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Department of Agriculture

Recommendations and Actions

USDA07: Deliver Food Stamp Benefits Via Electronic Benefits Transfer to Improve Service to Customers While Remaining Cost-Effective

The overall issue of Electronic Benefits Transfer (EBT) is addressed in the National Performance Review (NPR) Accompanying Report Reengineering Through Information Technology. This recommendation supports that report. The U.S. Department of Agriculture (USDA) Food and Nutrition Service (FNS) has been at the forefront of EBT development since the early 1980s, and EBT has the potential to improve substantially the delivery of food stamp benefits to recipients.

The Food Stamp Program (FSP) works through the state agencies, which issue food stamps, in the form of coupons, to eligible recipients. The recipients use the food stamps like cash to purchase food at FNS authorized retail stores. The retail stores deposit the food stamps at banks, which credit the store accounts for their value. The banks send the redeemed food stamps to a Federal Reserve Bank, which credits the bank's account, bills the U.S. Treasury for the value of the food coupons, and destroys them.

This involved process (printing and distributing food coupons and oversight and monitoring of state, food outlet, and financial institution operations) is costly (1992 costs were estimated at $145 million) and labor intensive, and presents abundant opportunities for abuse. In fiscal year 1990, more than $500 million in unredeemed coupons, which represent a contingent liability, were written off by the Treasury.

The USDA Inspector General has, in the past, identified several areas associated with the FSP as high-risk or material weakness vulnerabilities, such as food stamp coupon illegal trafficking and food stamp coupon deposit and bank reconciliation.

The EBT card holds the potential to address these issues and may also improve the nutritional intake of recipients by ensuring that food stamp benefits are used only for their intended purpose. EBT uses technology and commercial infrastructure such as point-of-sale devices and on-line data transmission networks to serve FSP recipients. EBT is operating statewide in Maryland and in test locations in six other states; another 26 states are in various stages of planning. EBT pilots have received a positive response from recipients, state agencies, grocers, and banks.

The major impediments to nationwide expansion of EBT are the unknown cost-benefit impact to the federal government and who bears the cost- -the states, federal government, beneficiaries, merchants, banks, or processors. Additional concerns involve Regulation E, a proposed Federal Reserve Board regulation which would make federal-state governments liable for the replacement of recipient benefits associated with an EBT card reported lost or stolen, without regard to recipient responsibilities. The cost of this regulation, coupled with the potential increase in benefit fraud, could represent a major deterrent to expansion of EBT. Another unresolved issue involves the question of who benefits from the "float" on these funds--the federal government, the states, or financial institutions.

Action

USDA's Food and Nutrition Service should participate in an interagency task force reporting to the Vice President to accelerate implementation of EBT.

The most convenient means for food stamp delivery would involve integrating food stamp benefits and other entitlement programs such as Aid to Families with Dependent Children and direct federal benefits into one EBT card. An interagency task force would facilitate this integration. This group should address the limitations that cost neutrality places on EBT expansion, particularly with respect to the food stamp program, and how much it would cost the federal government to remove them.

Implications

EBT, as a means of delivering food stamp benefits, holds the potential to improve service to recipients, improve their nutritional intake, reduce the paperwork burden for retailers and banks, and deter certain types of food stamp fraud and trafficking.

Fiscal Impact

The fiscal implications of this proposal are addressed in the EBT recommendation of the NPR Accompanying Report Reengineering Through Information Technology.

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