U.S. Department of Agriculture Food and Nutrition Service Administrative Review Branch Torrington Convenience Center, Appellant, v. Case Number: C0194186 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 the Torrington Convenience Center (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 11, 2017. AUTHORITY 7 U.S.C. 2023 and its implementing regulations at 7 CFR 279.1 provide that [A] food retailer or wholesale food concern aggrieved by administrative action under 278.1, 278.6 or 278.7... may file a written request for review of the administrative action with FNS. CASE CHRONOLOGY In a letter dated October 20, 2016, the Retailer Operations Division charged the Appellant with trafficking, as defined in Section 271.2 of the SNAP regulations, based on a series of irregular SNAP transaction patterns that occurred during the months of March 2016 through August 2016. 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
Appellant, through counsel, responded to the charges in a letter dated October 25, 2016; however, the response neither requested nor contained any evidence to be considered in support of the trafficking CMP. The Retailer Operations Division notified Appellant in a letter dated April 11, 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 April 13, 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. 2021 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 271.2. Trafficking is defined, in part, in 7 CFR 271.2, as, The buying, selling, stealing, or otherwise effecting an exchange of SNAP 2
benefits... for cash or consideration other than eligible food, either directly, indirectly, in complicity or collusion with others, or acting alone.... 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 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 EBT transaction data during the six month period of March 2016 through August 2016. 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 response to the letter of charges and in the request for administrative review, Appellant has stated as its position in the matter the following: This is a perfect case for a CMP. The owner has operated the business for 12 years without a single compliance issue with either the State or Federal government. The owner s business consists of a pizza restaurant and a small convenience store located next to each other. The owner works at the pizza restaurant 9 AM-7 PM, but employs two people to run the convenience store. The offending conduct was committed by an employee who has since been discharged who worked in the convenience store and apparently was giving cash back to SNAP EBT customers. The owner did not know this until one day when he was cashing-out a customer who asked for cash back. The owner told the customer he could not do that and the customer indicated that one of the clerks had been doing it. The employee was confronted, the practice stopped, and the employee terminated. If there was any negligence on the owner s part, it may have been in not adequately training this employee, although the owner indicated that the employee was not receptive to his instructions. Apparently, the employee was not charging a premium, 3
but was innocently proving cash to customers using their EBT card. Word of mouth brought others in the neighborhood to the business; Appellant agrees that the violations which consisted of multiple transactions in unusually short timeframes likely were due to this employee s routines and 7 U.S.C. 2018 (b)(6) & (b)(7)(c) relating to them is probably accurate. Appellant does not believe that transactions #31-198 all consist of excessively large transactions because at least 100 of these transactions 7 U.S.C. 2018 (b)(6) & (b)(7)(c) which is not unusual in purchasing food for a family; Pursuant to 7 CFR 278.6(i), Appellant believes the owner is eligible for a [trafficking] CMP in that he meets all four criteria set forth in the regulation; o Criterion One: the store has an effective compliance policy that was communicated to the employee in question, but she chose to ignore it; o Criterion Two: The compliance policy and program were in operation at the location prior to the violations according to the sole owner of the business; o Criterion Three: The firm had developed and instituted an effective personnel training program which involved the owner educating the employee as to the pertinent regulations. The employee choose to ignore them; o Criterion Four: This was a small business with one owner and two employees, one of whom created the offending conduct. The owner had no idea the employee was violating the regulations and terminated her as soon as he learned of the violation. This was the first occasion of involvement of this firm or its management; and, Considering the small size of the firm, the training program which was oral as is the case of similar small firms, and the circumstances surrounding the violation, it being the first such violation, a CMP would appear appropriate as opposed to permanent disqualification. 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 Appellant s store 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 FNS initially authorized the Appellant s store on August 18, 2014, and the business is classified as a convenience store. The file indicates that in reaching a disqualification determination, the Retailer Operations Division considered information obtained during an August 30, 2016, store visit conducted by a FNS contractor to observe the nature and scope of 4
