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 Asian Supermarket, Appellant, v. Case Number: C Retailer Operations Division, Respondent. FINAL AGENCY DECISION The record indicates that Asian Supermarket (Appellant) committed violations of the Supplemental Nutrition Assistance Program (SNAP). It is the decision of the U.S. Department of Agriculture (USDA), Food and Nutrition Service (FNS) that there is sufficient evidence to support a finding that the permanent disqualification from participation as an authorized retailer in the program, as initially imposed by the Retailer Operations Division, (Retailer Operations) was appropriate. ISSUE The issue accepted for review is whether Retailer Operations took appropriate action, consistent with 7 CFR 278.6(a), (c) and (e)(1) in its administration of the SNAP, when it assessed a permanent disqualification against Appellant. 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 By Charge letter dated March 8, 2017, Retailer Operations informed the owner that Appellant was in violation of the terms and conditions of the SNAP regulations based on EBT benefit transactions that establish clear and repetitive patterns of unusual, irregular, and inexplicable SNAP activity for your type of firm. The letter of charges states, that As provided by Section 278.6(e)(1) of the SNAP regulations, the sanction for trafficking is permanent disqualification. 1

2 The record shows that Appellant replied to the Charge letter by telephone on March 13, 2017, and in writing on March 14, 2017 and March 16, Retailer Operations considered these replies and issued a Determination letter dated March 27, This letter informed Appellant that it was permanently disqualified from the SNAP in accordance with Sections 278.6(c) and 278.6(e)(1) of the SNAP regulations. Retailer Operations considered Appellant s eligibility for a civil money penalty (CMP) according to the terms of Section 278.6(i) of the SNAP regulations. Appellant was deemed not eligible for the CMP because insufficient evidence was submitted timely to demonstrate that the firm had established and implemented an effective compliance policy and program to prevent violations of the SNAP per the regulations cited. By letter dated April 4, 2017, the owner, via counsel, appealed Retailer Operations determination and requested administrative review of this action. The appeal was granted by letter dated April 11, STANDARD OF REVIEW In an appeal of an adverse action, the Appellant bears the burden of proving, by a preponderance of the evidence, that the administrative action should be reversed. That means the 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 argument asserted is more likely to be true than not true. CONTROLLING LAW AND REGULATIONS 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). Sections 278.6(a) and (e)(1) establish 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 SNAP benefits. 7 CFR 278.6(e)(1) reads, in part, FNS shall disqualify a firm permanently if personnel of the firm have trafficked as defined in Trafficking is defined, in part, in 7 CFR 271.2, as the buying or selling of SNAP benefits for cash or consideration other than eligible food. 7 CFR states in part that, Eligible foods means: Any food or food product intended for human consumption except alcoholic beverages, tobacco and hot food products prepared for immediate consumption. 7 CFR 278.6(a) states 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) 2

3 SUMARY OF THE CHARGES The issue in this review is whether, through a preponderance of evidence, it is more likely true than not true that the questionable transactions were the result of trafficking. The charges on review were based on an analysis of SNAP electronic benefit transfer (EBT) transaction data during the period of September 2016 through November This involved three patterns of EBT transaction characteristics which are indicative of trafficking: 1. Multiple transactions made from individual benefit accounts within unusually short time frames. 2. The majority or all of individual recipient benefits were exhausted in unusually short periods of time. 3. Excessively large purchase transactions were made from recipient accounts. APPELLANT S CONTENTIONS The following may represent a brief summary of the contentions in this matter however, in reaching a decision, attention has been given to all contentions presented, including any not specifically recapitulated or reference herein. The contentions are: Asian Supermarket is a grocery store that caters to the immigrant Asian population and the public. Effective July 1, 2016 the owner received his vendor s license from the Ohio Department of Taxation. For the month of July, he only had credit/debit card sales and cash sales. He did not have any SNAP transactions because he had not been approved. After he was approved to