U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Alexandria, VA FINAL AGENCY DECISION

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1 U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Alexandria, VA Kwik Stop #1921, Appellant, v. Case Number: C Retailer Operations Division, Respondent. FINAL AGENCY DECISION It is the decision of the U.S. Department of Agriculture (USDA), Food and Nutrition Service (FNS) that there is sufficient evidence that a permanent disqualification of Kwik Stop #1921 (hereinafter Kwik Stop ) from participation as an authorized retailer in the Supplemental Nutrition Assistance Program (SNAP) was properly imposed by the Retailer Operations Division. ISSUE The issue accepted for review is whether or not the Retailer Operations Division took appropriate action, consistent with Title 7 Code of Federal Regulations (CFR) Part 278 in its administration of SNAP, when it imposed a permanent disqualification against Kwik Stop. AUTHORITY 7 U.S.C and its implementing regulations at 7 CFR provide that [A] food retailer or wholesale food concern aggrieved by administrative action under 278.1, or may file a written request for review of the administrative action with FNS. CASE CHRONOLOGY Kwik Stop was initially authorized to participate in SNAP as a convenience store on October 21, Between October 2, 2014 and January 28, 2016 the USDA conducted an undercover investigation of Kwik Stop to ascertain the firm s compliance with Federal SNAP law and regulations. It was reported that during the course of the investigation, the Appellant firm violated SNAP rules by allowing ineligible non-food items to be purchased with SNAP benefits on five separate occasions. The firm also reportedly engaged in trafficking violations by exchanging SNAP benefits for cash on two additional occasions. 1

2 In a letter dated July 27, 2016 and received by the firm on September 16, 2016, the Retailer Operations Division charged the Appellant with trafficking, as defined in Section of the SNAP regulations. It also charged the Appellant with accepting SNAP benefits in exchange for ineligible non-food merchandise. The misuse of SNAP benefits, as described in the charge letter, is a violation of 7 CFR 278.2(a). The charge letter informed the Appellant that the violations warranted permanent disqualification from SNAP as provided in 7 CFR 278.6(e)(1). The letter also stated that the Appellant could request a civil money penalty (CMP) in lieu of permanent disqualification for trafficking, but noted that such a request must be made within 10 days of receipt of the charge letter under the conditions specified in 7 CFR 278.6(i). In response to the charge letter, the Appellant, through counsel, submitted a letter dated September 26, In its reply, the Appellant acknowledged that it was not likely to beat back seven separate allegations of SNAP violations, but requested a civil money penalty in lieu of permanent disqualification. The Appellant further requested a smaller civil money penalty than the potential penalty listed in the charge letter, arguing that the amount of the CMP was a vast and crippling penalty in comparison to the monetarily tiny infractions that occurred at the store over a period of 15 months. The Appellant also argued that it had never been previously warned that violations were occurring and argued that the economically disadvantaged community would be hurt if the firm was disqualified. After considering the Appellant s reply and further evaluating the evidence in the case, the Retailer Operations Division issued a determination letter dated September 27, 2016 (received by the firm on October 24, 2016). Typically, the violation of exchanging ineligible items for SNAP benefits results in a firm s temporary disqualification from SNAP. However, trafficking in SNAP benefits warrants permanent disqualification. Since trafficking was alleged in this case, permanent disqualification was the determination made by the Retailer Operations Division. The determination letter informed the Appellant that it would be permanently disqualified from SNAP upon receipt of the letter in accordance with 7 CFR 278.6(c) and 278.6(e)(1). The determination letter also stated that the Retailer Operations Division considered the Appellant s eligibility for a trafficking CMP according to paragraph 278.6(i), but determined that the Appellant was not eligible for a CMP because it failed to demonstrate that the firm had established and implemented an effective compliance policy and program to prevent SNAP violations. In a letter postmarked November 3, 2016, the Appellant, through counsel, appealed the Retailer Operations Division s determination by requesting an administrative review. The request was granted. The Appellant s counsel also provided an additional letter of explanation to the administrative review officer on December 1, This letter was added to the record and considered during the review process. 2

