United States Government Accountability Office

GAO Report to Congressional Committees

FOOD STAMP 

TRAFFICKING 

FNS Could Enhance 

Program Integrity by 

Better Targeting 

Stores Likely to 

Traffic and Increasing 

Penalties 

October 2006 

 

GAO-07-53 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

October 2006

FOOD STAMP TRAFFICKING 

FNS Could Enhance Program Integrity by 

Better Targeting Stores Likely to Traffic 

and Increasing Penalties 

Highlights of GAO-07-53, a report to 

congressional committees 

Every year, food stamp recipients 

exchange hundreds of millions of 

dollars in benefits for cash instead 

of food with retailers across the 

country, a practice known as 

trafficking. From 2000 to 2005, the 

Food Stamp Program has grown 

from $15 billion to $29 billion in 

benefits. During this period of time, 

the U.S. Department of

Agriculture’s (USDA) Food and 

Nutrition Service (FNS) replaced

paper food stamp coupons with 

electronic benefit transfer (EBT) 

cards that work much like a debit 

card at the grocery checkout 

counter. Given these program 

changes and continuing retailer 

fraud, GAO was asked to provide 

information on (1) what is known 

about the extent and nature of

retailer food stamp trafficking, 

(2) the efforts of federal agencies 

to combat such trafficking, and 

(3) program vulnerabilities. To do 

this, GAO interviewed agency

officials, visited 10 field offices,

conducted case file reviews, and 

analyzed data from the FNS retailer 

database. 

What GAO Recommends

To reduce program vulnerabilities, 

GAO recommends that FNS take

additional steps to target and 

provide early oversight of stores

most likely to traffic; develop a 

strategy to increase penalties for 

trafficking, working with the USDA 

Inspector General as needed; and 

promote state efforts to pursue 

recipients suspected of trafficking.

FNS generally agreed with findings, 

conclusions and recommendations. 

FNS’s estimates suggest trafficking declined between 1995 and 2005 from 

3.8 cents per dollar of benefits redeemed to 1.0 cent, resulting in an 

estimated $241 million in food stamps trafficked in 2005. The rate of 

trafficking in small grocery and convenience stores is 7.6 cents per dollar, 

significantly higher than the rate for large stores, where it is estimated to be 

0.2 cents per dollar. In addition, the use of EBT cards has changed the way 

some benefits are trafficked, for example eliminating middlemen who used 

to collect and redeem large amounts of paper coupons from program 

participants willing to sell them. 

FNS has taken advantage of EBT data to improve its ability to detect and 

disqualify trafficking retailers, while law enforcement agencies have

conducted a decreasing number of investigations. Cases using only EBT 

transaction data now account for more than half of trafficking 

disqualifications, supplementing traditional, but more time-consuming, 

undercover investigations. Other federal entities, such as the USDA’s 

Inspector General and the U.S. Secret Service, have reduced the number of 

traffickers they pursue in recent years and focused their efforts on highimpact cases. This has resulted in fewer cases referred for federal 

prosecution and fewer federal convictions for retailer trafficking. 

Despite FNS progress, the program remains vulnerable because retailers can 

enter the program intending to traffic, often without fear of severe criminal 

penalties. FNS authorizes some stores with limited food supplies so that lowincome participants in areas with few supermarkets have access to food, but

may not inspect these stores again for 5 years unless there is some indication 

of a problem. Oversight of early operations is important because newly 

authorized retailers can quickly ramp up the amount of benefits they traffic. 

One location that FNS disqualified for trafficking redeemed almost 

$650,000 in 9 months. In addition, FNS has not conducted analyses to 

identify high risk areas and to target its limited compliance-monitoring 

resources. Furthermore, disqualification, FNS’s most severe penalty, may 

not be a sufficient deterrent, and FNS must rely upon others for prosecution. 

Finally, states’ failing to pursue trafficking recipients leaves a pool of 

recipients willing to traffic when a disqualified store reopens. 

This Disqualified Store, with Its Limited Counter Area and Single Cash Register, Redeemed 

Over $190,000 of Food Stamp Benefits in One Month 

Source: FNS.

www.gao.gov/cgi-bin/getrpt?GAO-07-53.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Sigurd Nilsen at 

(202) 512-7215 or nilsens@gao.gov. 
Contents 

Letter 1

Results in Brief 4

Background 6

FNS Estimates Suggest That the Rate of Food Stamp Trafficking 

Has Declined and That It Occurs More Frequently in Smaller 

Stores 12

FNS Has Taken Advantage of New EBT Data to Improve Retailer 

Monitoring, While Other Federal Entities Have Focused on 

Fewer, High-Impact Investigations 14 

Despite the Progress That Has Been Made against Trafficking,

Vulnerabilities Still Exist in the Program 22 

Conclusions 32

Recommendations 32

Agency Comments 33 

Appendix I GAO Contact and Staff Acknowledgments 35 

Related GAO Products 36 

Tables 

Table 1: Percentage of Authorized Stores and Food Stamp 

Redemptions by Store Category for Fiscal Year 2005 9 

Table 2: FNS Estimates Suggest That the Trafficking Rate Has 

Declined 13

Table 3: Some Store Locations Have Had Multiple Retailers That 

Engaged in Trafficking 28 

Figures 

Figure 1: Food Stamp Participation Has Increased Since Fiscal

Year 2000 7 

Figure 2: Legitimate Food Stamp Transaction Compared to 

Trafficking Transaction 10 

Figure 3: As Trafficking Disqualifications Based on EBT Data Have 

Increased, Those Based on Undercover Investigations 

Have Decreased 15 

Page i GAO-07-53 Food Stamp Trafficking
Figure 4: Limited Counter Area and Single Cash Register of a Store 

Disqualified for Trafficking 17 

Figure 5: Trafficking Investigations Referred to the US Attorney 

and Accepted for Prosecution for Fiscal Years 2000 to 

2005 21

Figure 6: Fiscal Year Totals for Trafficking Convictions Resulting 

from OIG Investigations 22 

Figure 7: Food Stamp Redemptions of a Newly Authorized Store 

Disqualified for Trafficking 24 

Figure 8: Map of Stores Repeatedly Disqualified for Trafficking in 

Brooklyn and Baltimore 29 

Abbreviations 

EBT Electronic Benefits Transfer 

FNS Food and Nutrition Service 

OIG Office of the Inspector General 

PRWORA Personal Responsibility and Work Opportunity 

 Reconciliation Act of 1996 

USDA U.S. Department of Agriculture 

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Page ii GAO-07-53 Food Stamp Trafficking
United States Government Accountability Office

Washington, DC 20548 

October 13, 2006 

The Honorable Saxby Chambliss 

Chairman 

The Honorable Tom Harkin 

Ranking Democratic Member 

Committee on Agriculture, Nutrition, and Forestry 

United States Senate 

The Honorable Saxby Chambliss 

Chairman 

The Honorable Tom Harkin 

Ranking Democratic Member 

Committee on Agriculture, Nutrition, and Forestry 

United States Senate 

The Honorable Collin C. Peterson 

Ranking Minority Member 

Committee on Agriculture 

House of Representatives 

The Honorable Collin C. Peterson 

Ranking Minority Member 

Committee on Agriculture 

House of Representatives 

The Honorable Gil Gutknecht 

Chairman 

The Honorable Joe Baca 

Ranking Minority Member 

Subcommittee on Department Operations, 

 Oversight, Dairy, Nutrition and Forestry 

Committee on Agriculture 

House of Representatives 

The Honorable Gil Gutknecht 

Chairman 

The Honorable Joe Baca 

Ranking Minority Member 

Subcommittee on Department Operations, 

 Oversight, Dairy, Nutrition and Forestry 

Committee on Agriculture 

House of Representatives 

Every year, food stamp recipients exchange hundreds of millions of 

dollars in benefits for cash instead of food with authorized retailers across 

the country, a practice known as trafficking. In a typical trafficking 

situation, a retailer gives a food stamp recipient a discounted amount of 

cash—commonly 50 cents on the dollar—in exchange for food stamp 

benefits and pockets the difference. By trafficking, retailers commit fraud 

and undermine the primary purpose of the program, which is to help 

provide food to low-income individuals and families. Recipients who 

traffic deprive themselves and their families of the intended nutritional 

benefits. 

Every year, food stamp recipients exchange hundreds of millions of 

dollars in benefits for cash instead of food with authorized retailers across 

the country, a practice known as trafficking. In a typical trafficking 

situation, a retailer gives a food stamp recipient a discounted amount of 

cash—commonly 50 cents on the dollar—in exchange for food stamp 

benefits and pockets the difference. By trafficking, retailers commit fraud 

and undermine the primary purpose of the program, which is to help 

provide food to low-income individuals and families. Recipients who 

traffic deprive themselves and their families of the intended nutritional 

benefits. 

