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UNITED STATES DEPARTMENT OF AGRICULTURE
10.551 FOOD STAMP PROGRAM
of the Food Stamp Program is to help low-income households buy the
food they need for good health.
of Food Stamp Program procedures incorporates provisions of the
Personal Responsibility and Work Opportunity Reconciliation Act
of 1996 (Welfare Reform, P.L. 104-193, August 22, 1996). However,
regulatory citations and form descriptions may be revised without
any change in the policies described herein as the result of new
regulations covering these legislative changes and regulatory streamlining
that is currently underway in the Food Stamp Program. Food Stamp
Program regulations are found in 7 CFR parts 271 through 285.
The U.S. Department
of Agriculture (USDA), Food and Consumer Service (FCS) administers
the Food Stamp Program in cooperation with State and local governments.
agencies (or county welfare agencies under the oversight of the
State government) certify eligibility and provide benefits to households.
FCS authorizes, monitors and investigates stores that redeem benefits,
provides funding for State administration and benefits, and oversees
the operation of State welfare agencies to ensure compliance with
Federal law and regulations.
Funding of Benefits and State Administrative Costs
Government pays 100 percent of the value of Food Stamp Program benefits
and generally reimburses States for 50 percent of their costs to
administer the program (7 CFR section 277.4(b)), except for those
functions listed in Part III G., Matching. The Food Stamp Program
is an open-ended entitlement program. Therefore, its authorizing
statute places no cap on the amount of funds available to reimburse
States for allowable administrative expenses. No reimbursement is
allowed for State expenditures for activities undertaken as a condition
of settlement of quality control claims against the State for low
for food stamps is based primarily on income and resources. Although
welfare reform increases State design options that can affect benefits
for recipients, a key feature of the Program is its status as an
entitlement program with standardized eligibility and benefits.
generally cannot exceed a gross income eligibility standard set
at 130 percent of the Federal poverty standard (7 CFR section 273.9(a)(3)(i)).
Households also cannot exceed a net income standard which is set
at 100 percent of the Federal poverty standard (7 CFR section 273.9(a)(3)(ii)).
The net income standard allows specified deductions from gross income,
e.g., a standard deduction and deductions for medical expenses (elderly
and disabled only), excess shelter costs, and work expenses. Non-financial
eligibility criteria, only some of which affect benefit amounts,
include: age, school status, citizenship, residency, household composition,
work requirements, and disability status.
process includes completing and filing an application form, being
interviewed and having certain information verified. In addition
to using information supplied by the recipients, welfare agencies
use data from other agencies, such as the Social Security Administration,
the Internal Revenue Service and the State employment security agency,
to verify the household's identity and income.
vary with household size and income. As required by law, allotments
for various household sizes are revised October 1 of each year to
reflect the cost of the Thrifty Food Plan, a model plan for a low-cost
nutritious diet that is developed and costed by USDA. The maximum
monthly Food Stamp Program benefit for fiscal year 1997 for a household
of four is $400. Most households generally receive less that the
maximum because maximum benefits are reduced by 30 percent of net
income. During June 1996, 25 million persons received monthly food
stamp benefits that totaled $1.8 billion.
each household receives are redeemed for food in participating retail
stores. Historically, the benefit form has been a paper coupon issued
in denominations of $1, $5 and $10. However, States are in the process
of transferring to electronic benefit transfer (EBT) systems, whereby
recipients receive a magnetic strip card which they can use to purchase
food at retailers. Welfare reform legislation requires all States
to use EBT by 2002. In September 1996, about 15 percent of aggregate
benefits were delivered by EBT, and all States were in some stage
of planning or implementing EBT systems. In a limited number of
situations, recipients may receive their benefits in cash.
households must use program benefits for foods to be prepared and
consumed at home. There are, however, some exceptions to this general
policy. For example, there are provisions for the homeless to redeem
food stamps in authorized restaurants and for residents of some
small institutional settings to participate in the program. Retailers
redeem the food stamps through the banking system without the direct
involvement of State governments. However, EBT increases State involvement
in the redemption process because States must reconcile the benefits
they issue to redemptions by retailers and to the amounts the banks
pay the retailers.
