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July
11, 2006
FOOD STAMP ERROR RATES HOLD AT RECORD LOW LEVELS IN 2005
By
Dorothy Rosenbaum
On June 23, the U.S. Department of Agriculture
(USDA) released state and national food stamp error rates for federal fiscal
year 2005 calculated through the food stamp quality control (QC) system. The
national overpayment error rate — the percentage of food stamp benefit dollars
issued in excess of the amounts for which households are eligible — remained at
record low levels of 4.5 percent for the second consecutive year. The
overpayment error rate has dropped by more than forty percent from the 1998
overpayment rate. The underpayment error rate fell for the seventh consecutive
year to the lowest level on record, 1.31 percent. The combined payment error
rate, which is calculated by summing (rather than netting) the overpayment and
underpayment error rates, improved slightly over last year’s record low of 5.88
percent, to set a new all-time low of 5.84 percent.
The U. S. Government Accountability Office
(GAO) statement of last year remains true with this year’s error rate, “[t]he
payment error rate has fallen each year since 1999. This decline in the payment
error rate has been widespread.”[1]
This year over 30 states had combined payment error rates that were lower in
2005, or essentially the same as in 2004. Almost two-thirds of the states (31
states plus the Virgin Islands) had combined error rates below 6 percent, a
level that until recently automatically qualified states for enhanced funding
due to exemplary performance. In 2005 no state had a combined payment error
rate above ten percent; in 1998, when the national average was 10.69 percent,
there were almost 30 states with combined payment error rates in double digits.
Most errors are relatively small, and very few
represent fraud. GAO reported that “[a]lmost two-thirds of the payment errors
in the Food Stamp Program are caused by caseworkers, usually when they fail to
act on new information or make mistakes when applying program rules.” The
program’s success in serving the working poor contributes in part to its error
rate: GAO reported that “managing cases with earnings contributes to payment
error in part because caseworkers may find it difficult to keep up with frequent
changes reported to them.”
This year, USDA identified three states that
exceeded the QC threshold level in 2004 and in 2005. Because of the rapid drop
in national error rates, these three states’ error rates are close to or below
the national average of the late 1990s. Nonetheless, USDA determined that it is
highly likely statistically that they exceeded the “threshold” of 105 percent of
the national average. All three of these states will therefore be required to
spend their own money (without the usual federal match) to improve their
administration of the Food Stamp Program — and will have to pay a fiscal
penalty if their error rate for this year does not fall to the threshold
level. In addition, USDA identified five other states as being in “first year
liability status.” These are states where there is strong statistical
likelihood that the state’s 2005 combined payment error rate exceeded the
threshold level. These states will be required to spend unmatched money on
program improvements next year if USDA makes a similar finding based on each
state’s 2006 combined payment error rate.
USDA also released states’ error rates for cases
in which they denied or terminated benefits. (The underpayment error rate
includes only cases where states gave some benefits, but not as much as the
household should have received under food stamp rules. It does not include
actions that completely denied food stamps to eligible low-income
households.) Nationally, in 6.91 percent of the instances in which households
were denied food stamps or terminated from the Program, the action was found to
be in error. USDA did not attempt to calculate the amount of benefits that
these improperly denied households would have received. As a result, this
“negative error rate” is not directly comparable to the overpayment and
underpayment error rates, but is instead a less rigorous measure of whether the
state followed the proper procedures before denying or terminating food
stamps. Nonetheless, improper denials and terminations, like underpayments,
result in significant, if unintended, savings to the Program.
GAO reports that USDA and the states “have taken
many approaches to increasing food stamp payment accuracy, … includ[ing]
practices to improve accountability, perform risk assessments, implement
changes based on such assessments, and monitor program performance.” It found
that these practices were “recognized as being effective in reducing payment
errors.”
Although food stamp error rates have received
little public attention in recent years, they do enter into discussions of the
Program. Sometimes these discussions fall victim to significant mistakes or
mischaracterizations of the food stamp error rates. To understand the error
rates properly, several points should be kept in mind.
What the New Food Stamp Error Rates Show
- The combined error rate does not represent
losses to the government. USDA actually issues three separate payment error
rates: the overpayment error rate, the underpayment error rate, and the
combined payment error rate. The overpayment error rate counts benefits
issued to ineligible households as well as benefits issued to eligible
households in excess of what federal rules provide. The underpayment error
rate measures errors in which eligible, participating households received
fewer benefits than the Program’s rules direct. As GAO notes,
“[u]nderpayments represent unintentional financial savings to the federal
government.” The combined payment error rate is the result of summing (rather
than netting) the overpayment and underpayment error rates.
