Two former Indiana welfare workers and a current employee stole nearly $200,000 in food stamps and other benefits by creating bogus electronic benefit cards to withdraw money at bank machines, buy retail goods and sell to others, federal prosecutors alleged Tuesday.

A federal grand jury indicted Timberly Snyder, Robert Edwards and Adina Lopez on charges of theft. During an initial court appearance Tuesday, all pleaded not guilty and were released their own recognizance, U.S. Attorney Joe Hogsett said.

Snyder coordinated the electronic benefits program in the central office of the Family and Social Services Administration until leaving her job about a year ago, about the same time that Edwards left his job as a welfare case worker in Indianapolis, FSSA General Counsel Mike Carter said. Lopez was still employed by FSSA on Tuesday.

A message left for the public defender who represented the three during Tuesday's court appearance wasn't immediately returned. Listed phone numbers for Snyder and Lopez in the Indianapolis area were disconnected, while it was unclear whether the Robert Edwards cited in the indictment had a listed number.

The indictment said the three created 126 benefit cards in the names of existing welfare clients and stole a total of $191,103 from two federal programs, food stamps and Temporary Assistance for Needy Families. Edwards created 62 cards and stole $125,816, over 15 months and Snyder created 60 cards and stole $59,900 over five months, both periods ending on March 24, 2010, according to the indictment. Lopez created four cards worth $5,386 over 13 days ending April 5, 2010, the indictment said.

The three knew each other and used computer systems and databases available to them as FSSA employees to identify existing food stamp and TANF recipients whose names and accounts could be used to generate new cards, the indictment alleges.

"They clearly were in cahoots" said Hogsett, who joined Carter at a news conference after the court hearing in Indianapolis. Carter said there was no indication anyone else was involved.

None of the 126 welfare clients whose names were used knew of the scheme, Hogsett said, and they were never wrongfully denied any of the benefits that were stolen.

The scheme unfolded after FSSA rolled out its modernized welfare intake system to much of the state, but Marion County was not included in the rollout. Gov. Mitch Daniels has said modernizing the welfare system was needed to, among other things, update a system he said was riddled with waste and fraud.

On Tuesday, Daniels said the state found out about theft scheme and turned it over to federal prosecutors, whom he thanked for prompt action.

"We have a zero tolerance policy for any ethical breeches, let alone wrongdoing," Daniels said.

Hogsett and Carter said they could reveal little about how the scheme was uncovered, but Carter said FSSA's internal controls were instrumental.

"I don't think we're ever surprised by things that can happen of this nature, but that's why we have these systems in place," Carter said.

If convicted, Snyder, Edwards and Lopez face maximum penalties of 10 years in prison and $250,000 fines. Hogsett said the government also was seeking restitution of the stolen benefits.