Providence, R.I ? A criminal swindle of the nation’s $64.7 billion food stamp program is playing out at small neighborhood stores around the country, where thousands of retailers are suspected of trading deals with customers, exchanging lesser amounts of cash for their stamps.

Authorities say the stamps are then redeemed as usual by the unscrupulous merchants at face value, netting them huge profits and diverting as much as $330 million in taxpayer funds annually a year. But the transactions are electronically recorded and federal investigators, wise to the practice, are closely monitoring thousands of convenience stories and mom-and-pop groceries in a push to halt the fraud.

Known as food stamp trafficking, the illegal buying or selling of food stamps is a federal offense that has resulted in 597 convictions nationwide and $197.4 million in fines, restitution and forfeiture orders, over the past three years, according to the U.S. Department of Agriculture’s Office of the Inspector General. The USDA last month awarded a 10-year contract worth up to $25 million to Fairfax, Va.-based SRA International, Inc., to step up the technology used to combat fraud.

“It’s misuse of the program. It’s a misuse of taxpayer dollars at a tough time. Not only the people who need the program are having a tough time, but the people who are paying for the program are having a tough time, too,” said Kevin Concannon, USDA Undersecretary for Food, Nutrition and Consumer Services.

The fraud is almost always found among the 199,000 smaller stores that process 15 percent of the nation’s total food stamp transactions, Concannon said.

The modern food stamp program was created in 1977 to help low-income families. Benefits are loaded onto plastic debit cards that can only be redeemed at authorized stores. More than 45 million people were receiving benefits as of August, according to program figures, nearly half of them children.

Nationwide, 234,000 stores are authorized to accept food stamps, including 35,000 supermarkets where 85 percent of benefits are redeemed, Concannon said.

Last year, 931 stores nationally were dismissed from the food stamp program for trafficking and 907 others were sanctioned for lesser violations — 37 percent of the nearly 5,000 retailers being investigated. A March USDA report found more than 8 percent of the large and small stores, 210,000 in all, allowed people to cash in their benefits between 2006 and 2008.