U.S. Department of Agriculture Food and Nutrition Service Administrative Review Alexandria, VA 22302

Transcription

1 U.S. Department of Agriculture Food and Nutrition Service Administrative Review Alexandria, VA Maddox Grocery & Liquor, ) ) Appellant, ) ) v. ) Case Number: C ) Retailer Operations Division, ) ) Respondent. ) _) FINAL AGENCY DECISION The U.S. Department of Agriculture, Food and Nutrition Service (FNS), finds that there is sufficient evidence to support the decision by the Retailer Operations Division to impose a permanent disqualification against Maddox Grocery & Liquor (hereinafter Appellant) from participating as an authorized retailer in the Supplemental Nutrition Assistance Program (SNAP). ISSUE The issue accepted for review is whether the Retailer Operations Division took appropriate action, consistent with 7 CFR 278.6(a), (c) and (e)(1)(i) in its administration of the SNAP, when it imposed a permanent disqualification against Appellant on August 30, 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 In a letter dated May 27, 2016, the Retailer Operations Division charged the Appellant with trafficking, as defined in Section of the SNAP regulations, based on a series of irregular SNAP transaction patterns that occurred during the months of January 2016 through March 1

2 2016. The letter noted that the penalty for trafficking is permanent disqualification as provided by 7 CFR 278.6(e)(1). The letter also noted that the Appellant could request a trafficking civil money penalty (CMP) in lieu of a permanent disqualification within ten days of receipt under the conditions specified in 7 CFR 278.6(i). Appellant responded to the charges in a letter dated June 3, 2016, and in materials received on June 22, 2016, and on July 5, 2016, by the Retailer Operations Division; however, none of these contained evidence to be considered in support of the CMP. The Retailer Operations Division notified Appellant in a letter dated August 30, 2016, that the firm was permanently disqualified from participation as an authorized retailer in SNAP in accordance with Section 278.6(c) and 278.6(e)(1) for trafficking violations. This determination letter also states that Appellant s eligibility for a trafficking CMP according to the terms of Section 278.6(i) of the SNAP regulations was considered. However, the letter stated... you are not eligible for the CMP because you failed to submit sufficient evidence to demonstrate that your firm had established and implemented an effective compliance policy and program to prevent violations of the Supplemental Nutrition Assistance Program. By letters dated September 5, 2016 (ownership), and September 8, 2016 (counsel), Appellant appealed the Retailer Operations Division s assessment and requested an administrative review of this action. Subsequent correspondence dated September 29, 2016, was received from Appellant, through counsel. Subsequent correspondence dated October 11, 2016, was also received, but this correspondence was not included in the review as it was past the three week deadline for additional information STANDARD OF REVIEW In appeals of adverse actions, Appellant bears the burden of proving by a preponderance of the evidence that the administrative actions should be reversed. That means 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 statute in this matter is contained in the Food and Nutrition Act of 2008, as amended, 7 U.S.C and 278 of Title 7 of the Code of Federal Regulations (CFR). Part 278.6(e)(1)(i) establishes the authority upon which a permanent disqualification may be imposed against a retail food store or wholesale food concern in the event that personnel of the firm have engaged in trafficking of SNAP benefits. 7 CFR 278.6(e)(1)(i) reads, in part, FNS shall.... [d]isqualify a firm permanently if... personnel of the firm have trafficked as defined in Trafficking is defined, in part, in 7 CFR 271.2, as, The buying, selling, stealing, or otherwise effecting an exchange of SNAP benefits... for cash or consideration other than eligible food, either directly, indirectly, in complicity or collusion with others, or acting alone CFR 278.2(f) states, inter alia: Coupons [SNAP benefits] shall not be accepted by an 2

3 authorized retail food store in payment for items sold to a household on credit. 7 USC 2018 (b)(7)(e). As part of the retailer s reply to the charge letter, the retailer must provide adequate proof that credit accounts existed at the time the suspicious EBT transactions occurred. It is imperative that the retailer provide evidence to refute charges of trafficking. Such evidence may include an accounts receivable ledger, which lists the name of each recipient as well as the dates and amounts of each transaction the retailer claims to be a credit account transaction. The determining office shall compare the credit information provided by the retailer against the transactions outlined in the letter of charges and the recipient personal identifying information available from the State EBT administrative terminals. If the retailer does not provide adequate proof, the retailer shall be permanently disqualified for trafficking. 7 U. S. Code 2021(a)(2) states, Regulations promulgated under this chapter shall provide criteria for the finding of a violation of, the suspension or disqualification of and the assessment of a civil penalty against a retail food store or wholesale food concern on the basis of evidence that may include facts established through on-site investigations, inconsistent redemption data, or evidence obtained through a transaction report under an electronic benefit transfer system. In addition, 7 CFR 278.6(a) states, in part, 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, inconsistent redemption data, evidence obtained through a transaction report under an electronic benefit transfer system.... (Emphasis added.) 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(e)(1) reads, in part, FNS shall disqualify a firm permanently if personnel of the firm have trafficked as defined in SUMMARY OF THE CHARGES The issue in this review is whether, through a preponderance of evidence, it is more likely true than not true that the questionable transactions were the result of trafficking. The charges on review were based on an analysis of SNAP EBT transaction data during a three month period of January 2016 through March This involved three patterns of EBT transaction characteristics indicative of trafficking: 3