accept SNAP benefits, the owner began having transactions for SNAP benefits via EBT in August 2016 and each month thereafter. Per the owner, SNAP transactions are typically higher in the first 15 days of each month and generally taper off towards the end of the month. The owner denies and maintains his innocence regarding the allegation that he is trafficking in SNAP benefits. He keeps track of his SNAP sales (indicated by an F on the calendars) and reports the sales to the Ohio Department of Taxation. The SNAP sales that FNS is questioning are included in his totals and the breakdown by transaction detail is not available. The retailer requests a civil money penalty in the event that this matter does not resolve favorable for the owner. Appellant advanced a County Vendor s License from the Ohio Department of Taxation, a spreadsheet detailing its monthly sales for July 2016 through November 2016, copies of its sales log by month for July 2016 through November 2016, copies of Ohio State, and County & Transit Sales tax returns for July 2016 through November

4 ANALYSIS AND FINDINGS Retailer Operations presented a case that Appellant trafficked SNAP benefits. Each Attachment furnished with the Charge letter represents the questionable and unusual patterns of SNAP transactions indicative of trafficking which were conducted at Appellant during the review period. As patterns of unusual transactions appear across multiple Attachments the case of trafficking becomes more convincing. Attachment 1: Multiple SNAP purchase transactions were made from individual benefit accounts in unusually short time frames. This Attachment lists 32 sets of two transactions each, conducted by 27 different households. 7 U.S.C (b)(6) & (b)(7)(c). When compared to three similar ethnic stores within a one mile radius of Appellant, Appellant had 64 transactions listed on this Attachment as compared to 4, 4, and 23 at the other stores. This is suspicious. Multiple transactions conducted by the same households 7 U.S.C (b)(7)(e) supports that Appellant was attempting to avoid single high dollar transactions, a practice that is indicative of trafficking. Appellant maintains: The owner never required a minimum purchase or asked for the customers PIN. The customers purchase SNAP eligible items. The owner does not sell prepared foods, alcohol, beer, or cigarettes. The owner separates eligible from ineligible items by hand. He does not charge sales tax, State or local, on eligible items purchased with SNAP. As his sales tax returns show, the SNAP/tax exempt sales are excluded for purposes of sales tax. The owner does not traffick in SNAP benefits. He does not give cash in exchange for benefits. Many Asian families would shop at Asian Supermarket when their SNAP benefits were replenished. For example, a family of five or six people would come in. One person would purchase groceries, swipe their SNAP EBT card, and enter their Personal Identification Number (PIN). The owner would then ring up the next person. That person would swipe their SNAP EBT card and likewise enter their PIN for the card. At the time the transactions were taking place, the owner was not aware that the person would be using the same SNAP EBT card as the person for whom he had just previously rang up purchases. In some cases, after the owner would close out a sale, a family member of the card recipient would bring additional grocery items to purchase and the card holder would reswipe the card to cover the purchases. Often the sales would happen within minutes of each other. Appellant is a combination grocery store. According to the record the area is served by one supermarket, seven combination grocery/other stores, and one medium grocery store within a one mile radius of Appellant. The data shows that of the 185 households flagged at Appellant, 117, 7 U.S.C (b)(7)(e), made a SNAP transaction at a large grocery, a supermarket or super store within one day of conducting a transaction at Appellant. One hundred and fifty-one 4

5 households, 7 U.S.C (b)(7)(e), conducted a SNAP transaction at a large grocery, a supermarket or super store within three days of conducting a transaction at Appellant. Thus, SNAP households did access other larger stores to meet their grocery needs. For example, one household transacted benefits at two supermarkets, and three different super stores, up to miles from Appellant within three days of conducting a transaction at Appellant. Another household within three days of conducting a transaction at Appellant transacted benefits at four supermarkets and two different super stores at a distance of up to 5.11 miles. Within one day of conducting a transaction at Appellant, another HH conducted transactions at two supermarkets and two super stores at a distance of 8.28 miles. The record shows that Retailer Operations assessed some recipient shopping habits, and the households reviewed conducted SNAP transactions that are unusual at Appellant. These HHs also shopped at other authorized stores during the review period including other Asian groceries, supermarkets and super stores. The record shows that Appellant was compared to three nearby Asian groceries, two of the same store type, and one medium grocery located within a one mile radius of Appellant. Appellant s SNAP redemptions for the same period were 7 U.S.C (b)(7)(e) higher than the comparator stores. Appellant also had a higher average SNAP transaction amount ranging 7 U.S.C (b)(7)(e) higher as compared to the nearby Asian groceries. 