9Wants to Know Discovers That 99.84% of all Welfare Transactions Are Honest

by Mercator Advisory Group 0

OK, not really. The headline 9Wants to Know decided to run with this story was this: “Records shows welfare cash-withdraws at strip clubs.” The lead paragraph describes the investigative reporting effort:

DENVER – After a three-month investigation, 9Wants to Know has uncovered welfare cash-withdraws at ATMs in strip clubs, casinos, bingo halls and amusement parks despite a state law banning such transactions at some businesses.

9Wants to Know also discovered more than $1 million in welfare is also going to ATM owners and banks through transaction fees per every year. 9Wants to Know reviewed 222,000 transactions involving Colorado Quest cards, the state-issued debit cards welfare recipients use to access cash at ATMs. The transactions occurred during a six-month period in 2011.”

Mercator counted 353 illegal transactions that were identified in the article (replacing “a handful” with 10 transactions) which when divided by the 222,000 total transactions establishes that after rounding up .16 percent of all transactions were illegal.

The article does provide a few paragraphs that could be used by the state in a prescriptive fashion, indicating that while state law already bans welfare transactions at some locations, it failed to enact any penalties:

While current state law bans welfare transactions at casinos and liquor stores, it does not prohibit cash withdraws at strip clubs. Violating the law does not result in any penalties either.

A new federal law signed by President Barack Obama last week forces states to ban all such transactions within the next two years or face the consequence of losing federal funding. The federal ban is part of the Middle Class Tax Relief and Job Creation Act of 2012.”

Since the state failed to enact penalties, it is not particularly surprising that the article also failes to mention how easy these prepaid cards would make it for the state to identify the individuals responsible for the .16 percent of illegal transactions so the penalties could be enforced.

Instead the article simply establishes a litany of the costs associated with providing a prepaid instrument that delivers the very transactional detail that made the story possible.

Out of the 222,000 transactions reviewed by 9Wants to Know, 80 percent occurred at ATM that applied a fee to the welfare accounts. 9Wants to Know estimates ATM owners and banks collected $540,000 in fees during that six-month period. The local banking industry in Colorado says the fees are the cost of doing business.

Annual maintenance on such a machine will be $12,000 to $15,000 per year. That’s a lot of money that you have to recover,” Don Childears, president of the Colorado Bankers Association, said.

After 9Wants to Know inquired about ATM fees, the Colorado Human Services Department said it’s sending out updated flyers to welfare recipients to help them avoid surcharges on their accounts.

The flyers encourage recipients to use Chase Bank ATMs, where there are no extra surcharges. Chase still collects 85-cents-per-transaction regardless of what ATM is used.

There are significant costs associated with operating card networks and ATMs, but these costs are a pittance when compared to the costs a state would pay to operate the EBT network which might be able to lower fraud even more, but that would be a frivolous use of taxpayer dollars. With fraud already at .16 percent, a more cost effective approach would be to enact penalties for fraudulent use of welfare cards so funds could be recovered.

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