In recent years, the Food Stamp Program has grown tremendously. From 

2000 to 2005, the program—administered by the Food and Nutrition 

Service (FNS) of the U.S. Department of Agriculture (USDA), in 

partnership with the states—has grown from $15 billion in benefits 

provided to 17 million individuals to $29 billion in benefits to nearly 

26 million individuals. Almost one in every 12 Americans participates in 

the program. During this period of time, FNS and the states completed 

In recent years, the Food Stamp Program has grown tremendously. From 

2000 to 2005, the program—administered by the Food and Nutrition 

Service (FNS) of the U.S. Department of Agriculture (USDA), in 

partnership with the states—has grown from $15 billion in benefits 

provided to 17 million individuals to $29 billion in benefits to nearly 

26 million individuals. Almost one in every 12 Americans participates in 

the program. During this period of time, FNS and the states completed 

Page 1 GAO-07-53 Food Stamp Trafficking
replacing paper food stamp coupons with electronic benefit transfer 

(EBT) cards that work much like a debit card at the grocery checkout 

counter. This EBT transaction provides a wealth of new electronic 

information to FNS officials, who are responsible for monitoring food 

stamp retailers and sanctioning those who traffic. Given these major 

changes in the program and continued concern about retailer fraud and 

abuse, you asked us to provide information on (1) what is known about 

the extent and nature of retailer food stamp trafficking, (2) the efforts of 

federal agencies to combat such trafficking, and (3) the program 

vulnerabilities that continue to exist. 

To report on what is known about the extent of trafficking, we used four 

FNS estimates of food stamp trafficking. The four estimates, which were 

the best available data on this subject, covered the calendar years 1993, 

1996 to 1998, 1999 to 2002, and 2002 to 2005.1

 The methodology FNS used 

to develop these estimates has some limitations; the estimates do not 

provide a precise measure of food stamp trafficking.2

 However, they can 

be used to provide an indication of the magnitude of food stamp 

trafficking and the change in the rate over time.3

 1

 U.S. Department of Agriculture, Office of Analysis and Evaluation, The Extent of 

Trafficking in the Food Stamp Program (August 1995); The Extent of Trafficking in the 

Food Stamp Program: An Update (March 2000); The Extent of Trafficking in the Food

Stamp Program: 1999-2002 (July 2003); and The Extent of Trafficking in the Food Stamp

Program: 2002-2005 (September 2006). 

2

 For example, FNS did not randomly select a sample of retailers to produce its estimates. 

Instead, it selected those retailers who had been investigated for trafficking and used this 

group to analyze and calculate the trafficking rate. FNS believes its trafficking estimates 

likely overstate the amount of dollars diverted by trafficking because FNS based its 

estimates on retailers already suspected of trafficking. However, it is possible that 

trafficking occurs among stores outside of the pool of suspected traffickers. To the extent

that this occurs, FNS’ estimates could understate actual trafficking. Also, this approach 

does not ensure that each retailer has a known probability of being selected in the sample, 

which undermines the ability to statistically generalize to a larger population. 

3

 FNS used a relatively consistent method for each estimate; however, to improve its 

1999-2002 estimate, FNS included retailers suspected of trafficking and disqualified on the

basis of certain EBT transactions. To be more reflective of all its trafficking-related 

activities, for its 2002-2005 estimate, FNS used a number of additional data sources. These 

sources include closed cases on FNS's Watch List and retailers investigated by the OIG, the 

U.S. Department of Justice, the states, and other entities. While the additional data sources

in the most recent estimate provide a broader range of trafficking investigations, this 

adjustment could also contribute to a lower estimate as the Watch List, for example, 

contains retailers that demonstrate a lesser level of suspicious behavior than retailers used

for prior estimates. 

Page 2 GAO-07-53 Food Stamp Trafficking
To understand the nature of trafficking, assess the efforts to combat it, and 

identify continued program vulnerabilities, we conducted interviews with 

the following program stakeholders: officials from FNS headquarters and

regional offices; other officials responsible for investigating food stamp 

trafficking including the USDA’s Office of the Inspector General (OIG) and 

the U.S. Secret Service; food stamp advocates and researchers; officials 

from industry associations and EBT contractors; and officials from 

selected state law enforcement bureaus. In addition, we obtained relevant

information from the state audit, comptroller, and treasurer community. 

We selected and visited 10 FNS field offices (Chicago, Ill.; Dallas, Tex.; 

Denver, Colo.; Detroit, Mich.; Los Angeles, Calif.; New York, N.Y.; 

Portland, Ore.; Sacramento, Calif.; Tallahassee, Fla and Towson, Md.) 

located in the seven FNS regions. We selected these offices to achieve

variation in geographical distribution, the ages of the states’ EBT systems, 

and the number of stores that were disqualified from participating in the 

program for trafficking. At each office, we conducted semistructured 

interviews with FNS officials and used a case file review tool to review 

nonprobability samples of files for 163 retailers that were disqualified for 

trafficking in fiscal year 2005. We also interviewed officials from seven of 

the states where we made our field office visits.

In addition, to identify efforts to combat trafficking, we analyzed FNS’s 

authorized retailer database, the Store Tracking and Redemption System, 

to determine the number of permanent trafficking disqualifications by 

store address, to calculate the time between a store’s initial authorization 

and its first disqualification for fiscal years 1996 through 2005, and to 

determine the number of sanction actions that had been taken against a

retailer leading up to the retailer’s being permanently disqualified. To 

ensure the accuracy of the FNS data we analyzed, we interviewed agency

officials to identify and resolve any inconsistencies that could affect our 

work. In addition, we reviewed documentation on how these data were 

gathered and maintained. Based on the collective information from our 

assessment, we determined the data are sufficiently reliable for enhancing 

our understanding of continuing program vulnerabilities and agency 

efforts in combating trafficking. We conducted our work between July 

2005 and June 2006 in accordance with generally accepted government 

auditing standards. 

Page 3 GAO-07-53 Food Stamp Trafficking
FNS estimates that about 1.0 cent per dollar of benefits redeemed in 2005 

were trafficked; this trafficking usually occurred in small convenience and 

grocery stores and often, we found, between store owners and food stamp 

recipients with whom they were familiar. The national rate of food stamp 

trafficking declined from about 3.8 cents per dollar of benefits redeemed 

in 1993 to about 1.0 cent per dollar during the years 2002 to 2005. 

However, even at that lower rate, FNS estimates that about $241million in 

food stamp benefits would have been trafficked annually in those years. 

The rate of trafficking in small stores remains higher—an estimated 

7.6 cents per dollar—than the rate for large stores—an estimated 0.2 cents 

per dollar. Since the nationwide implementation of EBT, the way some 

food stamp benefits are trafficked has changed. Previously, in addition to

trafficking conducted directly between store owners and recipients, 

middlemen purchased large numbers of food stamp coupons at a 

discounted rate directly from recipients and then exchanged the coupons 

for cash from a retailer. EBT has largely eliminated the middleman. 

Retailers now must have the recipients’ EBT card and personal 

identification number to conduct a trafficking transaction and are likely to

limit their trafficking transactions to people from their neighborhood or 

with whom they are familiar. 

Results in Brief 

FNS has taken advantage of EBT and other new technology to improve its 

ability to detect trafficking and disqualify retailers who traffic, while law 

enforcement agencies have investigated and referred for prosecution a

decreasing number of traffickers, instead focusing their efforts on fewer 

high-impact investigations. To pursue traffickers, FNS traditionally sent its 

undercover investigators into stores to attempt to traffic benefits. Now, 

EBT transaction data allow FNS to act on cases based solely on suspicious 

transaction patterns. For these cases, FNS applies established criteria to 

its data to identify individual stores with exceptional patterns of EBT 

transactions for that store’s particular type of retail operation. Cases using 

EBT data can be prepared in the office relatively quickly and now account 

for more of the 841 retailers that were permanently disqualified for 

trafficking in fiscal year 2005 than undercover investigations. However, 

undercover investigations still play an important role when EBT 

transaction data are insufficient to build a case against a retailer suspected 

of food stamp trafficking. In addition, retailer trafficking investigations by 

other federal entities, such as USDA’s Inspector General and the U.S. 

Secret Service, have declined in recent years, resulting in fewer referrals 

for prosecutions of retailers that traffic. For example, the number of 

trafficking investigations opened by the Inspector General declined from 

179 in 2000 to 77 in 2005, and the number of investigations it referred for 

prosecution to the Department of Justice declined as well. Ultimately, the 

Page 4 GAO-07-53 Food Stamp Trafficking
number of federal convictions for retailer trafficking has also declined. 

Federal law enforcement officials told us that they are increasingly 

focused on high-impact investigations, such as those focused on largescale trafficking or involving other criminal activity. 

Despite the progress FNS has made in combating retailer trafficking, the 

Food Stamp Program remains vulnerable because retailers can enter the 

program intending to traffic and do so, often without fear of severe 

criminal penalties, as the declining number of investigations referred for 

prosecution suggests. FNS field office officials told us their first priority is 

getting stores into the program to ensure needy people have access to 

food, and therefore they sometimes authorize stores that stock limited 

food supplies but meet the minimum requirements in areas with few larger 

grocery stores. However, once authorized, some dishonest retailers do not 

maintain adequate food stock and focus more on trafficking food stamp 

benefits than on selling groceries, according to FNS officials, and 5 years 

may pass before FNS checks the stock again unless there is an indication 

of a problem with the store. In addition, while EBT has aided FNS’s 

monitoring ability, some retailers have adapted their behaviors to avoid 

detection and found new ways to exploit the EBT technology. For 

instance, individuals can obtain point-of-sale machines and conduct illegal

food stamp transactions in unauthorized stores or apartments. Yet, despite 

dwindling staff resources, FNS has not conducted the analyses to identify

high risk areas and to target their compliance-monitoring resources to the 

areas of highest risk. Furthermore, current FNS food-stamp-trafficking 

penalties may not be sufficient to deter traffickers, because the most 

severe penalty most traffickers face is disqualification from the program 

and FNS must rely upon others for prosecution. Finally, if recipients 

suspected of trafficking are not investigated by the states, it may leave a 

pool of recipients ready and willing to traffic their benefits as soon as a 

disqualified store reopens under new management. 

