oversight

Food Assistance: Efforts To Control Fraud and Abuse in the WIC Program Can Be Strengthened

Published by the Government Accountability Office on 1999-08-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to Congressional Committees




August 1999
                  FOOD ASSISTANCE
                  Efforts to Control
                  Fraud and Abuse in the
                  WIC Program Can Be
                  Strengthened




GAO/RCED-99-224
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Resources, Community, and
      Economic Development Division

      B-282910

      August 30, 1999

      Congressional Committees

      This report examines fraud and abuse in the U.S. Department of Agriculture’s Special
      Supplemental Nutrition Program for Women, Infants and Children (WIC). As part of our review,
      we collected information, through surveys and interviews, from USDA’s Food and Nutrition
      Service and state and local WIC agencies on the extent of fraud and abuse in the program.
      Specifically, we (1) describe what is known about the amount of fraud and abuse in the
      program, including the levels of fraud and abuse being detected by the state and local agencies
      responsible for administering WIC, and (2) examine the efforts taken to prevent and detect fraud
      and abuse and barriers to these efforts. We are providing this report because of congressional
      concerns about the potential for fraud and abuse in the WIC program and the lack of reliable
      information on fraud and abuse in the program.

      We are sending copies of this report to Senator Thad Cochran, Chairman, and Senator Herbert
      Kohl, Ranking Minority Member, Subcommittee on Agriculture, Rural Development, and
      Related Agencies, Senate Committee on Appropriations; Representative Joe Skeen, Chairman,
      and Representative Marcy Kaptur, Ranking Minority Member, Subcommittee on Agriculture,
      Rural Development, Food and Drug Administration, and Related Agencies, House Committee on
      Appropriations. We are also sending copies of this report to the Honorable Daniel R. Glickman,
      Secretary of Agriculture and the Honorable Jacob J. Lew, Director, Office of Management and
      Budget. We will also make copies available to others upon request.

      If you have any questions about this report, please contact me at (202) 512-5138. Major
      contributors to the report are listed in appendix II.




      Lawrence J. Dyckman
      Director, Food and
      Agriculture Issues
B-282910

List of Recipients

The Honorable Richard G. Lugar
Chairman
The Honorable Tom Harkin
Ranking Minority Member
Committee on Agriculture, Nutrition, and Forestry
United States Senate

The Honorable William F. Goodling
Chairman
The Honorable William (Bill) Clay
Ranking Minority Member
Committee on Education and the Workforce
House of Representatives

The Honorable John R. Kasich
Chairman
The Honorable John M. Spratt, Jr.
Ranking Minority Member
Committee on the Budget
House of Representatives

The Honorable Pete Domenici
Chairman
The Honorable Frank Lautenberg
Ranking Minority Member
Committee on the Budget
United States Senate




                     Page 2                         GAO/RCED-99-224 WIC Fraud and Abuse
B-282910




           Page 3   GAO/RCED-99-224 WIC Fraud and Abuse
Executive Summary


             In recent years, the Congress has expressed increased concern about the
Purpose      vulnerability to fraud and abuse of the U.S. Department of Agriculture’s
             (USDA) Special Supplemental Nutrition Program for Women, Infants and
             Children (WIC). The WIC program provides nutritious supplemental foods
             and nutrition education and assistance to lower-income pregnant,
             breast-feeding, and postpartum women; infants; and children to the age of
             5, who are at nutritional risk. WIC is a discretionary grant program that
             serves as many individuals as the available funding permits. Therefore,
             actions taken to reduce losses resulting from fraudulent activities will
             make resources available to serve more eligible people. In 1999, the
             Congress appropriated $3.9 billion for WIC, which is expected to serve
             about 7.4 million participants in an average month.

             Because of congressional concerns about the potential for fraud and abuse
             in the WIC program and because of the lack of reliable information about
             fraud and abuse, GAO (1) described what is known at the federal, state, and
             local levels about the amount of fraud and abuse in the program, including
             information on detected fraud and abuse, and (2) examined the efforts
             taken to prevent and detect fraud and abuse and barriers to these efforts.

             This report is based on the results of a nationwide survey of state WIC
             agencies; a representative random sample of local WIC agencies; site visits
             conducted in five states accounting for about 42 percent of the total
             average monthly participation for fiscal year 1998; and discussions with
             agency officials. See appendix I for a more detailed discussion of the
             methodology used to conduct this work.


             WIC is a federally funded nutrition assistance program administered by
Background   USDA’s  Food and Nutrition Service. Food benefits are typically provided to
             participants in the form of vouchers that can be used to obtain approved
             foods at authorized retail outlets and food stores, commonly referred to as
             vendors. Vendors, participants, and employees can engage in a variety of
             fraudulent or abusive activities. For example, vendors could charge the
             WIC program more for a food item than the item’s shelf price. Participants
             could have misrepresented facts affecting their eligibility, such as income,
             in order to receive program benefits. Finally, employees could obtain
             benefits for friends or family who are not eligible for the program.

             WIC operates in the 50 states and the District of Columbia, through 33
             Indian tribal organizations, and in Guam, the U.S. Virgin Islands, American
             Samoa, and the Commonwealth of Puerto Rico. These 88 government



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                   Executive Summary




                   entities administer the program through about 1,846 local WIC agencies.
                   These local agencies are public or private nonprofit health or human
                   services agencies and serve participants through the clinics located in
                   their service area. Although USDA sets the regulations for the WIC program
                   and provides guidance, the states have flexibility in the policies and
                   procedures they use. USDA’s Office of the Inspector General has completed
                   several reviews of WIC program operations at specific locations within the
                   past 5 fiscal years; however it has not completed a comprehensive
                   nationwide review of the program since 1988, when it examined the food
                   benefit delivery system and vendor monitoring.


                   USDA  has no recent estimates on the overall levels of vendor, participant or
Results in Brief   employee fraud and abuse occurring in the WIC program. The Department
                   has some current information on that portion of fraud and abuse detected
                   by state agencies. In estimating the extent of WIC fraud and abuse, USDA has
                   relied on two studies—completed in 1988 and 1991—that provide
                   information on some types of vendor and participant fraud and abuse.
                   USDA is updating these two studies and expects to have this information
                   late in 2000 for vendors and late in 1999 for participants. Regarding fraud
                   and abuse that has been detected, USDA collects information on an annual
                   basis from state WIC agencies on vendors but not on participants or
                   employees. While this information is limited, it is valuable because it helps
                   USDA monitor states’ efforts to detect vendor fraud and abuse. At the state
                   and local levels, according to GAO’s survey, agencies reported detecting
                   higher levels of vendor fraud than of participant and employee fraud. The
                   number of vendors identified as committing fraud or abuse in a 2-year
                   period—October 1, 1996 through September 30, 1998—represents about
                   9 percent of all vendors in the WIC program as of September 30, 1998. In
                   comparison, the number of participants identified as committing fraud or
                   abuse of a serious nature during this 2-year period represented an
                   estimated .14 percent of the average monthly number of participants in
                   fiscal year 1998; the number reported as committing less serious offenses
                   represented an estimated 1.64 percent of the average monthly number of
                   participants. Very little employee fraud or abuse was reported.
                   Information provided by state and local agencies on the amount of
                   detected fraud and abuse does not present a complete picture of fraud and
                   abuse in the program, partly because the level of detection efforts differ
                   among both state and local agencies. In addition, regardless of detection
                   efforts, some violations go undetected.




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                             Executive Summary




                             WIC agencies use a variety of strategies to prevent and detect vendor,
                             participant, and employee fraud and abuse. Regarding vendors, states
                             differ in the management procedures they use to control fraud and abuse,
                             including the methods they use to limit the number of vendors they
                             authorize to participate in WIC and the amount and type of vendor
                             monitoring they perform. With respect to participants, state and local
                             agencies use a variety of strategies, ranging from educating participants on
                             program rules and regulations to using a computer system to verify that a
                             participant is eligible on the basis of participation in another program,
                             such as Medicaid. Concerning employees, strategies such as supervisory
                             review and protection of food vouchers from theft are used by most local
                             agencies; however only about half of the local agencies reported having a
                             conflict-of-interest policy for WIC employees who are also WIC participants.
                             Agency officials identified several barriers to preventing and detecting
                             fraud and abuse. These barriers include a lack of (1) federal criteria to
                             evaluate whether a state has authorized an appropriate number of vendors
                             given the resources available to manage vendors, (2) information on
                             participant fraud and abuse being detected, and (3) policies or procedures
                             regarding potential employee conflict-of-interest situations. GAO is making
                             several recommendations designed to overcome these barriers.



Principal Findings

USDA Does Not Have           USDA  is updating its two studies that provide information on vendor and
Overall Estimates of Fraud   participant fraud and abuse. It expects to have this updated information
and Abuse                    late in 2000 for vendors and late in 1999 for participants. USDA will use this
                             information to estimate the overall levels of potential fraud and abuse in
                             the program. While these two studies do not address all types of vendor
                             and participant fraud and abuse, such as authorized vendors who redeem
                             vouchers obtained from unauthorized vendors and individuals who
                             participate but are ineligible on the basis of facts other than income, USDA
                             will use this information to estimate the levels of potential fraud and abuse
                             in the program associated with vendors overcharging the program and
                             participation by individuals whose income level makes them ineligible for
                             the program.




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                                Executive Summary




USDA Is Improving               In the past, USDA collected aggregate information from state agencies on
Information Collected on        the amount of detected vendor fraud and abuse. Recently, it has developed
Detected Vendor Fraud           a system for collecting profile data on all vendors participating in the WIC
                                program, including information on vendors detected as having committed
and Abuse but Collects No       fraud or abuse. These data should enable USDA to develop basic
Information on Detected         information on the number and characteristics of individual vendors
Participant or Employee         identified by state and local agencies as having committed fraud and
Fraud and Abuse                 abuse. USDA does not collect information from state or local agencies on
                                participants or employees identified as having committed fraud and abuse.
                                Furthermore, at the state agency level, 21 of the 51 agencies (the 50 states
                                and the District of Columbia) reported that they do not maintain data on
                                participant fraud and abuse.


State and Local Agencies        For the 2-year period GAO examined, relatively more vendor than
Report Detecting                participant or employee fraud and abuse was identified by state and local
Relatively More Vendor          agencies.
Than Participant or         •   Vendors. State agencies reported identifying about 3,771 vendors as having
Employee Fraud and              committed fraud or abuse. This number represents about 9 percent of all
Abuse                           vendors in the program as of September 30, 1998. There was substantial
                                variation in the number of vendors detected as having committed fraud or
                                abuse among the states, ranging from 15 states reporting no detection to 6
                                states reporting 25 percent or more of their vendors detected. The levels
                                detected may reflect, in part, the level of effort to detect fraud and abuse
                                by the state agencies as well as the types of strategies the states use to
                                monitor the program.
                            •   Participants. Local agencies identified an estimated 7,074 participants as
                                having committed one or more of seven types of serious fraud and abuse,
                                such as exchanging food vouchers for cash. This number represents an
                                estimated .14 percent of the average monthly participation in fiscal year
                                1998. In addition, local agencies identified an estimated 79,271 participants
                                as having committed one or more of three types of less serious fraud and
                                abuse, such as redeeming food vouchers outside of the authorized dates.
                                This number represents about 1.64 percent of the average monthly
                                participation in fiscal year 1998. Furthermore, an estimated 58 percent of
                                the local agencies detected no incidences of serious participant fraud or
                                abuse and an estimated 28 percent detected no incidences of less serious
                                fraud or abuse. An estimated 22 percent of local agencies detected no
                                fraud or abuse in either category, and an estimated 4 percent did not
                                respond to the question. At the state level, 21 of the 51 state agencies
                                reported that they do not maintain data on participant fraud and abuse.



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                             Executive Summary




                             Moreover, local agencies in the 21 states that reported not maintaining
                             data on participant fraud and abuse were more likely to identify no
                             participant fraud or abuse in the serious category.
                         •   Employees. In GAO’s survey, only 4 percent of local agencies identified any
                             documented cases of employee fraud or abuse—an estimated 48
                             individuals nationwide for the 2-year period.


Agencies Vary in Their       State and local agencies use a variety of strategies to prevent and detect
Efforts to Prevent and       fraud and abuse in the WIC program. In an effort to effectively manage a
Detect Fraud and Abuse       review of vendors, 42 of the 51 state agencies reported making some effort
                             to limit the number of authorized vendors; 8 states reported not limiting
and Encounter Some           the number of vendors; and one state, Mississippi, does not use the vendor
Barriers                     distribution system. While all the states met the minimum federal
                             requirement to monitor at least 10 percent of their vendors, they varied
                             substantially in whether they conducted monitoring that was of a routine
                             nature or was a more detailed investigation of vendor activities, such as
                             compliance buys—when an undercover investigator poses as a participant
                             and attempts to exchange WIC vouchers inappropriately, such as for
                             nonapproved food or nonfood items. For example, while eight states
                             reported that none of their vendors were subject to compliance buys, New
                             York State reported that about 40 percent of its vendors were subject to
                             compliance buys, and the District of Columbia reported that 94 percent of
                             its vendors were subject to compliance buys. States also vary in the
                             procedures they use to identify vendors they consider more likely to abuse
                             the program—high-risk vendors.

                             To prevent and detect participant and employee fraud and abuse, state and
                             local agencies use a variety of strategies. Almost all local WIC agencies take
                             measures to educate participants on program rules and responsibilities
                             and to protect food vouchers from theft or fraudulent alteration. The
                             methods to implement strategies also vary. For example, while almost all
                             states reported using computer systems to maintain participant data and
                             identify participants in more than one WIC program, some states reported
                             using these systems to verify an applicant’s income eligibility for the WIC
                             program on the basis of participation in another income-based program.
                             Regarding employee fraud and abuse, many agencies require supervisory
                             review of employee activities; however, not all agencies have policies to
                             deal with a potential conflict-of-interest for employees who may also
                             receive WIC benefits or who certify and issue benefits to the same
                             individual.




