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

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1 U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Alexandria, VA Ammar Foods, Appellant, v. Case Number: C Retailer Operations Division, 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 Ammar Foods (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 August 22, 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 February through July 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 duly considered Appellant s replies to the Charge Letter. By a letter dated September 20, 2016, 1

2 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 September 27, 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 (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 A series of multiple SNAP transactions 7 U.S.C (b)(6) & (b)(7)(c) were debited from individual benefit accounts in unusually short time frames (Attachment 1). A series of excessively large SNAP transactions 7 U.S.C (b)(6) & (b)(7)(c) were debited from recipient accounts (Attachment 2). APPELLANT S CONTENTIONS In Appellant s reply to the Charge Letter, in its written request for review dated September 27, 2016, and in subsequent correspondence, it was argued that: 1. Regarding Attachment 1 to the Charge Letter, Appellant has no control over the amount of times SNAP customers make purchases at the store and cannot confirm whether the SNAP card is used by the recipient as it does not have an identifying photo. It is very likely that a recipient may hand off his or her card to others 7 U.S.C (b)(7)(e). It is not unusual for customers to request a purchase to be split up into smaller purchases. It is not unusual for customers to purchase a significant amount of groceries. Customers sometimes supplement SNAP purchases with cash. There are occasions when the 3

4 customer does not know her/his SNAP balance and they purchase a cheap item to check said balance. Upon learning the balance a customer may purchase additional items. Transactions 107 and 108 may be an example of this. They may also make a third purchase if there is still a remaining balance. Attachment 1 reflects this activity. Also, customers shop in the morning and can carry only some items and thus come back in the afternoon with children so they can carry more items. Transactions 25 and 26 reflect this. There are several transactions similar to these in Attachment 1. The store s location further explains Attachment 1 transactions: it is conveniently located and there are few stores in the area that accept SNAP and are also open seven days per week. The store is located in the middle of several residential properties. Appellant provides copies of photos of the store location. 2. Regarding Attachment 2 to the Charge Letter: there is no definition in the regulations requiring a set amount to be considered excessively large. Appellant can substantiate the transactions as it is a large store (approximately 1000 square feet) with one register and a large inventory. These transactions are not large if buying for a family; Appellant provides a copy of USDA s Cost of Food at Home publication. Weekly averages of food costs for a family of four range from $ to $ U.S.C (b)(6) & (b)(7)(c). Appellant provides receipts for the months of May, June and July which reflect its average transactions in a given day 7 U.S.C (b)(6) & (b)(7)(c). As noted, the store s location further explains Attachment 2 transactions: it is conveniently located and there are few stores in the area that accept SNAP and are also open seven days per week. The store is located in the middle of several residential properties. Appellant provides copies of photos of the store location. Appellant provides a copy of its Sales and Use Tax documentation for the analysis period. The store is approximately 1000 square feet with one cash register and two employees. The firm sells fresh produce. The six highest priced items for sale at the store are: Arizona (24 ct.) - $18.99, ground beef (6-lb box) - $15.99, frozen pizza - $14.99, three boxes of cereal - $10.00, large coffee can - $9.99 and fruit juice - $8.99. The inventory consists mostly of dry goods, which are kept longer and more can be purchased at one time. Appellant provides photographs in support thereof. Moreover, customers take advantage of deals offered by the firm (Appellant cites the purchase of three boxes of cereal for $10.00) and buy lots of such items in addition to the regular priced items causing the transaction to be large. Appellant provides customer affidavits and receipts in support thereof. 3. Since the disqualification of the firm on September 20, 2016, its customers have been greatly affected as they can no longer use their benefits at their nearest store. The store is in an area in which 63.1% of households are beneath the poverty level. These customers cannot afford to go to other stores that require transportation. Appellant provides a petition signed by its customers in support thereof. ANALYSIS AND FINDINGS At the outset 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 August 1, 2016, as a result of which documentation was obtained 4

