judge: 1) whether the Ohio Direction 

Card presented stronger security features than either of the previously evaluated systems, thereby 

reducing the estimated risks; or 2) whether the Ohio Direction Card presented weaker security 

features, implying greater risks than those estimated in the previous studies. As a by-product of this 

approach, some respondents commented on the validity of the initial estimates and whether the 

increased familiarity with EBT since the pilot has also affected the fraudulent use of EBT food stamp 

benefits.

The following sections present the five categories of vulnerability that are the main focus of this 

study. For each category, there is a description of vulnerabilities, a comparison of controls, and a 

discussion of the direction and magnitude of the expected risk of benefit loss or diversion. Each 

section concludes with a table that indicates the estimated losses from the Maryland and Dayton, 

Ohio demonstration evaluations, whether the Ohio Direction Card presents more or less risk than the 

demonstrations, and an assessment of the current risk. Because of the nature of the evaluation, 

respondents were not asked to give quantitative estimates for individual vulnerabilities. Respondents 

were asked only to give an estimate for the total level of risk in each of the major categories. 

Summary estimates reflecting the consensus or midpoint among the expert estimates are provided in 

the tables. 
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 83

Based on the comments received from the respondents, the tables present individual category risk 

levels on a scale of minimal to high. This approach minimizes the use of quantitative estimates, which 

may imply more precision than is appropriate in estimates of this type. For purposes of this study, the 

following risk levels assigned to individual categories:

Minimal From zero to less than 0.01 percent of benefits

Low Risk from 0.01 percent to less than 0.1 percent of benefits

Medium Risk from 0.1 percent to less than 1 percent of benefits

High Risk greater than 1 percent of benefits

In Ohio, the average monthly FSP benefit during the evaluation period was $167.50 per household. 

Thus, 0.01 percent of benefits was equivalent to about 1.7 cents per case month, and 1 percent was 

equivalent to $1.68 per case month. The average monthly issuance totalled $43 million, so 0.01 

percent was about $4,300 per month, and 1 percent of the total was equivalent to $430,000 per month.

Unlike previous evaluations, this study does not categorically differentiate between zero risk and 

minimal risk. Respondents often estimated the risk of very unlikely events as zero, but their analysis 

also indicated that these events were not impossible. To avoid creating the impression of false 

precision, these estimates are presented as indicating minimal risk. Therefore, in some instances, 

risks rated as minimal are described as less than risks previously estimated under a different 

framework as zero. In these instances, the direction of the difference should be the primary 

consideration.

5.2 Excessive Benefit Authorizations

The first major category of EBT system vulnerabilities involves the inadvertent or intentional 

inflation of benefits credited to established EBT recipient accounts. In addition, a recipient may be 

able to spend more than the authorized benefit amount because an overdraw may occur during certain 

types of transactions. The specific vulnerabilities in this category, and the findings regarding the risk 

in the Ohio Direction Card system, are discussed below.

Benefit authorization processes in the Ohio Direction Card system involve the State, the EBT 

processor, and the retailers. The State’s CRIS-E eligibility system electronically provides issuance 

information in a batch upload to the EBT processor. On the recipient’s issuance date, benefits are 

electronically transmitted to the recipient’s local office and to three additional issuance (retailer) sites 

pre-selected by the recipient. The benefits are then automatically transferred to the recipient’s card 

during the first transaction at one of these sites. Void and refund transactions are uploaded from the 

retailer’s POS system to the EBT processor and then downloaded to the recipient’s issuance sites to 

be credited to the card.

Intentional or inadvertent credit of unauthorized benefits to a case by a State or processor 

employee. This vulnerability entails the risk of a State or processor employee accessing the benefit 

authorization files and changing benefit amounts either before the file is sent from CRIS-E to the 

processor or after the file is received by the processor. 

Standard security requirements, now and during the EBT demonstrations, require a user ID and a 

personal identification number (PIN) in order to perform the specific, pre-assigned functions of 
84 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

eligibility systems and EBT processors. Administrative terminals (ATs) used for eligibility and EBT 

system access “time out”, preventing unauthorized access, when a worker does not actively use the 

AT for a set period of time. These features track employee use of ATs and reduce the opportunity for 

an unauthorized user access to the system. (One respondent suggested the use of a smart card for 

logical access control, thus further authenticating the identity of the AT user and increasing security.) 

Benefits authorized through the State’s eligibility system are electronically transmitted to the EBT 

processor.

6

 Headers and trailers are attached to the authorization file, confirming the number and 

value of authorization transactions. Tampering with individual authorization amounts within the file 

by a State or processor employee may cause the entire file to reject. As a further security measure, a 

confirmation file is sent back to the eligibility system for reconciliation, at which point a difference 

between the authorized amount and the issued amount would alert ODJFS to an error. The 

reconciliation of the Ohio Direction Card system is subject to daily monitoring by the State fiscal 

staff. (Fiscal staff did not provide daily monitoring during the Dayton demonstration.) 

The risk for the Ohio Direction Card is felt to be less than the risk associated with the demonstration 

systems, primarily because of the enforcement and oversight required with passing SAS 70 audit 

requirements. Current off-line and on-line systems must meet these same standards and the risk is 

considered to be the same with both types of systems. With strictly enforced separation of duties, 

user ID and PINs, system security and daily monitoring, respondents believed the risk for this 

vulnerability to be minimal. 

Software error incorrectly credits client account. This category pertains to the risk that a software 

error may over-credit a client account. The issuance process from eligibility system to EBT processor 

is very similar between off-line and on-line EBT systems. However, off-line EBT has the added steps 

of downloading an issuance file to a POS terminal and then loading the issuance onto the recipient’s 

card; hence it has an addition point of vulnerability. 

In order to prevent errors at the POS, Host Reference Counters (HRCs) and Message Authentication 

Codes (MACs) have been incorporated in the Direction Card system, reducing the risk of this 

vulnerability since the Dayton demonstration. As the benefit amount is written to the card, a 

sequential code known as the HRC is updated in the card’s memory. This code prevents multiple 

access to the same issuance allotment. The HRC is generated for each credit transaction when it is 

staged to be issued to the card. A MAC is generated for every financial record transmitted between 

the EBT processor and the smart card. The MAC is calculated with a number of different data 

elements, including the HRC, the amount of the transaction and a unique credit key known only to the 

EBT processor and the card. For each issuance download, a unique data encryption standard (DES)-

encrypted credit key is used by the processor to calculate the MAC; when the card reads the issuance, 

it recalculates the MAC using its own unique credit key. These counters must be synchronized. Once 

benefits are issued to the card, the HRC changes, therefore the same issuance cannot be applied to the 

card more than once. 

 

6

EBT processor controls are subject to annual review as part of the SAS 70 audit requirements. The latest 

audit was conducted for the period from July 1, 1999 to June 30, 2000 by KPMG. This audit indicated that 

Stored Value Systems controls were operating with sufficient effectiveness to achieve all control 

objectives.
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 85

The Dayton demonstration system used a simpler and less secure version of the HRC process. The 

HRC was checked by the POS terminal during the benefit loading process. Thus, this control could 

conceivably manipulated or defeated by a modified POS terminal.

On-line systems have an added risk of a double credit to a client account on a refund or void 

transaction if the retailer is using a third-party processor (TPP) or connects its own equipment directly 

to the EBT processor (the “direct-connect” approach). Although TPP and direct-connect software and 

terminals are certified by the processor before connecting to the EBT system, software enhancement 

and changes in these terminals – out of the control of the EBT processor – may increase the risk of 

settlement errors. With double -credit errors, if the processor is not alerted to the error by the retailer, 

as a result of the retailer’s internal reconciliation process, the recipient account would gain unearned 

benefits at the retailer’s expense. The Ohio Direction Card system delays credits to a cardholders’ 

accounts for 48 hours in order to reduce the risk of credit errors and to detect instances of attempted 

fraud.

A new feature of the Ohio Direction Card is the ability to download software updates to retailer POS 

terminals. One respondent felt this increased the chance for software error and also felt that the risk 

increases as the requirements for system code increases; hence, the off-line environment, with its 

software requirements for cards and terminals, should also have increased vulnerability to error. 

However, this scenario is hypothetical and has not occurred in the working environment. There have 

been no reported instances of POS software errors creating undeserved credits to a client account in 

the Ohio Direction Card system. 

Respondents stated that the Ohio Direction Card system is less vulnerable to the risks associated with 

software errors than the Dayton EBT pilot system.7 This change was attributed to the added security 

features of HRCs and MACs. It was further felt that there is little difference in risk between current 

on-line and off-line systems, because both on-line and off-line EBT processors must use strict quality 

assurance methodologies in order to avoid occurrences of software errors during design changes and 

enhancements. Nevertheless, on-line systems in general have slightly more risk of software errors 

than off-line systems, because of the interactions with TPP and direct-connect terminals in typical online systems that do not occur in current off-line systems. (Risks for off-line EBT systems with TPP 

or direct-connect POS systems were not considered.) For the Ohio Direction Card, the risk in this 

category is estimated to be minimal.

Double posting of issuance file. Recipients may receive excessive authorizations if an issuance file 

from the eligibility system is posted more than once (“double posted”) to the EBT system. In order 

for the issuance file to be double posted, a direct system intervention must occur. There are strict 

procedures and controls in place in both on-line and off-line EBT to prevent this from happening, and 

there is little difference in controls between off-line and on-line EBT environments. The controls 

include transmission of the issuance file total through the federal AMA, and the use of header and 

 

7 Although the Dayton pilot evaluation estimated the risk at zero for this vulnerability, the current 

evaluation’s respondents generally believed that the risk is lower for the Ohio Direction Card system. This 

seemingly paradoxical result of a risk “less than zero” for this and other vulnerabilities should be viewed as 

a reflection of greater confidence in the Direction Card’s security measures, as well as some skepticism 

about the previous estimate of zero risk.
86 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

footer records, which confirm issuance amounts, time and date.8 While the risk is extremely small in 

either type of system, double posting has happened in a few states using on-line EBT. 

During the Dayton demonstration, a unique combination of events allowed a duplicate issuance to 

115 recipients. An auxiliary file was processed twice, and while controls prevented duplicate 

issuance to most cards, duplicate benefits were issued to a small set of replacement cards. Because of 

this event, the ad-hoc processing of auxiliary files was discontinued before the Dayton demonstration 

evaluation was completed. With the tighter controls, the estimated vulnerability for the Dayton 

demonstration was set at zero. 

If the system has been directly manipulated and double posting of benefits does occur despite security 

controls, a downside has been noted in the off-line environment. The Ohio Direction Card system 

can immediately post a debit to an account for download to retailer POS terminals and servers. 

Nevertheless, there may be a delay of 24-48 hours in the debit to the card account balance, because 

retailers generally upload and download information once every 24 hours. If the funds have been 

spent during the delay period, there would be a loss to the FSP, unless the funds were recouped under 

FSP procedures.9 In on-line EBT, when an error of this type is noticed, accounts can be debited in 

real-time to prevent clients from drawing down undeserved funds.

While the potential value of the liability for double postings may be higher in the off-line 

environment than in the on-line environment, the respondents did not believe that there is any 

difference in risk between on-line and off-line EBT systems. The risk of double posting occurring in 

the Ohio Direction Card system is less than the two previous systems, because of the increased 

controls mandated by federal standards and the increased security of the smart card. For the Direction 

Card, the actual risk of loss was considered by the respondents to be minimal.

Recipient overdraws account in a manual transaction. This type of excessive authorization can 

occur when a client overdraws his or her account during a manual (voucher) transaction. Ohio 

provides all FNS-certified retailers with POS terminals if requested. Route or mobile food vendors 

are equipped with battery-operated terminals. If a recipient’s Direction Card is not functioning, the 

retailer is instructed to send the recipient to a local office for a card replacement.10 Therefore, the 

retailer has at least one operational POS terminal, all food stamp transactions are conducted 

 

8 AMA does not receive the actual issuance file, but each State sends batch data files to AMA with the dollar 

amount of benefits that have been issued. As a check to prevent gross errors in benefit issuance, AMA sets 

a cap to each State’s monthly issuance. A double issuance of benefits to all recipients would alert the 

system that an error has occurred. 

9

The processor would be liable for duplicate issuances under the terms of the Ohio contract. In the long run, 

the processor might set its fees to cover this liability, resulting in an increased cost to the State. FSP 

procedures allow for recoupment of overissuances from subsequent issuances, subject to certain limits. 

Other means of recoupment include collection of cash payments, attachment of wages and interception of 

tax refunds.

10 Unlike on-line EBT systems, off-line systems cannot support POS transactions with a manually-entered 

card number.
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 87

electronically, even if the central processor is unavailable. This is one of the key operational 

advantages of off-line systems over on-line systems.11 

In order to receive an authorization for a manual transaction from EBT Customer Service, a retailer in 

Ohio must first report that its POS terminal is not functioning – or that all POS terminals located at 

the retailer site are not functioning. A retailer may also process a manual transaction without 

authorization if the transaction meets all of the above criteria and the central processor is not 

functioning (exception processing). In Ohio, manual transactions are allowed up to $50 or up to the 

card balance carried by the EBT processor, whichever amount is less.

In any of these situations, because of the de lay in uploading and downloading transaction 

information, the policy in the Ohio Direction Card system is that all manual transactions are 

undertaken at the retailers’ risk. The same policy applied in the Dayton pilot, although the pilot 

offered the option for retailers to represent manual sales for payment—an option eliminated in the 

Direction Card system. The extent of the retailer’s risk depends on the retailer’s willingness to accept 

a loss in exchange for maintaining customer relations. These types of losses, if they occur, generally 

go unreported to the State, so their magnitude is unknown12. It is possible that some retailers may try 

to work around the system by holding onto a client’s card and PIN until the next issuance period in 

order to deduct the amount due, although this approach violates their retailer agreements. In this case, 

the retailers would not incur a loss unless the client reported the card as lost or stolen before the 

retailer could redeem the balance due. 

Manual transactions in the on-line environment are conducted for a variety of reasons that do not 

apply in the Ohio Direction Card system. In on-line states, a retailer may have insufficient sales to 

qualify for a POS terminal and can only accept EBT transactions through the manual process. Route 

vendors may not have access to electricity and/or telecommunications to process a transaction. 

Electrical or telecommunication outages may occur at retailer sites, at the host computer, or at 

processing points in between. If the transmission or processing of transactions slows down enough to 

cause POS terminals to “time out”, retailers may be unable to process on-line transactions. 

Because on-line systems operate in real time, when EBT Customer Service authorizes a manual 

transaction, a hold on the amount of the transaction is immediately applied to the client’s account.13

The transaction is completed through a manual voucher clearing transaction on a POS terminal or by 

sending the voucher to the EBT processor or third party processor (TPP) within 15-30 days 

(depending on the state) of placing the hold. 

 

11 Another State could relax the rules on manual sales to permit them when some but not all of the retailer’s 

terminals are operating. Some multi-lane retailers might prefer to use manual sales, even at their own risk, 

so that they could complete sales when terminals fail without making recipients change lanes.

12 Denied manual transactions are very rare. One respondent suggested that major retailers may choose not to 

attempt a manual transaction on the rare occasions when they cannot process an electronic transaction, 

preferring to keep the customer satisfied at the cost of not being paid for the sale. The experts interviewed 

for this report, including ODJFS and Citicorp EFS representatives, have no information on the extent of 

this practice. 

13 The Ohio Direction Card system applies a debit to the client’s account, immediately reducing the available 

host balance for manual authorizations. To reduce the balance on the client’s card, the debit must be 

downloaded to a retailer’s terminal and then applied to the client’s card. 
88 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

The assignment of liability to the retailer is very different in the on-line environment. Generally, if 

the retailer obtains authorization for a manual transaction, the State or processor bears the risk of an 

overdraw. States vary in the limits allowed for manual transactions, and liabilities may fall on the 

EBT processor if manual transactions are conducted during times of EBT system or telephone 

outages. If a manual transaction is denied, the retailer may be permitted to represent the transaction at 

a later time, when the recipient may have a sufficient balance. Retailers were permitted to represent 

transactions in the Dayton off-line pilot, but they do not have this option in the Ohio Direction Card 

system.

Manual transactions were more common in the Maryland on-line system than in the Ohio Direction 

Card system. The Maryland evaluation reported 5,816 manual transactions versus 1,649,487 POS 

terminal transactions, or 0.35 percent of the purchase transactions. During the month of June 2000, 

Ohio reported 1,121 manual transactions out of 1,755,778 purchase transactions, or 0.06 percent of 

the total purchase transactions. It is unclear whether the difference in manual transactions reflects a 

reduced need (because of the off-line technology), reluctance of retailers to process manual 

transactions because of liability, or a combination of these factors.