4 1. Multiple transactions were made from individual benefit accounts in unusually short time frames. 2. The majority or all of individual recipient benefits were exhausted in unusually short periods of time. 3. Excessively large purchase transactions were made from recipient accounts. STORE BACKGROUND The FNS initially authorized the Appellant s store on February 14, The business was reauthorized on January 31, 2006 following a three year SNAP disqualification and was classified as a medium grocery store. The business was most recently reauthorized as a SNAP retailer on February 27, The file indicates that in reaching a disqualification determination, Retailer Operations Division considered information obtained during a February 11, 2016, store visit conducted by a FNS contractor to observe the nature and scope of the firm s operation, stock, and facilities. This information was then used to ascertain if there were justifiable explanations for the EBT transactions at Appellant s store that formed patterns indicative of trafficking. The store review summary documented the following store size, description, and characteristics: This business was a typically stocked medium grocery store offering a moderate amount of staple foods and carrying no unique items or ethnic foods. The business was overcrowded with merchandise. There was only one shopping cart and 12 small handheld baskets for customer use seen during the visit making it difficult for customers to carry large amounts of food to the very small checkout counter. The checkout counter area was approximately 1.5 feet by 1.5 feet with displays on both sides of the crowded counter. The business had three cash registers (one was not operating), two POS terminals, a scanner, and a calculator or adding machine. Exterior and interior signage was in English. Exterior signage advertised grocery and produce, but did not mention meats and there was no interior signage advertising meats or meat bundles. During the FNS store visit, the reviewer was told by the owner that they bring meat from their other store down the block to sell in this store. 4

5 No food packages, bundles, case sales, or other sales were evident that would explain the unusual transactions, but there were cases of drinks available for sale. The store had a moderate stock of staple foods with the majority of inventory in accessory foods (primarily soda and other drinks), snacks, candy, and ineligible items. The inventory of staple foods at the time of the visit included: dried/bottled/canned fruit and vegetables, fruit juices, canned meat/poultry/fish, jerky, canned pasta, dry pasta, dry noodles, rice (small/medium packages), flour, sugar, corn meal, bread, tostadas, snacks, hot/cold cereals, baby cereals, baby foods, baking mixes, pancake mixes, cooking oils, mac&cheese, and noodle soups. Dairy items included: butter, margarine, packaged cheese, sour cream, cottage cheese, yogurt, whipped cream, milk, infant formula, and ice cream. Refrigerated items included: eggs, hot dogs, bacon, packaged lunch meats, chorizo sausages, and baby meats. Frozen vegetables included carrots, mixed vegetables, corn, and pineapple chunks. Other frozen foods included burritos, heat&eat sandwiches, breakfast sausages, chimichangas, & chicken teriyaki bowls. Fresh fruit or vegetables consisted of: potatoes, onions, bananas, garlic, lettuce, cabbage, broccoli, tomatoes, chilies, oranges, lemons, limes, apples, tangerines, avocados, cucumbers, & green peppers. Ineligible items included: tobacco, alcohol, lottery, household products, paper products, auto products, pet products, health and beauty items, ATM, Western Union, money orders, bill pay, newspapers, diapers, un/carbonated drinks, candy, and energy drinks. There were no fresh unprocessed meats or seafood, no frozen unprocessed meats or seafood, a moderate selection of processed meats and no frozen processed meats except for sausage links and no seafood, no frozen entrees, a moderate variety/ quantity of fresh produce, a limited variety/quantity of frozen produce, a typical 5

6 selection of canned and packaged staple food items, and few, if any, expensive food items. The store did carry baby foods, cereals, and formula, but since most SNAP recipients with infants or small children are also WIC recipients, these would be purchased using WIC vouchers at WIC vendors, not SNAP benefits. The store had been a WIC vendor, but was on a one year disqualification during the review period. Most items were priced with all visible prices ending in.x9 cents except for cold cereal that was priced at two for $5.00. This is the pricing structure most commonly used by convenience stores and grocery stores. Store hours were confirmed by the reviewer during the FNS store visit as being 7:00 AM- 12:00 PM Monday through Friday and 7:00 AM-2:00 AM Saturday and Sunday. APPELLANT S CONTENTIONS In the three responses to the letter of charges, in the request for administrative review, and in the subsequent correspondence, Appellant has stated as its position in the matter the following: Store ownership vigorously denies all the outlined allegations and is able to provide invoices that substantiate the purchases made for Maddox Liquor and Grocery which coincides with the level of sales. The owners also have the state board of equalization sales to support these claims and receipts for the sales amounts to support their claims. The business is a high volume full grocery and liquor store under the same ownership for over 25 years and the owners would not jeopardize their business by engaging in any type of illegal activity. They also own several hundred rental units and engage with other government entities such as Section the Housing Commission [sic] and all of their dealings are above board. It offers a meat department, a full grocery department, and large walk-in refrigerator and freezer sections with milk, juices, dairy, yogurt, cheeses, ice cream, frozen foods, and various other cold items. As a long-term SNAP and WIC retailer, it also carries a large assortment of grocery items that cater to SNAP and WIC customers such as baby formula, baby food, cereals, canned fruits, vegetables, and meats, baking items, nut butters and fruit spreads, dried legumes, rice, breads, prepackaged foods, and fresh produce as well as paper products and household cleaning and laundry products. The business also carries many items traditionally carried by convenience stores such as candy, nuts, chips, various snacks, beers, wine, liquor, and small-sized beverages. The meat department sells meat products in the nature of package freezer orders, and does not sell small quantities of raw meat. The four consistently offered freezer orders start at $69.00 for the lowest priced package and the highest priced package is $ Additional freezer orders are offered throughout the year based on the availability of meat products and range from $47.99 to $ Customers, at times, buy large quantities of grocery items that are offered at significant discounts as compared to traditional grocery stores. The business sells baby formula $6- $10.00 less than the supermarkets in any area which attracts more customers into the store and they buy other grocery items as well. The business carries 6

