Benefit Fraud Problems and Solutions

Because that’s where the money is.

That was famed bank robber Willie Sutton’s very possibly apocryphal response when asked why he robbed banks.

Now the money is in government benefit programs and that’s why they are being defrauded at record rates.

From DC to Sacramento to every other state capitol, benefit fraud cost taxpayers billions of dollars each year.  From the notorious rip off of $50 billion  of California’s unemployment agency – the EDD – during the pandemic to food stamp and welfare fraud, the numbers involved are eye popping.

And just maybe – here’s a thought – the numbers are so high because it’s really easy to do.  There are multiple ways people can scam food stamps (SNAP/EBT,) both by the recipients and outside thieves. 

The same holds true with welfare, known in California as CalWORKs.

There are many other programs – direct food distribution (that whole government cheese thing,) free school lunches, and special additional SNAP funds for infants (WIC,) and housing vouchers that can be manipulated that fraud investigators have a hard time keeping up with the problem.

That is, even if there were enough investigators in the first place.

“California does nothing as a state regarding fraud detection,” in the EBT programs, said Gregory Mahony, president of the California Welfare Fraud Investigators Association (CWFIA).  

That task is left up to the individual counties that administer programs at a local level.  Mahony said some counties have a few investigators and some even have none.

For example, in Sacramento County a person can claim their EBT card (it’s like a debit card SNAP/CalFresh refills every month) was skimmed or stolen or some way or another hacked and be entitled to immediate reimbursement of the funds they claim are missing.

Now, it does happen – EBT cards are notoriously easy to defraud.  But the “no questions asked” approach by Sacramento and other counties have led to a spike in “reimbursement” claims throughout the state.

This problem also plagues CalWORKs. In August 2021, the two program distributed about $1.4 billion dollars and the “reimbursement” requests totaled about $92,000.  In September 2024, about the same total amount – $1.4 billion – was paid out.  The “reimbursement” requests totaled $12.5 million dollars.

“There is no question that people are lying about reimbursement,” Mahony said.

Nationally, people spend a total of about $1.2 trillion dollars on food; SNAP payments make up 10% of that number.  In other words, one out of ten dollars spent on food in the country is paid for by the government.

In 2001, about 17 million people received food stamps – that number is now about 42 million. Even accounting for population growth, the percentage of people getting food stamps has doubled since then.

And while federal estimates of fraud are exceedingly low – like, impossibly low -most industry experts say somewhere between 10 and 15% of food stamp and welfare money is obtained fraudulently (officials counter that may be semi-accurate, but it’s not only fraud but includes the unintentional “error rate” in payments made.)

How much money is it possible to scam between programs? As a single person, one is entitled to temporary “general assistance,” food stamps, and  Medi-Cal, but not actual welfare. Still, that can total up to a value of about $1,200 a month.

For families, the number rises exponentially. A single mom with three kids could get about $1,600 a month from CalWORKs, another $700 from food stamps, and then Medi-Cal, which is “worth” about $1,700 a month.

That’s about $4,000 and that’s if you are honest.

Experts say one of the reasons for the recent spike in benefit fraud is/was the pandemic.  The public realized how easy it was to steal and the problem moved beyond professional fraudsters with fake identities and card info skimming machines and such to entice everyone.

So what could be done about it?  Fraud will never disappear entirely, but the United Council on Welfare Fraud (UCWF) –  a national association of fraud investigators – is trying and has proposed numerous changes to the systems.

First, tighten eligibility requirements. Dawn Royal, an investigator in Wyoming and past president of the UCWF said (speaking as a member of the UCWF, not as a state employee) a case she worked on was an application for benefits  from a family that may have technically met the current income (or lack thereof) requirements but just happened to own a $2 million home with about $1.5 million in available equity.

Benefit programs almost always have asset limitations (you can have X in the bank, your car can be worth Y, etc.) but they also ban counting homes as one of those assets, hence the above situation.