A State administering the Food Stamp Program must sign a Federal/State Agreement that commits it to observe applicable laws and regulations in carrying out the program (7 CFR section 272.2(b)). Although the welfare reform legislation provided additional administrative flexibility, the Food Stamp Act remains highly prescriptive. Both the law and regulations prescribe detailed requirements for: (1) meeting program goals, such as providing timely service and rights to appeal; and, (2) ensuring program integrity, such as verifying eligibility, safeguarding coupon inventories, establishing and collecting claims for benefit overpayments, and prosecuting fraud.
To ensure that
States operate in compliance with the law, program regulations,
and their own Plan of Operations, each State is required to have
a system for monitoring and improving its administration of the
Food Stamp Program (7 CFR section 275.1(a)), particularly the accuracy
of eligibility and benefit determinations. This performance monitoring
system includes management reviews, reviews of quality control systems,
and reporting to FCS on program performance. State agencies shall
conduct a review once every year for large project areas, once every
two years for medium project areas, and once every three years for
small project areas, unless an alternative schedule is approved
by FCS. Projects are classified as large, medium, or small based
on State determinations. The State must also ensure corrective action
in response to the detection of program deficiencies (7 CFR sections
275.2, 275.5, and 275.16-19).
Oversight and Compliance Mechanisms
State operations through an organization consisting of headquarters,
seven regional offices, and about 60 field offices.
oversight includes budget review and approval, reviews of financial
and program reports and State management review reports, and on-site
FCS reviews. Each year FCS headquarters conveys to its regions the
concerns that were elevated to the national level through audits
or other mechanisms. Regions combine this with their knowledge of
individual States to inform the States of possible vulnerabilities
to include in their internal management reviews and corrective action
uses technical assistance extensively to promote improvements in
State operation of the Program, enforcement mechanisms are also
available. In addition to the financial rewards and penalties related
to payment accuracy, FCS has other mechanisms to recover other losses
and the cost of negligence (7 CFR sections 276.2 and 276.3). For
other forms of noncompliance, FCS has the authority to give notice
and, if improvements do not occur, withhold administrative funds
for failure to implement program requirements (7 CFR section 276.4).
Quality Control System
The Food Stamp
Program maintains an extensive quality control system required by
law and regulation (7 CFR sections 275.10-14). The system provides
State and national measures of the accuracy of eligibility and benefit
amount determination (often referred to as payment accuracy), both
underpayment and overpayment, and of the correctness of decisions
to deny benefits.
required to select a statistically valid sample of cases and to
review the cases for eligibility and benefit amount. Review methods
in this sample are generally more intensive than those used in eligibility.
States submit findings of all sampled cases, including incomplete
and not-subject-to-review cases, to an automated database maintained
by the Federal Government. State quality control data allow a State
to be aware on an ongoing basis of its level of accuracy, and allow
for the identification of trends and appropriate corrective action.
FCS regional office reviews each State's sampling plan annually
and re-reviews a subsample of the State quality control reviews.
The FCS re-review process provides feedback to each State on its
quality control system. FCS uses the State's sample and the FCS
subsample in a regression formula (described in regulation) to determine
payment error rates. By law, the error rate is the combined value
of overpayments and under payments to participating households.
FCS headquarters also reviews its regional operations and provides
technical assistance to assure consistency in the national quality
error rates below 6 percent are rewarded with enhanced rates of
administrative funding, up to an extra 10 percent for States that
have an error rate below 5 percent (7 CFR section 277.4(b)(2)).
States with error rates in excess of the national average are subject
to penalties that are based on the amount of benefits issued in
error. Those States pay a portion of the value of benefits in excess
of the national average based on a sliding scale that increases
as the State's error rate exceeds the national average (7 USC 2025(c)(1)(A)
and 2025 (c)(1)(C)).
States do not pay the full amount of potential penalties. In January
1993, FCS settled a backlog of claims with States for the period
1986 through 1991 (governed by earlier penalty legislation that
was replaced in 1993) at a reduced rate and allowed the States to
reinvest the funds in the Program as unmatched dollars rather than
pay the Federal Government directly. Claims since then cannot be
pursued until the 1993 legislative changes are implemented through
regulations. However, several States have settled potential claims
for recent periods, using similar reinvestment methods rather than
direct repayment to the Federal Government.
