NM Can’t Do Much About Abuse of EBT Cash, Tackles Other Issues

EBT cards intended to help needy  families have bought vacation cruises out of Miami and illegal drugs in Spokane, Washington.  They’ve been used to gain entrance to Graceland, Disneyland, and Universal Studios, and many far less family-friendly establishments.

In Boston, a jailed heroin dealer instructed a friend to tap EBT cash for bail money.

An unlicensed tattoo artist in Minnesota accepts EBT cards.  They’ve been used inside Florida bingo parlors, dog tracks and bowling alleys.

EBT cash has been spent in Hawaii…by people from Missouri supposedly too poor to buy their own food but resourceful enough to travel to islands in the middle of the Pacific Ocean.

The problem is nationwide an skyrocketing (see reports collected below).  Billions of dollars flow through EBT cards. Once the cash is withdrawn, it is spent at the card holder’s discretion without any trace of where it went or what it purchased.

In our first report on EBT abuse, we showed New Mexico EBT funds over a two month period being accessed in 45 states, including Hawaii.  Our second report detailed how EBT money was used in a strip club, bars, liquor stores, smoke shops, a ski resort, a bowling alley, casinos, and may have purchased money orders to send New Mexico welfare funds out of the state, and maybe out of the country.

The Income Security Division of the New Mexico Human Services Department oversees the EBT (electronic benefit transfer) cards, issued as part of nationwide federal welfare programs.  What are they doing to see that money meant to provide life’s essentials to poor New Mexicans is not diverted to other purposes?  They’re doing what they can, and in some cases they’ve done a good job.  But once an ATM spits out cash, oversight and accountability end, and it will stay that way as long as EBT cards let welfare recipients tap cash accounts.

New Mexico’s Response to EBT Abuse

Policing EBT cards is a huge undertaking.  According to NMHSD spokesman Matt Kennicott,  over $56 million is carried on approximately 195,625 active EBT cards each month.    NMHSD serves about 600,000 New Mexicans monthly as it administers large federal and state welfare programs.  Among the largest programs are child support enforcement, Medicaid, food stamps (now known as SNAP for Supplemental Nutrition Assistance Program) and Temporary Assistance to Needy Families. (TANF).  The latter two programs utilize EBT cards.

As for monitoring the use of NM EBT cards outside the state, the Department has only one person on the job “when resources permit,” Kennicott says.   Utilizing a computer filtering protocol, that individual isolates out-of-state transactions from the hundreds of thousands of transactions occurring inside New Mexico and border communities like El Paso and searches for instances of prolonged out-of-state use.

Despite NMSHD’s efforts, a significant volume of out-of-state usage of cards issued to people representing themselves as New Mexico residents was readily evident in the records the Department provided us.  Because the names of the card holders are confidential by law, we were not able to determine if the same individual continued to use New Mexico EBT cards outside the state for a prolonged period of time.  Circumstantial evidence we discussed in the report strongly suggests that this is occurring in a number of locations across the country.

It is not illegal to use EBT cards outside the state in which they are issued.  But New Mexico cards can only lawfully be issued to individuals who prove their residency to the Department’s satisfaction.  Once the Department is convinced a card holder has left the state, they cancel the renewal of cash benefits on the card.

Welfare Cash Wasted

What does NMHSD do about the abuse of EBT cards for purposes other than providing life’s necessities to needy families?

Under the SNAP program, the EBT cards may be used only for eligible food items at Federal Food and Nutrition Services approved food retailers. Kennicott told us that, “FNS does site visits (prior to approval of an FNS number and Office of Inspector General fraud investigation) to verify that the store complies with SNAP regulations.  Cash benefits [on a SNAP EBT card] can be used for any purpose, but the NM EBT Card VIN number has been locked out of loctions around the state.”

The TANF program has no restrictions on how the funds are used.

What’s more, neither SNAP nor TANF cards employ photographic i.d. to ensure the card is used only by the person to whom it was issued.  Anyone in possession of the card and the PIN may use the card.

This has created a black market where EBT cards, principally those issued through the SNAP program, are sold at a discount for cash.  Kennicott says the state is considering adding a photo i.d. to the EBT card.  “We are in the very early stages of investigating this,” he says, “This would help cut down on any trafficking of EBT cards that may take place and ensure that only the person to which that card is assigned can use that card.”