7 brand name cereals at two for $5.00, continually provides flats of eggs (20 count large and extra-large) at two for $5.00, and also offers frozen meat orders for EBT customers as well. Discounts on other consumables that are purchased in large quantities include milk, eggs, cereals, deli meats, soda, etc. The business keeps a very high stock in inventory of these items that customers tend to buy in large quantities. The alleged suspicious EBT transactions must be analyzed within the context of a high volume, full grocery store at which families and customers can do all their grocery shopping in one place and where they can save significantly getting more for their dollar than at traditional grocery stores; The multiple transactions within short periods of time can be explained by the store s offering of credit to long-term, trusted customers. These customers pay back their credit when the next month s benefits are received. Although this is not permitted under SNAP regulations, the business sympathized with these customers who reported they were out of food and had no way to feed themselves and their families. Only 45 households are listed in this Attachment showing that only certain trusted households were allowed to purchase EBT items on credit. This is a very small number compared to the hundreds of customers shopping at the business. There were 107 transactions in the first ten days of the month because SNAP customers typically come in during the first week when their SNAP benefits have been replenished. They pay back the credit amount first and conduct a separate transaction minutes later for their purchases. This explains why many of the transactions are just minutes apart. Of the remaining 58 transactions, a few can be explained by customers forgetting items once they are at the register who shop for the rest of the items after having paid. It is also not unusual for some customers to shop and then come back later for additional items. This pattern is quite common amongst households that live within walking or short driving distance of the business. The business is also the only store on the right side of the street within one mile of other stores so is sought after by on-foot customers on a regular and recurring basis. Customers who do not have access to a vehicle and can only hand-carry items are especially likely to return more frequently and this pattern is prevalent amongst cash benefit customers. The 147 suspicious transactions are in the same range with 44 in January, 48 in February, and 54 in March The approximately 50 multiple transactions per month is a small number in comparison to the enormous number of monthly sales at the business. Additionally, the total amount purchased in the multiple transactions is very small in comparison to the average monthly EBT sales at the business. 7 USC 2018 (b)(7)(e). The owners have invoices for these months that support the sales and have enclosed pictures that reflect meat products in the store coolers that are offered to store customers for purchase; The 60 transactions listed in Attachment 2 can be explained by households taking advantage of the high-volume low cost food products offered or by payments going toward outstanding balances on extensions of credit. It is not unusual for a customer to spend one hundred to several hundred dollars at the business if they have chosen to shop there instead of at a traditional grocery store. Families can easily obtain all of what they need as far as food and household items for the entire month at the business. It is especially reasonable to expect families to need hundreds of dollars of groceries to sustain them for a month. An exceptionally large family might even exceed this amount. Only 13 of the 60 transactions were under $60.00, 10 were between $60-$100.00, and 37 were between $ which is further evidence that households are buying high value and/or large quantities of items. The business keeps a high volume of inventory for items customers buy in large quantities such as baby formula, baby food, meats, cereals, etc. The 60 transactions were 7