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                      Executive Summary




                      Several barriers hamper agencies’ efforts to prevent and detect fraud and
                      abuse. Regarding vendors, USDA lacks clear and specific criteria to assess
                      whether the number of vendors authorized by a state meet the regulatory
                      requirements for both participant access and management. Criteria
                      describing more specific considerations to be used in selecting vendors for
                      participation in the program would assist state agencies in managing
                      vendors. Without such criteria, some states may authorize more vendors
                      than they can effectively manage with their available resources. For
                      participants, USDA lacks reliable data because it does not require state and
                      local agencies to report detected participant fraud and abuse—who is
                      committing the fraud, how often, and what type—as well as the amount of
                      program funds that are lost. This information is valuable for evaluating the
                      effectiveness of agency efforts aimed at preventing and detecting
                      participant fraud and abuse. Without these data, USDA and state agencies
                      are hindered in their management of the program, including identifying the
                      need for changes necessary to improving program integrity. Furthermore,
                      it is possible that not collecting such information may send a message to
                      some agency officials that preventing and detecting participant fraud and
                      abuse is a low priority and thus damage the public’s trust in the program.
                      Regarding employees, USDA does not require agencies to have a policy on
                      potential employee conflict-of-interest situations—employees who also
                      participate in the program and may issue their own benefits and
                      employees who certify an individual as eligible to receive benefits and
                      issue benefits to the same individual. The lack of a policy may hinder the
                      prevention and detection of employee fraud and abuse. Finally, state and
                      local agencies reported that their staffing and funding resources are
                      inadequate to prevent and detect fraud, and USDA officials reported that
                      resource constraints at the federal level have limited their fraud
                      prevention and detection efforts.


                      To enhance USDA’s ability to improve program integrity and to encourage
Recommendations       better fraud and abuse prevention and detection efforts among state and
                      local WIC agencies, GAO recommends that the Secretary of Agriculture
                      direct the Administrator of the Food and Nutrition Service to take the
                      following actions:

                  •   Amend the regulations on vendor management to ensure that the states
                      limit their authorized vendors to a number that they can effectively
                      manage and issue guidance to the states on the specific criteria the Food
                      and Nutrition Service will use to assess the states’ compliance with the
                      regulations and the actions a state would need to take if the Service



                      Page 9                                    GAO/RCED-99-224 WIC Fraud and Abuse
                           Executive Summary




                           determines that the state has authorized more vendors than it can
                           effectively manage;
                       •   Work with the state WIC agencies and the National Association of WIC
                           Directors to develop and implement cost-effective strategies for the states
                           to use in collecting and maintaining information on incidences of
                           participant fraud and abuse, which would be periodically reported to the
                           Food and Nutrition Service. Such information should include the nature of
                           the fraud detected and the associated dollar losses; and
                       •   Require state agencies to have a policy and procedures for addressing
                           employee conflicts of interest.


                           GAO  provided USDA with a draft of this report for review and comment. USDA
Agency Comments            generally agreed with the information and recommendations contained in
and GAO’s Evaluation       the draft report. However, USDA raised some questions about specific steps
                           that would be necessary to implement two of the recommendations.
                           Regarding the recommendation relating to strengthening vendor
                           management, USDA noted that the intent of the recommendation could be
                           achieved through a combination of regulatory change and the issuance of
                           program guidance to the states. Concerning the recommendation to
                           determine the costs and benefits of developing a national database on
                           participant fraud and abuse, USDA noted that it could develop cost-effective
                           strategies for collecting and maintaining such data by working with state
                           WIC agencies and the National Association of WIC Directors. USDA believes
                           this would achieve the desired result without a lengthy and costly formal
                           cost-benefit study. GAO agrees that these modifications to the two
                           recommendations would address the problems that GAO found and has
                           revised the draft recommendations to reflect USDA’s suggestions. USDA also
                           provided GAO with a number of technical comments and clarifications that
                           were incorporated into the report as appropriate.




                           Page 10                                   GAO/RCED-99-224 WIC Fraud and Abuse
Page 11   GAO/RCED-99-224 WIC Fraud and Abuse
Contents



Executive Summary                                                                                 4


Chapter 1                                                                                        14
                         WIC Administration and Funding                                          14
Introduction             WIC Eligibility and Certification                                       15
                         Food Delivery Systems                                                   16
                         Vendor, Participant, and Employee Fraud and Abuse                       17
                         Program Requirements Related to the Prevention and Detection            18
                           of Fraud and Abuse
                         Objectives, Scope, and Methodology                                      20

Chapter 2                                                                                        22
                         FNS Does Not Have Current Estimates of Program Fraud and                23
WIC Fraud and Abuse        Abuse and Collects Data From WIC Agencies on One Type of
                           Detected Fraud and Abuse
                         Agencies Detected Varying Levels of Vendor, Participant, and            25
                           Employee Fraud and Abuse


Chapter 3                                                                                        36
                         States Differ in Efforts to Manage Vendors                              36
Agencies Vary in Their   Agencies Vary in the Strategies Used to Prevent and Detect              41
Efforts to Prevent and     Participant Fraud and Abuse
                         Agencies Use Several Strategies to Control Employee Fraud and           45
Detect Fraud and           Abuse
Abuse and Encounter      Agencies Face Barriers to Preventing and Detecting Fraud and            47
Some Barriers              Abuse
                         Conclusions                                                             51
                         Recommendations                                                         52
                         Agency Comments and Our Evaluation                                      52

Appendixes               Appendix I: Methodology and Analysis Used in the Mail Survey            54
                         Appendix II: GAO Contacts and Staff Acknowledgments                     57

Tables                   Table 3.1: Methods States Used to Limit the Number of Vendors           37
                         Table 3.2: Type of Sanctions the States Imposed and Percentage          41
                          of Identified Vendors Receiving Sanctions
                         Table 3.3: Strategies to Prevent and Detect Participant Fraud and       42
                          Abuse and the Number of State Agencies and Estimated Percent
                          of Local Agencies Using the Strategies




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          Contents




          Table 3.4: Estimated Percent of Local Agencies Conducting               44
           Various Levels of Verification of Applicants’ Participation in
           Other Income-Qualifying Programs
          Table 3.5: Estimated Number of Participants Committing Serious          45
           and Less Serious Violations and the Sanctions They Received
          Table 3.6: Strategies Used to Prevent and Detect Employee               46
           Fraud and Abuse and the Estimated Percent of Local Agencies
           Using the Strategies
          Table 3.7: State and Local Agencies Identifying Less Than               50
           Adequate Staffing and Funding Levels for Preventing and
           Detecting Vendor, Participant, and Employee Fraud and Abuse
          Table I.1: Sampling Errors and Confidence Intervals of Estimates        55
           of Fraud and Abuse from Information in the Local Agency
           Surveys


Figures   Figure 2.1: Levels of Detected Vendor Fraud and Abuse by State,         26
            October 1996 Through September 1998
          Figure 2.2: Estimated Number of Participants Having Committed           29
            Various Types of Serious Fraud and Abuse, October 1996
            Through September 1998
          Figure 2.3: Percent of Local Agencies Identifying No Serious            32
            Participant Fraud and Abuse in the States That Do Not and Do
            Maintain Data on Participant Fraud and Abuse, October 1996
            Through September 1998
          Figure 2.4: Estimated Number of Participants Having Committed           33
            Less Serious Fraud and Abuse by Type, October 1996 Through
            September 1998




          Abbreviations

          EBT        electronic benefits transfer
          FNS        Food and Nutrition Service
          GAO        General Accounting Office
          ITO        Indian tribal organizations
          NSA        nutrition services and administration
          USDA       U.S. Department of Agriculture
          WIC        Special Supplemental Nutrition Program for Women, Infants
                          and Children


          Page 13                                 GAO/RCED-99-224 WIC Fraud and Abuse
Chapter 1

Introduction


                     The Special Supplemental Nutrition Program for Women, Infants and
                     Children (WIC) is a federally funded nutrition assistance program that is
                     designed to improve the health of lower-income pregnant, breast-feeding
                     and postpartum women; infants; and children up to age 5, who are at
                     nutritional risk. WIC provides participants with nutritious supplemental
                     foods, nutrition education, and referrals to health care services. It was
                     established in 1972 by Public Law 92-433 as an amendment to the Child
                     Nutrition Act of 1966. USDA’s Food and Nutrition Service (FNS) administers
                     WIC through federal grants to state agencies. In 1999, the Congress
                     appropriated $3.9 billion for the WIC program, which is expected to serve
                     about 7.4 million participants in an average month.

                     In recent years, the Congress has expressed increased concern about the
                     WIC program’s vulnerability to fraud and abuse. In response to some of
                     these concerns, the William F. Goodling Child Nutrition Reauthorization
                     Act of 1998 (P.L. 105-336) (the Goodling Act), which reauthorized WIC and
                     other child nutrition programs, contained provisions specifically aimed at
                     improving the integrity of the WIC program. Because WIC is a discretionary
                     grant program that serves as many individuals as the available funding
                     permits, any actions that FNS, state, and local WIC agencies take to reduce
                     losses from fraudulent activities make resources available to serve more
                     eligible people.


                     FNS’ headquarters and seven regional offices administer the WIC program
WIC Administration   through a federal/state partnership in which FNS makes funds available in
and Funding          the form of grants to state agencies that, in turn, provide program benefits
                     to participants through local WIC agencies. Each state agency is
                     responsible for developing guidelines to ensure that WIC benefits are
                     effectively delivered to eligible participants. WIC operates in all 50 states
                     and the District of Columbia, through 33 Indian tribal organizations, and in
                     the U.S. Virgin Islands, American Samoa, Guam, and the Commonwealth
                     of Puerto Rico. These 88 government entities administer the program
                     through 1,846 local WIC agencies. These local agencies are public or private
                     nonprofit health or human service agencies; they can also be an Indian
                     health service unit, a tribe, or an intertribal council. Local agencies serve
                     participants directly or through one or more clinics located in their service
                     area. Staff at local WIC agencies and clinics approve applicants for
                     participation, distribute food benefits, and provide nutrition education to
                     eligible individuals. Local WIC agencies vary in average monthly
                     participation, serving from about 307,000 at the largest local agency to
                     fewer than 35.



                     Page 14                                    GAO/RCED-99-224 WIC Fraud and Abuse
                      Chapter 1
                      Introduction




                      Grants to the states are divided into food grants and nutrition services and
                      administration (NSA) grants. Food grants cover the costs of supplemental
                      foods and are allocated to the states through a formula that is based on the
                      number of individuals in each state who are eligible for WIC benefits. WIC
                      foods are designed to supplement the participant’s diet and are high in
                      protein, calcium, iron, and vitamins A and C. These foods include milk,
                      juice, eggs, cereal, peanut butter, dried beans, tuna fish, carrots, and infant
                      formula. Specially prescribed infant formula is also available to meet
                      unusual dietary or health-related conditions within parameters established
                      in federal regulations. Each state designates the types and amounts of
                      foods that local WIC agencies can prescribe to meet the nutritional needs of
                      each participant.

                      The NSA grants are allocated to the states through a formula that is based
                      on factors such as a state’s number of projected program participants and
                      a salary differential for state and local government employees by industry.
                      NSA grants cover the costs of program administration, including start-up,
                      monitoring, auditing, accountability for food delivery systems, nutrition
                      education, breast-feeding promotion and support, outreach, certifying
                      applicants, developing and printing food vouchers, and activities
                      associated with detecting and preventing fraud and abuse.

                      In fiscal year 1998, total expenditures under food grants were about
                      $2.8 billion, and NSA expenditures were about $1.1 billion. Nationally, in
                      fiscal year 1998, expenditures for food benefits averaged about $31.75 per
                      participant per month, and expenditures for activities covered under the
                      NSA grant averaged about $12 per participant per month. Federal WIC
                      appropriations totaled $3.9 billion in fiscal year 1998, up from $3.73 billion
                      annually in fiscal years 1996 and 1997. The program is primarily funded by
                      federal appropriations; some states supplement the federal grant with their
                      own funds.


                      State WIC agencies establish program eligibility criteria that are based on
WIC Eligibility and   federal guidelines. To qualify for the program, WIC applicants must show
Certification         evidence of health or nutritional risk, such as anemia, that is medically
                      verified by a health professional.1 In addition, participants must have




                      1
                       Nutritional risk means detrimental or abnormal nutritional conditions detectable by biochemical or
                      anthropometric measurements. Other nutritionally related conditions include dietary deficiencies that
                      impair or endanger health.



                      Page 15                                                  GAO/RCED-99-224 WIC Fraud and Abuse
                Chapter 1
                Introduction




                incomes at or below 185 percent of the poverty guidelines that are
                established annually by the Department of Health and Human Services.2

                For fiscal year 1998, a family of four, for example, could qualify for the WIC
                program with an income of $30,433 or less. State agencies are required to
                automatically accept as income-eligible those individuals who document
                their or a certain family member’s participation in the Food Stamp
                Program, Medicaid, or Temporary Assistance for Needy Families Program.3

                To be certified, applicants must reside within the jurisdiction of the state
                agency, and meet both the program’s income and nutritional risk criteria.
                The Goodling Act increased certification requirements to include the
                physical presence of each applicant at the time of the certification in WIC
                and required that applicants provide documentation of household income
                and residency.4 Once applicants are certified for participation, they return
                to the WIC agency periodically (ranging from 1 to 3 months, depending
                upon nutritional risk or other factors) to receive their food benefits and
                nutrition education.

                Over the past 10 years, the number participating in the WIC program in an
                average month more than doubled, from 3.4 million in 1988 to 7.4 million
                in 1998. During this same period, the number of infants enrolled in the WIC
                program grew from about 27 percent of all infants born in the United
                States to about 47 percent.