There is a
specific legislative requirement for corrective action by any State
with an error rate above 6 percent (7 USC 2025 (c)(1)(B)). FCS maintains
an extensive system of technical assistance for States as they develop
and implement corrective action. FCS also monitors the implementation
of corrective action plans.
Error Rates, Enhanced Funding, and Penalties
year 1995, the combined national error rate was 9.7 percent. The
overpayment error rate was 7.3 percent; the underpayment error rate
was 2.4 percent. State error rates ranged from 3.8 percent to 16.4
percent; nine States face potential liabilities totaling $73 million
as the result of high error rates for Fiscal Year 1995. Error rates
are updated annually.
of Quality Control for the Compliance Supplement
The Food Stamp
Program Quality Control system uses an intensive State review of
more than 50,000 active cases across the United States to measure
the accuracy of Food Stamp Program eligibility determinations and
benefit amounts. An FCS re-review of more than 18,000 of those cases
follows. These samples are statistically valid at the State and
national level. Information from Federal program oversight indicates
that this sampling system is operating adequately to provide assurances
that FCS is measuring the accuracy of eligibility decisions and
that these data provide a basis for corrective action to improve
the accuracy of eligibility decisions. Therefore, the Quality Control
System sufficiently tests individual eligibility in the Food Stamp
those situations where computer systems are integral to the operation
of the program, e.g., automated eligibility determination, the auditor
should perform necessary tests as to obtain assurance of the integrity
of these systems. In those instance where multiple programs share
the same systems, e.g., automated intake systems for AFDC, Food
Stamps, Medicaid, etc., testing may be done as part of the work
on multiple programs.
developing the audit procedures to test compliance with the requirements
for a Federal program, the auditor should first look to Part 2,
Matrix of Compliance Requirements, to identify which of the 14 types
of compliance requirements described in Part 3 are applicable and
then look to Parts 3 and 4 for the details of the requirements.
"E. Eligibility," "G. Matching," "I. Procurement," and "N. Special
Tests and Provisions" only apply to State governments. However,
when States have delegated to the local governments functions normally
performed by the State as administering agency, e.g., eligibility
determination, automated data processing (ADP) systems, and issuance
of food stamps, the related compliance requirements will apply to
the local government.
Eligibility for Individuals
The auditor is not required to test eligibility because detail testing of the individual casefiles is performed by the quality control unit and reviewed by FCS and the automated system supporting eligibility determinations and processing and tracking food stamp issuances is tested under III.N.1, ADP System for Food Stamps.
Eligibility for Group of Individuals or Area of Service Delivery
- Not Applicable
Eligibility for Subrecipients - Not Applicable
Matching, Level of Effort, Earmarking
The State is
required to pay 50 percent of the costs of administering the program.
Exceptions to the 50 percent reimbursement rates are: (a) 100 percent
grants to administer the Employment and Training Program (7 CFR
section 277.4(b)(9)); and (b) an increased reimbursement rate for
States with high benefit payment accuracy rates (7 CFR section 277.4(b)(2))
-- generally about eight States receive this money). The Food Stamp
Program is a cost reimbursement program and private in-kind contributions
are not allowable.
In order to
satisfy quality control sanctions, States may negotiate a reinvestment
plan whereby they agree to spend 100 percent of State funds on certain
FCS-approved initiatives. The cost associated with these plans must
be reasonable, necessary, and properly allocated to the Food Stamp
Program. These costs may not be claimed for 50 percent Federal reimbursement
(7 CFR section 275.23(e)(10)(I)(C)).
Level of Effort - Maintenance of Effort - Not
Level of Effort - Supplement Not Supplant - Not
Earmarking - Not Applicable
Procurement and Suspension and Debarment
Development - For competitive acquisitions of ADP equipment
and services costing $5 million or more (combined Federal and State
shares), the State must submit an Advanced Planning Document (APD)
for the costs to be approved and allowable as charges to FCS. This
threshold is for the total project cost. In addition, noncompetitive
acquisitions of $1 million or more require an APD. Contracts resulting
from noncompetitive procurements of more than $1 million also must
be provided to FCS for review (7 CFR section 277.18).