8 made by only 29 separate households showing that these households are choosing to do the majority of their grocery shopping at the business. The fact that households are exhausting their benefits in a short period of time is also not unusual when you take into account when the households are using their benefits. There were 53 of the 60 transactions listed that occurred during the first 10 days of the month. It is typical for households to purchase large quantities of food at the beginning of the month to last them throughout the month until their benefits are replenished the next month. This is especially relevant to households who purchase meat freezer packages, large quantities of cereals, eggs, milk, dry goods, and prepackaged foods that will last a month s time. It is not unusual for a household to exhaust a whole benefit amount at once. In fact, sometimes a clerk will tell a customer their balance and the customer will add some small additional items such that the EBT portion of their card is used up for the month. Most customers will not leave a few dollars on their EBT benefit cards if most of their monthly allotment is being spent; The business sells a wide variety of products and customers regularly make large purchase transactions, particularly at the beginning of the month when their EBT benefits have been replenished and they can buy large quantities of food to last them throughout the month. There were 242 of the 301 transactions in this Attachment made during the first 10 days of the month leaving only 59 purchases made later in the month showing that customers are buying large quantities of food at the beginning of the month in preparation for the rest of the month s meals. 7 USC 2018 (b)(7)(e) The business has not committed any violations of SNAP regulations which fall under the definition of trafficking. The business has not bought, sold, stole, or otherwise effected any exchange of SNAP benefits for cash or consideration other than eligible food, directly or indirectly. The only violation the business is guilty of is extending credit to customers and this has a one year disqualification period. The owners were not aware of, did not approve of, and did not benefit from extending credit to customer households. They only became aware of the extensions of credit upon receipt of the correspondence from FNS and the business will never extend credit to an EBT household again; and, If FNS upholds its determination that the business has committed trafficking violations, ownership requests a CMP instead of a permanent disqualification because they did not engage in trafficking and because prior to the transaction period indicated in the May 27, 2016, letter had implemented a store policy regarding acceptance of SNAP benefits. They had also implemented an effective personnel training program. The owners did not submit evidence of the store policy and training documents because they misinterpreted the May 27, 2016, letter. They also mistakenly believed that there would be a formal hearing to discuss the allegations in the May 27, 2016, letter and to provide further documentation. The business is located in a densely populated area and regularly runs advertisements circulated to the neighboring residents and offers sales and competitive pricing. If the business is permanently disqualified the residents of this area, particularly those without access to a vehicle, will suffer. Additionally, the owners hold many licenses, including an Alcoholic Beverage Control license, and have never had any violations of any kind. SNAP sales account for almost 25 percent of total sales and would place a financial hardship on the owners as the business will lose a significant amount of its customer base if unable to accept SNAP. Appellant, through counsel, submitted numerous undated photographs of store layout and store inventory, two pages listing freezer orders priced at $49.99 and $74.99, one color double sided flyer 8

9 for both Maddox Grocery & Liquor and 7 U.S.C (b)(6) & (b)(7)(c) listing six freezer order specials and other sales, signed declarations from SNAP recipients admitting to having received credit, EBT terminal receipts for purchases made using cash benefits, invoices for inventory purchases, cash register receipts for SNAP transactions, the store SNAP policy and training documents, and a declaration from 7 U.S.C (b)(6) & (b)(7)(c) a co-owner of the business in support of these contentions. Previously, store ownership had submitted copies of three invoices from Quality Distributor dated during the review period listing purchases of infant formula and other grocery items; three cash register receipts (two EBT, one non-ebt); four undated flyers showing freezer order specials priced at $99.00, $89.00, $74.99, and $69.00; copies of 14 invoices from Oceanside Meats & Seafood dated during the review period listing purchases of chicken, beef, and pork; two pages of undated sales flyers that included six freezer orders, various grocery items, and ineligible items (alcohol); and three pages containing eight undated photographs of a walk-in chill room located behind the milk/beverage reach-in cooler that contained boxes of meat in addition to milk and other drinks. No other evidence was submitted in support of Appellant s contentions. The preceding may represent a summary of Appellant s contentions in this matter, however, in reaching a decision, full attention and consideration has been given to all contentions presented, including any not specifically recapitulated or specifically referenced herein. ANALYSIS AND FINDINGS Government analyses of stores caught in trafficking violations during on-site investigations have found that transactions involving trafficking consistently display particular characteristics or patterns. These patterns include, in part, those cited in the letter of charges. Therefore, based on this empirical data, and in the absence of any reasonable explanations for such transaction patterns, a conclusion can be drawn through a preponderance of evidence that the unusual, irregular, and inexplicable transactions and patterns cited in the letter of charges evidence trafficking as the most likely explanation. Nevertheless, transactions having such characteristics are sometimes valid and sufficient evidence that support that they were the result of legitimate purchases of eligible food items is provided. This is why opportunities are afforded to charged retailers to explain the questionable transactions cited and to provide evidence that they are legitimate. The Retailer Operations Division presented a case that Appellant trafficked SNAP benefits based on transaction patterns, the results of a contracted store visit, and an analysis of shopping patterns of the households who conducted the irregular SNAP transactions at the Appellant firm. Each Attachment furnished with the letter of charges identifies the questionable and unusual patterns of SNAP transactions that indicate trafficking was taking place at Appellant s business during the review period. As patterns of unusual transactions appear across multiple Attachments, the case of trafficking becomes more convincing. Multiple transactions in unusually short time frames 7 USC 2018 (b)(7)(e) 9