5 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 scanners. No shopping carts or baskets. One cash register. One debit card reader. Hot food sold (nachos). No dining area. No meat/seafood bundles/specials or fruit/vegetable boxes. Approximately 1000 square feet of store space, most of which is behind a Plexiglas barrier inaccessible to customers. Night window utilized. Not a delivery route, farmer s market or specialty food store. Sparsely stocked shelves. Photos: 1, 2, 9, 18, 19, 29 and 31. Dusty canned goods. Photos: 2, 9, 15 and 33. Most items were priced in standard retail variations of $.x9. The check-out area was behind a Plexiglas barrier and used small/narrow turnstiles through which products were passed to customers after purchase. Most products were behind the barrier and not accessible to customers without assistance from clerk. Turnstiles were approximately 1.5 feet in diameter. There were two such checkout areas, although only one register was used. There was almost no counter space other than the turnstiles. The check-out area was oriented in convenience store fashion and not conducive to large purchases. The firm sold cleaning products, baby supplies, health and beauty products, paper products, household items, clothing, tobacco products and other non-food items. Store food inventory was primarily candy, snack foods and drinks, typical convenience store inventory. The documentation presents no indication of advertised specials, promotions or bulk or expensive food items. As noted above, photographs reflect that most visible prices of food and other items were in standard retail variations of $.x9. The check-out area allowed very little room for more than a few small items, as noted above. There were no shopping carts or baskets with which customers could transport large orders to the small check-out area or to waiting transportation. In fact, as noted, no retail inventory was accessible to customers and all items purchased had to be handed through a pass-through from the clerk to the customer after purchase. This documentation reflects that the firm was a marginally-stocked small grocery store in all relevant respects. It is worth noting that the average SNAP purchase in a small grocery store in the state of Illinois during the analysis period was $13.05, and $12.09 in Cook County, reflecting that large purchases are not routinely made in such stores. The store visit documentation indicates that, though the firm was classified as a small grocery store, it more closely resembled a convenience store; it is very unlikely that staple food sales 7 U.S.C (b)(7)(e). Classifying the firm as a convenience store would have rendered the 5

6 firm s transactions even more implausible than they already appeared. There is little or nothing at this store that couldn t be found at most convenience stores. In regard to contention 1 above, 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 1 indicate a series of repetitive purchases that total large amounts. Customers spending such substantial amounts of SNAP allotments in a marginally-stocked small grocery store, when there are other larger food stores nearby which carry substantially larger varieties of food at lower costs, is implausible. Lastly, large transactions for the purchase of legitimate food items (which at this store would have been a substantial number of lower priced items), using no shopping carts and very little checkout-counter space, is additionally implausible. 7 U.S.C (b)(7)(e). Moreover, the record further reflects that Appellant s number of repetitive transactions during the analysis period was from over two and one-half to 106 times that of three nearby SNAP-authorized stores (all small grocery stores from within a one-mile radius of the Appellant firm). Frequent and large transactions conducted in order to purchase eligible foods at Appellant s store are highly unlikely given Appellant s logistical wherewithal and store stock. 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 above, that the Appellant firm was a marginally-stocked small grocery store in all relevant respects and provides no plausible bases for customers unusual attraction to the firm and unorthodox transaction patterns. While customers may split purchases this is typically not done in large amounts, as noted in the foregoing. Moreover, there is little need for customers to purchase small items in order to check account balances, as balance-inquiries are available by calling a toll-free number found on the back of the SNAP card and also by simply swiping the card at any SNAP-authorized firm. It is also noted that no Attachment 1 transactions were conducted 7 U.S.C (b)(7)(e) after the prior transactions by the same household; 7 U.S.C (b)(7)(e). 7 U.S.C (b)(7)(e). Appellant notes that transactions 107 and 108 may be examples of additional purchases following a balance inquiry; 7 U.S.C (b)(7)(e). 7 U.S.C (b)(7)(e). With regard to the contention that customers return to the store after several hours with their children in order to carry larger purchases home: it should be noted, as will be discussed further below, that a large majority of the firm s inventory consisted of snack items such as chips and crackers and accessory food items such as pop/soda/soft drinks. These items, though conducive to repeat purchases, are relatively inexpensive and do not routinely produce large totals. The store visit moreover reflected sparsely-stocked shelves and dust-covered canned goods, typically an indication of low inventory turnover and/or poor stocking practices. Appellant argues that the firm s location, its SNAP authorization and its store hours explain the activity in Attachment 1; however, as the ROD Office points out, there are two SNAP- authorized supermarkets located under one-half mile from the Appellant firm and both are open seven days per week, two other SNAP-authorized small grocery stores, both under one-third of a mile from the Appellant firm, both open seven days per week and also a much better-stocked SNAP-authorized medium grocery store just over one-third of a mile from the firm which is also open seven days per week. 6