3 STANDARD OF REVIEW In an appeal of adverse action, such as disqualification from SNAP participation, an appellant bears the burden of proving by a preponderance of the evidence that the administrative action should be reversed. This means that an appellant has the burden of providing relevant evidence which a reasonable mind, considering the record as a whole, would accept as sufficient to support a conclusion that the matter asserted is more likely to be true than not true. CONTROLLING LAW The controlling law in this matter is found in the Food and Nutrition Act of 2008, as amended (7 U.S.C. 2021), and promulgated through regulation under Title 7 CFR Part 278. In particular, 7 CFR 278.6(a) and (e)(1)(i) establish the authority upon which a permanent disqualification may be imposed against a retail food store or wholesale food concern. 7 U.S.C. 2021(b)(3)(B) states, inter alia: a disqualification under subsection (a) shall be permanent upon the first occasion or any subsequent occasion of a disqualification based on the purchase of coupons or trafficking in coupons or authorization cards by a retail food store or wholesale food concern or a finding of the unauthorized redemption, use, transfer, acquisition, alteration, or possession of EBT cards 7 CFR 278.2(a) states, inter alia: [SNAP benefits] may be accepted by an authorized retail food store only from eligible households only in exchange for eligible food. 7 CFR 278.6(a) states, inter alia: FNS may disqualify any authorized retail food store if the firm fails to comply with the Food and Nutrition Act of 2008, as amended, or this part. Such disqualification shall result from a finding of a violation on the basis of evidence that may include facts established through on-site investigations... Disqualification shall be for a period of 6 months to 5 years for the firm s first sanction; for [a] period of 12 months to 10 years for a firm s second sanction; and disqualification shall be permanent for a disqualification based on paragraph (e)(1) of this section.[emphasis added.] 3

4 7 CFR 278.6(c) states, inter alia: The letter of charges, the response, and any other information available to FNS shall be reviewed and considered by the appropriate FNS regional office, which shall then issue the determination. In the case of a firm subject to permanent disqualification under paragraph (e)(1) of this section, the determination shall inform such a firm that action to permanently disqualify the firm shall be effective immediately upon the date of receipt of the notice of determination from FNS, regardless of whether a request for review is filed in accordance with part 279 of this chapter. 7 CFR 278.6(e)(1)(i) states: FNS shall disqualify a firm permanently if personnel of the firm have trafficked as defined in CFR states, inter alia: Trafficking means: The buying, selling, stealing, or otherwise effecting an exchange of SNAP benefits issued and accessed via Electronic Benefit Transfer (EBT) cards, card numbers and personal identification numbers (PINs), or by manual voucher and signature, for cash or consideration other than eligible food, either directly, indirectly, in complicity or collusion with others, or acting alone 7 CFR states, inter alia: Eligible foods means: Any food or food product intended for human consumption except alcoholic beverages, tobacco and hot food and hot food products prepared for immediate consumption 7 CFR 278.6(b)(2)(ii) states, inter alia: Firms that request consideration of a civil money penalty in lieu of a permanent disqualification for trafficking shall have the opportunity to submit to FNS information and evidence... that establishes the firm s eligibility for a civil money penalty in lieu of a permanent disqualification in accordance with the criteria included in 278.6(i). This information and evidence shall be submitted within 10 days, as specified in 278.6(b)(1). 7 CFR 278.6(b)(2)(iii) states: If a firm fails to request consideration for a civil money penalty in lieu of a permanent disqualification for trafficking and submit documentation and evidence of its eligibility within the 10 days specified in 278.6(b)(1), the firm shall not be eligible for such a penalty. 4

