U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch FINAL AGENCY DECISION ISSUE AUTHORITY CASE CHRONOLOGY

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1 U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Nadia Supermarket Inc., 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 Nadia Supermarket Inc. (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 May 25, 2016, the Retailer Operations Division charged the Appellant with trafficking, as defined in Section of the SNAP regulations, based on a series of irregular SNAP transaction patterns that occurred during the months of January through March 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 ROD Office duly considered Appellant s replies to the Charge letter. By a letter dated June 21, 2016, Appellant 1

2 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 June 25, 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 USC 2018 (b)(7)(e). 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 Appellant was charged with and determined to be trafficking SNAP benefits based on, among other evidence as described herein, an analysis of EBT (electronic benefits transfer) transaction data from January through March This involved the following SNAP transaction patterns which are indicative of trafficking: 7 USC 2018 (b)(7)(e) The issue in this review is whether, through a preponderance of evidence, it is more likely true than not true that the questionable transactions noted above were the result of SNAP-benefit trafficking. 3

4 APPELLANT S CONTENTIONS In its reply to the ROD Office s Charge Letter, in its administrative review request dated June 25, 2016, and in subsequent correspondence, Appellant provided the following contentions, summarized below: 1. The ROD Office s Determination Letter did not mention reasons for rejecting Appellant s replies to the Charge Letter; thus Appellant concludes that the ROD Office did not consider the information submitted. 2. The violations detailed in the ROD Office s Charge Letter are in fact legitimate small dollar purchases made over the course of the month. Customers run out of benefits before the end of the month and still need to buy food. They request small amounts of eligible food items on credit and pay the balance when they receive their monthly SNAP allotment. The cumulative amount over the course of a month amounts to $80 to $140 (and Appellant later states from $100 to $150) which is paid upon the customer s receipt of SNAP benefits. Customers pay off the prior month s credit account bill and then make an additional purchase, typically a smaller amount. Also, many are able to repay the prior month s credit bill in small even-dollar amounts such as $15.00 or $20.00 and then pay more in the following week. Thus many customers visit a couple of times per week. What appears to the ROD Office as a violation is the result of customers making six or seven visits to the store and paying for the accumulated credit bill in one large payment or in three or four smaller payments. Appellant allows only eligible food to be obtained through the use of credit accounts. Appellant provides credit to customers as a service and is not violating any SNAP regulation. Appellant provides copies of credit account ledgers in support thereof. 3. Appellant s monthly SNAP sales and SNAP percentage of gross sales have remained fairly consistent over the years. If there were SNAP violations SNAP sales would have jumped higher than usual. 4. The firm has been operating since 1996 and has never violated any SNAP regulations. 5. A disqualification will work a hardship upon the firm and its customers and will cause the firm to cease business operations. It should be noted that the ROD Office ordered a contracted store visit to the Appellant firm as part of its investigation into Appellant s questionable transaction activity; the visit was conducted on April 8, 2016, 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 reflected the following: No optical scanners. Shopping baskets present (less than 10). No shopping carts. One cash register and one EBT (SNAP) card-reader. No evidence of wholesale business. Hot food sold. No dining area. No deli section. 4

