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

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1 U.S. Department of Agriculture Food and Nutrition Service Administrative Review Alexandria, VA BJ Grocery and Food Store, ) ) 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 BJ Grocery and Food Store (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 September 2, 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 June 2, 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 November 2015 through April The letter noted that the penalty for trafficking is permanent disqualification as provided 1

2 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 charge letter on June 13, 2016, but the response contained no evidence to be considered in support of the CMP. The Retailer Operations Division notified Appellant in a letter dated September 2, 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 letter dated September 12, 2016, Appellant appealed the Retailer Operations Division s assessment and requested an administrative review of this action. No subsequent correspondence has been received from Appellant. 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 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 2

3 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. (Emphasis added.) 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 six month period of November 2015 through May This involved five patterns of EBT transaction characteristics indicative of trafficking: 1. Multiple purchase transactions were made too rapidly to be credible. 2. Multiple transactions were made from individual benefit accounts in unusually short time frames. 3. The majority or all of individual recipient benefits were exhausted in unusually short periods of time. 4. An excessive number of manual key-entered EBT transactions were made from the business. 5. Excessively large purchase transactions were made from recipient accounts. STORE BACKGROUND The FNS initially authorized the Appellant s store on March 30, 2015, and the business is classified as a convenience store. The file indicates that in reaching a disqualification determination, Retailer Operations Division considered information obtained during a May 4, 2016, store visit conducted by a FNS contractor to observe the nature and scope of the firm s 3

4 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 very small, very minimally stocked convenience store offering a very minimal amount of staple foods and carrying no unique items or ethnic foods. The contractor estimated the store to be about 525 square feet with no food stored in a storage area out of public view. There were no shopping carts and only 12 small handheld baskets for customer use seen during the visit making it difficult for customers to carry large amounts of food to the checkout. There was a single checkout area approximately 2.5 feet by 2.0 feet set into a plastic security wall with displays on both sides leaving a small area for customers to place their purchases. There also was a large metal stand containing 12 wicker baskets directly under the checkout area that customers must reach over in order to place items on the counter as shown below. The checkout counter had one cash register and one POS terminal visible. No food packages, bundles, case sales, or other sales were evident other than pick 5 for $ The inventory of staple foods at the time of the visit included: dried/canned fruit and vegetables, fruit juices, bagged nuts, canned meat/poultry/fish, jerky, canned pasta, dry pasta, rice (small), flour, sugar (three), corn meal, bread (three each), snacks/baked goods, cold cereals (three each), baby cereal (one each), pancake mixes, noodle soups, mac& cheese, and baby formula. Dairy items included: butter, margarine, packaged cheese, infant formula (two soy & three dairy), and single serving ice cream. Refrigerated items included: eggs, frozen vegetables (mixed, corn, & possibly okra), packaged lunch meats (bologna & chicken), bacon, sausages, frozen fish, frozen 4

5 sausages, and frozen heat and eat foods (biscuit sandwiches, three pot pies, cheeseburgers, & pizza). Fresh fruit or vegetables consisted of: lettuce (one head), apples, potatoes (five each), lemons, and two packs of three tomatoes each. There was minimal staple food stock with the majority of stock in accessory foods (primarily soda and other drinks), snacks, candy, and ineligible items. Ineligible items included: tobacco, household products, paper products, auto products, health and beauty items, ATM, clothing, arcade-type games, and hot food while accessory foods included: candy, carbonated/uncarbonated drinks, spices, and condiments. There were no fresh unprocessed meats or seafood, no frozen unprocessed meats or seafood, minimal processed meats and no processed seafood, no deli meats or cheeses, no frozen entrees, minimal fresh and frozen produce, no jars of baby food, no fresh milk, and few, if any, expensive items. There was no deli or kitchen area although there was a small area in the front of the store contained hot coffee and hot nuts. Many shelves and coolers were empty or were marginally filled with stock fronted to give the appearance of greater inventory as shown below. Most items did have price stickers. The store was not a WIC vendor. Signage in the store was in English. There was no signage advertising the store s delivery service. Store hours were confirmed by the reviewer during the FNS store visit as being 6:00 AM- 9:00 PM Monday through Thursday, 6:00 AM-10:00 PM Friday and Saturday, and 8:00 AM-8:00 PM Sunday. Store inventory was significantly less than during the March 20, 2015, store visit. APPELLANT S CONTENTIONS In the response to the letter of charges and in the request for administrative review, Appellant 5

