Nutrition Assistance: Actions Needed to Address Potential Online Sales of Infant Formula
Published: 2015-05-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: WIC provides supplemental foods—including infant formula—and assistance to low-income pregnant and postpartum women, infants, and young children. WIC regulations prohibit participants from selling the foods they receive from the program. However, the Internet has substantially increased as a marketplace in recent years, and news reports suggest that some participants have attempted to sell WIC formula online.
This testimony addresses: (1) what is known about the extent to which participants sell WIC formula online, and (2) USDA actions to prevent and address online sales of WIC formula. It is based on a December 2014 report, and includes April 2015 updates on actions USDA has taken to address the report's recommendations, which GAO obtained by analyzing USDA documents. For the 2014 report, GAO reviewed relevant federal laws, regulations, and USDA guidance; monitored online advertisements to sell formula in four metropolitan areas; reviewed a non-generalizable sample of policy manuals from 25 states, selected for their varied WIC caseloads and geography; and interviewed USDA and state and local officials.
section_title: What GAO Found
paragraphs: The U.S. Department of Agriculture (USDA) does not have data to determine the national extent of online sales of infant formula provided by the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). Nevertheless, state WIC officials and GAO's own limited monitoring suggest that some WIC participants have offered formula for sale online. Of the officials we spoke with in 12 states, those from 5 states said that they have found WIC formula offered for sale online by participants. GAO monitored one online classified advertisements website in four large metropolitan areas for 30 days and found 2 posts in which individuals attempted to sell formula specifically identified as WIC—from among 2,726 that advertised infant formula generally. A larger number, 481 posts, advertised formula generally consistent with the formula brand, type, container volume, and amount provided to WIC participants, but these posts did not indicate the source of the formula. Because WIC participants purchase the same formula brands and types from stores as non-WIC customers, monitoring attempted online sales of WIC formula can present a challenge. State officials GAO spoke with cited other challenges to monitoring online sales, such as the fact that individuals posting formula for sale online are able to remain relatively anonymous, and their posts may contain insufficient information to allow staff to identify them as WIC participants.
USDA has taken some steps toward helping states prevent and address online sales of WIC formula but has not collected information that could assist states in determining cost-effective approaches for monitoring such sales. In December 2014, GAO found that USDA had not specifically directed states to tell participants that selling WIC formula was a participant violation, which could have led to participants making these sales without realizing doing so was against program rules. GAO also found that states were not required to report their procedures for controlling participant violations—including sales of WIC benefits—to USDA, leaving the department without information on state efforts to ensure program integrity in this area. Through interviews with state and local WIC agency officials from 12 states, GAO found that states varied in the method and level of effort devoted to monitoring these sales and lacked information to determine cost-effective approaches for monitoring. Without information on the national extent of online sales of WIC benefits or effective monitoring techniques, both USDA and the states are unable to target their resources effectively to address related risks. As a result, GAO recommended that USDA require state agencies to inform participants of the prohibition against selling WIC formula and describe to USDA how they identify attempted sales. GAO also recommended that USDA collect information about the national extent of attempted online sales of WIC formula benefits and determine cost-effective techniques states can use to monitor them. In response, USDA issued revised guidance in April 2015 stating that it expects states to (1) inform participants that selling WIC benefits violates program rules and (2) report their procedures for monitoring attempted WIC benefit sales to USDA. Also in April 2015, USDA officials reported that although they had not yet taken action to assess the national extent of online sales and determine cost-effective techniques to monitor them, they planned to explore ways to do so.
section_title: What GAO Recommends
paragraphs: GAO recommended, in December 2014, that USDA better ensure WIC participants are aware of the prohibition against selling formula, require states to describe how they identify attempted sales, and assess online sales, including techniques for monitoring. USDA agreed, has taken some action, and plans to do more.