During the Dayton off-line pilot, some retailers reported losses due to overdraws on manual 

transactions. These losses are believed to have occurred because retailers did not understand all of 

the Ohio EBT policies and liabilities. After the initial learning period, retailer losses are thought to 

have diminished. In the Ohio Direction Card system, the risk to the FSP for this vulnerability is 

minimal, and the risk to retailers is minimal.

The experts interviewed for the study felt that, on balance, retailers in the Ohio Direction Card system 

are less likely to experience losses from manual sales than in on-line systems, despite the lack of a 

guarantee of funds for manual sales. The retailers’ liability for manual sales in the Ohio Direction 

Card system is offset by two factors: the elimination of technological problems that cause retailers to 

process manual sales and the policy restricting when manual sales are authorized.

Summary. In general, respondents felt that the risk of excessive benefit authorizations to the FSP for 

the Ohio Direction Card is less than the estimated risks levels calculated in both the Maryland and 

Dayton evaluations. Improved state reconciliation processes have had a positive impact on all EBT 

systems. Most respondents felt that, in general, off-line EBT has a slightly lower level of risk in this 

category of vulnerability than on-line EBT, and gave estimated risks at between zero and 0.007 

percent of the benefits. Retailer losses are felt to have subsided since the statewide rollout, due to 

retailer training. The estimated risk for excessive authorizations is 0.005 percent of the benefits; all 

of this risk is associated with retailers’ potential losses on manual transactions. The results of this 

portion of the analysis are summarized in Exhibit 5-1. 

5.3 Excessive Redemptions

Excessive benefit redemptions occur when the funds transferred through the settlement process to 

retailers or financial institutions exceed the amounts that they are owed.
Exhibit 5-1

A. EXCESSIVE AUTHORIZATIONS: Benefits are authorized to the wrong people or in the wrong amount.

MD On-line 

EBT 

Demonstration 

Estimated Loss

Dayton Offline EBT 

Estimated 

Loss

Does OH 

Direction Card 

pose more or 

less risk than 

MD demo?

Does OH 

Direction Card 

pose more or 

less risk than 

Dayton demo?

In general, does 

off-line EBT 

pose more or 

less risk than 

on-line EBT?

Estimated 

risk level for 

Ohio 

Direction 

Card

A-1: Intentional or inadvertent 

credit of unauthorized benefits to 

case by a State or processor 

employee.

0.00% Less Less No difference Minimal 

A-2: Software error incorrectly

credits client account.

0.004% 

0.00% Less Less Less Minimal

A-3: Double posting of issuance 

file.

0.003% 0.00% Less Less No difference Minimal

A-4: Recipient overdraws account in 

a manual transaction. Retailer loss 

is reimbursed by the State and/or 

the EBT vendor

Not measured 0.00% Less Same Less Minimal

A-5: Recipient overdraws account in 

a manual transaction or other error 

leads to a retailer loss that is not 

reimbursed.

See note a 0.02%bLess Less Less Minimal

TOTAL ESTIMATE Minimal 

(0.007%) 

Low 

(0.02%)

Less Less Less Minimal 

(0.005%)

a Maryland retailer losses due to accounting errors were $0.19 per $1,000 of benefits redeemed (i.e., 0.02 percent). This figure, which was not included in the benefit 

loss/diversion estimates, includes reversals not detected by merchants and overdrafts on manual vouchers.

b Demonstration data indicated that 18 of 222 manual transactions occurring during the demonstration period resulted in a retailer loss representing 0.02 percent of benefits 

issued. A recoupment process was available to retailers. The loss estimate does not take into account amounts recouped from recipients.

Abt Associates Inc Chapter 5: Benefit Loss and Diversion 89
90 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

Intentional or inadvertent inflating of benefits to a bank. The evaluation of the first on-line EBT 

system in Reading, Pennsylvania estimated the risk of excessive settlement to financial institutions in 

the paper food stamp coupon system, and all EBT evaluations have estimated the equivalent risk for 

EBT systems. This vulnerability posed more risk in the paper food stamp environment, where there 

were sometimes discrepancies between the bank’s and the retailer’s reconciliation of paper food 

stamps. In both the off-line and on-line EBT environment, there are strict and well-established 

controls, and funds and records are transferred electronically. For these reasons, risks in the previous 

EBT evaluations were estimated to be minimal, and the risk for the Ohio Direction card is also 

estimated to be minimal. 

Fictitious store accounts are created by system processor employee and credited. This

vulnerability requires direct manipulation of the retailer database and the settlement process. 

Unearned funds transferred to a fictitious account would have to be diverted from existing EBT 

accounts. Controls to prevent this include the separation of duties, the use of user IDs and PINs, the 

daily interface with the REDE database and the AMA system, and the reconciliation process. These 

controls are checked and certified by the SAS 70 audits. They are standard for both the off-line and 

on-line EBT environments. At the time of the original Maryland and Dayton demonstration 

evaluations, EBT processors did not have direct electronic access to REDE and AMA, and the SAS 

70 standards had not yet been established. Because of the increased security, all EBT systems, 

including the Direction Card system, are now estimated to be less vulnerable to risk in this category. 

The risk for on-line systems and the Ohio Direction Card is considered to be minimal.

Funds transfer through the ACH process is altered to change retailer credits. Funds transfer 

through the Automated Clearing House (ACH) is standardized throughout the financial community. 

Controls on the EBT side, both in on-line and off-line environments, include system security, network 

security and daily reconciliation. Files that are transferred through the ACH are encrypted, and 

security measures include methodologies to quickly identify the point of unauthorized access and the 

perpetrator. Because the ACH handles not only EBT but also credit and debit transactions, this part 

of the EBT process is highly secure and is considered to present minimal risk to all EBT 

environments. This risk level is the same as during the demonstration evaluations, when it was 

judged to be minimal. 

Store accounts are altered by system processor or store employee. This category can include two 

types of vulnerabilities. The first is the risk of settling retailer funds to an incorrect bank account. 

This event can and does occur in several scenarios. When a retailer establishes a retailer agreement 

with the EBT processor, it provides the processor with its financial institution and bank account 

number. The retailer may inadvertently provide the wrong number, or the processor may enter the 

wrong number during the retailer set-up process. This error will be discovered if the account number 

entered into the system is nonexistent, and settlement cannot occur, or when the retailer notices that it 

has not received funds from EBT transactions. It can also occur if a retailer sells his or her business 

and leaves the EBT POS terminal with the new owner. The new owner may use the terminal for 

transactions, and funds will be settled to the previous owner’s account. Finally, it most commonly 

occurs when a participating retailer changes bank accounts and neglects to notify the processor. These 

errors are usually noticed immediately and are corrected through established banking processes. 

When they occur, retailers rarely incur actual losses because of the ability to identify and correct the 

error.
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 91

The second type of risk is a direct manipulation of a store account by a store employee that would 

result in an inflation of funds due to the retailer. In an off-line EBT system, the storage of transaction 

files in the POS terminal or in the POS network server presents an opportunity for records to be 

altered before being uploaded to the central processor. There are numerous controls in place to 

prevent this fraud. Servers are provided to multi-lane retailers without keyboards and monitors. All 

transaction files are encrypted, and MACs have been introduced into the Ohio Direction Card system. 

Server files must balance between retailer credits/debits and card level transactions. In addition, there 

are system limitations set on transaction amounts, and parameters set within the system alert the 

processor to transaction levels and amounts beyond the norm for the retailer site. In order to 

perpetrate this kind of fraud, a store employee would have to have a highly technical background, and 

the return for the effort in the EBT environment would be small. 

The risk for this category is considered to be less than during the Dayton demonstration, due to 

increased security measures such as the MACs. It was felt that there is no difference in risk between 

the current on-line and off-line environments. The risk for the Ohio Direction Card is estimated to be 

minimal.

Software error over or under credits retailer account. This vulnerability involves operational or 

systematic disruptions that occur during a transaction that could create circumstances where the 

transaction may not be posted correctly either to the card or to the POS terminal. In on-line 

transactions, this category would include terminal and host software errors in processing on-line 

transactions.

Off-line EBT systems track two separate account balances. Once a transaction is completed, the 

transaction and the current card balance are stored on the card and in the retailer’s POS terminal until 

the retailer settles to the EBT processor. The card balance is updated in real-time and is considered to 

be the actual account balance. The host-derived balance is calculated after retailers have settled 

transactions to the EBT processor, when the processor calculates an account balance based on retailer 

settlement data. The processor stores the latest time/date stamped card balance and the host-derived 

balance. If a retailer has not uploaded its settlement data and a cardholder conducts a subsequent 

purchase transaction at another retailer establishment, then the card balance will be less than the hostderived balance. If all transactions have been settled, including issuance acknowledgments as well as 

purchases and refunds/voids, the card balance will equal the host-derived balance. 

If the Ohio Direction Card is removed prematurely from the POS terminal during a transaction, the 

balance may have been calculated on the card but not transmitted to the POS terminal. If the 

terminal has not recorded the card balance, then when the retailer settles to the processor’s host 

computer, the most recent card balance on the host will be greater than than the host derived balance, 

and an inquiry will be conducted. (No action is taken if the card balance is less than the host balance 

because not all retailers may have settled transactions to the processor.) 

During the Dayton demonstration, some retailer loss was reported because retailers were accidentally 

clearing transaction batches from their POS terminals before settling to the central processor. The 

Ohio Direction Card now requires retailers to obtain an authorization number from the central 

processor before the batch can be cleared from the terminal. Retailers can still lose batches of 

transactions if their POS terminals or servers fail. These transactions can be manually restored, but 

the retailer must provide receipts to Customer Service. Thus, if the retailer fails to keep receipts or 

chooses not to send them in, the retailer loses the sales in the lost batch.
92 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

Both on-line and off-line POS terminals print receipts that confirm the transaction has occurred, either 

between the terminal and the processor for on-line, or between the terminal and the card for off-line. 

If a receipt is not printed, or if the receipt indicates that the transaction failed, the retailer is instructed 

that the transaction did not occur. If this is due to an error (i.e., not due to insufficient funds in the 

recipient’s account), the retailer may reprocess the transaction. If a retailer discovers a discrepancy 

during reconciliation, the retailer has the ability to recoup its losses if it provides the processor with 

proper documentation, such as back-up receipts, for the day’s transactions. The retailer bears a loss 

only if the loss goes unnoticed through inadequate bookkeeping, or if the retailer lacks the proper 

documentation. 

The estimated risk for this category is less than the Dayton evaluation, due to the added security of 

pre-authorization for clearing a POS terminal. While retailers may incur a temporary loss due to a 

software error, with documentation they are able to recoup these losses. Factoring in new security 

features, it was felt that there was little difference between on-line and off-line EBT, or between the 

Direction Card and the Maryland demonstration. The risk for this category is considered to be 

minimal.

Non-EBT terminal is configured to transmit EBT transactions to the system. To accomplish this 

in the on-line environment – and receive a settlement of funds for the transactions – would require a 

legitimate terminal number, a legitimate FNS retailer number and a financial institution account 

registered with the central processor. In addition to these technical requirements, off-line EBT has 

the added security controls of encryption software in the POS and MACing, which make it extremely 

difficult to configure a non-EBT terminal to accept EBT transactions. The risk for off-line EBT is 

considered to be less than for on-line, due to the security features and complexity of the smart card 

system. The risk for the Ohio Direction Card is considered to be minimal.

Summary. The views varied among respondents concerning the estimated overall risk for the 

category of excessive redemptions. Respondents estimated the risk for the Ohio Direction Card to be 

from zero to 0.02 percent of the benefits, but most felt the risk was less than the estimated 0.19 

percent from the Maryland evaluation. This assessment is due to several factors: the initial learning 

curve needed by retailers, which reduced the risk after the pilot systems; the Ohio Direction Card’s 

added security feature of the authorization code for clearing a POS terminal; and the card’s security 

features. The high-end 0.02 percent estimate was given by one respondent, who suggested that the 

risk would increase if retailers decided to integrate Ohio Direction Card POS terminals with their 

electronic cash register systems. This integration was not available during the Dayton demonstration 

but is available for the Ohio Direction Card. No retailers have elected to integrate their systems with 

the smart card terminals, so the high-end risk estimate has been discounted. Based on other responses 

to summary estimates and individual vulnerabilities, the estimated risk for the Ohio Direction Card 

for this area is 0.01 percent of the food stamp benefits issued. 

On the other hand, the expert input suggests that, in an off-line EBT system integrated with retailer 

and third-party processor (TPP) systems, the risk of processing errors would be comparable to or 

perhaps greater than the risk in current on-line systems, given the greater complexity of the POS 

processing in the off-line environment. The exact magnitude of the risk would depend on the strength 

of the certification process for integrated retailer and TPP systems, including regression testing for 

system modifications. The results of this portion of the analysis are summarized in Exhibit 5-2. 
Exhibit 5-2

B: EXCESSIVE REDEMPTIONS: Credits to the wrong people or in the wrong amount.

MD On-line EBT 

Demonstration 

Estimated Loss

Dayton Offline EBT 

Estimated 

Loss

Does OH 

Direction Card 

pose more or 

less risk than 

MD demo?

Does OH 

Direction Card 

pose more or 

less risk than 

Dayton demo?

In general, 

does off-line 

EBT pose 

more or less 

risk than online EBT?

Estimated risk 

level for Ohio 

Direction Card

B-1: Intentional or inadvertent 

inflating of benefits to bank.

0.00% 0.00% No difference No difference No difference Minimal

B-2: Fictitious store accounts 

are created by system 

processor employee and 

credited.

<0.01% Less Less No difference Minimal

B-3: Funds transfer through 

ACH process is altered to 

change retailer credits.

<0.01% No difference No difference No difference Minimal

B-4: Store accounts are altered 

by system processor or store 

employee

<0.01% No comments Less No difference Minimal

B-5: Software error over or 

under credits retailer account

<0.02% No difference Less No difference Minimal

B-6: Non-EBT terminal 

configured to transmit EBTtransactions to system.

0.019%a

0.00% Less No difference Less Minimal

TOTAL Low (0.019%) Low (<0.04%) Less Less Less Mimimal 

(0.01%)

a Categories B-2 through B-6 were rolled into one category for the Maryland evaluation. Note that the Maryland demonstration was for a closed system; there were no third 

party processors involved during the demonstration.

93 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.
94 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

5.4 Production and Handling Losses

The vulnerabilities in this category involve benefits that are lost or stolen before issuance and are later 

redeemed by outsiders (i.e., parties other than EBT processors, retailers and recipients). 

Authorization file is tampered with or intercepted and replaced during electronic transmission 

to system processor. The encrypted authorization files from CRIS-E are sent directly to the EBT 

host over dedicated lines. The security for these lines is very high, and interruptions during 

transmission are detected immediately. During the Dayton demonstration, files were transferred from 

the State through a settlement bank and then to the processor. This process presented some risk due 

to the additional routing and the use of non-dedicated lines. The risk for this category is less than 

during the Dayton demonstration but no different than in on-line EBT systems using the same 

security measures. The current risk for this category to the Ohio Direction Card is estimated to be 

minimal.

Counterfeit card is used to access benefits from a fictitious account. For this type of fraud to 

occur in the on-line environment, the counterfeit card must be tied to a fictitious account on the EBT 

host computer, so that the host will authorize the transaction.14 The creation of a fictitious account by 

an outsider is considered to be extremely difficult, if not impossible. Because system controls limit 

the amount of a transaction, the return to a perpetrator would be very small for the effort involved. 

In off-line EBT, the card carries the account balance, so the creation of a counterfeit card with an 

account balance is not dependent on tampering with the EBT host, and any processing controls in the 

card could at least theoretically be defeated. If a counterfeit card with a card balance could be 

created, and a large number of duplicate cards could be used, the value of the loss could be very high, 

although the risk would only be temporary. The first retailer settlements that contained counterfeit 

card transactions would alert the system to an attack, and card acceptance would be suspended. To 

extract a large amount of value, a large number of cards would have to be used to make a large 

number of purchases within the 24 to 48-hour window between settlements, because very large 

purchases in any one store would raise retailers’ suspicions.

Because of the potential for a large loss, smart card systems are created to be highly secure. SVS and 

the Schlumberger PayFlex cards have key management protocols, a system of keys and codes used 

during card transactions. Keys held on the card and keys held by the central host and POS terminals 

must be able to communicate and must be able to create MACs. Keys and codes pertinent to limiting 

this vulnerability include:

• POS Debit Key

• Card Debit Key

• Card Authentication of Terminal

• Card Debit MAC

• Atalla Network Security Master Key

 

14 Use of counterfeit cards to access legitimate accounts is a form of theft from recipients, as discussed later in 

this chapter.
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 95

In the financial environment, a single master key cannot be held by one individual. If a master key 

were to become known, it would place the entire system at risk by allowing the creation of multiple 

counterfeit cards. The Atalla Network Security Master Key for the Ohio Direction Card is made up 

of three key parts, devised by three separate SVS executives, stored separately and kept secret from 

each other.

