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

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1 U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Friendly Grocery, 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 Friendly Grocery (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 April 27, 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 April 3, 2017, 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 September 2016 through February The letter noted that the penalty 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 ten days of receipt under the conditions specified in 7 CFR 278.6(i). 1

2 The charge letter was refused at the Appellant business and was not claimed when delivery to the owner s residence was attempted. Appellant did not request and submitted no evidence to be considered in support of the CMP. The Retailer Operations Division notified Appellant in a letter dated April 27, 2017, 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 stated 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 May 2, 2017, Appellant appealed the Retailer Operations Division s assessment and requested an administrative review of this action. The appeal was granted. 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 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 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. 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(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 2

3 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 CFR 278.2(f) states, inter alia: Coupons [SNAP benefits] shall not be accepted by an authorized retail food store in payment for items sold to a household on credit. 7 CFR 278.6(i) states, inter alia: FNS may impose a civil money penalty in lieu of a permanent disqualification for trafficking... 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 of the Program. 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). SUMMARY OF THE CHARGES The charges on review were based on an analysis of SNAP EBT transaction data during the six month period of September 2016 through February This involved two patterns of EBT transaction characteristics indicative of trafficking: 1. Multiple transactions were made from individual benefit accounts in unusually short time frames. 2. Excessively large purchase transactions were made from recipient accounts. APPELLANT S CONTENTIONS In the request for administrative review, Appellant has stated as its position in the matter the following: The store owner just returned to the country on April 27, He was out of the country tending to his sick mother since the end of November Due to the fact that he was out of the country, he did not know about the letter that was sent to him. He had someone else taking care of the store and they did not inform him of a letter; The large amounts of EBT charges are the result of the owner allowing some customers to set up [credit] accounts in the store and they pay him once a month when they receive their SNAP benefits. They come in and purchase foods (deli meats, riblets, etc.) and pay when their benefits renew. The business also sells a lot of riblet packs of meat to customers weekly. It is the best seller; and, The owner apologizes for any problems or misunderstandings this may have caused and he would have responded immediately had he known about the first letter. 3

4 Appellant submitted no evidence or other rationales in support of these 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 The Retailer Operations Division presented a case that Appellant trafficked SNAP benefits. Each Attachment furnished with the letter of charges represents the questionable and unusual patterns of SNAP transactions indicative of trafficking which were conducted at the Appellant business during the review period. As patterns of unusual transactions appear across multiple Attachments, the case of trafficking becomes more convincing. Store Background and FNS Store Visit The owner s SNAP retailer application was received on August 12, 2015, showing a store opening date of July 1, FNS initially authorized the Appellant business on August 28, 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 March 10, 2017, store visit conducted by a FNS contractor to observe the nature and scope of the firm s 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: The business was a small convenience store offering a very limited variety and quantity of staple foods and carrying no unique items or offering any distinctive services. The contractor estimated the store to be about 700 square feet with no food stored in a storage area out of public view. There were no shopping carts or handheld baskets for customer use seen during the visit making it difficult for customers to carry large amounts of food to the checkout. The checkout area was approximately 1.0 foot by 2.0 feet with merchandise taking up counter space on both sides. The very small size of the checkout area would make it problematic to process large orders. The checkout counter had one cash register, one POS terminal, and no scanner as evidenced by the store visit report and Appellant s SNAP retailer application. No food packages, bundles, case sales, bulk products, or other sales were evident that would explain the unusual transactions and there were no cased items available for purchase with the exception of beer and soda. The store had a very limited stock of staple foods that consisted of a minimal quantity and variety of canned and packaged goods with much of the inventory in accessory foods (primarily sodas, candy, and other drinks), snacks, and ineligible items. The deli case was empty with no deli meats or deli cheeses available for sale 4