section_title: Letter
paragraphs: Thank you for the opportunity to discuss our work on the online sale of  infant formula received through the Special Supplemental Nutrition  Program for Women, Infants, and Children (WIC).  In fiscal year 2013,  the federal government spent approximately $6.5 billion on WIC, which  provided food, nutrition education, breastfeeding support, and health and  social service referrals to about 9 million low-income pregnant and  postpartum women, infants, and young children. U.S. Department of  Agriculture (USDA) regulations establish the types and maximum  amounts of food, including infant formula, participants may receive, and  state and local agencies administering the program establish policies and  procedures for determining specific amounts of WIC foods—at or below  these maximum levels—to provide to participants. WIC rules prohibit  participants from selling foods they receive from the program, including  infant formula, and participants who violate WIC rules are subject to  various sanctions, including repayment of the value of benefits and  disqualification from the program. In our 1999 study of WIC fraud and  abuse, we found that there were relatively few documented cases  nationwide of participants selling infant formula for cash, and generally  low rates of WIC participant fraud overall, in contrast to the relatively high  rate of WIC vendor fraud. However, the use of the Internet as a  marketplace has substantially increased in recent years, and news  reports suggest that some participants have attempted to sell WIC  formula online. Improper use of WIC benefits undermines the integrity of  the program and its ability to provide key nutrition assistance and services  to vulnerable populations.
My testimony today will focus on (1) what is known about the extent to  which participants sell WIC formula online, and (2) what steps USDA has  taken to prevent and address the online sale of WIC formula.
This statement is based on a report we issued in December 2014  addressing online sales of infant formula and includes updates conducted  in April 2015 on the actions USDA is taking to address our prior  recommendations. For our December 2014 report, we collected and  analyzed information using a variety of methods. We reviewed relevant  federal laws, regulations, and guidance from USDA to determine  requirements related to the provision of formula to infants receiving WIC  benefits, as well as to identify federal, state, and local roles related to  preventing and addressing online sales of WIC formula. In addition, we  assessed USDA’s controls against GAO Standards for Internal Control in  the Federal Government. To determine the role USDA regulations and  guidance play in preventing and addressing online sales of WIC formula,  we reviewed a non-generalizable sample of 25 state WIC policy and  procedure manuals. While not generalizable to the U.S., we selected  these states primarily for their varied WIC caseloads and diverse  geographic locations. Also, as a group, these states provide services to  approximately two-thirds of all WIC participants in the U.S. We also  monitored online classified advertisements offering formula for sale using  one popular e-commerce website in four metropolitan areas over 30 days  between June and July 2014. We selected these areas based on (1) high  number of births, (2) high WIC caseloads, and (3) geographic dispersion.  In addition, we interviewed USDA officials, as well as 17 state and 2 local  WIC officials representing 12 states. More detailed information on our  objectives, scope, and methodology for our work can be found in the  issued report. To obtain updates on USDA’s actions to address our prior  recommendations, we reviewed information provided by USDA officials  and analyzed documents describing actions the department has taken.
We conducted the work on which this statement is based in accordance  with generally accepted government auditing standards. Those standards  require that we plan and perform the audit to obtain sufficient, appropriate  evidence to provide a reasonable basis for our findings and conclusions  based on our audit objectives. We believe that the evidence obtained  provides a reasonable basis for our findings and conclusions based on  our audit objectives.
subsections: section_title: Background
paragraphs: Established as a national program in the mid 1970s, WIC is intended to  improve the health status of low-income pregnant and postpartum  women, infants, and young children by providing supplemental foods and  nutrition education to assist participants during critical times of growth and  development. Pregnant and post-partum women, infants, and children up  to age 5 are eligible for WIC if they are found to be at nutritional risk and  have incomes below certain thresholds. According to USDA, research  has shown that WIC helps to improve birth and dietary outcomes and  contain health care costs, and USDA considers WIC to be one of the  nation’s most successful and cost-effective nutrition intervention  programs.
subsections: section_title: WIC Food Benefits
paragraphs: WIC participants typically receive food benefits—which may include infant  formula—in the form of paper vouchers or checks, or through an  electronic benefit transfer card, which can be used to purchase food at  state-authorized retail vendors. USDA has established seven food  packages that are designed for different categories and nutritional needs  of WIC participants. Authorized foods must be prescribed from the food  packages according to the category and nutritional needs of the  participants. USDA recently revised the food packages to align with  current nutrition science, largely based on recommendations of the  National Academies’ Institute of Medicine.