5 No meat/seafood bundles/specials or fruit/vegetable boxes. Approximately 2000 square feet of retail space. No food stored outside public view. No night window used. Not a farmers market, delivery route or specialty food store. The firm sold alcohol, tobacco and tobacco-related products, candles and other household items, automotive supplies, pet supplies, health and beauty items, cleaning products, paper products, clothing, jewelry and other non-food items. The firm maintained a small checkout area (approximately 2 feet by 2 feet in counter space) surrounded by over-the-counter medicines, tobacco products and other non-food items. Many visible prices were in standard retail variations of $.x9. Photos: 1, 9, 16, 18, 20, 23 and 27. Several photos from a March 2014 visit reflect similar inventory and pricing in standard retail variations of $.x9. The documentation presents no indication of advertised specials, promotions or bulk or expensive food items. As noted above, photographs reflect that many visible prices of food and other items were priced in standard retail variations of $.x9. The checkout area was set up in convenience store fashion, utilizing a small check-out area (approximately 2 by 2 feet of useable space at one register) and was otherwise cluttered/surrounded by, tobacco products, over-thecounter medicines and other non-food items. There were no shopping carts available with which customers could transport large orders to the small check-out area or to waiting transportation. This documentation reflects that the firm was a typically-stocked convenience store in all relevant respects. It is worth noting that the average SNAP purchase in a convenience store in the state of Florida during the analysis period was $6.97, reflecting that large purchases are not routinely made in such stores. In regard to contention 1 above, as noted, the record reflects that the ROD Office duly and carefully considered Appellant s replies to the Charge Letter. Additionally, it should be noted that SNAP Offices are afforded little latitude in the content of Determination Letters and most are system-generated following the office s analysis, consideration of Appellant replies and sanction determination. This review will summarize some of the more critical elements of the ROD Office s analysis of Appellant s replies to the Charge Letter. Regarding contention 2 above, it should be noted at the outset that, as described in the foregoing, Appellant must show by a preponderance of evidence that credit account activity, or activity other than SNAP benefit trafficking, accounts for the transaction data detailed in the SNAP Office s Charge Letter. Such a showing is not possible in the absence of substantial documentary evidence in support thereof, such as ledgers, account books or specific sales records allowing the agency to reconcile all transactions in the Charge Letter attachments with Appellant s records. In reply to the Charge Letter Appellant provided records containing data for what appears to be approximately 50 households, although it is not possible with the data provided to determine if only one or multiple persons listed was/were associated with a particular household (and/or used the same SNAP card and/or account). Additionally, the names appear to be nicknames and/or 5

6 first names or last names only and thus household information cannot be verified. The ledger does not list what was received by the purported customers and lists only amounts which are likewise undated. Ledger entry amounts match only 11 of the 229 transactions detailed in the Charge Letter, and eight of these are additionally problematic in that ledger entry amounts for particular individuals match amounts for more than one household number, an indication that the ledger amounts are a substantially unreliable/inaccurate reflection of SNAP activity at the Appellant firm; on eight of the 11 relatively rare occasions when a ledger entry matches a Charge Letter transaction amount, other ledger entries for that particular household match Charge Letter transactions for other households. This is contradictory and severely damages the value of the already incomplete evidence of credit account activity. Additionally, one ledger entry from page nine of the documentation provided by Appellant clearly identifies a household as having obtained cash, which appears to have been added to the household s credit account balance. In the absence of any compelling rationale to the contrary, this entry appears to clearly document SNAP-benefit trafficking. Additionally, the ROD Office points out that one of the few individuals listed in the ledger documentation that could be connected to a SNAP recipient account shopped at much betterstocked and very likely more competitively-priced supermarkets and super stores on or about the same days as conducting implausible transactions at the Appellant firm, calling into question what this household could obtain at Appellant s firm that it could not obtain at the better-stocked firms. This household also conducted same-cents transactions at the Appellant firm though it did not at the better-stocked firms. The ROD Office provides additional documentation indicating that several customers conducting implausible transactions at the Appellant firm also shopped at better-stocked supermarkets and super stores on or about the same day. Appellant moreover states that payments on credit accounts explain the same-cents transactions detailed in the ROD Office s Attachment 1 to the Charge Letter; however, as noted, very few of the ledger entries match any Charge Letter transaction, including Attachment 1. Additionally, the ledger is replete with entries that are not same-cents. As noted, most that are same-cents entries do not match a Charge Letter transaction; only 11 of the 79 transactions in Attachment 1 match a ledger entry. 7 USC 2018 (b)(7)(e). With such a substantial quantity of Appellant s SNAP transaction activity purportedly due to the payment of credit bills/accounts, it is implausible that the firm could produce few records of credit account activity that comport with the Charge Letter attachments for the entire period of January through March The ledger documentation, and the credit account rationale it supports, is far short of a compelling explanation for the Charge Letter transactions. The record reflects that the number of Appellant s same-cents transactions during the analysis period was from eight to 79 times that of three comparable firms in the area (from approximately one-quarter to one-half mile from the Appellant firm); in fact, two of the other firms had no same-cents instances meeting the thresholds used in Attachment 1. Most of the firm s eligible food inventory consisted of inexpensive single-serving items, primarily snack foods and accessory food items (soda, candy, condiments, etc.). 7 USC 2018 (b)(7)(e). 6