5 The store was deficient in the dairy products staple food category, barely eligible in the meats, poultry, and fish category, and minimally stocked in the remaining two required staple food categories. Dairy items included: None. Refrigerated items included: two Cervelat style sausages and two packages of ribs. There were no fresh or frozen fruits or vegetables. The inventory of staple foods at the time of the visit also included: a very minimal quantity and variety of canned and packaged vegetables, canned pasta sauce (3), fruit juices, bagged nuts, soups, a large quantity of canned Vienna sausages, canned tuna (5), canned fish steaks, sugar, flour, corn meal (6), snacks, baked goods, bread (4), dry pasta, and a large quantity of Ramen noodle soups. There were no fresh unprocessed meats or seafood, very minimal frozen unprocessed meat (two packages of ribs), no frozen unprocessed seafood, a very limited variety and quantity of processed meats (two Cervelat style sausages), no processed seafood, no deli meats or deli cheeses, no packaged luncheon meats, no bacon, no hot dogs, no frozen entrees, no frozen dinners, no eggs, no fresh milk, no canned milk, no milk drinks, no ice cream, no packaged cheese, no sour cream, no yogurt, no fresh fruits or vegetables, no frozen fruits or vegetables, a very limited quantity/variety of canned and packaged staple food items, no cold cereals, no hot cereals, no mac&cheese, no infant formula, no infant cereals, no baby foods, no diapers, no butter, no margarine, no rice, no baking mixes, only four loafs of bread, no rolls, no tortillas, no coffee, no tea, no cocoa, and no expensive eligible food items. Ineligible items included: tobacco, alcohol, household products, paper products, pet products, auto products, health and beauty items, incense, and newspapers while accessory foods included: carbonated/uncarbonated drinks, condiments, spices, and candy. Signage was in English. Most food items were NOT priced except for alcohol and tobacco items and a very small number of snacks with manufacturer s pricing of.75 cents, 2/$1.00, and $1.00. A price ending in.x9 cents is a common pricing structure for many stores of this type. The store was not a WIC vendor. Store hours were open 8:00 AM-12:00 PM daily as confirmed by the store owner during the store visit. The store owner identified himself as a store employee on the consent form, not as the store owner. The contract reviewer noted poor lighting in the store as well as dust on many of the canned and packaged foods and many empty or marginally stocked shelves, display racks, and coolers indicative of a slow turnover of stock. Store staple food inventory was substantially less than that seen during the August 26, 2015, FNS store visit. Multiple transactions in unusually short time frames This Attachment documents 92 individual transactions in 29 sets of two or more transactions conducted by 23 different households in a short period of time. 7 U.S.C (b)(7)(e. One set is comprised of six individual transactions, one set is comprised of five individual transactions, 5

6 eight sets are comprised of four individual transactions, 11 sets are comprised of three individual transactions, and the remaining eight sets are comprised of two transactions. It is not a usual shopping pattern to see so many purchases, 7 U.S.C (b)(7)(e), by the same recipients as documented in this Attachment. These sets of transactions appear to be in amounts which are indicative of trafficking. In response to this Attachment, Appellant contends the large amounts of EBT charges are the result of the owner allowing some customers to set up [credit] accounts in the store and they pay him once a month when they receive their SNAP benefits. They come in and purchase foods (deli meats, riblets, etc.) and pay when their benefits renew. The business also sells a lot of riblet packs of meat to customers weekly. It is the best seller. With regards to Appellant s contentions, it must be noted that SNAP households have no limits on the number of times they may use their SNAP cards or how much eligible food they may purchase. Although it is not uncommon for customers to have more than one transaction per day, the SNAP transactions listed in this Attachment are questionable and therefore suspicious because they are multiple large dollar transactions being conducted by a specific household in a short period of time at a very minimally stocked convenience store and display characteristics of use inconsistent with the nature and extent of the store s stock and facilities. 7 U.S.C (b)(7)(e). An analysis of the SNAP transactions in this Attachment shows that nine of the 23 households listed had SNAP benefits remaining in their accounts until late in the previous issuance cycle making it doubtful they used credit and therefore would have no need to make payments on a credit account as claimed by Appellant. A tenth household did not shop at the Appellant business in the months prior to the transaction listed in this Attachment so it also would not have been using credit as alleged by Appellant. 7 U.S.C (b)(7)(e). It is highly questionable that store ownership would extend credit to customers who were not regularly shopping at his business. The transactions in this Attachment also do not contain the characteristics associated with a recipient purchasing a forgotten item right after checking-out or households returning to purchase a forgotten item or two. 7 U.S.C (b)(7)(e). For example, mothers may shop and later send a child to the store to pick-up a forgotten item7 U.S.C (b)(7)(e). It is also unusual based on very limited available food stock and lack of food packages, case sales, or bulk items that all of the transaction sets in this Attachment total into the hundreds of dollars when the average convenience store SNAP transaction amount in Lowndes County during the period under review was $ U.S.C (b)(7)(e). It is unlikely that the number of inexpensive food items available for purchase would randomly total these same five amounts when the business carried no expensive food items. It is more likely that these large dollar value transaction amounts were contrived by store employees trafficking SNAP benefits for set dollar amounts of cash. When many transactions are in the same dollar amount, it appears that these transaction amounts are contrived and therefore, in the absence of compelling evidence to the contrary, are suggestive of trafficking. As such, the transactions in this Attachment have not been adequately documented as legitimate and therefore do not constitute valid grounds for dismissal of the current charges of violations or for mitigating their impact. 6

