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Sweep Uncovers Trafficking in Liquor and Video Stores, Laundry

September 2, 1995

WASHINGTON (AP) _ The black market for food stamps is thriving in part because federal regulators have authorized scores of questionable businesses to accept food stamps and redeem them for cash, investigators say.

Because of the laxity, liquor stores with no food on the shelves, video outlets, a pizza restaurant and even an out-of-business coin-operated laundry are trafficking in millions of dollars worth of food stamps, the investigators found in a nationwide sweep.

The investigators, with the Agriculture Department’s office of inspector general, based their findings on inspections of 5,162 authorized stores in seven urban areas in July and August.

They targeted stores that tend to be involved in trafficking _ small, independently owned businesses _ and found 858 that were obviously not eligible to redeem food stamps and 450 others whose eligibility was questionable.

Those stores had redeemed more than $42 million in food stamps between April 1994 and March 1995, according to the investigators’ report, obtained this week under the Freedom of Information Act.

A key investigator said the problem is much larger.

``Hundreds of millions of dollars are trafficked through these types of marginal stores,″ said Craig Beauchamp, the assistant inspector general for investigations at USDA, which runs food stamps.

Food stamps, the government’s largest welfare program, provided nearly $23 billion in benefits to more than 27 million Americans last year.

The precise extent of trafficking by recipients and stores is unknown, although a USDA study put the figure at $815 million in 1993.

A sampling of the investigators’ findings:

_A pizza restaurant redeeming more than $3,500 a month in food stamps.

_A health food store approved to accept food stamps that was empty except for three shelves of vitamins.

_A liquor store, its only food item a dozen small bags of potato chips locked behind a panel of bulletproof glass. The store was redeeming more than $700 a month in food stamps.

_An out-of-business coin-operated laundry that redeemed $16,500 in food stamps between April 1994 and March 1995, and continued to redeem food stamps in May and June 1995.

Efforts to crack down on trafficking generally target stores because only authorized retailers can get full food stamp coupon redemptions from the government through the banking system.

In a typical scheme, the authorized business buys food stamps from recipients at less than face value, generally 50 cents to 70 cents on the dollar, and then gets cash for the full amount at a local bank. Stores also may purchase the stamps from a third party, such as wholesalers, route drivers or drug dealers, who exchange cash and contraband for the coupons.

To become an authorized retailer, a store must sell an ample variety of foods for home preparation, including perishables. Stores also may redeem food stamps if more than half their total sales are in staple foods.

Investigators, however, said USDA’s Food and Consumer Service has approved stores as authorized retailers without first visiting to check whether they meet these regulations.

Yvette Jackson, deputy administrator for the food stamp program, said the Food and Consumer Service has begun disqualifying some of the stores identified by investigators and will take action against others as information becomes available.

She said the agency also is sending regulators to check stores that tend to be involved in trafficking before authorizing them, as well as to already approved stores.

Some 210,000 grocery stores are authorized to redeem food stamps.

The investigators visited businesses in Washington, D.C.; St. Louis and St. Louis County, Mo.; Alameda County, Calif.; selected areas in Cook County, Ill.; the Manhattan borough of New York City; Dade County, Fla.; and Dallas and Tarrant counties, Texas.

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