significant problems. the usda has acted quickly to address the bad actors. and the s.n.a.p. program continues to be an extremely well run program, given the strong track record i'm concerned the true purpose of this hearing may be to discredit the entire program to justify draconian cuts. last year, every republican member of this committee voted to convert s.n.a.p. program into a block grant program and slash its funding by $127 billion over the next ten years. a massive reduction of almost 20%. again i go back to what you said. a little bit earlier, mr. chairman. in part this is about children. this proposal was part of the plan proposed by budget committee chairman paul ryan, and adopted by the house republicans last april. according to the center on budget policies and priorities

this proposal will force up to 8 million men, women and children, to be cut from the program or will severely reduce the amount of food they can buy. where are these children supposed to go if they are hungry? i believe there is a compassion deficit here in washington. obviously a dollar squandered in this program is a dollar that does not go to poor families. that desperately need food. but efforts to impose draconian cuts to this program will cause even greater harm to the very people who need the most help. so while i strongly support efforts to make the program more effective and efficient, i strongly support the fact that we must root out fraud, i will do everything in my power to oppose efforts to use this, these isolated examples, to discredit and gut the entire program. i look forward to a productive discussion today on ways to improve one of the most successful federal programs to

prevent poverty and hunger throughout these united states. with that, mr. chairman, i field back. >> thank the gentleman. members will have seven days to submit opening statements for the record. we now recognize our first panel. mr. kevin concanon, prior to his service at department of agriculture he served as director of three different state government departments of health and human services. maine, oregon and iowa. welcome. ms. phyllis fong is usda inspector general. and has served the department for ten years. she is also concurrently serving as the first chairperson of the council of inspector generals on integrity, efficiency, and in fact, in that role, you may be aware that this committee would like to -- pass on to that council greater authority including potentially subpoena

authority. that remains one of our, our long-term goals if we can convince the senate of the importance of investing in inspector generals. ms. jennifer hatcher senior vice president of government and public affairs for the food marketing institute. prior to joining fmi, she served as chairperson for chairman spencer bachus as his chief of staff. lastly, ms. faulkner is inspector general of the commonwealth of pennsylvania. prior to becoming inspktector general, law partner at philadelphia office of ballard, spall, llp. she had a lengthy career, not that lengthy, you are too young in public service as assistant u.s. attorney, deputy attorney general of pennsylvania, and philadelphia public defender. that is a lot to pack in a short

time. if you would all rise pursuant to our committee rules, all witnesses are to be sworn. please raise your right hand. do you solemnly swear or affirm that the testimony you are about to give will be the truth, the whole truth and nothing but the truth? >> i do. >> i do. >> i do. let the record reflect that all witnesses answered in the affirmative. please be seated. this committee historically tends to have a soft gavel as i informed the witnesses ahead of time. we have a vote on a district work period last working day. i know my people, they will not return. so in order to not have you wait an hour for a relatively small period afterwards. if we have not concluded by the time of the vote, we will end at that point. as a result, i will hold everyone on your side very close to the five minutes. i will hold my own people close to the five minutes, not just for questions, but for your answers. so, i ask all, all of the

members to include time in your five minutes for questions and a reasonable period for witnesses to answer. with that, mr. secretary, you are recognize ford fid for five. >> thank you for the opportunity to downyou. let me thank the inspector general, a strong and independent oversight agent at the usda. the mission of the nutrition assistance program, s.n.a.p. is to help, low income people get the food they need while they get back on their feet. it has never been more important in the lives of americans than now. so strong administration and oversight, including accurate payments and proper use of benefits are just as critical. the focus of today's hearing is about usda's oversight and management of the retailers authorized to redeem s.n.a.p. benefits across the united states. particular emphasis given to recent new stories, the result of several months of intensive investigative journalism by a team of reporters that scripps howard news service. that focused on retailers that

