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

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1 U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Alexandria, VA New York Deli, Appellant, v. Case Number: C Retailer Operations Division, Respondent. FINAL AGENCY DECISION The record indicates that New York Deli (Appellant) committed violations of the Supplemental Nutrition Assistance Program (SNAP). It is the decision of the U.S. Department of Agriculture (USDA), Food and Nutrition Service (FNS) that there is sufficient evidence to support a finding that the permanent disqualification from participation as an authorized retailer in the program, as initially imposed by the Retailer Operations Division, (Retailer Operations) was appropriate. ISSUE The issue accepted for review is whether Retailer Operations took appropriate action, consistent with 7 CFR 278.6(a), (c) and (e)(1) in its administration of the SNAP, when it assessed a permanent disqualification against Appellant. 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 By Charge letter dated May 30, 2017, Retailer Operations informed the owner that FNS had compiled evidence that the firm had violated the SNAP regulations. Electronic benefit transactions (EBT) where attached that established clear and repetitive patterns of unusual, 1

2 irregular, and inexplicable SNAP activity for the type of firm. The letter of charges states that the sanction for trafficking is permanent disqualification. The record shows that the owner verbally replied to the Charge letter on May 31, 2017 and provided a written response on June 8, Retailer Operations considered the replies and issued a Determination letter dated July 6, This letter informed Appellant that it was permanently disqualified as an authorized retail food store in accordance with Sections 278.6(c) and 278.6(e)(1) of the SNAP regulations. Retailer Operations considered Appellant s eligibility for a civil money penalty (CMP) according to the terms of Section 278.6(i) of the SNAP regulations. Appellant was not eligible for the CMP because insufficient evidence was submitted timely to demonstrate that the firm had established and implemented an effective compliance policy and program to prevent violations of the SNAP regulations. By letter dated July 8, 2017, the owner appealed Retailer Operations determination and requested administrative review of this action. The appeal was granted by letter dated July 19, The owner provided a letter dated July 25, 2017 and vendor invoices were postmarked August 16, These invoices were provided by this office to Retailer Operations for review. STANDARD OF REVIEW In an appeal of an adverse action, the Appellant bears the burden of proving, by a preponderance of the evidence, that the administrative action should be reversed. That means the 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 argument asserted is more likely to be true than not true. CONTROLLING LAW AND REGULATIONS 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). Sections 278.6(a) and (e)(1) establish 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 SNAP benefits. 7 CFR 278.6(e)(1) states in part: FNS shall disqualify 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 or selling of SNAP benefits for cash or consideration other than eligible food. 2

3 7 CFR states in part: Eligible foods means: Any food or food product intended for human consumption except alcoholic beverages, tobacco and hot food products prepared for immediate consumption. 7 CFR 278.6(a) states: 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 7 CFR 278.6(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). 7 CFR 278.6(i) states: 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. SUMARY 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 electronic benefit transfer (EBT) transaction data during the period of October 2016 through March This involved two patterns of EBT transaction characteristics which are indicative of trafficking: 1. Multiple transactions made from individual benefit accounts within unusually short time frames. 2. Excessively large purchase transactions were made from recipient accounts. APPELLANT S CONTENTIONS In reaching a decision attention has been given to all contentions presented including any not specifically referenced herein. The main business is the deli. We use fresh produce, meats and breads. We give deals on sandwiches; buy 1 get one half off plus free chips and soda. Some customers live in the vicinity. We are the only store in this area. Many people come here to buy a lot of their everyday grocery needs and sandwiches. My store has a wide array of items including a lovely deli with meats and cheeses 3

4 by the pound. We also sell fresh fruit vegetables and many nutritious items. Having EBT deactivated has affected my business. The owner provided two EBT sale slips and one refund slip to substantiate his claim that the transactions on December 22, 2016 were due to a mistake. He also attached a settlement report that showed the refund in the amount listed on the Charge letter. The owner also provided two pages with four small customer notes each and one page with three customer statements. He later advanced vendor invoices for review. ANALYSIS AND FINDINGS Retailer Operations presented a case that Appellant trafficked SNAP benefits. Each Attachment furnished with the Charge letter represents the questionable and unusual patterns of SNAP transactions indicative of trafficking which were conducted at Appellant during the review period. As patterns of unusual transactions appear across multiple Attachments the case of trafficking becomes more convincing. Attachment 1: Multiple SNAP purchase transactions were made from individual benefit accounts in unusually short time frames. This Attachment lists 29 sets of two or more transactions conducted by 22 different households. When compared to three convenience stores within a one mile radius of Appellant, Appellant had 29 data sets listed on this Attachment s parameters as compared to nine at one store and zero at each of the other two stores. Multiple transactions conducted by the same households within a short period supports that Appellant was attempting to avoid single high dollar transactions, a practice indicative of trafficking. The owner maintains: Transactions 1 and 2 were a mistake. I gave a refund instead of charging. I caught the mistake and charged the card back from the refund. Two big supermarkets closed that were in the area. They have many sales that we got from there to sell in my store. I have letters from customers who shop with me regularly. My store is located in a busy low housing residential area away from any other grocery stores or delis. Many of my customers are on state assistance and most do not have cars. They do most of their weekly shopping in my store. My register does not scan or display what the item is. I know my EBT sales are legitimate, honest and true. Upon review, the owner provided adequate evidence to substantiate his claim that the transactions 1 and 2 on this Attachment were due to a mistake. Nevertheless, there are still 28 questionable data sets. The record supports that a supermarket located.20 miles from Appellant did stop redeeming SNAP benefits in February The other market Appellant cited was not found as an authorized store in the database. Appellant s SNAP redemption totals hit a high in January 2017 of the review months. Redemptions dropped in February and March back to levels seen approximate to its December 2016 redemption total. The record 4

