Fraud... Who Cares?

By Mike Nichols

Peggy Sullivan was given a government-issued debit card to buy groceries in Wisconsin at the same time she was collecting the same public assistance benefit in South Carolina-a modest scam that earned the 38-year-old more than $1,000.

Angela Bain, a 20-year-old Milwaukee woman, had $43 left on a taxpayer-funded "Quest" card when she sold it to somebody else for $20.

Forty-eight-year-old Kathleen Parr falsely claimed that her son lived with her in Pewaukee for eight months when he was actually living with his father in Mukwonago-a lie worth about $1,400 in federal food money.

Each woman committed her crime back in 2002 or 2003, and each was convicted of public assistance fraud. Sullivan and Parr ended up with felonies, Bain with a misdemeanor.

They were also guilty of bad timing. Each ran her scam back when Wisconsin's FoodShare program was a mere fraction of its current size-and when the state devoted far more money to detecting fraud.

There is virtually no chance of similar crimes being prosecuted today, says Debby Vanderboom, the recently retired Waukesha County sheriff's deputy who helped nab all three.

While other states clamp down on thousands of food scam cases every year and save taxpayers millions, Wisconsin has taken a wholly different tack.

"We don't want to hear about it," Vanderboom says of Wisconsin's attitude. "Fraud does not exist."

FoodShare is Wisconsin's name for the federal Supplemental Nutrition Assistance Program, or SNAP. Once commonly known as food stamps before electronic debit cards were used, the program was created in the 1960s to help fight hunger and improve nutrition. An element of President Lyndon Johnson's War on Poverty, it was a relatively modest, often heralded program that helped pull poorer Americans through tough times. Then it started to grow.

Now a $54 billion annual federal expenditure, the nutrition program is well over three times the size it was just a decade ago. And there is almost no place in the United States where it has grown faster than Wisconsin.

While administrative costs are covered partly by the states, SNAP benefits are funded with federal tax dollars. As recently as 2003, Wisconsin distributed about $244 million in federal money to about 300,000 FoodShare recipients. Today, some 700,000 Wisconsinites carry Quest cards, and receive close to $800 million in SNAP/FoodShare money a year.

The leap in both cost and program size is due in large part to the deteriorating economy, but also to looser eligibility rules and-thanks to the federal stimulus program-more money for each individual recipient or household.

Benefit levels vary widely. But individuals in Wisconsin now average a little more than $100 per month, while average households, in December 2009, received about $255.
That same month, well over $80 million in federally funded FoodShare benefits were distributed in Wisconsin-meaning that if spending continues apace, this will soon be a $1 billion-a-year program just in Wisconsin.

In contrast, just $187,000 in state and federal money will be spent in Wisconsin to investigate fraud this year-and that's targeted for a variety of public assistance programs, not just FoodShare.

State Rep. Robin Vos (R-Racine) argued unsuccessfully for more anti-fraud money during state budget deliberations last spring. He believes the state's message is loud and clear: "Fraud is okay."

The reverberations are highly disturbing to law enforcement officials like retired Deputy Vanderboom. While the size of the FoodShare program exploded, fraud investigations tumbled from more than 5,400 in 2003 to about 3,200 in 2008, according to federal data for Wisconsin.

Successful fraud prosecutions-never a Wisconsin priority-plummeted to just 20 over the same time period. Prosecutors have simply stopped prosecuting the vast majority of FoodShare fraud cases in virtually all counties, including the one with the most recipients, Milwaukee.

It appears there hasn't been a single FoodShare fraud case prosecuted in Milwaukee County in at least 10 years, according to the Milwaukee County District Attorney's office.

"If we have issued any, they have been very few in number," says Chief Deputy District Attorney Kent Lovern.

"I'm not even showing referrals sent to us," he says, adding that if cases were brought to the office, prosecutors would review them for possible charges.

Other states do far more.

Minnesota and Michigan conducted at least 85% more FoodShare fraud investigations in 2007 than Wisconsin. And while Wisconsin successfully prosecuted just 20 people for fraud that year (including nine who were convicted and 11 who lost their benefits due to plea agreements), the number of successful prosecutions in Minnesota was well over 1,000. In Michigan, it exceeded 2,400.

Wisconsin's only consolation: 22 states had even fewer successful prosecutions-although almost all used administrative procedures much more frequently to temporarily strip benefits from recipients suspected of fraud.

Minnesota has averaged more than 1,500 "disqualifications"-the term FoodShare administrators use for stopping benefits and trying to recoup money-through either prosecutions or administrative procedures in recent years. Michigan averaged 3,000 a year. Wisconsin in 2007 and 2008 averaged about 50-fewer than all but a handful of states.

Those who worry about rampant fraud in Wisconsin say they are fighting more than budget cuts. They say they are fighting a mindset that it is somehow wrong to investigate anyone in the FoodShare program.

"It is the social worker mentality," says Vanderboom. "You are picking on poor people. I respond by saying that the vast majority who receive benefits are honest, hard-working people who need the help."

