By Nicole Housley
Lead Investigator, Retail Operations & Compliance Special Investigations Unit (SIU), U.S. Department of Agriculture
The Supplemental Nutrition Assistance Program (SNAP), formerly known as the Food Stamp Program, is a vital government initiative administered by the U.S. Department of Agriculture’s (USDA) Food and Nutrition Service (FNS). It provides crucial assistance for people with limited resources to buy food. In fiscal year 2023, SNAP served an average of 42.1 million participants each month, with annual program expenditures amounting to $114 billion.[1] The significant funding for this program underscores its importance and the integral role of each of us in its success.
As the federal agency responsible for authorizing and overseeing SNAP retailers, FNS plays a crucial role in maintaining the program’s integrity. State agencies manage recipient program eligibility and the issuing of benefits. SNAP benefits are deposited onto an electronic benefits transfer (EBT) card, also called a Lone Star card in Texas; they can be accessed using a personal identification number (PIN). SNAP recipients can use their benefits at authorized retailers in person or online to purchase approved food items. Retailers must apply for and be determined eligible to accept SNAP EBT payments via a point-of-sale (POS) device. SNAP retailers receive training on regulations, must affirm their responsibility in maintaining compliance, and are warned that violations may lead to criminal or administrative penalties. The importance of compliance cannot be overstated, as it is the cornerstone of the SNAP program’s integrity. There are more than 265,000 SNAP-authorized retailers in the United States, with 22,342 in the state of Texas.[2]
This article examines the various forms of SNAP fraud and their profound impact on taxpayers and the beneficiaries of this essential program. By understanding the implications of such fraud, we can all ensure the integrity of the program and taxpayers’ money. Furthermore, it will discuss opportunities to improve SNAP fraud enforcement and accountability by collaborating with the Special Investigations Unit (SIU). The majority of SIU’s investigators have backgrounds in law enforcement and possess substantial experience in working alongside various prosecutors, as well as access to valuable resources that can help meet prosecution standards. By partnering with local agencies, SIU investigations can be optimized to ensure that individuals who misuse the system are held accountable and face appropriate legal consequences.
Special Investigations Unit (SIU)
Fraudulent activity within the SNAP program is a pervasive issue that impacts American taxpayers. Estimates suggest it costs the program billions of dollars annually. The USDA has dedicated resources to improving anti-fraud measures through regular audits, investigations, and specialized teams, including the SIU.
The SIU conducts investigations of those who defraud SNAP (including retailers) in all 50 states and the U.S. Virgin Islands, primarily focusing on benefit-trafficking activities. SNAP trafficking refers to the exchange of SNAP benefits for cash or ineligible items, which include alcohol, drugs, tobacco, and nonfood products.
The SIU receives referrals from the USDA’s fraud analysts within the Retailer Operations and Compliance (ROC) branch, the public, and various state and local agencies. Once a referral is received, cases are assigned based on established criteria, including redemption data analysis—the SIU contracts with licensed undercover investigators to expose EBT trafficking and document their findings in detailed reports. In 2023, the SIU conducted more than 13,000 investigations and assisted federal, state, and local partners with dozens more.
Types of fraud
There are several types of SNAP fraud; however, this article will concentrate on the most common schemes that SIUs encounter that may warrant criminal prosecution. Specifically, activities related to trafficking and the skimming or cloning of EBT cards are summarized below.
Direct trafficking. SNAP trafficking usually involves collusion between retailers and recipients, but some retailers exploit their position to gain more benefits than agreed. Some everyday trafficking activities utilized by retailers include:
1) The retailer enters a fictitious transaction on their POS device and pays the recipient a cash payment (typically 50 percent lower than the transaction amount). In this scenario, the retailer receives full reimbursement from SNAP for the total transaction amount, and the recipient can use the cash without restrictions.
2) The retailer permits purchasing items not SNAP-eligible, such as tobacco, alcohol, or drugs, using an EBT card at their location. This arrangement allows the retailer and the recipient to utilize SNAP funds for items not authorized for purchase with SNAP benefits.
