FNS administers the Food Stamp Program in partnership with the states. It funds all of the program’s food stamp benefits and about 50 percent of the states’ administrative costs. FNS is primarily responsible for developing the program’s policies and guidelines, authorizing retail food stores to participate in the program, and monitoring storeowners’ compliance with the program’s requirements. Its 58 field offices assess financial penalties against storeowners who violate program regulations. In addition, federal, state, and local court actions can result in financial penalties against storeowners. Storeowners violate the program’s requirements when they accept food stamps for nonfood items such as paper towels, accept food stamp benefits when they are not authorized to participate in the program, or traffick in food stamp benefits. FNS’ seven regional offices are responsible for collecting the financial penalties and related interest charges, which are recorded as debts in FNS’ accounting records. The states are responsible for handling the day-to-day operation and management of the program, including conducting such duties as certifying the eligibility of individuals or households to participate in the program, delivering benefits to recipients, and monitoring recipients’ compliance with the program’s requirements. Recipients use food stamp coupons or an electronic benefits transfer card to pay for allowable foods. Food stamp electronic systems use the same electronic fund transfer technology that many grocery stores use for their debit card payment systems. After a food stamp recipient receives a card and a personal identification number, the recipient purchases food by authorizing the transfer of the food stamp benefits from a federal account to a retailer’s account. At the grocery checkout counter, the recipient’s card is run through an electronic reader, and the recipient enters a personal identification number to access the food stamp account. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 mandates that all states implement electronic benefits transfer systems by October 1, 2002, unless the USDA waives the requirement. As of October 1998, 26 states had implemented electronic systems statewide. Additionally, the District of Columbia is operating a District-wide electronic system. The remaining states are in various stages of implementing electronic systems. Collectively, electronic systems supplied about 47 percent of all food stamp benefits in 1998. Federal agencies’ debt collection policies, practices, and procedures are based on legislation, regulations, and direction from the Office of Management and Budget (OMB). The principal statutes are the Federal Claims Collection Act of 1966, the Debt Collection Act of 1982, and the Debt Collection Improvement Act of 1996. The applicable regulations are principally the Federal Claims Collection Standards and departmental regulations. These statutes and regulations establish mandatory requirements for federal agencies to follow. OMB Circular No. A-129 describes management direction for federal debt collection. During fiscal year 1993 through fiscal year 1998, FNS’ assessments and court actions resulted in $72.7 million in financial penalties and $5.0 million in interest against storeowners for violating the Food Stamp Program’s regulations. Furthermore, FNS and the courts collected $11.5 million from storeowners, and FNS waived, adjusted, or wrote off $49 million. (See table 1.) Table 1 shows the following for the 6-year period, fiscal year 1993 through fiscal year 1998: FNS and the courts collected only a small percentage of the financial penalties assessed against storeowners. During the 6-year period, the total penalties were $88.7 million, but they collected only $11.5 million, or about 13 percent. FNS reduced storeowners’ penalty debt through adjustments, waivers, or write-offs by several times the dollar amount of debt that it collected annually. For example, debt reductions averaged $8.2 million each year, while collections averaged $1.9 million. According to FNS, adjustments are changes in the amount of the original debt that should have been charged; waivers are relief from some or all of the debt; and write-offs occur when an agency determines that a debt is uncollectible after all appropriate debt collection tools have been used. FNS had large debt reductions because it was unable to collect most of the financial penalties assessed against storeowners. The dollar amount of penalty debt outstanding more than doubled from the end of year fiscal year 1993 to the end of fiscal year 1998 (from $12.3 million to $28.2 million), while the amount of collections increased slightly, from $1.8 million to $2.0 million. As table 1 shows, during fiscal year 1993 through fiscal year 1998, FNS reduced financial penalty debts for storeowners by $49 million. OMB Circular No. A-129 instructs federal agencies to establish effective write-off and closeout procedures for uncollectible accounts in order to permit agencies to focus their efforts on delinquent accounts with the greatest potential for collection. As discussed in greater detail later in this report, FNS has an opportunity to improve its