Tips about fraud, she adds, often come from people who have low incomes themselves but "are following the rules and struggling to get by-it's irritating to them when somebody flaunts" their fraud.

"The people defrauding the system," adds Waukesha County District Attorney Brad Schimel, "are taking away resources from people who really need them."

No one knows how much money is lost to FoodShare fraud. Wisconsin store owners who cheat the system are investigated by federal authorities and likely (see sidebar) siphon off millions of dollars each year. Investigations of recipient fraud, on the other hand, are handled by the states.

Between 2003 and 2007, Minnesota recouped $6.5 million lost through recipient fraud, according to the United States Department of Agriculture. Michigan recovered $16.6 million in the same time period. Tennessee, $19 million. Wisconsin? Just $1.9 million.

Vanderboom believes fraud here is just as prevalent as in other states. Says Schimel: "The potential to get away with it is enormous."

That potential, say critics, is also greater than it used to be because of changes in the way the program is administered. Back in the 1990s, Wisconsin food stamp recipients had to reapply every three months, which meant they had to appear in person and provide documentation of assets and sources of income. In 2004, the state decided to let applicants reapply once a year instead, and mandated interim reports every six months. Applicants no longer have to apply in person and, once they start receiving the benefit, they often don't have to report changes in household size or in income until their next report or application is due.

Critics believe all the changes made fraud easier to commit, and potentially longer lasting. While it's impossible to quantify the amount of fraud occurring, there are plenty of anecdotal examples. A 2008 Legislative Audit Bureau report, for example, uncovered 10 people incarcerated in state prisons receiving FoodShare benefits.

Auditors also discovered that other people were using the inmates' Quest cards, which isn't a surprise. The FoodShare program allows recipients to have others shop for them. Lost cards can be easily replaced.

Vanderboom points out that all this makes proving somebody is, say, trading his taxpayer-funded card for drugs extremely difficult.

"The drug units are busting dealers and they have three or four food-stamp cards in their possession," says the former deputy. "All these drug dealers have to say is, 'They gave me permission...I went to get groceries for them.'"

Fraud investigations are also stymied because there are so few full-time investigators-and, often, none at all. The Marathon County Department of Social Services eliminated its sole public assistance fraud investigator on Jan. 1, for instance. Most investigations are now handled by the same county workers who determine public assistance eligibility-and who are processing about 40% more applicants than just two years ago.

Barron, Ashland, Burnett, Lincoln, Price and Rusk counties were all part of a consortium that, along with the Bad River Tribe, paid private investigators. Due to cuts in state funding, that anti-fraud effort ended last spring.

"It was very concerning to us because we have had some large fraud cases," says Terri Perry, head of the Ashland County Department of Health & Human Services.
The Waukesha County Human Services Department investigator who helped put together the three cases cited earlier in this story retired in 2004 and was never replaced. Another Waukesha County investigator remains, but she looks into more than 200 cases every year, many involving suspected fraud in other programs.

Vanderboom, a former president of the Wisconsin Association on Public Assistance Fraud, says an investigator needs to spend from 40 to 60 hours preparing a case for the district attorney's office. It is "absolutely impossible [for the remaining Waukesha County investigator] to put a case together for prosecution, time-wise," she says.
In fact, the Waukesha County District Attorney's office has not filed a single FoodShare fraud case since at least 2007. "I should be getting tons of referrals," said Assistant Waukesha County District Attorney Barbara Michaels, "and I am here ready, willing and able."

Counties can pay for FoodShare investigations out of their own coffers, and some do. But there is little incentive to recoup state and federal money because counties get to keep very little of it.

The problem, say Vanderboom and others, resides with state officials. They control how much money the counties get for fighting fraud. And if there's no state money, there are no federal matching dollars either.

"We are saying to the counties, 'We are going to stick it to you over and over...but we want you to somehow keep your fraud investigation efforts going, even with less money, when you receive none of the financial benefit,'" Rep. Vos complained during the Joint Finance deliberations last spring.

Jim Jones, head of FoodShare in Wisconsin, acknowledges that formal fraud investigations have decreased partly because of budget decisions. His department confirmed that $1.8 million in state and federal dollars were allocated to counties and tribes in 2008 and $741,000 in 2009 before shrinking to almost nothing in 2010.

But, says Jones, there is something else to consider: "a change in our focus" from formal investigations involving law enforcement to what he calls front-end prevention that makes it more likely benefits are awarded correctly in the first place.

"We don't always need to put somebody in a Crown Victoria looking at your house at night," said Jones.

Wisconsin turned down 32% of all FoodShare applications, while the denial rate in the country as a whole was 26%, according to USDA data from 2008.

The state has also made big improvements in its FoodShare "error rate," a statistic that tracks both overpayments and underpayments resulting, often, from mistakes made by either caseworkers or applicants. After years of being higher than the national average, Jones points out that Wisconsin's FoodShare error rate for much of fiscal year 2009 was about 1%-a dramatic improvement.

