Safeguarding the Most Vulnerable in Society from EBT Fraud

Back in 1939, Henry Wallace, the American Secretary of Agriculture, created the Food Stamp Program. It was designed to supply surplus agricultural commodities to American families in need during the Great Depression. People who received public assistance could get stamps that were then used to purchase food. The program underwent several iterations in the 1960s, ’70s, and ’80s until finally, in 1984, the first Electronic Benefits Transfer (EBT) system was introduced. This allows participants to receive funds through a debit card, which is accepted at over 240,000 retailers that sell food products. The program was renamed the Supplemental Nutrition Assistance Program (SNAP) in 2008. While SNAP is the initiative of the federal US Department of Agriculture, American state governments are the ones who administer the program.

Not surprisingly, where you have governments dispensing funds, you find criminals trying to steal them. EBT fraud in America is a growing problem, resulting in the loss of billions of taxpayer dollars annually. SNAP fraud is especially harmful as criminals steal funds that are meant to help the most vulnerable members of our society.

Common Types of EBT Fraud

Card Skimming

In card skimming, fraudsters tamper with a card reader to capture the cardholder’s information. This information is then used to access the cardholder’s benefits and purchase items through their account. Card skimmers can be hard to detect unless they are properly inspected. Therefore, organizations and retailers must regularly inspect their card readers for signs of tampering and monitor them for any suspicious activity.

Phishing for Benefits

EBT phishing scams are attempts to obtain personal and financial information from victims through social engineering. These scams can come through many avenues, including emails, text messages, phone calls, and fake websites. The communications look like they come from official EBT agencies. Often these attempts claim that the individual’s benefits have been suspended or that they are eligible for additional benefits, but require the victim to provide personal and account information.

Account Takeover Fraud

In account takeover fraud, criminals access a client’s personal data to either request a new EBT card or redirect funds to the criminal’s account. Fraudsters can gain access to various personal information through data breaches or purchasing them with cryptocurrency through the Dark Web. Fraudsters can also use the Dark Web to buy new tools specifically designed to be used to perform ATO attacks.

Strategies for Proactively Addressing EBT Fraud

Education for Participants and Retailers

An essential component of EBT fraud prevention is education. SNAP Scam Alerts help mitigate the damage done by EBT fraud by providing information on suspicious activity and trending or new fraud tactics to participants who subscribe to the alerts. Recipients need to be aware of the types of current fraud vectors and the steps they can take to protect themselves. This includes being cautious when providing personal information, never clicking on links in unsolicited emails or text messages, and continuously monitoring their account information. In a world where faster transactions and convenience are highly valued, it is important to slow down and quickly inspect card devices before swiping your card.

EBT fraud education is also important for the retailer. The USDA has strict rules and regulations for retailers who accept SNAP transactions. SNAP retailers must ensure that all transactions are compliant, meaning only food products that fall under the staple and accessory food categories are purchased with a participant’s SNAP card.  Importantly for fraud prevention, they should also be educated on how to protect their POS devices and identify skimmers.

Fraud-fighting Technologies

In addition to educating participants and retailer, there are technologies that SNAP administrators can use in the short term to fight EBT fraud including:

  • Fraud detection software that uses machine learning to create unique user profiles for each EBT cardholder and card. Using unique profiles reduces false positives and the administrative burden of resolving them.
  • Solutions with advanced analytics to track EBT usage, collect audit-quality data and identify fraudulent and anomalous transactions. Data and analytics should be available in a user-friendly, actionable format.
  • Fraud detection software that identifies EBT fraud on both ATM networks and merchant POS devices.
  • Software that can connect easily with your EBT SNAP processor and gives you the option to decline fraudulent transactions in real-time, before the funds are lost.
  • Identity verification systems to help ensure that only authorized individuals can access EBT benefits. These can include biometric identification, such as fingerprint or facial recognition, or two-factor authentication.

New Protections for American EBT Users from Fraud

Unlike many other forms of fraud, getting reimbursement for stolen SNAP funds has been difficult, if not impossible. However, at the end of 2022,  President Biden signed a new law called the Consolidated Appropriations Act of 2023. With this legislation, Americans SNAP participants can now be reimbursed if funds on their EBT cards are stolen through card skimming scams.

The protections now allow states to use federal funds to replace stolen EBT benefits. The bill includes provisions that states must develop anti-fraud plans, report on EBT fraud and specify how they will deal with claims for reimbursement due to EBT fraud. It also addresses reimbursement for states who provide replacement funds to participants prior to submitting their plans to reduce EBT fraud.

In most traditional payment card transactions, both card issuers and acquirers have systems for minimizing fraud. However, the infrastructure that financial institutions and payment providers rely on to keep payments safe may not exist within state EBT programs. It is not difficult to see why organized crime groups have pounced on EBT; they see it as easy money.

How INETCO BullzAI can Detect and Prevent Electronic Benefits Transfer Fraud

INETCO BullzAI is a powerful fraud detection system that can detect and prevent EBT fraud skimming. Providing comprehensive real-time monitoring and transaction visibility, BullzAI enables you to identify potential fraud and respond to it in real-time. Using automated incident response capabilities, the platform can help you keep your participants safe from fraudsters and thus minimize the need to replace stolen EBT funds. BullzAI can connect directly with your EBT processor

Transaction monitoring paired with advanced AI capabilities offers enhanced detection to identify and gives you the ability to decline irregularities. Having the appropriate technology and strategy for fraud prevention is now more crucial than ever for EBT providers. Given the new legislation introduced this year and the requirement to reimburse skimmed EBT funds, failing to prevent fraudsters will result in a double financial blow.

By leveraging the capabilities of INETCO BullzAI, you can improve the security of your EBT program and protect your participants. Talk to one of our specialists to find out how we are helping a US state government agency prevent EBT fraud.