6 has stated as its position in the matter the following: Ownership appreciates FNS s advocacy in the community to assist in resolving issues with local companies such as the recent one with his grocery store. The owner was recently made aware of the multiple manual transaction entries violation and is working to resolve both of these issues; There are two cash registers and only one EBT machine. The cashiers have to share the EBT machine and often they are waiting for the other to get done so they can run the purchase. When that happens then the transactions would occur within seconds of each other; The multiple transactions are because recipients sometimes use their cards to check balances before making larger purchases. Other times they let their children or spouses make purchases of what they want also before or after. The numbers of manual transactions are because the business does deliveries for many customers because they do not have transportation. Since the store does not actually have their EBT card, it is manually run over the phone. Store employees check their IDs to the name on the card when the order is delivered. The owner hopes these are not against policy. He has read through them and could not find any issues that would be a problem; Since learning of the transaction errors, store ownership has conducted a thorough inhouse investigation that resulted in the firing of one employee. The owner has also instituted a new policy that requires manager approval to manually enter credit card numbers. All new employees will be trained to follow this policy, and informed that potential repercussions for violating it include termination. The owner is personally at the store daily to make sure this situation is being handled quickly and effectively, and to make sure the needed controls are in place to keep it from happening again; The business is a locally-owned grocery store where the owner has worked hard to provide quality services to an underserved community for soon to be two years and has recently upgraded the cooler system to allow a larger selection of meats to attract more customers. There are no other grocery stores within two miles nor are there any restaurants or stores that offer a range of food products, not to mention the many meat products that are the store s specialty allowing the business to provide meat sales and meat bundles at a sale price to customers. Customers also frequently purchase fresh fruits and vegetables providing an important and needed service to the community in an area that is considered to be a food desert as it has such limited food and restaurant options; In addition to the public university students who walk to the store, the community has many low-income residents including the elderly, single parents, and disabled people who have limited access to transportation. Most of the customers rely on walking or public transportation making the business one place they can buy food easily and conveniently. If many of our customers had to travel to another grocery store for their purchases, they would have to transport refrigerated products such as meats and dairy items for long distances in unrefrigerated conditions which would pose a public health risk. In short, the business is an important economic and product resource to the community, one that is generally underserved in all areas, and one where the Better Business Bureau has worked to encourage economic development and increase business 6

7 opportunities and growth for years. Without SNAP, most of the customers could not make purchases from the store and this would cause a hardship for them as they would have to obtain cash to make food purchases. This will create an economic hardship for the already disadvantaged in the community when they simply need to buy food. If customers cannot obtain cash and take their business to another store that can accept SNAP, it is likely that the business will not be able to remain in operation. This will result in a shuttered and empty building, encouraging vagrancy, vandalism, and neighborhood decay. Vacant buildings have historically been an issue in the community with a recent initiative involving the Better Business Bureau, local police, and non-profit organizations to repurpose several vacant commercial properties as afterschool programs which was greatly welcomed by the community. The business will not be able to make adequate sales to continue to pay the overhead which will result in the loss of a store to the community as well as a default on a $100, loan from the community bank which would reduce already limited capital available to the community; and, The owner understands why the disqualification occurred and asks for a chance to rectify the situation and have the SNAP program returned to the store. Appellant submitted 16 photographs of the area surrounding the business, the exterior of the business, and the interior of the business showing new improvements and existing food inventory in support of these contentions. 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 7