To reduce program vulnerabilities and help FNS better target its limited 

compliance-monitoring resources, we are making recommendations to the 

Secretary of the Department of Agriculture to require FNS to develop 

additional criteria to identify stores most likely to traffic, use these criteria

to conduct risk assessments, and provide more targeted and early 

oversight of stores determined most likely to engage in trafficking. Also, 

we are recommending that FNS work to develop a strategy to increase the 

penalties for trafficking, working with the Inspector General as needed. In

addition, we are recommending steps to promote state efforts to pursue 

recipients suspected of trafficking. The Department of Agriculture officials 

generally agreed with our findings, conclusions, and recommendations but 

Page 5 GAO-07-53 Food Stamp Trafficking
noted they believe they do have a strategy for targeting resources through 

their use of EBT transaction data to identify suspicious transaction 

patterns. We believe that FNS has made good progress in its use of EBT 

transaction data; however, it is now at a point where it can begin to 

formulate more sophisticated analyses. 

The federal Food Stamp Program is intended to help low-income 

individuals and families obtain a more nutritious diet by supplementing 

their income with benefits to purchase nutritious food such as meat, dairy,

fruits, and vegetables, but not items such as soap, tobacco, or alcohol. The 

Food and Nutrition Service (FNS) pays the full cost of food stamp benefits

and shares the states’ administrative costs—with FNS usually paying 

approximately 50 percent—and is responsible for promulgating program 

regulations and ensuring that state officials administer the program in 

compliance with program rules.4

 The states administer the program by 

determining whether households meet the program’s income and asset 

requirements, calculating monthly benefits for qualified households, and

issuing benefits to participants on an electronic benefits card.

Background 

In fiscal year 2005, the Food Stamp Program issued almost $28.6 billion in

benefits to about 25.7 million individuals participating in the program, and 

the maximum monthly food stamp benefit for a household of four living in 

the continental United States was $506. As shown in figure 1, the increase 

in the average monthly participation of food stamp recipients in 2005 

continues a recent upward trend in the number of people receiving 

benefits. 

 4

 Reimbursements for food stamp administrative costs in 44 states are adjusted each year

to subtract certain food stamp administrative costs that have already been factored into 

these states’ TANF grants. As a result, these states receive less than 50 percent of their 

administrative costs. See GAO, Food Stamp Program: States Face Reduced Federal 

Reimbursement for Administrative Costs, RCED/AIMD-99-231 (Washington D.C.: 

July 23, 1999) 

Page 6 GAO-07-53 Food Stamp Trafficking
Figure 1: Food Stamp Participation Has Increased Since Fiscal Year 2000 

15

20

25

30

2000 2001 2002 2003 2004 2005

Number of participants (in millions)

Source: FNS.

Fiscal year

Retailer Authorization Retailers are the front line for determining which goods can be purchased 

and for ensuring the integrity of the food stamp transaction. FNS operates 

44 field offices throughout the country, and they have the primary 

responsibility for authorizing retailers to participate in the Food Stamp 

Program. To become an authorized retailer, a store must offer on a 

continuing basis a variety of foods in each of the four staple food 

categories—meats, poultry or fish; breads or cereals; vegetables or fruits; 

and dairy products—or 50 percent of its sales must be in a staple group 

such as meat or bakery items. However, the regulations do not specify 

how many food items retailers should stock. The store owner submits an 

application and includes forms of identification such as copies of the 

owner’s Social Security card, driver’s license, business license, liquor 

license, and alien resident card. The FNS field office program specialist 

then checks the applicant’s Social Security number against FNS’s database

of retailers, the Store Tracking and Redemption System, to see if the 

applicant has previously been sanctioned in the Food Stamp Program. The 

application also collects information on the type of business, store hours, 

number of employees, number of cash registers, the types of staple foods 

offered, and the estimated annual amount of gross sales and eligible food 

stamp sales. 

Page 7 GAO-07-53 Food Stamp Trafficking
If the application is complete, most field offices will forward a request to 

the private contractor employed by FNS to conduct on-site inspections 

that verify the information in the application and provide additional 

information for the approval process. The contractor visits the store and 

submits a map of the store layout, the inspection form, and photographs of 

the outside and inside of the store and its inventory. The contractor 

reports information on the type of store and its location, access to parking, 

the number of cash registers and EBT point-of-sale devices,5

 whether 

shopping carts or baskets are available, and the availability of nonfood 

stock and services offered, such as liquor, tobacco, gasoline, check 

cashing, and lottery tickets. As part of the inspection, the contractor also 

evaluates the general store conditions and notes problems—such as empty 

coolers and shelves, dusty cans and expired or outdated foods—that could 

indicate that this may not be a viable grocery operation. Upon receiving

favorable information from the contractor, the FNS program specialist 

authorizes the store to participate in the Food Stamp Program for 5 years. 

Unless a problem arises with the store, it typically would not be 

re-inspected until it applies for reauthorization. 

At the end of fiscal year 2005, more than 160,000 retailers were authorized

to accept food stamp benefits. During the fiscal year, almost 24,000 new 

stores were authorized, 30,000 were reauthorized and almost 17,000 left 

the program, most for voluntary reasons.6

 As shown in table 1, 

supermarkets account for only about 22 percent of the authorized stores 

but redeem the lion’s share of food stamp benefits. FNS defines a 

supermarket as a store with $2 million of gross sales, three or more cash 

registers, and coded as a supermarket on its food stamp application. 

 5

 Point-of-sale devices or terminals read the recipient identification information from the

magnetic strip on the back of the food stamp EBT card. That information, along with the 

amount of the purchase, would be sent to the state’s EBT contractor for approval of the 

transaction. 

6

 Voluntary reasons include changes in store ownership, changes in the nature of the store, 

or store closings. Involuntary reasons include the store no longer meets the basic eligibility

requirements for authorization or the store had no redemption activity. 

Page 8 GAO-07-53 Food Stamp Trafficking
Table 1: Percentage of Authorized Stores and Food Stamp Redemptions by Store 

Category for Fiscal Year 2005 

Type of firm 

Percentage of total 

authorized firms 

Percentage of total food 

stamp dollars redeemed

Supermarkets 22.34 86.44

Grocery stores 21.59 6.57

Convenience stores 19.95 1.86

Combination storesa22.17 1.95

All other storesb12.31 2.97

Meal servicesc1.64 .21

Source: FNS data. 

a

This category includes stores such as grocery/gas, grocery/bar, grocery/restaurant, and 

grocery/merchandise. 

b

This category includes farmers markets, produce stands, wholesalers, co-located retailers, drug 

stores, specialty food stores, health/natural food stores, non-profit food-buying co-ops, military

commissaries, and delivery routes. 

c

This category includes drug and alcohol treatment centers, group homes, and communal dining 

facilities or meals on wheels for seniors.

Use of EBT and Trafficking Prior to EBT, recipients used highly negotiable food stamp coupons to pay 

for allowable foods. The Personal Responsibility and Work Opportunity 

Reconciliation Act of 1996 (PRWORA), however, required each state 

agency to implement an EBT system to electronically distribute food 

stamp benefits, and the last state completed its implementation in fiscal 

year 2004. Under the EBT system, food stamp recipients receive an EBT 

card imprinted with their name and a personal account number, and food 

stamp benefits are automatically credited to the recipients’ accounts once 

a month. As shown on the left in figure 2, in a legitimate food stamp 

transaction, recipients run their EBT card, which works much like a debit 

card, through an electronic point-of-sale machine at the grocery checkout 

counter, and enter their secret personal identification number to access 

their food stamp accounts and to authorize the transfer of food stamp 

benefits from a federal account to the retailer’s account to pay for the 

eligible food items. The legitimate transaction contrasts with a trafficking 

transaction portrayed on the right, in which recipients swipe their EBT 

card, but instead of buying groceries, they receive a discounted amount of

cash and the retailer pockets the difference. 

Page 9 GAO-07-53 Food Stamp Trafficking
Figure 2: Legitimate Food Stamp Transaction Compared to Trafficking Transaction 

FEDERAL RESERVE 

BANK 

State EBT contractor verifies customer’s account 

number, PIN, and account balance, then 

authorizes transaction

State EBT contractor orders

reimbursement for store from FNS’s

Federal Reserve Bank account 

Source: GAO.

Legitimate transaction

• Retailer rings up $100 of groceries

• Customer swipes EBT card for $100

• Customer receives $100 of groceries

• Retailer rings up $100

• Customer swipes EBT card for $100

• Customer receives $50 and retailer 

 pockets $50

Trafficking transaction

Store is reimbursed $100

Store is reimbursed $100

Monitoring, Investigating, 

and Prosecuting Retailer 

Fraud 

In addition to approving retailers to participate in the program, FNS has 

the primary responsibility for monitoring their compliance with 

requirements and administratively disqualifying those who are found to 

have trafficked food stamp benefits. FNS headquarters officials collect and 

monitor EBT transaction data to detect suspicious patterns of transactions 

Page 10 GAO-07-53 Food Stamp Trafficking
by retailers. They then send any leads to FNS program specialists in the 

field office who either work the cases themselves or refer them to 

undercover investigators in the Retailer Investigations Branch to pursue 

by attempting to traffic food stamps for cash. 

