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

Transcription

1 U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Alexandria, VA Eden Gourmet Deli & Grocery Corp, ) ) Appellant ) ) v. ) Case Number: C ) ROD Office, ) ) Respondent ) ) FINAL AGENCY DECISION It is the decision of the U.S. Department of Agriculture, Food and Nutrition Service (FNS) that the permanent disqualification from the Supplemental Nutrition Assistance Program (SNAP) imposed upon Eden Gourmet Deli & Grocery Corp (hereinafter Appellant ) by the ROD (Retailer Operations Division, Investigations and Analysis Branch, hereinafter ROD Office ) is hereby sustained. ISSUE The issue accepted for review is whether the ROD Office took appropriate action, consistent with 7 U.S.C. 2021, 7 CFR 278.6(a) and 7 CFR (e)(1) and (i) in its administration of the SNAP when it imposed a permanent disqualification upon Appellant. AUTHORITY 7 U.S.C and the implementing regulations at 7 C.F.R 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 January 26, 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 August through October The letter noted that the sanction 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 10 days of receipt under the conditions specified in 7 CFR 278.6(i). The record reflects that the SNAP Office received and 1

2 duly considered Appellant s replies to the Charge Letter. By a letter dated February 25, 2016, Appellant was informed that it was permanently disqualified from participation as a retail store in the SNAP and was ordered upon receipt of the letter to cease accepting SNAP benefits; consequently, Appellant ceased to accept said benefits. On March 7, 2016, Appellant requested an administrative review of the SNAP Office s decision; the request was granted. STANDARD OF REVIEW In appeals of adverse actions an appellant bears the burden of demonstrating by a preponderance of the evidence that the administrative actions should be reversed. That means 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 statute in this matter is contained in the Food & Nutrition Act of 2008, as amended, at 7 U.S.C and in Part 278 of Title 7 of the Code of Federal Regulations (CFR). 7 U.S.C. 2021, Part 278.6(a) and Part (e)(1)(i) of the Regulations establish the authority upon which a permanent disqualification may be imposed upon 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 278.6(a) states, inter alia: FNS may disqualify any authorized retail food store if the firm fails to comply with the Food & 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(e)(1)(i) states: Disqualify a firm permanently if: Personnel of the firm have trafficked as defined in

3 7 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, (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 278.6(f)(1) states, inter alia: A civil money penalty for hardship to SNAP households may not be imposed in lieu of a permanent disqualification. 7 CFR 278.6(i) states, inter alia: FNS may impose a civil money penalty in lieu of a permanent disqualification for trafficking as defined in 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 7 CFR 278.6(b)(2)(iii) states, inter alia: 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. SUMMARY OF THE CHARGES Examples of transaction data contained in the SNAP Office s Charge Letter, as well as additional data reflected in the record, are included below to serve as a point of reference for the following discussion: There were 505 SNAP transactions totaling $10, ending in same-cents values (Attachment 1): 3

4 There are 30 sets of violations listed completed by 20 different households. All of the multiple purchases from individual benefit accounts occurred within a 24 hour time period. The store visit report does not indicate any compelling reason for customers to consider the store a first choice destination to fulfill large purchases of food,. Data indicating clients shop at better-stocked firms on or about the same day as conducting implausible transactions at Appellant s firm (SS = super store, SM = supermarket; LG large grocery; MG = medium grocery; SG = small grocery; CO = combination grocery/other store; CS = convenience store): APPELLANT S CONTENTIONS In Appellant s reply to the Charge Letter and in its written request for review dated March 7, 2016, it was argued that: 1. Appellant believes there is no proof of trafficking as in a case with undercover agents personally observing actual trafficking. The allegations are based merely on conjecture raised by what the agency considers suspicious activity gleaned from the EBT. 2. Regarding the three categories of suspicious transactions, Appellant considers Attachment 1 a particularly weak case. The unusual number of transactions ending in same-cents values proves nothing. There were 505 of these transactions over the 90-day analysis period which breaks down to 5.6 per day. Why is that unusual? Most of 4