Thus, for example, a state with a five percent
overpayment error rate and a two percent underpayment error rate would be
reported as having a combined error rate of seven percent. The net loss to the
federal government, however, from the errors in that state’s program (i.e., the
benefits lost through overpayments minus those saved by underpayments) would be
only three percent.[2]
As noted
above, even this measure overstates the cost of errors to the Program. If it
were possible to quantify the amount of benefits eligible households lost due to
improper denials and terminations, the net loss to the program would be less.
Indeed, it is possible that the combined savings from underpayments and
improper denials is greater than the loss resulting from overpayments of
benefits. The media often pay the most attention to the combined error rate,
presenting it as a reflection of the dimension of excessive federal
expenditures due to errors. This is incorrect since the combined error rate
includes underpayments that save the Program money.
- The decrease in error rates has been
widespread. In 2005, 15 states achieved their lowest combined payment error
rates on record. Some 48 states had lower error rates in 2005 than they did
in 1998 (a year when error rates rose due in part to the complexity of
implementing changes from the 1996 welfare law). In 1998, only seven states
achieved combined payment error rates below 6 percent, which is the level
Congress historically has designated as representing exemplary
administration. In 2005, almost two-thirds of the states (32 states) had
combined payment error rates below 6 percent.
- The largest states have seen the biggest drop
in error rates. The decline in the national average error rates has been
largely driven by declines in error rates for the states with the largest food
stamp issuances. Of the ten states with the largest food stamp issuance, five
states have cut their error rate by about 60 percent, and two states have cut
their error rate by about 40 percent, over the last several years. Two of the
largest states, Texas and Louisiana, have had error rates among the nation’s
lowest for a decade.
- The Food Stamp Program is requiring states to
achieve much lower error rates than in past years. Because error rates have
fallen so much in recent years the performance standard for states has gotten
much more stringent. All of the states USDA identified this year as
potentially subject to sanction next year had 2005 error rates that are below
recent years’ national averages. GAO found that “if error rates continue to
decrease, this trend will continue to put pressure on states to improve
because penalties are assessed using the state’s error rate as compared with
the national average.”
- The dollar amount of most errors is quite
small. A USDA study found that the overwhelming majority of food stamp
overpayments go to eligible households and leave the recipient households
still well below the poverty line. It found, in 2003, that less than two
percent of recipient households were completely ineligible for food stamps
and that only two percent of food stamp benefits were incorrectly issued to
these ineligible households. In other words, almost 99 percent of food stamps
are issued to eligible households. The study also found that, for two-thirds
of the households receiving overpayments, the extra food stamps improved its
food purchasing power by less than ten percentage points of the federal
poverty line.
- Food stamp error rates compare favorably to
those in other government programs for which data is available. For example,
the Internal Revenue Service estimates a noncompliance rate with federal
personal income taxes of at least sixteen percent in 2001. This represents
about $300 billion lost to the federal government.[3]
The Difference between Overpayments and Fraud
Relatively few of these errors represent
dishonesty or fraud on the part of recipients (e.g., recipients intentionally
lying to eligibility workers to get more food stamps). By its very nature,
fraud is difficult to measure accurately. The overwhelming majority of food
stamp errors, however, appear to result from honest mistakes by recipients,
eligibility workers, data entry clerks, or computer programmers. In recent
years, states have reported that about half of the dollar value of overpayments
and three-quarters of the dollar value of underpayments were their fault. Most
of the rest resulted from innocent errors by households.[4]
The Food Stamp Program has numerous anti-fraud measures in place, including
sophisticated computer “matching” efforts to detect unreported earnings and
assets, extensive requirements that households applying for or seeking to
continue receiving food stamps prove their eligibility, and administrative
and criminal enforcement mechanisms.
It also should be noted that an overpayment is
counted in a state’s error rate whether or not the overpaid benefits are
collected back from households. In fiscal year 2003, states collected over
$200 million in overissued benefits.