7 SNAP benefit transactions entail recipients moving food items to the very small checkout area. Since there are no shopping carts or hand baskets available they must move their purchases a little at a time to transport the large number of inexpensive individual food items needed for these large dollar value transactions, wait for the previous customer to vacate the checkout area, put their purchases onto the counter a few at a time due to space limitations, the clerk then has to handle individual items to enter their price, bag the items, hand the recipient bagged items to make room for more food items the recipient is bringing to the checkout, inform the recipient of the total, press the SNAP transaction key on the SNAP terminal device, swipe the SNAP card or manually enter the lengthy card number, have the recipient enter the PIN, and wait for the transaction to be processed by the system. If the business has an older cash register then any nonfood items would have to be rung-up separately. 7 U.S.C (b)(7)(e). The 92 transactions listed in this Attachment contain several pairs of consecutive transactions conducted in extremely short periods of time that, based on the steps previously cited, would be highly unlikely to occur with legitimate SNAP transactions7 U.S.C (b)(7)(e). Based on the store s physical setup, lack of expensive food items, and available equipment, the large transaction dollar amounts and the short interval between transactions in this Attachment demonstrate the improbability of these being legitimate eligible food purchases and suggest trafficking as the most likely explanation. The FNS store visit offers no legitimate explanation for why SNAP customers would routinely shop at the business on multiple occasions during a short period of time as it shows the business offers a very limited stock of staple foods consisting of many pre-packaged and single serving items with the majority of inventory in accessory foods (primarily sodas, candy, and other drinks), snacks, and ineligible items making the Appellant business unlikely to be the grocery store of choice for SNAP households. The business also offers no great variety of products, price advantage, profusion of large packages, or significant bulk items for sale leaving no explanation for the large dollar transaction amounts. While the Appellant states that customers using credit accounts purchase deli meats and riblets with riblets being the best seller, the FNS store visit showed that the deli case was empty and that there were only two packages of rib in the freezer case thereby contradicting Appellant s claims. The SNAP transaction analysis shows that these households have ready access to transportation as evidenced by their shopping at a variety of other stores located nearby and at a distance from Appellant s location. The store visit inventory report and photographs show no expensive eligible foods in stock that would account for these large amounts as well as showing the store has no shopping carts in which to transport the large number of low priced 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 involve trafficking. FNS records show there is a full-line super store located only 0.56 miles away from Appellant s location that would offer greater varieties and quantities of food items, likely at lower prices, than would be found at Appellant s very minimally stocked convenience store. There are a variety of other grocery stores located nearby as well as two additional super stores and a supermarket located miles away. Given the proximity of these stores, there is no reason for the attraction to the Appellant business and the volume of violative transactions, especially the large dollar transactions. Appellant has failed to provide any viable explanations for the irregular shopping patterns exhibited by the households in this Attachment as its contentions regarding credit accounts are unsubstantiated. Also, no explanation or rationale has 7

8 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 multiple, high dollar value transactions at a convenience store offering a very limited selection of staple food items. Based on this discussion, trafficking is the only feasible explanation for these irregular shopping patterns. There may be legitimate reasons why a SNAP recipient might return to a store during a short period of time, but the examples in this Attachment indicate a series of multiple SNAP purchases7 U.S.C (b)(7)(e). The record also shows that the households cited in this Attachment shop at a variety of other larger stores, including supermarkets and super stores, often located at a distance from Appellant s location. 7 U.S.C (b)(7)(e). High Dollar Value Transactions This attachment lists 277 SNAP transactions 7 U.S.C (b)(6) & (b)(7)(c). 7 U.S.C (b)(6) & (b)(7)(c). The substantial number of high dollar purchases is atypical of a SNAP authorized convenience store and calls into question the legitimacy of these transactions. The SNAP transactions listed in this Attachment are all significantly higher than the average SNAP purchase amount of $6.71 for this store type in Mississippi and also significantly exceed the average SNAP transaction amount of $5.95 for Lowndes County convenience stores. The 277 excessively large SNAP EBT transactions at Appellant s business for the review months 7 U.S.C (b)(7)(e). This is unusual and indicative of trafficking. The evidence under review shows that SNAP households shopping at the Appellant business are also shopping at other nearby stores such as the super store and the two small grocery stores located nearby, as well as at full-line supermarkets and super stores, located 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 that would be better shopping options for consumers. Based on these shopping patterns, transportation does not appear to be an issue for these households. Yet, these recipients continue to shop and spend suspicious high dollar amounts at the Appellant business, where the eligible food stock is limited, 7 U.S.C (b)(7)(e). Evidence shows that the difference in the average SNAP transaction dollar amount, the total SNAP transaction dollar volume, and the SNAP transaction count for Lowndes County convenience stores during the review months and at the Appellant business is significant. 7 U.S.C (b)(7)(e). 7 U.S.C (b)(7)(e). The two nearby convenience stores also did not exhibit the same patterns of suspicious transactions as those listed in the charge letter Attachments even though they are in the same neighborhood with the same customers. The Retailer Operations Division considered this an indicator of unusual and suspicious activity. This store also had irregular data as compared to like type convenience stores as seen in the table below. This table shows Appellant s transactions compared to the Lowndes County convenience store average during the review period with each row containing a separate transaction range in 8