FNS notifies the USDA’s Office of the Inspector General (OIG) before the 

field office specialist or undercover investigator develops a case, and the 

OIG may choose to open an investigation on this case on its own for 

possible criminal prosecution. The OIG may also work with the US Secret 

Service, the Federal Bureau of Investigation, or other agencies to 

investigate retailers for criminal prosecution.7

 Secret Service officials told 

us they have a memorandum of understanding with the USDA that allows 

them to initiate food-stamp-trafficking investigations on their own, 

provided they notify the OIG of all the investigations in which an 

authorized retailer is targeted. 

When trafficking is proved, FNS penalizes the store owners, usually by 

permanent program disqualification but in limited circumstances they may 

receive civil money penalties.8

 Store owners who sell ineligible goods but 

do not traffic are generally subject to a 1-year temporary program 

disqualification.9

 If a field office specialist finds that a retailer has 

trafficked, the specialist sends a letter to the retailer detailing the charges 

and the intended penalty. If the Retailer Investigations Branch succeeds in

trafficking food stamps with a retailer, it first refers the case to the OIG, 

which then decides whether it will investigate the case further for possible 

prosecution by the US Attorney’s office or by state and local prosecutors 

or refer the case back to the FNS field office to complete the 

disqualification action. 

 7

 The Secret Service was originally given authority to participate in food stamp 

investigations because food stamps were considered the same as currency, and the Secret

Service is responsible for investigating currency violations such as counterfeiting. With the

move to EBT, Secret Service authority derives from the use of an EBT card as an access

device to commit fraud. 

8

 If the retailer had taken proper measures and can prove he was not involved in the 

trafficking, rather than permanent disqualification, FNS may impose a civil money penalty. 

Civil money penalties may also be imposed against disqualified owners who sell their 

stores before the expiration of the disqualification period, because they have not

completed their program suspension penalty. 

9

 FNS officials said it is more common for a store to receive a 6-month temporary

disqualification because they are unable to determine whether the ineligible goods were 

sold by the store owner or a store employee. 

Page 11 GAO-07-53 Food Stamp Trafficking
The retailer may attempt to rebut the charges, but if the retailer does not 

respond or cannot provide a reasonable explanation for the specific 

charges, then a letter is sent executing the program disqualification. The 

retailer may appeal the decision, first to the Administrative Review Branch 

at FNS headquarters and later to the appropriate federal district court. 

In addition to administering the day-to-day operation of the Food Stamp 

Program, states also have the primary responsibility for monitoring 

recipients’ compliance with the program’s requirements and investigating 

any case of alleged intentional program violation. This includes cases of 

ineligible persons attempting to obtain food stamps or applicants 

deliberately providing false information in an attempt to receive more 

benefits than they should as well as cases in which recipients traffic their 

food stamp benefits. States must ensure that appropriate cases are acted 

upon, either through administrative disqualification hearings or referral to 

a court of appropriate jurisdiction, in accordance with the procedures 

outlined in the Food Stamp Program regulations.

FNS estimates that the rate of food stamp trafficking was 1.0 cent on the 

dollar for calendar years 2002 to 2005. Overall, the estimated rate of 

trafficking at small stores is much higher than the estimated rate for 

supermarkets and large groceries, which redeem most food stamp 

benefits. Furthermore, the implementation of EBT eliminated the role of 

the middleman by requiring personal identification numbers each time the

EBT card is used. 

Monitoring, Investigating, 

and Prosecuting Recipient 

Fraud 

FNS Estimates 

Suggest That the Rate 

of Food Stamp

Trafficking Has 

Declined and That It 

Occurs More 

Frequently in Smaller 

Stores 

FNS Reports That the Rate 

of Food Stamp Trafficking 

Declined between 1995 

and 2005 

FNS’s most recent estimate suggests that the food-stamp-trafficking rate

was 1.0 cent on the dollar for calendar years 2002 to 2005 and that this rate

and the total estimated benefits trafficked have declined in recent years. 

FNS’ first trafficking study in 1995 estimated that about 3.8 cents of every 

dollar of food stamp benefits issued was trafficked in 1993. As shown in 

table 2, subsequent FNS studies estimated that this trafficking rate 

continued to decline. 

Page 12 GAO-07-53 Food Stamp Trafficking
Table 2: FNS Estimates Suggest That the Trafficking Rate Has Declined

Millions of dollars 

Calendar year

period 

Estimated 

trafficking

rate 

percentage

Food stamp benefits

issued annually 

Estimated amount of 

benefits trafficked

annually

1993 3.8 21,100 812

1996-1998 3.5 19,627a657

1999-2002 2.5 16,139a393

2002-2005 1.0 23,213a241

Source: FNS studies and GAO calculation. 

a

FNS reported that they annualized redemption data over the period of the study but did not provide 

the annualized figures. We calculated the three- and four-year average of benefits redeemed for 

comparative purposes. 

The trafficking exchange rate that retailers offer for food stamp benefits 

can vary from place to place. While retailers generally offer recipients 

about 50 cents for each dollar of benefits, in New York City we were told 

by an FNS undercover investigator that the exchange rate is about 

70 cents, and in a few locations, some retailers will exchange one dollar of

cash for one dollar of benefits as an accommodation to the food stamp 

recipient. 

Most Trafficking Still 

Occurs in Small Stores 

FNS studies suggest that small convenience and grocery stores continue to

be the most common sites for trafficking. Small stores, including small 

grocery, convenience, specialty, and gas/grocery stores have an estimated

trafficking rate of 7.6 cents per dollar. In contrast, supermarkets and large 

grocery stores have an estimated rate of 0.2 cents per dollar. However, 

because supermarkets account for the lion’s share of food stamp benefit 

redemptions, even at this lower rate, over $49 million of benefits may have 

been trafficked in supermarkets and large grocery stores in fiscal year 

2005. Most FNS field officials we interviewed told us these findings 

reflected their experience. They characterized a typical trafficking case at 

their field office occurring at a convenience, small grocery, or gas/grocery 

store located in an urban area where the store owner traffics with familiar 

neighborhood food stamp recipients.

Page 13 GAO-07-53 Food Stamp Trafficking
The nationwide implementation of EBT has changed the way some food 

stamp benefits are trafficked. Previously, in addition to trafficking 

conducted directly between store owners and recipients, middlemen could 

wait around public assistance offices or subsidized housing complexes to 

purchase large numbers of food stamp coupons at a discounted rate 

directly from recipients. The coupons might also change hands among 

multiple middlemen, with each taking a cut, before ultimately being 

exchanged for cash from a willing retailer. Field office officials told us that 

EBT has largely eliminated the middleman because retailers must now 

have the recipients’ EBT card and personal identification number to 

conduct a trafficking transaction. As a result, some recipients have 

adapted their trafficking behavior to the new EBT environment. For 

example, one field office official told us that some food stamp recipients 

now stand outside of stores offering to loan their EBT cards to shoppers 

entering the store. In this situation, the shopper would purchase groceries 

using the card and return it and a discounted amount of cash to the 

recipient upon leaving the store. During our field office visit to 

Tallahassee, a GAO analyst was approached in his hotel parking lot by a 

would-be trafficker offering such a transaction. 

FNS has taken advantage of new technology to improve its monitoring and 

sanctioning of food stamp retailers, but other federal agencies’ have been

investigating and prosecuting fewer traffickers. With the implementation 

of EBT, FNS has supplemented its traditional undercover investigations by

the Retailer Investigations Branch with cases developed by analyzing EBT 

transaction data. These EBT cases now account for more than half of the 

permanent disqualifications by FNS (see fig. 3 below).10 Although the 

number of trafficking disqualifications based on undercover investigations 

has declined, these investigations continue to play a key role in combating

trafficking. However, as FNS’s ability to detect trafficking has improved, 

the number of suspected traffickers investigated by other federal entities,

such as the USDA Inspector General and the U.S. Secret Service have 

declined. These entities have focused more on a smaller number of highimpact investigations. As a result, retailers who traffic are less likely to 

face severe penalties or prosecution. 

EBT Has Changed How 

Food Stamps Are 

Trafficked 

FNS Has Taken 

Advantage of New 

EBT Data to Improve 

Retailer Monitoring, 

While Other Federal 

Entities Have 

Focused on Fewer,

High-Impact 

Investigations 

 10 According to FNS officials, at least 90 percent of non-Retailer Investigations Branch

trafficking disqualifications result from paper cases. Other disqualifications may result 

from the OIG and state law enforcement investigations. 

Page 14 GAO-07-53 Food Stamp Trafficking
Figure 3: As Trafficking Disqualifications Based on EBT Data Have Increased, 

Those Based on Undercover Investigations Have Decreased

0

100

200

300

400

500

600

700

800

900

1,000

2000 2001 2002 2003 2004 2005

Trafficking disqualifications

Fiscal year

Undercover investigations

Paper cases

Source: FNS.