                The WIC food benefit, referred to as a food package, can be provided
Food Delivery   through retail purchase, home delivery, direct distribution, or any
Systems         combination of these. Generally, participants receive their food benefits in
                the form of a check or a voucher (hereafter referred to as a voucher) that
                they use to purchase specific foods at authorized retail grocery stores,
                referred to as vendors. Only the vendors authorized by state agencies may
                redeem food vouchers in exchange for providing supplemental foods to
                participants. Vendors are authorized to participate in the program for a
                specified period of time—generally 1 to 2 years—and are subject to
                renewal by the state agency. By regulation, each state agency is permitted

                2
                 Poverty guidelines are established separately for Alaska and Hawaii.
                3
                 Participants may simultaneously participate in WIC and in the Food Stamp Program because WIC is a
                supplemental nutrition program and has separate income guidelines.
                4
                 The Goodling Act provides a waiver in specific situations for infants and children if the agency
                determines that the physical presence requirement would present an unreasonable hardship. In
                addition, in establishing income eligibility on the basis of participation in means-tested programs, the
                Goodling Act requires participants to present documentation of their current enrollment.



                Page 16                                                    GAO/RCED-99-224 WIC Fraud and Abuse
                       Chapter 1
                       Introduction




                       to authorize an appropriate number of vendors in order to ensure adequate
                       participant access and effective management of the vendors. State
                       agencies are permitted to establish criteria to limit the number of vendors
                       that they authorize and are encouraged to consider the impact of
                       authorization decisions on small businesses.5 In providing supplemental
                       foods to participants, vendors must accept vouchers only within the time
                       period specified on the voucher and are authorized to provide only the
                       foods specified on the voucher that is presented by the participant at the
                       time of purchase. In addition, vendor prices for WIC foods cannot exceed
                       current prices charged to other customers.


                       Vendor fraud or abuse is an intentional or deliberate action taken to
Vendor, Participant,   violate program regulations, policies, or procedures. Actions include, but
and Employee Fraud     are not limited to, accepting food vouchers for cash, which is known as
and Abuse              trafficking, or providing credit toward the purchase of unauthorized items;
                       giving cash or credit for returned food items that were purchased with
                       food vouchers; altering food vouchers or accepting expired vouchers;
                       charging more than the shelf price or exceeding the maximum price
                       allowed by WIC; or charging for food that the participant does not receive.

                       Participant fraud or abuse is an activity or action by WIC participants taken
                       to obtain benefits to which they are not entitled and/or to misuse the
                       benefits they receive. Actions include misrepresenting facts that are used
                       to determine eligibility (such as income, the age of children, or the
                       existence of children); exchanging food vouchers for nonapproved items
                       (such as cash, alcohol or tobacco products, or sundries); selling or giving
                       away food obtained with vouchers; participating at more than one local
                       WIC agency simultaneously, thereby receiving multiple benefits, also called
                       dual participation; or verbally abusing WIC vendors and/or WIC employees.

                       Employee fraud or abuse is an intentional and deliberate action that
                       violates program regulations, policies, or procedures. Actions include, but
                       are not limited to, misappropriating food vouchers; altering food vouchers;
                       entering false or misleading information in case records; or creating
                       fictitious or nonexistent participant files.




                       5
                        The Goodling Act requires that all states, in selecting a retail store for participation in the program,
                       take into consideration the prices that the store charges for WIC foods compared with the prices that
                       other stores charge for the foods, and establish procedures to ensure that vendors selected for
                       participation do not subsequently raise prices to levels that would otherwise make the store ineligible.



                       Page 17                                                    GAO/RCED-99-224 WIC Fraud and Abuse
                        Chapter 1
                        Introduction




                        Program regulations contain several provisions relating to the prevention
Program                 and detection of vendor fraud and abuse. The regulations require that state
Requirements Related    agencies conduct on-site monitoring visits of their vendors to, among
to the Prevention and   other things, survey the types and levels of abuse and errors, if any, among
                        participating food vendors and to take corrective action, as appropriate.
Detection of Fraud      States are required to monitor a representative sample of at least
and Abuse               10 percent of their authorized food vendors annually. On-site monitoring
                        visits may include an examination of cashier check out procedures and a
                        review to determine whether supplemental program foods are available
                        and whether WIC-approved food prices are clearly marked and do not
                        exceed agreed-upon limits. More in-depth investigations—compliance
                        buys, trafficking buys, and inventory audits—are also used. Compliance
                        buys occur when an undercover investigator poses as a participant and
                        attempts to exchange WIC vouchers inappropriately, such as for
                        nonapproved food or nonfood items. Trafficking buys occur when an
                        undercover investigator attempts a more flagrant misuse of vouchers
                        usually attempting to exchange them for cash but also for firearms,
                        ammunition, explosives, or controlled substances (drugs). Inventory
                        audits are sometimes performed to check that the store’s inventory is
                        adequate and supports the quantities of WIC foods reported as sold.
                        Regulations also require states to have a system in place to identify
                        problematic or high-risk vendors and to conduct on-site monitoring and
                        further investigation—such as compliance buys—as appropriate.

                        FNS regulations specify the types of sanctions that agencies can impose on
                        vendors identified as committing fraud or abuse.6 Sanctions include
                        warning letters, monetary fines or penalties, and disqualification from the
                        program for up to 3 years. Recent regulatory changes have strengthened
                        vendor sanctions. The Goodling Act requires state agencies to permanently
                        disqualify vendors convicted of trafficking in food vouchers or selling
                        firearms, ammunition, explosives, or controlled substances in exchange
                        for food vouchers. An exception to the rule can be made when
                        disqualification would cause hardship to participants or when the owner
                        had, at the time of the violation, an effective policy and program in effect
                        to prevent these violations and was not aware of or did not approve of the
                        violation. When a state agency permits a vendor to continue to participate
                        instead of disqualifying the vendor, the state agency must impose a civil
                        monetary penalty. In addition, FNS has recently issued regulations that
                        mandate uniform sanctions for the most serious offenses, increase the
                        maximum time for vendor disqualification, other than those permanently

                        6
                         State statutes may impose sanctions for program violations in addition to those mandated by federal
                        regulations. In addition, federal regulations require that state agencies disqualify a WIC vendor who
                        has been disqualified from the Food Stamp Program.



                        Page 18                                                  GAO/RCED-99-224 WIC Fraud and Abuse
Chapter 1
Introduction




disqualified from the program, to 6 years, and provide for use as program
income the funds obtained from civil monetary penalties and fines. All
violations require a pattern of incidences to warrant a mandatory sanction,
except the violations for vendors convicted of trafficking or the illegal sale
of alcoholic beverages or tobacco products, which only require one
incidence to warrant a mandatory sanction.

Regarding participant fraud and abuse, regulations require the states to
ensure that participants meet program eligibility requirements for medical
or nutritional risk, residency, and income, and are in a category served by
the WIC program (pregnant, postpartum, breast-feeding women, infants,
and children to 5 years). Regarding income eligibility, the Goodling Act
added the requirement that all participants provide documentation of
household income or participation in certain public assistance programs,
including Food Stamps, Medicaid, and Temporary Assistance for Needy
Families.7 States, however, are not required to verify the documentation
presented. The Goodling Act also requires that all applicants be physically
present at each certification determination but waives that requirement for
certain situations in which compliance would pose a barrier to
participation.

FNS regulations specify the sanctions that can be imposed on participants
identified as committing fraud or abuse. Sanctions include oral warnings,
written letters of warning, and disqualification from WIC for up to 3
months.

Regarding employee fraud, FNS regulations require state agencies to
establish an on-going management evaluation system that includes at least
reviewing local agencies’ financial and participation reports, developing
corrective action plans to resolve program deficiencies, monitoring the
implementation of the corrective action plans, performing on-site visits,
and monitoring local agency operations. Monitoring of local agencies
includes evaluating management, certification, nutrition education,
accountability, financial management systems, and food delivery systems.
The monitoring reviews must be conducted at least once every 2 years and
include on-site reviews of a minimum of 20 percent of the local agency’s
clinics.

State agencies are also responsible for controlling and accounting for
supplemental foods and food vouchers. State agencies must reconcile food

7
 This income documentation requirement can be waived for applicants for whom documentation is not
available and for those (such as homeless persons) for whom it would present a barrier to
participation.



Page 19                                               GAO/RCED-99-224 WIC Fraud and Abuse
                     Chapter 1
                     Introduction




                     vouchers—redeemed, lost, stolen, expired, and voided. The only
                     conflict-of-interest requirement in the regulations is that state agencies
                     must ensure that no conflict of interest exists between any local agency
                     and the food vendor or vendors within the local agency’s jurisdiction.8

                     We have recently issued reports and presented testimony on several
                     aspects of FNS’ WIC program, however, this is the first report dealing with
                     the prevention and detection of vendor, participant, and employee fraud
                     and abuse in the program.9 USDA’s Office of Inspector General has
                     completed reviews of prevention and detection of fraud and abuse in the
                     WIC program at specific locations within the past 5 fiscal years, however, it
                     has not completed a comprehensive review of the program since 1988,
                     when it examined the food benefit delivery system and vendor monitoring.


                     Because of congressional concerns about the potential for fraud and abuse
Objectives, Scope,   in the WIC program and the lack of reliable information on this issue, we
and Methodology      (1) described what is known about the amount of fraud and abuse in the
                     program, including the levels of fraud and abuse being detected by the
                     state and local agencies responsible for administering WIC, and
                     (2) examined the efforts taken to prevent and detect fraud and abuse and
                     barriers to these efforts.

                     To obtain information on the extent of fraud and abuse in the program,
                     agency efforts to prevent and detect fraud and abuse, and barriers to
                     implementing strategies to prevent and detect fraud and abuse, we
                     conducted a mail survey of all state WIC agencies, including Indian tribal
                     organizations and U.S. Territories. Using a similar survey, we surveyed a
                     random sample of 500 local WIC agencies from a nationwide list of about
                     1,846 local agencies provided to us by FNS. Our survey asked the directors
                     of state and local agencies to provide information on (1) the number and
                     types of vendor, participant, and employee fraud and abuse; (2) the
                     number and types of sanctions given to offenders, and (3) strategies used
                     to prevent and detect fraud and abuse. We also asked directors to provide
                     information on agency activities during the application process and on

                     8
                      There is a general provision in the WIC regulations identifying penalties for individuals identified as
                     committing fraud. This provision would include WIC employees.
                     9
                      Food Assistance: Information on WIC Sole-Source Rebates and Infant Formula Prices
                     (GAO/RCED-98-146, May 11, 1998); Food Assistance: WIC Program Issues (GAO/T-RCED-98-125, Mar.
                     17, 1998); Food Assistance: Information on Selected Aspects of WIC (GAO/T-RCED-98-128, Mar. 17,
                     1998); Food Assistance: Working Women’s Access to WIC Benefits (GAO/RCED-98-19, Oct. 16, 1997);
                     Food Assistance: A Variety of Practices May Lower the Costs of WIC (GAO/RCED-97-225, Sept. 17,
                     1997); and WIC: States Had a Variety of Reasons for Not Spending Program Funds (GAO/RCED-97-166,
                     June 12, 1997).



                     Page 20                                                     GAO/RCED-99-224 WIC Fraud and Abuse
Chapter 1
Introduction




factors that limit them from implementing additional fraud prevention and
detection strategies.

For state agencies, we received survey responses from all 50 states and the
District of Columbia, and 29 of the 37 Indian tribal organizations and U.S.
Territories. For local agencies, we received survey responses from 458 of
the 500 local agencies in our sample; this gave us a response rate of
91.6 percent. We used the responses to the survey of local agencies to
develop overall results that are representative of those that would be
obtained from the 1,691 local agencies that would have responded had we
mailed the survey to all local agencies. As with all sample surveys, our
statistical estimates based on data obtained from our local agency survey
contain a sampling error—the potential error that arises from not
collecting data from all local agencies. Unless otherwise indicated, all
reported estimates based on our local survey have a sampling error of no
more than 5 percentage points if the estimate is represented in terms of a
percent. Sampling errors are reported in appendix I.

To better understand activities, problems, and limitations affecting agency
efforts to identify fraud and abuse, we interviewed staff at the agencies for
five states—California, Florida, Illinois, New York, and Texas. We
judgmentally selected these agencies to include states with high levels of
participation and to provide geographic diversity. These five states
account for about 42 percent of the total average monthly participation in
WIC for fiscal year 1998. We also interviewed officials at 14 local WIC
agencies in the following locations: Irwindale, Sacramento, San Diego, and
San Marcos, in California; Dania and Miami, in Florida; Chicago and
Springfield, in Illinois; Albany and Saratoga Springs, in New York; and
Austin, Dallas, and San Antonio, in Texas. We interviewed officials in FNS
headquarters as well as in regional offices in Atlanta, Chicago, Dallas, and
San Francisco to obtain information on overall program operations,
policies, and guidance. For additional perspective, we interviewed an
assistant attorney general in Illinois, the state director in Pennsylvania,
and the executive directors at the Center on Budget and Policy Priorities
and the National Association of WIC Directors.10

We conducted our work from April 1998 through July 1999 in accordance
with generally accepted government auditing standards. GAO contacts and
staff acknowledgements are listed in appendix II.

10
 The Center on Budget and Policy Priorities is an independent nonprofit research and analysis
organization located in Washington, D.C. The National Association of WIC Directors is a voluntary
membership organization of state and local WIC directors, WIC nutrition coordinators, and members
of corporate organizations that provide leadership to the WIC community.



Page 21                                                GAO/RCED-99-224 WIC Fraud and Abuse
Chapter 2

WIC Fraud and Abuse


             FNS has no recent estimates on the overall level of fraud and abuse
             occurring in the WIC program but does have some information on vendor
             fraud and abuse detected by state agencies. For estimating the extent of
             fraud and abuse, FNS has relied on information from two studies,
             completed in 1988 and 1991.11 These studies, which are currently being
             updated, provide information on the extent to which vendors overcharge
             the program and the extent to which individuals are participating in the
             program who are not eligible for it on the basis of their income. Regarding
             fraud and abuse that has been detected, FNS collects data on vendor fraud
             and abuse identified by state agencies but does not collect data on
             participant or employee fraud and abuse detected by state and local
             agencies. FNS has collected aggregate information from states on vendor
             fraud and abuse in the past and has recently taken steps to build a
             database of all WIC vendors that will include information on fraud and
             abuse.