Infants who are not exclusively breastfeeding can receive formula from  WIC until they turn 1 year of age. While federal regulations specify the  maximum amount of formula different categories of infants are authorized  to receive, state and local agency staff also have some flexibility in  determining precise amounts to provide, depending on an infant’s  nutritional needs. Staff at local WIC agencies play a critical role in  determining infants’ feeding categories, and they have the authority to  provide them with less formula than the maximum amount allowed for  each category, if nutritionally warranted. Nutrition specialists, such as  physicians or nutritionists, working at the local agency perform nutritional  assessments for prospective participants as part of certification  procedures. They use the nutritional assessment information to  appropriately target food packages to participants.
section_title: WIC Program Oversight and Administration
paragraphs: USDA’s role in operating WIC is primarily to provide funding and  oversight, and state and local WIC agencies are charged with carrying out  most administrative and programmatic functions of the program.  Specifically, USDA provides grants to state agencies, which use the funds  to reimburse authorized retail vendors for the food purchased by WIC  participants and to provide services. As part of its federal monitoring and  oversight obligations, USDA annually reviews the state plan for each  state WIC agency, which provides important information about the  agency’s objectives and procedures for all aspects of administering WIC  for the coming fiscal year. For their part, state agencies are responsible  for developing WIC policies and procedures within federal requirements,  entering into agreements with local agencies to operate the program, and  monitoring and overseeing its implementation by these local agencies.
The WIC oversight structure is part of the program’s internal controls,  which are an integral component of management. Internal control is not  one event, but a series of actions and activities that occur on an ongoing  basis. As programs change and as agencies strive to improve operational  processes and implement new technological developments, management  must continually assess and evaluate its internal controls to assure that  the control activities being used are effective and updated when  necessary. Management should design and implement internal controls  based on the related cost and benefits. Effective internal controls include:  (1) communicating information to management and others to enable them  to carry out internal control and other responsibilities and (2) assessing  the risks agencies face from both external and internal sources.
section_title: National Data on Online Sales of WIC Infant Formula Are Unavailable, but Evidence Suggests Some Participants Attempt Them
paragraphs: USDA does not have data that can be used to determine the national  extent of online sales of WIC formula, and department officials told us that  USDA has not conducted a comprehensive study to assess these sales.  According to the officials, the department does not collect data on this  issue, in part because it is not the department’s responsibility to sanction  WIC participants for program violations. Rather, they said, it is the  responsibility of state agencies to establish procedures to prevent and  address participant violations, including attempts to sell WIC food  benefits.
According to state officials, states’ monitoring efforts have revealed some  WIC formula offered for sale online. Of the officials we spoke to from 12  states, those from 5 states said that they have found WIC formula offered  for sale online by participants. Officials in 3 of these states said that they  have found fewer than 0.5 percent of their WIC participants attempting  these sales online. Officials in 2 other states did not estimate percentages  but stated that the incidence is low.
Consistent with these state accounts, our own monitoring of a popular e- commerce website for 30 days in four large metropolitan areas found few  posts in which individuals explicitly stated they were attempting to sell  WIC-provided formula. Specifically, we identified 2,726 posts that  included the term “formula,” and 2 of these posts explicitly stated that the  origin of the formula was WIC. In both posts, the users indicated they  were selling the WIC formula because they had switched to different  brands of formula.