A rigorous initial review of an application can help uncover some sorts of fraud. For instance, a county Human Services employee might raise questions about how a recipient can consistently report no income yet appear to live self-sufficiently.
The connection between error rates and fraud prevention, however, appears tenuous. Only about 5% of all cases "identified with errors" are referred to fraud investigators, according to a 2005 General Accounting Office study that examined nine states, including Wisconsin.

Vanderboom, for her part, is blunt about Jones' assertions regarding up-front prevention. "That is baloney," said the former sheriff's deputy.

She believes county workers who determine eligibility are not scrutinizing applicants to uncover scams. Nor would up-front prevention do anything to stop frauds that occur after benefits are awarded.

Others point out that, given the enormous increase in FoodShare applicants, the focus has been mostly on just getting people the benefit in a timely manner-something that has not always happened, especially in Milwaukee County, where the state took over direct administration of public assistance programs on Jan. 1.

Making sure deserving FoodShare recipients quickly get the benefits they need, critics point out, is obviously important. But so is fighting fraud.

As Vos told his legislative colleagues last spring: "Nobody is opposed to...benefits for people who are hungry. The question comes down to, do we also want to put the same priority on making sure everybody who is getting the benefit is getting it legally and is not committing fraud?"

To Debby Vanderboom, the answer is clear: Fraud is "everywhere-everywhere, and, unfortunately, investigation is going by the wayside."

Mike Nichols is a senior fellow at the Wisconsin Policy Research Institute.

Sidebar: Convenience stores get their cut of a nutrition program

As the number of poor people with Quest cards has grown dramatically in Wisconsin, so has the number of stores-including gas stations and liquor stores with small food sections as well as Papa Murphy's pizza franchises-that accept the government-issued debit cards.

The number of Wisconsin stores participating in the FoodShare program-now about 2,850-has grown almost 50% just since 2004.

Along a 4.3-mile stretch of North Avenue in Milwaukee alone, there are 21 different FoodShare vendors, including the Shell Food Mart, Superior Food & Liquor, two Walgreens and the Jones Grocery and Smoke Shop, in addition to several larger grocers. In West Allis, stores like Becher Liquor & Beer on S. 78th Street, County Beer & Liquor on S. 60th Street, and West Allis Liquor & Tobacco on W. Greenfield all accept Quest cards, according to state data.

One might question how such stores qualify for a federal program designed to provide "supplemental nutrition assistance." By law, the stores are supposed to carry at least three types of bread or grains, three dairy products, three fruits and vegetables and different types of meat, poultry or fish. They can stock less variety only if 50% of their sales stem from the remaining items.

They can also, however, sell FoodShare recipients junk food through the program-a practice of little nutritional value that the state of Minnesota tried unsuccessfully to ban.

Some items are indeed barred: alcohol and tobacco, any non-food items such as toothpaste or pet food, or anything that is hot or can be eaten in a store. It is also illegal for merchants to offer cash instead of food in exchange for FoodShare payments-a scam known as benefit trafficking.

Trafficking occurs when a FoodShare recipient, for example, offers a $100 Quest payment for $50 in cash. The store owner then collects a $100 reimbursement from the government-and makes a tidy profit.

A 2006 report by the USDA's Food and Nutrition Service estimated that trafficking skims approximately one cent off every benefit dollar-a rate that would translate into fraud losses of approximately $7 million annually in Wisconsin.

Trafficking scams and the sale of unauthorized items are usually investigated by federal officials-90 or so such investigations occur in Wisconsin each year, according to the U.S. Department of Agriculture.

Typically, around 11 Wisconsin stores each year are kicked out of the program at least temporarily, according to USDA spokesman Alan Shannon. But it appears all of those were the result of administrative procedures, since federal prosecutors in Milwaukee and Madison cannot recall any criminal prosecutions of store owners in at least 15 years.

Prosecutions do occur elsewhere. A Chicago grocery store owner was sentenced to 57 months in prison in 2006, for instance, for a food stamp trafficking scheme that resulted in a potential loss of approximately $7 million.

If Wisconsin is like most places, very little fraud occurs at large supermarkets or chain stores, which redeem the vast majority of FoodShare benefit dollars. Data shows that smaller retail stores are much more likely to game the program.

Still, federal authorities are reluctant to limit SNAP to larger stores that have healthier food and far less fraud. Smaller stores are authorized to take part, says Shannon, because some neighborhoods just don't have full-service supermarkets.

--Mike Nichols

About FoodShare

Purpose: Help stop hunger and improve nutrition and health.

Size: Approximately 700,000 Wisconsinites per month receive a total of $780 million annually in benefits. Part of the $54 billion federal Supplemental Nutrition Assistance Program.

Eligibility: Applicants must have a total gross income, before taxes, of less than 200% of the poverty level-about $36,600 a year for a family of three. Expenses for child care and utilities are also factored in.

Benefit levels: Vary widely depending on actual income, household size and expenses. Individuals average slightly more than $100 per month, and households average approximately $255 per month.