Consumer Law

Food Stamp Fraud

By Amy Loftsgordon, Attorney
Business owners can face serious penalties if they commit food stamp fraud.

The federal government distributes food stamp benefits under the “SNAP” program (Supplemental Nutrition Assistance Program). The government issues recipients an electronic benefits transfer card, called an EBT card. The EBT cards take the place of the old system, when food stamps were issued as paper coupons. The old system made it easy to trade the stamps for cash or other items, such as drugs. Trafficking has been greatly reduced by the use of cards, though it still occasionally occurs, typically at small convenience stores. Read on to learn more about food stamp trafficking and the penalties business owners might face if they engage in it.

How Food Stamps Work

The Supplemental Nutrition Assistance Program (SNAP) is a federal nutrition program that used to be known as “food stamps.” This program helps low-income people purchase food at grocery stores, convenience stores, and other places, such as Costco.

People enrolled in the program are not allowed to use SNAP benefits to buy alcohol, cigarettes, soaps, paper products, household supplies, vitamins, or medicines. They are also not allowed to trade benefits for cash or drugs. If they do, this is called trafficking—and it is illegal.

Food Stamp Trafficking

Many years ago, when food stamps were issued as paper coupons, trafficking was rampant. People often used one or more of the following ways:

  • Recipients sold their food stamps to other individuals for less than the amount listed on the coupons. For example, an individual might sell $150 worth of food stamps for $100 cash. The seller lost some money in the deal, but walked away with cash that could be used to buy things that food stamps wouldn’t cover.
  • Food stamp holders asked stores, particularly convenience stores, to ring-up a phony sale and give the money to the stamp holder, keeping some money back for the store to serve as a profit.
  • Drug addicts often obtained drugs from dealers by trading their food stamps for drugs.

To reduce incidents of trafficking, the government changed the way they distribute food stamps.

EBT Cards Protect Against Trafficking

SNAP benefits are now provided on a plastic card called an electronic benefits transfer (EBT) card, which works like a debit card. Recipients use the card to make food purchases and the cost is deducted from the card.

These cards are much less likely to be sold or swapped for drugs than a paper coupon, because using them requires a personal identification number (PIN). This creates an electronic trail of EBT transactions, which helps the government track purchases and detect any suspicious activity.

As a result, trafficking rates have dropped significantly. According to the U.S. Department of Agriculture (USDA), which oversees the program, fraud rates are at around 1%—one of the lowest rates for any federal program.

Where Trafficking Still Occurs

Most SNAP trafficking these days occurs at small retailers, such as convenience stores.

Trafficking in this context often works like this: A person receives, for example, $100 worth of SNAP benefits on an EBT card. That individual goes to a local convenience store, which swipes the card (charging $100) and gives the customer $75 in cash. In this transaction, the store gets $25 in profit, without selling any items.

Convenience stores have very thin margins and trafficking is an easy way for them to make money. One operator of a Louisiana convenience store was caught giving customers 60 cents on the dollar after swiping the SNAP recipients’ EBT cards. Other convenience store owners have been caught accepting EBT cards when selling customers cigarettes and other ineligible items.

Penalties for SNAP Fraud

Business owners can face serious penalties if they commit food stamp fraud. For example, SNAP violations can result in:

  • disqualification from participating in the program
  • civil monetary penalties, and
  • criminal charges and prosecution.

The Louisiana store owner mentioned above was sentenced to 51 months in prison and ordered to pay over $1.2 million in restitution to the USDA. A Ohio convenience store owner was sentenced to almost three years in prison and ordered to pay nearly $2.8 million in restitution for food stamp fraud. This owner was caught paying cash for food stamps and accepting them for prohibited items, including alcohol and tobacco.

Questions for Your Attorney

  • If my business accepts SNAP, how can I avoid fraud?
  • Will I lose my authorization to participate in the program or face penalties as a store owner if my employees commit food stamp fraud?
  • What should I do if I think a retailer or someone else is engaging in food stamp fraud?
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