In addition, the error rates measure the accuracy
with which benefits are issued, not whether food stamps are redeemed or spent
properly. Evidence from USDA research suggests that a very small fraction of
food stamp benefits are improperly traded for cash, or “trafficked.” USDA found
that over the 1999 to 2002 period only two-and-a-half cents of every dollar
issued in food stamps was trafficked. The amount of benefits trafficked has
fallen by over 50 percent since 1993. Trafficking likely represents an even
smaller proportion of benefits as the use of electronic benefit transfer (EBT) —
or providing food stamps on cards that can be swiped at stores like credit or
debit cards — has expanded to be nationwide. One of the benefits of providing
food stamp benefits through EBT is that it reduces the risks of trafficking by
providing an electronic record of every transaction that is then scrutinized by
sophisticated computers that USDA maintains.
What Factors Contributed to States’ Error Rates
Because the error rate measures how accurately
states determine households’ benefit levels, it is an important measure of how
well a state is managing program accuracy. States with persistently high error
rates often lack management focus or appropriate levels of oversight with
respect to payment accuracy. However, a state may experience an increased error
rate for a number of other reasons that do not necessarily suggest a management
failure.
- State Fiscal Situation. Since the beginning of
the last economic downturn in March 2001, food stamp caseloads nationally have
increased by about 50 percent. Some of the states with the steepest increases
in unemployment have also seen the largest increases in the number of people who
receive food stamps. For example, food stamp caseloads have increased between
2001 and 2005 by 69 percent in South Carolina and 65 percent in Michigan, two
states where the unemployment rate has been among the highest in the country.
This is a strong indication that the Food Stamp Program is working — that it is
responding to increases in need as unemployment rises.
These caseload increases are occurring, however,
at the same time that states are facing limited resources for food stamp
administrative costs. Many are cutting back or freezing the number of
eligibility workers who make food stamp eligibility determinations. (Although
food stamp benefits are 100 percent federally-funded, states provide about half
of the administrative costs for determining eligibility and issuing benefits.)
Tight state budgets also can make it difficult for states to invest in computer
upgrades, staff training, or other administrative activities that could help
them improve their error rates.
The fact that overall caseloads have been
increasing and states have been under budget pressures makes the decline in
error rates in most states over the past few years even more remarkable.
- Increased share of working families receiving
food stamps. Families’ movement from welfare to work also has tended to
increase error rates. Households containing wage-earners historically have
had higher error rates than those that rely solely on public assistance, SSI
or Social Security. This is because many low-wage workers have unpredictable
or fluctuating employment that makes it difficult for states to predict their
earnings into the future. Between 1990 and 2004 the proportion of food stamp
households with children that work rose from a quarter to almost half, while
the share of food stamp families with cash welfare and no earnings fell from
almost 60 percent to 23 percent. The larger numbers of food stamp recipients
that have been able to find work has likely increased both the over- and
under-payment error rates above the levels that would otherwise have
prevailed. The fact that error rates are nonetheless declining means that
improved state management and other factors have likely been in play to help
offset this trend in the composition of food stamp households.
- Changes in law or policy. In the late 1990s,
a significant part of states’ over-payments resulted from states’ difficulties
in implementing complex provisions of the 1996 welfare law, notably the
provision denying food stamp eligibility to the majority of legal
immigrants. On the other hand, changes that the Administration has made in
policy and state options to simplify certain procedures in the delivery of
food stamp benefits that were enacted in the 2002 farm bill — such as
simplified rules regarding what changes in circumstances clients must report
in between visits to the welfare office and options to streamline what counts
toward the income and asset limits — have likely had a significant role in
helping to reduce errors in recent years.
The Recent Changes to the Quality Control System
Prior to the 2002 reauthorization of the Food
Stamp Program, a consensus emerged among states, advocacy groups, USDA, and
other policy makers that the food stamp QC system exerted an inappropriate
influence on state policy. The prior system (which remained in effect through
the 2002 error rates) subjected states with combined payment error rates above
the national average to sanction. This set up half the states to be viewed as
failures each year. As a result of this QC sanction system, states with high or
rising error rates were under strong pressure from USDA to adopt policies that
improve their error rates. State officials, governors, and state legislatures
take these sanctions very seriously. Receiving a fiscal sanction can be
perceived as a serious negative reflection on the state’s performance, even
when the performance may be only modestly worse than average.
