Bank monitoring project gets results - food stamp program

For a family using food stamps, the grocery store is the last stop, but the food stamp's journey has just begun. After being redeemed by the grocer at a local bank or savings and loan institution, it will travel through the banking system and ultimately end up at a Federal reserve bank.

Every year billions of dollars in food stamps are redeemed by grocers. If you think keeping track of all those food stamps sounds like one huge accounting job, you're right. Without the best possible controls and monitoring, there's a chance some could end up lost, unaccounted for,a nd possibly in the wrong hands.

As part of its campaign to improve food stamp management, USDA has been working with the Federal Reserve system and commercial banks on a new bank monitoring system that vastly improves accountability.

The system, which will be used nationwide within a year, involves new procedures for monitoring food stamp deposits and use of sophisticated optical scanning equipment. It was tested in the Food and Nutrition Service's Southeast region beginning in April 1981 before being expanded to other states. A major step forward. . .

Food stamp managers see the new system as a major step forward in the flight against food stamp abuse. For one thing, it will help put an end to the redemption of food stamps at banks by grocers or other persons without required documentation.

Also, it will make it tougher to redeem illegally obtained food stamps for cash, bringing down the black market value of food stamps. And, when redemption abuses do occur, the new system will make it possible to identify offending stores or banks.

"What we have is a complete trail of food stamp redemption activity," says national Food Stamp Program director Virgil Conrad. "We know where each food stamp was redeemed and by whom, and we can easily spot any discrepancies along the way."

The key to the system is a document called a food stamp redemption certificate. The Food and Nutrition Service's Automatic Data Processing (ADP) Field Center in Minneapolis issues these redemption certificates to all grocery stores authorized to accept food stamps.

The certificate includes the grocer's name, address, and unique food stamp authorization number. At the time of deposit, the grocer simply hand-prints his deposit amount on the certificate. (Hand-printing allows the certificates to be read later by optical scanning equipment at the ADP Field Center.)

When bank tellers receive deposits of food stamps from stores, they count the stamps and either handprint or "MICR encode" the total on an area of the redemption certificate specified for bank use. (MICR encoding permits what's called "magnetic ink character recognition" by FNS' scanner.) Tellers also initial the redemption certificates or stamp them with an identification mark as proof of verification.

Then, they credit the grocers' accounts for the value of the food stamps deposited and forward the food stamps and redemption certificates to a Federal Reserve bank. A food coupon deposit document, showing the value of the food stamps and redemption certificates, accompanies each such transmittal from the financial institution.

When the food stamps arrive at the Federal Reserve bank, the bank's employees verify the stamps' value and credit the financial institution that transmitted them. They attach a copy of the food coupon deposit document to the redemption certificates accompanying it and forward the batch to the Minneapolis ADP Field Center.

In Minneapolis, the information is entered into the Field Center's computer system viaan optical scanner. The Field Center processes more than 2 million documents a month and produces redemption reports for stores, financial institutions, and Federal Reserve banks. Two important changes made

Differences between this new redemption system and the previous one are twofold. The primary difference is that redemption certificates now remain with the food stamps throughout the entire banking system process. Formerly, financial institutions submitted the redemption certificates to Minneapolis at the same time they sent the food stamps to a Federal Reserve bank for credit.

With the old system, FNS found that the amounts of food stamps actually deposited and the amounts recorded on the redemption certificates did not agree, but because the stamps and certificates were separated, program managers could not determine the cause of the discrepancy or assign responsiblity.

The second change involved new forms. New redemption certificates, redesigned to reduce errors, were issued to all authorized grocery stores. In addition, financial institutions were required to use new standardized food coupon deposit documents for transmitting food stamps and redemtpion certificates to Federal Reserve banks.

To speed handling of these new forms, FNS installed a sophisticated optical scanner, capable of processing 750 documents per minute, in the Minneapolis ADP Field Center. Redemption reports can now be produced more accurately and more timely.

The pilot test of the new system showed that these changes could substantially improve program accountability. FNS's Southeast regional office conducted the test in cooperation with the Atlanta Federal Reserve Bank, which serves more than 300 financial institutions throughout Georgia and in Hamilton County, Tennessee.