5 Appellant s products end in $.00, $.50 or $ Multiple transactions in unusually short time frames accounted for only 66 transactions over 90 days, less than one per day. Some of the household numbers appear more than once. 7 U.S.C (b)(6) & (b)(7)(c). The first transactions looks like it might have been an accident because it is the same exact amount, but the other instances show that the person shopped an hour or an hour and a half apart. All of these transactions except one occurred before the 15 th of the month, indicating that people have received their benefits at the beginning of the month and are spending the money on food items. Appellant is in no position to tell people that they cannot shop in unusually short timeframes. If customers need to shop two or three times per day there is nothing the store can do about it. 4. Regarding Attachment 3 to the Charge Letter, many times bodega owners have sales over $300 or $400. In this case the largest excessively large purchase is only $ and it is the only transaction over $100. Appellant sells enough groceries to easily generate a sale over $100.00, yet USDA considers anything over $46 as suspicious. There are only 130 of these transactions which means 43 per month or one and a half per day. There is nothing irregular or suspicious about this. Appellant provided a significant number of receipts to justify the allegedly large purchases but was turned off in only six days. Appellant does not believe that significant or meaningful consideration has been given to the case as most normally take several months to get a decision. It seems likely that none of Appellant s attachments were read and the decision is therefore arbitrary, capricious and illegal. ANALYSIS AND FINDINGS. The record reflects that the ROD Office has provided a lengthy and comprehensive case in support of its sanction determination, as will be discussed in further detail below. Appellant implies that the substance of the ROD Office s case against the firm is derived from data only and that there were no independent witnesses to affirm the trafficking allegations. 7 CFR 278.6(a), noted above, establishes the authority upon which FNS may disqualify any authorized retail food store on the basis of evidence obtained through a transaction report under an electronic benefit transfer system. Such cases are developed with the standard in mind that a prima facie preponderance of evidence is sufficient in order to charge a firm with SNAP-benefit trafficking.. Various statistical tools and graphical reports are utilized, as well as store visit documentation reflecting the firm s nature and extent of inventory and the firm s logistical wherewithal. Compliance history and household data are evaluated. The record reflects that Appellant s firm was chosen for analytical investigation based upon numerous detailed and rigorous mathematical algorithms applied not only to Appellant s firm but to all SNAP-authorized firms, including all firms of a like type (small grocery stores, in this case) in the state of New York. The data analyzed includes numerous comparisons of information such as the average SNAP purchase amount in small grocery stores in Bronx County, which was $10.05 during the analysis period, dramatically lower than most of the transaction data contained within the Charge Letter. The record contains documentation, including photographs of the firm s interior and exterior, an inventory survey and a layout diagram, of a visit to Appellant s firm conducted on November 9, These documents reflect the firm to have been a typically to modestly-stocked store in all relevant respects. The firm maintained a substantial inventory of tobacco products, alcohol, over-the- counter medicines, cleaning supplies, paper products, pet supplies, health and beauty products, household items, clothing, incense and other non-food items. The firm also maintained a substantial inventory of prepared, ready-to-eat food and accessory food items (candy, 5