8 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. Rapid Transactions 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). Appellant contends that the business has two cash registers and only one EBT machine. The cashiers have to share the EBT machine and often they are waiting for the other to get done so they can run the purchase. When that happens then the transactions would occur within seconds of each other. The report and photographs from the May 4, 2016, store visit show a single checkout area with one cash register and a single POS terminal for transmitting SNAP transactions. Additionally, the examples cited above show that the business was not crowded with customers waiting in line so there would have been no need for two cashiers even if there were two cash registers and two checkout areas. SNAP benefit transactions would entail recipients hand-carrying food items to the small checkout counter a little at a time because there are no shopping carts with which to transport the large number of individual food items needed for these large dollar value transactions, waiting for the previous customer to vacate the checkout area, putting their purchases on the counter, the clerk handling individual items to enter their price, bagging the items, handing the recipient bagged items to make room for more food items the recipient is bringing to the checkout, informing the recipient of the total, pressing the SNAP transaction key on the SNAP terminal device, swiping the SNAP card or manually entering the lengthy card number, having the recipient enter the PIN, and waiting for the transaction to be processed by the system. A separate transaction would then have to occur to pay for any non-food items, such as personal hygiene or cleaning supplies, which the household may also be purchasing. Thus, it is highly unlikely that multiple large transactions occurring within only a few minutes or seconds of each other could involve solely the sale of eligible foods. The large transaction dollar amounts and the short interval between transactions in the examples cited above demonstrate this improbability and suggest trafficking as the most likely explanation. 8

9 Multiple transactions in unusually short time frames 7 USC 2018 (b)(7)(e) 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 are because recipients sometimes use their cards to check balances before making larger purchases. Other times they let their children or spouses make purchases of what they want also before or after. 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 very minimally stocked convenience 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 transactions in this Attachment do not contain the characteristics associated with a recipient checking their balance, allowing family members to make purchases before or after their purchase, purchasing a forgotten item right after checking-out, or households returning to purchase a forgotten item or two. 7 USC 2018 (b)(7)(e). The FNS store visit report shows the business offers a very minimal stock of SNAP eligible food that would not support the large dollar value transactions in this Attachment. The inventory report and photographs from the FNS store visit also show no expensive eligible foods in stock that would account for these large dollar amounts as well as showing the store has a single checkout counter with limited space and no shopping carts 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. Regarding the five containers of infant formula, most SNAP households with infants or small children are WIC participants and therefore would be purchasing infant formula using WIC vouchers, not SNAP EBT. An analysis of the shopping patterns for all 19 households listed in this Attachment shows that all are regularly shopping at a variety of larger stores, including super stores and supermarkets, located both nearby and at a distance from Appellant s location indicating they have ready access to transportation. It was also noted during this analysis that 16 of the 19 households shopped 12 times or less at the Appellant business showing that they are not regular customers and that 14 of the 19 households did not shop at any other SNAP retailers located within 3.4 miles of Appellant s location indicating that these households do not live in the area and are traveling miles out of their way to transact large dollar amounts at the Appellant business. Appellant provided no explanation for these unusual and suspicious shopping patterns. While the Appellant business does offer some staple food items, there are other larger SNAP retailers located in proximity to Appellant s business offering the same type products, likely with greater variety and at lower prices. Therefore, the 9

10 store has nothing to attract SNAP customers as there are no special or custom services offered. There may be legitimate reasons why a SNAP recipient might return to a store during a short period of time, but the examples in Attachment 2 indicate a series of SNAP purchases that total to large dollar amounts. 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. 7 USC 2018 (b)(7)(e) : 7 USC 2018 (b)(7)(e) 7 USC 2018 (b)(7)(e). 7 USC 2018 (b)(7)(e) Appellant provided no documentation or explanation to support the legitimacy of the listed transactions in this Attachment. The FNS store visit shows that BJ Grocery and Food Store is a minimally stocked convenience store offering very limited varieties and quantities of processed meats, canned/packaged goods, and produce. It is unlikely that most households would choose this store as a 1 Benefit Redemptions in the Supplemental Nutrition Assistance Program, report prepared by Mathematica Policy Research for the Food and Nutrition Service, February