When the test began in April 1981, 50 banks were found to have deposited food stamps in excess of the amounts shown on the redemption certificates they submitted to the Federal Reserve bank. These 50 banks deposited a total of approximately $1,637,000 in food stamps that were not supported by redemption certificates.

By December 1981, the number of banks with food stamp deposits exceeding redemption certificates had decreased to 22, with only $174,000 in unsupported deposits.

Improvements have continued since the pilot test and, by the end of 1983, the Atlanta Federal Reserve Bank district achieved a 100-percent reconciliation between food stamp deposits and redemption certificates. Banks were eager to help

Shirley Williams, a compliance specialist in FNS' Southeast regional office, worked at the Atlanta Federal Reserve during the pilot test. Williams says most of the reconciliation problems she discovered were simply the result of a misunderstanding of procedures or oversights.

Common problems included entires not being completed on the certificates, deposit amounts entered by merchants not being verified, deposit amounts being entered in the wrong spaces, and redemption certificates not being sent with the food stamps after the new procedures went into effect.

Whenever she spotted a mistake of any kind, Williams called the bank or savings and loan association to discuss the error and the proper procedures for accepting and processing food stamps.

"Bank employees were very cooperative," she says. "Generally one call resolved any problems. The people preparing the banks' deposits and the tellers wanted to follow the correct procedures and did so after they understood what was needed."

After the test, Williams surveyed participating financial institutions about the new procedures. Almost all the banks and savings and loan associations said the test procedures were easy to follow and the new forms simple to prepare and verify.

A more limited survey conducted by the American Bankers Association confirmed that banks found the procedures and forms acceptable. In fact, financial institutions saved time and money for postage by not having to mail the redemption certificates separately to Minneapolis as they formerly did.

According to Joe Hassan, manager of case services at the Altanta Federal Reserve Bank, the new procedures only minimally affect Fedeal Reserve banks.

All Federal Reserve banks are now required to use a standard food stamp deposit document, designed for use with FNS' optical scanning equipment, and they handle more paper as a result of receiving the redemption certificates as well as the deposit documents. However, Hassan says this doesn't really impact on his employees' workload.

Full implementation of the bank monitoring system will be completed early in 1985. It has already begun, at least partially, in all Federal Reserve bank districts. FNS regional and field office employees in cities where Federal Reserve banks are located have been assigned to oversee the monitoring system and pursue corrective action with financial institutions showing redemption problems. Results are impressive

Results of improved redemption monitoring began to appear almost immediately after the system was put into effect. According to FNS field office staff, food stamp redemption data on stores is now more reliable and up to date than it's ever been.

One evidence of this, says Victor Riche of FNS' data processing division and national coordinator of the new system, is a decline in the number of authorized stores reported each month as redeeming no food stamps.

He attributes this trend to the more disciplined flow of redemption certificates from Federal Reserve banks. Under the old system, banks sometimes forgot to mail redemption certificates or held them for long periods of time before mailing them to Minneapolis.

Another significant improvement occurred in the amount of differences between food stamp deposits and redemption certificates. Differences decreased by more than 50 percent with only partial implementation of the monitoring system in 1983--from a former average of $11 million in differences a month to an average of $5.2 million a month.

"Also, says Riche, "by requiring banks to verify redemption certificates, the system now provides us with the ability to check the reasonableness of Federal Reserve bank charges to FNS."

AS the bank monitoring system nears its final stages of implementation, FNS is already working on additional ways to improve monitoring of food stamp redemptions.

For example, every FNS field office will eventually be using video display terminals and telecommunication hook-ups to access up-to-the-minute redemption data on authorized stores. A pilot test of the equipment is currently underway in the Richmond, Virginia, field office.

The bank monitoring system and other improvements substantially tighten food stamp accountability. "This is an area that needed a lot of improvement," says Virgil Conrad, "and we've made great strides."

For more information on the bank monitoring project or the pilot test in Richmond, contact: Frank Pulju, Director Automated Data Processing Division Food and Nutrition Service U.S. Department of Agriculture Alexandria, Virginia 22302

COPYRIGHT 1984 U.S. Government Printing Office
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