food stamp fraud
Klamath County Sheriff Frank Skrah announces arrests in May 2014 resulting the investigation of a food stamp fraud ring. Skrah later criticized the lag in getting the ring shut down. He was joined at the Klamath Falls news conference by Detective Eric Shepherd, USDA Special Agent In Charge Greg McDiffett, USDA Special Agent John Sherman and Klamath County District Attorney Rob Patridge. Patridge's office continues to prosecute the 65 suspects accused of trafficking in food stamps.
(Steven Silton/Klamath Falls Herald and News)
Two months ago, the director of the Oregon Department of Human Services trumpeted her agency's role in cracking a major food stamp fraud ring in Klamath Falls.
Authorities charged 65 people with trafficking in food stamp benefits. Most were accused of illegally taking cash instead of food by selling their cards to a Klamath Falls meat market for 50 cents on the dollar.
"There is absolutely no room or tolerance for misuse of benefits or the Oregon Trail Card," Erinn Kelley-Siel, the agency chief, wrote in an email to every Oregon legislator.
In fact, state workers watched the fraud go unabated for two years, seeing thousands of dollars illegally flow out of the food stamp program. An investigator in early 2013 warned the fraud was growing at an "alarming rate." Yet arrests wouldn't be made for another 17 months.
State officials say they were hamstrung by rules that tightly restrict how fraud can be treated and by federal investigators slow to ramp up what developed into a major trafficking case. Federal officials declined comment on the case.
Law enforcement officials estimate $20,000 a month in food stamps was moving through the Mexican meat market. Authorities say the market charged fake meat sales to the cards to get money out of the recipients' state accounts. DHS officials haven't calculated the losses of the long-running fraud, but an experienced frontline caseworker who repeatedly blew the whistle said the state could have prevented $500,000 in fraud by acting earlier.
Potential for fraud is enormous in a state program that serves 793,000 people in Oregon. Last year, the state paid out $1.2 billion in benefits that can be used only for unprepared food at 3,480 retailers.
The state estimates the program's rate of fraud is half of 1 percent. In 2013, the state banned 1,100 people who committed fraud in the federally funded Supplemental Nutrition Assistance Program. DHS estimates the disqualifications spared the food stamp program $3.3 million.
Retailers who illegally traffic in food stamps can be banned, too. They are regulated by the U.S. Department of Agriculture, which last year disqualified three Portland stores.
"While fraud is rare in SNAP, no amount is acceptable, and it will not be tolerated," the USDA's Washington office said in a statement to The Oregonian.
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Tips about individual food stamp fraud in Oregon eventually find their way to DHS's Fraud Investigations Unit, headed by John Carter. He oversees a staff of 21 investigators who at any one time are handling an average of 200 cases, with some caseloads approaching 400. In May, the unit had 4,991 open investigations.
Each case is time consuming to investigate. The recipient and other witnesses have to be interviewed. Use of the Oregon Trail Card, which acts as a bank debit card to carry the food stamp benefit, has to be tracked and analyzed.
In the realm of food stamp fraud, the Klamath Falls case hit the radar quickly but, as The Oregonian found, action was a long time coming. DHS provided emails and internal documents about the case in response to the newspaper's public records case. Many records remain off limits because of the continuing criminal prosecutions.
The case started with the tip from Ramona Royal, a Klamath Falls caseworker who by 2012 had been on the job nearly 10 years. One of her tasks was to approve food stamp benefits. That spring, a client reported to Royal that her benefit card had been stolen. Royal checked and told her it had been last used at Carniceria Mi Pueblo, the meat market.
"Oh, that's the store that gives you cash," the client responded.
Royal's subsequent fraud report went to investigator Karlene Austin, whose large territory includes Klamath County. Royal and fellow caseworkers continued monitoring activity involving the market and reported any suspected illegal conduct by their clients.
Austin and her fellow investigators are responsible only for individual fraud. Cases involving the stores are kicked over to the Office of Inspector General of the U.S. Department of Agriculture.
