PROVIDENCE, R.I. — A criminal swindle of the nation’s $64.7 billion food-stamp program is playing out at small neighborhood stores across the country, where thousands of retailers are suspected of trading deals with customers, exchanging lesser amounts of cash for their stamps.
Authorities say the stamps are then redeemed as usual by the unscrupulous merchants at face value, netting them huge profits and diverting as much as $330 million in taxpayer funds annually. But the transactions are electronically recorded, and federal investigators, wise to the practice, are closely monitoring thousands of convenience stories and mom-and-pop groceries in a push to halt the fraud.
Known as food-stamp trafficking, the illegal buying or selling of food stamps is a federal offense that has resulted in 597 convictions nationwide and $197.4 million in fines, restitution and forfeiture orders over the past three years, according to the U.S. Department of Agriculture’s Office of the Inspector General.
The USDA last month awarded a 10-year contract worth up to $25 million to Fairfax, Va.-based SRA International Inc. to step up the technology used to combat fraud.
“It’s misuse of the program. It’s a misuse of taxpayer dollars at a tough time. Not only the people who need the program are having a tough time, but the people who are paying for the program are having a tough time too,” said Kevin Concannon, USDA undersecretary for food, nutrition and consumer services.
The fraud is almost always found among the 199,000 smaller stores that process 15 percent of the nation’s total food-stamp transactions, Concannon said.
In Providence, for example, federal prosecutors in August charged former 7-Eleven franchisee Syed Shah, 43, with conspiracy for letting customers turn in their stamps for lesser amounts of cash and purchase items such as soap, over-the-counter medication and laundry detergent that are not allowed under USDA rules, court records show. Federal agents began investigating Shah’s store in July 2008.
Agents said the practice brought an increase in sales.
Christopher Robinson, a USDA special agent, said Shah “believed that if they did not give customers cash for the food-stamp benefits then they would lose that business.”
Shah has been given a chance to negotiate a plea deal, court records show. His attorney declined to comment.
Last year, 931 U.S. stores were dismissed from the food- stamp program for trafficking and 907 others were sanctioned for lesser violations — 37 percent of the nearly 5,000 retailers being investigated.
The analytical tools officials are turning to have paid off. Even though food-stamp spending has ballooned from $22.7 billion to $64.7 billion since 1995, the misuse of benefits has dropped from 4 cents to a penny on every dollar spent, said Food and Nutrition Service spokesman Aaron Lavallee.
45 million People receiving food-stamp benefits as of August, nearly half of them children
$64.7 billion Food-stamp spending, up from $22.7 billion in 1995
234,000 Stores nationwide that are authorized to accept food stamps
931 U.S. stores that were dismissed from the food-stamp program for trafficking last year