debt collection, which, in turn, could potentially reduce the amount of debt that is written off as uncollectible. FNS’ accounts receivable records classify financial penalties against storeowners into the following seven types: Retailer/wholesaler fine—unauthorized use. A storeowner not authorized to participate in the program accepts and/or redeems food stamp benefits. Civil money penalty—transfer of ownership. A storeowner transfers ownership of a store during a period when the storeowner was disqualified from the program. Court-ordered restitution. A storeowner misused food stamps, and federal, state, or local court actions imposed a financial penalty. Retailer/wholesaler fiscal claim. A storeowner misused food stamps by, for example, selling nonfood items to program recipients. Civil money penalty—hardship. A storeowner is allowed to remain in the program in lieu of disqualification when removing the store would cause program recipients a hardship because of the unavailability of authorized stores in a given area. False Claims Act penalty. A storeowner submitted a false claim against the federal government and must pay a penalty under the False Claims Act. Such penalties usually involve storeowners caught trafficking who are not criminally prosecuted. Civil money penalty—trafficking. If a clerk is caught trafficking and the owner and store management were not involved, the owner can remain in the Food Stamp Program by agreeing to pay a financial penalty. As of September 30, 1998, storeowners owed FNS about $28.2 million in financial penalties. Table 2 shows the amount owed for each type of financial penalty. FNS almost always assessed financial penalties, when warranted, against storeowners who were identified through undercover investigations as violating the Food Stamp Program’s regulations. However, we found that FNS could have identified additional storeowners who violated program regulations if it more effectively used data on electronic benefits transfers. FNS has made limited use of this information because it has not developed an effective plan for reviewing and acting on this information, including designating responsible staff. FNS officials believe that they need more personnel to analyze the data on stores that are likely to be trafficking. FNS followed its procedures for assessing financial penalties in nearly all of the 259 cases we reviewed in which stores were found to have violated program regulations. Under its procedures, stores are penalized if the violations meet certain criteria, such as involving more than $100 in program benefits. Of the 259 cases we reviewed, 117 met these criteria, and FNS assessed penalties in 114 of these cases. In the remaining three cases, we found that FNS did not assess financial penalties when we believe it should have, and FNS concurred in our opinion. Through the use of data on electronic benefits transfers (EBT), FNS identifies stores that are probably engaged in trafficking, but it does not consistently follow up on this information with further analyses to determine whether violations are occurring and to assess penalties. Greater use of EBT data to identify and penalize storeowners in violation of program regulations would enable FNS to better leverage its enforcement resources. All states using EBT systems must provide their data on food stamp transactions to FNS for analysis. These data include the date, time, and amount of the sale; the store’s authorization number; and the recipient’s identification number. FNS’ computer program analyzes these data and identifies individual electronic transactions or transaction patterns that indicate trafficking may be occurring at a store. Each month, FNS prepares a list of hundreds of stores in each region that appear to be highly likely to be violating program requirements. This analysis of the electronic data offers a breakthrough in combating food stamp fraud, according to the Department’s Office of Inspector General and FNS’ Compliance Branch. Furthermore, the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 provides that FNS may use electronic data alone, without the expense of conducting a labor-intensive undercover investigation, to initiate action—such as removal from the program—against storeowners violating the requirements of the Food Stamp Program. Before FNS staff in field locations can take action against any of the storeowners identified by FNS’ computer system, they must further analyze the data because all the stores on the list may not be engaged in trafficking. They have to consult other databases and documentation to determine whether other factors, such as a store’s sales volume, might have caused the computer system to flag that particular store. We found that field offices were using these data differently, with some offices providing a more thorough review than others. For example, two field offices further analyzed the data and took administrative action to penalize offending storeowners. However, four of the other five offices were not sure what to do with the data, and they either forwarded the report to the Compliance Branch or took no action at all. In the fifth office, the state was not using an EBT system.