have previously been disqualified from s.n.a.p. for trafficking, trafficking is the sale, purchase of s.n.a.p. benefits for cash. illegal activity punishable by disqualification, fines, criminal prosecution. while we recognize the importance of the issues raised by scripps. i want to set the record straight about several facts. as with other leads, we receive from the public, we took the information scripps brought to our attention very seriously. we immediately began our own investigation into the stores that were referred to us. our results suggest that the issues may not be as widespread as reported by scripps. as many of the cases they raised have not proven to have integrity problems. of the 36 owners, scripps referred to as suspicious, our investigation found over 3/4 had no connection to the disqualified owner or were not authorized at s.n.a.p. stores. the remaining quarter have been

disqualified, charged or withdrawn from s.n.a.p. one under criminal investigat n investigation. we increased stewart measures to keep out previously disqualified owners including more robust review of applicants public records and shorter time period authorizations for stores and locations with previous disqualifications. prior to these reports, fns has been upgrading its electronic transaction data mining technology to better detect suspicious s.n.a.p. redemptions and we are preparing to post information regarding owners of permanently disqualified stores to gsas excluded party list system. federal list to protect other federal agencies. we are also developing rules that will increase penalties for trafficking stores. combatting fraud has long been a usda priority over the last 15 years.

i believe the charts are rotating up here. you will see one of the charts reflects various initiatives, taking over the years. we are not yet satisfied and usda continues to work closely with our partners to fight trafficking. in fiscal year 2011, fns reviewed over 15,000 stores, conducted nearly 5,000 undercover investigations, and sanctioned or punished 2,000 retailers. while usda has direct responsibility for overseeing s.n.a.p. retailers our integrity work includes every aspect of s.n.a.p. administration. by overseeing and working closely with our partners, including state and local governments, usda strives to ensure that scarce taxpayer resources are managed d with integrity. we have made major improvements in snap payment accuracy. over 98% of snap clients are indeed eligible. accuracy in 2010 reached 96%.

an historic high. 2010 errors were less than billions than they would have been under the 2000 year rate. second usda overseize and provides guidance to states to find and hold accountable recipient whose commit fraud. usda recently issued new policy to clarify even the intent to sell benefits for example by offering a s.n.a.p. card on a social media site like craigslist can lead to disqualification. last year, i wrote to all of the nation's governors individually asking them to make s.n.a.p. integrity a priority. we have engaged retailer community in this effort. i have personally met with state commissioners around the country to enlist their support and including a greater focus on recipient trafficking and increased partnership with law enforcement. to conclude, fraud is neither new nor static, while a vast ajt of retailers and clients follow the rules, a few bad actors will

seek to exploit s.n.a.p. the program is too important, taxpayer investment too great to tolerate fraud. as in cybersecurity, we must be vigilant and update systems to find and thwart new fraud schemes. usda will continue to crack down on violators. we welcome our partners constructor engagement in this effort. thank you very much. >> thank you. ms. fong. >> thank you, mr. chairman. thank you, mr. chairman. ranking member cummings and members of the committee. at outset i want to express my appreciation to you, mr. chairman and many of the distinguished members of this committee, for your support of the federal ig community over the past several years. you have a noteworthy record of bipartisan support for ig contributions and you have demonstrated time and again, through legislation, hearings and speeches your interest in our work. and so on behalf of the entire community i want to thank all of you for your support tucht d.

to day you have invited me to testify to protect integrity of the s.n.a.p. program. to put this in context. the ig office at usda is responsible for providing oversuiting to all usda programs which currently number over 300. of course, s.n.a.p. is the largest program in our portfolio with over $70 billion, and has drawn much of our attention over the past few years. in the last two years alone, we have devoted almost half of our investigative resources to addressing s.n.a.p. fraud with measurable results. we currently have over 900 cases open. over 600 of these cases involve retailers in some way. my written statement provide some examples of our most significant cases involving disqualified retailers. but i want to emphasize, more than the cases that we do, that the core problems in this program are not new.