Some approaches that states may employ to reduce
overpayments — improved staff training, giving eligibility workers more
manageable caseloads, combating staff turnover, centralized change reporting
functions, simplifying and better explaining households’ reporting obligations,
etc. — also are likely to reduce underpayments and to improve needy families’
access to nutrition assistance. Other approaches, however, such as requiring
working recipients to take time off work more frequently to come into the food
stamp office for interviews, and increasing the amount of documentation a
household must provide to verify their income and other circumstances, can have
the effect of driving eligible families away from food stamps at the very time
they may need these benefits to support their transition from welfare to
work. This may have the effect of reducing states’ error rates by reducing
participation by working poor families (a group with an above average error
rate). Unfortunately, it also undercuts efforts to make work more attractive
than welfare and is likely to cause hardship for the families affected.
As a result of these concerns, the nutrition
title of the 2002 farm bill included a major reform to the food stamp QC
system’s sanction rules. While retaining the program’s strong commitment to
payment accuracy, the new system focuses penalties on the few states with
consistently high error rates. From a management perspective, this revised QC
sanction system provides USDA with a broader range of options for how they
respond to various payment accuracy concerns and how they assist states in
improving their performance. USDA is now better equipped to provide different
interventions for different types of states as opposed to having only the blunt
legal requirement to sanction all states with measured error rates above the
national average each year, regardless of the cause.
States that have chronic, long-term, excessive
payment accuracy problems still are subject to financial penalties and the new
rules actually increase the likelihood that such states pay fiscal penalties.
However, many states experience short-term problems when, for example, they
implement new computer systems, they implement a complex change in policy, or
when their caseloads increase because of a downturn in the economy. In these
states, it is counterproductive to take away resources at the very time that
the state needs more resources to cope with the problem. Under the new system,
states with short-term error rate problems have time to work to correct the
problems before they are faced with a fiscal penalty.
Specifically, under the new rules a state is
subject to fiscal sanction if, with high statistical likelihood, its combined
payment error rate exceeds 105 percent of the national average for two
consecutive years. The new rules took effect for the 2003 error rates, and 11
states were identified as potentially subject to sanction based on that year’s
error rates. Four of the 11 states received sanctions based on 2004 error
rates, but seven reduced their error rates sufficiently to avoid sanction. Only
two of those states (Rhode Island and Idaho) are in sanction status again, based
on 2005 error rates. One state (Ohio) received a sanction based on 2004 and
2005 error rates, and five states were put on warning that they could receive a
sanction based on 2006 error rates if they do not improve their performance
sufficiently. If the old rules had been in effect for 2005 error rates, 24
states would have received fiscal sanctions, including states with combined
payment error rates as low as 5.9 percent — a level that for many years would
have entitled states to bonuses for excellent administration. The fact that
error rates have dropped dramatically since 2002 demonstrates that states
continue to take the food stamp QC system seriously and have made significant
efforts to improve their performance.
This reform of the QC sanction system should
lessen the pressure that states feel to adopt policies that impede access to the
Food Stamp Program. Indeed, USDA has recently released a study that finds that
food stamp participation rates among those eligible for the Program rose from 56
percent in 2003 to 61 percent in 2004. The QC system nonetheless remains the
most sophisticated system for measuring payment accuracy in any major federal
public benefit program and continues to be a critical tool for measuring and
monitoring states’ stewardship of federal food stamp funds.
The new QC system also includes new performance
bonuses that reward exemplary achievements in payment accuracy and service to
eligible households. Specifically, in addition to awarding bonus funds to
states that achieve low or improved error rates, USDA also now rewards states
with high or improved rates of serving eligible households and in doing so in a
timely manner.
End Notes:
[1] U.S. Government Accountability
Office, Food Stamp Program: States Have Made Progress Reducing Payment Errors,
and Further Challenges Remain, GAO-05-245, May 2005.
[2] To be sure, these savings are not
sought or desired by either federal or state agencies. But in calculating the
net cost to the federal government of errors, or the difference between the
actual cost of the Program and what it would cost in the absence of errors, the
value of benefits not provided due to underpayments must be subtracted.
[3] Internal Revenue Service, IRS
Updates Tax Gap Estimates (IR-2006-28, February 14, 2006), available at:
http://www.irs.gov/newsroom/article/0,,id=154496,00.html.
[4] In fiscal
year 2003, over 90 percent of the value of all overpayments states established
were classified as non-fraud. Some of these were innocent errors by households;
others were mistakes the states themselves made. The GAO report found that only
about 5% of all errors were referred for suspected participant fraud
investigation. |