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 very marginally stocked and very small convenience store offering an extremely limited variety and quantity of staple foods and carrying no unique items or offering any distinctive services. Exterior signage identified the business as the Torrington Payment Center and advertised check cashing, bill pay, notary, and Western Union services. The contractor estimated the store to be about 1000 square feet with a 100 square foot storage area. The financial services section occupied approximately 50 percent of the store. 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 counter was approximately 2.0 feet by 2.0 feet with merchandise displays, a plastic bag holder, and the PIN pad taking up counter space on both sides. The small size of the checkout area would make it problematic to process large orders. The checkout counter had one cash register, one point-of-sale (POS) terminal, and an optical scanner, as evidenced by the store visit report and Appellant s SNAP retailer application. There were three other areas dedicated to financial services transactions (check cashing, bill payment, Western Union, etc.) that included three additional cash registers and POS terminals. 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. The store had an extremely limited stock of staple foods that consisted primarily of prepackaged and single serving items with the majority of inventory in accessory foods (primarily soda, candy, and other drinks), snacks, and ineligible items. The inventory of staple foods at the time of the visit included: milk, fruit juices, single serving bagged nuts, six boxes of Barilla spaghetti, approximately 13 Knorr Rice and Pasta Sides instant mixes, six small boxes of instant potatoes, snacks, single serving instant noodle soups, single serving macaroni & cheese, jerky, six cans of corned beef hash, four cans of beef stew, and eight cans of tuna fish. The business was deficient in the Dairy products category stocking only milk. Refrigerated items included: milk and 100 percent juice drinks. There were no fresh or frozen fruit and vegetables. There were also no canned, bottled, or dried fruits or vegetables. The store had no fresh unprocessed meats or seafood, no frozen unprocessed meats or seafood, very minimal processed meats (canned corned beef hash, canned beef stew, canned tuna, & jerky), no deli meats/cheeses, no packaged lunch meats, no frozen entrees, no frozen dinners, no fresh produce, no frozen produce, no canned fruit or vegetables, very minimal packaged staple food items, no baby formula, no baby foods, no diapers, no bread or rolls, no tortillas, no hot/cold breakfast cereals, no baking mixes, no flour, no sugar, no corn meal, no rice, no eggs, no margarine/butter, no packaged cheese, no ice cream, and no expensive eligible food items. 5
Ineligible items included: tobacco, smoking accessories, household products, paper products, health and beauty items, ATM, check cashing, bill pay, notary, Western Union, hot drinks (Keurig machine), and copy/fax/stamp services while accessory foods included: candy, coffee, two boxes of tea bags, and carbonated/uncarbonated drinks. The store was not a WIC vendor. Signage in the store was in English. Most food items were not priced. Store hours were confirmed by the contracted reviewer during the FNS store visit with store ownership as being open 9:00 am-7:00 pm M-Sa and closed on Sundays. The store visit report photographs showed empty and marginally stocked shelves and display racks that are indicative of a slow turnover of product. Store inventory was markedly less than during the August 6, 2014, FNS store visit that was conducted as part of the SNAP retailer application approval process. Appellant s Contentions The Retailer Operations Division presented a case that Appellant trafficked SNAP benefits based on transaction patterns, the results of a contracted store visit, and an analysis of shopping patterns of the households who conducted the irregular SNAP transactions at the Appellant firm. Each Attachment furnished with the letter of charges identifies the questionable and unusual patterns of SNAP transactions that indicate trafficking was taking place at Appellant s business during the review period. As patterns of unusual transactions appear across multiple Attachments, the case of trafficking becomes more convincing. Store ownership does not deny that trafficking occurred at the business nor does ownership dispute or rebut the trafficking case established by the Retailer Operations Division, but states only that the employee responsible for the violations has been terminated and that the business meets the four criteria to receive a trafficking CMP in lieu of permanent disqualification. 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 s action at the time such action was made. 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 also not within the authority of this review to consider what subsequent remedial actions may have been taken so that a store may begin to comply with program requirements. 7 U.S.C. 2018 (b)(7)(e). Therefore, while ownership has terminated the responsible employee, this does not provide any valid basis for dismissing the charges or for mitigating the penalty imposed. The FNS electronic retailer application contains a certification page whereby applicants must confirm their understanding of and agreement with SNAP retailer requirements in order to complete the application or reauthorization process. Store ownership did certify its understanding and agreement when it applied electronically through the FNS retailer web site for authorization as a SNAP retailer in 2014. The SNAP Training Guide for Retailers is provided to all retail store owners upon their authorization/reauthorization and clearly states that store owners or operators are legally responsible for their own actions as well as the actions of everyone working 6