namely, there will always be people willing to commit fraud and to traffic in s.n.a.p. benefits. even though the specific schemes themselves may take different forms. and so we, as an ig office have been working on these, use, with fns, our partners and with state and local agency for many years to address these, use. and i can assure you, that we have cases right now, going on in every region of the country, and our agents are continually adjusting their work to deal with new schemes as they arise. while it is important to investigate, prosecute and bring to justice wrong-doers. these action as ls alone will nx the problem. it is critical also that we focus our efforts on looking at how retailers bypass the system that we have put into place to control access. and to try and figure out what can bedone to up prove the program for the future. and to this end, we have issued

several audits over the past few years. with wreck men drecommendations corrective actions, working with fns and partners at usda to address the issues. in particular, we recommend that retailer applicants need to have clean back groupd wiground withy of crumbiminal or illegal activ. we believe usda should make better use of suspension and debarment appropriately to assure that disqualified retailers do not participate in government programs in the future. so to conclude, we strongly believe that retailer integrity is a critical component of ensuring an effective s.n.a.p. program that delivers nutritious food to people who need it. in our experience, unscrupulous retailers are at the heart of most of the trafficking schemes we have seen. and so we look forward to continuing our work with fns, with our state and local

partners, to address this fraud where it occurs and improve the integrity of this important program. thank you for your interest. we look ford waward to addressi your questions. >> thank you, ms. hatcher. >> good morning, mr. chairman. and members of the committee. on behalf of the food marketing institute and the familied served by the 25,000 stores operated by our members i want to thank you for the opportunity to testify today. my name is jennifer hatcher, senior vice president for government and public affairs at fmi. for the past 13 years through transition from paper food stamps to electronic benefits transferred and now nethe new program, s.n.a.p. a positive example of a public/private partnership that works and adds efficiency and reduces fraud for all stake holders in the program. supermarket retailers are proud of our partnership with usda and state agencies to deliver, safe, healthy and affordable foods to customers in need of assistance.

unfortunately, the number of customers in need is higher today than it has ever been. in large part due to the conversion to electronic delivery of benefits rather than paper food stamps, a significant portion of the fraud has been removed from the system. many supermarkets remember vifdly sivifd -- vividly where paper food stamps were sold by criminals in front of the store. paper stamps, provided anonymity for person trap topetrators. this is taking the criminal element out of our store parking lots. electronic delivery has also provided state agencies with a better mechanism to compare transaction activity and look for duplication across state lines particularly with states that share a common border. some states have employed

mathematicians to electronically identify potentially fraudulent patterns of sales. ebt has also improved efficiency and cut down on the potential for human clerical error. s.n.a.p., ebt transactions are protected by a personal identification number, p.i.n., much more secure than paper or credit cards. fmi members take their responsibility as authorized food stores, the delivery of these benefits, very seriously. being an authorized s.n.a.p. retailer is part of their identity and reputation in their communities which is very important for them to protect. after reviewing the scripps report and associated list of disqualified retailers we found no fmi members on the list and agree those who impugn the integrity of the program should be removed. fighting fraud before it happens is critical and i thought i would share some of the steps our supermarket members take to prevent fraudulent activity untheir stores. first and most important is training.

fmi member companies conduct onsite and offsite training for both associates and their managers and the rules and regulations that govern s.n.a.p. transktti transactions. there is a 76-page manual on the website we consult on a daily basis for all of the rules/regulations governing the program. there is also a 25-page guide for retailers and a 17-minute training video in multiple language that can be outilized for these purposes. several members have set up their own internal audits to ensure in compliance and each transaction is in compliance. the members utilize computer systems that allow them to program, upc code, eligible and ineligible food items and lock the point of sale purchase system should some one attempt to purchase an ineligible item with s.n.a.p. benefits. fmi publishes and sends to

members on a regular basis names and contact information of the usda, fms regional offices and state administrators for snap/ebt. both make the usda fraud hot line number available to their associates and managers through each of the training materials. there is one more issue that i feel i need to raise in the context of this hearing. that is the extreme concentration of benefits issuance at the first month in a number of states. there are a number of issues that spreading the issuance of s.n.a.p. benefits across the entirety of the month instead of just on the first day could help accomplish. and we think a reduction in fraud may be an additional positive result of this change. thank you for inviting fmi to share our thoughts on identifying and reducing fraud in the snap program. our industry is committed to ensuring a pleasant and efficient shopping experience for all of our customers. and we welcome the opportunity to work with the committee and