11 destination for making large household food purchases if they had the ability to shop at larger stores. This is supported by the fact that 13 of the 14 households in this Attachment shopped at BJ Grocery and Food Store nine times or less during the review period with nine households shopping there five times or less signifying that more than 92 percent of the households in this Attachment are not regularly shopping at the Appellant firm. Additionally, an analysis of shopping patterns shows that all 14 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 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. 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 convenience store that offers a very 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. It should be noted that this Attachment is not targeting excessively large transactions per se. It represents a pattern whereby 14 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. Excessive Numbers of Manual Key-entered EBT Transactions 7 USC 2018 (b)(7)(e). Appellant contends the numbers of manually keyed transactions are because the business does deliveries for many customers because they do not have transportation. Since the store does not actually have their EBT card, it is manually run over the phone. Store employees check their IDs to the name on the card when the order is delivered. The owner hopes these are not against policy. He has read through them and could not find any issues that would be a problem. The SNAP Training Guide for Retailers that is provided to all retailers upon their authorization, and is available through the FNS retailer web site clearly states that retailers should Never ask the customer for the PIN and do not watch the PIN being entered and Do not enter the PIN for the customer. The FNS store visit conducted on May 4, 2016, showed no signage of any kind indicating that the business offered delivery services and no documentation to support this claim was provided by Appellant to support the legitimacy of the listed transactions in this Attachment. The very 11

12 minimal stock of staple foods offered by the Appellant business further makes the existence of a delivery service unlikely. Manually keyed transactions are those in which the magnetic strip on the back of the EBT card is not being read by the store s POS device and the clerk must manually key enter the EBT card number. When the magnetic strip on an EBT card fails, it can no longer be swiped and replacement EBT cards contain different identification numbers. On-site investigations into trafficking at retailers have found it is not uncommon for retailers to have the SNAP recipient s PIN and EBT card number in order to facilitate trafficking SNAP benefits in exchange for cash without the need for the recipient to be physically present. The retailer enters the EBT card number manually as the recipient has the actual EBT card and then enters the PIN. A review of other EBT transactions on the dates of the manual transactions show that Appellant s POS device was functioning properly as there were swipe transactions immediately before and after the manual transactions. An analysis of the transaction data in this Attachment identified transactions by multiple households which fit this pattern and are indicative of trafficking. Several of these transactions have been cited as examples in the previous Attachments and are strongly indicative of trafficking due to transactions at other SNAP retail stores located miles from Appellant s location occurring in far less time than it would take to drive the distance between the two stores. 7 USC 2018 (b)(7)(e). The frequency of manually keyed transactions should remain relatively constant throughout all transaction levels provided all transactions involve only the purchase of SNAP eligible food items and the EBT cards actually have nonfunctioning magnetic strips. This disparity in how EBT transactions were processed based on their dollar value is a sign that manually keyed transactions at this store were likely being made without the EBT cards being present and with store employees knowing the PIN numbers and thus is a strong indicator that trafficking was occurring. As previously discussed, it is also a SNAP violation for store employees to know a recipient s PIN number or to enter the PIN number for the recipient. This analysis further showed that those households having large numbers of suspicious, manually keyed transactions at the Appellant business had similar patterns at two other SNAP authorized convenience stores. An examination of the FNS retailer data base showed that both of these other stores were owned by Ramamurthy Donthula, the owner of the Appellant business under review. The SNAP retailer applications submitted electronically by owner Ramamurthy Donthula through the FNS retailer web site in May and September 2015 for these two stores were marked NO to the question, Does any officer, owner, partner, and/or member currently own any other SNAP authorized stores? Providing false information is a violation of SNAP regulations and, as noted on the SNAP retailer authorization application, may result in the application being denied or withdrawn. High Dollar Value Transactions 12

