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Profiting from Poverty

Have you ever wondered why Big Business is in love with Big Government, which some call crony capitalism? If so, look no further than the food stamp program, now called the Supplemental Nutrition Assistance Program (SNAP). With a HT to Wynton Hall at Breitbart's Big Government today, we learn of a new report from the Government Accountability Institute (requires Adobe) that "finds that JP Morgan has made at least $560,492,596 since 2004 processing the Electronic Benefits Transfer (EBT) cards of 18 of the 24 states it has under contract for the food stamp program."

Here's a short summary from the GAI report's executive summary:

"Originally conceived as a means to prop up sagging crop prices to support American farmers, the Food Stamp Program, now called the Supplemental Nutrition Assistance Program, or SNAP, has exploded into a welfare program that costs tax payers a record $75.67 billion in 2011.1 Almost everyone has heard this story, but few realize that only three corporations have cornered the market for providing SNAP services to the needy and destitute. According to JP Morgan, the largest food stamp industry player, the business of food stamps “is a very important business to JP Morgan. It’s an important business in terms of its size and scale…. Right now volumes have gone through the roof in the past couple of years or so. The good news from JP Morgan’s perspective is the infrastructure that we built has been able to cope with that increase in volume.”2 And JP Morgan has good reason to be pleased, since the bank profits from programs designed to help the poor."

From the executive summary, GAI reports these findings:

  • Three companies – J.P. Morgan EFS, Affiliated Computer Services, and eFunds – provide EBT services for 49 states and 3 US territories.
  • Since 2004, 18 of 24 states who contract with J.P. Morgan to provide welfare benefits have contracted to pay $560,492,596.02. New York alone has a seven-year contract worth $126,394,917.
  • Projected average food stamp spending post-recession will be 175% greater than pre-recession average spending, from $28 billion to $77 billion.
  • Since 2009, 32 states have followed the USDA’s suggestion to use Broad Based Categorical Eligibility “as a way to increase SNAP participation and reduce State workloads.”4 Changing the rules for eligibility, along with state-level changes in application methods, has contributed to a 70 % increase in food stamp participation from 2007 to 2011.
  • Lax security by EBT processors and states invites food stamp fraud, often through social media.
  • There are understaffed fraud investigation units at both the federal and state level. For example, Florida has just 63 staff positions to police approximately 3 million EBT users state-wide. These investigators not only handle TANF and SNAP eligibility fraud, but also EBT trafficking, Social Security Disability and Medicaid eligibility fraud, Emergency Financial Assistance for Housing, and Low Income Energy assistance, among many others.

The report includes chapters on the evolution of food stamps, the Electronic Benefits Transfer (EBT) industry, as well as proposed solutions.

Mr. Hall's report points out several significant points, including:

  • "While some may be glad that a private company—not a government agency—is tasked with EBT transactions, the GAI report reveals that JP Morgan does not use the same fraud detection systems commonly used by today’s credit card companies.  In fact, federal and state agencies—not EBT processors—are the ones tasked with policing food stamp fraud."
  • "By making welfare inefficiency and abuse lucrative, the poverty industry has created a potentially toxic brew of corporate cronyism and government inefficiency that lets food stamp abuse enforcement slip through the bureaucratic cracks."
  • "The GAI report . . . says JP Morgan’s political donations to members of the House and Senate Agriculture Committees (who oversee the food stamp program) skyrocketed once the bank entered the EBT market."

No wonder there is so much support for the Tea Party movement, but that does not mean you shouldn't ask your favorite Member of Congress what they have done to better oversee the food stamp program. If you live in Arlington County, here is the contact information for Arlington’s two Senators and Representative on Capitol Hill so you can either call them or e-mail them:

  • Senator Jim Webb (D) -- write to him or call (202) 224-4024
  • Senator Mark Warner (D) -  write to him or call (202) 224-2023
  • Representative Jim Moran (D) -- write to him or call (202) 225-4376


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