Because of smart card security features, the risk to the Ohio Direction Card is estimated to be less 

than the Maryland demonstration or current on-line EBT systems. The Dayton pilot evaluation 

estimated the risk to this type of attack as minimal. Since the pilot, the Ohio Direction Card has 

added the additional security of unique card keys and MACing. The current system is considered to 

be more secure than during the pilot, and the risk for this category is still estimated at minimal.

Issuance file is tampered with or intercepted and replaced during electronic transmission to 

retailer. This category of vulnerability only applies to off-line EBT where the issuance file is sent 

from the processor to the POS terminal for loading by recipients. Respondents in this evaluation felt 

that if the issuance file were intercepted and tampered with, it would only be possible to add value to 

one card at a time, because of the need to recompute the MAC using the unique key for each card. As 

a result of the MAC, HRC and other security measures previously mentioned, the risk to the Ohio 

Direction Card system is considered to be less than during the Dayton demonstration and is now 

estimated to be minimal.

Summary. The risk to the Ohio Direction Card for this category is estimated to be minimal, at 0.001 

percent of benefits. Off-line EBT was considered to be more secure than on-line because of its 

security features, particularly the use of unique card keys – introduced since the Dayton pilot. It 

should be noted that smart card systems in the U.S. are limited, and there is little benefit in “hacking” 

food stamp EBT cards (i.e., analyzing cards to obtain means to add unuathorized value or create 

counterfeits). As smart cards become more widespread, and the value stored on smart cards becomes 

greater, the benefit to hacking efforts would increase. In the future, this trend might increase the risk 

of production and handling losses in off-line food stamp systems. The results of this portion of the 

analysis are summarized in Exhibit 5-3.

5.5 Benefits Lost or Stolen from Recipients

Because the Food Stamp Program is not liable for the loss or theft of benefits from recipients, the 

vulnerabilities in this category represent recipient losses. Benefits may be lost by or stolen from 

recipients under several scenarios: an unauthorized person accesses the benefits in a recipient’s 

account, using a lost or stolen card; an error over-debits or under-credits a recipient's account; or a 

retailer overcharges the recipient or creates a bogus sale using the recipient’s account number. As 

part of the Dayton pilot and Maryland demonstration evaluations, recipients were surveyed to gather 

information on actual or perceived losses. While this evaluation drew on the past evaluation 

estimates in providing information to respondents, the scope of the study did not include a new 

recipient survey. This evaluation did, however, draw on the respondents’ knowledge of fraudulent 

activity identified by USDA investigations and state EBT officials, as well as the security features of 

the system intended to prevent these types of fraud. 
Exhibit 5-3

C: PRODUCTION AND HANDLING LOSSES: Benefits are lost or stolen before issuance and later redeemed.

MD On-line EBT 

Demonstration 

Estimated Loss

Dayton Off-line 

EBT Estimated 

Loss

Does OH 

Direction 

Card pose 

more or less 

risk than MD 

demo?

Does OH 

Direction 

Card pose 

more or less 

risk than 

Dayton 

demo?

In general, does 

off-line EBT 

pose more or 

less risk than 

on-line EBT?

Estimated risk 

level for Ohio 

Direction Card

C-1: Authorization file is 

tampered with or intercepted 

and replaced during transfer 

to processor. 

0.00% <0.01% No difference Less No difference Minimal

C-2: Counterfeit card is 

used to access benefits from 

a fictitious account

0.001% 0.00% Less Less Less Minimal

C-3: Issuance file is 

tampered with or intercepted 

and replaced during 

electronic transmission to 

retailer

Not applicable Not meas ured in 

the original 

evaluation

Not 

applicable

Less Not applicable Minimal

TOTAL Minimal (0.001%) Minimal (<0.01%) Less Less Between no 

difference and 

slightly less risk

Minimal 

(0.001%)

96 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 97

Grocer overcharges recipient or discounts benefit value. As part of a normal EBT debit 

transaction, the POS terminal displays the amount of the purchase and requires the cardholder to 

confirm that the amount is correct. In addition, the terminal prints a receipt indicating the total 

transaction and card balance. As with credit/debit transactions when the POS terminal is separate 

from the cash register, receipts generated from both the cash register and the POS terminal should be 

provided to the recipient. Unintentional errors in entering transaction amounts into POS terminals 

would most likely even out between over and under charges, although recipients would be more 

likely to point out overcharges to the clerk. A retailer may intentionally overcharge a client but runs 

the risk of being caught in the attempt. An inadvertent or intentional grocer overcharge is less likely 

if the POS terminal is integrated with the electronic cash register (ECR) system and the value of the 

transaction is automatically transmitted to the terminal, particularly when the ECR uses a scanner to 

identify item prices. 

There have been no changes in the controls in Ohio that would prevent overcharges since the Dayton 

pilot. The system now allows integration but to date no retailer has chosen to bear the associated 

software development costs. On-line systems are now regularly integrated with large stores’ ECR 

systems, so that the ECR transmits the calculated purchase total to the POS terminal for approval by 

the recipient. The estimated risk is therefore greater in the off-line environment than in the on-line 

environment. In general, respondents estimated that this category holds a medium risk.

Software error in debiting recipient account. A processing error may cause an excessive debit to a 

recipient’s account. There are differences in the possible types of error between the on-line and offline environment. For example, although the Maryland demonstration used a closed system, current 

on-line systems are generally open, accepting transactions from EBT-only POS terminals, TPPs and 

direct-connect retailers. In addition, many on-line systems are interoperable with each other or will be 

interoperable by October 2002. The variety of POS systems and the number of processing points in 

on-line systems increase the risk of debiting errors because of problems with EBT and retailer/TPP 

software, as previously discussed.

One respondent in this evaluation noted the following type of software error that occurred within the 

on-line environment with at least two different direct-connect retailers. 15 The retailers’ POS 

terminals initiated a series of identical debit transactions after a recipient had made one purchase. 

The software error was produced by a retailer’s terminal – outside of the EBT processor’s control, 

once the retailer equipment has been certified to connect to the system. This type of error may go 

unnoticed, unless a recipient reported a discrepancy in his or her account balance.

As in the Dayton pilot, the Ohio Direction Card is a closed system, accepting transactions only from 

EBT-only POS terminals. Any software errors in the off-line environment would result in an out-ofbalance condition between the card balance and the host-derived balance. The use of MACs adds a 

further protection against errors going undiscovered. One respondent noted that the added ability to 

download software to POS terminals (that did not exist during the demonstration), the added 

complexity of the card and POS terminal programming, and the new ability to integrate with ECRs 

may increase the risk to the Ohio Direction Card system. The risk posed by integration is 

hypothetical, and no errors have been reported during software updates. 

 

15 When the EBT processor drives the POS terminal, software prevents duplicate sequential transactions.
98 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

Respondents considered the risk for the Ohio Direction Card to be less than in the Maryland 

demonstration or other on-line systems but about the same as during the Dayton pilot. The risk for 

the Ohio Direction Card system in this category is estimated to be minimal.

Store clerk gains access to client card number and manually enters transaction into terminal 

without client’s consent. In the on-line EBT environment, an EBT card and a PIN must normally 

be used together to complete an electronic transaction, but there are exceptions. If a card cannot be 

read, the card number can be keyed into the terminal along with the PIN and a supervisor’s password. 

In some instances, clerks have abused this procedure to make unauthorized transactions against 

recipients’ accounts after learning their card numbers and PINs. Another exception procedure is that 

manually authorized transactions are entered into the POS terminal for settlement without the 

recipient PIN, provided that the user has the manager PIN and an authorization number. Therefore, if 

a card is lost or stolen from a recipient, it is possible that a person with access to an authorized 

terminal could manually enter a purchase transaction without knowing the recipient PIN.16 Under 

either of these scenarios, the clerk could take cash from the register in the amount of the fraudulent 

transaction, knowing that the register would remain in balance.

In the Ohio Direction Card system, authorization for a manual sale may only be obtained from EBT 

Customer Service if all of the retailer’s POS terminals have been reported as nonfunctioning. 

Furthermore, manual transactions are conducted at the retailer’s risk. These security measures reduce 

the risk to the recipient, but might be undercut somewhat by the 24-48 hour delay in card locks 

subsequent to the card being reported as lost or stolen. Any benefits removed from the card during 

this period are considered to be a loss to the recipient. The Dayton off-line pilot system used manager 

cards to restrict the capability to enter manual sales; the Direction Card system uses manager PINs 

instead. One respondent viewed the manager PIN as le ss secure, because clerks might more easily 

get access to a PIN than a card. The Ohio Direction Card system, like the Dayton off-line pilot, does 

not allow manual entry of the card number for a transaction with a PIN, as the card must be 

operational for all such transactions.

Because on-line systems requirements do not have all of the security features and retailer liabilities of 

the Ohio Direction Card system, the participant risk for this vulnerability is less than in the Maryland 

demonstration and less than in on-line EBT in general. The delay in card locks does pose a risk to 

recipients. The risk to participants with the Ohio Direction Card is estimated to be the same as during 

the Dayton pilot, a minimal risk to the participant.17

Store submits bogus manual sale. When a retailer calls for a manual authorization, the retailer 

number, the card number, and the amount of the transaction are provided to the audio response unit 

(ARU) or customer service representative. In return, the retailer is provided a transaction 

authorization number. As discussed previously, on-line EBT provides a variety of scenarios where a 

 

16 In both off-line and on-line EBT, it is the recipient’s responsibility to report lost or stolen cards and to track 

his or her account balance. Recipients are responsible for benefits that are deducted from their account if 

they have not reported their card as lost or stolen. 

17 There may be double-counting between this risk and the next. Respondents may not have adequately 

differentiated between clerk and retailer (owner/manager) fraud. Even so, both risks are so low that any 

effect of double-counting is inconsequential.
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 99

manual transaction will be accepted. With the Ohio Direction Card, the retailer’s POS terminal must 

first be reported as nonfunctioning, and the retailer accepts the liability for the transaction should the 

card balance carry insufficient funds for the transaction. Although in theory a retailer might obtain 

authorization for a bogus manual transaction and then submit the transaction to the processor, the 

retailer would bear a high risk of there being insufficient account funds to cover the bogus 

transaction, as well as a substantial risk of being caught as a result of a recipient complaint. 

The participant risk for this category is estimated to be less than the Maryland demonstration and 

current on-line EBT systems but the same as during the Dayton pilot. The estimated risk for the Ohio 

Direction Card system is minimal. 

Unauthorized use of an EBT card by a person other than a store employee. This loss may occur 

if a card is lost or stolen. Family members may gain knowledge of the PIN and access benefits 

without the recipient’s permission. A stranger may gain access to the PIN and card if the recipient 

records his or her PIN on the card – or uses a common PIN such as 00000 – and then loses the card or 

the card is stolen. As discussed previously, recipients are trained on the use of their cards and 

securing their PINs. If funds are accessed when a card is lost or stolen, the recipient bears the loss. 

The off-line system offers a longer window of time than on-line systems for unauthorized users to 

make transactions once they gain access to both a recipient’s card and PIN because of the delay in 

locking cards once they are reported as lost or stolen.

Despite the lag in locking cards, the risk for the Direction Card system is considered less than the online systems, because the card cannot be used in a manual transaction without the PIN, unless a 

retailer reports that the POS terminal is not working and the retailer is willing to bear the risk of the 

transaction. The estimated risk for this vulnerability in the off-line system has not changed since the 

Dayton evaluation, when the risk was rated as low. 

Counterfeit EBT card used to access recipient account. This vulnerability is slightly different than 

the counterfeit card situation previously described, in which a fictitious account is created. In this 

scenario, a counterfeit card is created to access an existing account, resulting in theft of the recipient’s 

benefits. In on-line EBT, where magnetic stripe technology has been counterfeited (though much 

more commonly in the credit/debit environment than in EBT), it is possible to create a counterfeit 

card with knowledge of the card number and the PIN, or to attempt a manual transaction with a 

counterfeit card without knowing the PIN (and even without duplicating the magnetic stripe). 

To obtain the card number, a person must have access to the card or to a receipt containing the card 

number. EBT security features and Federal Reserve rules require that receipts printed from POS 

terminals print only the last four digits of the card account number; this requirement has been 

implemented since the early EBT deployments.18 In cases where someone has access to the card 

number and “shoulder surfs” – looks for the PIN when the client enters it – that individual would 

have the information needed to create a counterfeit card in order to access an existing account. The 

limiting factors to this risk are the effort and technical skills required to create the counterfeit card, 

the limited value of the benefits once the card is created, and the ability of the processor to track the 

time and place of the fraudulent transactions.

 

18 Some experts interviewed for this report indicated that some POS systems still do not comply with this 

requirement and print the entire card number of the receipt. According to FNS, no TPPs involved in EBT 

are out of compliance. The Ohio Direction Card system has no TPPs.
100 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

The smart card used for the off-line environment has numerous security features, as previously 

discussed, that prevent it from being counterfeited. Even if the master key became known and one or 

more counterfeit cards were created, the perpetrator would also need access to existing account and 

card balance information. To recreate an existing account may require possession of the card and the 

ability to hack into the card system. In other words, with the master key, a person with this level of 

technical knowledge would be more inclined to create a bogus account than to recreate an existing 

account. Smart card security features are numerous and the return – food stamp benefits held in one 

cardholder’s account – is very small for the effort. 

The risk for this vulnerability in the Ohio Direction Card system is estimated to be less than in the 

Maryland demonstration and on-line systems. As in the Dayton pilot, the risk is estimated to be 

minimal.

State or local worker obtains card and PIN, accesses benefits from dormant account. Recipients 

may fail to pick up their cards or stop using them, leaving their benefits vulnerable to unauthorized 

access by state or local staff who fraudulently obtain cards and PINs with access to the accounts. To 

prevent this type of fraud from happening, staff with access to dormant accounts and the ability to 

activate these accounts must not have the ability to issue cards, and vice versa. According to the 

experts interviewed, this type of fraud has been detected in a few states that have not exercised strict 

separation of duties. In Ohio, state policy requires the separation of card issuance staff from the 

eligibility workers and supervisory personnel with write- access (i.e., the authority to change 

information) on the CRIS-E eligibility system. The main vulnerability occurs when EBT card 

issuance staff are supervised by a person with write-access to CRIS-E records, but these supervisors 

are typically the most trusted personnel in the local office. Security measures, such as pre-screening 

of personnel and separation of duties, are subject to review and direct oversight by ODJFS EBT staff. 

In addition, security measures are checked during ODJFS management evaluation reviews of local 

operations.

The risk for this category is considered to be the same for both the on-line and off-line environments, 

because deterrence depends on the State’s issuance process and clear separation of duties, rather than 

the security of the EBT system.19 The risk is less than during either of the demonstrations because 

State security levels and requirements have increased since the demonstration evaluation periods. 

The risk for this category is considered to be minimal.

Summary. Respondents’ views varied widely when asked for a summary estimate of the Ohio 

Direction Card system for this category of vulnerability. They included the following:

• The numbers are now half of what was previously indicated (less than 0.18 percent of 

benefits for the Dayton pilot, therefore 0.09 percent of the benefits for Ohio Direction Card).

 

19 The respondents may not have fully considered the effect of one Direction Card system feature: the 

expiration of benefits that are not picked up within 30-45 days. This reduces the period of vulnerability 

when a worker can fraudulently obtain a card with access to the account of a recipient that has not obtained 

a card. On the other hand, many on-line systems automatically issue cards to recipients when their EBT 

accounts are opened, so workers must obtain fraudulent replacement cards, potentially a more difficult task 

than obtaining a fraudulent initial card.
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 101

• Overall, the number is less than 0.18 percent of benefits because of increased security 

measures.

• The level of vulnerability has not changed.

• One respondent would have expected the numbers from the previous evaluations to be much 

higher because of the prevalence of retailer fraud. Given these numbers as a basis, the 

respondent would not change them up or down. 

• The risk is increased to 0.22 percent of the benefits, because the system now allows the entry 

of a manager PIN rather than the more secure POS access of a manager smart card.

One major security feature that has been added to the Ohio Direction Card system since the Dayton 

demonstration, is the unique card key, which would deter the production of counterfeit cards. 

However, the vulnerability to counterfeiting cards already had a minimal risk in the Dayton 

demonstration, so this did not affect the estimated risk. The State has increased the security measures 

within its eligibility offices, thereby decreasing the risk for this vulnerability. The change from 

manager cards to manager PINs, while reducing the perceived security of the system, has not been 

noted by any observers to have increased instances of fraud. In reviewing summary comments in 

combination with responses to individual categories, it was determined that the risk is now slightly 

less than during the Dayton demonstration, and has been set at 0.17 percent of benefits. The results of 

this portion of the analysis are summarized in Exhibit 5-4.