             State agencies maintain information on detected vendor fraud and abuse,
             but only 30 of the 51 state agencies reported that they maintain data on
             detected participant fraud and abuse.12 Local agency directors, however,
             were able to provide information on participant fraud and abuse detected
             at their agencies. State and local agencies provided information on
             employee fraud and abuse. Regarding the fraud and abuse being detected
             by state and local agencies, the level of vendor fraud and abuse reported
             by state agencies was higher than the levels of participant and employee
             fraud and abuse identified by local agencies. Specifically, state agencies
             reported that a total of 3,771 vendors were identified as having committed
             various types of fraud or abuse during the 2-year period covered by our
             survey—fiscal year 1997 and fiscal year 1998.13 This number represents
             about 9 percent of the WIC authorized vendors nationwide as of
             September 30, 1998.14




             11
               WIC Income Verification Study, 1988, Final Report; WIC Vendor Issues Study, 1991, Final Report.
             12
               In this report, we are presenting data reported by the 51 geographic state agencies (50 states and the
             District of Columbia) separately from the Indian tribal organizations and U.S. Territories
             (ITO/Territories). Seventeen of the 29 ITO/Territories that responded to our survey reported that they
             maintain data on detected participant fraud and abuse.
             13
               We are not reporting vendor data for ITO/Territories because our survey did not separate out
             ITO/Territoriesthat use other state agencies’ vendors.
             14
              As of Sept. 30, 1998, about 43,000 vendors were authorized to participate in the WIC program in the
             51 states, as reported by state agencies.



             Page 22                                                    GAO/RCED-99-224 WIC Fraud and Abuse
                        Chapter 2
                        WIC Fraud and Abuse




                        According to our survey of local agencies, during the 2-year period, an
                        estimated 7,07415 participants were identified as having committed fraud
                        or abuse in one of seven categories of serious fraud and abuse, such as
                        exchanging food vouchers for cash. This number represents about
                        .14 percent of the average monthly number of participants at local
                        agencies in fiscal year 1998.16 For three types of less serious fraud and
                        abuse, such as redeeming food vouchers outside of the authorized dates
                        on the vouchers, our survey found the number of participants identified as
                        having committed such offenses to be an estimated 79,271, which
                        represents about 1.64 percent of the average monthly number of
                        participants at local agencies in fiscal year 1998. Concerning employee
                        fraud and abuse, about 4 percent of local agencies suspected fraud and
                        abuse, but an estimated 48 employees nationwide were identified as
                        having committed fraud or abuse.


                        FNS does not have systems in place to generate annual or biennial
FNS Does Not Have       estimates on the levels of vendor, participant or employee fraud and
Current Estimates of    abuse; however, it does collect data from state agencies on vendor fraud
Program Fraud and       and abuse. For its estimates of fraud and abuse occurring in the program,
                        FNS has relied on information provided by two studies, a 1991 vendor study
Abuse and Collects      and a 1988 participant study. FNS is currently updating these studies.
Data From WIC
                        According to the 1991 vendor study, overcharging by an estimated 22
Agencies on One Type    percent of vendors nationwide resulted in overcharges that amounted to
of Detected Fraud and   an estimated 1.9 percent of the total dollar value of WIC food vouchers
Abuse                   redeemed in 1991. This represented about $39.5 million of an estimated
                        $2.09 billion in retail redemptions that year.17 This study also found that .6
                        percent of the vendors undercharged for a 1991 redemption value of
                        $11.9 million. The participant study found that an estimated 5.7 percent of
                        WIC participants nationwide were not eligible for the benefits they received
                        on the basis of their income. Food benefits provided to these
                        income-ineligible participants were estimated to represent 5.8 percent or


                        15
                          See app. I for confidence intervals of our estimates.
                        16
                          The estimates of .14 percent for serious offenses and 1.64 percent for less serious offenses are
                        provided to put the estimated number of participants identified as having committed fraud or abuse
                        into perspective. These estimates use the number of participants reported as having committed fraud
                        or abuse during the 2-year period (fiscal years 1997 and 1998) as a numerator and the average monthly
                        participation for fiscal year 1998 as a denominator. Our estimates would have been lower if we had
                        collected information on the number of participants reported as committing fraud or abuse in only one
                        fiscal year. The confidence intervals for these two estimates are reported in app. I. ITO/Territories
                        reported less fraud and abuse in both categories.
                        17
                          This amount was annualized on the basis of redemptions in June and July of 1991.



                        Page 23                                                   GAO/RCED-99-224 WIC Fraud and Abuse
Chapter 2
WIC Fraud and Abuse




$84 million out of the total of $1.5 billion in food benefits provided in 1988.
While these studies provide valuable information about vendor and
participant fraud and abuse in the program, they did not determine the
extent to which vendor overcharges and participation by income-ineligible
individuals were due to fraud and abuse or to inadvertent errors.
Moreover, neither study provided complete estimates of all the fraud and
abuse occurring in their respective areas. For example, the vendor study
did not address trafficking, and the participant study did not address areas
of ineligibility other than income.

For vendors, FNS is conducting a study designed to, among other things,
estimate the levels of vendor fraud and abuse. As in the 1991 study, the
estimates will be based on investigations, in this case involving more than
4,500 compliance buys—when undercover agents attempt to exchange WIC
vouchers for nonapproved or nonfood items—from a statistically
representative sample of approximately 1,500 vendors throughout the
contiguous United States. Like the previous study, this new effort will
provide FNS with valuable information about fraud and abuse in the
program, but will not provide a complete picture of fraud and abuse
because it excludes, for example, information on authorized vendors who
redeem vouchers obtained from unauthorized vendors. FNS expects to
issue the study late in 2000.

FNS is also updating its 1988 participant study to estimate, among other
things, the number of ineligible participants. This study is designed to
(1) develop a national estimate of the number of participants who are
ineligible to receive WIC benefits because of their income and (2) identify
the cost of the food benefits provided to the individuals who are not
income-eligible for the program. Like the previous study, this new effort
will not provide a complete picture of fraud and abuse because it
excludes, for example, information on the misuse of WIC benefits or those
who receive multiple benefits. In addition, this new effort will not
determine whether benefits issued incorrectly to individual participants
occurred as a result of fraud and abuse or inadvertent error. FNS
anticipates that this study will be issued late in 1999.

Regarding detected fraud and abuse, FNS recognizes the value of
maintaining some information on vendor fraud and abuse in order to
monitor states’ detection efforts and, therefore, collects such information
from the state agencies. In the past, FNS collected only aggregate
information on vendor fraud and abuse from the states. FNS has recently
begun to create a new database of information on individual WIC vendors



Page 24                                     GAO/RCED-99-224 WIC Fraud and Abuse
                            Chapter 2
                            WIC Fraud and Abuse




                            from state agency data, including information on detected fraud and
                            abuse. This database should enable FNS to develop information on the
                            number and characteristics of individual vendors identified by state and
                            local agencies involved in fraud and abuse. FNS plans to issue its first
                            report with information contained in the new database in the fall of 1999.
                            FNS does not collect information on incidences of detected participant and
                            employee fraud and abuse from state agencies.


                            Nationwide, the relative level of detected vendor fraud and abuse was
Agencies Detected           substantially higher than the level of detected participant or employee
Varying Levels of           fraud and abuse, according to our analysis of state and local WIC agencies’
Vendor, Participant,        responses to our surveys. Regarding vendor fraud and abuse, the amount
                            reported by the states varied considerably. For participants, local agencies
and Employee Fraud          also identified varying levels of fraud and abuse. We relied on local agency
and Abuse                   data to identify participant fraud and abuse because 21 of the 51 state
                            agencies reported that they do not maintain data on participant fraud and
                            abuse. Regarding employee fraud and abuse, local agencies identified few
                            confirmed incidences. Information provided by state and local agencies on
                            the amount of detected vendor, participant, and employee fraud and abuse
                            does not present a complete picture of fraud and abuse in the program,
                            partly because the level of detection efforts differ among both state and
                            local agencies. In addition, regardless of detection efforts, some violations
                            go undetected.


Detected Levels of Vendor   Nationwide, state WIC directors identified 3,771 vendors as having
Fraud and Abuse             committed fraud or abuse during the 2-year period we surveyed—fiscal
                            year 1997 through fiscal year 1998. This number represents about
                            9 percent of all vendors participating in the program as of September 30,
                            1998. The variation in the number of vendors detected among states was
                            substantial, ranging from 15 states reporting no vendors detected to a high
                            of six states reporting 25 percent or more vendors detected as having
                            committed fraud and abuse. Moreover, the District of Columbia, with 31
                            vendors, reported that 23 vendors committed fraud or abuse. Figure 2.1
                            shows the variation by state in the number of vendors reported as having
                            committed fraud or abuse during the 2-year period, expressed as a
                            percentage of vendors participating in the program as of September 30,
                            1998.




                            Page 25                                    GAO/RCED-99-224 WIC Fraud and Abuse
                                              Chapter 2
                                              WIC Fraud and Abuse




Figure 2.1: Levels of Detected Vendor Fraud and Abuse by State, October 1996 Through September 1998



            WA

                                   MT                                                                                                            ME
                                                        ND
                                                                       MN                                                                 VT
          OR
                         ID                                                                                                                    NH
                                                        SD                            WI                                            NY          MA
                                                                                                                                              CT        RI
                                    WY                                                                 MI

                                                                            IA                                                PA
               NV                                        NE                                                                              NJ
                                                                                                              OH                   MD
                                                                                         IL       IN                                           DE
                              UT                                                                                                                Washington, D.C.
     CA                                  CO                                                                         WV
                                                             KS                MO                                             VA
                                                                                                         KY

                                                                                                                              NC
                                                                                                  TN
                          AZ                                      OK
                                                                                 AR                                  SC
                                        NM

                                                                                         MS                    GA
                                                                                                  AL
                                                        TX                       LA


                                                                                                                         FL
                    AK




                                                                  HI




                                                   None detected (15 states)

                                                   Greater than 0 but less than 10 percent (25 states)

                                                   At least 10 percent but less than 25 percent (5 states)

                                                   25 percent or more (6 states)



                                                                                                                                   (Figure notes on next page)




                                              Page 26                                                          GAO/RCED-99-224 WIC Fraud and Abuse
                            Chapter 2
                            WIC Fraud and Abuse




                            Note: For the 15 states reporting no vendor fraud or abuse detected, eight states—Alaska, Iowa,
                            Idaho, Maine, North Dakota, Nebraska, New Mexico, and South Carolina—did not suspect or
                            become aware of any vendor fraud or abuse, five states—Hawaii, Missouri, Montana, New
                            Hampshire, and Rhode Island—suspected vendor fraud or abuse but did not confirm any
                            incidences, Georgia suspected vendor fraud or abuse but was unable to confirm the fraud or
                            abuse at the time of our survey, and Mississippi does not use the vendor distribution system.

                            Source: GAO’s analysis of survey data from state agencies.




                            The types of vendor fraud and abuse can vary dramatically, ranging from
                            relatively minor violations such as allowing product substitutions—for
                            example, large eggs for medium eggs or 2-percent milk for whole milk—to
                            major violations, such as exchanging vouchers for cash. Therefore,
                            comparing the level of detected vendor fraud and abuse among states may
                            not accurately reflect the nature of the violation or the extent to which
                            program integrity is being impaired. Some serious vendor fraud and abuse
                            violations reported by agency officials included the following:

                        •   At a Los Angeles convenience store, undercover investigators purchased
                            nonfood items, including diapers and cigarettes, using WIC vouchers. The
                            vendor also purchased food vouchers for cash from the investigators.
                        •   During compliance buys in Chicago, vendors paid investigators as little as
                            10 cents on the dollar for WIC vouchers, while other investigators were
                            allowed to buy prohibited items, including alcoholic beverages, with their
                            vouchers.
                        •   In another Chicago case, undercover agents found that a family, through
                            their retail stores, bought WIC vouchers from participants for cash and set
                            up false corporations to redeem the vouchers. The redeemed value of the
                            WIC vouchers involved totaled more than $580,000 over a 7-month period.
                        •   In Texas, employees of a large grocery chain were identified as altering
                            already-redeemed food vouchers by increasing their redeemed value. The
                            resulting overcharges to the program totaled over $6,800. State employees
                            uncovered this situation when they were entering data from the vouchers
                            into the computer system for redemption and reconciliation.


Detected Levels of          According to our survey of local agencies, the estimated number of
Participant Fraud and       participants detected as having committed serious types of fraud and
Abuse                       abuse was substantially lower than the number identified as having
                            committed less serious types of fraud and abuse. In addition, an estimated
                            58 percent of the local agencies detected no incidences of serious fraud or
                            abuse and an estimated 28 percent detected no incidences of less serious




                            Page 27                                                GAO/RCED-99-224 WIC Fraud and Abuse
Chapter 2
WIC Fraud and Abuse




fraud or abuse. An estimated 22 percent of local agencies detected no
fraud or abuse in any category and 4 percent did not respond to the
question. We relied on our survey of local agencies for information on
participant fraud and abuse because 21 of the 51 state WIC agencies
reported that they did not maintain data on participant fraud and abuse. In
analyzing the participant fraud and abuse identified by local agencies, we
found variation among local agencies in the amount detected. Local
agencies in the 21 states that reported not maintaining data on participant
fraud and abuse were more likely to identify no fraud or abuse in the
serious categories than in the 30 states that reported maintaining such
data.

The number of participants identified by local agencies as having
committed fraud or abuse in one or more of seven serious categories, such
as misrepresenting their income, during the 2-year period covered by our
survey was an estimated 7,074. This number represents about .14 percent
of the average monthly number of participants in fiscal year 1998.

Working from a list of seven serious types of fraud and abuse categories
contained in our local agency survey, participants receiving multiple
benefits—obtaining two sets of food vouchers for the same time
period—was the most frequently identified offense. Figure 2.2 shows the
number of participants identified as having committed serious fraud and
abuse, by category, during the 2-year period.