A posting from late June 2014  included the container size in the title  and stated: “I am looking to sell 5 [brand  name] 12.5oz cans (NOT OPENED)  because  is super picky and does  not want to drink it no matter what i do.   will drink the  kind  for some reason. I told my WIC office to  switch me to another brand but they say  it might take 3 months. Im asking 35$ but  best offer will do since the brand I buy is  from  so Im not looking to make a  profit here if you consider each can is  16$ at the store. please text if  interested!!  A posting from early July 2014  included the brand, type, and  container size in the title and stated:  “I have 7 powder cans of   they dnt expire for another year at least  just got them from my wic n we ended up  switching formulas so its $65.oo for pick  up all 7 cans or $70 if i have to drive.”
From the same e-commerce website, we also identified 481 posts, of  which any number could have been advertising WIC-provided formula.  However, these posts did not state that the advertised formula was from  WIC, and while the formula offered for sale was generally consistent with  formula provided through WIC, we could not identify it as such.  Specifically, during our 30 days of monitoring formula advertisements, we  applied a number of criteria to narrow the broad pool of advertisements to  identify those that may have been selling WIC formula. First, because  state agencies are generally required to award single-source contracts for  WIC formula, we searched for posts advertising formula brands that  matched the state-specific WIC-contracted brand. We found that about  three-quarters (2,013 posts) fit this criterion. We then reviewed each of  these posts and determined that 346 of the posts fit each of three  additional criteria, which we chose because they are generally consistent  with WIC formula provided to infant participants.  1. The formula type, such as soy or sensitive, advertised for sale was  equivalent to one of the types provided to WIC participants in the state in  which the posting was made.  2. The volume of the formula container advertised was equivalent to the  volume of one of the containers provided to WIC participants in the state  in which the posting was made.   3. The amount of formula advertised represented a large proportion of the  maximum amount of formula authorized to be provided to fully formula- fed WIC infant participants each month, averaged across all ages.
Beyond the 346 posts that matched these three criteria, we found another  135 that met at least one, but not all, of the criteria. However, since we  did not investigate any of these posts further, we do not know if any or all  of these 481 posts were attempts to sell WIC formula.
A posting from mid-June 2014 stated:  “$10 a can! 14 -12.9 oz Cans of [brand  name and type] Formula. Expiration Date  is - July 1, 2015. Please take it all. I will  not separate the formula! NOT FROM  WIC!!!  is now 14 months and no  longer needs this. Email only please  A posting from mid-June 2014:  “ Turn A Year Already, and we  Just bought her 7 Brand New Cans of  . She no longer  needs Formula. Selling each Can for  $10. Brand New, NOT Open. 12.4 Oz.  EXP. 1 March. 2016.”
Through our monitoring efforts, and through interviews with USDA and  state and local WIC officials, we identified a number of key challenges  associated with distinguishing between WIC-obtained formula sales and  other sales:
Each state’s specific WIC-contracted formula brand is typically  available for purchase at retail stores by WIC participants and non- WIC participants alike, without an indicator on the packaging that  some were provided through WIC.
There are a number of reasons why individuals may have excess  formula. For example, a WIC participant may obtain the infant’s full  monthly allotment of formula at one time; alternatively, non-WIC  parents may purchase formula in bulk at a lower cost to save money.  In either case, if the infant then stops drinking that type of formula,  parents may attempt to sell the unused formula.
Individuals posting formula for sale online are able to remain relatively  anonymous, so WIC staff may not have sufficient information to link  the online advertisement with a WIC participant. According to one  WIC official we spoke with, staff in that state identify approximately  one posting a week with sufficient detail about the seller—such as  name or contact information—for staff to pursue. A WIC official from  another state said that staff previously used phone numbers to identify  WIC participants posting formula for sale, but they believe participants  then began to list other people’s phone numbers on posts.