Financial Status Report - Applicable
b SF-270, Request
for Advance or Reimbursement - Applicable
Outlay Report and Request for Reimbursement for Construction
Program - Not Applicable
Federal Cash Transaction Report - Not Applicable
Performance Reporting - Not Applicable
3. Special Reporting
Note: The requirement
for State agencies to automate their food stamp program includes
automation of reporting requirements (7 CFR section 272.10(b)(2)(vi).
The testing to ensure accuracy and completeness of the following
reports should be coordinated with the testing of the ADP System
for Food Stamps (see III.N.1).
a. FCS-46 -
Food Stamp Program Issuance Reconciliation Report (OMB No. 0584-0080).
This monthly report is used to account for benefits issued during
a report month for each issuance reporting point. The FCS-46 reports
the reconciliation of food stamp benefits actually issued with the
State's (or county's in county-run operations) Master Issuance File.
The Master Issuance File contains records on all households eligible
to receive benefits (such as a listing of the households and the
benefits each is authorized to receive). Actual issuances may be
recorded in the Record for Issuance (RFI) or alternative filing
system. The RFI is created from the Master Issuance File and shows
the amount of benefits the household is eligible to receive and
the actual amount issued. Generally, one FCS-46 covers the entire
State. However, a State may submit a separate FCS-46 for each type
of issuance system (Authorization to Participate (ATP), mail issuance,
EBT, or cash-out).
Items - The following line item contain critical information.
1. Line 6 -
Total Issuance this month
2. Line 7 -
Returns during current month
3. Line 9 -
Value of authorized replacements(s) transacted
- Status of Claims Against Households (OMB No. 0584-0069).
If a household receives more food stamp benefits than it is entitled
to receive, the State must establish a claim against that household
and demand repayment (7 CFR section 273.18 (a)). The State is required
to create and maintain a system of records for monitoring these
claims against households (7 CFR section 273.18 (l)). States use
a variety of manual and computer systems as the source for the line
items on the FCS-209. At a minimum, a system must be able to produce
a detailed listing of cases that reconciles to the beginning and
ending balances on the FCS-209. The State is required to remit the
collected repayments to FCS as follows: 65 percent of the recovered
funds from claims involving fraud or other intentional program violations;
80 percent of the recovered funds from claims involving inadvertent
household errors; and 100 percent of the recovered funds from agency-error
overpayments (7 CFR section 273.18 (h)(3)).
The State agency completes the FCS-209 on a quarterly basis to detail the State's activities relating to claims against households. The form is due no later than 45 days after the end of each calendar quarter and is submitted to FCS even if the State agency has not collected any payments (7 CFR section 273.18(I)(2)).
Items - The following line items contain critical information.
1. Line 3a
Beginning Balance, and 13 Ending Balance - represent
the beginning and ending balances, respectively, of the claims.
Columns A, B, and C represent the number and amount of claims by
claim type (i.e., intentional program violation, inadvertent household
error, and State agency administrative error). The aggregate value
of claims activity from the subunits should equal the State totals.
The beginning and ending balances should represent the total of
individual claims that comprise these balances.
2. Line 14
Cash, Check, and M.O. - represents total claims payments
made in the form of cash, checks, or money orders.
3. Line 15
Food Stamps - represents all payments in the form of food
4. Line 16
Recoupment - represents the value of collections made through
5. Line 17
Offset - represents the total value of collections made
by offsetting restored benefits against outstanding claim balances.
6. Line 18b
Cash Adj.(+ or -) - represents amendments or corrections
to the collection summary of a previous report.
7. Line 18c
Non-Cash Adj. (+ or -) - represents amendments or corrections
to the collection summary of a previous report relative to the return
of food stamps, recoupment, or offsetting transactions.
8. Line 19
Transfers (+ or -) - represents the claims that were contained
in the collection summary of a previous report and which are being
transferred from one claim category to another claim category.