New Mexico for years has blocked the use of EBT cards inside casinos.  Our review of EBT transactions for the final months of 2011 showed not a single EBT transaction from inside a

New Mexico casino.  But we did find transactions on EBT cards issued by NHSHD at casinos in other states.  We also found numerous transactions at ATMs immediately outside or close to the casinos between Santa Fe and Espanola.

A federal law enacted earlier this year will require all states by 2014 to implement measures to prevent the use of EBT cards inside casinos, liquor stores and strip clubs.  The EBT measure was passed as part of the Middle Class Tax Relief and Job Creation Act of 2012.  Kennicott says “there are pending Federal Regulations that restrict TANF benefits distributed on an EBT card [from being] accessed at liquor stores, strip clubs or casinos anywhere in the country.” He added, “While the law has restrictions on where the cash can be withdrawn, there are no restriction on where or how it can be used.”

Until the federal laws take effect, New Mexico’s limited measures restricting where EBT cards can be used can continue to be evaded when the cards are used in states that have not blocked EBT transactions inside casinos.

Kennicott says NMSHD is drafting legislation to be introduced in the 2013 legislative session that will implement the federal restrictions.

We wanted to know what NMSHD intended to do about tapping EBT cashfrom  inside establishments that sell liquor in addition to items properly acquired with welfare cash.

“We will be working a collaborative manner with other state agencies to determine which locations should fall under a complete ban,” Kennicott answered.  “For example, if a liquor store sells groceries and is the only store in the community and is SNAP approved, it will not be included in the ban.”  Such a business might be the only food vendor in a rural community.  “We are working through definitions in order to make sure we clamp down on any misuse of benefits, but [will] still [be] able to allow the recipients the ability to purchase the life sustaining goods they may need.”

Can EBT Cash Be Monitored Effectively?  “Not Really”

In the stories from other states we link below, the state agencies had to admit that when cash is withdrawn using an EBT card, whether a SNAP or TANF card, there is no way to ever know that the cash is being spent properly.

We asked Kennicott: Does NMSHD have the resources to police the use of EBT cards.

“[N]ot really,” he answered.  “The best way to monitor cash transaction activity is using retailer transaction reports, but these reports were discovered to be inaccurate – there is a GAO report in which they looked at this problem. There is interest from the Feds to try and make these reports accurate but it is a daunting task given the number of retailers and ATMs out there.”

In another e-mail Kennicott stated:  “ISD [the Income Security Division] has access to a data warehouse that provides access to millions of transactions.  However, ISD does not have the staff nor the technology to conduct regular reviews of the data.  Usually, the transactions are reviewed when there is a request internally from the Office of Inspector General, Office of General Counsel, or Income Support Division Director’s Office or law enforcement.  Because the vast majority of people receiv[ing] benefits in the state receive SNAP and not cash, the transaction data is protected by federal law.  However, just this year the EBT office has undertaken several analyses, including an analysis in the Spring that looked at 365 days of replacement card data.  This report found that less than .02% of replacement card activity was suspect of any SNAP trafficking.”

Replacement card activity can indicate the SNAP card is being sold for cash or traded, possibly for drugs.  We have not examined that issue in our reporting.

We asked two welfare advocacy organizations, New Mexico Voices for Children and the New Mexico Center for Law and Poverty, if they had any suggestions for ensuring that EBT cards were not used improperly.  New Mexico Voices for Children informed us that they have not done any policy research in the area of EBT abuse.  Our inquiry to the New Mexico Center for Law and Poverty went unanswered.

Our two month review of EBT records found numerous instances where the funds were accessed or used for purchases in questionable locations.  To determine whether the randomly selcted months may have exaggerated the problem, we have requested EBT transaction records for June, July and August 2012.  We will report our findings when we have received and examined that data.

A Sampling of EBT Abuse Reports from Around the Country

Spokane, WA:   Pt. 1 and Pt. 2.

Boston, MA

Denver, CO

Missouri

Memphis, TN

Memphis again

Knoxville and Chattanooga, TN

Chicopee, Massachussetts

San Bernadino, CA

Florida

New Hampshire (store clerk fired for refusing to accept EBT card for cigarettes)

Minneapolis, Minnesota

Houston, TX

Bakersfield, CA

Arizona

Ohio

Illinois

Georgia

California

And more.