The Food Stamp Program provides low-income households with paper coupons or electronic benefits that can be redeemed for food in about 156,000 stores across the nation. In fiscal year 2001, the Congress appropriated $20.1 billion for the Food Stamp Program. FNS establishes regulations for implementing the Food Stamp Program, reviews states’ operating plans to ensure compliance with the regulations, and funds food stamp benefits and about half of the states’ administrative costs. 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. Household eligibility and benefit amounts are based on nationwide federal criteria, including household size and income, assets, housing costs, and work requirements. FNS monitors states’ performance by assessing how accurately they determine food stamp eligibility and calculate benefits. Under FNS’ quality control system, the states calculate their payment errors by annually drawing a statistical sample of at least 300 to 1,200 active cases, depending on the average monthly caseload. The states review case information and make home visits to determine whether households were eligible for benefits and received the correct benefit payment. FNS regional offices validate the results by reviewing a subset of each state’s sample to determine its accuracy, and make adjustments to the state’s overpayment and underpayment errors as necessary. Until the mid-1990s, most recipients used benefits provided in the form of coupons to purchase allowable food. According to FNS, as of March 2001, 41 states, the District of Columbia, and Puerto Rico have operational food stamp EBT systems. Thirty-nine of these systems are operating statewide. All states are to implement EBT systems by October 1, 2002, unless USDA waives the requirement. By providing benefits electronically, the federal government saves time and money because the process of providing the coupons is eliminated. Furthermore, an EBT system creates an electronic record of each food stamp transaction, making it easier to identify and document instances of fraud and abuse in the program. Recent legislative initiatives to reform welfare have also affected Food Stamp Program operations. Specifically, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA), which was passed in 1996 to reform the nation’s welfare system, also modified aspects of the Food Stamp Program. To reform welfare, PRWORA replaced the Aid to Families with Dependent Children entitlement program with the TANF program and gave the states responsibility for administering TANF through block grant funding. In implementing welfare reform, the states have, for example, used PRWORA’s flexibility to (1) require that applicants look for jobs before their TANF applications are processed; (2) offer one-time, lump-sum payments (known as diversion payments) to potential applicants rather than enroll them in the TANF program; and (3) disqualify individuals from participation in the Food Stamp Program if they have committed TANF violations, thereby reducing the household’s total food stamp benefit. Almost all of the states use a single application for the food stamp and welfare programs to reduce administrative costs, even though the eligibility rules for these two programs are different. Though welfare reform retained the Food Stamp Program as an entitlement for qualifying participants, it tightened eligibility requirements and eased administrative requirements. It disqualified able-bodied adults without dependents who, during the preceding 36-month period, received food stamp benefits for at least 3 months but worked less than 20 hours per week. Similarly, the act required that the states, by August 1997, remove from their rolls most permanent resident aliens who were previously eligible to receive food stamps. In addition, PRWORA replaced several specific administrative requirements with more general standards that give states more flexibility in operating their food stamp programs. Over the years, we have reported on program integrity concerns in the Food Stamp Program. Fraud, waste, and abuse in the program generally occur in the form of either improper payments to food stamp recipients or trafficking in food stamp benefits. The states and FNS have taken steps to reduce inaccurate payments to food stamp recipients and reduce trafficking in food stamp benefits. However, all of the state officials we contacted for a recent study believe that the most effective way to reduce payment errors and program costs is to simplify food stamp rules, such as those pertaining to program eligibility. Inaccurate payments can be in the form of overpayments or underpayments to food stamp recipients. Overpayments occur when ineligible persons are provided food stamps, as well as when eligible persons are provided more than they are entitled to receive. Overpayments can be caused by inadvertent or intentional errors made by recipients and caseworkers. According to FNS’ quality control system, the states overpaid food stamp recipients about $976 million in fiscal year 2000 and underpaid recipients about $360 million. Together, overpayment and underpayment errors amounted to about 9 percent of food stamp benefits. About 54 percent of these errors occurred when state food stamp workers made mistakes, such as misapplying complex food stamp rules in calculating benefits. The remaining 46 percent of the errors occurred because participants, either inadvertently or deliberately, did not provide