7 Regarding contention 2 above, while the regulations governing the SNAP do not place a purchase limit on SNAP recipients, the agency does maintain detailed data on the transaction activity common in all store types. As noted in the foregoing, the average transaction in a small grocery store in the state of Illinois during the analysis period was $13.05, and $12.09 in Cook County, multiple times less than most of the activity contained in the Charge Letter. Appellant offers the Department s publication Cost of Food at Home, as evidence that Attachment 2 transactions are not overly large. What that publication doesn t directly reference is that the vast majority (7 U.S.C (b)(7)(e)) of SNAP benefits are spent at supermarkets and super stores; thus, 7 U.S.C (b)(7)(e), those expenditures occur primarily at supermarkets and super stores with vastly superior staple food inventory and almost certainly more competitive prices (super stores and supermarkets typically have the most competitive prices in a given area) and not at small grocery and convenience stores. The product purchase invoices provided by Appellant in support of its review request were tabulated and resulted in the following; receipts primarily for June 2016 were provided and are summarized below. Receipts were provided for May and July as well but these were largely insignificant; 7 U.S.C (b)(6) & (b)(7)(c). 7 U.S.C (b)(6) & (b)(7)(c). 7 U.S.C (b)(6) & (b)(7)(c) 7 U.S.C (b)(6) & (b)(7)(c). The receipts provided, which covered June 2016 (as noted, May and July receipts were virtually insignificant) therefore, are dramatically insufficient to support the firm s SNAP redemptions (7 U.S.C (b)(6) & (b)(7)(c)). This shortfall is, moreover, quite likely understated as it does not account for cash or commercial credit/debit sales, which Appellant almost certainly had during June As noted, no invoices/receipts were provided for February through April, and May and July s invoices were not substantial. The invoices provided, as evidence that the transactions contained in the Charge Letter were more likely due to the sale of eligible food than to SNAP-benefit trafficking, are not compelling. Appellant s contentions regarding the firm s location was discussed in the foregoing. 7 U.S.C (b)(6) & (b)(7)(c). While this correlates with Appellant s actual SNAP redemptions for February 2016 (7 U.S.C (b)(6) & (b)(7)(c)), it does not provide any information about what was exchanged for SNAP benefits and thus constitutes uncompelling evidence that the Charge Letter transactions were more likely due to the sale of eligible food than to SNAP- benefit trafficking. These records merely reflect the level of taxed and non-taxed receipts. Appellant states that it sold fresh produce and implies that this helps to explain the transaction activity contained in the Charge Letter; however, on the day of the store visit, six whole onions comprised the extent of Appellant s fresh produce inventory. Likewise, the invoices provided by Appellant for the month of June reflect the purchase primarily of snack food items such as chips and soda/pop and items for prepared food (cheese sauce, hamburger and jalapenos for nacho s, as seen during the store visit). In fact, purchases of jalapeno peppers for $3.48 on three occasions during the month, whether canned or fresh, was the only fruit/vegetable that could be interpreted as a fresh vegetable purchase reflected in the invoices for entire month of June

