Food stamp fraud is on the rise. | REUTERS The next front in the food stamp war

A convenience store cashier rings up $100 worth of food that a customer isn’t buying, takes $100-worth of food stamp benefits from the customer’s government-issued card and hands the customer $50 in cash, pocketing the rest.

That’s food stamp fraud, and it’s a crime that’s on the rise. But regulators are preparing to zero in on a group that they see as being a regular culprit: Small retailers that often don’t provide the kind of fresh and nutritious food that the Obama administration would like to see more people eat, government officials and documents reveal.


Of course the owners of the nation’s 150,000 convenience stores are worried, as food stamps account for about $4 billion of their annual sales. Making it difficult for convenience stores to participate in the food stamp program could disqualify some important sources of nutrition for people that have little or no access to supermarket, says the National Association of Convenience Stores, the industry’s trade association.

House Republicans railed this year against rising spending on food stamps, now known as the Supplemental Nutrition Assistance Program or SNAP. They are demanding $40 billion be cut from the program over 10 years by denying benefits to those who are not working or in government job-training courses. That’s 10 times the comparably meager $4 billion in cuts included in the Senate farm bill. They point to the program’s dramatic growth to $80 billion in 2012, up from to $35 billion in 2007.

Whether significant cuts to SNAP are needed remains a hotly debated subject, but there is little argument over the need to reduce fraud in the program. Especially not after the USDA’s report, released in August, found retailers willing to pay cash in return for the government food credit stole $858 million annually from government coffers from 2009 through 2011. That’s nearly triple the $330 million stolen annually from 2006 through 2008.

Only about 15% of all the food stamps used by shoppers in the U.S. are spent at small stores, but they are also the source of 85% of the fraud, according to the USDA’s report.

The USDA report is essentially a follow up to a Government Accountability Office report released several years ago that told the USDA it needed to focus on small convenience and grocery stores in order to cut down on food stamp fraud. USDAhas good reason to see these small-scale, privately owned stores as a significance source of food stamp fraud. These stores are often short on the fresh fruit, vegetables and meat that SNAP vouchers are intended to purchase, the GAO report said.

The USDA isn’t waiting for further marching orders from Congress, having just wrapped up a five-city listening tour aimed at hearing the public’s complaints and suggestions regarding SNAP fraud.

The department also has issued what it calls a “request for information” in the Federal Register. The document, which is essentially a precursor to a new federal rule proposal, reveals that USDA is considering such measures as disqualifying smaller grocery stores and convenience stores from accepting food stamps if they sell large quantities of alcohol and tobacco or banning them from the government program if their primary business isn’t selling food.

Retail fraud, or “trafficking,” as the USDA calls it, has remained consistently low over recent years at large supermarkets, but it is spiking in smaller stores that often don’t even stock $100 worth of the kind of food – fruit, vegetables, bread, meat – that they need to in order to participate in SNAP.

In fact, of particular concern, according to USDA officials, are stores that place the bare minimum of products – sometimes as little as a single can of corn – in each of the three food-type varieties that the retailers need to stock in order to qualify to accept food stamps.

USDA’s Food and Nutrition Service, in a statement posted with the agency’s call for public input on the trafficking problem, says it is “concerned that there are a large and growing number of authorized retailers that do not provide healthful food offerings to SNAP recipients and that engage in fraud. These retailers represent a management challenge for the program that must be balanced against the need to ensure effective access to healthful, nutritious food for SNAP households.”

Forcing convenience and small grocery stores to stock up on foods, such as fruits, vegetables, grains, dairy and meat, would be acceptable to most widespread convenience store chains like 7-Eleven, say lobbyists for the industry. They say the convenience store chains are willing to work with federal officials to stem food stamp fraud and aren’t arguing with USDA’s concerns with “depth of stock” at retailers.

However, what convenience stores could not abide by is a provision that lawmakers included in the 2012 versions of both the Senate and House versions of the farm bill that would have made stores ineligible if more than 45% of what they sold was alcohol and tobacco.

“It is of little concern to … SNAP clients whether the customer behind them in line is purchasing a case of beer or a pack of cigarettes,” the National Association of Convenience Stores says in its draft of a letter it is preparing to send to USDA, a copy of which was provided to POLITICO.

Lobbying efforts escalated last year after that provision was placed in the Senate and House bills and the farm bill versions approved this year do not contain it. The current legislation dealing with food stamp reform in the House, if approved, w ould allow the USDA to ban some retailers based on unspecified “criteria established by [the USDA] secretary” as well as assign new identification numbers to retailers in order to catch fraud perpetrators. The Senate farm bill asks USDA to consider how much food a stores keeps in stock before approving it to accept food stamps.

The USDA had hoped Congress would address food stamp fraud last year in a new five-year farm bill, but lawmakers failed to pass the legislation in 2012 and a sharp divide over how much to cut overall food stamp funding threatens to scuttle plans to produce a farm bill this year.

Whatever USDA does, Leo Vercollone, president of Verc Enterprises - a company that operates 23 convenience stores in Massachusetts and New Hampshire - said he’s concerned about any potential new rules that would restrict his stores from accepting food stamps.

“Who wants to lose part of their customer base?” Vercollone said, stressing that many of his customers shop at his stores because they are nearby, while larger supermarkets are out of reach. “People don’t go out of their way to go to convenience stores. They go to them because they’re convenient.”