Page 28                                   GAO/RCED-99-224 WIC Fraud and Abuse
                                     Chapter 2
                                     WIC Fraud and Abuse




Figure 2.2: Estimated Number of
Participants Having Committed        7,000 Number of participants
Various Types of Serious Fraud and
Abuse, October 1996 Through
September 1998

                                     6,000




                                     5,000




                                     4,000

                                                 3,566




                                     3,000




                                                                   2,049
                                     2,000




                                     1,000                                    886

                                                                                        561

                                                                                                       233                218
                                                                                                                                               122
                                        0
                                                                                 ac ther




                                                                                                                                             nd us
                                                                                                                            foo y
                                                     en ed




                                                                           od d o r




                                                                               inc nted




                                                                                                         ca d
                                                                                        s
                                                                                      fo




                                                                                                                               d
                                                                                       e




                                                                                                                                                   ts
                                                                                                                               a
                                                                                                           sh
                                                          ts




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                                                     Types of serious fraud and abuse


                                                                                                                           (Figure notes on next page)




                                     Page 29                                                       GAO/RCED-99-224 WIC Fraud and Abuse
Chapter 2
WIC Fraud and Abuse




Note: Some participants were identified as having committed more than one type of serious fraud
or abuse. The levels of detected fraud for the multiple benefits category and the misrepresented
income categories were significantly higher than those of the three least frequent categories. All
other differences among categories were not statistically significant. See app. I for confidence
intervals for these estimates.

Source: GAO’s analysis of survey data from the local agencies.




During our site visits, agency officials further explained these types of
serious fraud and abuse and provided the following examples:

Multiple benefits. Participants who receive multiple benefits obtain two
sets of vouchers for the same time period. For example, one local agency
official in Texas told us that a participant who was enrolled in and
receiving benefits from two clinics within the state was discovered by a
WIC employee when the participant presented her identification card
issued at one clinic to officials at the other clinic. The participant was
subsequently counseled about program rules and removed from the
program at one local agency but continued to receive benefits at the other
agency.

Exchanging vouchers for nonapproved or nonfood items. Participants
commit fraud when they purchase nonapproved or nonfood items with
vouchers. For example, a participant attempted to exchange vouchers for
alcohol, according to an agency director in Maryland. When the director
became aware of this attempt, she sent the participant a warning letter.

Misrepresentation of income. Participants commit fraud by understating
their income so that it falls within WIC guidelines, thus meeting the WIC
income eligibility requirement. This happens, for example, when an
applicant reports only her income and does not report the income of her
spouse or other adults considered part of the household unit.

Misrepresentation of eligibility status. Participants commit fraud by
misrepresenting factors affecting their eligibility status, such as their
residency, pregnancy status, or exact number of qualifying dependents.

Exchanging vouchers for cash. Participants commit fraud by exchanging
WIC vouchers for cash. For example, according to an agency director in
New York State, a participant completed the voucher by filling in an
amount greater than the amount of the purchases and asked for and
received the difference in cash.



Page 30                                                 GAO/RCED-99-224 WIC Fraud and Abuse
Chapter 2
WIC Fraud and Abuse




Giving away food vouchers or WIC food. In some instances, participants
have committed program fraud by giving away food vouchers or the WIC
food. For example, a local agency director in California told of a
participant who exchanged her WIC vouchers for car rides.

Claiming fictitious dependents. In a few instances, participants have been
known to create fictitious dependents in order to be eligible for the WIC
program or to obtain more WIC benefits than they would otherwise be
entitled to. In one instance, a couple in the Los Angeles area created 60
sets of twins in order to obtain infant formula, the highest-priced WIC food
item. The Goodling Act addresses this by requiring the physical presence
of each individual seeking certification for participation in the program.

The amount of fraud and abuse identified by local agencies varied. An
estimated 58 percent of local agencies identified no participants
committing serious fraud and abuse, while for an estimated 4 percent of
the agencies, the number of participants identified represented over
1 percent of their average monthly number of participants in fiscal year
1998.

According to our analysis of participant data, local agencies in the 21 state
agencies that reported not maintaining data were more likely to detect no
serious participant fraud and abuse. Figure 2.3 shows the percentages of
local agencies that identified no serious incidences of fraud and abuse in
the 21 states that reported that they do not maintain data and in the 30
states that reported they do maintain data.




Page 31                                    GAO/RCED-99-224 WIC Fraud and Abuse
                                           Chapter 2
                                           WIC Fraud and Abuse




Figure 2.3: Percent of Local Agencies Identifying No Serious Participant Fraud and Abuse in the States That Do Not and Do
Maintain Data on Participant Fraud and Abuse, October 1996 Through September 1998


                                                                                          3%                        Did not report




                             32%              Reported some
                                              serious participant
                                              fraud
                                                                           48%                      49%             Reported some
                                                                                                                    serious participant
           68%
                                                                                                                    fraud

                                                                                                                    Reported no serious
                                                                                                                    participant fraud
                                               Reported no
                                               serious
                                               participant fraud


        States that do not maintain data                                      States that maintain data

                                           Source: GAO’s analysis of survey data from state and local agencies.




                                           We also asked local agencies to identify less serious types of participant
                                           fraud and abuse. The number of participants identified as having
                                           committed fraud or abuse in one or more of three less serious categories
                                           was an estimated 79,271. This number represents about 1.64 percent of the
                                           average monthly number of participants in fiscal year 1998. The type of
                                           less serious offenses most commonly identified by local agencies was
                                           redeeming food vouchers outside the authorized dates. Figure 2.4 shows
                                           the number of participants identified as having committed each type of
                                           less serious fraud and abuse listed in our survey in the 2-year period.




                                           Page 32                                                GAO/RCED-99-224 WIC Fraud and Abuse
                                      Chapter 2
                                      WIC Fraud and Abuse




Figure 2.4: Estimated Number of
Participants Having Committed Less    80,000    Number of participants
Serious Fraud and Abuse by Type,
October 1996 Through September 1998
                                      70,000



                                      60,000    59,810




                                      50,000



                                      40,000



                                      30,000
                                                              25,209


                                      20,000



                                      10,000                                  8,625



                                           0
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                                                 Types of less serious fraud and abuse



                                      Note: Some participants were identified as having committed more than one type of less serious
                                      fraud or abuse. The level of detected abuse for redeeming vouchers outside the authorized dates
                                      was significantly higher than for the other two categories, which were not significantly different
                                      from one another. See app. I for confidence intervals for these estimates.

                                      Source: GAO’s analysis of survey data from local agencies.




                                      During our site visits, agency officials further explained these types of less
                                      serious participant fraud and abuse and provided the following examples:




                                      Page 33                                                 GAO/RCED-99-224 WIC Fraud and Abuse
Chapter 2
WIC Fraud and Abuse




Redeemed vouchers outside authorized dates. This type of abuse involves
participants who use vouchers either before or after the valid “use by”
dates printed on the vouchers. Vouchers are generally dated for a 30-day
period and valid use requires redemption within that period. At a local
agency in California, the director told us of a case in which a participant
altered the expiration date on an expired voucher so that she could
purchase items after the voucher had expired. At another agency in
Kansas, a director reported 25 incidences of participants who cashed their
vouchers outside of the authorized dates.

Selected incorrect brands or incorrect quantities. There are a variety of
ways in which this abuse can occur. For example, a participant may
choose a larger size of juice than permitted, such as a 64-ounce bottle
instead of a 46-ounce bottle.

Committed verbal abuse. Agency directors also reported that some
participants were verbally abusive to either WIC vendors or local agency
staff—a program abuse.

A larger percentage of local agencies identified incidences of fraud and
abuse in the less serious category than in the serious category—67 percent
and 40 percent respectively. An estimated 74 percent of the local agencies
identified some type of participant fraud or abuse. As with the serious
category, there was variation among agencies in the amounts of less
serious fraud and abuse identified. An estimated 28 percent of local
agencies identified no participants as having committed less serious fraud
and abuse, while for an estimated 10 percent of the agencies, the number
of participants identified represented more than 5 percent of their average
monthly number of participants in fiscal year 1998.

Agency officials also identified about 2,902 participants who committed
other types of fraud and abuse that were not specifically mentioned in the
lists provided in our survey. Some of these types could be considered
serious fraud and abuse, while others could be considered less serious.
One of the serious types specified by some local agencies we visited was
selling or returning infant formula for cash.

There are relatively few documented cases nationwide of selling or
returning infant formula to stores for cash, but local WIC directors told us
that this activity was of concern because it suggests a serious health risk
to infants and because the high cost of formula can make the activity
attractive to some participants. A Texas director told us of a participant



Page 34                                    GAO/RCED-99-224 WIC Fraud and Abuse
                     Chapter 2
                     WIC Fraud and Abuse




                     who advertised a case of infant formula for sale in a local newspaper. After
                     the director contacted the participant to advise her that selling WIC formula
                     was against program rules, the participant returned the unneeded formula
                     to the clinic. According to FNS officials, a one-month supply of WIC formula
                     can have a retail value of almost $100.


Detected Level of    The number of employees identified by local agencies as suspected of
Employee Fraud and   having committed and actually having committed fraud or abuse during
Abuse                the 2-year period our survey covered were very small, about 78 and 48
                     respectively. The low number of actual cases of identified employee fraud
                     or abuse can be explained, in part, because on some occasions when an
                     employee is suspected of fraud, he or she quits, and agency staff are
                     unable to document the incidence. We did not collect survey information
                     on the types of employee fraud and abuse committed. However, in our
                     discussions with agency officials, the lack of separation of duties was cited
                     as a problem. For example, at one local agency in Illinois, a clinic
                     supervisor had access to the computer system and participant records as
                     well as the printer system to issue or print vouchers. The supervisor
                     created hundreds of fictitious participant records and printed food
                     vouchers for each participant on a day when she was not scheduled to
                     work. She then sold these food vouchers to local vendors for a portion of
                     their stated value.




                     Page 35                                    GAO/RCED-99-224 WIC Fraud and Abuse
Chapter 3

Agencies Vary in Their Efforts to Prevent
and Detect Fraud and Abuse and Encounter
Some Barriers
                           State and local WIC agencies vary in their efforts to control vendor,
                           participant, and employee fraud and abuse, as the flexibility provided by
                           WIC regulations allows. Regarding vendors, states differ in their
                           management procedures, including the methods they use to limit the
                           number of vendors authorized to participate in the WIC program and the
                           amount and type of monitoring they perform. With respect to participants,
                           state and local WIC agencies vary in their efforts to ensure that only eligible
                           individuals receive benefits and that the benefits are used as intended. For
                           employees, WIC agencies differ in the extent of conflict-of-interest controls
                           they have in place to prevent and detect employee fraud and abuse.

                           While federal, state, and local WIC agencies have undertaken a number of
                           activities to prevent and detect the different types of fraud and abuse,
                           several barriers that can inhibit their success were identified. These
                           barriers are a lack of (1) criteria to assess whether the states have
                           authorized an appropriate number of vendors; (2) information on the
                           number and characteristics of participants who have committed fraud;
                           (3) policies or procedures regarding potential employee conflict-of-interest
                           situations; and (4) resources to devote to fraud control efforts.


                           The management of vendors—the authorization, types and extent of
States Differ in Efforts   monitoring, identification of high-risk vendors, and sanctions imposed on
to Manage Vendors          violators—varied among the states. As allowed by federal regulations, state
                           agencies can choose the methods they use to ensure that they are
                           effectively managing WIC vendors. The practices they choose to use and
                           their levels of effort vary considerably. Recent legislation imposes new
                           vendor monitoring requirements in some of these areas and could produce
                           greater uniformity. In addition, recent changes in FNS regulations should
                           increase uniformity in sanctioning vendors by mandating maximum
                           uniform sanctions for the most serious offenses and increasing the
                           maximum time for disqualifying vendors from the program.


States Vary in Methods     FNS regulations require that states relying on the retail distribution of WIC
Used to Limit the Number   food benefits authorize an appropriate number of vendors that can be
of Authorized Vendors      effectively managed while ensuring adequate access for participants. Of
                           the 51 state WIC agencies, 42 reported making some effort to limit or
                           contain the number of authorized vendors.18 Eight states reported that
                           they do not limit the number of vendors, and one state, Mississippi,

                           18
                            In order to avoid double-counting vendors, we are not reporting vendor data for ITO/Territories
                           because our survey did not separate those ITO/Territories that use the vendors of other state agencies.



                           Page 36                                                   GAO/RCED-99-224 WIC Fraud and Abuse
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                                    Agencies Vary in Their Efforts to Prevent
                                    and Detect Fraud and Abuse and Encounter
                                    Some Barriers




                                    distributes WIC products through state-operated centers. Table 3.1 shows
                                    the various methods states used to limit the number of vendors.

Table 3.1: Methods States Used to
Limit the Number of Vendors                                                                                  Number of states using
                                    Method used                                                                             method
                                    Vendor food prices cannot exceed limits set by the statea                                            26
                                                                                        b
                                    Ratio of the number of participants to vendors                                                       12
                                    Competitive bidding for vendor slotsc                                                                 5
                                    Absolute or fixed number of vendors                                                                   4
                                    Other vendor ratios                                                                                   3
                                                       d
                                    Other methods                                                                                        19
                                    Notes: Some states reported using more than one method.
                                    a
                                    State sets maximum allowable food prices that vendors can charge the WIC program.
                                    b
                                        The number of WIC participants per vendor in an area predetermined by a state agency.
                                    c
                                     States determine the number and appropriate distribution (location) of WIC vendors. Vendors
                                    compete for the authorized slots.
                                    d
                                     Other methods reported include having vendors (1) meet minimum stock requirements, (2) keep
                                    prices charged the program within 10 percent of the lowest priced store in the community, (3) not
                                    sell gas or alcohol, (4) be conveniently located, and (5) maintain their stores in good condition.
                                    Requiring a demonstrated need for a store in an area was also reported.