5 7 CFR 278.6(i) states, inter alia: FNS may impose a civil money penalty in lieu of a permanent disqualification for trafficking... if the firm timely submits to FNS substantial evidence which demonstrates that the firm had established and implemented an effective compliance policy and program to prevent violations of the Program In determining the minimum standards of eligibility of a firm for a civil money penalty in lieu of permanent disqualification for trafficking, the firm shall, at a minimum, establish by substantial evidence its fulfillment of each of the following criteria: Criterion 1. The firm shall have developed an effective compliance policy as specified in 278.6(i)(1); and Criterion 2. The firm shall establish that both its compliance policy and program were in operation at the location where the violation(s) occurred prior to the occurrence of the violations cited in the charge letter sent to the firm; and Criterion 3. The firm had developed and instituted an effective personnel training program as specified in 278.6(i)(2); and Criterion 4. Firm ownership was not aware of, did not approve, did not benefit from, or was not in any way involved in the conduct or approval of trafficking violations SUMMARY OF INVESTIGATION During an undercover investigation conducted between October 2, 2014 and January 28, 2016, the USDA completed 10 compliance visits at Kwik Stop. A report of the investigation was provided to the Appellant as an attachment to the July 27, 2016 charge letter. The investigation report included Exhibits A through J, which provided full details on the results of each compliance visit. SNAP violations were documented during seven of the 10 visits and included trafficking violations on the last two visits as noted in Exhibits I and J. Additionally, the report noted the following ineligible non-food items that were purchased by an investigator using SNAP benefits: One glass tube (no brand indicated), Exhibit C One copper scrubber (Chore Boy brand), Exhibit C Two glass pens (no brand indicated), Exhibit E Two copper scrubbers (Chore Boy brand), Exhibit E One glass pen (no brand indicated), Exhibit F One copper scrubber (Chore Boy brand), Exhibit F Two $5.00 calling cards (Happy brand), Exhibit G One glass pen (no brand indicated), Exhibit G One copper scrubber (Chore Boy brand), Exhibit G Two $5.00 calling cards (Simply 2 Call brand), Exhibit H One copper scrubber (Chore Boy brand), Exhibit H One glass pen (no brand indicated), Exhibit H 5

6 As stated earlier, trafficking was reported during the last two compliance visits. The first trafficking violation occurred on October 20, In reporting this visit, the USDA investigator provided the following details, as noted in Exhibit I: 7 U.S.C (b)(7)(e) The report noted that the second trafficking incident occurred on January 28, The investigator made the following statement on the report, as noted in Exhibit F: 7 U.S.C (b)(7)(e) It is noted that one male clerk conducted all seven violative transactions. This same clerk also conducted the transactions in Exhibits A and B. In Exhibit A, the investigator did not attempt to commit any violations. Instead, only eligible food items were purchased during that visit. In Exhibit B, the investigator attempted to purchase a glass pen and copper scrubber, but the clerk refused to sell the non-food items in exchange for SNAP benefits. It is further noted that a second clerk conducted the transaction in Exhibit D, but as with Exhibit A, the investigator did not attempt any violations during this visit. It should also be noted that on two occasions when the undercover investigator asked for a glass pen or glass tube, the clerk asked the investigator if he would also like a copper scrubber. On another occasion, the investigator asked for a copper scrubber, at which point the clerk asked if he would also like a pipe. Purchased together, glass tubes and copper scrubbers are well-known drug paraphernalia, used to create homemade crack cocaine pipes. APPELLANT S CONTENTIONS The Appellant, through counsel, made the following summarized contentions in its request for administrative review, in relevant part: Appellant requests reconsideration of a civil money penalty. Appellant has not had any previous troubles with FNS for any reason. There is also no profit or benefit to the owners from these actions. The infractions are not the product of any failure by the owner in training or supervision. The report shows that the violating employee behaved properly on most occasions. He went off the straight and narrow path only on occasion. This indicates that he was correctly trained in the relevant rules and procedures, as he abided by them most of the time. The violating employee has been terminated from his employment. He was not permitted to work alone in the store until he was employed for a substantial period of time, during which he was required to demonstrate his familiarity with all store procedures, including accepting/denying the EBT card. In light of the violations, the store owner has taken the following seven procedures or will soon introduce them: 6