5.6 Benefits Used in an Unintended Manner

This category of vulnerabilities involves food stamp benefit trafficking and other forms of benefit 

diversion by recipients. It may include collusion with a retailer. For EBT systems, the respondents in 

this evaluation considered trafficking as the largest source of benefit diversion risk to the Food Stamp 

Program. In evaluations of the paper coupon system, the use of cash change from food stamp 

purchases to non-food uses was estimated to be the largest source of diversion, but all EBT systems 

eliminate this vulnerability.

Previous EBT demonstration evaluations based the estimates of EBT food stamp trafficking on an 

estimated rate of 0.39 percent of benefits issued for the paper food stamp coupon system, based on a 

study of investigations in the early 1980’s.20 For this evaluation, more recent FNS estimates of the 

overall incidence of trafficking were used.21 These were an estimate of 4.0 percent of paper food 

stamp benefits trafficked nationwide in 1993 and an estimated 3.5 percent of benefits trafficked for 

the period from 1996-1998, which combined paper food stamps and EBT. With these estimates as a 

starting point, the evaluation used adjusted estimates of 3.6 percent of benefits trafficked for the 

Maryland demonstration system and 2.0 percent of benefits trafficked for the Dayton pilot system as 

 

20 The original methodology for estimating EBT impacts on trafficking was presented in William Hamilton et 

al., “The Impacts of an Electronic Benefits Transfer System in the Food Stamp Program,” Project Officer: 

C. Olander. U.S. Department of Agriculture, Food and Nutrition Service, Office of Analysis, Nutrition and 

Evaluation, Alexandria, VA, 1987. 

21 Theodore Macaluso, op. cit.
Exhibit 5-4

D: BENEFITS LOST OR STOLEN FROM RECIPIENTS:

A person other than an authorized recipient redeems benefits that are lost or stolen.

MD On-line EBT 

Demonstration 

Estimated Loss

Dayton Off-line 

EBT Estimated 

Loss

Does OH 

Direction 

Card pose 

more or less 

risk than MD 

demo?

Does OH 

Direction 

Card pose 

more or less 

risk than 

Dayton 

demo?

In general, 

does off-line 

EBT pose 

more or less 

risk than online EBT?

Estimated 

risk level for 

Ohio 

Direction 

Card

D-1: Grocer overcharges recipient 

or discounts benefit value.

0.026% 0.11% More Same More Medium

D-2: Software error in debiting 

recipient account

0.003% <0.01% Less Same Less Minimal

D-3: Store clerk learns manager PIN, 

gains access to client card and 

manually enters information into 

terminal without client’s consent

<0.01% Less Same Less Minimal

D-4: Store submits bogus manual 

sale

<0.01% Less Same Less Minimal

D-5: Unauthorized use of EBT card 0.03% Less Same Less Low

D-6: Counterfeit EBT card used to 

access recipient account

0.00% Less Same Less Minimal

D-7: Recipient never picks up card; 

State or local worker takes card, 

selects PIN and accesses benefits or 

dormant account

0.414%

<0.01% Less Less Same Minimal

TOTAL Medium ( 0.443%) Medium <0.18%) Less Less Less Medium 

(0.17%)

a This includes amounts recovered by recipients from the retailer or from Montgomery County. Similar information for the on-line evaluation was not reported.

102 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 103

the reference points for the respondents’ estimates of trafficking in the Direction Card system.22 The 

trafficking estimates also provided indirect points of reference for the other forms of benefit 

diversion.

Recipients purchase ineligible items in grocery store. The major controls in this area include 

recipient training, retailer training, retailer agreements to comply with FNS regulations, and FNS 

investigations of retailer establishments. Some store scanners have the capability to identify eligible 

food stamp items, but scanners are generally found only in the larger chain stores, while this type of 

fraud generally occurs in smaller retail establishments. This type of benefit diversion can occur 

regardless of whether an on-line or an off-line EBT system is being used. The risk to this 

vulnerability remains unchanged since the demonstration evaluations. This risk is estimated to be a 

medium risk for the Ohio Direction Card system, the same level estimated by the Dayton off-line and 

Maryland on-line EBT evaluations.

Food stamp trafficking. During the demonstration evaluations, this category was defined as selling 

an EBT card with the PIN to a retailer or a broker in collusion with a retailer, then getting a new card 

for the new issuance period. New methods for trafficking have been detected since the first EBT 

demonstrations, and recipients have discovered ways to sell their cards and then recover part of the 

remaining benefits.23 

EBT systems alert investigators to food stamp trafficking by providing reports that help Federal and 

State investigators to identify retailers and recipients engaged in suspicious behavior. On the other 

hand, traffickers are cognizant of some of the methods of detection, so catching traffickers is still 

highly dependent on field investigations. 

One respondent stated that the rate of trafficking within a given state depends on the level of system 

monitoring and the depth of investigations. There are two Ohio Direction Card system features that 

have made investigations more difficult than they are in on-line systems. First, stores equipped with 

one POS terminal can only process transactions with “out of region” cards by obtaining an 

authorization number from customer service. Investigators must now use a different investigative card 

for each region so that an out of region message does not occur during the POS transaction, raising 

suspicion. Second, if an investigative card is not used for 90 days, it will lock and may impede the 

investigator from conducting a transaction that would implicate a fraudulent retailer. Dormant 

accounts in on-line systems also lock after 90 days, but these systems do not require different cards 

for different regions of operations. Investigators have developed routines to deal with the special 

challenges of operating within the Ohio Direction Card system. On the other hand, analysis of 

transaction data is not complicated by variations in the data on TPP retailer transactions, which is 

sometimes an issue in on-line states.

 

22 The Dayton pilot and Maryland evaluation estimates were updated by applying the estimated percentage 

reduction in trafficking, relative to the paper coupon system, to the updated estimate of trafficking before 

widespread implementation of EBT.

23 Details of these fraudulent schemes and specific investigative methods are withheld to avoid compromising 

investigations.
104 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

ODJFS plans to institute a $10 replacement fee for Direction Cards reported lost or stolen. As of May 

2002, ODJFS had implemented this fee on a trial basis in one county and planned to implement it 

statewide. The purpose of this policy is to encourage recipients to take more responsibility for their 

cards, but it might be seen as a potential deterrent to trafficking. Respondents felt this fee would not 

deter trafficking, but rather it would simply become part of the cost of doing business for traffickers.

The risk for this vulnerability is considered to be the same for off-line and on-line systems. While 

trafficking may drop during the early months of a county or state rollout, when retailers are unsure of 

what the system can and cannot track, it is felt to rebound once traffickers get beyond this initial 

learning curve. The risk of trafficking (combined with the risk of food resale, as described below) 

remains high (i.e., more than one percent of benefits).

Recipients sell EBT-purchased food items for cash. Some respondents felt the risk to this category 

may have increased since EBT has implemented. The reasoning is that EBT has made directly selling 

of food stamp account benefits for cash more difficult and easier for investigators to detect. Instead, 

clients purchase food items and sell them on the street or to other retailers at a discount. So, if the 

risk of explicit food stamp trafficking has decreased since the demonstrations, the controls on explicit 

trafficking may have served to increase the risk for this more subtle form of benefit diversion.

Respondents familiar with compliance investigations noted that the highly desirable items that are 

purchased from recipients by disreputable retailers include infant formula (a WIC program food item) 

and meat. The sale of food items between individuals is a gray area. It is not actually illegal but it is 

also not within the intent of the Food Stamp Program, which is to provide nutritious food items to 

needy families. Retailers purchasing food items to aid the diversion of food stamp benefits may be 

violating health regulation, corporate reporting and taxation laws. 

This type of abuse is of great concern to the Food Stamp Program but also very difficult to measure. 

The combined risk of food stamp trafficking and food resale is estimated to be the same as the 

combined risk during the demonstration evaluations. The risk is estimated to be the same for on-line 

and off-line EBT systems. The risk of this vulnerability, combined with food stamp trafficking, is 

estimated to be high (i.e., more than 1 percent of benefits). 

Recipients use cash refund received from overcharge of food stamp purchase for non-food 

items. The controls for this vulnerability are basically the same as the controls for food stamp 

trafficking and resale of food purchases with food stamp benefits. They include the establishment of 

retailer agreements and system analysis of type and time of transactions. The risk to the retailer is 

also the same – prosecution, penalties and loss of FNS certification. Respondents felt that this type of 

abuse may happen, but it is more likely to happen due to lack of program or system understanding by 

the clerk. For example, a clerk may make an error in the purchase amount and give the recipient cash 

back to correct the error rather than process a credit on the POS terminal. The minimal risk of this 

vulnerability was estimated to be the same as during the Dayton pilot. The risk is considered the 

same for on-line and off-line EBT systems.

Redemption of benefits by unauthorized grocery stores. This vulnerability was first evaluated in 

relationship to paper food stamps. Paper food stamp coupons used at FNS-certified retailer 

establishments were bundled and given to the retailers’ financial institutions, which would forward 

them and settle funds to retailer accounts through established processes. An unauthorized retailer 
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 105

could accept paper food stamp coupons, as long as it had an outlet for the coupons, such as a certified 

retailer that would accept the coupons for cash or in payment for supplies. 

In EBT systems, the State’s selected processor is responsible for obtaining the list of certified retailers 

and establishing agreements with these retailers and TPPs. Qualified retailers who do not connect 

directly with the processor or use a TPP are supplied with EBT-only POS terminals. 

Since the Dayton and Maryland evaluations, the federal REDE database that contains a real-time list 

of FNS-certified retailers has come on line. EBT processors receive a daily batch file from REDE 

that provides the list of all certified retailers within the processor’s State of operation. This is a major 

change and provides a significant improvement on retailer controls since the early 1990s. 

Unauthorized redemptions still occur, however, in the on-line EBT environment. When the 

unauthorized retailer sells items to a recipient, it calls an authorized retailer to provide the transaction 

amount, card number and PIN. The second retailer enters the transaction into its POS terminal and 

subsequently settles a sum to the first retailer. The Ohio Direction Card system prevents this type of 

fraud because a card is required for a transaction unless the POS terminal is reported as nonfunctioning. Even if the POS terminal has been so reported, the retailer must still accept the liability 

if the card does not contain sufficient funds. 

The introduction of the REDE file, combined with off-line procedural requirements and retailer 

liabilities, makes the risk minimal for the Ohio Direction Card. The risk is less than the Maryland 

demonstrations and less for the off-line than the on-line environment. 

Summary. Respondents gave a range of risk estimates in this area. Overall, they responded that 

benefit diversion occurs in both the on-line and off-line EBT environments, with a perception that the 

smart card provides a slightly more secure environment. In particular, they generally felt that the 

Ohio Direction Card system poses less risk than on-line systems in the category of food stamp benefit 

redemptions by unauthorized grocers.

There was a range of views on the risk of trafficking in the Ohio Direction Card system and EBT 

systems in general. Some respondents felt that trafficking in the EBT environment may have 

increased since the implementation of the demonstration systems. This is because retailers and 

recipients who want to traffic have found new methods of obtaining cash for food stamp benefits. 

Others discussed new ways of locating abusive retailers, such as the detailed statistical analysis of 

EBT reports. 

Given the summary responses, as well as the responses that provided comparisons in each category of 

vulnerability, the estimated risk for of benefit diversion falls within a range of 2.18 percent to 3.67 

percent of benefits, clearly in the “high” category of risk. The minimum is the level estimated by the 

Dayton evaluation, and the maximum is slightly below the Maryland evaluation estimate. (See 

Exhibit 5-5.) It should be noted that most respondents found the risk to be about the same as during 

the Dayton demonstration. However, the higher range is given to the Ohio Direction Card because of 

the perception that the risk may have been underreported during the initial evaluation period.
106 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

Exhibit 5-5

E: BENEFITS USED IN AN UNINTENDED MANNER: Benefits are used by recipients for unintended purposes.

MD On-line EBT 

Demonstration 

Estimated Loss

Dayton Offline EBT 

Estimated 

Loss

Does OH 

Direction Card 

pose more or 

less risk than 

MD demo?

Does OH 

Direction Card 

pose more or 

less risk than 

Dayton demo?

In general, 

does off-line 

EBT pose 

more or less 

risk than online EBT?

Estimated risk 

level for Ohio 

Direction Card

E-1: Recipients purchase ineligible 

items in grocery store

.17% .16% Same Same Same Medium

E-2: Food stamp trafficking (e.g., 

sell card, get new one or give retailer 

card and PIN for transaction 

processing during the month)

See Exhibit 

5-2, note a

E-3: Recipients sell EBT-purchased 

food items for cash

0.01%

Same Same Same High

E-4: Recipients use cash refund 

received from overcharge of food 

stamp purchase for non-food items

See note a

0.01% Same Same Same Minimal

E-4: Redemption of benefits by 

unauthorized grocery stores

0.016%b Not 

evaluated

Less Same Less Minimal

TOTAL GIVEN IN ORIGINAL 

EVALUATION

0.537% 0.38%

ADJUSTED TOTAL BASED ON

FNS DATA

High (3.686%) High (2.18%) Less Same Less High (2.18% -

3.67%)

a Food stamp trafficking with EBT was estimated at 0.351 percent in the Maryland demonstration evaluation and 0.20 percent in the Dayton demonstration evaluation. Both 

studies used an estimate of 0.39 percent as the rate of trafficking with food stamp coupons. FNS has since estimated the nationwide rate of trafficking at 4 percent for 1993 

and 3.5 percent for 1996-1998, the latter reflecting a mix of EBT and coupon issuance. Using the 4 percent rate as a base, the equivalent estimates would be 3.6 percent for 

the Maryland demonstration and 2.0 percent for the Dayton demonstration.

b The estimate of unauthorized redemptions for the Maryland demonstration reflects a 50 percent reduction from the level estimated for the previous coupon system.
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 107

5.7 The Effects of Disasters on EBT Vulnerabilities

In addition to the preceding issues of vulnerability to benefit loss and diversion, another important 

aspect of EBT system security is the vulnerability to disasters. On the one hand, disasters have the 

potential to interfere with recipients’ access to benefits. On the other hand, EBT systems can become 

even more important during disasters, as current FSP recipients shop to replace lost food and 

additional households receive disaster food assistance. The following analysis does not rely on the 

previous studies cited in the benefit loss and diversion analysis, because the Maryland and Dayton 

demonstration evaluations did not assess the potential impacts of major disasters on the EBT system.

In a typical disaster planning environment, there are multiple levels by which a disaster may be 

measured. These levels are defined differently by different entities, but an example would be:

• Level 1: Interruption of telephone, mail and electrical services of less than two days over a 

limited geographic area.

• Level 2: interruption of telephone, mail and electrical services from three days to five days over a 

moderately sized geographic area.

• Level 3: Interruption of telephone, mail and electrical services of more than five days over a 

large geographic area.

In the EBT environment, disasters may affect the ability to interface with the agency system, EBT 

processor, EBT Customer Service and/or retailer POS terminals. They may also affect the ability to 

apply for benefits, request replacement cards, issue and deliver replacement cards and procure food 

items from retailer establishments. Disasters could affect off-line and on-line EBT in various ways. 

For example, if there is electricity but the EBT processor is down, off-line transactions could still be 

conducted at the POS. However, settlement and reconciliation may not occur on a timely basis nor 

would the download of negative files (hot card lists) or issuance files to retailer terminals and PCs. 

As part of this evaluation, respondents were asked to comment on the impact of disasters on both the 

on-line and the off-line EBT environments, and the strengths and weaknesses of both types of 

systems in deterring program and participant loss. 

Impact of Disasters in the Off-line Environment. In off-line EBT, the recipient’s card carries the 

actual account balance. As long as there is electricity to operate the POS terminal, a retailer can 

continue to conduct EBT transactions without telecommunications. In the case of a limited area 

having a short-term electrical disruption in Ohio, the processor can distribute battery-operated POS 

terminals so that retailers can continue to conduct transactions. While a retailer may continue to 

conduct electronic transactions as long as it has an operational terminal, it may also conduct manual 

transactions – with or without authorization – but must bear the liability if the card account has 

insufficient funds for the transaction.

At some point, retailers must have the ability to upload transaction information to the processor. 

There are limiting factors to the data that a terminal can hold and the system risks out of balance 

situations if settlement data are not regula rly uploaded to the processor. The state may encounter 

problems with emergency issuance in times of disaster. Even if the state is able to upload an 

emergency issuance file to the processor, if the processor lacks telecommunications capability, it 
108 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

cannot relay issuance files to designated retailer sites. This is also true for the hot list file of cards 

reported lost or stolen. 