7 U.S.C (b)(6) & (b)(7)(c). These are large dollar total transactions that are not adequately explained by advanced exculpatory evidence. Appellant did not provide FNS copies of food invoice purchases to support its flagged transactions. No itemized cash register receipts were provided. No pricing information for eligible foods was advanced. No SNAP customer affidavits attesting to shopping behavior were provided. The gross sales totals submission is not an accurate reflection of the SNAP redemptions at Appellant. The amounts provided by Appellant on its worksheet regarding its SNAP sales are not the same as those amounts tracked by FNS as SNAP redemptions7 U.S.C (b)(6) & (b)(7)(c). Thus, the worksheet does not conform to FNS redemption data. As to the tax submissions for the review months, these do reflect exempt sales that exceed SNAP redemption amounts. However, there is no way to validate the tax information since as noted, the SNAP amounts presumably used in the tax amount totals do not conform with the FNS SNAP redemption totals at Appellant for said months. Also, while Appellant claims to sell SNAP eligible items, no proof has been advanced as to the actual items sold at Appellant that make up the totals listed on this or the other Attachments. The short timeframes make it suspicious as to whether or not any items were sold rather than the trafficking of benefits for cash. Regarding ownership s denial of the trafficking allegations, this review encompasses and documents the examination of the primary and relevant information in this case, the purpose of which is to determine whether the owner demonstrates by a preponderance of the evidence that the permanent disqualification should be 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 compelling supporting evidence do not constitute valid grounds for dismissal of the current charges of violations or for mitigating their impact. An Appellant who seeks to set aside an 5

6 agency sanction action must focus its probative efforts on providing evidence by a preponderance that the transaction activity at issue is in fact not due to SNAP benefit trafficking. Since permanent disqualification is warranted on the first occasion of trafficking, it is Appellant s burden to raise material issues of fact as to each of the transactions set forth as suspicious by FNS. This burden has not been met. Attachment 2: The majority or all of individual recipient benefits were exhausted in unusually short periods of time. This Attachment lists individual or transaction sets conducted by 13 different households. Transactions 65 through 69 conducted by three different households are all for amounts exceeding 7 U.S.C (b)(6) & (b)(7)(c). Depleting an entire allotment in one or a few transactions, within a day, leaving few or no benefits for the rest of the month, is inconsistent with the shopping behavior of SNAP benefit households. Therefore, transactions in which SNAP benefits are exhausted in a single calendar day are indicative of trafficking. A government report on SNAP shopping patterns 1, indicates that on average SNAP households have less than one-quarter of their benefits left by the middle of the month. On the day the issuance was distributed, the average household redeemed more than a fifth of its benefit. By the first week, the average household had redeemed over half of its benefit, and by the second week, over three-quarters of it. Households redeemed about an additional 10 percent of benefits by the end of the third week (exhausting 90 percent of benefits) and ultimately redeemed 97 percent of their monthly benefits by the end of the day before receiving their next issuance. Therefore, transactions in which SNAP benefits are exhausted in one or a few transactions during a short period of time are suggestive of trafficking. Appellant did not specifically address this Attachment in its replies. As noted, the provided gross sales SNAP totals information advanced by Appellant did not conform to the SNAP redemptions recorded by FNS. For the months of September through November 2016 Appellant s sales figures had a variance of 7 U.S.C (b)(7)(e) fewer SNAP sales shown. The case record shows that Appellant had