                                    Source: GAO’s analysis of survey data from state agencies.



                                    States’ efforts to limit the number of vendors can vary, depending in part
                                    on the method used and, in some cases, the strictness of the selection
                                    criteria imposed within the method. For example, when competitive
                                    bidding is used, a predetermined number of vendor slots are available, and
                                    vendors submit their prices for WIC foods to bid on those slots—the lowest
                                    bidders become the authorized vendors. By limiting vendor food prices to
                                    an amount pre-set by the state agency, the strictness of the selection
                                    criteria may limit the number of vendors who participate. For example, if
                                    the state restricts the food prices to an amount that is below the general
                                    market rate, fewer vendors may be willing to participate than if it restricts
                                    the food prices to an amount nearer the general market rate.

                                    The methods a state chooses to deliver foods can also account for
                                    variation in the number of vendors authorized. For example, Vermont and
                                    parts of Ohio use dairies to deliver WIC foods directly to participants’
                                    homes and have few authorized vendors. In Chicago, many small vendors
                                    selling primarily alcohol and tobacco have been replaced by 15 food




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                          Agencies Vary in Their Efforts to Prevent
                          and Detect Fraud and Abuse and Encounter
                          Some Barriers




                          centers operated through a partnership between the state WIC agency and
                          Catholic Charities of the Archdiocese of Chicago. These food centers
                          distribute WIC products in exchange for special WIC food vouchers that
                          have no monetary value and that cannot be used at other WIC vendors.
                          Other factors can affect states’ efforts to limit the number of vendors as
                          well, such as population density—lower density areas may require fewer
                          participants per vendor.

                          These factors, as well as the methods used, can result in considerable
                          variation in the number of participants per authorized WIC vendor. Our
                          survey found the ratio of participants to vendors varied among the states.
                          For example, North Dakota reported 57 participants per vendor, the
                          District of Columbia reported 535 participants per vendor, and Vermont
                          reported 709 participants per vendor.


States Vary in Vendor     To manage and control vendors, FNS requires the states to conduct on-site
Monitoring but Meet the   monitoring of a sample of at least 10 percent of their vendors each year.
10-Percent Requirement    These routine monitoring visits may include such activities as reviewing
                          cashier checkout procedures, examining the availability and prices of
                          supplemental program foods, and insuring that WIC products are clearly
                          identified, as well as providing vendor education and training. The states
                          use a variety of types of vendor visits to satisfy FNS’ required 10-percent
                          sample of vendors monitored. For example, one state uses the initial visit
                          to a retail store—made to approve the store as a WIC vendor. Another state
                          counts technical assistance visits towards satisfying this requirement.
                          When further investigation is indicated, monitoring visits may also include
                          compliance buys. According to our analyses of fiscal year 1998 monitoring
                          activity reported by the states, all the states conducted on-site monitoring
                          for at least 10 percent of their vendors. On a nationwide basis, the states
                          reported that at least 40 percent of all vendors were subjected to
                          monitoring visits and about 12 percent were subjected to compliance buys
                          during that year. Some vendors were also subject to trafficking buys.

                          The type of vendor monitoring activity varies by state. Some states
                          reported that most of their monitoring consisted of routine visits while
                          others noted that most monitoring consisted of compliance buys. The
                          percentage of vendors subjected to compliance buys in fiscal year 1998
                          varied substantially among the states. For example, while eight states
                          reported that none of their vendors were subjected to compliance buys,
                          New York State reported that about 40 percent of its vendors were
                          subjected to them, and the District of Columbia reported that 94 percent



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                         Agencies Vary in Their Efforts to Prevent
                         and Detect Fraud and Abuse and Encounter
                         Some Barriers




                         were subjected to them. The differences we identified may not mean that
                         the states conducting more intensive monitoring have more problematic
                         vendors; it could mean that these states devote more resources to this type
                         of investigation.

                         The states we visited varied in the number of compliance buys conducted
                         and in the way they were conducted. In 1998, for example, Florida
                         reported relying on volunteers from the local agencies’ staff to conduct
                         compliance buys at 15 of its about 2,000 authorized vendors. Florida put a
                         moratorium on compliance buys early in 1998, thereby limiting the number
                         of vendors subject to such buys, because of concerns about the safety of
                         the volunteers. In Illinois, which contracts with a private investigative firm
                         to conduct compliance buys, 76 of almost 1,800 vendors were subject to
                         such buys. New York used state agency employees to conduct compliance
                         buys at about 1,700 of its over 4,200 vendors in 1998.


Most States Use          As part of a state’s vendor monitoring, FNS regulations require the state
Systematic Methods for   agency to design and implement a system to identify high-risk vendors.
Identifying High-Risk    The regulations state that the criteria for identifying high-risk vendors may
                         include such considerations as the level and severity of suspected vendor
Vendors                  overcharges to the program and participant complaints. Forty-eight of the
                         50 states that use vendors reported that they use certain types of
                         indicators to identify high-risk vendors, and 43 of these states reported
                         using a statistical method.19 While our survey did not ask the states to
                         identify the high-risk criteria that they were using, we discussed the
                         criteria with agency officials interviewed during our site visits. The types
                         of indicators they reported using ranged from objective indicators, such as
                         the volume of WIC foods sold, to subjective indicators, such as association
                         with another store known to abuse the program. Because of this variation,
                         a vendor considered high-risk in one state may not be identified as
                         high-risk in another state.

                         Monitoring high-risk vendors is a prudent method for detecting fraud and
                         abuse. At the time of our review, FNS regulations required that the states
                         investigate high-risk vendors as appropriate. However, they were silent on
                         defining the appropriate number of identified high-risk vendors that were
                         to be monitored. Thus, a state could have been in compliance without
                         monitoring any high-risk vendors if it determined that no monitoring was

                         19
                           Hawaii and Idaho reported not using such indicators during the period covered by our survey
                         because they were in the process of redesigning high-risk criteria. Hawaii’s redesign was part of its
                         installation of a statewide computer system, and Idaho’s redesign was part of an update of its
                         computer system.



                         Page 39                                                    GAO/RCED-99-224 WIC Fraud and Abuse
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                             Agencies Vary in Their Efforts to Prevent
                             and Detect Fraud and Abuse and Encounter
                             Some Barriers




                             appropriate. Furthermore, had a state determined that it was appropriate
                             to monitor a high-risk vendor, the regulations did not specify the type of
                             monitoring required. The Goodling Act should reduce the flexibility in the
                             regulations on high-risk vendors by requiring the states to conduct
                             compliance-buy investigations of all vendors so identified. On June 16,
                             1999, FNS issued proposed rules that would require state agencies to
                             conduct annual compliance buys or inventory audits on all high-risk
                             vendors, up to the 10 percent minimum of all authorized vendors. If less
                             than 10 percent of the vendor population is identified as high-risk, state
                             agencies must make up the difference by conducting compliance buys or
                             inventory audits on vendors selected at random. This would replace the
                             current requirement to monitor a representative sample of 10 percent of
                             all vendors.

                             FNS’ proposed rules, issued on June 16, 1999, are intended to make vendor
                             management more consistent across states. The proposal acknowledges
                             that there is significant variation in agencies’ practices for managing
                             vendors and that differences in state systems have resulted in the
                             inconsistent treatment of vendors across and within state agencies. It also
                             acknowledges that this inconsistency has resulted in unacceptable levels
                             of vendor fraud and program noncompliance. If implemented, these rules
                             would reduce some of the variation we found among the states in terms of
                             the number of vendors authorized, vendor monitoring, and the
                             identification of high-risk vendors. The proposed rules clearly emphasize
                             the need to limit the number of vendors to ensure effective program
                             oversight and would require state agencies to establish criteria to limit the
                             number of vendors authorized. Although the proposal does not specify the
                             criteria that state agencies should use when limiting vendor numbers, it
                             does require that when developing such criteria, state agencies consider
                             the participant-to-vendor ratios. The proposal does not identify the criteria
                             FNS would use to assess whether the states have authorized more vendors
                             than they can effectively manage.


States Impose a Variety of   FNS regulations provide the states with latitude in choosing the type of
Sanctions on Abusive         sanctions imposed on vendors detected as committing fraud and abuse.
Vendors                      The states reported imposing sanctions that ranged from warning letters
                             for less serious offenses to disqualification for the most serious offenses.
                             More than half of the vendors committing fraud and abuse during the
                             2-year period our survey covered received a warning letter only. Table 3.2
                             shows the percent of vendors who violated program rules and the
                             sanctions they received.



                             Page 40                                     GAO/RCED-99-224 WIC Fraud and Abuse
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                                          Agencies Vary in Their Efforts to Prevent
                                          and Detect Fraud and Abuse and Encounter
                                          Some Barriers




Table 3.2: Type of Sanctions the States
Imposed and Percentage of Identified                                                                                    Percent of vendors
Vendors Receiving Sanctions               Type of sanction                                                              receiving sanction
                                          Warning letter only                                                                                   58
                                          Temporary disqualification or suspension from the WIC
                                          program                                                                                               25
                                          Monetary fine or penalty                                                                              21
                                                           a
                                          Sanction points                                                                                        9
                                          Other                                                                                                  4
                                          No warning letter or other sanction                                                                    2
                                          Note: The total does not add to 100 percent because some vendors could have received more
                                          than one sanction during the 2-year period.
                                          a
                                            Vendors are assessed sanction points for offenses such as allowing the purchase of a similar
                                          but not WIC-approved food or accepting the return of food purchased with WIC vouchers for cash
                                          or credit towards another purchase. Accumulation of a specified number of points can adversely
                                          affect the renewal of the vendor’s contract and, in extreme situations, can subject the vendor to a
                                          1-year disqualification.

                                          Source: GAO’s analysis of survey data from state agencies.



                                          The Goodling Act strengthened WIC sanctions by requiring that vendors
                                          convicted of trafficking and other serious violations be permanently
                                          disqualified. FNS issued regulations in March 1999 that mandate uniform
                                          sanctions across state agencies for the most serious vendor violations and
                                          increase the maximum period for disqualification, other than those
                                          permanently disqualified, to 6 years. The implementation of these
                                          mandatory sanctions is intended to curb vendor fraud and abuse in the WIC
                                          program. In instances where vendor disqualification would impose undue
                                          hardship on participants, states must assess a civil monetary penalty in
                                          lieu of disqualification. FNS’ March 1999 regulations further specify that all
                                          civil monetary penalties and fines must be used as program income by the
                                          state agency.


                                          State and local agencies vary in the strategies they use to ensure that only
Agencies Vary in the                      eligible individuals receive WIC benefits and that they use the benefits
Strategies Used to                        appropriately. Table 3.3 shows the strategies included in our survey and
Prevent and Detect                        the number of state agencies and the estimated percent of local agencies
                                          using each strategy. Some strategies, such as educating participants on
Participant Fraud and                     program rules and regulations, were used by many state and local
Abuse                                     agencies, while others, such as using computer systems to verify eligibility
                                          on the basis of participation in other income-eligible programs, were used
                                          by fewer state and local agencies.



                                          Page 41                                                  GAO/RCED-99-224 WIC Fraud and Abuse
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                                               Agencies Vary in Their Efforts to Prevent
                                               and Detect Fraud and Abuse and Encounter
                                               Some Barriers




Table 3.3: Strategies to Prevent and Detect Participant Fraud and Abuse and the Number of State Agencies and Estimated
Percent of Local Agencies Using the Strategies
                                                                                                    Estimated percent of local
Strategy                                                                Number of states (51 total)                 agencies
Educate participants on program rules and fraud and abuse                                                           51                     95
Use a computer system to maintain participant data                                                                  50                     89
Use a computer system to identify dual participation within state                                                   49                     73
Use a computer system to print food vouchers                                                                        47                     85
Use complaint forms for vendors and/or others to report participant fraud or
abuse                                                                                                               44                     79
Share and receive fraud and abuse prevention information and strategies
with other WIC state agencies, other government agencies, and/or interest
groups                                                                                                              36                     67
Provide fraud and abuse awareness training for WIC staff                                                            36                     44
Require documentation of income beyond self-declaration by applicant                                                35                     70
Require documentation of applicant’s residence                                                                      26                     45
Maintain an 800 number hot-line or other publicized phone number for
                                                                                                                                             a
reporting fraud or abuse                                                                                            23
                                                                                                                                             a
Perform more local agency evaluations than required                                                                 18
Use a computer system to verify adjunct eligibilityb                                                                16                     50
                                                                                                                                             a
Contact other states when participants move into the state                                                          12
                                               a
                                                Local agencies were not asked to provide information on these strategies.
                                               b
                                                   Eligibility based on applicant’s participation in another, income-qualifying program.

                                               Source: GAO’s analysis of survey data from state and local agencies.



                                               Every state agency and an estimated 95 percent of the local agencies
                                               reported using the strategy of educating participants on program rules and
                                               fraud and abuse. However, they differed in the methods used to educate
                                               participants. During our visits, officials told us that such methods include
                                               having the participant read and sign a program statement and giving each
                                               new participant a pamphlet explaining participant responsibilities.

                                               Regarding the strategy of requiring income documentation to establish an
                                               applicant’s income eligibility for WIC, 14 states and an estimated 29 percent
                                               of local agencies did not require applicants to provide proof of income.
                                               The Goodling Act mandates that all state and local agencies require
                                               applicants to present documentation of income; FNS implemented this
                                               requirement in February 1999. Nevertheless, the manner in which this
                                               requirement is implemented may continue to differ. Agencies that have
                                               historically required income documentation have varied in the procedures



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they follow when documentation is not provided at the time of application.
For example, in Texas, agency officials told us that they require evidence
of income without exception. If an applicant is homeless or has no
income, a statement to this effect is required from someone, such as a
member of the clergy or a social worker. In contrast, in Illinois, if the
individual does not have documentation at the time of initial application,
the state will allow a 30-day waiver; thus an applicant can be certified and
receive benefits for the first month and be required to bring in evidence for
the second month of participation. Such variation is likely to continue.