5 supports that in under a one mile radius of Appellant there is one supermarket, two medium groceries, two small groceries, and at least nine other redeeming authorized stores. Household Statements The owner provided 11 customer statements. Retailer Operations assessed this evidence. Household (HH) 5 U.S.C. 552 (b)(6) & (b)(7)(c) stated that it lived up the street and shopped at the store because it was convenient and it liked to support local businesses. The HH conducted 25 SNAP transactions during the review months, one data set is listed on Attachment 1 and six transactions are listed on Attachment 2. This household made 16 purchases at supermarkets and super stores during the review period, including four transactions made on the same days it conducted flagged transactions at Appellant. Household 5 U.S.C. 552 (b)(6) & (b)(7)(c) (spelling approximated) stated it bought a lot of sandwiches, the signatory didn t drive, and the store was close. The HH stated it had just been issued a new EBT card. Retailer Operations could not assess the HH s SNAP usage absent a clear name, address, or SNAP household number. Household 5 U.S.C. 552 (b)(6) & (b)(7)(c) stated it lived in the same building as Appellant, the store was convenient and was the only one in the immediate area. The HH conducted 50 SNAP transactions during the review months. It had one transaction listed on Attachment 2. The household conducted 11 transactions at supermarkets and super stores during the review period, including two transactions on days that it conducted transactions at Appellant. Household 5 U.S.C. 552 (b)(6) & (b)(7)(c) conducted 12 transactions listed on Attachment 2. The HH stated it shopped downstairs and had no ride to the store. This HH made a total of 59 SNAP transactions during the review months, eight at supermarkets. Household 5 U.S.C. 552 (b)(6) & (b)(7)(c) (last name illegible) stated it lived next door and shopped at the store all the time. This HH conducted ten transactions listed on Attachment 2. During the review period the HH conducted 59 SNAP transactions, 16 at supermarkets and super stores. During the review period, household 5 U.S.C. 552 (b)(6) & (b)(7)(c) conducted three transactions in one data set listed on Attachment 1, and four transactions listed on Attachment 2. The HH stated the store sold grinders and it is next door to its house. The household made 38 SNAP transactions during the review months, 13 at supermarkets and super stores. Household 5 U.S.C. 552 (b)(6) & (b)(7)(c) claimed that it always bought groceries at Appellant and that the owner was awesome. This household conducted three transactions on Attachment 1, and two transactions on Attachment 2, and made 45 SNAP purchases at supermarkets and super stores during the review period. Household 5 U.S.C. 552 (b)(6) & (b)(7)(c) claimed that it bought food at Appellant all the time. The HH conducted one data set on Attachment 1 and four transactions listed on Attachment 2. This household made 11 purchases at supermarkets and super stores during the review period, including six that were made on days the HH also made transactions at Appellant. Household 5 U.S.C. 552 (b)(6) & (b)(7)(c) claimed it frequented Appellant because it was close to its home. The HH also claimed that it purchased a lot of sandwiches and fruits. This household conducted eight transactions listed on Attachment 2. An unnamed household 5