Advertisements for infant formula sales can be numerous online, and  formula for sale originates from varied sources. For example, through  our literature search, we found multiple news reports on stolen infant  formula advertised for sale online.
section_title: USDA Has Assisted States in Preventing and Addressing Online Sales, but Monitoring Guidance is Lacking
paragraphs: USDA has taken steps aimed at clarifying that the online sale of WIC  benefits is a participant violation. For example, in 2013, USDA proposed  regulations that would expand the definition of program violation to  include offering to sell WIC benefits, specifically including sales or  attempts made online. Earlier, in 2012, USDA issued guidance to WIC  state agencies clarifying that the sale of, or offer to sell, WIC foods  verbally, in print, or online is a participant violation. This guidance stated  that, in accordance with federal regulations, USDA expects states to  sanction and issue claims against participants for all program violations,  but it did not provide direction on ways to prevent online sales of WIC  foods, including formula. That same year, USDA also sent letters to four  e-commerce websites—through which individuals advertise the sale of  infant formula—requesting that they notify their customers that the sale of  WIC benefits is prohibited, and two of the companies agreed to post such  a notification.
More generally, USDA has highlighted the importance of ensuring WIC  program integrity through guidance issued in recent years aimed at  encouraging participants to report WIC program fraud, waste, and abuse  to the USDA Office of the Inspector General (OIG). For example, in 2012,  USDA disseminated a poster developed by the OIG and attached it to a  guidance document describing its purpose, which includes informing WIC  participants and staff how to report violations of laws and regulations  relating to USDA programs. The following year, USDA issued additional  guidance that encouraged states to add contact information for the OIG to  WIC checks or vouchers, or to their accompanying folders or sleeves.  USDA indicated that both guidance documents were intended to facilitate  participant reports of suspected fraud, waste, and abuse to the OIG, but  neither specifically directed states to publicize the fact that attempting to  sell WIC benefits, either online or elsewhere, qualifies as an activity that  should be reported.
Although WIC regulations require that state agencies establish  procedures to control participant violations, we found that states vary in  whether their required procedures include informing participants of the  prohibition against selling WIC formula. The WIC regulations require that  all participants (or their caretakers) be informed of their rights and  responsibilities and sign a written statement of rights and obligations  during the certification process. The regulations also require certain  program violations to be included in the information provided on rights  and responsibilities. However, according to USDA officials, the sale of  WIC food benefits is not required to be included, nor do the regulations  require participants be informed of this violation through other means. In  our review of rights and responsibilities statements from 25 states’ WIC  policy and procedure manuals, we found that 7 did not require local  agency staff to inform participants that selling WIC benefits is against  program rules. Inconsistent communication to participants about this  violation conflicts with federal internal control standards, and  participants who are unaware of this prohibition may sell excess formula  online, thus inappropriately using program resources. Based on these  findings, we recommended in our December 2014 report that USDA  instruct state agencies to include in the rights and responsibilities  statement that participants are not allowed to sell WIC food benefits,  including online. USDA agreed with this recommendation, and in April  2015, department officials reported that they intend to revise WIC  regulations to require state agencies to include in participant rights and  responsibilities statements the prohibition against selling WIC food  benefits online. In the interim, USDA included this as a best practice in  the 2016 WIC State Plan guidance it disseminated to state agencies on  April 6, 2015. Department officials indicated that USDA expects states to  move forward on this action and not wait for regulations.
In addition, we found that states vary in the ways they identify attempted  sales of WIC formula through monitoring efforts, and USDA has not  collected information on states’ efforts to address these sales. Of the  officials that we spoke to from 12 states, those from 9 states mentioned  that they regularly monitor online advertisements. However, the method  of monitoring and the level of effort devoted to this activity varied across  states. For example, officials in one state said that a number of staff  within the state office, as well as a number of those in local agencies,  search social media websites daily. In contrast, officials from another  state said that staff spend about a half day each week monitoring online  sites for attempted sales of WIC food benefits, and an official from a  different state said that staff monitor for such sales only when time allows.  A USDA official told us that the department would like to provide more  support to states in pursuing likely cases of participant fraud related to the  online sale of WIC food benefits, but it has not yet determined how to be  of assistance.
