The bust at a North Highlands convenience store followed the federal governments script: Acting on a tip from the U.S. Department of Agriculture, a Sacramento County investigator found customers selling food stamps for cash at the 99¢ Plus Discount Cigarette Store.
The stores owners, Ricky Sidhu and Budh Singh, pleaded no contest last year to trafficking charges and were sentenced to jail in a case investigators said involved $400,000 in illegally sold food stamps. The customers involved were banned from receiving food stamps again.
According to the USDA, however, California has done too little of this enforcement.
For more than two years, officials in Washington have pressured top officials at the California Department of Social Services to improve fraud reduction efforts, according to letters obtained by The Sacramento Bee through a Freedom of Information Act request. Among other concerns, the USDA has asked the state to investigate more potential cases of fraud identified by the federal agency and adopt procedures to examine suspicious activity, such as frequent replacement of cards used to redeem food stamps.
California has one of the lowest rates of substantiating food stamp fraud in the nation, USDA figures show.
It is critical that California demonstrate that it is operating (the Supplemental Nutrition Assistance Program, or SNAP) with utmost integrity, and that program violations will not be tolerated, Allen Ng, USDAs Western region administrator, wrote in February to state Social Services Director Will Lightbourne.
Fraud is estimated to account for a little more than 1percent of all food stamp spending nationally. In California, which receives the most food stamp benefits in the nation, that would amount to about $70million in illegal activity each year.
The USDA expanded its fraud reduction efforts and told states to develop their own enforcement plans in 2011, arguing that misuse of food stamps undermines the credibility of an important social program that feeds 4million residents in California alone. Food stamps are called CalFresh in California.
Federal concerns about Californias fraud reduction efforts come as Congress debates a farm bill that would reduce funding for SNAP. Some lawmakers complain that the programs requirements need to be tightened to prevent abuse and fraud.
Pete Cervinka, a California Department of Social Services deputy director, said the state has gone to great lengths to develop its fraud reduction program. The state coordinates fraud investigations, while the Californias 58 counties and their district attorneys and welfare offices are responsible for enforcement. Devising the program took time because the USDA did not provide additional funding for the new requirements, and because the state had to work with the counties, Cervinka said.
Although the state received approval for its fraud reduction program in December, federal officials have complained about delays in implementation and reporting.
Specifically, the USDA said it has provided California with information on 3,700 households suspected of trafficking food stamp benefits and the state has not followed up with specific information about whether those tips were investigated. Cervinka said the state recently came up with a system to enable the counties to report investigation results and the USDA will start getting that information later this month.
The California state auditor in 2009 found that reporting deficiencies were part of a long-term pattern, as Social Services has known for several years that counties are reporting inaccurate data regarding their activities to combat welfare fraud, yet it has not taken sufficient steps to address this problem.
How to handle such tips has been a source of disagreement between the state and USDA, and one reason for delays in starting Californias fraud reduction program, according to people involved in the programs creation.
Food-stamp recipients use an Electronic Benefits Transfer card to make purchases at stores. The USDA analyzes purchase data and looks for transaction patterns that suggest fraud, such as high-dollar purchases at retailers guilty of food-stamp trafficking. Suspicious activity is forwarded to the states for further investigation.
The USDA has said that it wants all of those cases investigated. But after much discussion, state and county officials in California decided to take a different approach: The counties would only consider cases involving $500 or more of suspicious activity, although they have discretion to pursue cases involving less money.
What the feds are asking can be very problematic, said Jessica Bartholow, legislative advocate at the Western Center on Law and Poverty. Were trying to make sure we dont have district attorneys coming into someones home just because a grocery store has been convicted of fraud.
Discussion about this and other issues took time to resolve before approving the states plan, said Bartholow, who served on the working group that developed Californias fraud reduction program.
California completed 270,000 food stamp fraud investigations in 2010-11 and found alleged fraud in 14percent of the cases, according to the USDA. That is the eighth lowest rate in the country and well below the national average of 34percent.
Rather than conduct investigations after someone has received benefits, the state has found it more cost-effective to identify fraud when people apply for benefits, using background checks to determine their financial status, Cervinka said. That emphasis might help explain why California has a lower rate of finding food stamp fraud than other states. The state had a 30percent rate of finding suspected fraud in cases conducted before an applicant receives benefits, compared with 2percent of investigations conducted after the applicant receives benefits.
California is one of 13 states in which counties handle food stamp fraud investigations. Sacramento Countys Department of Human Assistance has 16 sworn investigators and 24 assistants handling different types of welfare fraud.
Sacramento County officials say the unit is known for its aggressive enforcement of welfare fraud. County investigators spoke on a number of panels at a two-day conference held to coordinate the states food stamp fraud effort, including one on successfully partnered investigations that focused on working with the USDA and other agencies.
In the course of investigating food stamp fraud at the 99¢ Plus Discount Cigarette Store, a county investigator observed more than 30 people making questionable transactions, according to court records. In none of the transactions did the person leave the store with enough food to justify the amount of the purchase, the investigator found. In one case, a woman made a transaction for $157 and left the store counting money and not carrying anything.
The stores owners were sentenced to two years in jail. The customers who sold food stamps signed statements acknowledging their wrongdoing and were banned from receiving the benefits again, said Marv Stern of the Sacramento County District Attorneys Office.
Call The Bee's Brad Branan, (916) 321-1065. Follow him on Twitter @BradB_at_SacBee.