EBT Has Provided FNS 

with Powerful New Tools 

to Supplement Traditional 

Retailer Trafficking 

Investigations 

The nationwide implementation of EBT has given FNS powerful new tools 

to supplement its traditional undercover investigations of retailers 

suspected of trafficking food stamp benefits. FNS traditionally sent its 

investigators into stores numerous times over a period of months to 

attempt to traffic benefits. However, PRWORA gave FNS the authority to 

charge retailers with trafficking in cases based solely on EBT transaction 

evidence, called “paper cases.” A major advantage of paper cases is that 

they can be prepared relatively quickly and without multiple store visits. 

These paper cases accounted for the majority of FNS’s 841 trafficking 

disqualifications in fiscal year 2005. 

As part of the monitoring process, FNS collects each month’s food stamp 

transaction data from the states’ EBT processors and adds the data to its 

EBT transaction database for analysis. Six months’ worth of EBT 

Page 15 GAO-07-53 Food Stamp Trafficking
transactions—about 500 million—are available on line.11 Information on 

the amount of the transaction is reported. Information on the items being 

purchased is not available through EBT. The system scans these data to

flag transactions or sets of transactions that fit a certain set of criteria 

defined by established patterns of fraudulent activity. The system then 

generates a monthly “Watch List” of retailers with suspicious transaction 

patterns incongruent with a store’s particular type of retail operation.12

The Watch List is sent out to the responsible FNS field office for follow-up. 

In the field offices, program specialists begin their work on paper cases by

reviewing the Watch List and leads from other sources, such as the state 

food stamp agency, the state EBT processors, and law enforcement 

agencies. Using experience with the retailers in the area, program 

specialists may determine that suspicious transactions for some retailers 

are explainable. In such cases, the specialist may take no further action or

schedule a later review of the store’s transactions. In cases for which they 

cannot explain the suspicious transactions, program specialists determine 

which retailers they will pursue as paper cases. If the program specialist is 

unable to develop a paper case, the case may be referred to the Retailer 

Investigations Branch for an undercover investigation. 

After deciding to open a paper case, FNS obtains clearance from the OIG 

to pursue the case, and then the program specialist uses FNS data and a 

variety of other resources to gather evidence. Program specialists 

generally use 3 months of EBT data to show suspicious patterns. In the 

case files we reviewed, charge letters typically contained hundreds of 

examples of suspicious transactions, although FNS guidance does not 

specify the number of transactions necessary to support a case. Specialists

also review FNS historical data on retailers to check for such things as 

prior program violations.13 In addition, these specialists obtain more 

current transaction data as well as information on recipients suspected of

trafficking with the retailer, through state Food Stamp Program databases. 

Many specialists supplement these data with online resources, such as 

 11 FNS has retained archives of all state EBT transaction data from the beginning of each 

state’s EBT system, and if program specialists request older data, FNS can e-mail it to the 

field office within hours. 

12 Although FNS’s EBT transaction data system analyzes all transaction data, large stores 

are not included on Watch Lists, because FNS’s data show that large stores are rarely 

involved in trafficking. 

13 Additional historical data can be requested by field office staff as necessary. 

Page 16 GAO-07-53 Food Stamp Trafficking
mapping software to identify suspicious shopping patterns. Program 

specialists can also consult the photos taken at the time of authorization to 

assess whether conditions in the store support the volume of food stamp 

redemptions claimed. Figure 4 shows the limited counter space and the 

single cash register of a store that claimed food stamp redemptions of 

almost $200,000 per month and was later disqualified for trafficking. Such

information enables the program specialists to corroborate conclusions 

they have drawn based on patterns in the EBT transaction data. 

Figure 4: Limited Counter Area and Single Cash Register of a Store Disqualified for 

Trafficking

Source: FNS.

In addition, most program specialists in the offices we visited told us they 

also visit the store once before charging a retailer with trafficking. Some 

store visits allow the program specialist to check for possible explanations

for the suspicious transaction patterns, while others corroborate the 

suspicion that the stores are in business to traffic. For example, during one

store visit, program specialists found cans of food on the shelves with 

thick layers of dust, many items that had passed their expiration dates, and 

jars of spaghetti sauce so old that the contents had separated.

Page 17 GAO-07-53 Food Stamp Trafficking
The store owner may attempt to rebut the charges. For example, a store 

owner may claim to have extended credit to recipients so they could 

purchase food until they received their next month’s food stamp benefits, 

and the high-dollar transactions were repayment of the credit. Although 

extending credit is also a violation of program rules, it carries a lesser 

penalty—temporary disqualification—than trafficking. If the owner is 

unable to rebut the charges, and the program specialist disqualifies the 

store, the store owner may appeal to the Administrative Review Branch. In 

2005, about 6 percent of the permanent disqualifications were modified or

reversed by the branch. 

The length of time between a new store’s authorization and its first 

disqualification has decreased over the last 10 years. Stores that received a 

temporary or permanent disqualification in 1996 had been open an average

of about 8.7 years, but by 2005, that average had dropped to 6.3 years. Two 

factors may have contributed to this 28 percent decrease in length of time 

between authorization and disqualification: improved FNS monitoring of 

the program and use of EBT transaction data or more store owners who 

begin to traffic food stamps sooner. The officer-in-charge of the Chicago

field office believes that in her area an increasing number of store owners 

are trafficking immediately after authorization. We analyzed FNS’s 

authorized retailer data for stores in the Chicago area and found that the 

average time between authorization and a store’s first temporary or 

permanent disqualification dropped by nearly half. In 1996, it took a 

Chicago store about 5 years to receive a term or permanent 

disqualification, and in 2005, it was just 2.6 years. 

Investigations by the 

Retailer Investigations 

Branch Account for Fewer 

Trafficking 

Disqualifications, but Still 

Play a Key Role in 

Combating Trafficking 

The number of Retailer Investigations Branch undercover trafficking 

investigations has declined, but these investigations are often used in 

cases where EBT data alone are not enough to prove a retailer is 

trafficking. The investigators initiate cases based on requests from FNS 

field offices, their own review of the Watch List, or leads from state or 

local law enforcement agencies. Like the paper case process, FNS consults 

with the OIG before opening a case. To build a case, the investigators 

make undercover visits to the store to determine whether the retailer is 

selling ineligible goods or trafficking food stamps. If a retailer sells the 

investigator ineligible goods but does not traffic, the resulting temporary 

disqualification from the program for selling ineligibles can create a 

deterrent effect on the disqualified store owner, other store owners, and 

trafficking recipients, because such penalties often become known in the 

community. 

Page 18 GAO-07-53 Food Stamp Trafficking
Personal safety can be a concern for investigators. One investigator told us

that there are some stores, especially in urban areas, where it would be 

dangerous to attempt an undercover investigation. 

Although cases in which the Retailer Investigations Branch finds 

trafficking are routinely referred to the OIG for possible prosecution, in 

most cases the OIG returns the case to the field office for administrative 

disqualification. As with paper cases, the field office sends a charge letter, 

detailing the dates on which the retailer sold ineligibles or trafficked food 

stamp benefits, and the retailer may attempt to rebut the charges. Once 

disqualified, the retailer can appeal the penalty to the Administrative 

Review Branch. If no violation is found, the Retailer Investigations Branch 

refers the case to the field office to determine whether to continue 

investigating.

OIG and Other Federal 

Entities Are Conducting 

Fewer Retailer Trafficking 

Investigations and Fewer 

Retailers Are Prosecuted 

In recent years, the USDA OIG has opened a decreasing number of foodstamp-trafficking investigations and has focused on high-impact 

investigations. In 2000, the OIG opened 179 trafficking investigations, 

while in 2005 it opened 77. According to OIG, this has occurred both 

because of a lack of resources—the number of OIG investigators has 

dropped by 28 percent since 1997—and because the OIG has focused its 

resources on high-impact investigations such as those with large-scale

trafficking, those involving other criminal activity, or those involving 

possible terrorist connections since September 11, 2001. In addition, OIG 

officials told us that it can take up to 5 years to investigate and prosecute a 

store owner, and the process of developing an investigation for 

prosecution further strains limited resources. 

Other federal agencies are also conducting fewer retailer food stamp 

trafficking investigations. The US Secret Service used to take on 

investigations when large amounts of food stamp coupons were being 

trafficked. However, its involvement in retailer trafficking investigations is

rare because the Secret Service finds that large trafficking investigations 

are less common since the implementation of EBT. EBT cards typically

only have a few hundred dollars of benefits each month, so it takes many 

transactions for a dishonest store owner to traffic a large amount of 

money. However, in large trafficking investigations or those where a 

retailer is believed to be diverting profits from trafficking to terrorist 

causes, the Secret Service or the FBI might work with the OIG and other

agencies on a sting operation or a joint task force. For example, the OIG 

and FBI worked jointly with state and local law enforcement authorities in

Florida on an investigation involving store owners who were ordered to 

Page 19 GAO-07-53 Food Stamp Trafficking
pay $2.6 million in restitution to the USDA and went to prison after 

pleading guilty to trafficking over $3 million in food stamp benefits. OIG 

officials told us they were actively conducting task force investigations 

with other federal, state and local law enforcement authorities. 

If an investigation is accepted and developed for prosecution by a law 

enforcement entity, there is still no guarantee that the trafficker will be 

prosecuted. Most US Attorneys’ offices will not prosecute a retailer unless 

a great deal of money is involved, although the threshold varies from one 

region to another, according to federal law enforcement officials. Thus, 

prosecuting the store owners is a challenge. 