more transactions on this Attachment at 25, when compared to three ethnic stores with similar stock within a one mile radius. For example, the other comparator stores had 3, 8, and 6 transactions on this Attachment s parameters. This is unusual. Attachment 3: Excessively large purchase transactions were made from recipient accounts. This Attachment lists 152 individual EBT transactions conducted by 89 different households ranging from 7 U.S.C (b)(6) & (b)(7)(c), for SNAP redemptions totaling 7 U.S.C (b)(6) & (b)(7)(c). The transactions listed on this Attachment are for amounts that exceed the average transaction amount for the same store type in the same state 7 U.S.C (b)(7)(e). When compared to nearby comparator stores Appellant had more transactions flagged on this Attachment as compared to other stores for the same period. This is irregular. 1 Benefit Redemption Patterns in the Supplemental Nutrition Assistance Program, Mathematica Policy Research, by Laura Castner and Juliette Henke, for the U.S. Department of Agriculture, Food and Nutrition Service, Office of Research and Analysis, February

7 Appellant does not have shopping carts but it does have some hand baskets to facilitate quantities of eligible items to carry up to the cash out area. These items would need to be handled on a limited counter space at a checkout area of about two feet by four feet. The large dollar transactions remain questionable when considering the proximity of other larger authorized stores located in proximity to Appellant. A shopping analysis shows that recipients who frequented Appellant also shopped at larger stores, yet inexplicably spent large dollar amounts at Appellant. When one considers that SNAP benefit allotments are calculated to provide households with a bare minimum of food security, it is unusual that households would spend large sums of their monthly benefit allotments at a combination store. The onsite visit report noted that Appellant did not offer specials or produce, meat, poultry, or seafood bundles or packages or fruit/vegetable boxes. Appellant was listed an Asian specialty combination grocery/other store that did not carry a variety of dairy items. Appellant stocked refrigerated/frozen meat and seafood, eggs, rice, and fresh produce. No food was seen to be stored in an area out of public view. The charged owner was given the opportunity to provide evidence of the legitimacy of the transactions listed. The July 2016 and August 2016 SNAP gross sales are outside the review period; therefore, Retailer Operations did not review this information. Appellant s SNAP redemptions for the review period of September 2016 to November 2016 totaled 7 U.S.C (b)(6) & (b)(7)(c). Appellant s reports its SNAP redemptions during the review period as 7 U.S.C (b)(6) & (b)(7)(c). The gross sales information advanced does not explain the suspicious transaction patterns at Appellant. The evidence that Appellant violated the SNAP regulations is furnished in the Charge letter Attachments. SNAP transaction data is provided to FNS via each State s EBT processor on a daily basis in a single layout and format that is standardized nationwide. The EBT transactions are validated and loaded into a database for subsequent analysis. USDA has a system that scans all retailer transactions at the beginning of each month for the prior month. The system uses pre-defined criteria or patterns for potential fraud detection. Pre-formatted reports provide information on those stores and transactions meeting the pre-established criteria. The system provides a series of spread sheets and graphs that compare a specific store s data to the average for its firm type or to user-selected comparison stores. In addition, the system utilizes mapping software which translates the location address information into geo codes and enables the user to map the locations of selected authorized stores and track recipient transaction locations. While the system identifies a retailer for further investigation, the actual case of trafficking is made by retailer compliance staff on the basis that the transaction patterns cannot be explained based on the store size, layout, inventory, and other factors. The computer system is an analysis tool of SNAP transaction data and is used by Retailer Operations staff to evaluate the type and extent of potential program violations. Users are also able to supplement and/or confirm their analytic documentation by accessing the applicable State s EBT processors administrative systems through web access to the applicable State system. 7