Austin contacted the federal office but reported to her boss by email in October 2012 that she hadn't "heard a peep" since talking to federal counterparts "several weeks ago."
Two weeks after that, she heard from John Sherman, the federal investigator tasked with the Klamath Falls case.
"We are going to try to do some work on this case in the near future," Sherman wrote her.
He sent the state another note about his intentions in January 2013, explaining he was "in the middle of some other pressing casework. We will be looking into some investigative steps on this market later this upcoming month."
Meantime, the fraud cases piled up out of Klamath Falls.
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Carter, chief of the state's fraud unit, recalled feeling "disappointment" that the federal investigators weren't ready to act. He said he understood they were busy and he saw no point in pressing.
Austin, his investigator, reacted to the news in a Jan. 24, 2013, email.
"This situation is growing at an alarming rate so I hope he can do something about it at some point," she wrote.
Royal, meantime, kept sending in her fraud alerts.
"We as caseworkers are powerless," Royal told The Oregonian. "I could not deny, delay, nothing. Just hand over the $200 SNAP and report."
Royal, leaping through the chain of command seeking action, alerted Kelley-Siel.
She was provoked by an email message Kelley-Siel sent to all agency employees in April 2013, praising press coverage of the agency's fraud work.
"Did you know that most SNAP fraud is caught before it even starts?" her staff message said.
Royal wrote to the agency boss that she and other frontline workers took the message "with a grain of salt."
Royal said in her email to Kelley-Siel that she had repeatedly reported the suspected fraud at the Klamath Falls meat market.
"I have been very vocal about it – to no avail," Royal wrote. "I have spoken with our fraud investigator, she has spoken with her superiors, they spoke to federal investigators and still nothing has been done."
Kelley-Siel asked for details but never contacted Royal after that. Royal left the agency four months later.
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A break by Eric Shepherd of the Klamath County Sheriff's Office moved the case from pending to active.
As Shepherd investigated a cartel-linked drug group, he developed a source with links to the Mexican meat market. The source told the detective that he was regularly wiring money to a Mexican cartel via the market, working to pay off a $67,000 debt. He told Shepherd the market was a front, paying discounted rates for food stamp cards.
Shepherd said the cartel case, which concluded with a major sweep in May 2013, derailed the food stamp investigation for bit. Shepherd said it eventually gathered steam when he found someone who agreed to do uncover deals at the market, crucial to proving a criminal case.
"Once we were able to get in there with any sort of evidence, when we actually had something to work with, it took us six months to move forward to arrests," Shepherd said.
Shepherd's boss, Klamath County Sheriff Frank Skrah, publicly criticized the slow pace of the case. He didn't name names, but he was frustrated that taxpayers had lost thousands and thousands to the unchecked fraud.
Carter, the state's fraud chief, said that couldn't be helped because of federal law.
The USDA in its statement said, "While it's true that a SNAP household's benefits may not be stopped based solely on suspected fraud or trafficking, the state is responsible for investigating such cases and taking the appropriate action," the agency said.
Carter said even without a major case in play, caseworkers who suspect fraud can only "educate" recipients about program rules. One sign of fraud is when clients repeatedly claim their benefit card has been stolen or lost. That can mean the card has in fact been sold at a discount for cash, such as getting $100 in cash for a card worth $200. Klamath Falls caseworkers recorded 61 replacement cards for one individual.
"There is no action a caseworker can take to not issue a replacement card," Carter said. "Nothing can be done about it. There are no sanctions for multiple cards."
The fraud unit can recommend action on proven fraud cases, ranging from temporary suspension of benefits to a lifelong ban.
But a major case such as the Mexican meat market investigation derails such intentions.
"We hate to see that happen but at that point certain protocols are in place," Carter said. "We can't start taking down individual players. That would not be effective at all. When you are trying to break an organized criminal enterprise, you want the biggest fish."
Since the May arrests, five of the 65 suspects have been kicked out of the food stamp program.
The rest remain eligible for monthly benefits until their criminal charges are resolved.
-- Les Zaitz