6 beverages, etc.), which is typical convenience store stock and in fact the firm also operated as a prepared food restaurant/carryout. Evidence in the record reflects that the firm also operated as a liquor store. The record, including the firm s application to participate in the SNAP, thus reflects that the firm was correctly categorized as a small grocery store, though information in the record provided by Appellant (in the form of product purchase receipts/invoices) would indicate that the store would be more correctly categorized as a convenience store, which would in fact render the firm s transaction activity yet more implausible. Various data presented the ROD Office with a statistically valid prima facie indication of highly unusual transaction activity; the activity therein identified is not marginally aberrant, but markedly so. Properly analyzed and interpreted, the ROD Office does not contend that the EBT (electronic benefits transfer) transactions detailed in its Charge Letter are overtly suspicious when they occur on an occasional or intermittent basis, but when such transactions form repetitive patterns on a consistent and comparative basis over substantial periods of time such activity is identified for further analysis.. The firm is then given the opportunity to reply to those charges and provide any information it deems appropriate in justifying as legitimate the transaction activity detailed in the Charge Letter.. Moreover, as noted above, the regulations at 7 CFR 278.6(a) state that FNS may disqualify any authorized retail food store on the basis of evidence obtained through a transaction report under an electronic benefit transfer system; consequently, transaction data as a basis for the charges at issue is as valid as evidence obtained through an undercover investigation.. Furthermore, the case presented by the ROD Office does not rest solely upon transaction data and printouts thereof (although the regulations do provide for such data-only charges) and was indeed obtained through a formal investigative process. As summarized herein, the record contains a comprehensive array of documentation and analytical work well beyond the data presented in the Charge Letter. The transaction data is indeed factual and specific, the existence and accuracy of which is not in dispute; redundant systems confirm numerous data points for each transaction including the date, time, store authorization number, terminal ID, amount transacted, prior balance and other particulars. It is worthwhile to restate as well that, as noted above, in appeals of adverse actions an appellant bears the burden of demonstrating by a preponderance of the evidence that the administrative actions should be reversed; Appellant must provide a preponderance of evidence that the transactions detailed in the charge letter were more likely than not due to the legitimate sale of eligible food in exchange for SNAP benefits. In the absence of compelling information/documentation weighed in comparison to that provided by the ROD Office, the evidence preponderates in favor of the ROD Office s determination that SNAP- benefit trafficking substantially produced the transaction activity at issue in the present case. Regarding contention 2 above, as noted, a contracted store visit to the Appellant firm was conducted on November 9, 2015, as a result of which documentation was obtained including photographs of the exterior and interior of the store, a store layout diagram and a store inventory survey. This documentation reflects the following: No optical scanners. No shopping carts or baskets. One cash register. 6

7 One point-of-sale device (SNAP card reader). Hot food sold. No dining area. Deli or prepared-food section present. To-go containers stacked by food preparation/kitchen area (photo 15 and 24). The prepared-food entrée marquee advertised payment methods and listed the following: EBT, Foods Stamps, ATM, Debit and Credit Cards. The sign noted below is also attached to the same marquee. Signage near the food preparation/kitchen area notes, Sorry, we cannot accept E.B.T. on Hot Food Purchases. Thank You. The store also operated as restaurant/carryout and maintained a full commercial kitchen (photos 6, 15). A marquee above the kitchen area advertised hot food entrees, most of which were priced in standard retail variations of $.x9. Outdoor signage also advertised entrees using the same pricing scheme. No meat/seafood bundles/specials or fruit/veggie boxes. Approximately 800 square feet of retail space. No food stored outside of public view. No night window. Not a delivery route or other specialty store. Inventory included tobacco products, alcohol, over-the-counter medicines, cleaning supplies, paper products, pet supplies, health and beauty products, household items, clothing, incense and other non-food items. Most visible prices were in standard retail variations of $.x9 (photos 6, 14, 15, 17, 21, 22, 23, 24, 25, 27). The check-out counter was approximately 2 feet by 1.5 feet and surrounded by candy, snack items, over-the-counter medicines, tobacco and tobacco-related products and other non-food items. The documentation presents no indication of advertised specials, promotions, bulk or expensive food items. The documentation reflects that the firm was a typically-stocked small grocery store in all relevant respects, though as noted the store s inventory was very similar to that of a convenience store, primarily offering snack items, soda and other individually sized beverages with a very modest staple food inventory; invoices provided by Appellant reflect that the firm operated substantially, perhaps primarily, as a liquor store. Appellant notes that same-cents transactions occurred only 5.6 times per day during the analysis period; while this is acknowledged, these transactions occurred at a substantially higher rate at the Appellant firm than at the six nearest (from virtually next door, another at just over 200 feet, and a third at just over 350 feet to less than one-fifth of a mile) active comparable stores (small grocery stores). Appellant provides no corroboratory information/documentation to support its contention that most of the firms prices ended in $.00, $.50 and $.75; and as noted in the foregoing the store visit documentation indicates that most visible prices were in standard retail variations of $.x9. A number of small items priced in variations of $.x9, which is the type of inventory reflected in the photographs and store inventory survey obtained during the store visit, will not routinely produce totals ending in $.00, $.50 and/or $.75. In the absence of verifiable information supporting the rationale that store pricing caused the unorthodox transactions contained in Attachment 1, the transactions appear largely contrived. 7

