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This news article describes a bar being shut down because they were accepting food stamps for drugs and lap-dances. The USDA described how they investigate and fight fraud. Analysis shows that the fraud is a low percentage of total benefits.

This got me wondering, how are food stamps actually turned into cash? Surely a stripper or drug dealer needs to buy groceries too, but eventually they need to turn that food stamp income into real money.

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    I doubt there is a need. No one person is probably getting more food stamps than can reasonably be used on groceries. (The article mentions $2400 spread over 5 months, and it's likely more than one person was receiving the stamps.) If I'm a drug dealer, I'm not accepting food stamps on par with cash; for $50 in food stamps, I'll give you $25 worth of drugs, then sell the stamps for $40. Everyone comes out ahead: the buyer gets drugs without needing cash, the dealer sells the stamps at a profit, and the stamp buyer gets discount stamps. – chepner Sep 24 '18 at 17:20
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    Are actual food stamps even a thing any more? I'd assumed (from seeing activity at my grocery store) that it'd all gone to card-based EBT. – jamesqf Sep 24 '18 at 17:37
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Surely a stripper or drug dealer needs to buy groceries too, but eventually they need to turn that food stamp income into real money.

Someone who is going to buy groceries can use the food stamps like money, so would be a market for buying the food stamps.

So the process would work like this (all numbers just examples):

  1. Person A receives $100 of food stamps
  2. Person A trades $100 of food stamps to Person B in exchange for $50 of non-food-stamp-covered goods or services
  3. Person B sells $100 of food stamps to Person C for $75.
  4. Person C uses the $100 at a grocery store to buy $100 of food-stamp-covered goods.

Person A received $50 of non-food-stamp-covered goods or services. Person B made $25 in profit Person C received a $25 discount on the food they would buy anyways

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Food stamps (now called SNAP) have been replaced by Electronic Benefit Transfer (EBT) debit cards. SNAP benefits are supposed to be used for uncooked food. Convenience food, gas, cigarettes, and booze are prohibited.

The simplest fraud is a clerk or store owner buys the card at a discount, usually about 50 cents on the dollar, and buy legitimate food items. Or they can alter entries, billing for legitimate items that were not purchased. Or a complicit clerk or store owner can just bill the full amount and have it credited to the store's bank account (50% profit).

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