3) The retailer keeps the recipient’s EBT card on-site or maintains the card number and PIN to deplete the benefits gradually. The recipient is paid a percentage of the value depleted in cash. The retailer slowly depletes the benefits of this method to remain under FNS’s radar.
Trafficking outside the EBT system or indirect trafficking. This practice can involve authorized SNAP retailers or businesses, such as bars and restaurants. The establishments use SNAP benefits to acquire inventory at a reduced cost. In this scenario, the recipient allows the business owner to utilize the EBT card at a large grocery store to purchase items needed to stock their establishment. The business owner then pays the recipient cash for half the value of the benefits spent. For example, if the business owner purchases $200 worth of Red Bull using the recipient’s EBT card at Costco, the owner then returns the card to the recipient and provides $100 in cash. This approach helps authorized SNAP retailers avoid being flagged for fraudulent transactions, as they do not occur at their own stores.
EBT skimming and cloning. Like conventional skimming practices involving credit or debit cards, EBT card data has historically been vulnerable to card skimming activities. While many credit card companies have advanced their fraud prevention technologies, SNAP EBT cards have not undergone similar improvements, making them an appealing target for skimming, cloning, and other criminal activities. Skimming occurs when a device is installed on POS terminals to capture EBT card numbers and PINs. The information obtained from skimming is then used to create cloned digital or physical EBT cards. The unauthorized funds accessed through these fraudulent cards are subsequently used for purchases at SNAP-authorized retailers.
Additionally, there has been a rise in breaches of EBT card information stemming from third-party mobile applications. These applications allow recipients to input card details to monitor spending and check balances, resulting in EBT card cloning.
In late December 2022, Congress passed legislation designed to replace SNAP benefits that were compromised through card skimming, cloning, and other similar methods. The law mandated that states use federal funding to replace benefits stolen between October 1, 2022, and December 20, 2024. According to data reported by FNS, state agencies have approved 450,015 claims nationwide, resulting in the replacement of benefits amounting to $211,786,610.[3]
SNAP fraud undermines the program’s effectiveness and drains valuable federal, state, and community resources. SIU seeks to collaborate with local district and county attorneys to prosecute these more serious violations and reduce fraudulent activities and misappropriation of public funds. Below are case studies outlining key highlights from recent SNAP investigations conducted by SIU which resulted in criminal prosecution.
Case study No. 1
The SIU, in collaboration with the Buffalo Police Department, conducted a two-year investigation into EBT trafficking at a SNAP-authorized retailer in Buffalo, New York. The case was initiated due to the store’s transactions triggering alerts within FNS’s redemption data analysis system. Most of the cases handled by the SIU originate in this way. Once a store is flagged, a team of analysts utilizes data mining tools and techniques to detect potential fraud. If it is concluded that an investigation is warranted, a referral is submitted to the SIU for further examination. During the initial undercover operations, the store clerk allowed the investigator to purchase several ineligible items, including alcohol, using her EBT card. After a few undercover buys, the clerk swiped the undercover’s EBT card on the store’s POS device and gave her half of the transaction amount in cash.
The investigation escalated when the clerk expressed interest in purchasing the undercover’s EBT card and cards belonging to others to buy stock for his store. Initially, the undercover investigator provided the clerk with two EBT cards that did not have her assumed identity’s name on them. The clerk used the EBT cards to go shopping, and the undercover returned a few days later to retrieve the funds owed by the clerk.
Eventually, the clerk proposed to keep the EBT cards and send cash payments to the undercover investigator via Western Union. The clerk would make monthly purchases with the EBT cards and send the undercover cash for the agreed-upon amount. He would alert the undercover investigator of the payments by texting a photo of the Western Union transfer receipt, which included the transaction number, date, time, and amount. Throughout the investigation, the store clerk sent more than 15 Western Union payments totaling $7,600 in exchange for more than $26,000 in SNAP benefits. These benefits were depleted from four different EBT cards the clerk had acquired from the undercover investigator.