USDA officials indicated they believe states are monitoring attempted  sales of WIC formula online to identify this participant violation; however,  the department has not gathered information on the status of state efforts  to address online sales. Although USDA officials review each WIC state  plan annually to ensure that it is consistent with federal requirements, a  state’s procedures for identifying participant violations are not among the  required elements for WIC state plans included in federal statute and  regulations. Because USDA does not require that state agencies  document their procedures for identifying participant sales of WIC foods,  including online sales of infant formula, USDA does not know whether or  how states are working to ensure program integrity in this area. The fact  that the department does not work more directly with states on this issue  is also inconsistent with federal internal control standards. We  recommended in our December 2014 report that USDA require state  agencies to articulate their procedures for identifying attempted sales of  WIC food benefits in their WIC state plans and analyze the information to  ascertain the national extent of state efforts. USDA agreed with this  recommendation, and department officials reported in April 2015 that they  intend to revise WIC regulations to require state agencies to include in  state plans their procedures for identifying attempted sales of WIC food  benefits. In the interim, USDA included this as a best practice in the 2016  WIC State Plan guidance it disseminated to state agencies on April 6,  2015.
USDA and the states also lack information to determine cost-effective  approaches for monitoring these attempted sales. According to USDA,  state, and local WIC officials, because of the various challenges state  WIC staff face in distinguishing between WIC-obtained formula sales and  other sales, the return on investment for monitoring these sales is low.  One USDA official noted that it is difficult for states to prove that  participants are selling WIC food benefits, which increases the amount of  time and effort state staff need to spend to address these cases.  Officials from one state WIC agency and one local WIC agency we spoke  to said that efforts by state and local agency staff to identify and address  online WIC formula sales result in few confirmed cases and draw away  scarce resources from other aspects of administering the program. One  USDA official said that states that sanction a participant for attempting to  sell WIC formula without sufficient evidence that it occurred will likely  have the violation overturned during the administrative appeal process.  These cases also appear unlikely to result in court involvement, as when  we asked the 19 officials from 12 states how these cases were  addressed, only one said that a couple had gone through the legal  system. Federal internal control standards state that agencies should  design and implement internal controls based on the related costs and  benefits. According to USDA, because of the substantial risks associated  with improper payments and fraud related to WIC vendor transactions,  both USDA and the states have focused their oversight efforts in recent  years on addressing vulnerabilities in the management of this area, rather  than focusing on possible participant violations. However, because the  use of the Internet as a marketplace has substantially increased in recent  years and the national extent of online sales of WIC food benefits is  unknown, USDA and the states have insufficient information to assess  the benefits of oversight efforts related to this participant violation.  Because of this, we recommended in our December 2014 report that  USDA collect information to assess the national extent of attempted  online sales of WIC formula benefits and determine cost-effective  techniques states can use to monitor online classified advertisements.  USDA agreed with this recommendation, and department officials  reported in April 2015 that they plan to explore ways to assess the extent  of online sales of WIC formula and identify and share best practices, cost- effective techniques, or new approaches for monitoring online  advertisements with state agencies. To do this, they noted that they will  draw on funds designated for addressing high-priority programmatic  issues. We believe this approach will help states to strike the appropriate  balance of costs and benefits when determining how to target their  program integrity resources.
Chairman Rokita, Ranking Member Fudge, and Members of the  Subcommittee, this completes my prepared statement. I would be  pleased to respond to any questions you may have at this time.
section_title: GAO Contact and Staff Acknowledgements
paragraphs: If you or your staff have any questions about this statement, please  contact Kay E. Brown, Director, Education, Workforce, and Income  Security, at 202-512-7215 or brownke@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this statement. GAO staff who made key contributions to  this statement include Sarah Cornetto, Aimee Elivert, Rachel Frisk, and  Sara Pelton.
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