Differences in implementation occur in the use of other strategies as well.
While almost all states use a computer system to determine whether an
applicant is already participating in the WIC program at another location,
thereby receiving multiple benefits for the same time period, a practice
known as dual participation, they varied in how they used their systems.
For example, California’s computer system provides real-time information
on participation at the time of application, thereby immediately preventing
duplicate enrollment. In contrast, in Texas, after an applicant is certified
and issued benefits, the system checks participant files, and, if there is
duplication, the local agency is notified the next day. When dual
participation is detected, any corrective action or sanction would typically
occur the next time that the participant came in to pick up benefits. Texas
officials explained that there were too few instances of dual participation
to incur the costs associated with improving the timeliness of the
information.

In addition, we identified some states that check for dual participation
beyond their borders. In our survey, 16 of the 51 state agencies reported
that they have written agreements or working arrangements with other
state agencies to check for dual participation between the states.

We also identified differences in implementation when an applicant
presents documentation of participation in one of the means-tested
programs—Food Stamps, Medicaid, or Temporary Assistance for Needy
Families. By participating in one of these programs, the applicant
automatically meets the WIC income eligibility requirements. Nationwide,
for the agencies that provided estimates, about 58 percent of their
participants, on average, were income-eligible on the basis of their
participation in another means-tested program.

While FNS regulations do not require WIC agencies to verify an applicant’s
documentation of participation in another income-qualifying program, our



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                                        survey found that local agencies verify about 31 percent of this
                                        information, on average. In verifying this information, local agencies take
                                        such steps as checking computer systems or telephoning service providers
                                        to verify program participation. In some states, verification can also be
                                        done by an automated check of Medicaid participation. For example, in
                                        California, agency staff use the statewide WIC computer system, which
                                        accesses the state’s automated Medicaid database, to verify an applicant’s
                                        status in Medicaid; in New York State, this verification is accomplished by
                                        scanning the applicant’s Medicaid card. On the other hand, Florida
                                        officials told us that the card scan system of verification was used
                                        sparingly because each time the card is scanned there is a 28-cent cost to
                                        the local agency. As shown in table 3.4, the percentage of such verification
                                        in fiscal year 1998 varied among agencies, with an estimated 45 percent
                                        conducting no verification.

Table 3.4: Estimated Percent of Local
Agencies Conducting Various Levels                                                                         Estimated percent of local
of Verification of Applicants’          Level of verification                                                              agencies
Participation in Other                  None verified                                                                             45
Income-Qualifying Programs
                                        Less than 10 percent verified                                                              6
                                        10 to 50 percent verified                                                                 13
                                        More than 50 but less than 100 percent verified                                           12
                                        100 percent verified                                                                      14
                                        Did not respond to question                                                                9
                                        Note: The total does not add to 100 percent due to rounding of numbers.

                                        Source: GAO’s analysis of survey data from local agencies.



                                        Once individuals are certified as eligible and are participating in the WIC
                                        program, local agencies can become aware of suspected fraud from
                                        several sources, including vendors, other participants, or the general
                                        public. Agency officials told us that, generally, they first discuss the
                                        suspected situation with the participant. Depending upon the participant’s
                                        response or the severity of the situation, other methods may be used. In
                                        responding to a survey question about how they handle these suspected
                                        cases, an estimated 30 percent of local agencies said they deal with the
                                        situations themselves without contacting the state agency, while other
                                        local agencies refer some situations to the state agency or handle the
                                        situations jointly. Some of this variation may be explained by the fact that
                                        some states, such as California and New York, have a separate unit for
                                        dealing with suspected participant fraud and abuse.




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                                      WIC agencies can impose various sanctions when a participant is identified
                                      as having committed fraud or abuse. Of the approximately 7,074
                                      participants identified as committing serious fraud and abuse in the 2-year
                                      period we reviewed, about 1,787 received suspensions or temporary
                                      disqualification from the program. Serious types of fraud and abuse
                                      include dual participation, exchanging vouchers for nonapproved or
                                      nonfood items, or misrepresenting income. The estimated 79,271
                                      participants committing less serious violations were most frequently given
                                      an oral warning or counseling about program rules. The less serious types
                                      of fraud include redeeming vouchers outside of the authorized dates and
                                      selecting incorrect brands or quantities. Table 3.5 shows the estimated
                                      number of participants committing serious and less serious violations and
                                      the sanctions they received.

Table 3.5: Estimated Number of
Participants Committing Serious and                                           Estimated number of              Estimated number of
Less Serious Violations and the                                            participants committing          participants committing
Sanctions They Received               Sanction                                   serious violations          less serious violations
                                      Oral warning or counseling
                                      about program rules                                          5,121                         57,547
                                      Written letter of warning                                    2,282                         19,379
                                      Suspension or temporary
                                      disqualification for 1 to 3
                                      months                                                       1,787                              336
                                      Other                                                         428                               694
                                                                                                                                        a
                                      No sanction                                                    33
                                      Note: The total number of sanctions administered exceeds the total number of participants who
                                      committed fraud and abuse, in part because participants may receive more than one sanction.
                                      a
                                      We were unable to develop a reliable estimate.

                                      Source: GAO’s analysis of survey data from local agencies.




                                      State and local WIC agencies employ over 18,000 individuals to manage and
Agencies Use Several                  deliver WIC benefits. FNS regulations that aid in preventing and detecting
Strategies to Control                 employee fraud require the security and accountability of vouchers,
Employee Fraud and                    including providing physical security during transporting, receiving, and
                                      issuing them. State agencies are also responsible for reconciling the
Abuse                                 vouchers and ensuring that there is no conflict-of-interest between local
                                      agencies and vendors. In addition to these activities, agency officials use a
                                      variety of strategies to prevent and detect employee fraud and abuse,
                                      according to their responses to a list we provided in our survey. Table 3.6




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                                        shows the strategies agencies use and the percent of local agencies using
                                        them.

Table 3.6: Strategies Used to Prevent
and Detect Employee Fraud and Abuse                                                                          Estimated percent of local
and the Estimated Percent of Local      Strategy                                                               agencies using strategy
Agencies Using the Strategies           Take measures to protect food vouchers and/or blank food
                                        voucher stock from theft or fraudulent alteration                                                 96
                                        Supervisor’s review of employee activities at local
                                        agencies/clinics                                                                                  93
                                        Require that local agency/clinic staff report suspected
                                        employee fraud or abuse to the state                                                              69
                                        Separate duties within the certification process so that the
                                        employee certifying does not issue food vouchers                                                  68
                                        Share and receive information about strategies with other
                                        agencies, such as other local or state WIC agencies, other
                                        government agencies, and/or interest groups                                                       60
                                        Have a policy for conflict-of-interest for WIC participants
                                        who are also employed by the WIC program                                                          52
                                                                               a
                                        Make unannounced visits to clinics                                                                47
                                        Provide fraud and abuse awareness training for local
                                        agency/clinic staff                                                                               45
                                        Use a statistical method to detect employee fraud                                                  7
                                        a
                                         Unannounced visits by supervisor or other agency management.

                                        Source: GAO’s analysis of survey data from local agencies.



                                        As shown in the table, almost all local agencies had policies in place to
                                        protect food vouchers. In addition, at some agencies we visited the
                                        agency’s management reviews included physical security and program
                                        integrity.20 Most local agencies also used supervisor’s review of employees’
                                        activities. However, other policies that would enhance prevention and
                                        detection are not as widely used. Two of these policies relate to
                                        conflict-of-interest—when employees who participate in the WIC program
                                        might certify their own eligibility and issue their own benefits, and when
                                        there is no separation of duties so that an employee can certify and issue
                                        benefits to the same individual. For example, an estimated 45 percent of
                                        the local agencies do not have conflict-of-interest policies for employees
                                        who also receive WIC benefits, which could result in a situation in which
                                        employees certify themselves as eligible to participate and issue their own
                                        WIC benefits. Furthermore, an estimated 30 percent of the local agencies do


                                        20
                                         Local agencies not taking measures to protect vouchers from theft would include those in
                                        Mississippi, where the voucher system is not used, and those in Vermont, where voucher stock is
                                        housed at a separate state agency and not accessible to local WIC/Health Department staff.



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                             not separate duties within the certification process. In this case,
                             employees could certify and issue WIC benefits to relatives and friends.
                             While these situations in and of themselves may not compromise program
                             integrity, they present the appearance of impropriety. WIC agency officials
                             told us that duties are not always separated because, for example, some
                             clinics have too few employees to do so. However, even in these
                             situations, prudent precautions can be taken. For instance, one agency
                             uses a separate agency number for issuing WIC benefits to employee
                             participants and another agency requires a supervisor’s signature when,
                             because staffing levels are low, an employee is going to both certify and
                             issue benefits to the same individual. FNS regulations do not require WIC
                             agencies to have policies on conflict-of-interest for employee-participants
                             or for separation of duties.

                             In addition to the strategies we identified in our survey, we asked WIC
                             agency officials about other activities they were using. One activity
                             reported by FNS’ Southwest Region was a federal/state project in which WIC
                             officials worked together to design a guide for preventing and detecting
                             employee abuse. This guide outlines a series of suggested actions aimed at
                             the prevention and detection of employee abuse and has been adopted by
                             several states in the region. For example, it sets a minimum expectation
                             that agencies establish a policy relating to conflict-of-interest. It also
                             outlines practices related to separation of duties, including practices to be
                             followed in clinics with few employees.


                             Agency officials identified several barriers that can inhibit their efforts to
Agencies Face                prevent and detect fraud and abuse. These barriers are a lack of (1) federal
Barriers to Preventing       criteria to evaluate whether a state has authorized an appropriate number
and Detecting Fraud          of vendors, (2) information on detected participant fraud and abuse, (3) a
                             policy or procedures on potential employee conflict-of-interest situations,
and Abuse                    and, (4) insufficient resources to devote to fraud detection and control
                             efforts.


Regulations Lack Specific    FNS regulations require that the states authorize an appropriate number
Criteria to Assess Whether   and distribution of vendors to ensure adequate participant access and
States Have Authorized an    effective review of its authorized vendors. However, FNS regulations
                             currently lack criteria for evaluating whether states have authorized an
Appropriate Number of        appropriate number of vendors. The regulations also do not provide the
Vendors                      states with clear and specific criteria to use in determining whether the
                             number of vendors is at a manageable level and appropriate for the



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                            resources states have available for vendor management. In vendor
                            regulations proposed in 1990, FNS recognized the need to establish criteria
                            to ensure that the states effectively and efficiently use program resources.
                            In addition, in its proposed regulations, FNS recognized that if a state
                            authorized more vendors than necessary its resources might not be
                            sufficient to ensure the effective oversight of vendors, thus increasing the
                            opportunities for fraud and abuse or forcing curtailment of other critical
                            state and local agency activities. These regulations were never made final.
                            FNS’ recently proposed rules reemphasize the need to limit the number of
                            vendors, and while calling for the states to establish criteria to use in
                            limiting the number of vendors authorized, the proposal does not specify
                            any criteria. According to some state officials, the lack of criteria for
                            determining what constitutes an appropriate number of vendors has
                            hindered efforts to place limits on vendors in the face of political
                            pressures arising, in part from the retail community.

                            Monitoring is a critical aspect of effective vendor management and is
                            resource-intensive because of the numerous tasks that must be performed.
                            These tasks include making on-site visits to vendors, analyzing the data
                            obtained as well as information on vendors’ redemptions, and determining
                            the need for and conducting more intensive compliance-buy
                            investigations. In our survey, state agency officials were asked how easy
                            or difficult it is for them to monitor their vendors. Regarding the required
                            routine on-site monitoring of at least 10 percent of authorized vendors
                            each year, four state agencies responded that it was somewhat difficult to
                            conduct this monitoring. However, with respect to conducting the more
                            resource-intensive compliance buys, 22 state agencies responded that it
                            was somewhat or very difficult. Moreover, 24 state agencies reported that
                            it was somewhat or very difficult to design and implement a system to
                            identify high-risk vendors—which may require compliance-buy
                            investigations. State agencies will face further challenges in allocating
                            resources to manage vendors under the Goodling Act’s mandate that
                            compliance buys be conducted at all high-risk vendors.


Information is Lacking on   FNS does not collect information on the number and characteristics of
Participant Fraud           participants who engage in fraud and abuse. Regarding state agencies, 21
                            of the 51 states reported that they do not maintain these data. Lacking
                            such information, FNS is not able to assess the extent of participant fraud
                            and abuse, evaluate state and local agencies’ efforts to control it, or
                            identify the changes needed to improve program integrity.




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                              A number of agency officials reported that they lack adequate information
                              on how to identify situations that are at high-risk for participant fraud and
                              abuse. Such information could be useful to WIC agencies in identifying
                              high-risk situations and in improving their knowledge of fraud detection
                              strategies. In our survey, 20 of the 51 state agencies and an estimated
                              43 percent of local agency directors reported that information on
                              identifying these situations was less than adequate. During a site visit, one
                              agency director told us that information on identifying high-risk situations
                              would help her and her staff know what to watch for and what to do when
                              a potential fraud situation arises. Agency officials also provided
                              information on their overall knowledge of strategies for detecting
                              participant fraud, with officials in 21 of the 51 state agencies and officials
                              in an estimated 47 percent of local agencies identifying a
                              less-than-adequate level of overall knowledge.


Regulations Do Not            Agency officials cited a lack of a policy or procedures for potential
Address Potential Conflicts   conflicts-of-interest situations for employees that may hinder the
of Interest for Employees     prevention and detection of employee fraud and abuse. Regarding
                              employee-participants, 12 of the 51 state agencies surveyed reported that
                              they do not have a conflict-of-interest policy for employee-participants to
                              ensure that employee-participants do not certify or issue benefits to
                              themselves; an estimated 45 percent of the local agencies lacked such a
                              policy. Regarding separation of duties, eight of the state agencies surveyed
                              reported that they do not separate duties within the certification process
                              so that the employee certifying eligibility does not issue vouchers; an
                              estimated 30 percent of the local agencies similarly do not separate duties.