Figure 5 shows a decline in recent years in the number of investigations 

deemed serious enough to be referred by the OIG to the US Attorney for 

prosecution, down from 202 in fiscal year 2001 to 21 in 2005. These data 

illustrate the relatively small number of store owners who have faced 

prosecution for trafficking in recent years, particularly in light of the 

841 owners who were disqualified in fiscal year 2005. These data also 

show that the proportion of investigations accepted by the US Attorney for 

prosecution has been increasing in recent years. OIG officials told us they

believe they are better targeting investigations for referral. 

Page 20 GAO-07-53 Food Stamp Trafficking
Figure 5: Trafficking Investigations Referred to the US Attorney and Accepted for 

Prosecution for Fiscal Years 2000 to 2005

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005

Number of cases referred by OIG

Fiscal year

Accepted for prosecution by U.S. Attorney

Declined for prosecution by U.S. Attorney

Source: USDA OIG.

With fewer retailers prosecuted, the number of convictions has also 

declined. Because of the length of time it takes to prosecute a case, there

is a lag between the time when a trafficking investigation is accepted by

the US Attorney for prosecution and the time when a retailer is convicted.

Thus, it is not possible to compare the figures for investigations accepted 

for prosecution and those resulting in convictions in the same year. 

However, as shown in figure 6, the number of convictions resulting from 

investigations by the OIG has declined from 260 in 2000 to 94 in 2005. 

Page 21 GAO-07-53 Food Stamp Trafficking
Figure 6: Fiscal Year Totals for Trafficking Convictions Resulting from OIG

Investigations 

0

50

100

150

200

250

300

2000 2001 2002 2003 2004 2005

Number of convictions

Source: USDA OIG.

Fiscal year

Note: Convictions are for retail store owners and employees and not for stores; some stores have 

multiple owners.

Despite the declining FNS estimates of retailer trafficking, retailers can 

still enter the program intending to traffic and do so, often without fear of 

severe criminal penalties. Minimal food stock requirements for 

authorization and a lack of FNS oversight of contractor inspections may 

allow dishonest retailers into the program, and delays in access to 

transaction data may allow retailers to traffic large amounts for several 

months undetected. In addition, some retailers have adapted their 

trafficking behaviors to avoid detection while others have found new ways 

to exploit the EBT technology. FNS does not yet have an overall strategy 

to target its monitoring resources to high risk areas. Moreover, the 

available FNS penalties for trafficking may not be sufficient to deter 

retailers from trafficking, and the states’ lack of focus on recipient 

trafficking can also facilitate trafficking. 

Despite the Progress 

That Has Been Made 

against Trafficking, 

Vulnerabilities Still 

Exist in the Program 

Page 22 GAO-07-53 Food Stamp Trafficking
Minimal food stock requirements may allow corrupt retailers to enter the 

program, yet their stocks will not likely be checked for 5 years absent the 

indication of a problem. FNS field office officials told us their first priority 

is getting stores into the program to ensure needy people have access to 

food. In part because large grocery stores are sometimes scarce in urban,

low-income areas, officials may allow stores with minimal food stock that 

meet the minimum FNS requirements to become authorized food stamp 

retailers. Officials told us that when a retailer only stocks small quantities 

of eligible food items, such as just a few cans of one kind of vegetable, it is

often an indication of the intent to traffic. However, FNS regulations do 

not specify the amount of food items that would constitute sufficient 

stock. The officer-in-charge of a large urban field office expressed 

frustration with this lack of specificity. Many authorized stores in her area 

are gas-and-grocery combinations or convenience stores and some of 

these stores stock only one item from each required food group. However, 

she said the field office cannot deny these stores authorization based upon 

minimal food stock because, in her experience, the denial would be 

overturned if appealed. Another official at an FNS regional office told us 

about a store that was denied authorization in that region. According to 

this official, the denial was overturned by the Administrative Review 

Branch when the reviewing officer determined that a single can of corn 

sufficed as one of the three different products required in the fruit or 

vegetable food group. In addition, Secret Service officials said that some 

merchants quickly learn that they do not need to restock their stores to 

continue to redeem food stamps because stores aren’t routinely checked

for 5 years unless there is some indication of a problem with the store. 

Staff in one of the 10 FNS field offices we visited told us that they have to 

authorize some retailers who seem suspicious, but they perform postauthorization visits of these stores to ensure they are legitimate. 

Minimal Requirements for 

Authorization and Lack of 

Oversight of Contractor 

Inspections May Allow 

Corrupt Retailers into the 

Program 

During the authorization process, FNS field offices rely on contractors to 

inspect stores to ensure they meet program requirements, but FNS does 

not independently verify the inspectors’ reports. The inspector provides 

the final check that a store exists, it has food in each of the required food

groups, and the information provided on the application for authorization 

to become a food stamp retailer is correct. However, at one field office, a 

contract inspector was submitting false reports, allowing dishonest 

retailers into the program. 

Oversight of retailers’ entry into the program and early operations is 

important because newly authorized retailers can quickly ramp up the 

amount of food stamps they traffic, and there is no limit on the value of 

food stamps a retailer can redeem in 1 month. At one field office location 

Page 23 GAO-07-53 Food Stamp Trafficking
where retailers are often innovative in their trafficking schemes, FNS 

officials noticed that some retailers quickly escalated their trafficking 

within 2 to 3 months after their initial authorization. As shown in figure 7,

one disqualified retailer’s case file we reviewed at that field office showed 

the store went from $500 in monthly food stamp redemptions to almost 

$200,000 within 6 months. Redemption activity dropped precipitously after 

the trafficking charge letter was sent to the retailer in late October. In its

application for food stamp authorization, this retailer estimated he would 

have $180,000 of total annual food sales, yet the retailer was redeeming 

more than that each month in food stamp benefits before being caught in a 

Retailer Investigations Branch investigation. 

Figure 7: Food Stamp Redemptions of a Newly Authorized Store Disqualified for

Trafficking 

0

50,000

100,000

150,000

200,000

March April May June July August Sept. Oct. Nov.

Monthly Food Stamp redemptions (in dollars)

Source: GAO analysis of FNS case file.

Year 2004

Delays in Access to 

Transaction Data Allow 

Trafficking to Continue for 

Months Undetected 

Although EBT implementation provides FNS with valuable transaction 

data to identify potential trafficking, an FNS headquarters official said 

monitoring and identification of traffickers will be improved once program 

specialists have faster access to transaction data to detect suspicious 

ramp-up activity. Currently, FNS receives each state’s EBT transaction 

data monthly on disk from the states’ EBT contractors. Using this process, 

the program specialists would not be aware of a retailer’s rapid ramp-up 

activity until they had 2 months’ worth of transaction data, in the third 

month after the retailer’s authorization. Then, following the normal case 

Page 24 GAO-07-53 Food Stamp Trafficking
development process, a charge letter would not be sent to the store until 

the fourth month, leading to possible disqualification in the fifth month. 

According to this official, as retailers learned that FNS would eventually 

discover them by analyzing their EBT transactions, they responded by 

ramping up their trafficking activity more quickly to make a quick profit 

before FNS could take action. 

FNS officials told us they believe that the solution to combating rapid 

ramp-up trafficking is for FNS to receive EBT transaction data daily. FNS 

systems could then monitor the data more quickly and produce daily 

reports of rapidly increasing amounts of retailer transactions called “spike

reports.” In order for FNS to receive so much data on a daily basis, it is 

working on building large data pipelines from the states’ EBT processors 

and developing its ability to manage that data before the end of this year. 

In the interim, FNS is piloting the use of spike reports using monthly data. 

Retailers Are Developing 

New Trafficking Schemes 

under EBT 

As some retailers have become familiar with FNS’s monitoring techniques, 

they have adapted their trafficking patterns to avoid detection. Unlike 

those who quickly ramp up their trafficking behavior for quick profit 

before detection through FNS monitoring, other retailers have adjusted to 

EBT monitoring by manipulating trafficking transactions to prevent 

detection by FNS analysis of transaction patterns. One field official said 

that there is a large network of trafficking retailers in her field office area

that dissects the charge letters sent to traffickers to determine what 

analyses FNS conducts and to teach other retailers how to elude 

detection. Secret Service officials confirmed the existence of fraud 

networks in this area and said that one ringleader will recruit, encourage, 

and reward an entire family and the friends of that family for trafficking 

food stamp benefits. 

Some retailers have also found new ways to exploit the EBT technology 

and continue to traffic. In her July 2003 testimony, the USDA Inspector 

General reported that her office had recently identified a fraudulent 

scheme that, while rare, appeared to be growing in the Food Stamp 

Program.14 The OIG noticed that some authorized retailers were moving 

their point-of-sale terminals to an unauthorized location, such as an 

unauthorized store or apartment, for trafficking purposes. In its 

 14 U.S. Congress, House Committee on the Budget, Fraud, Waste and Abuse in Mandatory

Spending Programs (July 9, 2003). 

Page 25 GAO-07-53 Food Stamp Trafficking
Semiannual Report to Congress for the first half of fiscal year 2004, the 

OIG reports that four individuals moved the authorized terminals to 

different locations in Chicago so they could exchange cash for food stamp 

benefits away from the authorized stores and possible detection. This 

allowed them to conduct a large number of transactions one after another. 

