U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Alexandria, VA v. Case Number: C

Transcription

1 U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Alexandria, VA Food Mart, 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 82 Food Mart (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 July 15, 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 June The 1

2 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 August 31, 2016, Appellant was informed that it was permanently disqualified from participation as a retail store in the SNAP and was ordered upon receipt of the letter to cease accepting SNAP benefits; consequently, Appellant ceased to accept said benefits. On September 5, 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. There also exist FNS policy memoranda and clarification letters which further explain the conditions necessary in order to permanently disqualify retail stores. 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.) 2

3 7 CFR 278.6(e)(1)(i) states: Disqualify a firm permanently if: Personnel of the firm have trafficked as defined in 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 totaling $ were debited from individual benefit accounts in unusually short time frames (Attachment 1). These transactions are possible indicators of SNAP-benefit trafficking for several reasons, some of which will be discussed in the following. A series of excessively large SNAP transactions totaling $14, were debited from recipient accounts (Attachment 2). These transactions are possible indicators of SNAPbenefit trafficking for several reasons, some of which will be discussed in the following. APPELLANT S CONTENTIONS In Appellant s reply to the Charge Letter, in its written request for review dated September 5, 2016, and in subsequent correspondence, it was argued that: 3

4 1. The Appellant firm is a small country store in a small community; customers come in and out of the store multiple times a day, every day. Appellant does not question why they come in so much. 2. Customers buy bulk items, and these customers are not just SNAP customers. Appellant has always sold bulk items. Sales of such items have steadily increased over the last 10 months, resulting in the firm adjusting its ordering for the Deli. Since the firm orders bulk items for its small restaurant side of the business, the firm can also order bulk items for resale to customers. Appellant has a small deli business in the store and purchases frozen and shelf staples in bulk for it. Appellant provided monthly Kentucky sales tax returns for January 1, 2016 through June 30, 2016, monthly statements from its card processing company for the same period, daily cash register totals showing deli percentages for the same period, copies of vendor invoices for two months and a price list of bulk items the firm offers for sale. There are no itemized receipts and items are identified by department only. 3. The loss of the SNAP is not detrimental to the business based on the average daily SNAP transactions compared to daily sales but the accusations of fraud is very detrimental to the firm s Owner and to the business. Note that Appellant s reply to the Charge Letter, request for review, and subsequent correspondence in support of the review request has been made part of the record and carefully considered in its entirety, including any contentions not specifically referenced or recapitulated herein. ANALYSIS AND FINDINGS At the outset it should be noted that the ROD Office conducted a store visit to the Appellant firm as part of its investigation into Appellant s questionable transaction activity; the visit was conducted on July 11, 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. No shopping carts or baskets. One cash register and one card reader. Hot food sold. Dining area present. Deli section present. 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. Not a farmers market, delivery route or specialty food store. Sold tobacco and tobacco-related products, automotive supplies, paper products, health and beauty items, videos (DVDs), over-the-counter medicines and other non-food items. Comments: Previous sketch showed the walk-in cooler and freezer bigger than it was. Area contains frozen items used in food prep. The sketch did not show the office and rest 4

5 rooms behind walk-ins. The firm also operated as a restaurant/carryout. Photographs show a marquee advertising prepared food entrees, soda fountain machine with carryout-containers/cups/lids/etc., hot coffee/cappuccino machines, frozen items for food preparation on site, commercial sized canned goods (#10 cans), tables and chairs for dine-in seating, prepared hot food in steam trays. Photos: 1, 8, 10, 12, 20, 22, 27, 29, 30, 31 and 33. Most visible prices are in standard retail variations of $.x9. Photos: 1, 2, 3, 9, 13, 14, 17, 18, 23 and 24. Fairly large check-out counter space surrounded by tobacco products, snack items, videos, over-the-counter medicines and other non-food items. Sparsely-stocked shelves. Photos: 4, 5, 6, 11, 12, 24, 25, 26, 27 and 35. In addition to the restaurant/carryout operation, the firm maintained a substantial inventory of prepared, ready-to-eat foods, snack items and accessory food items. The firm also operated as a gas station. Photos: 19 and 23. One of the photographs reflected a price list posted near a deli case that, among other deli items, advertised pork tenderloin for $29.99 per bucket, 12 pounds of sausage patties for $39.99 and frozen biscuits for $45.99 per box. No other signage or advertisements for bulk products were seen in the store on the day of the visit, other than the #10 cans noted above. Appellant later provided a price list noting the same-sized container of pork tenderloin priced at $30.00 and the same 12-pound box of sausage patties at $42.00, along with 42 other items not advertised or posted elsewhere in the store. The documentation otherwise 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 checkout counter used a large counter area but was otherwise cluttered/surrounded by tobacco and tobacco-related products, snack items, prepared food, over-the-counter medicines and other non-food items. There were no shopping carts or baskets with which customers could transport large orders to the check-out area or to waiting transportation. This documentation reflects that the firm was a marginally-stocked convenience store in all relevant respects. It is worth noting that the average SNAP purchase in a convenience store in the state of Kentucky during the analysis period was $7.58, reflecting that large purchases are not routinely made in such stores. With regard to contention 1 above, 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. The examples in Attachment 1 indicate a series of repetitive purchases that total large amounts. The ROD Office notes that five different sets of transactions in Attachment 1 totaled exactly $194.00, three of which were conducted in less than one hour, one in less than two hours and one in less than three. It should be added that four of these transaction sets include transactions ending in $.00 and or $.50; the fifth transaction contained two transactions ($97.45 and $96.55) and likewise appears contrived. All of these transactions involved the same household. None of the transactions in any of the sets match any item on the price list located near the deli case or any of the items on Appellant s price list provided to the ROD Office. Moreover multiple purchases of the items advertised near the deli case would not produce the $ totals. 5