7 o Before an employee is permitted to approach the EBT machine, a written document containing relevant rules and procedures must be read, understood, and signed. o Each employee shall have 20 management-supervised transactions on the EBT machine before being permitted to conduct any unsupervised EBT transactions. The transactions will be recorded in a log kept on the premises and signed by the employee and supervisor each time. At the present rate, this means that an employee will work at the store for days before conducting the first unsupervised transaction. o At the time of hiring, new employees will be informed that a single EBT violation will be cause for immediate dismissal. Current employees have already been informed. Additionally, a log of every EBT transaction will be kept, to include the date and time of the transaction, and the signature of the employee who conducted the transaction. o The most common prohibited uses of EBT will be posted near the machine as a reminder to the employee. o The owner is currently shopping for a suitable video surveillance system, which will include the EBT machine within its field of view. This constant eye in the sky will serve to reduce any temptation to violate. o A criminal background check will be performed prior to hiring. No one with a prior theft or crime of dishonesty will be considered for employment. o The Appellant owner is open to implementing any other measures suggested by USDA. The Appellant owner is someone who believes in and is living the American dream. She is law-abiding to her very soul. She has shed tears over this matter. Appellant requests rescission of the disqualification in favor of a modest civil money penalty. The store sells many dietary staples, such as milk, eggs, and bread. Most of the EBT customers are physically infirm and live in a nearby trailer park. These households would experience a degree of hardship should the store be permanently disqualified. Neither the owner nor anyone in a management or supervisory capacity knew about the rogue behavior by one employee. The employee acted on his own, without approval from anyone. No one else was involved. The actions by the one employee were the first violations of any kind at the store. The Appellant has not received so much as a warning from USDA prior to this incident. The violating employee had worked for the store since 2013 and had previous experience and training in EBT procedures. This demonstrates that he was properly trained and that the violations are his alone. Appellant wishes the review officer to consider the nature and scope of the violations, which are ultimately small. Additionally, there have been no previous violations or warnings, and there is nothing to indicate intent on the owner s part to violate any rule or regulation. The preceding may represent only a brief summary of the Appellant s contentions presented in this matter. However, in reaching a decision, full attention was given to all contentions presented, including any not specifically summarized or explicitly referenced herein 7

8 ANALYSIS AND FINDINGS As best as can be determined, the Appellant did not, at any point, dispute that the violations took place as described in the report of investigations, including the two incidents of trafficking. In fact, the Appellant placed the blame for the violations solely on an errant and disobedient employee. Therefore, it is the determination of this review that the violations did occur as charged. Accordingly, the remaining portion of this review will only address the contentions submitted by the Appellant and will not focus on the validity of the trafficking allegations. The Appellant s primary request is a reconsideration of a civil money penalty in lieu of permanent disqualification for trafficking. The Appellant presented a number of arguments as to why a modest CMP would be appropriate in this case. These are addressed below. No Prior Violations The Appellant, through counsel, contends that it has never been charged with violations before and argues that it has not received so much as a warning from USDA prior to this incident. With regard to these contentions, it should be noted that USDA is under no obligation to warn retailers when trafficking violations are occurring. Generally, prior warning is given only on those occasions when the violations are too limited to warrant a period of disqualification (see 7 CFR 278.6(e)(7)). Additionally, the Appellant s claim that it has been compliant with SNAP regulations in the past does not provide a valid basis for dismissing the charges or for mitigating the penalty imposed. The law is clear that when serious violations, such as trafficking, occur, permanent disqualification is the required penalty, even on the first occasion, as noted in 7 U.S.C. 2021(b)(3)(B). Appellant Owner Not Involved in Violations The Appellant, through counsel, contends that the infractions are not the product of any failure by the owner in training or supervision. According to the Appellant, neither the owner nor anyone in a management or supervisory capacity knew about the rogue behavior of one employee. The employee acted on his own, without approval from anyone, and no one else was involved. The Appellant argues that there is nothing to indicate intent on the owner s part to violate any rule or regulation, and contends that the store owner is law-abiding to her very soul. Similarly, the Appellant contends that the investigation report shows that the violating employee behaved properly on most occasions. According to the Appellant, the clerk went off the straight and narrow path only on occasion. This indicates that he was correctly trained in the relevant rules and procedures of SNAP, as he abided by them most of the time. The Appellant further claims that the violating employee had worked for the store since 2013 and had previous experience and training in EBT procedures. The Appellant claims that the clerk in question was not permitted to work alone in the store until he was employed for a substantial period of time, during which he was required to demonstrate his familiarity with all store procedures, including accepting/denying the EBT card. This, claims the Appellant, demonstrates that he was properly trained and that the violations are his alone. 8