8 Likewise, almost no canned/packaged food was reflected in the invoices; some of the invoices were illegible, but of those that could be read only one reflected the purchase of any canned/packaged vegetables or fruit an invoice dated June 25, 2016 reflected the purchase of 7 U.S.C (b)(6) & (b)(7)(c) (though the price is not clearly legible) of either canned or frozen corn. Additionally, as noted above, the store visit obtained photographs of dust-covered canned goods and sparsely- stocked shelves, typically indicative of low inventory turnover and/or poor stocking practices. Appellant lists what it purports were the six highest-priced items sold at the store during the analysis period; however, store visit documentation reflected no signage advertising any of the items Appellant lists; moreover, no cases of Arizona and no boxes of ground beef were seen during the visit. The Arizona products, hamburger, cereal and fruit juice appeared in June 2016 invoices. Four cases of ounce cans of Arizona products appeared in the June invoices and individual cans were seen offered for sale on the day of the store visit, but no signage advertising cases of same and no cases of same were advertised or visibly on hand on the day of the visit. As noted, the hamburger appears to have been used in prepared food offerings (nachos), and none was seen offered for sale to customers in packaged form. Fruit juice was photographed in 64-ounce containers (and smaller containers), though $8.99 is approximately three to four and one-half times what this typically costs in a supermarket. Two frozen pizzas were photographed in a chest freezer, each in approximately ounce packages; Appellant s stated price for frozen pizzas ($14.99) is approximately three times the price found at supermarkets. No frozen pizza purchases are found in the invoices provided by Appellant. The purchase of eight boxes of cereal can be found in the invoices provided by Appellant; however the invoice reflecting cereal purchases is undated and does not indicate the buyer or the seller of the merchandise. In general, the record does not support Appellant s contentions that the sale of these items could reasonably account for the transaction activity detailed in the Charge Letter. SNAP card-reader receipts provided by Appellant do not provide any information regarding what was exchanged for SNAP benefits and as such constitute weak evidence that the transactions represent the sale of eligible food items. Photographs provided by Appellant are black and white, low resolution, grainy, several are blurred, are undated and moreover appear to reflect inventory not held during the store visit as well as a substantial increase in product depth and variety. As such, the photographs are not a reliable representation of inventory held during the analysis period. Appellant provided 13 customer affidavits with accompanying cash register tapes and SNAP card reader receipts. Neither the register tapes nor the card reader receipts specify what was purchased with SNAP benefits for any of the customers. It should be noted that the receipts were all dated in early September, after the firm s receipt of the Charge Letter and outside the analysis period at issue; thus none of the amounts have any direct relation to the transactions at issue. Of the 13 affidavits and accompanying receipts, five contained line items (though no products are identified) matching prices Appellant stated it used to market certain high-priced items. 7 U.S.C (b)(6) & (b)(7)(c). The receipts list a total of 207 items. Thus six of 207 items, 7 U.S.C (b)(6) & (b)(7)(c), purchased outside the analysis period, match Appellant s 8

9 stated prices that purport to account for a substantial amount of the transaction activity detailed in the Charge Letter. Such is not a strong endorsement of Appellant s contentions in this regard. The SNAP Office notes that, at the time of the sanction decision, there were at least 18 SNAPauthorized stores within a one-mile radius of the Appellant firm, including two super stores, four supermarkets, three medium grocery stores and nine other small grocery stores. Agency data indicates that there are currently 42 SNAP-authorized firms within a one-mile radius, including two super stores, four supermarkets (two at one-third mile and just under one-half mile from the Appellant firm), three medium grocery stores (one at just over one-third mile), eight other small grocery stores (three from just over one-tenth of a mile to just over one-third mile), three combination grocery/other stores (one at just under one-half mile), one bakery specialty store and 17 convenience stores (seven from just over one-tenth of a mile to just under one-half mile). The ROD Office further notes that many customers clearly have access to and routinely shop at better-stocked super stores and supermarkets in the immediate area on or about the same day as conducting implausible transactions at Appellant s marginally-stocked small grocery store, calling into question what customers were able to obtain at the Appellant firm 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. 7 U.S.C (b)(7)(e). 7 U.S.C (b)(7)(e). As noted, the firm is a marginally-stocked 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. 7 U.S.C (b)(7)(e). Lastly, once trafficking is established, there is no latitude to impose a lesser sanction, with the exception of a civil money penalty. There is provision at 7 CFR 278.6(i) for the imposition of a civil money penalty in lieu of permanent disqualification for trafficking. Appellant was advised of this provision in the SNAP Office s Charge Letter dated August 22, 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). In regard to contention 3 above, as noted in the foregoing, the ROD Office points out that many of Appellant s customers did in fact clearly have access to better-stocked super stores and 9

10 supermarkets and visited them regularly. Nonetheless, 7 C.F.R (f)(1) of the SNAP regulations provides for assessments in cases where less-than-permanent disqualifications would cause hardship to SNAP households because of the unavailability of a comparable participating food store in the area to meet their needs. However, this same provision also stipulates the following specific exception to such considerations: A civil money penalty for hardship to SNAP households may not be imposed in lieu of a permanent disqualification. Therefore, the hardship civil money penalty provision (7 C.F.R (f) is not applicable in the present case, beyond its stipulations that hardship is not a consideration in permanent disqualifications. Moreover, 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. 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 30th 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), FNS is 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 June 1, 2017 ADMINISTRATIVE REVIEW OFFICER 10