13 7 USC 2018 (b)(7)(e). The record shows that within a one mile radius of Appellant s store there are 10 SNAP authorized retailers including six convenience stores, three combination grocery stores, and one small grocery store with the combination grocery store located within 0.25 miles or 440 yards of the Appellant business. There are an additional 33 SNAP retailers within a two mile radius that includes two supermarkets located 1.1 and 1.18 miles away and one super store located 1.81 miles away. The evidence under review shows that SNAP households shopping at BJ Grocery and Food Store 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). 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 previously in this decision clearly show that the households in this Attachment are regularly shopping at much larger stores and conducting transactions of large dollar amounts, yet are conducting comparable or higher dollar value transactions at Appellant s smaller and very minimally stocked business. Since Appellant s business is a convenience store offering little or no expensive foods, these patterns are deemed to be suspicious. While the store does carry infant formula, most SNAP households with infants or small children are WIC participants and therefore would be purchasing infant formula 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. The evidence shows that the difference in the total SNAP transaction dollar volume and the average SNAP transaction amount for Montgomery County convenience stores during the review months and at the Appellant business was significant. 7 USC 2018 (b)(7)(e). 7 USC 2018 (b)(7)(e) 7 USC 2018 (b)(7)(e) 13

14 7 USC 2018 (b)(7)(e) The evidence also shows that this store had irregular data as compared to like type convenience stores in Montgomery County for the same time frame as seen in the chart and table below. Appellant s transaction count and dollar volume ranges are less than that of other Montgomery County convenience stores in the lowest ranges ($0.00-$19.99) while being significantly higher in the remaining ranges. 7 USC 2018 (b)(7)(e). 7 USC 2018 (b)(7)(e) 7 USC 2018 (b)(7)(e) Appellant contends there are no other grocery stores within two miles nor are there any restaurants or stores that offer a range of food products, not to mention the many meat products that are the store s specialty allowing the business to provide meat sales and meat bundles at a sale price to customers. Customers also frequently purchase fresh fruits and vegetables providing an important and needed service to the community in an area that is considered to be a food desert as it has such limited food and restaurant options. Appellant also submitted 16 photographs of the area surrounding the business, the exterior of the business, and the interior of the business showing new improvements and existing food inventory in support of these contentions. As previously noted in this Attachment, there are 10 SNAP authorized retailers including six convenience stores, three combination grocery stores, and one small grocery store with one combination grocery store located within 0.25 miles or 440 yards of the Appellant business. There are an additional 33 SNAP retailers within a two mile radius that includes two supermarkets located 1.1 and 1.18 miles away and one super store located 1.81 miles away. While this area may not have an extensive number of SNAP retailers, it is not a food desert as claimed by Appellant. A review of the photographs provided by Appellant show the addition of a Fresh Produce Sold Inside banner on the exterior of the building that has been added since the FNS store visit on May 4, Additionally, the interior photographs show a shopping cart when there previously were none and a new chest-type freezer case. This freezer and the existing reach-in freezer case have significantly more frozen foods than was evident during the FNS store visit. The remaining photographs show the area near the store s location and interior shelving showing many empty and marginally stocked shelves as was noted during the store visit. The photographs do not provide a valid basis for dismissing the charges, or for mitigating the penalty imposed. Information obtained during the FNS store visit on May 4, 2016, shows that BJ Grocery and Food Store offers a very minimal variety and quantity of SNAP eligible food items, many accessory foods, and many ineligible items typically found in convenience stores. There were no fresh unprocessed meats or seafood, no frozen unprocessed meats or seafood, no meat 14