10 7 USC 2018 (b)(7)(e) 7 USC 2018 (b)(7)(e) 7 USC 2018 (b)(7)(e) In response to this Attachment, Appellant contends the multiple transactions within short periods of time can be explained by the store s offering of credit to long-term, trusted customers. These customers pay back their credit when the next month s benefits are received. Although this is not permitted under SNAP regulations, the business sympathized with these customers who reported they were out of food and had no way to feed themselves and their families. Only 45 households are listed in this Attachment showing that only certain trusted households were allowed to purchase EBT items on credit. This is a very small number compared to the hundreds of customers shopping at the business. There were 107 transactions in the first ten days of the month because SNAP customers typically come in during the first week when their SNAP benefits have been replenished. They pay back the credit amount first and conduct a separate transaction minutes later for their purchases. This explains why many of the transactions are just minutes apart. Of the remaining 58 transactions, a few can be explained by customers forgetting items once they are at the register who shop for the rest of the items after having paid. It is also not unusual for some customers to shop and then come back later for additional items. This pattern is quite common amongst households that live within walking or short driving distance of the business. The business is also the only store on the right side of the street within one mile of other stores so is sought after by on-foot customers on a regular and recurring basis. Customers who do not have access to a vehicle and can only hand-carry items are especially likely to return more frequently and this pattern is prevalent amongst cash benefit customers. The 147 suspicious transactions are in the same range with 44 in January, 48 in February, and 54 in March The approximately 50 multiple transactions per month is a small number in comparison to the enormous number of monthly sales at the business. Additionally, the total amount purchased in the multiple transactions is very small in comparison to the average monthly EBT sales at the business. 7 USC 2018 (b)(7)(e). The owners have invoices for these months that support the sales and have enclosed pictures that reflect meat products in the store coolers that are offered to store customers for purchase. The SNAP transactions listed in this Attachment are suspicious because they are large transactions being conducted by a specific household in a short period of time at a moderately stocked medium grocery store. They display characteristics of use inconsistent with the nature and extent of the store s stock and facilities and are indicative of trafficking. The two household examples cited above do not contain the characteristics associated with a recipient making a payment on a credit account and then purchasing groceries or of different household members shopping together and conducting separate transactions on the same EBT card. The transactions in this Attachment also do not contain the characteristics associated a recipient purchasing a forgotten item right after checking-out or households returning to purchase a forgotten item or two. 7 USC 2018 (b)(7)(e) 10

11 7 USC 2018 (b)(7)(e) Lastly, 13 of the 46 households in this Attachment representing more than 28 percent of the households listed were participating in the SNAP restaurant meals program during the period under review as shown in the first example cited above. Participation in this program is limited to homeless, elderly, or disabled recipients and it is unlikely that these households who have little or no access to cooking or food storage facilities and/or have limited physical/mental abilities to prepare meals would be transacting such large dollar amounts at the Appellant business. An analysis of the shopping patterns for all 46 households listed in this Attachment shows that all of the households shopping at the Appellant business have ready access to transportation and that all are regularly shopping at a variety of stores, including super stores and supermarkets, located nearby and at a distance from Appellant s location. It also shows there are four supermarkets and a super store located within one mile of Appellant s location that offer greater varieties and quantities of food items at lower prices than would be found at a moderately stocked medium grocery store. One of these supermarkets is located two blocks away from the Appellant business on the opposite side of 7 U.S.C (b)(6) & (b)(7)(c). 7 U.S.C (b)(6) & (b)(7)(c) has traffic signals with walk/do not walk signals and is also on a bus line so both sides of the avenue are readily accessible to individuals traveling by foot. Given the proximity of these larger stores, there is no reason for the attraction to the Appellant business and the volume of violative transactions, especially the large dollar transactions. Appellant has failed to provide any viable explanations for the irregular shopping patterns exhibited by the households in this Attachment as contentions of credit have been refuted. Also, no explanation or rationale has been offered by Appellant as to why households that are regularly shopping at larger stores offering a greater variety and quantity of SNAP eligible food stock likely at lower prices and who apparently have no transportation limitations would be conducting multiple, high dollar value transactions at a medium grocery store that offers a limited selection of staple food items and has no shopping carts that would be needed for the large transactions in this Attachment. Based on this discussion, trafficking is the only feasible explanation for these irregular shopping patterns. While Maddox Grocery & Liquor does offer some staple food items, SNAP recipients listed in this Attachment are already shopping at other larger SNAP retailers offering a greater quantity and variety of products, including fresh meats/seafood and produce, at lower prices. Therefore, the store has nothing to attract SNAP customers as there are no special or custom services offered. The FNS store visit report shows the business offers a moderate stock of SNAP eligible food with no fresh unprocessed meats or seafood, no frozen unprocessed meats or seafood, a moderate selection of processed meats and no frozen processed meats except for sausage links and no seafood, no frozen entrees, a moderate variety/quantity of fresh produce, a limited variety/quantity of frozen produce, and a typical selection of canned and packaged staple food items making it unlikely to be the grocery store of choice for large SNAP households. The store did carry baby foods, cereals, and formula, but since most SNAP recipients with infants or small children are also WIC recipients, these products would be purchased using WIC vouchers, not SNAP benefits. The store visit inventory report and photographs show little or no expensive eligible foods in stock that would account for these large amounts as well as showing the store 11