Impacts of Disasters in On-line Environment. In general, during times of disaster, retailers can 

accept manual transactions up to a limit set by the State and agreed upon by the processor. Liabilities 

for these transactions fall on the State, the processor, or both. It would be possible for a recipient to 

conduct small transactions at numerous stores, thereby overdrawing the account. If the retailer has 

any telecommunications capability (including cell phones), it is able to call for an authorization in 

order to place a hold on the account. Emergency issuance is not as difficult in the on-line 

environment. As long as the state is able to transmit the issuance file to the processor, benefits can be 

issued to recipient accounts in real time.

Summary. The risks to the state, to the processor and to the retailer rise during times of disaster. 

Recipients will be able to conduct transactions in either environment but in off-line systems, with 

POS terminals and the ability to communicate directly with the card, the risk is reduced, at least for 

the first 48 hours. Then, the inability of some retailers to settle may increase the risk of an out-ofbalance situation. In the off-line environment it is more difficult to issue emergency benefits, which 

may be problematic in long-term disasters. In both on-line and off-line there may be an increase in 

the use of manual vouchers, subsequently increasing the risk to the state and the processor (on-line) 

and to retailers (off-line); this risk rises with extended lack of telecommunication capability. Finally, 

if large-scale disasters call for mass issuance of cards, either type of system can be subject to error or 

abuse.

Compared with on-line EBT systems, the Ohio Direction Card system is less vulnerable to 

interruption of benefit redemption in a short-term (1-3 day) disaster, because retailers can continue to 

process transactions without access to the EBT host computers (and even without regular electrical 

power). On the other hand, the Ohio Direction Card system is more likely to encounter problems 

with benefit issuance in a disaster, and mass card issuance for widespread disaster relie f is more 

difficult. 

5.8 Conclusions

All EBT systems provide security measures designed to prevent loss due to benefit fraud, abuse and 

diversion. Security measures that are common to both on-line and off-line EBT include separation of 

duties, use of user IDs and PINs, daily reconciliation, daily access to REDE and AMA information, 

data encryption, and file transfers through dedicated lines. Electronic access to REDE and AMA, as 

well as the annual audits required as part of SAS 70 have been implemented since the original 

demonstration evaluations. Controls that were identified as being different between the systems, and 

making an impact on respondents’ estimations of risks between on-line and off-line include: 

• Smart card security versus magnetic stripe card security. The Ohio Direction Card contains 

unique card keys, HRCs, and performs on-card MACing. Magnetic stripe cards are considered to 

be less secure and more prone to counterfeiting attempts.

• POS terminal security. The Ohio Direction Card terminal is a stand-alone device configured to 

accept transactions only from the Ohio Direction Card. In on-line systems, the POS terminals 
Abt Associates Inc. Chapter 5: Benefit Loss and Diversion 109

may be supplied by the processor or a TPP or the direct-connect retailer, making the terminals 

less secure and more prone to errors in debiting/crediting client accounts.

• Placement of the liability of manual transaction on the retailer in the off-line environment. This 

is a by-product of the 24-48 hour delay in settling transactions to the EBT processor. 

• Lost or stolen cards. On-line systems are able to place a real-time lock on an account when the 

associated card is reported as lost or stolen.

Noted changes within the Ohio Direction Card system that have occurred since the Dayton 

demonstration of off-line EBT include:

• Introduction of unique card keys, HRCs and MACing.

• Retailer authorization code to allow clearing of a batch from the POS terminal.

• Requiring a 48-hour delaying in adding value to a card subsequent to a value-adding transaction 

due to a store credit.

• POS terminals can accept software up-grades direct from the processor.

• Regionalization of hot card files.

The two areas mentioned by respondents that were seen to provide the greatest security in the Ohio 

Direction Card system were smart card featuresthe unique card key, the HRC and MACingand 

the policies concerning manual transactions. Smart card security features deter duplicate benefit 

issuance or inflation of benefits, hacking and counterfeiting. Manual transaction policies include: 

retailers may not accept a non-functional EBT card; retailers may not conduct a manual transaction 

without an authorization number and they may not receive an authorization number unless the 

retailer’s POS terminal has been reported as non-functioning; and retailers hold the liability for any 

manual transactions. Respondents felt these policies lessened the risk for retailer error and fraud. As 

shown, there is a significant difference in the percent of manual transactions between the Ohio system 

and the Maryland on-line EBT system. This estimated reduction in risk is reflected in the difference 

between the Maryland demonstration evaluation estimates of 0.443 percent of benefits lost and the 

Ohio Direction Card estimate of 0.17 percent of benefits lost.

Respondents discussed the negative impact to recipients when hot listed card files may take 24-48 

hours to reach retailers. If the PIN is known to the person who finds or steals the card (for example, if 

the PIN was written on the card), then the recipient is at a higher risk of losing benefits than in the online environment where card accounts are frozen in real-time when reported. While respondents 

mentioned that the delay in uploading transaction settlement information to the processor was a 

negative of the off-line system, they were less sure of the actual impact this may have on loss. 

Overall, the Ohio Direction Card system was considered to be less vulnerable to benefit fraud, abuse 

and diversion than either the Maryland demonstration system or the Dayton demonstration system. 

Respondents judged off-line EBT systems as slightly less vulnerable than on-line EBT in general, but 

the differences were small. The smart card system was seen as strongest in two areas. The first is the 

deterrence of fraudulent manual transactions, because of the elimination of some reasons for these 

transactions and the policy of retailer liability when they do occur. The second area of strength is 
110 Chapter 5: Benefit Loss and Diversion Abt Associates Inc.

issuance errors, due to the use of HRCs and MACing. In the area of benefit diversion, the largest 

estimated vulnerability for the Food Stamp Program, the difference between off-line and on-line EBT 

systems was seen as very small because of the variety of diversion schemes possible in both types of 

systems.
Abt Associates Inc. Chapter 6: Feasibility Assessment 111

Chapter 6

Feasibility Assessment

6.1 Introduction

To summarize the findings of this evaluation, this chapter provides an overall assessment of the 

feasibility of continuing, expanding and transferring the Ohio Direction Card system. The following 

questions are addressed:

• How well does the system meet the needs of recipients, retailers and FSP agencies for a 

means of benefit delivery that is user-friendly, reliable and secure? 

• Can the system continue to operate in its current form for the foreseeable future? What 

are the current and future challenges to continued operations? What changes may be 

needed to sustain operations?

• What is the potential of the system to adapt to new settings and new uses?

• Considering the system’s performance and potential, is it more or less cost-effective than 

other EBT systems?

6.2 Meeting the Needs of Recipients, Retailers and FSP Agencies

Whether an EBT system meets the needs of recipients, retailers and the agencies administering the 

FSP depends on several considerations examined in this study. The study’s results provide insights 

into the following aspects of stakeholder interests:

• How do the system’s design, procedures and policies affect the ease with which 

recipients and retailers can participate in the FSP?

• How do the system’s design, procedures and policies help or hinder local, State and FNS 

personnel in the performance of their responsibilities to facilitate and safeguard this 

process?

• How reliably and efficiently does the system perform from the perspectives of recipients, 

retailers and FSP agencies? 

• How well does the system protect recipients, retailers and FSP agencies from benefit loss 

and diversion?

Overall, the Ohio Direction Card system has successfully met the needs of recipients, retailers and 

FSP agencies. Recipients have been able to pick up benefits and redeem them for food with relatively 

few problems. Retailers have been provided sufficient equipment and training, and problems with 

POS equipment and system access are rare. FSP agencies have successfully adapted to their new 
112 Chapter 6: Feasibility Assessment Abt Associates Inc.

roles and processes for card issuance, benefit issuance, settlement, reconciliation, and retailer 

management.

Below, the strengths and weaknesses of the Ohio Direction Card system are summarized from the 

perspectives of recipients, retailers and FSP agencies. The benchmark for assessment is the current 

array of on-line EBT systems. Some current on-line EBT systems operate according to the full set of 

requirements in the EBT regulations, but most operate under one or more waivers to the regulations 

that govern the provision of training and system resources (i.e., cards or POS equipment) to recipients 

and retailers. These waivers are intended to reduce EBT costs to the government without having 

major impacts on the level of service to recipients and retailers. 

In the discussion that follows, on-line EBT systems with the most streamlined operations permitted 

by the waivers are used as the primary point of comparison. Most on-line EBT systems fall 

somewhere between the minimum level of recipient services permitted under the waivers and the full 

set of recipient services required by the EBT regulations.

Recipient Perspective

Exhibit 6-1 summarizes the advantages and disadvantages of the Ohio Direction Card system from 

the perspective of FSP recipients. The text following the exhibit discusses these considerations.

Exhibit 6-1

Advantages and Disadvantages of the Ohio Direction Card System for FSP Recipients, as 

Compared with the Most Streamlined On-Line EBT Systems

Domain Advantages Disadvantages

Card issuance and recipient 

training 

High level of recipient service: 

hands-on training, PIN 

selection

Mandatory in-person card 

issuance and training requires 

extra time, may require extra 

trip to local office

Problem-solving Trained local staff and special 

equipment may be more 

available to trouble-shoot

More problems require going to 

office (replacement, 

diagnostics, bad PIN and stale 

date locks)

Redeeming benefits Consistency of equipment 

and procedures in all stores; 

reduced exposure to 

transaction delays and need 

for manual transactions

Have to pick up benefits, limited 

number of pickup sites; lag 

between card issuance and 

benefit availability; benefits 

expire if not picked up; cards 

cannot be used when traveling 

or moving out of state

Security and access Reduced risk of benefit loss 

or theft

Possible confusion between 

card and host balance; lag 

between card replacement and 

benefit availability

In the domain of card issuance and recipient training, the Ohio Direction Card system offers a high 

level of recipient service. All recipients get in-person training with the opportunity for hands-on 

practice, and they select their own PINs. This process can be helpful, but it requires all new 

recipients to spend extra time at the local FSP office, even those who are familiar with card use from 
Abt Associates Inc. Chapter 6: Feasibility Assessment 113

shopping with friends or family members. Depending on the timing of their certification, participants 

may have to make an additional trip to the local office to get their training and cards. 

In contrast, on-line EBT States operating under waivers provide cards, training materials and assigned 

PINs by mail, both to reduce local office costs and to minimize the time that recipients have to spend 

at the office.1 Some of these States do, however, provide recipients the option to obtain cards or 

select PINs at the local office. 

In the Direction Card system, local FSP offices have trained staff and special equipment to resolve 

recipients’ problems. On-line EBT states often do not have designated EBT customer service staff at 

their local offices, relying on the vendor’s customer service representatives, who are available only by 

telephone. Many on-line EBT States issue cards and assign PINs by mail but also offer card 

activation and PIN selection services in local offices. Local offices in these States may not have the 

level of training and equipment required to provide these services to all recipients. On the other hand, 

the Direction Card system requires recipients to go to the local office to resolve problems that can 

often be handled in on-line states by a telephone call to the customer service center. These problems 

include obtaining a replacement card, unlocking a card, and changing the PIN. In Ohio, as many as 

6.2 percent of recipients must visit a local office each month for one of these reasons.2

From the recipients’ perspective, the exclusive use of special off-line POS terminals for benefit 

redemption in the Direction Card system has both advantages and disadvantages. The terminals are 

standardized, so there is less likelihood that a recipient will be confused about how to make a 

purchase than in on-line systems with retailers using a variety of multipurpose terminals as well as 

EBT only terminals. (This confusion is most likely among new recipients who have not previously 

used a debit card.) POS transactions in off-line systems are not affected by the kinds of processing 

delays that occur in on-line systems, either in the telecommunications network or at the EBT host 

computer.3 

On the other hand, large stores often have fewer lanes equipped than would be the case if EBT were 

integrated with their other checkout systems. Some Ohio retailers have leased extra Direction Card 

terminals to avoid this problem. While almost all on-line systems are interoperable (i.e., cards can be 

used outside the recipient’s home state), Direction Cards can be used only in Ohio and selected stores 

in border areas of adjacent states. 

Unlike on-line EBT systems, the Direction Card system requires recipients to pick up benefits before 

they can be used, and each recipient has a limited number of pickup sites. The Direction Card system 

 

1

The Economic Research Service (ERS), USDA has conducted a study of the impacts of these and other 

EBT customer service waivers on recipients. The study’s final report is forthcoming. In the present report, 

the description of customer service in States operating under EBT customer service waivers is based on 

information collected for the ERS study.

2

These figures include 3.5 percent of cards replaced and 2.7 percent of cards locked. Some card locks are 

related to lost or stolen cards, so some cards may be subject to both events in the same month.

3 No current data are available on the incidence of these kinds of problems in on-line systems, or on the 

incidence of problems completing transactions in the Ohio Direction Card system. On-line States and EBT 

processors strive to minimize transaction delays, but slowdowns and occasional outages do occur, as 

shoppers familiar with retail credit and debit systems are aware. 
114 Chapter 6: Feasibility Assessment Abt Associates Inc.

lacks the on-line systems’ ability to make emergency benefits immediately available, and recipients 

sometimes wait up to 48 hours after card issuance to receive their benefits. Furthermore, 4.5 percent 

of benefit issuances in the Ohio Direction Card system expire because they are not picked up by the 

end of the issuance month, whereas in on-line systems benefits remain available until the account has 

been untouched for 90 days or longer.4 An off-line EBT system could allow benefits to remain 

available for loading longer than a month, but then issuance data would take up more memory space 

in POS terminals—a potential problem for single-lane stores.

Recipients face a slightly smaller risk of benefit loss in the Direction Card system than in on-line EBT 

systems, according to the consensus of experts consulted for this evaluation. A greater proportion of 

transactions in the Direction Card system are performed with the card and PIN, providing greater 

protection against unauthorized access by store clerks, card counterfeiters, and others. 

Relative to on-line systems, the Direction Card system has three weaknesses in the domain of security 

and access. First, recipients are more likely to be confused about their account balances because of 

the added issue of discrepancies between card and host balances. Second, recipients bear the risk of 

benefit loss between the time that a lost or stolen card is reported and the time when it is actually 

locked to prevent unauthorized use.5 Third, recipients must wait two to three days between card 

replacement and the transfer of benefits to the new card (not a permanent loss but still a potential 

hardship). 

Retailers

Exhibit 6-2 summarizes the advantages and disadvantages of the Ohio Direction Card system from 

the perspective of FSP retailers, using typical on-line EBT systems as the benchmark. The text 

following the exhibit discusses these considerations.

The Ohio Direction Card system provides POS terminal installation, initial user training, and 

maintenance at no cost to all FSP retailers. In contrast, some on-line EBT states provide EBT-only 

POS terminals, training and terminal replacement by mail, and most do not pay for the use of 

retailers’ integrated POS systems, effectively shifting the cost of EBT transactions to the retailer. On 

the other hand, no retailer has yet found it cost-effective to integrate the Direction Card system with 

its credit/debit POS systems, chiefly because of the expense of developing and testing the necessary 

software. In consequence, all retailers bear the costs of the space occupied by Direction Card 

terminals and ongoing training on this specialized equipment for new personnel. In addition, the 

number of Direction Card terminals provided at no cost to the retailer is limited by the State’s 

formula, although the formula is more generous than FNS requirements. As a result, Direction Card 

retailers must limit the checkout lanes where FSP recipients can shop, or pay for extra terminals, 

whereas on-line EBT retailers using their own equipment can serve FSP recipients in any lane. Online retailers that do not have their own multi-purpose POS equipment must work within their 

allotment of no-cost equipment or bear the cost of additional equipment, but the on-line EBT 

equipment is less expensive than the POS equipment used in the Direction Card system.

 

4

In accordance with FNS policy originally established for coupon issuance systems, off-line EBT benefits 

do not belong to the recipient until they are loaded, and expired benefits cannot be restored. 

