Welfare Funds Pay for Adult Entertainment

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Welfare recipients in New Mexico can use their federally funded electronic banking cards to buy necessities or to withdraw cash from ATMs from just about anywhere – including liquor stores, bars and strip clubs in any state. Today’s Fraud of the Day takes a look at the misuse of Electronic Benefit Transfer (EBT) cards as reported in The New Mexico Watchdog.

There are two federal government programs — Supplemental Nutrition Assistance Program (SNAP), or food stamps, and Temporary Assistance for Needy Families (TANF) — which both use EBT cards to disburse monthly monetary assistance to our nation’s neediest citizens on the first day of each month. An EBT card is essentially a debit card that allows qualified cardholders to withdraw cash from ATMs or to make direct purchases with the option to receive cash back. The funds are supposed to be used for life’s necessities such as food, housing, utilities and clothing.

Under SNAP, EBT cards can be used only for eligible food items at retainers approved by Food and Nutrition Services (FNS). Under TANF, a program enacted as part of former President Bill Clinton’s welfare reform, there are fewer restrictions on how the funds can be used. (Unfortunately, that’s a big problem.)

Over $56 million a month is issued on New Mexico’s EBT cards under the TANF program. A two month investigation of daily transactions from state-issued EBT records revealed that the cards were being used at businesses that provided services inconsistent with the purpose of the program – to help families with children provide life’s basic essentials while encouraging self-sufficiency. Over $200,000 in transactions were examined, most of which were spent at grocery, convenience and discount clothing stores. However, other transactions showed welfare funds being used to pay for a cover charge to get into a strip club (OK, so maybe they were just trying to get to the ATM), out-of-state casinos, liquor stores, nightclubs, movie theaters and even vacations to Hawaii and cruises. (All of these obviously fall into the ”necessities” category for sure.)

The investigation of EBT records from November and December 2011 revealed that cash was being spent in locations far from New Mexico – in 45 other states to be exact. (Have cash – will travel.) Transactions were also detected at the post office where money orders can be purchased. (Perhaps, they needed lots of stamps for sending out their Christmas cards?? It is possible that these funds were being cashed out and sent to other relatives in another state, or even out of the country? One flaw of the program is that once the cardholder has his/her monthly allotment of cash, there is no way to know how the funds are spent. Another flaw is that the EBT card does not have a photo to identify the card holder. (Yep, you guessed it, there’s a black market for these cards.)

Under New Mexico’s temporary cash assistance program, NMWorks, it is not illegal to use the EBT cards out-of-state – in fact the program is required by federal law to be usable in all states. It’s just that other states don’t always restrict the location where the welfare funds can be accessed. The bottom line is that the locations of many of the transactions are inconsistent with the ”needy family” picture. Qualified welfare recipients are deemed unable to feed, house or clothe their children without government assistance.

So what is being done to counteract the misuse of EBT cards? The federal government is cracking down on where benefits can be used or accessed from by passing legislation as part of the Middle Class Tax Relief and Job Creation Act of 2012. If New Mexico does not implement federal restrictions, which do not allow EBT transactions at liquor stores or bars, casinos or other gambling establishments, or strip clubs by 2014, the state stands to lose $5.5 million in federal welfare funds.

Some might argue that preventing public assistance recipients from access to bars, liquor stores, gaming facilities or strip clubs is a violation of rights. Let’s hope that the federal government can successfully fight EBT card fraud, waste, and abuse in our nation’s public assistance programs through this new legislation. Finally, something Congress can agree upon.

Source: Today’s ”Fraud of the Day” is based on an article titled, ”EBT Abuse Continued in 2012,” written by Jim Scarantino and published in The New Mexico Watchdog on December 18, 2012.

NEW MEXICO – Welfare money tapped in an Albuquerque strip club. Cash withdrawals of welfare funds inside an El Paso casino, a movie theater, a nightclub, Hooters, smoke shops and liquor stores around the country.

The same suspicious transactions on EBT cards we observed at the end of 2011 continued into 2012.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.