8 . Appellant provides no documentary support for the contention. Additionally, in a manner similar to Attachment 1, though much more dramatic, repetitive transactions conducted in 24 hours or less at the Appellant firm (Attachment 2) occurred at a much higher rate than at nearby comparable SNAP-authorized firms. Appellant s repetitive transactions ranged from 11 to 66 times that of the nearby (from virtually next door to under one- fifth of a mile, as noted above) small grocery stores. It is implausible that customer shopping habits would vary so dramatically from one similarly-stocked small grocery store to the next within one-fifth of a mile. While there are legitimate reasons why a SNAP recipient or household member might return to a small grocery store during a short period of time; such purchases are more typically in small amounts and for obtaining just a few items. The examples in Attachment 2 indicate a series of repetitive purchases that total large amounts (from $ to $176.00). Customers spending such substantial amounts of SNAP allotments in a typically-stocked small grocery store, when there are other larger food stores nearby which carry substantially larger varieties of food at lower costs, is implausible. Multiple transactions over a short period of time, especially of high dollar value, are very suspicious because they are typical of stores and SNAP customers which are attempting to diminish attention to signs of SNAP-benefit trafficking; the perception persists that breaking up large transactions into smaller transactions avoids attention to transaction activity that would be implausible for small stores. There is no compelling rationale to explain why primarily Appellant s customers made repetitive visits spending large amounts in short timeframes. The record reflects, as noted below, that Appellant s store is, at best, a typically to modestly stocked small grocery store in all relevant respects and provides no plausible bases for customer s unusual attraction to the firm and unorthodox transaction patterns. Moreover, multiple repetitive digits (highlighted on pages 4 through 6 above), strongly indicate that many of the SNAP transaction amounts reflected in Attachment 2 were contrived. Random data, which legitimate transaction activity approximates, is extremely difficult to produce intentionally; it is very difficult to avoid producing repetitive patterns when attempting to create the appearance of normal, near-random transactions. Such sets of repeating digits are highly unorthodox, implausible and do not regularly occur in legitimate transactions;. Appellant notes that bodega owners frequently have sales over $300 to $400; such may well be the case but if there is little or no rationale to support those sales these firms are quite likely to become the object (and indeed may well have already done so) of SNAP investigations, as such sales do not routinely occur in small grocery stores. As noted in the foregoing, the average SNAP purchase in a small grocery store in Bronx County was $10.05 during the analysis period, reflecting that large purchases are not common in such stores. The record reflects that the ROD Office duly considered the invoices provided by Appellant and found them unsupportive of its assertions that they explain the transaction activity in Attachment 3.. 8