5

EBT customer service immediately updates the host computer when a card is reported lost or stolen. The 

card is actually locked when it is used in a store that has settled since the instruction to lock the card was 

staged for transmission to retailers’ POS systems. This process can take 24 hours or more.
Abt Associates Inc. Chapter 6: Feasibility Assessment 115

Exhibit 6-2

Advantages and Disadvantages of the Direction Card System for FSP Retailers, as 

Compared with the Most Streamlined On-Line EBT Systems

Domain Advantages Disadvantages

Equipment and training All stores equipped and 

trained on-site (no minimum 

volume); portable POS 

terminals for route vendors 

and farmers’ markets; State 

formula provides more nocost equipment than FNS 

regulations applied in most 

states

Costly to integrate with 

credit/debit terminals and 

cash registers; dedicated 

equipment requires extra 

space and special training for 

personnel; more costly to 

equip lanes not covered by 

formula for no-cost equipment

Redeeming benefits May reduce exposure to 

transaction delays and need 

for manual transactions 

Out-of-state stores cannot 

accept Ohio cards unless 

approved and specially 

equipped; EBT equipment 

provided to Ohio stores 

cannot accept out-of-state 

cards 

Problem-solving 24-hour hotline for questions 

and problems, 3-hour 

response time on service 

calls

Dependent on EBT vendor as 

sole source for service unless 

retailer opts to integrate EBT 

with own POS/ECR system

Security Reduced risk of benefit loss 

due to processing errors and 

manual sales overdrafts 

Liability for all manual 

transactions, potential for 

clerk error when entering 

purchase amount

As noted in the discussion of recipient perspectives, off-line EBT technology eliminates some of the 

sources of transaction delays, and therefore has the potential to reduce the average time to complete a 

FSP transaction, relative to on-line EBT systems. (The evaluation did not measure transaction times,

which depend not only on the time to authorize a transaction but also the time to read the card, enter 

and verify the PIN, enter the purchase amount, and print the receipt.) The off-line system also 

reduces the incidence of time-consuming manual transactions, although it is not clear how much of 

this impact is due to the technology and how much to the retailers’ assumption of liability. On the 

other hand, out-of-state FSP retailers cannot accept Direction Cards unless they are approved by 

ODJFS as border stores and specially equipped. Ohio retailers cannot use their Direction Card 

terminals to accept out-of-state on-line EBT cards, although many large retailers located within Ohio 

are able to accept out-of-state EBT cards with their credit/debit POS terminals. 

Direction Card retailers, like their on-line EBT counterparts, can obtain information and assistance 

from a 24-hour hotline. The Direction Card hotline offers a relatively high level of service, using a 

specialized group of operators for retailer and CDJFS calls, and the 3-hour standard for on-site repair 

calls is also a fairly high level of service. On the other hand, the lack of integration with retailer POS 

systems or other alternatives makes all retailers dependent on the EBT vendor to maintain their 
116 Chapter 6: Feasibility Assessment Abt Associates Inc.

capability to accept FSP benefits. To date this has not been an issue, but a disruption of the 

maintenance operation (e.g., a labor dispute or financial problem at the subcontractor) would affect all 

FSP retailers in Ohio. The high level of retailer service may be reassessed when ODJFS procures the 

next contract for the Ohio Direction Card system, because this is one area where significant cost 

savings might be realized.

The security experts interviewed for this report generally believe that retailers face less risk of 

financial losses with the Direction Card system than with on-line EBT systems, particularly in the 

areas of transaction processing errors and manual sales overdrafts. The difference in risk is minimal, 

on the order of 0.005 percent of benefits or less. The difference in transaction processing errors is in 

part the result of the lack of integration with TPP or direct-connect retailer POS systems, but the lack 

of a need for on-line transaction authorization (with the inherent risks of reversals and other 

complications) is also a factor. The lower rate of manual sales losses is in part due to the reduced 

need for manual sales, but retailers are more reluctant to process these transactions because of their 

liability.

Local, State and Federal FSP Agencies

Exhibit 6-3 summarizes the advantages and disadvantages of the Ohio Direction Card system from 

the perspective of local FSP offices (the CDJFS), ODJFS, and FNS, using typical on-line EBT 

systems as the benchmark. 

Unlike local offices in some on-line EBT states, CDJFS offices in Ohio are equipped and have trained 

staff to provide a broad array of EBT recipient services, as previously discussed. In large part, this 

level of equipment and staffing is necessary because of the need to provide many services in person, 

but it also reflects resource allocation decisions by ODJFS and CDJFS managers. The CMS unit used 

for many EBT services obtains recipient information electronically from the main computer system 

used for FSP administration (CRIS-E), unlike the stand-alone EBT administrative terminals provided 

by the leading on-line EBT vendor. Cards are linked to recipients’ benefits off-line, so workers’ 

efficiency is not affected by delays in telecommunications or host processing. Local FSP staff, like 

retailers, get a relatively high level of service from specialized hotline operators serving only retailers 

and FSP staff (as compared with States where local staff use the general operator pool). This level of 

service is important because of a limitation of the Direction Card system: local FSP workers need the 

hotline’s assistance to replace cards, change PINs, or change issuance sites unless the office has a 

dedicated, expensive customer service terminal (CST). The integration of the CMS with CRIS-E is 

undermined by the CMS’ lack of compatibility with the current operating environment of many local 

agencies, which use Windows-based personal computers in a local area network in place of the older 

“dumb” terminals and controllers (ODJFS has partially addressed this gap, as discussed later in this 

chapter).

The Direction Card system gives local and State FSP agencies more control over the issuance process 

than on-line EBT systems. The requirement to load benefits at a pre-selected local issuance site 

serves as check against receipt of benefits by recipients that do not reside in the county where they 

applied (because of unreported relocation or fraud). The expiration of unloaded benefits also helps 

prevent participation by recipients that fail to report changes in address or other circumstances 

affecting eligibility (e.g., incarceration). On the other hand, the expiration of benefits may reduce 

participation among eligible recipients who find it difficult to shop with their Direction Cards every 

month. In on-line EBT systems, these recipients (such as elderly persons receiving the minimum 
Abt Associates Inc. Chapter 6: Feasibility Assessment 117

Exhibit 6-3

Advantages and Disadvantages of the Direction Card System for FSP Agencies, as 

Compared with the Most Streamlined On-Line EBT Systems

Domain Advantages Disadvantages

Equipment and training Local offices equipped to 

issue, test, and unlock cards; 

CMS integrated with CRIS-E; 

card setups off-line; 24-hour 

hotline with specialized staff 

for questions and problems

Need costly equipment or 

hotline assistance to replace 

cards, change PIN, change 

issuance site; CMS not 

designed for current 

operating environment 

(Windows PC network)

Benefit issuance Benefit loading requirement 

and expiration serve as 

checks on recipients that 

move without reporting, 

possible fraudulent 

participation

Benefit must be linked to card 

in office, after benefit 

authorized; delays in making 

emergency benefits available; 

lags in updating benefit 

issuance history

Security and stability Reduced risk of benefit loss; 

possible reduction in 

diversion; more stable due to 

off-line transaction 

processing; less vulnerable to 

interruption of service in 

short-term disaster

Lags in reporting card activity, 

disconnecting terminated 

retailers; impediments to 

retailer investigations; 

problems with benefit 

issuance and card issuance 

in disasters

Cost More stable cost structure, 

due to lack of reliance on 

TPPs, direct-connect 

retailers, telecommunications 

networks and host computer 

for on-line transaction 

processing 

Higher costs for 

implementation and 

operations due to dedicated 

POS terminals, in-person 

recipient service, card cost; 

potential cost to on-line 

States of capability to convert 

benefits from off-line system 

for relocating recipients

benefit) can use their EBT cards less frequently without losing access to benefits. In Ohio, the 

standard authorized recipient process is available to facilitate shopping by FSP recipients with limited 

mobility.

In the Direction Card system, the process of linking initial benefits to EBT cards is more cumbersome 

than in many on-line systems. A local FSP staff member in Ohio must link the case to the card, after 

the initial benefit has been authorized and processed by CRIS-E. In contrast, many on-line EBT 

systems automatically set up card records linked to cases and benefits when they receive benefit 

records for new cases. The ability to meet expedited service requirements and address emergency 

situations is constrained by the lack of a capability to make emergency benefits immediately 

available, exacerbated by the fact that recipients sometimes wait up to 48 hours after card issuance to 

receive their benefits. (This problem can be mitigated by having the recipient pick up benefits at the 

CDJFS, which settles its POS in the morning to receive issuances from the previous night’s 

processing.) Updates to the benefit issuance history are slower in the Direction Card system than in 
118 Chapter 6: Feasibility Assessment Abt Associates Inc.

on-line systems, because of the time needed to confirm that the benefit has been loaded or has 

expired. 

The expert consensus obtained for the evaluation suggests that the Direction Card system offers a 

slightly reduced risk of benefit loss and diversion, when compared with current on-line EBT systems. 

The key difference is that unauthorized redemption is more difficult in the Direction Card system, 

because a POS transaction cannot be processed unless the card is physically present, and because the 

use of MACs provides additional protections against the use of unauthorized terminals. The same 

experts pointed to a number of impediments to using the retailer management tools available to FSP 

officials in most on-line EBT systems. For instance, the lags in the settlement process affect both the 

reporting of card activity and the timing of when retailers are disconnected after being withdrawn or 

otherwise terminated from the FSP. Both the reporting of card use and the termination of retailer 

authorization to process transactions are instantaneous in on-line EBT systems, but these processes 

can only occur when retailers initiate settlement in the Direction Card system. Also, features of the 

Direction Card and the CSTs make it more cumbersome (but not impossible) for compliance 

investigators to use the methods they have successfully employed in the on-line EBT environment. 

From the broader perspective of all FSP administrative agencies, the principal advantage of the Ohio 

Direction Card system is the lack of reliance on on-line transaction processing by third-party 

processors, retailers’ in-house direct-connect processing systems, telecommunications networks and 

host computers. As a result, the Ohio Direction Card system is operationally more stable than on-line 

EBT systems, which experience serious, though relatively infrequent, problems with processing 

delays and shutdowns of key processors or networks. Compared with on-line EBT systems, the Ohio 

Direction Card system is less vulnerable to interruption of benefit redemption in a short-term (1-3 

day) disaster, but it is more likely to encounter problems with benefit issuance in any disasters, and 

mass card issuance for widespread disaster relief is more difficult.

Last, but far from least, is the consideration of the costs to implement and operate the Ohio Direction 

Card system. Off-line EBT systems have a more stable cost structure than on-line EBT systems, 

because they do not rely on external parties to facilitate transaction processing. States and their EBT 

vendors have limited influence on the costs of interfacing with these external parties and the fees that 

they charge. Until recently, the declining number of EBT vendors made it increasingly likely that the 

risks associated with this problem would be passed on to the States using on-line EBT systems, but 

new entrants have made the market more competitive. 

Nevertheless, the higher costs for implementation and operations in the Direction Card system pose a 

serious concern. As previously discussed, three factors largely cause this problem: dedicated POS 

terminals, more reliance on in-person recipient service, and the cost of smart cards. Customer service 

is not one of the largest cost components in the Ohio Direction Card system, but the high level of 

service for retailers and local FSP offices does entail some additional cost. The current differential in 

vendor fees of $1 per case month or more, and the less certain but clearly substantial difference in 

local agency costs, represent considerable prices to pay for the advantages offered by the Ohio 

Direction Card system to recipients, retailers and FSP agencies.
Abt Associates Inc. Chapter 6: Feasibility Assessment 119

6.3 Sustainability 

The Ohio Direction Card system appears to be capable of operating in its current form for the 

foreseeable future, but there are some important challenges to be faced. Many of these issues will 

have to be addressed in the procurement of the next vendor contract. 

All of the individuals and organizations involved with using and maintaining the Direction Card 

system are sufficiently equipped, trained and experienced to continue their roles. The system’s 

technology has now been thoroughly proven through the three-year expansion process and the 

subsequent period of operations. Two of the subcontractors have gone through changes of ownership 

with no disruption of service.

The greatest challenge for ODJFS is that it now has a substantial investment in its relationship with 

the vendor team, especially the processing subcontractor, Stored Value Systems (SVS). The 

Direction Card system uses more standardized POS hardware and transaction logic than its 

predecessor, the PayEase system, but much of the key software has been custom-developed by SVS. 

On-line EBT states face many of the same issues in their vendor contracts, but there is a unique base 

of operating experience with off-line EBT for the FSP at SVS. To date, no other firm has 

successfully implemented this type of system. The POS service subcontractor, CACI, also has a 

special base of experience in trouble -shooting and maintaining the off-line POS systems, particularly 

the more complex client/server networks in the multi-lane stores, where the vast majority of 

redemptions take place. 

As a result of this situation, ODJFS faces two significant management risks. First, there are currently 

few possibilities for competition, although the WIC EBT project in Texas and New Mexico has 

brought a new vendor into this market. Other smart card EBT and electronic service delivery (ESD) 

projects in the near future may further expand the ranks of potential vendors, and the industry is 

expected to grow over the long-term with the broader use of smart cards for identification and other 

applications. At present, it appears that the State faces the prospect of very limited competition for 

the next contract. The State might be able to reduce this risk by the use of a multi-vendor procurement 

strategy, such as the one recently adopted by Wyoming, although the State could have difficulty 

adding the staff needed to take over the prime contractor role. Second, the vendor team would be 

very difficult to replace if one or more members (particularly SVS) chose to leave the FSP EBT 

market. This risk seems small at present, given the number of WIC EBT projects under way and the 

fact that FSP caseloads have risen since 2000, improving the financial picture for the vendor team. 

There is one part of the Direction Card system that does not appear sustainable: the obsolete operating 

system and telecommunications interface used in the CMS terminals, which are vital to card issuance 

and other recipient services. ODJFS has acknowledged that the CMS will need to be updated to 

operate in the current environment of the local CDJFS offices, which are generally using personal 

computers running the Windows operating system in a local area network (LAN) for access to CRISE. In July 2000, ODJFS implemented an intermediate solution to allow the CMS to share telephone 

lines with a LAN via a new type of controller (the Cisco routers), but the issue remained open. 

ODJFS technical support personnel continued to seek a solution to fully integrate the CMS into the 

local office LAN. This issue may be addressed in the next EBT contract for Ohio. 
120 Chapter 6: Feasibility Assessment Abt Associates Inc.

SVS has successfully developed and field-tested a new version of the CMS software to run in the 

Windows environment, as part of the WIC/FSP pilot test. There was, however, an extended period of 

trouble-shooting before the new CMS operated properly at the Montgomery County CDJFS, even 

after a successful acceptance test and several months of operation of similar equipment at the local 

WIC offices. Given the variation of CDJFS facilities and systems, similar problems may be 

encountered elsewhere. In addition, the greater complexity of the newer environment may pose a 

greater risk of crashes and other problems that impede customer service. At the very least, 

conversion of the CMS to Windows is a cost that ODJFS will almost certainly have to bear in the 

near future, probably as part of the next EBT services contract.

6.4 Transferability and Adaptability

There are a number of issues that would have to be addressed to adapt the Ohio Direction Card 

system to serve the FSP in another state. The main issue is that, like Ohio, other States adopting offline EBT would have to build the off-line POS terminal infrastructure largely from scratch, either on 

their own or in partnership with major retailers. Few retailers currently have POS terminals capable 

of accepting smart cards, because there is not a compelling business case for retailers to invest in this 

capability. Card issuers are marketing smart cards with a variety of capabilities (Internet security, 

enhanced credit/debit cards, loyalty cards), but consumer demand for these cards has not reached a 

critical mass. Some technological developments in the current on-line technology used by retailers, 

particularly upgrades to enhance the capabilities of POS terminals, may make it easier for retailers to 

integrate the Direction Card system with their POS systems. On-line EBT States are beginning to 

require vendors to deploy EBT-only POS terminals that can easily be upgraded with smart card 

readers, as a first step toward the potential adoption of enhanced EBT systems using smart cards. 

This trend in part reflects the increasing demand for and reduced cost of POS terminals capable of 

reading both magnetic stripe and smart cards. 

Although retailers can be persuaded to accept the stand-beside POS systems used now in Ohio, there 

are other issues to be addressed in any future deployment of the Direction Card system. Under 

current FSP regulations, off-line EBT systems are exempted from the requirement for interoperability

(accepting out-of-state EBT cards and permitting in-state recipients to use their cards out-of-state). 

Nevertheless, a solution to provide interoperability with on-line EBT systems will eventually have to 

be found if off-line EBT systems are to become more widespread. Other developments in food 

retailing, such as larger stores and self-checkout, also pose challenges for any off-line EBT system, 

particularly one that is not integrated with retailers’ POS and cash register systems.

Similarly, there are important issues affecting the feasibility of extending the Direction Card system 

to other programs administered by ODJFS and similar agencies, particularly TANF and WIC. For 

TANF, the largest issue is finding a way to make cash available, when the most widely available 

systems for dispensing cash (ATMs) are not equipped to accept smart cards. A hybrid EBT smart 

card could have a magnetic stripe for ATM and POS access, but this solution would place cash 

benefits on-line. As a result, the cash portion of the hybrid system would not have the off-line 

system’s advantages of operational stability and security, and fewer costs would be shared between 

cash programs and the FSP. In areas where smart cards are used for public transit fare payment, the 

devices used to add value to these cards might be adapted, but these systems are and will be confined 

to major urban areas. 
Abt Associates Inc. Chapter 6: Feasibility Assessment 121

Thus, the most practical solution is to recruit FSP retailers and other merchants with substantial cash 

flows and appropriate locations to serve as cash issuance agents. This solution is untested in the offline environment. Among the on-line EBT States, few have chosen to rely on POS cash distribution, 

and only one (Texas) has entirely prohibited ATM transactions with EBT cards. The financia l 

arrangements with retailers who issue cash benefits have varied: some States have had to pay fees for 

this service, but others have only provided no-cost equipment. In addition, cash management 

procedures for off-line TANF EBT must be developed to address the requirements of State and 

Federal laws and regulations, a challenge that so far has been a significant obstacle in Ohio. 