15 bundles unless you count the pick 5 for $19.99 that includes items other than processed meats, minimal processed meats and no processed seafood, no deli meats or cheeses, no frozen entrees, minimal fresh and frozen produce, no jars of baby food, no fresh milk, and few, if any, expensive items. As evidenced by the inventory report and photographs from the FNS store visit, the business does not have sufficient eligible food stock to support the volume of SNAP purchases. There is no apparent legitimate reason for the high transaction amounts at Appellant s store given the stock of staple foods and the fact that: tobacco, household products, paper products, auto products, health and beauty items, ATM, clothing, arcade-type games, and hot food are not eligible for purchase with SNAP benefits. No itemized cash register and EBT receipts for the period under review were furnished to document the legitimacy of these excessively large transactions and no evidence was provided of SNAP eligible store stock via receipts of products taken into inventory for the relevant review months. Additionally, Appellant s store does not have shopping carts, thereby making it difficult to facilitate the great quantities of eligible food items required to make up these large dollar transactions. Therefore, it is improbable that the food items purchased in these high dollar amounts could be carried to the register without the use of carts and more likely the amounts were contrived. Based on this discussion, Appellant did not provide adequate evidence to support the legitimacy of the excessively large transactions in this Attachment. 7 USC 2018 (b)(7)(e). Other Contentions Appellant contends the business is a locally-owned grocery store where the owner has worked hard to provide quality services to an underserved community for soon to be two years and appreciates FNS s advocacy in the community to assist in resolving issues with local companies such as the recent one with his grocery store. The owner was recently made aware of the multiple manual transaction entries violation and is working to resolve both of these issues. Since learning of the transaction errors, the owner has conducted a thorough in-house investigation that resulted in the firing of one employee. The owner has also instituted a new policy that requires manager approval to manually enter credit card numbers. All new employees will be trained to follow this policy, and informed that potential repercussions for violating it include termination. The owner is personally at the store daily to make sure this situation is being handled quickly and effectively, and to make sure the needed controls are in place to keep it from happening again. Appellant also contends that in addition to the public university students who walk to the store, the community has many low-income residents including the elderly, single parents, and disabled people who have limited access to transportation. Most of the customers rely on walking or public transportation making the business one place they can buy food easily and conveniently. If many of our customers had to travel to another grocery store for their purchases, they would have to transport refrigerated products such as meats and dairy items for 15

16 long distances in unrefrigerated conditions which would pose a public health risk. In short, the business is an important economic and product resource to the community, one that is generally underserved in all areas, and one where the Better Business Bureau has worked to encourage economic development and increase business opportunities and growth for years. Without SNAP, most of the customers could not make purchases from the store and this would cause a hardship for them as they would have to obtain cash to make food purchases. This will create an economic hardship for the already disadvantaged in the community when they simply need to buy food. If customers cannot obtain cash and take their business to another store that can accept SNAP, it is likely that the business will not be able to remain in operation. This will result in a shuttered and empty building, encouraging vagrancy, vandalism, and neighborhood decay. Vacant buildings have historically been an issue in the community with a recent initiative involving the Better Business Bureau, local police, and non-profit organizations to repurpose several vacant commercial properties as afterschool programs which was greatly welcomed by the community. The business will not be able to make adequate sales to continue to pay the overhead which will result in the loss of a store to the community as well as a default on a $100, loan from the community bank which would reduce already limited capital available to the community. Regarding Appellant s contentions, it is important to clarify for the record that the purpose of this review is to either validate or to invalidate the earlier decision of the Retailer Operations Division. This review is limited to what circumstances were at the basis of the Retailer Operations Division action at the time such action was made. It is not within the authority of this review to consider what subsequent remedial actions may have been taken or will be taken in the future so that a store may begin to comply with program requirements. 7 USC 2018 (b)(7)(e). Therefore, while having terminated the responsible employee and implemented a new policy for manually keyed transactions are positive steps, they do not provide any valid basis for dismissing the charges, or for mitigating the penalty imposed. Additionally, a record of participation in SNAP with no previously documented instance of violations does not constitute valid grounds for dismissal of the current charges of violations or for mitigating the impact of those charges. Regardless of whom the ownership of a store may utilize to handle store business or their degree of involvement in store operations, the ownership is accountable for the proper training of staff and the monitoring and handling of SNAP benefit transactions. The ownership remains liable for all violative transactions handled by store personnel, whether paid or unpaid, new, full-time or parttime. Ownership is responsible for all SNAP transactions at the firm regardless of the amount of time the owner is present at the subject firm. SNAP regulations at 7 CFR 271.2, define trafficking 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.... SNAP regulations at 7 CFR 278.6(a) clearly state, in part, that 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, 16