12 has very limited checkout counter space and only one shopping cart in which to transport the large number of items required to make-up these large transaction amounts. Without these, it is unlikely such large dollar value transactions could be for actual food purchases and more likely they are trafficking. There may be legitimate reasons why a SNAP recipient might return to a store during a short period of time, but the examples this Attachment indicate a series of SNAP purchases that total to large dollar amounts. The record also shows that all of the households cited in this Attachment shop at a variety of other stores, primarily supermarkets and super stores, often located at a distance from Appellant s location. 7 USC 2018 (b)(7)(e). Near Depletions of SNAP Benefit Accounts 7 USC 2018 (b)(7)(e). SNAP benefits are intended to supplement the food budget for recipient households whose net income is at or below the Federal Poverty Level. A government report on SNAP shopping patterns 1 indicates that after the first day of benefit issuance, on average, 79.1 percent of a household s allotment remains unspent. Even after seven days, 42 percent of benefits still remain unspent. It typically takes two weeks to deplete 78.1 percent of one s benefits. This report further revealed that households most often redeemed their benefits at supermarkets and super stores with only four percent of households never shopping in a supermarket. Participating households typically made several (just over nine on average) relatively small purchases ($30.00 on average) with SNAP benefits each month. Making single or multiple transactions of large dollar amounts or cumulatively large dollar amounts, and/or depleting substantial amounts of one s allotment in one day, leaving a marginal amount or no benefits for the rest of the month, is inconsistent with typical shopping behavior of SNAP benefit households. Rather, transactions over a short period of time of large value, or large cumulative value, in which SNAP benefits are exhausted are an indicator of trafficking. Examples of these transactions include: 7 USC 2018 (b)(7)(e) 7 USC 2018 (b)(7)(e) Appellant contends the 60 transactions listed in Attachment 2 can be explained by households taking advantage of the high-volume low cost food products offered or by payments going toward outstanding balances on extensions of credit. It is not unusual for a customer to spend one hundred to several hundred dollars at the business if they have chosen to shop there instead of at a 1 Benefit Redemptions in the Supplemental Nutrition Assistance Program, report prepared by Mathematica Policy Research for the Food and Nutrition Service, February

13 traditional grocery store. Families can easily obtain all of what they need as far as food and household items for the entire month at the business. It is especially reasonable to expect families to need hundreds of dollars of groceries to sustain them for a month. An exceptionally large family might even exceed this amount. 7 USC 2018 (b)(7)(e). The 60 transactions were made by only 29 separate households showing that these households are choosing to do the majority of their grocery shopping at the business. The fact that households are exhausting their benefits in a short period of time is also not unusual when you take into account when the households are using their benefits. There were 53 of the 60 transactions listed that occurred during the first 10 days of the month. It is typical for households to purchase large quantities of food at the beginning of the month to last them throughout the month until their benefits are replenished the next month. This is especially relevant to households who purchase meat freezer packages, large quantities of cereals, eggs, milk, dry goods, and prepackaged foods that will last a month s time. It is not unusual for a household to exhaust a whole benefit amount at once. In fact, sometimes a clerk will tell a customer their balance and the customer will add some small additional items such that the EBT portion of their card is used up for the month. Most customers will not leave a few dollars on their EBT benefit cards if most of their monthly allotment is being spent. The FNS store visit shows that the Appellant business is a moderately stocked medium grocery store offering limited varieties and quantities of processed meats, frozen foods, canned/ packaged goods, and produce. It is unlikely that most households would choose this store as a destination for making large household food purchases if they had the ability to shop at larger stores. 7 USC 2018 (b)(7)(e). Additionally, an analysis of shopping patterns shows that all 30 households are regularly shopping at other SNAP retailers, including a variety of super stores and supermarkets, often miles from Appellant s location indicating there are no transportation limitations. Appellant failed to provide any viable explanations for the irregular shopping patterns exhibited by the households in this Attachment or why these households would deplete or exhaust their SNAP benefits in a single day with some conducting multiple consecutive transactions to do so. While SNAP households do tend to make larger purchases in the days immediately following receipt of their monthly allotment, the behavior by households in this Attachment is contrary to the documented shopping patterns of SNAP households, as previous discussed, who typically make just over nine transactions each month consisting of relatively small dollar amounts. Also, no explanation or rationale has been offered by Appellant as to why households that are regularly shopping at larger stores offering a greater variety and quantity of SNAP eligible food stock at lower prices and who apparently have no transportation limitations would be conducting high dollar value transactions at a medium grocery store that offers a moderate selection of staple food items and has only one shopping cart that would be needed for the large transactions in this Attachment. Based on this discussion, trafficking is the only feasible explanation for these irregular shopping patterns. Additionally, 10 of the 30 households in this Attachment representing one-third of the households listed were participating in the SNAP restaurant meals program during the period under review. Participation in this program is limited to homeless, elderly, or disabled recipients and it is unlikely that these households who have little or no access to cooking or food storage facilities and/or have limited physical/mental abilities to prepare meals would be transacting such large dollar amounts and exhausting their benefits at the Appellant business. This review also identified seven households that only shopped at other stores located at a distance ( miles) from Appellant s location meaning that they were traveling miles away from their regular shopping areas, and most likely from their 13