These individuals had been sentenced to serve from 15 to 57 months in 

prison and ordered to pay $29.1 million in restitution for defrauding the 

Food Stamp Program in this way from the fall of 1997 through August 

2001. OIG headquarters officials told us that moving authorized and 

unauthorized terminals remains a significant area of concern because of 

the large volume of money that could be redeemed quickly. 

FNS Has Not Taken the 

Next Steps to Target Its 

Monitoring Resources to 

High Risk Areas 

FNS has not taken the steps to ensure that it identifies those areas or 

stores that are at highest risk for trafficking so that it can allocate its 

resources accordingly. FNS has made good use of EBT transaction data to

produce its Watch List to identify suspicious transaction patterns and 

target certain stores. It has also established task forces of undercover 

investigators when it identifies geographic areas needing additional 

coverage. However, it is now at a point where it can begin to formulate 

more sophisticated analyses to identify high risk areas and target its 

resources. For example, certain states have a disproportionate share of the 

disqualified stores compared with the number of food stamp recipients in 

their states, yet it is not clear whether these numbers indicate that 

trafficking is more common in those states or whether FNS program 

specialists and investigators have engaged in more intensive pursuit of 

traffickers in those areas. Our analysis of FNS’s database of retailers 

showed that of the 9,808 stores permanently disqualified from the Food 

Stamp Program, about 35 percent were in just 4 states: New York, Illinois, 

Texas, and Florida, and yet about 26 percent of food stamp recipients lived 

in those states. However, FNS headquarters officials did not know the 

number of program specialists in the field offices in these states who 

devote a portion of their time to monitoring food stamp transactions and 

initiating paper cases.15 Moreover, FNS officials believe there are probably

other areas of the country where trafficking is occurring that may warrant 

further attention or additional resources, such as California, where fewer 

than 5 percent of all permanent store disqualifications occurred and about 

8 percent of food stamp recipients live. However, FNS officials have not 

 15 Program specialists also devote time to other duties, but the range and extent of other 

duties vary from field office to field office. 

Page 26 GAO-07-53 Food Stamp Trafficking
yet developed a clear strategy or criteria to systematically identify those 

areas and reallocate resources in response. 

In addition, some retailers and store locations have a history of program 

violations that lead up to permanent disqualifications, but FNS did not 

have a system in place to ensure these stores were quickly targeted for 

heightened attention. Our analysis showed that, of the 9,808 stores that 

had been permanently disqualified from the program, about 90 percent 

were disqualified for their first detected offense. However, 9.4 percent of 

the disqualified retailers had shown early indications of problems before 

being disqualified. About 4.3 percent of these retailers had received a civil 

money penalty, 4.3 percent had received a warning letter for program 

violations, and 0.8 percent had received a temporary disqualification.16,17

Most of these stores were small and may present a higher risk of future 

trafficking than others, yet FNS does not necessarily target them for 

speedy attention. 

Further, some store locations may be at risk of trafficking because a series 

of different owners had trafficked there. After an owner was disqualified, 

field office officials told us the store would reopen under new owners who 

continued to traffic with the store’s clientele. One field office official 

would like to be able to bar these repeat store locations, while another 

suggested a 90-day waiting period before a new owner of a disqualified 

store location could qualify as an authorized food stamp retailer. As table 3 

shows, our analysis of FNS’s database of retailers found that about 174, or 

1.8 percent, of the store addresses had a series of different owners over 

time who had been permanently disqualified for trafficking at that same 

location, totaling 369 separate disqualifications. In one case, a store in the 

District of Columbia had 10 different owners who were each disqualified 

for trafficking, consuming FNS’s limited compliance-monitoring resources. 

 16 Civil money penalties may be imposed against a store in lieu of disqualification. FNS 

collected almost $1.7 million in civil money penalties in fiscal year 2005. 

17 Warning letters are sent for lesser violations of program regulations such as charging 

food stamp recipients higher prices than other customers or when the evidence is too 

limited to warrant a disqualification. Temporary disqualifications are generally for selling 

ineligible goods such as paper plates, tobacco or alcohol or providing credit to food stamp

recipients. 

Page 27 GAO-07-53 Food Stamp Trafficking
Table 3: Some Store Locations Have Had Multiple Retailers That Engaged in 

Trafficking

Number of different owners at same 

address disqualified Number of disqualified addresses

2 162

3 10

5 1

10 1

Total 174

Source: GAO analysis of FNS data. 

Our analysis of the data on these stores with multiple disqualified owners 

indicates that FNS officials found this type of trafficking in a handful of 

cities and states. Almost 60 percent of repeat store locations were in six 

states and 44 percent were in 8 cities, often concentrated in small areas. 

For example, as figure 8 shows, 14 repeat store locations were clustered in

downtown areas of both Brooklyn and Baltimore. However, it is not clear 

whether these data indicate heightened efforts of compliance staff or 

whether trafficking is more common in these areas. Regardless, early 

monitoring of high-risk locations when stores change hands could be an 

efficient use of resources. 

Page 28 GAO-07-53 Food Stamp Trafficking
Figure 8: Map of Stores Repeatedly Disqualified for Trafficking in Brooklyn and Baltimore 

Baltimore City

Baltimore County

I 695

I 70

I 83

I 895

I 95

024

miles

Store locations permanently disqualified more than once

Source: GAO analysis of FNS data.

Brooklyn Baltimore

Staten

Island

Brooklyn

I 278

I 478

I 678

Efficient use of resources is particularly important because available 

compliance-monitoring resources have decreased in recent years. As the 

importance of paper cases has grown, the compliance-monitoring 

workload has gradually shifted to field office program specialists at a time 

when overall program resources have dwindled. Officials said the number 

of field investigators and field staff nationwide, which includes program 

specialists, has declined over the last 10 years. 

Available FNS Penalties 

May Not Deter Traffickers 

FNS penalties alone may not be sufficient to deter traffickers. The most 

severe FNS penalty that most traffickers face is disqualification from the 

program, and FNS must rely on other entities to conduct investigations 

that could lead to prosecution. For example, in the food-stamp-trafficking 

ramp-up case previously cited, this retailer redeemed almost $650,000 of 

food stamps over the course of 9 months before being disqualified from 

the program in November 2004. As of August 2006, there was no active 

investigation of this retailer. 

Page 29 GAO-07-53 Food Stamp Trafficking
Because of the time it takes to develop an investigation for prosecution 

and the costs associated with doing so, a natural tension exists between 

the goal of disqualifying a retailer as quickly as possible to prevent further 

trafficking and seeking prosecution of the retailer to recover losses and 

deter other traffickers. One FNS field office official said it can take months 

or even years to investigate a case for prosecution and in the meantime the 

store continues to traffic. FNS can disqualify a retailer relatively quickly—

thereby saving federal dollars from misuse—compared with the time OIG 

needs to investigate a case for referral for prosecution. However, if 

prosecution is successful, a retailer’s assets and profits from trafficking 

can be seized, providing a potential deterrent to others considering 

trafficking. 

States’ Lack of Focus on 

Recipient Trafficking Can 

Facilitate Vendor 

Trafficking 

Paper cases often identify recipients suspected to have trafficked their 

food stamp benefits with a dishonest retailer, and some FNS field offices 

send a list of those recipients to the appropriate state. In response, some 

states actively pursue and disqualify these recipients.18 For example, 

Illinois has used these lists to disqualify more than 3,000 of the almost 

20,000 suspected recipients referred to them since 1999 through FNS 

retailer investigations. In addition to pursuing recipients who are 

suspected of trafficking, one state told us it uses some recipients charged 

with trafficking to gather evidence against retailers. 

However, FNS field offices do not always send lists of suspected individual 

traffickers to states or counties administering the program, and not all 

states investigate the individuals on these lists. Officials from four FNS 

field offices we visited said they don’t send the list of recipients suspected 

of trafficking to the states or counties administering the program. Other 

field office officials said they send the lists to their states, but they are not 

acted upon because states do not have the resources to conduct 

investigations into recipients who may be trafficking. FNS headquarters 

officials also believe that not many states are acting on the lists they 

receive because it is difficult and potentially costly to prove individual 

cases of recipient trafficking. One field office official said that store 

owners represent only half of the problem and that states could do more 

 18 The states are responsible for conducting a hearing for recipients caught trafficking. 

A recipient who is found to have trafficked faces disqualification from the Food Stamp

Program: 12 months for a first offense, 24 months for a second offense, and permanently 

for a third offense. 

Page 30 GAO-07-53 Food Stamp Trafficking
to address trafficking. If states could reduce recipients’ trafficking, it 

would curb retailer trafficking as well. 

Instead of focusing on food stamp recipients who traffic their benefits, 

states are using their resources to focus on recipients who improperly 

collect benefits, according to FNS officials.19 The current incentive 

structure for the states includes performance bonuses to reward states for 

correcting payment errors and reducing error rates. In addition, states are 

penalized financially if their error rates reach a specific threshold for 

2 years in a row.20 States that do investigate recipient traffickers can keep 

35 percent of any monies they recover; however, it may be difficult to 

recover the funds, and the amount recovered may be minimal. When a 

state proves a recipient has trafficked, the recipient can no longer receive

benefits, but other members of the family can. States can try to recover 

some of the benefits trafficked by deducting a set amount from the family 

benefits each month. However, pursuing recipients who traffic can be

costly and time-consuming.21 Taken together, these factors can result in 

states’ choosing to focus on improper benefit payments rather than 

recipient trafficking. This inaction by some states allows recipients 

suspected of trafficking to continue the practice, and such inaction also 

leaves a pool of recipients ready and willing to traffic their benefits as 

soon as a disqualified store reopens under new management. In fact, 

California field office staffs have begun to track suspected trafficking 

recipients from a disqualified store to a new store, where they begin 

exhibiting the same patterns. 