9. Line 20a
Cash Refunds - represents the value of cash refunds provided
to households that overpaid claims.
10. Line 20b
Non-Cash Refunds - represents the value of non-cash refunds
provided to households that overpaid claims.
11. Lines 21
Total, and 28 Total Letter of Credit Adjustments
- represent the Total Collection Summary and the Total Letter of
Credit Adjustments. The aggregate value of claims collection activity
from the subunits should equal the State totals.
- Food Coupon Accountability Report (OMB No. 0584-0009) .
Monthly, State Agencies must submit an FCS-250 to FCS reporting
monthly food stamp coupon issuance and inventory by an individual
or consolidated site. The FCS-250, or equivalent information, is
provided by each coupon issuer and bulk storage point that distributes
food stamps. The reports are to be submitted within 45 calendar
days after the last day of coupon issuance each month, and should
reach the FCS by the 15th day of the second month following the
last day of coupon issuance for the month (7 CFR section 274.4(b)(1)).
Verification of FCS-250 information will likely require test work
at individual coupon issuers or bulk storage points.
Items - The following line items contain critical information.
1. Line 14
Total Available - represents the total number of food coupons
that were available for the month. (Testing this line will require
verifying lines 8-13.)
2. Line 15
Ending Inventory - represents the total number of food
coupons that were on hand at the end of the month.
3. Line 16
Inventory Difference - represents the monthly issuance
activity for coupon issuers and an unauthorized shortage in inventory
for bulk storage locations.
4. Line 19
Total Value of Coupon Books Issued - represents the total
value of coupons issued during the month based on the physical inventory.
5. Line 22
Total Value of Coupons Issued Based on Documents - represents
the total value of coupons issued according to records.
Special Tests and Provisions
ADP System for Food Stamps
III.E.1, Eligibility for Individuals, for why the testing of the
ADP system for food stamps is under this special test and provision
instead of under eligibility and Part 3, E.1.a (suggested audit
procedures for eligibility for individuals relating to automated
systems) for other guidance in this Supplement concerning testing
Requirement - State agencies are required to automate their
food stamp program operations and computerize their systems for
obtaining, maintaining, utilizing, and transmitting information
concerning the food stamp program (7 CFR section 272.10 and 277.18).
This includes: (1) processing and storing all casefile information
necessary for eligibility determination and benefit calculation,
identifying specific elements that affect eligibility, and notifying
the certification unit of cases requiring notices of case disposition,
adverse action and mass change, and expiration; (2) providing an
automatic cutoff of participation for households which have not
been recertified at the end of their certification period by reapplying
and being determined eligible for a new period (7 CFR sections 272.10(b)(1)(iii)
and 273.10(f) and (g)); and, (3) generating data necessary to meet
Federal issuance and reconciliation reporting requirements.
Objective - Determine whether the State administering agency's
ADP system for food stamps is meeting the requirements to: (1) accurately
and completely process and store all casefile information for eligibility
determination and benefit calculation; (2) automatically cut off
households at the end of their certification period unless recertified;
and, (3) provide data necessary to meet Federal issuance and reconciliation
of the diversity of ADP systems, both hardware and software, it
is not practical for the Compliance Supplement to provide suggested
audit procedures to address each system. However, the auditor should
test the ADP system to ascertain if the system:
and completely processes and stores all casefile information for
eligibility determination and benefit calculation.
cuts off households from food stamps at the end of their certification
period unless the household is recertified.
(3) Provides data necessary to meet Federal issuance and reconciliation reporting requirements. Note: This testing should be coordinated with the testing of Special Reporting (see III.L.1).