6 conducted three Attachment 2 transactions at Appellant during the review period. The statement explains that the HH shopped at Appellant because it carries a lot of what my family and I need. The statement indicated that the retailer made the best sandwiches around, offered good deals, and helped to carry groceries. This household made 14 SNAP purchases at supermarkets and super stores during the review period, including two that were made on a day the HH made a transaction at Appellant. Household 5 U.S.C. 552 (b)(6) & (b)(7)(c) conducted three transactions (one data set) listed on Attachment 1, and five transactions on Attachment 2. The HH indicated that it lived next door to Appellant and purchased grinders and other food for the family there. This household made 13 SNAP purchases at supermarkets and super stores during the review period, including four that were made on days the HH made transactions at Appellant. 5 U.S.C. 552 (b)(7)(e). While these households may have made eligible food transactions at Appellant, customer affidavits are anecdotal and do not prove that the transactions were for eligible foods. Customers engaging in trafficking transactions would be unlikely to admit to trafficking. Customer statements would be expected to attest to the legitimacy of questionable transactions regardless of whether they were, in fact, legitimate. The record supports that households making multiple transactions at Appellant did so on the same day or within a few days of shopping at larger stores. For example within one day of a transaction listed on this Attachment, 44 households identified in the Attachments shopped at a large grocery, a supermarket or a super store. For example, one HH with three sets listed on this Attachment conducted SNAP transactions at three different supermarkets and two super stores within a 15.6 mile radius of Appellant. Another HH with two data sets listed shopped at two super stores and a supermarket within 2.9 miles of Appellant. Within three days of making SNAP transactions at Appellant, 59 of the 74 flagged HHs, 5 U.S.C. 552 (b)(6) & (b)(7)(c), shopped at larger stores. The data supports that there is no lack of authorized stores in the area that likely carry comparable staple foods at comparable or better prices than Appellant. The record shows that Appellant is a convenience store with one register and one POS device with no shopping carts and no handheld shopping baskets. There is a small service counter to process customers orders. 5 U.S.C. 552 (b)(7)(e). This is suspicious. Attachment 2: Excessively large purchase transactions were made from recipient accounts. This Attachment lists 218 EBT transactions conducted by 74 different households 5 U.S.C. 552 (b)(6) & (b)(7)(c). 5 U.S.C. 552 (b)(7)(e) Contentions: I have been running an honest business for one year. To my knowledge I have never made any illegal or fraudulent activity with food stamps. Most of my customers do not have cars so they do most of their weekly shopping in my store. It is not unusual to have 5 U.S.C. 552 (b)(6) & (b)(7)(c) more in EBT. 6

7 My register only displays if an item is taxable or nontax. The owner submitted copies of vendor invoices. Retailer Operations analyzed all invoices and receipts that were dated during the review months. All invoices and receipts that fell outside of the review period, had no dates, or were not itemized were excluded from the analysis. Adding a 40% retail markup to the eligible invoices total, Retailer Operations determined that Appellant had a deficiency of invoice documentation to support its SNAP redemptions. During the review period Appellant s SNAP redemptions totaled 5 U.S.C. 552 (b)(6) & (b)(7)(c). Retailer Operations determined that Appellant provided documentation of eligible foods acquired 5 U.S.C. 552 (b)(6) & (b)(7)(c). No comprehensive list of store prices for eligible foods was advanced for review. No federal or state tax records were presented. No banking records were advanced. Since permanent disqualification is warranted on the first occasion of trafficking, it is Appellant s burden to raise material issues of fact as to each of the transactions set forth as suspicious by FNS. This burden has not been met. Ownership contends that a SNAP disqualification will have a negative financial impact on Appellant s business. It is recognized that some degree of economic hardship is a likely consequence whenever a store is disqualified from participation in SNAP. However, there is no provision in the SNAP regulations for waiver or reduction of an administrative penalty assessment on the basis of possible economic hardship to the firm resulting from imposition of such penalty. To allow ownership to be excused from an assessed administrative penalty based on purported economic hardship to the firm would render virtually meaningless the enforcement provisions of the Food and Nutrition Act of 2008 and the enforcement efforts of the USDA. Furthermore, giving special consideration to economic hardship to the firm would forsake fairness and equity, not only to competing stores and other participating retailers who are complying fully with program regulations, but also to those retailers who have been disqualified from the program in the past for similar violations. Therefore, the owner s contention that the firm may incur economic hardship based on the assessment of an administrative penalty does not provide any valid basis for dismissing the charges or for mitigating the penalty imposed. CIVIL MONEY PENALY Retailer Operations determined that Appellant was not eligible for a trafficking civil money penalty according to the terms of Section 278.6(i) of the SNAP regulations. These regulations specify the criteria for a firm s eligibility for a civil money penalty in lieu of permanent disqualification for trafficking. The criteria listed therein are, as a whole, specifically identified as a minimum standard that firms must meet in order to be eligible for such a penalty. It is clear that the statute and the regulations allow no flexibility below the level of this stated standard. Accordingly, Retailer Operations determined that Appellant did not qualify for a CMP in lieu of a permanent disqualification. 7

8 CONCLUSION Retailer Operations analysis of Appellant s SNAP transaction record was the primary basis for its determination to permanently disqualify Appellant. This data provided substantial evidence that the questionable transactions during the review period had characteristics that are consistent with trafficking violations in SNAP benefits. Based on a review of all of the evidence in this case, by a preponderance, it is more likely true than not true that program violations did occur as charged by Retailer Operations. Therefore, the decision to impose a permanent disqualification against Appellant is sustained. Under review, the denial of a trafficking CMP is also sustained. RIGHTS AND REMEDIES Please see Section 14 of the Food and Nutrition Act of 2008 and Section of the regulations (7 CFR 279.7) with respect to applicable rights to a judicial review of this determination. 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 s owner resides or is engaged in business, or in any court of record of the State having competent jurisdiction. If any Complaint is filed, it must be filed within thirty (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. M. Viens October 26, 2017 Administrative Review Officer 8