9 These contentions imply that because the owner any manager or supervisor was not involved in the violations and because the violative actions were the responsibility of one rogue employee, a lesser penalty should be considered. With regard to these contentions, the record shows that the Appellant owner signed a SNAP application to participate as a retailer on August 27, By signing this application, the owner agreed to accept responsibility on behalf of the firm for compliance with all statutory and regulatory requirements associated with participation in SNAP. The record clearly establishes that the Appellant agreed to abide by program rules, including taking responsibility for violations committed by any of the firm s employees, whether paid or unpaid, new, full-time or part-time. An owner is not free of responsibility simply because he or she was not in the vicinity at the time the violations occurred or because he or she was uninvolved in the violations. Regardless of which clerks are operating the cash register at a given time or whom firm ownership authorizes to handle store business, the ownership of the firm is ultimately responsible for the proper training of staff and the monitoring and handling of SNAP benefit transactions. To allow store ownership to disclaim accountability for the acts of its employees would render virtually meaningless the provisions of the Food and Nutrition Act of 2008 and the enforcement efforts of USDA. Furthermore, this review strongly disagrees with the Appellant s characterization of the violating clerk s actions as going off the straight and narrow path only on occasion. The record shows that of the 10 transactions conducted during the investigation, the employee in question was involved in nine. On one of those occasions, the investigator made no attempt to traffic or purchase ineligible items. That transaction was only for the purchase of eligible food. As such, the clerk can hardly be credited with behaving properly in this situation. That leaves eight transactions. This review concedes that on one occasion, the clerk refused to allow the sale of ineligible items. That refusal is noted in Exhibit B of the investigation report. However, the clerk committed serious violations in the remaining seven transactions with which he was involved, including two instances of trafficking and several others where he appeared to be quite aware that he was selling materials for making drug paraphernalia. This review would characterize the clerk s compliance with rules and regulations as rare. It seems very clear that on most occasions, the clerk thumbed his nose at policy and Federal law and regulations. Furthermore, it is the position of this review that the store s management and ownership failed to properly supervise his actions. Therefore, the insinuation that the violations were not the fault of the owner does not provide a valid basis for dismissing the charges or for mitigating the penalty imposed. Remedial Actions Taken The Appellant, through counsel, has stated that it has made a number of changes or will shortly be making changes to its procedures to ensure that such violations will not happen again. These remedial actions are listed on page 6 of this document, and include employment termination of the offending employee and the introduction of several procedural and training steps related to the proper acceptance of SNAP benefits. 9

10 With regard to these contentions, it is important to clarify that the purpose of this review is to either validate or invalidate the earlier determination of the Retailer Operations Division. This review is limited to what circumstances existed at the time the Appellant was charged with committing program violations, and at the time that the Retailer Operations Division made its determination. It is not the authority of this review to consider what subsequent remedial actions may have been taken or will take place so that a store may enhance or begin to comply with program requirements. In addition, there are no provisions in the SNAP regulations for a waiver or reduction of an administrative penalty on the basis of alleged or planned after-the-fact corrective actions implemented subsequent to findings of program violations. Therefore, the Appellant s contention that corrective action has taken place or that further remedial actions are planned does not provide a valid basis for dismissing the charges or for mitigating the penalty imposed. Hardship to SNAP Recipients The Appellant, through counsel, has stated that Kwik Stop sells many dietary staples, such as milk, eggs, and bread. It further claims that most of the firm s EBT customers are physically infirm and live in a nearby trailer park. According to the Appellant, these households would experience a degree of hardship should the store be permanently disqualified. With regard to the contention that the community will be adversely affected if the firm is disqualified, it is recognized that some degree of inconvenience to SNAP households is likely whenever a SNAP-authorized store is disqualified and a household is forced to use its benefits elsewhere. Regulations at 7 CFR 278.6(f) do allow, in some circumstances, for a civil money penalty to be imposed in lieu of disqualification when there is an absence of other SNAPauthorized retailers in the area. However, agency records reflect almost 50 comparable or larger SNAP-authorized stores located within three miles of the Appellant firm, including several superstores and supermarkets. Therefore, it is very unlikely that the community will experience actual hardship as a result of the firm s disqualification. Regardless of the claim of hardship, however, it must be noted that the regulations are clear that a civil money penalty for hardship to SNAP households may not be imposed in lieu of permanent disqualification. CIVIL MONEY PENALTY As noted earlier, the Retailer Operations Division stated in its determination letter that the firm was not eligible for a CMP in lieu of permanent disqualification because it did not submit sufficient evidence to demonstrate that the firm had established and implemented an effective compliance policy and program to prevent SNAP violations. In accordance with regulation at 7 CFR 278.6(b)(2), in order for a civil money penalty to be considered in a trafficking case, a firm must not only notify FNS that it desires the agency to consider the sanction of a CMP in lieu of permanent disqualification, but the firm must also submit appropriate documentation within designated timeframes to support its request. 10