Requirement - States that use Electronic Benefit Transfer
(EBT) must have systems in place to reconcile all of the funds entering
into, exiting from, and remaining in the system each day. This includes
a reconciliation of the State's issuance files of postings to recipient
accounts with the EBT contractor. States (generally through the
EBT contractor that operates the EBT system) must also have systems
in place to reconcile retailer credit activity as reported through
the banking system to client transactions maintained by the processor
and to the funds drawdown from the Federal Reserve Bank (FRB). States
should maintain audit trails that document the cycle of client transactions
from posting to point-of-sale transactions at retailers through
settlement of retailer credits. The financial and management data
that comes from the EBT processor is reconciled by the State to
the FSP issuance files and settlement data to ensure that benefits
are authorized by the State and that funds have been properly drawn
down. States may only draw Federal funds for authorized transactions,
i.e., supported by entry of a valid personal identification number
(PIN) (7 CFR 274.12(j)(1)).
Objective - Determine whether the State reconciles retailer
activity to client transactions and to drawdown activity from the
a. Verify that
the State has a system in place to reconcile total funds entering
into, exiting from, and remaining in the system each day.
b. Select and
test a sample of reconciliation(s) to verify that discrepancies
are followed up and resolved. This is generally a contractor duty.
c. Verify that
the State has a system in place to reconcile retailer credits against
the information entered into the Automated Clearinghouse network
and to the amount of funds drawn down by State or the State's fiscal
agent (the EBT contractor).
if the State or its contractor have recorded any non-Federal liabilities
in the daily EBT reconciliation, i.e., transactions which cannot
be charged to the program. If so, verify that the non-Federal liabilities
were funded by non-Federal sources (i.e., the State or the contractor).
Issuance Document Security
Requirement - The State is required to maintain adequate
security over, and documentation/records for, Authorization to Participate
(ATP) cards, other documents authorizing issuance, EBT cards (7
CFR section 274.12(h)(3)), and the food stamp coupons themselves
to prevent: coupon theft, embezzlement, loss, damage, destruction;
unauthorized transfer, negotiation, or use of coupons; and alteration
or counterfeiting of coupons and other documents authorizing issuance
(7 CFR sections 274.7(b) and 274.11(c)).
Objective - Determine whether the State maintains security
over instruments used to authorize issuance of food stamp benefits.
the physical security over food stamps, ATP cards, EBT cards, and/or
other negotiable instruments used in the issuance process.
b. Verify that
food stamp coupons, ATP cards, and EBT cards returned from the Postal
Service are returned to inventory or destroyed.
Requirement - Each coupon issuer and bulk storage point
that distributes food stamps is required to prepare a Food Coupon
Accountability Report (FCS-250) to report monthly coupon issuance
and inventory (7 CFR section 274.4(b)). Each State agency must assure
that day-to-day operations of all coupon issuers comply with regulations
by performing a triennial on-site review, including physical inventory,
of each coupon issuer and bulk storage site under its direction
(7 CFR section 274.1(c)).
Objective - Determine whether the State agency has conducted
required triennial on-site reviews, including physical inventories,
at coupon issuers and bulk storage points.
inquiry or inspection of records that the State agency conducts
the required triennial reviews of coupon issuers and bulk storage
points to ensure physical inventories are appropriate, inventories
are made as required, and differences between recorded and actual
inventories are reconciled.
Food Coupon Inventory Levels
Requirement - State agencies must monitor the coupon inventories
of coupon issuers and bulk storage points to ensure that inventories
are neither excessive nor insufficient to meet the issuance needs
and requirements. Inventory levels are not to exceed a "six-month
supply," taking into account coupons on hand and on order (7 CFR
section 274.7(a)(1)). State agencies must review the FCS-250 and
other reports including shipping and transfers, returned and/or
replaced mail-issuances, improperly manufactured or mutilated coupons,
and reports of shortage or overage of food coupon books to ensure
the accuracy of monthly inventories, compliance with required inventory
levels, and accuracy and reasonableness of coupon orders.
Objective - Determine whether food stamp coupon levels
are neither excessive nor insufficient to meet the issuer's requirements.
the State agencies determine that inventory levels at coupon issuers
and bulk storage points are neither excessive nor insufficient to
meet the issuance needs and requirements, and that inventory levels
do not exceed a six-month supply, taking into account coupons on
hand and on order.
Quality Control Unit
Requirement - The State or local government must establish
a quality control unit that is independent of program operations
(7 CFR section 275.2(b)).
Objective - Determine whether the quality control unit
is organizationally independent of program operations.