9 ten dollar increments7 U.S.C (b)(7)(e). While there are normally few transactions in these higher ranges, the chart shows that most stores of this type do still have a small number of them indicating that the Appellant business may be dividing larger trafficking transactions into smaller ones as previously discussed. Dividing large transactions into a series of smaller transactions has long been a technique used by retailers to avoid suspicion. None of Appellant s contentions explain these unusual and suspicious differences. 7 U.S.C (b)(7)(e) Regarding the large purchases, Appellant offers the same contention that the owner allows some customers to set up [credit] accounts in the store and they pay him once a month when they receive their SNAP benefits. They come in and purchase foods (deli meats, riblets, etc.) and pay when their benefits renew. The business also sells a lot of riblet packs of meat to customers weekly. It is the best seller. 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. An analysis of shopping patterns by the Retailer Operations Division shows that 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. It would make no sense for a household that regularly shops at larger stores and apparently has no transportation limitations to spend large dollar amounts at the Appellant business since its cost of goods would be higher than that of supermarkets or super stores. This is further evidenced by an analysis of the shopping patterns for the households listed in the charge letter Attachments that shows more than 84 percent of these households made what would appear to be normal food purchases of significant dollar amounts at super stores or supermarkets within two days of shopping at the Appellant business. Information obtained during the FNS store visit on March 10, 2017, shows that the Appellant business offers a very limited variety and quantity of SNAP eligible staple food items, many accessory foods, and many ineligible items typically found in convenience stores. There is no apparent legitimate reason for the high transaction amounts at Appellant s store given the very minimal stock of staple foods and the fact that: tobacco, alcohol, household products, paper products, pet products, auto products, health and beauty items, incense, and newspapers are not eligible for purchase with SNAP benefits. The business carries no special foods or offers any unique services making it unlikely that SNAP recipients with available transportation would make this business their grocery store of choice. 7 U.S.C (b)(7)(e). Since the Appellant business carries no fresh unprocessed meats or seafood, very minimal frozen unprocessed meat (two packages of ribs), no frozen unprocessed seafood, a very limited variety and quantity of processed meats (two Cervelat style sausages), no processed seafood, no deli meats or deli cheeses, no packaged luncheon meats, no frozen entrees, no frozen dinners, no eggs, no fresh milk, no canned milk, no milk drinks, no ice cream, no packaged cheese, no sour cream, no yogurt, no fresh fruits or vegetables, no frozen fruits or vegetables, a very limited quantity/variety of canned and packaged staple food items, no cold cereals, no hot cereals, no mac&cheese, no infant formula, no infant cereals, no baby foods, no diapers, no butter, no 9