7 Beyond Appellant s denial of violations and credit account explanation, which is not compelling, no rationale is offered for the transaction activity contained in Attachment 2. While there are legitimate reasons why a SNAP recipient or household member might return to a convenience store during a short period of time; such purchases are more typically in small amounts and for obtaining just a few items. 7 USC 2018 (b)(7)(e). Customers spending such substantial amounts of SNAP allotments in a typically-stocked convenience store, when there are other larger food stores nearby which carry substantially larger varieties of food at lower costs, is implausible. The number of transactions listed in Attachment 2 is somewhat underwhelming; however, the large dollar value of the transactions, given the firm s store type, typical convenience store inventory and logistical wherewithal, is particularly egregious. 7 USC 2018 (b)(7)(e). Moreover, the record further reflects that Appellant s number of repetitive transactions during the analysis period were from nine to 18 times that of three nearby comparable stores (convenience stores from one quarter-mile to approximately one-half mile from the Appellant firm). There is no compelling rationale to explain why only Appellant s customers made repetitive visits spending large amounts in short timeframes. The record reflects, as noted below, that Appellant s store is a typical convenience store in all relevant respects and provides no plausible bases for customer s unusual attraction to the firm and unorthodox transaction patterns. The store visit documentation, as referenced above, reflected the presence of no bulk sales items. As noted, store visit documentation indicated that Appellant s eligible food inventory was primarily single-serving snack and accessory items, individual canned and packaged goods and other convenience items. Also as noted, the average SNAP purchase in a convenience store in the state of Florida during the analysis period was $6.97, reflecting that large purchases are not typically conducted in such stores. Additionally, similar to Attachments 1 and 2, Appellant s number of excessively large transactions (Attachment 3) during the analysis period was from two to 132 times that of the nearby comparable firms; two of the firms conducted no excessively large transactions during the analysis period, whereas the Appellant firm conducted 132. Again, there is no compelling information in the record which explains why only Appellant s customers, and not those of similar nearby stores, would conduct these implausible transactions. The ROD Office notes that, at the time of the sanction decision, there were at least 20 SNAPauthorized stores within a one-mile radius of the Appellant firm, including one super store, six supermarkets and 13 other convenience stores. Agency data indicates that there are currently 43 SNAP-authorized firms within a one-mile radius, including one superstore (at one-quarter mile from the Appellant firm), five supermarkets (from just over one-tenth of a mile to just over onehalf mile), four medium grocery stores, three small grocery stores (two at just over one-half mile), six combination grocery/other stores (three at approximately one-half mile), nine bakery specialty stores (three from one-quarter mile to just over one-half mile) and 11 other convenience stores (three from just under one-quarter mile to just over one-half mile). As noted, the record reflects that many customers clearly have access to and routinely shop at better-stocked super stores and supermarkets in the area, calling into question what customers were able to obtain at Appellant s typically-stocked convenience store that they were not able to obtain at much betterstocked and more competitively-priced stores. This information further indicates that these customers were conducting implausible transactions only at or primarily at the Appellant firm. 7

8 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. 7 USC 2018 (b)(7)(e) In regard to contention 4 above, Appellant notes that this case represents the firm s first and only SNAP violation (or series of same); however, a record of program participation with no previously or subsequently documented violations does not constitute valid grounds for dismissing the present serious charges or for mitigating the impact of the violations upon which they are based. 7 USC 2018 (b)(7)(e). Moreover, prior sanctions may precipitate an increase in the severity of a later sanction (see 278.6(e)(6)). Further, as noted above, the Food & Nutrition Act of 2008 provides that a store's disqualification "shall be permanent upon... the first occasion of... trafficking." (emphasis added) Regarding contention 5 above, the issue of hardship worked upon retailers or SNAP clients is not a consideration under the statute or regulations in decisions to disqualify firms due to SNAPbenefit trafficking. The only alternative to permanent disqualification, once trafficking is established, is to impose a trafficking civil money penalty. Appellant was advised of this provision in the SNAP Office s Charge Letter, which also advised that documentation of eligibility for that alternative sanction was to have been provided within a specific time limit. 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 (postmarked 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 was appropriate pursuant to 7 CFR 278.6(b)(1), 278.6(b)(2)(ii), 278.6(b)(2)(iii) and 278.6(i). It is further noted that said provisions specify that no extensions to this time period, in which a firm may provide evidence in support of its request for a civil money penalty, may be granted. 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. 8

9 Under the provisions of the Freedom of Information Act (FOIA), 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. DANIEL S. LAY March 31, 2017 ADMINISTRATIVE REVIEW OFFICER 9