The case was referred to and prosecuted by the local district attorney’s office for:
• one count of Welfare Fraud in the Third Degree (Class D felony),
• one count of Criminal Use of a Public Benefit Card in the Second Degree (Class A misdemeanor), and
• one count of Misuse of Food Stamps, Food Stamp Program Coupons, Authorization Cards, and Electronic Access Devices (Class D Felony under New York Social Services Law).
The store owner eventually pleaded guilty to one count of misuse of food stamps, food stamp program coupons, authorization cards, and electronic access devices (Class E felony under New York Social Services Law).[4]
Case Study No. 2
The SIU has responded to numerous complaints of cloned and skimmed SNAP EBT cards nationwide. In a case in Texas, the SIU launched an investigation into an authorized SNAP retailer as a result of findings related to another investigation. The SIU partnered with the FBI’s Fort Worth Resident Agency, the USDA Office of Inspector General, and various law enforcement agencies to conduct surveillance and gather intelligence, ultimately identifying two additional co-conspirators.
The suspect had opened two retail stores and cleared the approval process to become an authorized SNAP retailer. He and his associates installed skimming devices on POS terminals across the United States, stealing EBT card data from hundreds of SNAP recipients. The stolen EBT information was used to create cloned EBT cards swiped on the POS terminals registered to his stores. By processing these fraudulent transactions on his store POS devices, the store owner made them appear as legitimate SNAP transactions, leading to the unauthorized redemption of over $2.6 million in SNAP benefits.
The store owner was prosecuted by Leigha Simonton, U.S. Attorney for the Northern District of Texas, leading to a 20-year federal prison sentence for conspiracy to commit wire fraud.[5]
Collaborating with SIU
Through close collaboration with our law enforcement and private sector partners, the SIU continues to improve its expertise in various methods for identifying and investigating SNAP fraud. However, we encounter significant administrative challenges and resource limitations that hinder our ability to pursue all cases to the extent they warrant. SNAP fraud can be associated with other criminal offenses such as money laundering, identity theft, organized crime, and drug-related activities. Investigations frequently uncover involvement in these crimes, which can significantly impact the local level. Unfortunately, many SNAP fraud cases are not prosecuted due to a limited understanding of the program and associated criminal statutes. The mission of the SIU is to demonstrate to local prosecutors the strength and versatility of our investigations. This approach will highlight our commitment to addressing SNAP fraud and communicate that such activities will not be tolerated.
Our investigation approach is designed to be flexible, allowing us to explore additional crimes or collaborate with local law enforcement agencies when necessary. We have the financial resources to modify the duration and methods of our investigations to ensure we meet legal requirements. Our undercover investigators are professionally licensed in their respective states. Upon completion of an investigation, the undercover investigator and SIU team are available to assist throughout the entire legal process, from arraignment to the conclusion of the trial. The SIU encourages prosecutors and law enforcement agencies to contact us to discuss collaboration efforts. Together, we can address the critical issues of fraud, waste, and abuse, enhancing confidence in this program that supports the most vulnerable members of our communities.
About the author
Nicole Housley is a Lead Investigator with the Special Investigations Unit and has a B.A. from Winona State University. She has successfully conducted numerous SNAP investigations in partnership with local, state, and federal government agencies. Before joining the USDA SIU, Nicole investigated SNAP, Medicaid, and childcare public assistance fraud for the state of Wisconsin. Nicole has 14 years of experience managing SNAP fraud cases at criminal and administrative levels. If you would like to explore collaboration strategies, have any inquiries, or wish to schedule a virtual meeting, please email her at [email protected].
[1] www.ers.usda.gov/topics/food-nutrition-assistance/supplemental-nutrition-assistance-program-snap/key-statistics-and-research.
[2] Id.
[3] www.fns.usda.gov/data-research/data-visualization/snap-replacement-stolen-benefits-dashboard.
[4] www4.erie.gov/da/sites/www4.erie.gov.da/files/ archive/index.php-118.html?q=press/south-buffalo-corner-store-clerk-pleads-guilty-felony-misuse-food-stamp-cards.
[5] www.justice.gov/usao-ndtx/pr/liberian-man-sentenced-20-years-stealing-26m-snap-benefits-needy.