6 The ROD Office further notes that households conducting large repetitive transactions at the Appellant store are shopping at much better-stocked and more competitively-priced super stores, supermarkets and grocery stores in the area on or about the same day, calling into question what these customers could obtain at Appellant s marginally-stocked convenience store that they could not obtain at the better-stocked and quite likely better-priced stores (super stores, supermarkets and grocery stores are typically the most competitively-priced firms in a given area). The ROD Office also notes that many of the products Appellant purports to offer in bulk are likewise available at nearby supermarkets at lower prices. Moreover, similarly or better-stocked convenience stores that are nearby were not conducting these repetitive transactions; the three nearest convenience stores conducted no repetitive transactions during the analysis period of January through June Even if Appellant s bulk food sales were accepted as verified (which the record does not support), it would not explain multiple large purchases in short timeframes. Appellant offers no compelling rationale to explain why customers would make repeat visits to purchase large amounts of bulk food items. The ROD Office notes that a common method used by firms and SNAP recipients to attempt to avoid attention to signs of SNAP-benefit trafficking is to break otherwise implausibly large transactions into what is perceived as smaller and more plausible transactions. Regarding contention 2 above, as noted, the only evidence of bulk sales present on the day of the store visit was the listing of three items near the deli case (and the dusty #10 cans referenced above): pork tenderloin for $29.99 per bucket, 12 pounds of sausage patties for $39.99 and frozen biscuits for $45.99 per box. Also as noted, no transaction in the Charge Letter matches any of these advertised prices; it is highly unlikely that, if the Charge Letter transactions are explained by sales of bulk items, no transaction would match any advertised bulk-item price. Moreover, while Appellant did appear to have a small inventory of bulk foods, the firm also operated as a prepared food restaurant/carryout which would reasonably rely heavily upon these bulk foods. Appellant s documentation does not allow an accurate method by which to distinguish bulk foods purchased for restaurant use from those purchased for retail; nor does Appellant attempt to provide any analysis or explanation of same. Daily register printouts show totals by category for two months of the analysis period; however, it is unclear if Deli Foods equates to restaurant sales and if Meat & Cheese includes bulk sales and, given the contention that bulk foods are both sold as grocery items and also used in the restaurant, it is not forgone possibility that certain restaurant sales could be counted in the Grocery category. The ROD Office further points out that Kentucky tax code further renders this documentation very difficult to interpret. The Excel spreadsheet printout of purported bulk prices was not posted in the store on the day of the visit; moreover; as noted, the prices do not comport with the bulk prices that were seen in the store on the day of the visit. Additionally, the spreadsheet prices are in a whole-dollar/$.00 cents-value format, whereas the posted bulk prices were in keeping with the remainder of the firm s store pricing, which, as noted, was primarily in standard retail variations of $.x9, casting some doubt upon the validity/accuracy of the printout. The Appellant contends that it sold bulk items that it also bought for its restaurant operation, but 6