11 Paragraph (b)(2)(ii) states, Firms that request consideration of a civil money penalty in lieu of a permanent disqualification for trafficking shall have the opportunity to submit to FNS information and evidence... that establishes the firm s eligibility for a civil money penalty in lieu of a permanent disqualification in accordance with the criteria included in 278.6(i). This information and evidence shall be submitted within 10 days, as specified in 278.6(b)(1). [Emphasis added.] The next paragraph, (b)(2)(iii), states, If a firm fails to request consideration for a civil money penalty in lieu of a permanent disqualification for trafficking and submit documentation and evidence of its eligibility within the 10 days specified in 278.6(b)(1), the firm shall not be eligible for such a penalty. [Emphasis added.] The July 27, 2016 charge letter echoes the regulations. In the third paragraph of page 1, it reads, If you request a CMP, you must meet each of the four criteria listed and provide the documentation as specified within 10 calendar days of your receipt of this letter No extension of time can be granted for making a request for a CMP or for providing the required documentation. If your request and the required documentation are not submitted on time, you will lose your right for any further consideration for a CMP. As noted earlier, in its initial response to the trafficking charges, the Appellant made a request for a CMP in lieu of permanent disqualification, and further requested a smaller CMP amount than what was listed in the charge letter. The Appellant argued that the potential monetary penalty that was listed was vast and would be crippling to the firm. However, it should be noted that the Appellant offered no documentation or evidence to support any claim of eligibility for a CMP. Because this required documentation was not provided by the Appellant, and in accordance with 7 CFR 278.6(b)(2)(iii), it is the determination of this review that the Appellant is not eligible for a civil money penalty in lieu of permanent disqualification for trafficking. CONCLUSION As previously cited, trafficking is defined in Section of the SNAP regulations as the buying or selling of SNAP benefits for cash or consideration other than eligible food. Additionally, pursuant to regulations at 7 CFR 278.6(e)(1)(i), FNS shall disqualify a firm permanently if personnel of the firm have trafficked as defined in The law and regulations do not provide for a lesser period of disqualification for this violation. Based on a review of the evidence in this case, there is no question that program violations did occur during a USDA investigation. All transactions cited in the letter of charges were conducted or supervised by a USDA investigator and all are thoroughly documented. A review of this documentation has yielded no indication of error or discrepancy in any of the reported findings. Rather, the investigative record is specific and accurate with regard to the dates of the violations, including the exchange of SNAP benefits for cash, and in all other critically pertinent details. Therefore, the decision to impose a permanent disqualification against the Appellant, Kwik Stop, is sustained. 11

12 RIGHTS AND REMEDIES Applicable rights to a judicial review of this decision are set forth in Section 14 of the Food and Nutrition Act of 2008 (7 U.S.C. 2023) and in Section of the SNAP regulations. If a judicial review is desired, the complaint, naming the United States as the defendant, must be filed in the U.S. District Court for the district in which the Appellant owner resides or is engaged in business, or in any court of record of the State having competent jurisdiction. If a complaint is filed, it must be filed within 30 days of receipt of this decision. Under the Freedom of Information Act, we are releasing this information in a redacted format as appropriate. FNS will protect, to the extent provided by law, personal information that could constitute an unwarranted invasion of privacy. JON YORGASON May 30, 2017 Administrative Review Officer 12