10 margarine, no rice, no baking mixes, only four loafs of bread, no rolls, no tortillas, no coffee, no tea, no cocoa, and offers no expensive items, these patterns are deemed to be suspicious. The store visit report and photographs noted poor lighting in the store and also showed the Appellant business had dust on many of the canned and packaged foods and many empty or marginally stocked shelves, display racks, and coolers indicative of a slow turnover of stock. Store staple food inventory was substantially less than that seen during the August 26, 2015, FNS store visit. Increasing food prices make it even more unlikely that SNAP recipients, with limited food benefits, would want to spend a considerable part of their benefits in a very minimally stocked convenience store that does not address all of their food shopping needs when they are already shopping at larger, fully-stocked stores that would offer a greater variety of foods at lower prices. These stores would also offer store brand products at lower prices, offer weekly specials, and have shopping carts and checkouts with scanners and conveyor belts to facilitate processing purchases quickly. No itemized cash register receipts with accompanying EBT receipts or any other evidence or rationales were furnished to document the legitimacy of these excessively large transactions. The Appellant business has a very small checkout area and has no shopping carts or hand baskets thereby making it difficult to facilitate the great quantities of eligible food items required to make up these large dollar transactions. Accordingly, it is improbable that the food items purchased in these high dollar amounts could be carried to the register without the use of many carts and thus more likely the amounts were contrived. Credit and Other Contentions This review encompasses and documents the examination of the primary and relevant information in this case, the purpose of which is to determine whether Appellant demonstrates, by a preponderance of the evidence, that the disqualification should be reversed. In this case, therefore, if Appellant demonstrates by a preponderance of the evidence that it did not engage in trafficking with SNAP benefits, then such transactions will be considered legitimate and the disqualification reversed. If this is not demonstrated, the case is to be sustained. Assertions that the firm has not violated program rules, by themselves and without supporting evidence and rationale, do not constitute valid grounds for dismissal of the current charges of violations or for mitigating their impact. 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. 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. The store owner admits to allowing some customers to engage in credit accounts and they pay him back once a month when they receive their SNAP benefits. Additionally, the business sells a lot of riblet packs of meat to customers weekly. Regarding the above contentions, when the store owner signed the certification page of the SNAP retailer application to begin operating as a SNAP retailer, he confirmed he understood and agreed to abide by program rules and regulatory provisions. He agreed to accept responsibility on behalf of the firm for violations of the SNAP including those committed by any of the firm s employees, paid or unpaid, new, full-time or part-time. This certification page specifically 10

11 includes violations such as accepting SNAP benefits as payment on credit accounts or loans (Emphasis added.) The certification is clear that ownership understood by signing the document that violations of program rules can result in administrative actions such as fines, sanctions, withdrawal, or disqualification from the SNAP. Despite agreeing to abide by SNAP rules and regulations, ownership now admits that the business allowed credit accounts, a clear violation of SNAP regulations and rules. Additionally, the SNAP Retailer Training Guide and the SNAP retailer training video, provided to all retailers upon initial authorization and upon reauthorization, both cite credit accounts as violating SNAP regulations. Ownership s admission that the business extended credit is documented in the case file under review and is not contested. Accepting SNAP benefits for payment on credit is a violation of Section 278.2(f) and warrants a one year disqualification period as specified by Section 278.6(e)(4); this Section includes a like disqualification period for the sale of ineligible items by management personnel. It is the agency s position that credit violations constitute owner or management involvement and that a one year disqualification is the base sanction. In addition, a retailer is to be assessed a fiscal claim for each transaction determined to be a credit account violation. To refute charges of trafficking, the retailer must provide adequate proof that credit accounts existed at the time the suspicious transactions occurred so that a comparison can be made with transactions outlined in the letter of charges. A level of detail regarding the legitimacy of credit accounts is necessary since retailers have long admitted to credit in an attempt to garner a lesser penalty after committing more egregious violative acts. Credit transactions must be accounted for with substantive evidence such as the dates credit was extended, to whom, for what amount, and for what items. If such exculpatory evidence is not advanced, the appropriate penalty is permanent disqualification. Appellant submitted no documentation of any kind in support of his claim of accepting SNAP benefits for payment on credit accounts, a program violation. Accordingly, the original determination made by the Retailer Operations Division was evaluated to determine if trafficking occurred. The transactions showed clear and repetitive patterns of unusual, irregular, and inexplicable SNAP activity indicative of trafficking. Additionally, as previously discussed, many transactions listed in the charge letter Attachments did not have those characteristics normally associated with payments on credit accounts. 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, 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 11

12 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 March 10, 2017, a transaction comparison and analysis of like type and larger stores, and analysis of shopping patterns for recipient households conducting transactions at Appellant s business during the review period. 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 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. 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. The Retailer Operations Division determined that the Appellant was not eligible for a trafficking CMP in lieu of a disqualification under 7 CFR 278.6(i) because Appellant failed to request a trafficking CMP or to submit sufficient evidence to demonstrate that the firm had established and implemented an effective compliance policy and program to prevent SNAP violations within the specified timeframe. As such, the Retailer Operations Division determined that Appellant was not eligible for a trafficking CMP in lieu of permanent disqualification. CONCLUSION The Retailer Operations Division has presented a case that Appellant has likely trafficked in SNAP benefits. The Retailer Operations Division s 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 two 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 and larger stores in the county and state. 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 12

13 Retailer Operations Division. Based on the discussion above, the determination to impose a permanent disqualification against Appellant is sustained. Furthermore, the Retailer Operations Division 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 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 Freedom of Information Act, 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. ROBERT T. DEEGAN June 27, 2017 ADMINISTRATIVE REVIEW OFFICER 13