14 places of residence, to shop at a moderately stocked medium grocery store and transact large dollar amounts when they were also regularly shopping at a variety of larger stores, including super stores and supermarkets, that would also have shopping carts to facilitate large purchases. Even though most of the households listed in this Attachment were not the same as those in Attachment 1, the same patterns of households not being regular shoppers, being on the restaurant meals program, and shopping at stores that were all more than one mile away were evident here as well. It should be noted that this Attachment is not targeting excessively large transactions per se. It represents a pattern whereby 30 households within the review months, almost depleted, or did deplete their entire monthly SNAP benefit allotments, in a single or a few transactions, during the course of some hours, all on the same day. As previously noted, this is not typical shopping behavior exhibited among SNAP recipients. High Dollar Value Transactions 7 USC 2018 (b)(7)(e) The record shows that within a one mile radius of Appellant s store there are 36 SNAP authorized retailers including: one super store, four supermarkets, one large grocery store, two medium grocery stores, four small grocery stores, three combination grocery stores, 19 convenience stores, one farmers market, and one seafood specialty store. There are three stores (one supermarket, one large grocery store, and one convenience stores) located within miles or 440 yards of the Appellant business. The four supermarkets are located miles away while the super store is 0.76 miles away. The evidence under review shows that SNAP households shopping at Maddox Grocery & Liquor are also shopping at other nearby stores, as well as at full line supermarkets and super stores, located nearby as well as at a distance from Appellant s location that offer a greater variety and quantity of SNAP eligible foods items for better or comparable prices than the customers can find at the Appellant business. The large dollar transactions remain questionable when considering the proximity of these other SNAP authorized stores. Based on these shopping patterns, transportation does not appear to be an issue for these households. 7 USC 2018 (b)(7)(e): 7 USC 2018 (b)(7)(e) 7 USC 2018 (b)(7)(e) 7 USC 2018 (b)(7)(e) 7 USC 2018 (b)(7)(e) 7 USC 2018 (b)(7)(e) The SNAP transactions noted in this Attachment are not presumed to be trafficking because they exceed a set dollar amount; they are questionable because they are inconsistent for this type of store and the store s stock. The examples cited above and others cited previously in this decision clearly show that the households in this Attachment are regularly shopping at much 14

15 larger stores and conducting transactions of large dollar amounts, yet are conducting comparable or higher dollar value transactions at Appellant s smaller and moderately stocked business. Since Appellant s business is a medium grocery store offering little or no expensive foods, these patterns are deemed to be suspicious. While the store does carry infant formula and baby foods, most SNAP households with infants or small children are WIC participants and therefore would be purchasing these foods using WIC vouchers, not SNAP EBT. As previously stated, government analyses of stores caught in trafficking violations during on-site investigations have found that transactions involving trafficking consistently display particular characteristics or patterns. These patterns include, in part, those cited in the letter of charges. As patterns of unusual transactions appear across multiple Attachments, the case of trafficking becomes more convincing. 7 USC 2018 (b)(7)(e) None of Appellant s contentions explain these unusual and suspicious differences. 7 USC 2018 (b)(7)(e) 7 USC 2018 (b)(7)(e) Like type medium grocery store located 0.64 miles from Appellant 15

16 Maddox Grocery & Liquor Maddox Grocery & Liquor The evidence also shows that this store had irregular data as compared to like type medium grocery stores in San Diego County for the same time frame as seen in the table and chart below. Appellant s transaction count and dollar volume ranges are significantly more than that of other San Diego County medium grocery stores in the lowest ranges ($0.00-$19.99) and in the higher ranges ($60.00 and up), but are significantly less in the medium ranges ($20.00-$49.99). The Appellant business offered no expensive items or meat bundles that would explain the large numbers of high dollar value transactions in these ranges. 7 USC 2018 (b)(7)(e) 7 USC 2018 (b)(7)(e) Store ownership vigorously denies all the outlined allegations and is able to provide invoices that substantiate the purchases made for Maddox Liquor and Grocery which coincides with the level of sales. The owners also have the state board of equalization sales to support these claims and receipts for the sales amounts to support their claims. The business is a high volume full grocery and liquor store under the same ownership for over 25 years and the owners would not jeopardize their business by engaging in any type of illegal activity. They also own several hundred rental units and engage with other government entities such as Section the Housing Commission [sic] and all of their dealings are above board. It offers a meat department, a full grocery department, and large walk-in refrigerator and freezer sections with milk, juices, dairy, yogurt, cheeses, ice cream, frozen foods, and various other cold items. As a long-term SNAP and WIC retailer, it also carries a large assortment of grocery items that cater to SNAP and WIC customers such as baby formula, baby food, cereals, canned fruits, vegetables, and meats, baking items, nut butters and fruit spreads, dried legumes, rice, breads, prepackaged foods, and fresh produce as well as paper products and household cleaning and laundry products. The business also carries many items traditionally carried by convenience stores such as candy, nuts, chips, various snacks, beers, wine, liquor, and small-sized beverages. The meat department sells meat products in the nature of package freezer orders, and does not sell small quantities of raw meat. The four consistently offered freezer orders start at $69.00 for the lowest priced package and the highest priced package is $ Additional freezer orders are offered throughout the year based on the availability of meat products and range from $47.99 to $ Customers, at times, buy large quantities of grocery items that are offered at 16