17 inconsistent redemption data, evidence obtained through a transaction report under an electronic benefit transfer system.... (Emphasis added). In the present case, the data presented in the Attachments is solely based on the SNAP electronic benefit transfer transactions conducted at the Appellant business during the period under review. This firm was selected as a result of a series of complex algorithms that make numerous data comparisons with other like type firms during the period under review. All of the transactions were then reviewed and analyzed by the Retailer Operations Division staff before the decision was made to issue a charge letter. This investigative process included a detailed examination of information obtained from various sources, including, but not limited to the inventory report and photographs from the FNS store visit on May 4, 2016, a transaction comparison and analysis of nearby like type stores, and analysis of shopping patterns for recipient households conducting transactions at Appellant s business during the review period. There are like type stores whose transaction data does not form these suspicious patterns and are therefore not at risk of disqualification for trafficking. Based on this empirical data, and in the absence of sufficient evidence for the legitimacy of 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. The Retailer Operations Division determined that Appellant s contentions did not outweigh the evidence that the store was trafficking and concluded, through a preponderance of evidence, that trafficking is the most probable explanation for the questionable transactions listed in the charge letter Attachments. It is herein determined that Appellant has not provided a preponderance of evidence demonstrating that the transactions contained in the charge letter were more likely due to eligible food sales than not. Under review, the evidence more substantially supports a conclusion that the transaction activity in the charge letter Attachments was due primarily to trafficking in SNAP benefits. It is recognized that some degree of economic hardship is a likely consequence whenever a store is disqualified from participation in SNAP. 7 USC 2018 (b)(7)(e). 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, as amended, 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, ownership 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. Possible hardship to SNAP recipients is discussed in the following section. 17

18 CIVIL MONEY PENALTY A CMP for hardship to SNAP households may not be imposed in lieu of a permanent disqualification as specified in SNAP regulations at 7 CFR 278.6(f). Trafficking is a permanent disqualification so Appellant is not eligible for a hardship CMP. Additionally, there are 10 SNAP authorized stores located within a one mile radius of Appellant s business and 33 more stores within a two mile radius. The nearby stores appear readily accessible to SNAP recipients and offer a variety of staple foods comparable to, or better than, those offered by Appellant. Appellant does not carry any unique items or foods that cannot be found at other stores. Some degree of inconvenience to SNAP benefit users is inherent in the disqualification from SNAP of any participating food store as the normal shopping pattern of such SNAP benefit holders may be altered. No documentation was advanced during the specified time frame that Appellant met the criteria as required by 278.6(i) to be eligible for a trafficking CMP. As such, Retailer Operations determined that Appellant was not eligible for a trafficking CMP in lieu of permanent disqualification. CONCLUSION Retailer Operations has presented a case that Appellant has likely trafficked in SNAP benefits. Retailer Operations analysis of Appellant s EBT 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. This is evidenced by: the suspicious patterns in five Attachments of EBT transaction data, the inadequacy of the store s staple food stock as observed during the store visit to support large transactions in short time frames, the lack of adequate evidence for customer spending habits given that there are other SNAP authorized stores located within proximity to Appellant that likely offer a greater selection of eligible food items at competitive prices, and the irregular SNAP transaction data of Appellant as compared to other like type stores in the state and county. The retailer has not provided sufficient evidence to rebut the case that Appellant most likely trafficked in SNAP benefits. Therefore, based on a review of all of the evidence in this case, it is more likely true than not true that program violations did in fact occur as charged by the Retailer Operations Division. Based on the discussion above, the determination to impose a permanent disqualification against Appellant is sustained. Furthermore, Retailer Operations properly determined that Appellant was not eligible for a trafficking CMP according to the terms of Section 278.6(i) of the SNAP regulations. 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 18