Inadequate Resources          Many state and some local agency officials identified staffing and funding
                              resources as hindering additional efforts to prevent and detect fraud and
                              abuse in the program. For example, as shown in table 3.7, inadequate
                              staffing and funding resources were identified by almost half of the states
                              and about one-quarter of local agencies as adversely affecting their efforts.




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Table 3.7: State and Local Agencies
Identifying Less Than Adequate                                                      Number of 51 state Estimated percent of local
Staffing and Funding Levels for                                                     agencies reporting       agencies identifying
Preventing and Detecting Vendor,                                                 inadequate resources      inadequate resources
Participant, and Employee Fraud and   Resources for vendor fraud and abuse prevention and detection
Abuse
                                                                                                                                                 a
                                      Number of staff                                                    22
                                                                                                                                                 a
                                      Funding                                                            24
                                      Resources for participant fraud and abuse prevention and detection

                                      Number of staff                                                    24                                  27
                                      Funding                                                            25                                  38
                                      Resources for employee fraud and abuse prevention and detection

                                      Number of staff                                                    24                                  16
                                      Funding                                                            22                                  27
                                      a
                                       Local agencies were not asked to identify resources to prevent or detect vendor fraud and
                                      abuse.

                                      Source: GAO’s analysis of survey data from state and local agencies.



                                      During our site visits, some local agency officials told us that workload
                                      demands—certifying applicants; delivering client services, such as health
                                      care referrals and nutrition education; and meeting other program
                                      requirements, such as voter registration—often left little or no time to
                                      follow up on suspected cases of fraud and abuse. For example, one official
                                      said that taking time to check on individuals suspected of providing
                                      incomplete documentation of income would detract from time spent
                                      providing services to other clients. Some state agency directors also
                                      shared this view.

                                      Similarly, according to FNS officials, the management of the WIC program,
                                      which includes fraud and abuse prevention and detection, is hindered by a
                                      lack of resources. FNS WIC officials pointed out that FNS’ staffing resources
                                      for managing the program have decreased, while participation has
                                      increased. In recent years, because of resource constraints, the results of
                                      FNS management evaluations of state and local agencies, which can
                                      address various fraud prevention issues, have not been summarized and
                                      shared among FNS regions. In addition, resource constraints are adversely
                                      affecting the agency’s ability to implement the electronic benefits transfer
                                      (EBT) system, according to FNS officials.21 The use of such a system could

                                      21
                                        EBT is a system that allows participants to electronically transfer their benefits to a vendor account
                                      to pay for WIC foods.



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              improve efforts to prevent and detect vendor and participant fraud and
              abuse. Finally, in developing and implementing a WIC vendor database, to
              include data on vendor fraud and abuse activities, FNS has been hindered
              by lack of resources. This system was developed and implemented by FNS
              without additional resources.


              Although FNS regulations require that state agencies authorize an
Conclusions   appropriate number and distribution of vendors in order to ensure that
              participants have adequate access and that state agencies can effectively
              review vendors, they do not provide criteria for making such an
              assessment. If states approve more vendors than they can effectively
              manage, the integrity of the vendor delivery system could be
              compromised, and fraud and abuse may go undetected. Regulations and
              guidance describing more specific considerations to be used in limiting the
              number of vendors participating in the program would assist state
              agencies in this effort. Such considerations could also be used to assist FNS
              in its responsibility to evaluate whether the states are effectively and
              efficiently managing reviews of their vendors. FNS’ June 16, 1999 proposed
              rules would require that state agencies establish criteria to limit the
              number of vendors authorized, but they do not specify the criteria to be
              used. The proposal does not identify criteria FNS would use to assess if
              states authorize more vendors than they can effectively manage.

              State and local WIC agencies vary considerably in the strategies they use to
              prevent and detect program fraud and abuse, which increases the
              complexities involved in managing the program and improving program
              integrity. Given these conditions, reliable data on detected participant
              fraud and abuse—who is committing the fraud and how often, what types
              of fraud are being committed, and how much program funding is lost—are
              important in evaluating the effectiveness of agency efforts aimed at
              preventing and detecting participant fraud and abuse. FNS does not require
              state and local WIC agencies to report information on participant fraud and
              abuse. While there would be costs associated with collecting such
              information, the absence of these data hinders FNS’ and state agencies’
              ability to manage the program, including identifying the changes needed to
              improving program integrity. Furthermore, it is possible that not collecting
              such information may send a message to some agency officials that
              preventing and detecting participant fraud and abuse is a low priority and
              thus damage the public’s trust in the program.




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                         Finally, regarding employee fraud and abuse, neither FNS’ regulations nor
                         policies address conflicts of interest that develop when an employee is
                         responsible for both certifying eligibility and issuing benefits or when an
                         employee is also a WIC participant. Internal controls in these areas are
                         necessary to minimize employee fraud and abuse and to emphasize
                         program integrity.


                         To enhance USDA’s ability to improve program integrity and encourage
Recommendations          better efforts to prevent and detect fraud and abuse by state and local WIC
                         agencies, we recommend that the Secretary of Agriculture direct the
                         Administrator of the Food and Nutrition Service to take the following
                         actions:

                     •   Amend the regulations on vendor management to ensure that the states
                         limit their authorized vendors to a number they can effectively manage
                         and issue guidance to the states on the specific criteria FNS will use to
                         assess their compliance with the regulations and the actions they would
                         need to take if FNS determines that they have authorized more vendors
                         than they can effectively manage;
                     •   Work with the state WIC agencies and the National Association of WIC
                         Directors to develop and implement cost-effective strategies for the states
                         to use in collecting and maintaining information on cases of participant
                         fraud and abuse, which would be periodically reported to FNS. Such
                         information should include the nature of the fraud detected and the
                         associated dollar losses; and,
                     •   Require state agencies to have a policy and procedures for addressing
                         potential employee conflicts of interest.


                         We provided the Food and Nutrition Service with copies of a draft of this
Agency Comments          report for review and comment. We met with agency officials, including
and Our Evaluation       the Associate Administrator for FNS and the Associate Deputy
                         Administrator, Special Nutrition Programs. FNS generally agreed with the
                         report’s findings and recommendations. However, the officials raised some
                         questions about the specific steps that would be necessary to implement
                         two of our proposed recommendations. Concerning the recommendation
                         that FNS strengthen its vendor management regulations, FNS officials
                         commented that the intent of the recommendation could be achieved
                         through a combination of regulatory change and the issuance of program
                         guidance to the states. We agreed and revised our recommendation
                         accordingly. With respect to the recommendation that FNS determine the



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costs and benefits of developing a national database of information on
participant fraud, FNS officials commented that by working with state WIC
agencies and the National Association of WIC Directors they could develop
cost-effective strategies to collect and maintain data on participant fraud
and abuse at the state and national levels without carrying out, what they
believed would be, a lengthy and costly formal cost-benefit study. It was
not our intent that the agency carry out a lengthy cost-benefit study. We
revised our recommendation to have FNS work with the states to
implement cost-effective strategies.

The agency officials also stated that they believed the information
contained in the report would help to highlight the fundamental
responsibility that state and local WIC agencies have in preventing and
detecting fraud and abuse on a day-to-day basis.




Page 53                                     GAO/RCED-99-224 WIC Fraud and Abuse
Appendix I

Methodology and Analysis Used in the Mail
Survey

              In developing the questionnaires for our mail survey, we conducted
              pretests of our state survey at five state WIC agencies managing the Special
              Supplemental Program for Women, Infants and Children (WIC) and one
              Indian tribal organization, and of our local survey with directors of local
              WIC agencies in five states and the District of Columbia. GAO staff visited
              local WIC agencies to conduct each pretest consisted of a visit to a local WIC
              agency by GAO staff. During these visits, we attempted to simulate the
              actual survey experience by asking agency directors and staff to fill out the
              survey. We interviewed the director and staff to ensure that (1) the
              questions were readable and clear, (2) the terms were precise, (3) the
              survey did not place an undue burden on local agency directors, and
              (4) the survey appeared to be independent and unbiased in its point of
              view. We also obtained a review of our surveys from managers at FNS.

              In order to maximize the response to our surveys, we mailed a
              pre-notification letter to all of the agencies in the survey about 1 week
              before we mailed the survey. We also sent a reminder letter to
              nonrespondents about 4 weeks after the initial mailing survey and a
              replacement survey for those who had not responded after about 8 weeks.
              After reviewing all of the survey responses, we contacted agencies by
              telephone to clarify answers for selected questions.

              For local agencies, since we used a sample (called a probability sample) of
              500 of the 1,846 local WIC agencies to develop our estimates—each
              estimate has a measurable precision, or sampling error, which may be
              expressed as a plus/minus figure. A sampling error indicates how closely
              we can reproduce from a sample the results that we would obtain if we
              were to take a complete count of the universe using the same
              measurement methods. By adding the sampling error to and subtracting it
              from the estimate, we can develop upper and lower bounds for each
              estimate. This range is called a confidence interval. Sampling errors and
              confidence intervals are stated at a certain confidence level—in this case,
              95 percent. For example, a confidence interval at the 95-percent
              confidence level means that in 95 out of 100 instances, the sampling
              procedure we used would produce a confidence interval containing the
              universe value we are estimating. Table I.1 lists the sampling errors and
              confidence intervals for selected information about fraud and abuse
              categories from the local agency survey.




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                                               Methodology and Analysis Used in the Mail
                                               Survey




Table I.1: Sampling Errors and Confidence Intervals of Estimates of Fraud and Abuse From Information in the Local
Agency Surveys
                                                                                        Sampling      Confidence interval
                                                                                  Estimate         error        From             To
Chapter 2
Participants reported as committing fraud in one or more of seven serious
categories represented as a percentage of the average monthly
participation in fiscal year 1998a (page 23)                                         0.141%        0.067        0.074%        0.208%
Number of participants reported as committing fraud in one or more of
seven categories of serious fraud (page 23)                                          7,074         3,231        3,843        10,305
Number of participants reported as receiving multiple benefits – dual
participation (page 29)                                                              3,566         2,494        1,072         6,060
Number of participants reported exchanging vouchers for nonapproved or
nonfood items (page 29)                                                              2,049         1,888          161         3,937
Number of participants reported as misrepresenting their income (page 29)              886           420          466         1,306
Number of participants reported as misrepresenting facts affecting
eligibility, other than income (page 29)                                               561           433          128           994
Number of participants reported exchanging vouchers for cash (page 29)                 233           120          113           353
Number of participants reported giving away vouchers or food (page 29)                 218           163           55           381
Number of participants reported claiming phantom or nonexistent
dependents (page 29)                                                                   122           112           10           234
Participants reported as committing fraud in one or more of three less
serious categories represented as a percentage of the average monthly
participation in fiscal year 1998a (page 23)                                         1.643%       0.7644       0.8786%       2.4074%
Number of participants reported as committing fraud in one or more of three
categories of less serious fraud (page 23)                                          79,271        36,840       42,431       116,111
Number of participants reported redeeming food vouchers outside the
authorized dates on the vouchers (page 33)                                          59,810        26,965       32,845        86,775
Number of participants reported selecting incorrect brands or quantities of
food (page 33)                                                                      25,209        25,074          135        50,283
Number of participants reported as being verbally abusive to WIC vendors
and/or WIC employees (page 33)                                                       8,625         4,283        4,342        12,908
Number of participants reported as committing other types of fraud or
abuse (page 34)                                                                      2,902         1,644        1,258         4,546
Number of employees who work in the WIC program who were suspected
of fraud or abuse (page 35)                                                                78         14           64            92
Number of employees who work in the WIC program who actually
committed fraud or abuse (page 35)                                                         48         21           27            69
Chapter 3
Number of participants reported as receiving an oral warning or counseling
about program rules for serious violations (page 45)                                 5,121         3,125        1,996         8,246
Number of participants reported as receiving a written letter of warning for
serious violations
(page 45)                                                                            2,282         1,726          556         4,008
                                                                                                                         (continued)



                                               Page 55                                          GAO/RCED-99-224 WIC Fraud and Abuse
                                               Appendix I
                                               Methodology and Analysis Used in the Mail
                                               Survey




                                                                                                      Sampling          Confidence interval
                                                                                      Estimate           error              From                  To
Number of participants reported as receiving a suspension or temporary
disqualification from WIC for serious violations (page 45)                                 1,787           1,455              332            3,242
Number of participants reported as receiving some other sanction for
serious violations (page 45)                                                                 428             310              118                 738
Number of participants reported as receiving no sanction for serious
violations (page 45)                                                                          33               28                5                61
Number of participants reported as receiving an oral warning or counseling
about program rules for less serious violations (page 45)                                57,547           32,673           24,874           90,220
Number of participants reported as receiving a written letter of warning for
less serious violations (page 45)                                                        19,379            5,827           13,552           25,206
Number of participants reported as receiving a suspension or temporary
disqualification from WIC for less serious violations (page 45)                              336             298                38                634
Number of participants reported as receiving some other sanction for less
serious violations (page 45)                                                                 694             601                93            1295
Number of participants reported as receiving no sanction for less serious
                                                                                                 b                b               b                 b
violations (page 45)

                                               a
                                                The sampling error may be too low because of high variability in the numerator of the estimated
                                               percentages.
                                               b
                                                We were unable to develop a reliable estimate.




                                               Page 56                                                 GAO/RCED-99-224 WIC Fraud and Abuse
Appendix II

GAO Contacts and Staff Acknowledgments


                  Lawrence J. Dyckman, (202) 512-5138
GAO Contacts      Thomas E. Slomba, (202) 512-9910


                  In addition to those named above, Carolyn M. Boyce, Clifford J. Diehl, D.
Acknowledgments   Patrick Dunphy, Judy K. Hoovler, Barbara L. Scharl, and Carol Herrnstadt
                  Shulman, made key contributions to this report.




(150290)          Page 57                                  GAO/RCED-99-224 WIC Fraud and Abuse
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