7 provided no documentation of customers ordering these items. Did the firm simply sell some of its restaurant inventory to walk-in customers? This would seem very problematic for restaurant planning purposes. Small bulk food sellers of perishable items typically take orders in advance for these large but often irregular sales, which creates documentary evidence of same. None has been referenced or provided in this case, however. Appellant claims that most of its grocery sales were bulk sales, but on the day of the visit there did not appear to be more than a few of the items found on the firm s bulk price list in frozen storage, of which the firm appeared to have one glass-front freezer in the retail area that held five moderately-stocked shelves and one walkin freezer approximately 8 feet deep and 6 feet wide holding a little over a dozen boxes and some plastic bags containing a bread item (biscuits?) and some brown sacks containing unknown items. This appears to be the extent of the frozen food storage that Appellant purports contains 31 frozen bulk food offerings and also supplies the firm s restaurant operations. Moreover, as noted, the ROD Office points out that bulk canned goods (#10 cans) present in the retail area of the store were dust covered, typically an indication of very low turnover. It is worth noting as well that the canned goods present on the day of the store visit differed from those listed by Appellant on its spreadsheet price list: only four of the 11 items on the price list (chili beans, pork and beans, sauer kraut and green beans) were seen on the store s retail shelves. As noted, virtually all were dust-covered. It is worth adding that only six transactions in the Charge Letter match the pricing of any of the firm s purported bulk food offerings as listed on the spreadsheet price list: two transactions from Attachment 1 and four from Attachment 2; however, two of the Attachment 2 transactions are repeated from Attachment 1; thus there are only four distinct transactions in the Charge Letter that match any of the prices listed of the firm s purported bulk food offerings. Additionally, the ROD Office notes that the number of excessively large transactions (Attachment 2) conducted in the Appellant firm ranged from over 15 to over 24 times that of the three nearest comparable SNAP-authorized firms; one firm conducted seven such transactions and one conducted 11 during the same period, whereas Appellant conducted 174. The SNAP Office notes that, at the time of the sanction decision, there were 11 SNAP-authorized stores within a seven-mile radius of the Appellant firm, including one supermarket, one large grocery store, five combination grocery/other stores and four other convenience stores. Agency data indicates that there are currently 20 SNAP-authorized firms within a seven-mile radius, including one supermarket, one large grocery store, seven combination grocery/other stores (one at just over 250 feet from the Appellant firm) and nine other convenience stores. As noted, the ROD Office provided numerous examples indicating that many customers clearly have access to and routinely shop at better-stocked supermarkets and comparable stores, calling into question what customers were able to obtain at Appellant s marginally-stocked convenience store/restaurant/gas station 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 commuting 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

8 The SNAP Office further notes that Appellant s SNAP redemptions during the analysis period were over two times that of the state store-type average during the same period. Additionally, the record contains a comparison of Appellant s redemption activity during the analysis period to three nearby SNAP-authorized convenience stores and found that Appellant s SNAP redemptions ranged from over two to four times that of the nearby comparable firms. The firm s average SNAP redemption was nearly two times that of the store-type average in the state of Kentucky during the analysis period. Furthermore, agency data reflect that the numbers of Appellant s SNAP transactions in most transaction bands during the analysis period were multiple times that of the store-type average in the state of Kentucky: in the $20.00 to $29.99 band, the firm conducted over two times the average number of transactions conducted in SNAP-authorized convenience stores in the state; in the $30.00 to $39.99 band, the firm conducted nearly three times the average number of transactions; in the $40.00 to $49.99 band, the firm conducted over two times the average number of transactions; in the $50.00 to $59.99 band, the firm conducted nearly five times the average number of transactions; in the $60.00 to $69.99 band, the firm conducted over five times the average number of transactions; in the $70.00 to $79.99 band, the firm conducted nearly five times the average number of transactions; in the $80.00 to $89.99 band, the firm conducted over six and one-half times the average number of transactions; in the $90.00 to $99.99 band, the firm conducted over 10 times the average number of transactions; in larger transaction bands (from $100 to $409.99) the firm conducted as much as 100 times the average number of transactions. As noted, the firm is a marginally-stocked convenience 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. With regard to contention 3 above, this review finds that the evidence in the present case preponderates toward the conclusion that SNAP-benefit trafficking more likely than not accounts for a substantial amount of the transaction activity detailed in the ROD Office s Charge Letter; there is no provision in the statute or regulations requiring or allowing consideration of hardship of any kind worked on a retail firm as a result of a disqualification. 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 July 15, 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). 8

9 CONCLUSION In view of the above, the decision of the ROD Office to permanently disqualify Appellant from participation in the SNAP is hereby sustained. The decision will become final upon the 30 th day following Appellant s receipt of this document. RIGHTS AND REMEDIES Applicable rights to a judicial review of this decision are set forth in 7 U.S.C and 7 CFR If a judicial review is desired, the complaint must be filed in the U.S. District Court for the district in which Appellant s owner resides, is engaged in business, or in any court of record of the State having competent jurisdiction. This complaint, naming the United States as the defendant, must be filed within thirty (30) days of receipt of this decision. Under the provisions of the Freedom of Information Act (FOIA), 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 March 23, 2017 ADMINISTRATIVE REVIEW OFFICER 9