9 . The above transactions reflect elements of contrivance, indicating that they were not the result of sales of random numbers of eligible food items priced in standard retail variations of $.x9. The information in the record reflecting the firm s business operations does not explain the transaction activity; information in the record regarding the firm s pricing and inventory, including the store visit referenced above, reveals no legitimate basis for SNAP customers attraction to the firm, there being no superior selection of staple foods, no evidence of a price advantage, no compelling evidence of package, bulk or promotional items, no extensive variety of otherwise unavailable ethnic food items and no evidence of custom or special services rendered. The SNAP Office notes that, at the time of the sanction decision, there were 68 SNAP-authorized stores within a one-mile radius of the Appellant firm, including several super stores and supermarkets. Agency data indicates that there are currently 362 SNAP-authorized firms within a one-mile radius, including 11 super stores (four from just over one-quarter mile to well under one-half mile from the Appellant firm), 15 supermarkets (four from just over 250 feet to one-half mile), nine large grocery stores (four from one-tenth of a mile to just over one-half mile), 50 medium grocery stores (19 from just over 50 feet to just over one-half mile), 130 other small grocery stores (46 from virtually next door to the Appellant firm to just under one-half mile), four seafood specialty stores (three from just over one-third of a mile to just under one-half mile), eight meat specialty stores (three from just over 150 feet to well under one-half mile), 12 fruit/vegetable specialty stores (six from just over one-tenth of a mile to well under one-half mile), three farmers markets (one at just over one-third of a mile), seven bakery specialty stores (four from just over one-tenth of a mile to one-half mile), 30 combination grocery/other stores (three from just over 400 feet to one-half mile) and 82 convenience stores (32 from just over 50 feet to one-half mile). As noted, the data reflected in the examples on pages 8 through 10 above indicate many customers clearly have access to and routinely shop at better-stocked super stores and supermarkets in the immediate area, calling into question what customers were able to obtain at Appellant s typically to modestly-stocked small grocery store that they were not able to obtain at much better-stocked and more competitively-priced stores. This information further indicates that these customers were conducting implausible transactions only at or primarily at the Appellant firm. The Appellant store was clearly not the only store in the immediate area offering food items to SNAP customers; as noted above, it was clearly not the best-stocked firm in the area and it was clearly not the only store being visited by Appellant s customers. Furthermore, agency data reflect that the numbers of Appellant s SNAP transactions in three transaction bands during the analysis period were multiple times that of the store-type average in the state of New York: in the $60.00 to $69.99 band, the firm conducted over three times the average number of transactions; in the $70.00 to $79.99 band, the firm conducted two times the average number of transactions; in the $80.00 to $89.99 band, the firm conducted over four and one-half times the average number of transactions. As noted, the firm is a typically to modestlystocked small grocery store in all relevant respects; there exists in the record no legitimate basis for the nature and level of the firm s transaction and redemption activity. Lastly, once trafficking is established, there is no latitude to impose a lesser sanction, with the exception of civil money penalty. There is provision at 7 CFR 278.6(i) for the imposition of a 9

10 civil money penalty in lieu of permanent disqualification for trafficking. Appellant was advised of this provision in the SNAP Office s Charge Letter dated January 26, 2016 which also advised that documentation of eligibility for that alternative sanction was to have been provided within a specific time limit. In the absence of any such documentation, a civil money penalty was not imposed in lieu of permanent disqualification by the SNAP Office. The SNAP regulations are specific at 7 CFR 278.6(b)(2)(iii) in that 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 (within 10 days of receiving the letter of charges), the firm shall not be eligible for such a penalty. As Appellant did not request such consideration and provided no evidence or information in support thereof, the SNAP Office s decision not to impose a civil money penalty is sustained as appropriate pursuant to 7 CFR 278.6(b)(1); 278.6(b)(2)(ii), 278.6(b)(2)(iii) and 278.6(i). CONCLUSION In view of the above, the decision of the ROD Office to permanently disqualify Appellant from participation in the SNAP is hereby sustained. The decision will become final upon the 30 th day following Appellant s receipt of this document. RIGHTS AND REMEDIES Applicable rights to a judicial review of this decision are set forth in 7 U.S.C and 7 CFR If a judicial review is desired, the complaint must be filed in the U.S. District Court for the district in which Appellant s owner resides, is engaged in business, or in any court of record of the State having competent jurisdiction. This complaint, naming the United States as the defendant, must be filed within thirty (30) days of receipt of this decision. Under the provisions of the Freedom of Information Act (FOIA), it may be necessary to release this document and related correspondence and records upon request. If such a request is received, FNS will seek to protect, to the extent provided by law, personal information that if released could constitute an unwarranted invasion of privacy. December 9, 2016 DANIEL S. LAY ADMINISTRATIVE REVIEW OFFICER DATE 10