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Home / Expert Opinion / Fraud Facts: Recognizing and reporting welfare fraud

Fraud Facts: Recognizing and reporting welfare fraud

Gina Bliss

I was listening to the radio on my way to work recently. A listener asked the radio hosts for advice on an ethical dilemma. The listener said that she had a best friend who got married two years ago, but never changed her last name.

The friend’s husband has a great job and travels often for work. He’s only home eight or nine days a month. They live an affluent lifestyle. They have a boat that sleeps six and a new truck for towing it. They have a big house and flat screen televisions. There’s a new camper and another truck. All vehicles are registered in Florida.

The listener recently found out why. Her best friend is still collecting food stamps and receiving heat assistance and medical benefits. Should the listener turn in her best friend?

That was just a story on the radio. We have no way to know if it’s true, or if the facts are correct. It did generate a lively discussion among callers. Some said the listener should mind her own business, and others asked why she would want a friend who would do that.

According to Wikipedia, welfare fraud refers to various intentional misuses of state welfare systems by withholding information or giving false or inaccurate information. This may be done in small, uncoordinated efforts, or in larger, organized criminal rings. Some common types of welfare fraud are failing to report a household member, claiming one or more imaginary dependents, failure to report income, or providing false information about the “inability” to work.

Actually, the most common form of fraud is intentionally signing any application for benefits when you know or should have known that the information provided is not true. Signing a falsified application may trigger a fraud investigation.

“Welfare” seems to be synonymous with “public assistance” or “social services” and includes the food stamp program, Medicaid, HEAP (Home Energy Assistance Program), cash assistance, child care assistance and housing benefits among other things.

The U.S. Department of Agriculture administers the Food Stamp Program, which helps low-income individuals and families obtain nutritious food. Cooperative federal-state agreements enable the states to oversee the program. In New York state, the Department of Social Services for each county administers the food stamp program along with other social services programs.

Only licensed stores can accept food stamp Electronic Benefit Transfer (EBT) cards, which are like debit cards. EBT cards are the way food stamp benefits are issued to recipients in New York state.

A common form of food stamp fraud, also called food stamp trafficking, is the illegal buying or selling of food stamp benefits for cash, drugs, weapons or other items. EBT cards are susceptible to trafficking. As part of administering the food stamp program, there is monitoring of authorized retailers and their EBT transactions to identify suspicious activity. 

Financial institutions are often able to identify suspicious transactions. Food stamp trafficking has been successfully investigated based initially on a bank filing a suspicious activity report. Most of the suspicious activity involves removing the cash from an account that has a large EBT balance.

In one NYC case of food stamp fraud, the fraudster would randomly call homes in neighborhoods likely to have families with food stamp benefits. He identified himself as a caseworker with the Department of Social Services, and accused the food stamp client of missing an appointment. He manipulated the client with threats of having the benefits terminated in order to get an account number, Social Security number, and date of birth. Once he had that personal information he changed the password on the EBT account and used the funds.

New York state founded the New York State Office of the Welfare Inspector General in 1992. It’s commissioned to protect the integrity of social/human services programs, benefits and funds throughout the State of New York. It is a prosecutor’s office that deters fraud primarily by developing criminal cases. 

If you know of an instance of social services fraud, waste or abuse you can report it on their website www.owig.state.ny.us. The Office of the Welfare Inspector General also welcomes suggestions. Your identity, if you choose to give it, will remain confidential. If your report doesn’t rise to the level of prosecution by this office they will refer it to another governmental agency.

Why should we report welfare fraud? Should we just mind our own business? Welfare fraud is not a victimless crime. Every taxpayer is a victim. We support these programs. Deserving participants in social services programs are also victims. Fewer funds are available for those who were intended to receive them.

In the NYC case of food stamp fraud we discussed earlier, the perpetrator spent all the proceeds on narcotics. Once the fraudster changed the password on the account, these victims no longer had access to their food stamp benefits. His oldest victim was 103 years old.

Gina Bliss, CPA, CFE, is a senior manager at EFP Rotenberg, LLP, Certified Public Accountants and Business Consultants, who specializes in internal audit, fraud audit, and forensic accounting. She may be reached at (585) 295-0536 or by e-mail at gbliss@efprotenberg.com.

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