In another case of organized fraud, UCWF  board member Andy McClenehan said that gangs can access systems and steal info. But the systems have PIN numbers, right?  Well, yes but in one particular case, the fraudsters just powered through every account they found and entered 1234 as the pin and, out of the 300,000 accounts or so they had access to, 970 had that PIN number and the cards – which carry both cash and food stamps – could be drained, netting hundreds of thousands of dollars.

Note to readers – do not have 1234 or four of the same number as any of your PINs, public benefit or private. Fraudsters at every level use that same trick.

UCWF is currently backing in Congress a number of changes,  including:

1. Address Identity Verification Deficiencies

2. Eliminate Overuse of Self-Attestation and “Honor System”

3. Adjust Recipient Trafficking Burden of Proof

4. Require Adequate Program-Integrity Staffing

5. Removing Identity “Opt-Outs”

6. Minimum Application Requirements for 21st Century

7. Require Cooperation in Administrative Reviews

8. Improved Data Sharing with Other Programs and Law Enforcement

9. Require Cooperation with Child Support Enforcement

10. Freezing/Suspending Fraud Benefits

For more details, do click on the link above, but a few of the proposals are so basic and easy to solve that no one in the public would ever think are problems because they are so obvious.

True – your need an ID to get food stamps. It is also true that that ID is never actually verified.

A person can self-attest (especially when applying online) that everything is true and, considering the lack of investigators, that is almost never challenged.

A person can carry any amount on their benefit cards, raising the question that if someone has $10,000 in their food stamp balance they may not really need them. That balance cannot be used as an indicator of potential fraud and all a person has to do is use the card at a store once every nine months and the balance can continue to grow.

The feds – food stamp programs originate in the Department of Agriculture, which declined to comment for this article – have been pushing to move everything on-line and do away with in-person interviews. In fact, Minnesota’s administrator proudly told Congress they can sign up people in 13 minutes.  

SNAP – rather uniquely for a federal program – does not share information with other departments.  It is siloed, allowing for things like benefits to be paid out of the country.

In 2023, about $2.6 billion was stolen by using the Social Security numbers of dead people.

A person can use the benefit card anywhere, meaning the fraud issue has metastasized across the nation.

“California is killing the country” with its lax security and eligibility requirements, McClenehan said.

The proffered solutions? First, make benefit cards essentially only usable in the state in which they were issued. Royal said there would be exceptions (if you live close to a state border you can use the card in the closest county, etc.) but the savings would be dramatic. 

This would also impact the organized theft side, because right now a person can set up their own fake business with their own “point of sale” (the thing you put your debit card in at the store) machine anywhere in the world, obtain account numbers from any and/or multiple states, and just run the stolen information through the machine and get paid like they were a store;

More investigators are sorely needed, said Mahony. For example, the federal government has 4 welfare fraud investigators in California.

Yup – four.

Other changes that need to occur, said the UCWF, is the creation of a national information sharing database so people can’t get benefits in more than one state.  You would think that would be a no-brainier, but it really doesn’t exist now (though it may soon.)

Another potential reform would be curtailing “broad based categorical eligibility,” which McClenehan characterized as “fraud by design.”

That’s when you call up to apply for one benefit and you are automatically signed up for any other program you may qualify for – hence Minnesota’s pride in its “thirteen minute” speed for approval.

That, of course, literally allows no time to check if the applicant is telling the truth, but, oh well, it’s fast and we can get more people on more government programs all at once.

Requiring that retailers who take benefits cards be legal residents of the United states, that they have actual real bank accounts, that they are sanctions and/or arrested when they buy benefits (pretend to spend $200 in my store, run the card, and I’ll give you $120 cash,) are also proposed.

Finally, end the government mindset of “trust but verify” because the verification part of that does not really exist.

While there has always been – and always will be – benefit fraud, it seems that a rather few simple steps could slash the problem essentially overnight.

I wonder why the feds don’t do it. Maybe it’s because DC wants more people on benefits?

Or maybe they are just paleolithic bureaucrats who don’t care.