The Direction Card system has the potential to serve a variety of other assistance programs, but there 

is substantial uncertainty about which applications are truly feasible. The technical feasibility of WIC 

EBT has been proven in Wyoming, using an earlier version of the Direction Card platform, and the 

Ohio WIC EBT pilot also appears to be successful from a technical perspective. (The Ohio 

Department of Health is evaluating the pilot.) The issue of cost-effectiveness for WIC EBT, on the 

other hand, has not yet been resolved. 

The WIC program has not yet demonstrated that an off-line EBT system will be acceptable to WIC 

retailers when implemented in a large state such as Ohio, with its numerous urbanized areas 

containing large concentrations of participants. A WIC EBT system integrated with retailers’ POS 

systems is unlikely in the near term, until retailers have sufficient commercial demand to accept smart 

cards. Retailers may fear that a stand-beside WIC EBT system, such as the ones used in Wyoming 

and Ohio’s pilot, would cause slowdowns in busy stores with high volumes of WIC transactions. On 

the other hand, it is likely that most retailers would like to get rid of paper WIC food instruments, and 

they may view even a stand-beside WIC EBT system as less costly and burdensome. The pilot in 

Ohio and other States’ WIC EBT initiatives offer new opportunities for solutions to these challenges.

Forthcoming results from the Western Governor Association’s Health Passport demonstration will 

provide insight into the feasibility of using the Direction Card to carry health data for a variety of 

programs in concert with WIC and FSP EBT. Other applications are conceivable (e.g., tracking use 

of subsidized child care), but these applications have not yet been tested in a multi-purpose card 

environment with a diverse low-income population.

6.5 Cost-Effectiveness

The final issue to be considered in assessing the feasibility of the Ohio Direction Card system is the 

question of whether the system is more or less cost-effective than on-line EBT systems. With regard 

to the effectiveness of the Ohio Direction Card system, the evaluation results point to the following 

conclusions:

• For recipients and retailers, the Ohio Direction Card system provides a level of service 

equal to or higher than the level provided in on-line EBT systems. The most important 

feature is the ability to process transactions regardless of the status of the host processor 

and telecommunications networks.

• The Ohio Direction Card system provides a higher level of security for recipients and 

retailers, as a result of a combination of technological controls and operational policies.
122 Chapter 6: Feasibility Assessment Abt Associates Inc.

• Recipients must, however, go to the local FSP office for more types of service than in online systems, particularly those that provide cards and training by mail. Also, recipients 

must go to one of their issuance sites each month to avoid having benefits expire. 

• For retailers, the high level of service and security must be weighed against a major 

limitation of the Direction Card system: the lack of a cost-effective solution to integrate 

EBT and credit/debit POS systems.

• For FSP agencies, there is a key trade-off between the greater stability of the Direction 

Card system and the lags in information transfer inherent in the off-line technology.

• The Direction Card system is sustainable from a technical perspective, but ODJFS is 

taking a significant management risk by depending on a vendor with unique experience 

and software.

• The recipient, retailer and administrative issues affecting the Ohio Direction Card system 

also pose important challenges to the transfer of this system to other States.

• The system has the potential to serve the WIC program, but issues of cost and user 

acceptance are still being addressed. For other potential applications, these issues are 

accompanied by the need to establish technical feasibility.

Thus, aside from the issue of cost, the Ohio Direction Card system appears to be a viable alternative 

to the prevalent on-line EBT systems. Neither type of system has a clear overall advantage in 

effectiveness. On balance, the Ohio Direction Card system appears to have more advantages than 

disadvantages for recipients. For retailers and FSP agencies, the preference depends on the 

importance attached to each system’s advantages and disadvantages.

With regard to FSP administrative costs for EBT system implementation and operations, the study 

points to the following conclusions:

• The administrative costs for implementation and operation of the Ohio Direction Card 

system, as estimated by the evaluation, were greater than the current costs for similar online systems on a per-case basis. The operational cost difference appears to be at least $1 

per case month, but available data do not support a definitive estimate of this difference.

• The chief factors underlying the cost differences were the lack of integration with retailer 

POS systems, the high standards for installing and maintaining EBT-only POS 

equipment, the cost of the smart cards, and the level of recipient service required for card 

issuance, training and card replacement.

• Achieving cost-neutrality relative to the standard based on paper issuance costs would 

require major changes in the FSP caseload or other fundamental parameters.6 

 

6 As noted earlier, the Food Stamp Reauthorization Act of 2002 eliminated the requirement that EBT 

systems be cost-neutral relative to paper-based benefit issuance.
Abt Associates Inc. Chapter 6: Feasibility Assessment 123

• The cost difference between the Ohio Direction Card system and comparable on-line 

EBT systems may be smaller than the gap between the Ohio Direction Card system’s 

costs and the paper issuance cost standard, but the evidence is far from clear. If concerns 

about diminishing competition among on-line EBT vendors are realized, the cost 

difference between off-line and on-line EBT systems could diminish.

The evaluation results pose a challenge for Federal and State decision-makers considering the future 

of off-line EBT systems for the FSP. The choices could be made clearer through acquisition of more 

information on the reliability and user acceptance of the Ohio Direction Card system and current online EBT systems, and on the relationship of costs to service levels in on-line EBT systems. Unless 

the results point to a clear and considerable preference for the Ohio Direction Card system, there 

would remain the challenge of weighing and valuing the differences in effectiveness between the 

Ohio Direction Card system and on-line EBT systems. The evaluation results suggest that, in the near 

term, the net value of the Direction Card system’s advantages would have to be quite substantial to 

offset the current cost difference. Future public and private developments in smart card applications 

and in the marketplace for transaction processing services may change the balance and offer a more 

attractive environment for pursuing this robust but still emerging technology. 
124 Chapter 6: Feasibility Assessment Abt Associates Inc.
Abt Associates Inc. References 125

References

American Institute of Certified Public Accountants, “Statement on Auditing Standards (SAS) No. 70, 

Service Organizations”. 

American Institute of Certified Public Accountants (AICPA), “Review Guidelines for Service 

Organizations Providing Electronic Benefits Transfer Services for Government Programs in 

Accordance with SAS-70.” Prepared by a Task Group of Federal and State Audit and Program 

Agencies and Member Firms of the AICPA, Washington, DC, 1999.

Glickman, G., E. Costa, M. Melhem, W. B. Se aver, E. Smith, and J. Neafach, “The Impacts of the 

Off-line EBT Demonstration on the Food Stamp Program, Volume 1—Impact on Administrative 

Costs”, Project Officer: M. Andrews. U.S. Department of Agriculture, Food and Nutrition Service, 

Office of Analysis, Nutrition and Evaluation, Alexandria, VA, 1994. 

Hamilton, W., S. Bartlett, S. Fisher, D. Hoaglin, C. Kane, C. Logan and T. Marschall, “The Impacts 

of an Electronic Benefits Transfer System in the Food Stamp Program,” Project Officer: C. Olander. 

U.S. Department of Agriculture, Food and Nutrition Service, Office of Analysis, Nutrition and 

Evaluation, Alexandria, VA, 1987.

Hamilton, W., P. Elwood, M. Ciurea, A. St. George, D. Porcari, “Costs and Impacts of the Wyoming 

Smartcard EBT System”, Project Officer: J. Kresge. U.S. Department of Agriculture, Food and 

Nutrition Service, Office of Analysis, Nutrition and Evaluation, Alexandria, VA, 1997. 

Logan, C., J. Kirlin, P. Elwood, M. Menne, and M. Walker, “The Evaluation of the Expanded EBT 

Demonstration in Maryland, Volume 2: System Impacts on Program Costs and Integrity”, Project 

Officer: M. Andrews. U.S. Department of Agriculture, Food and Nutrition Service, Office of 

Analysis, Nutrition and Evaluation, Alexandria, VA, 1994.

Macaluso, Theodore F., “The Extent of Trafficking in the Food Stamp Program: An Update.” U.S. 

Department of Agriculture, Food and Nutrition Service, Office of Analysis, Nutrition and Evaluation, 

Alexandria, VA, 2000.

Office of Management and Budget (OMB), “Circular A-133, Compliance Supplement, Appendix VII, 

SAS 70 Examinations of EBT Services Organizations,” Washington, DC, 2002.

Phoenix MAXIMUS, “Electronic Benefits Transfer Alternatives Analysis,” Project Officer: Tim 

O’Connor. U.S. Department of Agriculture, Food and Nutrition Service, Office of Analysis, 

Nutrition and Evaluation, Alexandria, VA, 2000. Accessed on-line at 

http://www.fns.usda.gov/fsp/MENU/ADMIN/EBT/EBT.HTM.

Schirm, Allen, “State Food Stamp Participation Rates in 1998,” Project Officer: Christine Kissmer. 

U.S. Department of Agriculture, Food and Nutrition Service, Office of Analysis, Nutrition and 

Evaluation, Alexandria, VA, 2001.
126 References Abt Associates Inc.

U.S. Department of Agriculture, Food and Nutrition Service, Food Stamp Program, “EBT Disaster 

Plan Guide,” Alexandria, VA, 2000. Accessed on-line at 

http://www.fns.usda.gov/fsp/MENU/ADMIN/EBT/EBT.HTM.

U.S. Department of Agriculture, Food and Nutrition Service, “Food Stamp Program Electronic 

Benefit Transfer Project Status, January 2002”. Accessed on-line at 

http://www.fns.usda.gov/fsp/EBT Status Report – January 2002.htm.
Abt Associates Inc. Ohio Direction Card Vendor Resource Costs A-1

Appendix A

Ohio Direction Card Vendor Resource Costs

This appendix presents the sources and uses of vendor resource cost data for the Ohio Direction Card 

system. In addition to the costs billed by the vendor team to ODJFS (as presented in Chapter 3), the 

evaluation estimated the vendor team's resource costs, i.e., the value of the resources used to operate 

the EBT system. The primary purpose for the resource cost analysis was to understand the relative 

importance of the cost components reflected in the vendors' fees. In addition, the resource cost data 

provided the basis for the projections of costs under alternative conditions in Chapter 4.

Data Sources

The estimates of vendor resource costs for system operations were primarily based on data from 

monthly cost reports provided to Abt Associates by the vendor team. These reports reflected the costs 

incurred by the prime contractor, including direct expenditures and payments to subcontractors. In 

the cost reports, the subcontractor payments were broken down into reporting categories to reflect the 

distribution of subcontractors' actual costs (as estimated by the subcontractors). 

Vendor data covering the period March through June, 2000 were used for the analysis, where they 

were available. One member of the vendor team did not provide data for this period. For this vendor, 

data from July through December, 1999 were relied upon, because it was determined that this period 

represented stable operations. 

The resource cost estimates derived from the cost reports may differ from actual resource costs for the 

evaluation period for one of two reasons. First, subcontractor billings to the prime contractor may 

have been greater or less than their resource costs. Second, the estimation method the subcontractors

used to break down their billings into reporting categories may have been based on outdated or 

incorrect information, leading to errors in the distribution of estimated resource costs reflecting 

subcontractor activity.

A description of the data sources for each of the cost elements is presented below. Most cost 

elements were derived from the vendor cost reports. For certain cost elements, however, the 

evaluators constructed independent estimates of vendor resource costs. These estimates were 

constructed because the vendor cost report data on the elements were not suitable for the evaluation's 

approach. Data provided by ODJFS and the vendors were used in constructing the independent cost 

estimates. 

Sources for Individual Cost Elements

Administration/Reconciliation 

For labor costs and non-labor expenses associated with vendor project administration, vendor cost 

reports were used. Subcontractor costs were from March through June 2000. Prime contractor costs 

for this period were not available, but it was assumed that the firm’s cost structure was stable, so the 

available data from July through December 1999 were used.
A-2 Ohio Direction Card Vendor Resource Costs Abt Associates Inc.

Customer Service 

The reported cost for providing customer service was based on cost reports from March through June, 

2000.

Data Center Hardware/Software

The reported average cost for running the data center, including labor, hardware, software, and 

maintenance, was based on cost reports from March through June, 2000. The subcontractor’s 

projected resource costs were used to break down the firm’s billings among functional categories. 

The actual subcontractor resource costs may have been different than the costs projected under the 

original assumptions for the project, particularly because of the impact of Ohio’s declining FSP 

caseload on the portion of the cost per case month represented by fixed costs. 

POS/Administrative Terminals 

For equipment depreciation, the costs for the entire inventory of equipment were estimated, using the 

leases charged to ODJFS for additional equipment to estimate the unit costs. The number of 

terminals was based on actual deployment data as of April 2000, with an allowance of 5 percent for 

additional equipment kept as spares. This count may represent a mid-point of the number of 

terminals over time, because the stock of equipment being depreciated continued to grow as older 

equipment failed and was replaced. In addition, the number of checkout lanes equipped at the 

vendor's expense grew over time, as stores were expanded or replaced by larger stores. To estimate 

the number of administrative terminals and POS equipment provided to the CDJFS, data were used 

from the implementation plan and supplemental information supplied by ODJFS. 

The cost of equipment represents straight-line depreciation of the lease payments over a 5-year 

period. Because the lease cost of equipment was paid in a lump-sum payment at the beginning of the 

lease, depreciating the lease cost is equivalent to depreciating the cost of purchased equipment.

The maintenance charge includes the cost of operating the vendor's field service team that maintained 

retailer and CDJFS equipment and installed equipment for new or remodeled stores. This category 

also includes charges from equipment manufacturers for repairing equipment that could not be fixed 

by the field service team. The initial two years of maintenance were assumed to be included in the 

equipment cost, as they were in the leases charged to ODJFS for additional equipment. To estimate 

the maintenance charges for years 3-5, the per-lane costs for the additional leased equipment were 

used, based on vendor charges from October 1999 through July 2001. 

Communications

The estimated resource costs are the average reported costs for March through June, 2000. This cost 

category includes telecommunications equipment and telecommunications charges for the host, POS 

settlements, and customer service calls. 

ACH Expenses

This element includes the costs for automated clearinghouse processing and settlement charges. The 

estimated resource cost is the average reported cost for March through June, 2000.
Abt Associates Inc. Ohio Direction Card Vendor Resource Costs A-3

Card Costs 

For smart cards, system statistics on initial card issuance and replacement in the counties with the 

most mature EBT operations were used to estimate the long-run card consumption rate of 79 cards 

per thousand cases per month. Additionally, card costs for the implementation caseload and an 

additional three-month supply of cards were assumed to account for the initial and ongoing stock of 

cards. For the cost per card, Citicorp EFS’ unit cost for card replacement was used which included 

associated labor costs. This may lead to double counting a small portion of Citicorp EFS 

administration costs. The cost of the initial stock of cards represents straight-line depreciation over a 

5-year period. 

Resource Cost Analysis Results

As seen in Exhibit A-1, the estimated vendor resource cost totaled $3.82 per case month, while the 

billed cost totaled $4.48 per case month. There are two factors that may account for the difference 

between the estimated resource cost and billed cost. As discussed above, some resource cost 

components may have been underestimated, particularly two categories: POS/administrative 

terminals and data center operations. Otherwise, the difference may represent operating profits that 

offset implementation costs and losses during rollout.

For the presentations in this report, the billed vendor costs were used as the basis for vendor costs. 

Using the distribution of the estimated resource costs, the billed costs were allocated across functional 

components as shown in Exhibit A-1. The use of billed costs is more appropriate for comparisons 

with previously reported results for other EBT systems, including the off-line EBT pilot, all of which 

used billed costs (or taxpayer) costs as their basis. 
A-4 Ohio Direction Card Vendor Resource Costs Abt Associates Inc.