8 Counsel contends that a SNAP disqualification will have a negative financial impact on Appellant s firm. It is recognized that some degree of economic hardship is a likely consequence whenever a store is disqualified from participation in SNAP. However, there is no provision in the SNAP regulations for waiver or reduction of an administrative penalty assessment on the basis of possible economic hardship to the firm resulting from imposition of such penalty. To allow ownership to be excused from an assessed administrative penalty based on purported economic hardship to the firm would render virtually meaningless the enforcement provisions of the Food and Nutrition Act of 2008 and the enforcement efforts of the USDA. Furthermore, giving special consideration to economic hardship to the firm would forsake fairness and equity, not only to competing stores and other participating retailers who are complying fully with program regulations, but also to those retailers who have been disqualified from the program in the past for similar violations. Therefore, the owner s contention that the firm may incur economic hardship based on the assessment of an administrative penalty does not provide any valid basis for dismissing the charges or for mitigating the penalty imposed. Counsel contends there is no proof of any wrongdoing. The evidence that Appellant violated the SNAP regulations is furnished in the Charge letter Attachments. Based on this data, a store visit, recipient transaction analysis, and consideration of the owner s responses to the Charge letter, Retailer Operations acted to permanently disqualify Appellant. Retailer Operations determined the evidence provided by the owner did not outweigh the evidence in the record in support of trafficking, and acted to permanently disqualify Appellant. CIVIL MONEY PENALY Counsel s written reply submitted a CMP request for Appellant. Counsel maintains: FNS unilaterally determined that the owner was not eligible for a CMP and permanently disqualified Appellant. There was no prior action taken to warn the owner about the possibility that violations were occurring. There is no evidence to show that the owner intended to violate the SNAP regulations. Other than the policies and procedures in the Training Guide for Retailers, there are no other regulations for the owner to follow. This is a mom and pop store that caters to the Asian market. The unilateral decision, without proof or any other evidence to permanently disqualify his business has hurt his business and also created a potential food desert. A copy of the USDA Training Guide for Retailers was advanced. The FNS regulations require that FNS consider any prior warnings and evidence of a firm s intent to violate when determining a sanction. It does not require FNS to give such warnings 8

9 or to prove a firm s intent to violate. FNS did not consider prior actions to warn Appellant about the possibility that violations were occurring because there were no prior warnings. The evidence considered by the Retailer Operations included the Attachments of questionable transactions and other electronic reports, and information obtained during an onsite store visit. The SNAP regulations at Section 278.6(i) specify the four criteria for a firm to be considered for a civil money penalty in lieu of permanent disqualification for trafficking. The evidence that must be advanced is greater than for a CMP for hardship. The criteria listed therein are, as a whole, specifically identified as a minimum standard that firms must meet in order to be eligible for such a penalty. It is clear that the statute and the regulations allow no flexibility below the level of this stated standard. Accordingly, Retailer Operations determined that Appellant did not qualify for a CMP in lieu of a permanent disqualification for trafficking. CONCLUSION Retailer Operations analysis of Appellant s SNAP 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. Based on a review of all of the evidence in this case, by a preponderance of the evidence, it is more likely true than not true that program violations did occur as charged by Retailer Operations. Therefore, the decision to impose a permanent disqualification against Appellant is sustained. Retailer Operations also determined that Appellant was not eligible for a trafficking civil money penalty according to the terms of 7 CFR Section 278.6(i) of the SNAP regulations. Under review, the denial of a trafficking CMP is sustained. RIGHTS AND REMEDIES Your attention is called to Section 14 of the Food and Nutrition Act of 2008 and to Section of the regulations (7 CFR 279.7) with respect to applicable rights to a judicial review of this determination. Please note that if a judicial review is desired, the Complaint, naming the United States as the defendant, must be filed in the U.S. District Court for the district in which the Appellant s owner resides or is engaged in business, or in any court of record of the State having competent jurisdiction. If any Complaint is filed, it 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. M. Viens May 16, 2017 ADMINISTRATIVE REVIEW OFFICER 9