the department to move towards additional efficiencies in the s.n.a.p. program. >> thank you. >> thank you. good morning chairman, and honorable members of the committee on oversight and government reform. i would look to thank you for the opportunity to address this committee on the pennsylvania office of inspector generals proactive progressive steps it takes to deter and combat fraud in the supplemental nutrition assistance program or as we refer to it as s.n.a.p. let me first say pennsylvania governor tom corbitt believes it is important for pennsylvania to provide health and human services, snap, to true leap deep serveswhe engage in fraud those limited resources from the neediest of pennsylvanians. as inspector general it is the mission of my office to uncover fraud, waste and abuse within s.n.a.p. to hold those individual whose have committed fraud within the program accountable for their actions and to recover overpaid tax dollars. the office of inspector general conducts its mission to combat

s.n.a.p. fraud by operating several fraud investigative programs within this within thi fraud prevention and prosecution. these programs are the field investigation, fraud investigation and s.n.a.p. trafficking programs. these programs are operated in coordination with the department of public welfare which we refer to as dpw. the office of inspector general's approach to combatting fraud begins with the application for s.n.a.p. benefits. throughout our field investigation program, when dpw refers an application or reapplication for s.n.a.p. benefits and suspects fraud or receives inconsistent or incomplete information, it refers the applications to my office, the office of inspector general. the oig investigates all applicant's circumstances and provides dpw with the findings. based on these findings, dpw may deny benefits or approve benefits at a reduced amount. this same process exists for

active recipients of s.n.a.p. benefits where dpw becomes aware of circumstances in a recipient's on going case. this proactive approach to combatting s.n.a.p. fraud before benefits are authorized or investigating on going cases to insure only those entitled to benefits are actually receiving them is a critical function of my office. as a best business practice, there is greater efficiencies and denying or reducing incorrectly authorized benefits versus attempting to collect overpaid benefits. in fiscal year 2010/2011 the oig conducted approximately 22,308 field investigations where s.n.a.p. benefits were involved. the cost of taxpayers avoided based on the oig's investigations where s.n.a.p. benefits were denied, closed or reduced was a little over $19 million. not all fraud, however, can be prevented by the oig's field investigation program.

when dpw becomes aware of circumstances which affect a recipient's past benefits, it will calculate an overpayment of s.n.a.p. benefits and refer that overpayment to my office, the oig, for investigation. the oig in its fraud investigation program conducts investigations on overpaid s.n.a.p. benefits and determines if the overpayment was due to the recipient's willful intent to defraud the program. investigations where the oig is able to substantiate that fraud occurred either criminally prosecuted or adjudicated through an administrative hearing. court or administrative findings of intentional program violations include orders to fully repay restitution to the commonwealth or carry a program disqualifications for the defendants. the oig follows federal regulations in the progressive disqualification penalties for intentional program violations with the first violation carrying a 12-month disqualification period. and the fiscal year 2010-2011 for s. is n.a.p. overpayment

claims, the oig conducted 3,335 investigation which involves snap benefits. the oig filed 613 criminal complaints for a total restitution of a little over $1.4 million. the oig disqualified 822 defendants as a result of criminal charges which resulted in a little over $1.6 million in cost savings from preventing further program participation. the oig filed 180 administrative hearings of a total restitution amount of $322,000. the oig disqualified 172 defendants as a result of the civil proceedings which resulted in approximately $496,000 in cost savings from preventing further program participation which includes figures from s.n.a.p. trafficking program. in addition to efforts to combat s.n.a.p. fraud at the application stage or through prosecuting overpayments, the