Exhibit A-1

Allocation of Billed Vendor Costs Based on Resource Cost Distribution

Estimated 

Resource 

Costs Per 

Month

Estimated 

Resource 

Costs Per 

Case Month

Percent of 

Total 

Resource 

Costs

Allocated 

Billed 

Costs Per 

Case 

Month

Administration/Reconciliation

Reconciliation Labor $9,390 $0.04 0.95% $0.04

Administrative Labor $39,424 $0.15 4.01% $0.18

Other Direct Costs $50,051 $0.19 5.09% $0.23

Overhead and G&Aa$14,757 $0.06 1.50% $0.07

Total Administration/Reconciliation $113,622 $0.44 11.55% $0.52

Customer Service $31,472 $0.12 3.20% $0.14

Data Center

Labor $35,937 $0.14 3.65% $0.16

Hardware $23,353 $0.09 2.37% $0.11

Hardware Maintenance $4,573 $0.02 0.46% $0.02

Software Maintenance $11,826 $0.05 1.20% $0.05

Total Data Center $75,689 $0.29 7.69% $0.34

POS/Administrative Terminals

Hardware $193,769 $0.75 19.69% $0.88

Installation and Maintenance $391,102 $1.52 39.74% $1.78

Total POS/Administrative Terminals $584,871 $2.27 59.43% $2.66

Communications

Host Telecom $42,832 $0.17 4.35% $0.20

Customer Service Telecom $16,209 $0.06 1.65% $0.07

Telecommunications Equipment $4,411 $0.02 0.45% $0.02

Total Communications $63,452 $0.25 6.45% $0.29

ACH Expenses $13,720 $0.05 1.39% $0.06

Card Costs $101,304 $0.39 10.29% $0.46

Grand Total $984,130 $3.82 100.00% $4.48

a G&A = general and administrative expenses allocated by accounting procedures.
Abt Associates Inc. Data Sources and Methods for Analysis B-1

Appendix B

Data Sources and Methods for Analysis of County 

Operational Costs 

This appendix presents information on the sources of data and analysis methods used to estimate the 

costs of operating the Ohio Direction Card system at the county office level, as presented in Chapter 

3.

All operational costs presented for the Ohio Direction Card are averages over the period March - June 

2000, the operational period for which data were obtained, unless otherwise noted. The cost per case 

for the Ohio Direction Card system was calculated based on the average statewide caseload between 

March and June 2000 of 257,600.

Sources of Data

Costs for operational activities involving the County Departments of Jobs and Family Services 

(CDJFS) in Ohio were primarily obtained from interviews with key personnel in a sample of CDJFS. 

Additional data on these costs were obtained from state cost accounting sources.

County Interviews

The evaluators conducted on-site operational interviews with EBT and other staff in ten CDJFS 

between May and July 2000. The goals of each visit included documenting how the counties were 

performing their roles in EBT operations. Additionally, respondents identified the staff time and 

other county resources used to perform EBT functions. They described the challenges they 

encountered since implementation, and what lessons they learned that would benefit other counties in 

future EBT projects. (The qualitative information is reflected in the feasibility assessment in Chapter 

6.)

At each county offic e the evaluators met with the following types of staff:

• Supervisors (who identified their key people and how staff allocated their time);

• Lead staff members responsible for recipient training, card issuance, trouble -shooting Direction 

Cards and related benefit delivery issues, food stamp coupon conversion, and reporting; 

• Income Maintenance staff, who assisted in Direction Card activities, in addition to certification 

and other non-EBT duties;

• Other senior fiscal or support unit officials with significant responsibilities related to EBT 

operations; and

• The people most knowledgeable about the costs incurred by the county for EBT operations, 

including the coverage of the Income Maintenance Random Moment Sample (IM-RMS) time 

study of income maintenance sta ff and those costs not covered by the IM-RMS. 
B-2 Data Sources and Methods for Analysis Abt Associates Inc.

The counties where operational interviews were performed are listed below in Exhibit B-1.

Exhibit B-1

Operational Phase Interview Sites

County

Average 

Caseload 

(Mar-June 

2000)

Region of 

Ohio

Date 

Visited County

Average 

Caseload 

(Mar-June 

2000)

Region of 

Ohio

Date 

Visited

Clermont 2,017 Southwest 5/00 Montgomery 13,298 Southwest 5/00

Cuyahoga 34,459 Northeast 6/00 Morgan 583 Southeast 7/00

Franklin 25,140 Central 7/00 Pickaway 1,135 Central 7/00

Hamilton 20,329 Southwest 5/00 Portage 1,915 Northeast 6/00

Lucas 16,939 Northwest 7/00 Preble 470 Southwest 5/00

In selecting the ten CDJFS for the operational phase interviews, the following criteria were 

considered:

• The sample represented both large and small counties, because of the significant differences in 

staffing and organization between these types of counties. 

• The sample represented the geographic diversity of Ohio, reflecting the different regions of the 

state and the mix of urban and rural areas.

• For comparisons to the pilot data, the sample included Montgomery County (Dayton).

• Subject to the preceding conditions, the evaluators included as many of the counties in the 

implementation phase interview sample as possible, to provide continuity in the evaluation 

process and in the data. (The implementation phase interviews are described in Volume 1 of this 

report.)

• The sample maximized the number of counties with data available from the IM-RMS time study 

conducted continuously in every county for cost reporting purposes. This approach was intended 

to allow the evaluators to validate and supplement the time and cost information based on the IMRMS. 

To meet these criteria, the sample of ten counties was divided among the five administrative regions 

designated by ODJFS, each of which is centered around a major city: Canton (southeast), Cleveland 

(northeast), Cincinnati (southwest), Columbus (central), and Toledo (northwest). Because about half 

of the FSP caseload in Ohio was in the six largest counties, the evaluators wanted to ensure that the 

sample included five of the state's six largest counties and five small- to medium-size counties.

Although the intent was to balance the number of counties included from each administrative region, 

the study chose to concentrate more of the interviews where the IM-RMS data were available, 

because the IM-RMS was expected to provide a more objective, continuous measure of county costs. 

Furthermore, the evaluators needed to understand the reasons for the wide variation that existed in the 
Abt Associates Inc. Data Sources and Methods for Analysis B-3

costs measured by the IM-RMS, which might be explained by differences in operations and in how 

the IM-RMS was administered. 

The evaluators decided to keep five large counties in the sample (even though only two of the large 

counties had IM-RMS data available) but selected all of the five small counties from those with IMRMS data. They believed that it was important to include five large counties because the study would 

be much more valid and useful if more of the largest counties were included, particularly Cuyahoga 

with its caseload of 35,000 EBT households. Furthermore, this was the first study that could examine 

off-line EBT operations and costs in the large urban areas, and it was essential to take advantage of 

this opportunity. 

For the large county subsample, the study included the central counties in the Cleveland, Cincinnati, 

Columbus and Toledo regions. The sample of counties for on-site implementation interviews 

included three of the designated large cities (Cleveland/Cuyahoga County, Columbus/Franklin 

County, and Toledo/Lucas County), and a telephone interview on the early implementation phase was 

conducted with staff in the fourth (Cincinnati/Hamilton County). In the Cincinnati region, 

Montgomery County was chosen to be the second county and the final member of the large county 

subsample. The one large county not included was Summit, which completed implementation in 

August 1999. The evaluators did not choose this county because it was adjacent to Cuyahoga County 

and therefore would have added less diversity to the sample than the other large counties.

The small counties with IM-RMS data were spread over three of the five geographic areas. To 

maximize the reliability of the cost estimates for small counties, the evaluators selected all five small 

counties from this group. They drew a provisional sample from the counties in each of these regions 

(with a back-up selection for each region) using a random procedure with probability proportional to 

size. The evaluators felt this approach was preferable to a purposive method because it would ensure 

that the sample of small counties was unbiased and reasonably representative, with some variety in 

size and caseload growth/decline. The final sample was reviewed with ODHS. They ensured that 

each of the selected counties was able to participate and not undergoing any major changes. 

The final sample, as shown above, had a disproportionate number of counties in the Southwest 

region, but this was also the region that was most experienced with the Ohio Direction Card.

Documents Reviewed

ODJFS provided data from the IM-RMS time study of CDJFS staff during the operational phase. 

Each quarter, ODJFS calculates the percentage distribution of the IM-RMS data, by program, and 

uses the percentages to allocate IM costs (including a prorated share of costs common to all CDJFSadministered programs) among the IM programs (food stamps, TANF, Medicaid, etc.). The IM-IMRMS was the state's only direct measure of CDJFS EBT costs, and therefore the evaluators originally 

felt that a detailed analysis of these data would be central to the administrative cost analysis for the 

study. 
B-4 Data Sources and Methods for Analysis Abt Associates Inc.

The evaluators obtained IM-RMS data on EBT-related activity from January 1997 through March 

2000. 1 After reviewing the data, they concluded that the county interview data provided more valid 

estimates of county EBT operational costs than the IM-RMS data. The IM-RMS data fluctuated by 

very large amounts and frequently indicated costs that were very high or very low, in relation to both 

the interview estimates and the range of local costs observed in prior EBT studies. Interviews with 

CDJFS staff in several counties confirmed that the IM-RMS data were not accurately representing 

their activities, because they were still having problems with staff accurately filling out the forms. 

The accuracy of the RMS was also questioned by an audit of the FSP administrative costs in Ohio by 

the USDA Inspector General (Report # 27099-0020-Ch, September 2000). As a result, the evaluation 

relied on the interview data as the best available source for county operational costs. 

Analysis of Operational Costs for Sample Counties

Based on the data from the interviews in each of the ten sample counties, the evaluators summarized 

the average monthly costs of activities during the operational period as well as the level of effort. 

Exhibit B-2 shows the breakdown of county direct labor hours and costs. All county staff working on 

the Ohio Direction Card system are listed along with the average amount of time they spent on the 

Direction Card project (as reported in the interviews) and their labor cost. Also listed is their staff 

type. All staff are categorized as follows:

• Income Maintenance Pool (IM); 

• Non-Income Maintenance Pool, Overhead (Non-IM, OH); or 

• Non-Income Maintenance Pool, Non -Overhead (Non-IM, Non-OH);

IM staff were typically Direction Card staff; Non-IM,OH staff were typically supervisors or 

administrators; and Non-IM, Non-OH staff were typically other administrative staff who provided 

backup to Direction Card staff.

The left side of Exhibit B-2 shows, for each sampled county, the raw data on staff time and monthly 

salaries. (Exhibits B-2 through B-4 appear at the end of this appendix.) The center of the exhibit 

shows the calculated labor costs, and the right side shows the level of effort (FTEs) devoted to EBT 

operations. In estimating “direct EBT labor cost,” IM staff time and other staff performing direct 

EBT operations functions (i.e., Non-IM, Non-OH) were included, but Non-IM, OH staff time was not 

included. It was assumed that the estimated EBT overhead (OH) costs (as described below) included 

the time spent by Non-IM OH staff on overhead functions (e.g., Direction Card reporting or 

supervision of Direction Card workers). It is also assumed that the overhead cost allocation 

methodology did not include the time spent by non-IM staff on performing EBT tasks as backup to 

the regular EBT staff in the IM pool. 

To impute overhead costs for county activities, the analysis used county cost allocation data. Income 

maintenance costs charged to each program included not only the direct salary and benefit costs for 

staff time but also a proportionate share of supervisory staff and non-labor costs. Exhibit B-3 shows 

the data that were used to impute non-labor and overhead costs for county EBT activities. The 

 

1

EBT expansion was ongoing during this period, so these data provided both implementation period costs 

and up to eight quarters of post-implementation costs at the county level, depending on when each county 

completed implementation.
Abt Associates Inc. Data Sources and Methods for Analysis B-5

exhibit shows the breakdown of direct labor costs (code 901), other direct costs (codes 920, 922, 924, 

and 930), and total direct and indirect costs (code 999) obtained from the county cost allocation 

reports. These costs are totals for all IM activities, including EBT, certification and other functions 

for the FSP, TANF, and other programs.

To determine the loading for direct non-labor costs and overhead costs to be applied to EBT labor for 

each county, the following steps were taken:

1. Using the figures in Exhibit B-3, the difference between the total IM labor cost (code 901) 

and the total IM pool cost including all direct and overhead costs (code 999) was calculated. 

2. The figure from step 1 was divided by the code 901 total to compute the "labor multiplier" in 

the sixth column of Exhibit B-3. 

3. To compute the value in the seventh column of Exhibit B-3, the multipliers were generally 

averaged over the available quarters of data, starting with the fourth quarter (Q4) of calendar 

year 1998 and, where possible, extending to 1999 Q2 (the last quarter of State Fiscal Year 

1999). Exceptions to this reference period are explained in the notes in the exhibit. (The 

final State Fiscal Year 2000 cost allocation data were not available at the time of the 

analysis.) 

4. The "Avg Labor Multiplier (since Q498)" column in Exhibit B-3 was multiplied by the "IM 

Pool, EBT Labor Cost" column in Exhibit B-2; the result was the "Total Overhead Cost per 

Month" in Exhibit B-4. 

The labor multiplier was not applied to the non-IM, non-OH labor (i.e., the backup labor by non-IM 

staff), because this labor was not included in the base for the multiplier. Although Non-IM staff do 

also require a portion of the supervision and facilities for which costs are identified through the 

overhead cost allocation, there was no way to adjust the multiplier to avoid overstating the applicable 

overhead costs. Thus, the backup costs may have been slightly underestimated by counting only the 

associated direct labor expense.

Analysis of Statewide County Operational Costs

After computing labor and overhead costs for each of the sample counties, weights were assigned to 

these counties for the estimation of statewide county operational costs. These weights are shown in 

Exhibit B-4, along with the principal cost estimates for each sample county. To calculate the weights, 

the evaluators treated the counties as a stratified random sample, with selection probability 

proportional to size. The weight of an observation for this scenario is equal to M/(n*m), where M = 

total measure of size (caseload) for the stratum, n = number of sampled counties, and m = measure of 

size (caseload) for the county. The caseload used in calculating the operational weights was the 

average caseload between March and June 2000.

For the operational estimates, the state was divided into three strata: small counties (counties with 

fewer than 10,000 cases as of April 1997), large counties (counties with more than 10,000 cases as of 

April 1997), and Cuyahoga County, which was treated as a separate stratum, because it had a 

significantly larger caseload than the other counties. 
B-6 Data Sources and Methods for Analysis Abt Associates Inc.

The county estimates were then weighted to calculate stratum totals, which were in turn summed to 

compute statewide totals and averages for county-level labor and overhead costs. Additionally, the 

weights were used to calculate the statewide average labor effort per month in person-months. The 

estimates of level of effort include income maintenance staff and other staff performing direct EBT 

operational functions, but do not include time of overhead staff. 








Abt Associates Inc. Cost Projection Assumptions and Detailed Results C-1

Appendix C

Cost Projection Assumptions and Detailed Results 

This appendix presents the detailed assumptions underlying the projections of Ohio Direction Card 

system costs discussed in Chapter 4. The appendix also provides more detailed versions of the exhibits 

presenting the results of this analysis.

The cost projection scenarios in the first group deal with conditions that affect many of FSP EBT cost 

elements. These conditions are: a larger FSP caseload, the addition of WIC to the system, and the 

addition of TANF. For each of these conditions, projections were made for high and low scenarios, with 

the low scenarios having the more optimistic assumptions. The exhibits are organized as follows:

• Exhibit C-1 details the assumptions of the high and low scenarios used to project the costs 

with a larger FSP caseload of 600,000 households. Exhibit C-2 provides the detailed 

projections under these conditions.

• Exhibit C-3 details the assumptions of the high and low scenarios used to project the FSP 

costs with WIC benefits added to the system on a statewide basis. Exhibit C-4 provides the 

detailed projections under these conditions. 

• Exhibit C-5 details the assumptions of the high and low scenarios used to project the FSP 

costs with Temporary Assistance to Needy Families (TANF) benefits added to the system on 

a statewide basis. Exhibit C-6 provides the detailed projections under these conditions. 

In Exhibits C-1, C-3 and C-5, the general assumptions affecting all costs are presented first, followed by 

the specific assumptions of the high and low scenarios regarding each of the affected cost elements. 

Exhibits C-2, C-4 and C-5 mirror the exhibits presented in Chapter 4, with a more detailed breakdown of 

costs and a listing of total monthly costs in addition to the monthly costs per case.

Next, information is presented on the cost projections estimating the effects on the Direction Card system 

of three scenarios that lead to changes in the cost of POS and administrative equipment, and two scenarios 

that lead to changes in smart card costs. Each of these scenarios leads to changes in just a few of the cost 

elements. For these scenarios, Exhibit C-7 details the assumptions regarding the affected cost elements, 

including the differences between high and low scenarios. Exhibits C-8 through C-12 present the detailed 

costs for each of the scenarios. Exhibit C-13 summarizes the low cost projections for all of the scenarios. 















The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and

activities on the basis of race, color, national origin, gender, religion, age, disability, political

beliefs, sexual orientation, or marital or family status. (Not all prohibited bases apply to all

programs.) Persons with disabilities who require alternative means for communications of

program information (Braille, large point, audiotape, etc.) should contact USDA’s TARGET

Center at (202) 720-2600 (voice and TTD).

To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326-

W., Whitten Building, 14th and Independence Avenue, S.W., Washington, DC 20250-9419 or

call (202) 720-5964 (voice and TTD) USDA is an equal opportunity provider and employer.