in their store whether paid or unpaid, new, full-time or part-time and that violations may include being disqualified from SNAP. Regardless of whom the ownership of a store may utilize to handle store business or their degree of involvement in store operations, the ownership is liable for all violative transactions handled by store personnel and is accountable for the proper training of staff and the monitoring and handling of SNAP benefit transactions. This training guide and the video accompanying it provide detailed information for SNAP retailers regarding compliance with SNAP rules and regulations; both are available in English and Spanish and are also online at the FNS retailer web site. The FNS web site cautions applicants about their responsibilities for training and overseeing store employees. You must read the SNAP Retailer Training Guide and watch the instructional video. Store owners accept responsibility for the actions of their employees. You are responsible for the actions of your employees. All of your employees must read the SNAP Retailer Training Guide and watch the instructional video... to ensure compliance with SNAP rules and regulations. 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 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 August 30, 2016, a transaction comparison and analysis of nearby like type stores, and analysis of shopping patterns for recipient households conducting transactions at Appellant s business during the review period. There are like type stores whose transaction data does not form these suspicious patterns and are therefore not at risk of disqualification for trafficking. 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. The Retailer Operations Division determined that Appellant s contentions did not outweigh the evidence that the store was trafficking and concluded, through a preponderance of evidence, that trafficking is the most probable explanation for the questionable transactions listed in the charge letter Attachments. Neither the Food and Nutrition Act of 2008, as amended, nor the regulations issued pursuant thereto cite any minimum dollar amount of cash or SNAP benefits, or number of occurrences, for such exchanges to be defined as trafficking. Nor do they cite any degrees of seriousness pertaining to trafficking of SNAP benefits. Trafficking is always considered to be the most serious violation, 7
even when the exchange of SNAP benefits for cash is dollar-for-dollar or is conducted by a nonmanagerial store clerk. This is reflected in the Food and Nutrition Act, which reads, in part, that disqualification shall be permanent upon... the first occasion of a disqualification based on... trafficking... by a retail food store." In keeping with this legislative mandate, Section 278.6(e)(1)(i) of the SNAP regulations states that FNS shall disqualify a firm permanently if personnel of the firm have trafficked. There is no agency discretion in the matter of what sanction is to be imposed when trafficking is involved and second chances are not an authorized option. It was also noted that SNAP redemptions at Appellant s business dropped significantly following the store visit on August 30, 2016. 7 U.S.C. 2018 (b)(7)(e). A pronounced decrease in SNAP transactions immediately following the store visit and/or receipt of the charge letter is a clear indication of trafficking since, if trafficking were not occurring, there would be no abnormal fluctuations in redemption amounts. As previously stated, the store owner is responsible for all SNAP transactions at the firm and a certain minimal level of oversight on the part of the owner to ensure employees are not violating SNAP laws or regulations is therefore expected. It would unusual and irresponsible for a store owner to not be monitoring all transactions, not just those involving SNAP, and reviewing daily balance sheets to ensure store employees are not stealing from the business or conducting other activities that would jeopardize the licenses and income that the business is dependent upon. A review of daily transactions, including SNAP, by store ownership should have flagged the exceptionally large SNAP transactions and the multiple SNAP transactions by a single household for closer examination. This review would also have readily shown an unexplained deficit in the amount of cash that should be on hand in the cash register till and have been an obvious red flag that something other than regular transactions were occurring at the business. Additionally, the Appellant business is unique in that it has an extremely limited inventory of SNAP eligible food items. Therefore, daily SNAP transactions totaling hundreds of dollars should have caused a significant reduction in food stock that would have been readily evident to the naked eye and the lack of this reduction would have been another red flag of a problem. The Appellant business also has an optical scanner that is normally a sign of a more sophisticated POS system that can track inventory purchases and generate a variety of reports. A review of reports generated by this system would have shown hundreds of dollars in daily SNAP sales for the day without corresponding food inventory decreases. Lastly, store ownership s admission that the responsible employee was not receptive to his instructions regarding SNAP regulations should have resulted in the employee being either very closely supervised and transactions monitored or replaced by a more responsible individual. 