accurate information to state food stamp offices. While the states and FNS have taken steps to address payment errors, state officials told us that they believe simplifying food stamp rules will have the greatest impact on reducing payment errors and program cost. In a recent report we identified states’ efforts to minimize food stamp payment errors and examined what FNS has done or could do to encourage and assist the states in reducing such errors. We found that all 28 states we contacted had taken action in recent years to reduce payment errors. While these states took various actions to reduce payment error rates, most states took the following five actions: verified the accuracy of benefit payments calculated by state food stamp workers through supervisory and other types of case file reviews, provided specialized training for state food stamp workers, analyzed quality control data to identify causes of common payment errors and develop corrective actions, matched food stamp rolls with other federal and state computer databases to identify ineligible participants or verify income and asset information provided by food stamp recipients, and used computer software programs to assist caseworkers in determining benefit amounts. Some states also increased the frequency with which certain types of food stamp households must provide documentation in order to maintain their eligibility for food stamp benefits—a process called recertification. For example, even though FNS regulations require that food stamp households be recertified only annually, almost half of the states we contacted require households with earned income to be recertified quarterly because their incomes tend to fluctuate, increasing the likelihood of payment errors. More frequent certification enables caseworkers to verify the accuracy of household income and make appropriate adjustments to household benefits, possibly avoiding a payment error. However, more frequent certification can also inhibit program participation for eligible participants because it creates additional reporting burdens for food stamp recipients. FNS has taken several steps to encourage states to minimize their payment error rates, including providing financial incentives to states that have error rates substantially below the national average and imposing financial sanctions on states that exceed the national average. When error rates are too high, states are required to either pay a penalty fee or provide additional state funds—beyond their normal share of administrative costs—to be reinvested in error-reduction efforts, such as additional training in calculating benefits. In fiscal year 2000, FNS imposed $46 million in financial sanctions on 18 states whose error rates were above the national average of 9 percent. In that same year, FNS provided $55 million in enhanced funding to 11 states whose payment error rates were less than or equal to 5.9 percent—well below the national average. FNS also has reduced the opportunity for payment errors by allowing the states to reduce food stamp reporting requirements for certain recipients. For example, FNS expanded the availability of waivers related to reporting requirements, such as the waiver that raises the earned income changes that households must report. FNS was concerned that the increase in employment among food stamp households would result in larger and more frequent income fluctuations, which would increase the risk of payment errors. FNS also was concerned that the states’ reporting requirements were particularly burdensome for the working poor and may, in effect, act as an obstacle to their participation in the program because eligible households may not view food stamp benefits as worth the time and effort it takes to obtain them. As a result of these concerns, FNS established regulations in November 2000 that gave states the option to require food stamp households with earned income to report changes semiannually, unless a change would result in a household’s gross monthly income exceeding 130 percent of the monthly poverty income guideline. Finally, FNS has promoted initiatives to improve payment accuracy through the exchange of “best practices” information among states. Since 1996, FNS has compiled catalogs of states’ payment accuracy practices that provide information designed to help other states develop and implement similar initiatives. While imposing financial sanctions, offering incentives, and granting waivers related to food stamp reporting requirements can help states reduce payment errors, the 28 state officials we spoke with believed that simplifying the complex food stamp requirements for determining eligibility and calculating benefits offered the greatest potential for additional reductions in payment errors. In supporting simplification, the state officials generally cited caseworkers’ difficulty in correctly applying food stamp rules to determine eligibility and calculate benefits. Specifically, the state officials cited the need to simplify requirements for (1) determining a household’s deduction for excess shelter costs and (2) calculating a household’s earned and unearned income. The states also cited the need to simplify food stamp rules for determining the valuation of vehicles. The Food Stamp Act of 1977 was recently revised to allow the states to use the same vehicle valuation rules that they use for TANF, if these rules would result in fewer assets attributed to the household.