17 significant discounts as compared to traditional grocery stores. The business sells baby formula $6-$10.00 less than the supermarkets in any area which attracts more customers into the store and they buy other grocery items as well. The business carries brand name cereals at two for $5.00, continually provides flats of eggs (20 count large and extra-large) at two for $5.00, and also offers frozen meat orders for EBT customers as well. Discounts on other consumables that are purchased in large quantities include milk, eggs, cereals, deli meats, soda, etc. The business keeps a very high stock in inventory of these items that customers tend to buy in large quantities. The alleged suspicious EBT transactions must be analyzed within the context of a high volume, full grocery store at which families and customers can do all their grocery shopping in one place and where they can save significantly getting more for their dollar than at traditional grocery stores. Regarding the large purchases, Appellant contends the business sells a wide variety of products and customers regularly make large purchase transactions, particularly at the beginning of the month when their EBT benefits have been replenished and they can buy large quantities of food to last them throughout the month. There were 242 of the 301 transactions in this Attachment made during the first 10 days of the month leaving only 59 purchases made later in the month showing that customers are buying large quantities of food at the beginning of the month in preparation for the rest of the month s meals. 7 USC 2018 (b)(7)(e). Previously, store ownership had submitted copies of three invoices from Quality Distributor dated during the review period listing purchases of infant formula and other grocery items; three cash register receipts (two EBT, one non-ebt); four undated flyers showing freezer order specials priced at $99.00, $89.00, $74.99, and $69.00; copies of 14 invoices from Oceanside Meats & Seafood dated during the review period listing purchases of chicken, beef, and pork; two pages of undated sales flyers that included six freezer orders, various grocery items, and ineligible items (alcohol); and three pages containing eight undated photographs of a walk-in chill room located behind the milk/beverage reach-in cooler that contained boxes of meat in addition to milk and other drinks. That the Appellant business is a medium grocery store that offers staple foods in all four FNS food categories as well as a variety of snack foods and ineligible items such as household products is not disputed. Although the business had been a WIC vendor prior to the review period it was serving a one year disqualification for violations of WIC regulations during January-March 2016 timeframe. FNS records show a history of SNAP and WIC program violations at both Maddox Grocery & Liquor as well as at another store owned by 7 U.S.C (b)(6) & (b)(7)(c). Specifically, the Appellant business was disqualified from SNAP for a six month period in 2002 based on an undercover operation and was disqualified from SNAP for a three year period from based on a California law enforcement operation in addition to the April 2015-April 2016 WIC disqualification. The Appellant business also received WIC Warning Letters in fiscal years 2009, 2010, 2011, 2012, and The other business was disqualified from SNAP for a six month period in 2008 based on an undercover operation and disqualified from the WIC program for three years in The history of program violations refutes ownership s contention of their business dealings always being above board and never having engaged in any kind of illegal activity. Appellant submitted photographs showing signage for freezer meat orders as well as flyers and advertisements in support of its contention that the business sold large amounts of frozen meat. During the FNS store visit, the reviewer noted that the business had no fresh or frozen 17

18 unprocessed meats and was told by the owner that they bring meat from their other store down the block to sell in this store. A comparison of the photograph submitted by Appellant showing four signs for meat freezer orders and a photograph taken during the FNS store visit conducted on February 11, 2016, shows the same wall without any signage. This comparison clearly demonstrates that Appellant staged the photograph after the fact in an attempt to bolster support for its contention that the business sold large numbers of freezer orders. Appellant photograph FNS Photograph Appellant also submitted photographs showing boxes of meat located in a walk-in freezer that based on Appellant s photographs is located behind the milk cooler at Maddox Grocery & Liquor as shown in the top two photographs below. Appellant also submitted photographs of store stock that included a photograph of the front of the milk cooler that matches a similar photograph taken during the FNS store visit as shown in the bottom two pictures below. A comparison of the shelving containing milk and other beverages in the top two photographs shows that there are boxes and colored plastic bottles on three of the shelves, not milk while the two photographs showing the front of the milk cooler show no boxes thereby indicating that these photographs may also have been staged. Additionally, the meats shown in the Exhibit D photographs appear to be in either large chunks, in bags, or in boxes and would need to be cut up and repackaged in order to assemble the meat packages shown in Exhibits D and E. The Appellant business has no butcher shop and Appellant provided no explanation as to how or where meat is cut up. The flyer and poster submitted by Appellant advertise meat packages that include beef steak, pork steak, beef stew, chorizo and pork sausage, pork chops, baby back ribs, beef liver, pork neck bones, pig feet, ground beef, cooked ham and red snapper fillets while the photographs of the Appellant business s walk-in freezer show multiple boxes and bags containing small quantities of chicken leg quarters, boxes of beef knuckles, large chunks of what appear to be pork and small amounts of unknown meat in blue plastic bags. Appellant provided no explanation as to where the additional varieties and quantities of meats needed to make up the packages shown in Exhibits D and E which Appellant claims are available for sale on a regular basis thereby explaining the large transactions in the charge letter. There were 406 flagged transactions listed in the charge letter, but none of the prices of the meat packages allegedly for sale at the subject store matched any of the amounts listed in the charge letter. 18

19 Appellant photograph Appellant photograph Appellant photograph FNS photograph 19