7 U.S.C. 2018 (b)(7)(e). Conversely, the Appellant business would not be the grocery store of choice for SNAP households due to its extremely limited variety and quantity of staple foods. 7 U.S.C. 2018 (b)(7)(e). Since the Appellant business carries no fresh unprocessed meats or seafood, no frozen unprocessed meats or seafood, very minimal processed meats (canned corned beef hash, canned beef stew, canned tuna, & jerky), no deli meats or cheeses, no packaged cheese, no ice cream, no packaged lunch meats, no frozen entrees, no frozen dinners, no fresh produce, no frozen produce, no canned fruit or vegetables, very minimal packaged staple food items, no baby formula, no baby foods, no diapers, no bread or rolls, no tortillas, no hot/cold breakfast cereals, no baking mixes, no flour, no sugar, no corn meal, no rice, no eggs, no 8
margarine or butter, and no expensive eligible food items, these patterns are deemed to be suspicious. Additionally, the food inventory at the Appellant business is insufficient to support the volume of transactions listed in the letter of charges. 7 U.S.C. 2018 (b)(7)(e). Based on the FNS store visit report, inventory listing, and photographs it is doubtful that the extremely limited variety and quantity of SNAP eligible foods available for sale could have supported this volume of purchases. 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. Additionally, there are 22 SNAP authorized stores located within a one mile radius of Appellant s business including two supermarkets and a super store. The many nearby stores appear readily accessible to SNAP recipients and offer a variety of staple foods comparable to, or better than, those offered by Appellant. Appellant does not carry any unique items or foods that cannot be found at other stores. Some degree of inconvenience to SNAP benefit users is inherent in the disqualification from SNAP of any participating food store as the normal shopping pattern of such SNAP benefit holders may be altered. Appellant did not request a trafficking CMP and no documentation was advanced during the specified time frame that Appellant met the criteria as required by 278.6(i) to be eligible for a trafficking CMP. As such, the Retailer Operations Division determined that Appellant was not eligible for a trafficking CMP in lieu of permanent disqualification. Appellant s April 13, 2017, request for administrative review requested a CMP and provided a narrative accounting of how Appellant met each of the four criteria. This accounting is listed in its entirety in the Appellant s Contentions section of this decision beginning on page four. SNAP regulations at 7 CFR 278.6(i) state that 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. These regulations are explicit in what constitutes substantial evidence. Specifically, 7 CFR 278.6(i)(2) states in relevant part, As specified in Criterion 3 above, in determining whether a firm has established an effective policy to prevent violations, FNS shall consider written and dated statements of firm policy which reflect a commitment to ensure that the firm is operated in a manner consistent with this part 278 of current FNS regulations and current FSP policy on the proper acceptance and handling of food coupons. This section goes on to state, As required by Criterion 2, such policy statements shall be considered only if documentation is supplied which establishes that the policy statements were provided to the violating employee(s) prior to the commission of the violation. This section further states, A firm which seeks a civil money penalty in lieu of permanent disqualification shall document its training activity by submitting to FNS its dated training curricula and records of dates training sessions were conducted... (Emphasis added). Appellant, in its request, also stated that the owner s training program was oral so no documentation exists as to the firm s policy and training of employees. As no documentation was advanced in support of the trafficking CMP, Appellant does not meet the eligibility criteria for a trafficking CMP. 9
CONCLUSION The Retailer Operations Division has presented a case that Appellant 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 stores in the county and state. Store ownership is not contesting the charges, does not deny that trafficking occurred at the Appellant business, and has not provided any evidence to rebut the case that the business 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 Retailer Operations Division. Based on the discussion herein, 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. 2023 and 7 CFR 279.7. 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 8, 2017 ADMINISTRATIVE REVIEW OFFICER 10