oig focuses on fraud which is occurring through recipients who sell or exchange their s.n.a.p. benefits to negotiate them into cash services, credit or anything other than food which is defined as s.n.a.p. trafficking. it is pursued in pennsylvania and has been done so for many years in pennsylvania to maintain the integrity of s.n.a.p. benefit distribution by insuring the credibility of the vendors and the recipients. the oig operates a small but dedicated unit to operate snap trafficking program and works with the usda and nutrition service. the usda office of inspector general as well and local district attorneys to identify store owners and recipients who engaged in s.n.a.p. trafficking. this active participation between the usda and oig is the chief reason why pennsylvania has success in targeting s.n.a.p. trafficking. the usda is responsible for disqualifying store owners and filing criminal charges against them for engaging in s.n.a.p. trafficking. but as you know, it takes the

active participation of recipients of s.n.a.p. benefits or s.n.a.p. trafficking to occur. the oig's responsibility and partnership with usda is to actively pursue the recipients who traffic the benefits and hold them accountable including criminal prosecution, obtaining repayment and disqualification from the program. >> thank you. >> i'll now recognize myself for five minutes. miss faulkner, a lot of what you were talking about, of course, are people who receive the benefit and abuse it. that represents a large part of the state's role is to make sure that the food -- we still use the word stamps, but that the s.n.a.p. program funds get to the ultimate recipient which is usually family members. is that correct? now in your enforcement, the fact that these are basically credit cards that are digitally monitored and that you can track, that has dramatically

made your job more accurate, hasn't it, than the old days of paper? [ inaudible ] i'm sorry, your microphone. >> yes, it has. >> that begs the question, i think -- well, miss hatcher, i've been at the grocery store when i've seen the exclusion of unauthorized materials where every grocery store i've gone to has a software where, you know, they simply say, yes, that's fine. you just credit $30 but you still owe us $6.50 for the cigarettes or whatever. that is great. do 100% of your members have that? if not, why not? >> 100% of our members that have electronic point of sale systems would have some ability to download that and we're increasing that number. i'd have to get back with you on the exact number or percentage of stores. but it's over 90% for sure. >> that's excellent.

every grocery store i go to these days is electronic. not every liquor store i go to is electronic. one of the basic questions is if you cannot reduce fraud to an acceptable level to make your ig happy, if you will, is it that important that every liquor store and i use the term liquor store very specifically because sometimes people want to call themselves convenience stores. but we all know as the ratio gets close to your minimum food to cigarettes and alcohol, your fraud level goes up. no question at all. it's well understood. is that one of the areas in which the test must be higher and the tolerance for any slippage must be lower? >> i appreciate the question, mr. chairman. and to your point you make, stores that -- stores by federal requirement in the farm bill must provide a certain number of foods in the food group. it's what we refer to as the

depth of stock requirements. i am very interested, i know the secretary vilsack is as well in increasing the obligation on stores to have more foods than those minimums that currently meet it for stores that maybe their real interest is in selling tobacco or selling alcohol to folks. again, they can't buy that with their s.n.a.p. card but it's encouraging people to come into those locations. >> i appreciate that. now both your op-ed which i ask unanimous consent to be placed in the record, without objection, and your statement quite frankly give a fairly rosy picture and in the case of your comments on scripts howard, it was a little bit like the ranking members thanking us for the hearing and then saying we want to starve the children implications and everything republicans do in the budget. scripts howard exposed at least in some cases fraud you were not aware of, is that correct?

>> yes, they did. and a very small number of cases. i want to correct the record. because the scripts howard piece mistakenly made the notion -- >> i appreciate that. and you said that in your op-ed. you said it in the opening statement. my time is limited. you know, you were invited here not to be mistreated but invited here because we're concerned and we really don't want to have our whistle-blower bashed even if there was 1% accuracy. there appears to be far more than 1% accuracy. here's the question i have for you. it's the only question i'm going to make today. i think miss fong will particularly appreciate it. the rest of government uses permanent exclusion and debarment fairly aggressively. it's not an easy task. but it guarantees that those who have cheated the american people as vendors are not just removed for a period of time from your prra