 19 In fiscal year 2004, states reported that they completed almost 746,000 food stamp fraud 

investigations resulting in over 55,000 recipient disqualification determinations. They do 

not, however, report the number of cases involving recipients who trafficked versus the

number who obtained benefits fraudulently.

20 States are penalized when there is a 95 percent statistical probability that that their error 

rates exceeds 105 percent of the national average for 2 consecutive years. The penalty is 

equal to 10 percent of the cost of errors above 6 percent. For more information, see GAO,

Food Stamp Program: States Have Made Progress Reducing Payment Errors, and

Further Challenges Remain, GAO-05-245 (Washington, D.C.: May 5, 2005). 

21 In addition, the Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, reduced 

the administrative reimbursement for all investigations and prosecutions from 75 to 

50 percent. 

Page 31 GAO-07-53 Food Stamp Trafficking
In the Food Stamp Program, stores are the frontline for ensuring that 

recipients use food stamps to purchase appropriate food items, and these 

stores operate with no day-to-day oversight. Although the vast majority of 

stores do not traffic food stamp benefits, each year millions of dollars of 

program benefits that were awarded to provide food to needy individuals 

and families are trafficked. FNS, using EBT data, has made significant 

progress in taking advantage of new opportunities to monitor and 

disqualify traffickers. However, because store owners can begin trafficking

as soon as they are authorized to participate in the program, pocketing 

large sums of cash for months before FNS can detect potentially 

suspicious transaction patterns, early monitoring and detection are critical 

to curbing larger losses to the program. FNS has at its fingertips a wealth 

of information that could help it develop additional criteria to target 

certain stores or geographic areas for early or more heightened 

monitoring, including the presence of low food stocks, the location of 

repeat offender stores, areas of recipient trafficking, and areas with 

evidence of organized fraudulent activity. FNS’s loss of monitoring staff in 

recent years magnifies the need to ensure that compliance-monitoring 

resources are focused on those stores and geographic areas at greatest 

risk of trafficking. A more focused effort to target and disqualify these 

stores could help FNS meet its continuing challenge of ensuring that 

stores are available and operating in areas of high need while still 

maintaining program integrity. 

Yet, as EBT has limited the amount of benefits that can be trafficked at 

one time, there is less chance the retailer or the recipient will be 

prosecuted. There is no easy solution to this lack of deterrence. Law 

enforcement agencies are making decisions to efficiently use their 

resources by targeting larger or more critical cases. And FNS currently 

does not have authority to impose stiffer penalties on retailers other than 

program disqualification or in limited situations, civil money penalties in 

lieu of disqualification. Food stamp trafficking will continue to be lucrative 

for retailers as long as the potential rewards outweigh the penalties and 

there are recipients willing to exchange their benefits for cash and 

resources are not used for investigations and penalizing recipients. 

We recommend that the Secretary of the Department of Agriculture direct

FNS to take the following five actions. 

Conclusions 

Recommendations 

To help ensure that its limited compliance-monitoring resources are used

efficiently, FNS should 

Page 32 GAO-07-53 Food Stamp Trafficking
• develop additional criteria to help identify stores most likely to traffic and 

their locations; conduct risk assessments, using compliance and other 

data, to systematically identify stores and areas that meet these criteria; 

and allocate resources accordingly, and 

• provide more targeted and early oversight of stores that meet these 

criteria, such as conducting early monitoring or follow-up inspections. 

To provide further deterrence for trafficking, FNS should 

• develop a strategy to increase the penalties for trafficking, working with 

the OIG as needed. If these penalties entail additional authority, consider 

developing legislative proposals for program reauthorization in 2007. 

To promote state efforts to pursue recipients suspected of trafficking and

thereby reduce the pool of recipient traffickers, FNS should: 

• ensure that FNS field offices report to states those recipients who are 

suspected of trafficking with disqualified retailers, and 

• revisit the incentive structure to incorporate additional provisions to 

encourage states to investigate and take action against recipients who 

traffic. 

We provided a draft of this report to the U.S. Department of Agriculture 

and the U.S. Secret Service for review and comment. On September 5, 

2006, FNS officials provided us with their oral comments. The officials 

generally agreed with our findings, conclusions, and recommendations. 

However, FNS officials raised a concern regarding our recommendations 

on more efficient use of their compliance-monitoring resources. They 

stated they believe they do have a strategy for targeting resources through 

their use of the Watch List, which helps them identify suspicious 

transaction patterns and target certain stores, combined with their ability 

to establish task forces of investigators when they identify geographic 

areas needing additional coverage. We believe that FNS has made good

progress in its use of EBT transaction data; however, it is now at a point 

where it can begin to formulate more sophisticated analyses. For example, 

these analyses could combine EBT transaction data with other available 

data, such as information on stores with minimal inventory and stores with 

a past history of trafficking, to develop criteria to better and more quickly 

identify stores at risk of trafficking. In addition, FNS could also take 

advantage of more sophisticated analysis tools, such as certain mapping 

programs,to better identify those areas where trafficking is more 

Agency Comments 

Page 33 GAO-07-53 Food Stamp Trafficking
 Food Stamp Trafficking

prevalent. Finally, to increase the likelihood of success, FNS will need to 

combine the expertise of its field investigators and its program specialists 

and then allocate these resources to monitor those stores at the greatest 

risk of trafficking. FNS and OIG officials also provided technical 

comments, which we incorporated where appropriate. 

The U.S. Secret Service did not provide us with formal comments but told

us it concurred with the findings in our report and that it agreed with our 

recommendation that additional work needs to be done to increase 

existing penalties for trafficking. 

We are sending copies of this report to the Secretary of Agriculture, 

appropriate congressional committees, and other interested parties. We 

will also make copies available to others upon request. In addition, the 

report will be available at no charge on GAO’s Web site at 

http://www.gao.gov. 

If you or your staff have any questions regarding this report, please 

contact me at (202) 512-7215 or nilsens@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 

last page of this report. GAO staff who made major contributors to this 

report are listed in appendix I. 

Sigurd R. Nilsen 

Director, Education, Workforce, 

 and Income Security Issues 

Page 34 GAO-07-53
Appendix I: 

A

GAO Contact and Staff 

cknowledgments 

Page 35 GAO-07-53

Appendix I: GAO Contact and Staff 

Acknowledgments 

GAO Contact Sigurd R. Nilsen (202) 512-7215 or nilsens@gao.gov 

In addition to the contact named above, Kay Brown, Assistant Director; 

Gloria Hernandezsaunders; Kevin Jackson; Kevin Kumanga, 

Analyst-in-Charge; Crystal Lazcano; Jesus Moreno; Phil Reiff; Ramon 

Rodriguez; Eden Savino; Dan Schwimer; Vanessa Taylor; Rachael Valliere; 

and Jill Yost. 

Staff 

Acknowledgments 

 Food Stamp Trafficking
Related GAO Products Related GAO Products 

Improper Payments: Federal and State Coordination Needed to Report 

National Improper Payment Estimates on Federal Programs. 

GAO-06-347. Washington, D.C.: April 14, 2006. 

Food Stamp Program: States Have Made Progress Reducing Payment 

Errors, and Further Challenges Remain. GAO-05-245. Washington, D.C.: 

May 5, 2005.

Food Stamp Program: Farm Bill Options Ease Administrative Burden,

but Opportunities Exist to Streamline Participant Reporting Rules 

among Programs. GAO-04-916. Washington, D.C.: September 16, 2004. 

Food Stamp Program: Steps Have Been Taken to Increase Participation 

of Working Families, but Better Tracking of Efforts Is Needed. 

GAO-04-346. Washington, D.C.: March 5, 2004. 

Financial Management: Coordinated Approach Needed to Address the 

Government’s Improper Payments Problems. GAO-02-749. Washington, 

D.C.: August 9, 2002. 

Food Stamp Program: States’ Use of Options and Waivers to Improve 

Program Administration and Promote Access. GAO-02-409. Washington, 

D.C.: February 22, 2002. 

Executive Guide: Strategies to Manage Improper Payments: Learning 

from Public and Private Sector Organizations. GAO-02-69G. Washington,

D.C.: October 2001. 

Food Stamp Program: States Seek to Reduce Payment Errors and 

Program Complexity. GAO-01-272. Washington D.C.: January 19, 2001. 

Food Stamp Program: Better Use of Electronic Data Could Result in 

Disqualifying More Recipients Who Traffick Benefits. GAO/RCED-00-61. 

Washington D.C.: March 7, 2000. 

Food Assistance: Reducing the Trafficking of Food Stamp Benefits. 

GAO/T-RCED-00-250. Washington D.C.: July 19, 2000. 

Food Stamp Program: Information on Trafficking Food Stamp Benefits. 

GAO/RCED-98-77. Washington D.C.: March 26, 1998. 

(130500) Page 36 GAO-07-53 Food Stamp Trafficking
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