u.s. department of agriculture food and nutrition service ... · response to the letter of charges,...

Ala Cell – Final Agency Decision

U.S. Department of Agriculture Food and Nutrition Service

Administrative Review Alexandria, VA 22302

Ala Cell, )

) Appellant, )

) v. )

) Case Number: C0192166 Retailer Operations Division, )

) Respondent. )

)

FINAL AGENCY DECISION

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 a Permanent Disqualification from participation as an authorized retailer in the Supplemental Nutrition Assistance Program1 was properly imposed against Ala Cell (hereinafter “Ala Cell” and/or “Appellant”) and its owner of record Mita V Mistry by the Retailer Operations Division of the FNS.

ISSUE

The issue accepted for review is whether the Retailer Operations Division took appropriate action, consistent with 7 CFR § 278.6(e)(1) in its administration of the Supplemental Nutrition Assistance Program (SNAP) when it imposed a Permanent Disqualification against Ala Cell in a letter dated September 8, 2016.

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 August 25, 2016, the Retailer Operations Division informed Appellant that it was in violation of the terms and conditions of the SNAP regulations, 7 CFR §§ 270-282, based on Electronic Benefit Transaction (EBT) SNAP benefit transactions considered to “establish clear and repetitive patterns of unusual, irregular, and inexplicable SNAP activity for your type of firm.”

1 Section 4001(b) of the Food, Conservation, and Energy Act of 2008 (P.L. 110-234; 122 Stat. 1092) amended the Food and Nutrition Act of 2008 by striking “food stamp program” and inserting “supplemental nutrition assistance program” effective October 1, 2008


The Retailer Operations Division record and letter of determination indicates Appellant provided a response to the letter of charges, through counsel, dated August 31, 2016; and, that following review of that response the Retailer Operations Division advised Appellant of a final determination of permanent disqualification from participation in the SNAP in accordance with 7 CFR § 278.6(c) and § 278.6(e)(1) for trafficking violations, in a letter dated September 8, 2016, documented to have been delivered to Appellant on September 9, 2016.

The determination letter also stated that the Retailer Operations Division considered Appellant’s eligibility for a trafficking civil money penalty (CMP) according to the terms of Section § 278.6(i) of the SNAP regulations. The Retailer Operations Division determined that the Appellant was not eligible for the trafficking CMP because the Appellant did not submit timely and complete evidence to demonstrate the firm had established and implemented an effective compliance policy and program to prevent violations of the SNAP.

In a letter dated September 16, 2016, received in the offices of the Administrative Review Branch on September 20, 2016, Appellant, through counsel, submitted an appeal of the Retailer Operations Division’ assessment, requesting an administrative review of the action. The appeal was granted.

STANDARD OF REVIEW

In appeals of adverse actions, an appellant bears the burden of proving by a preponderance of the evidence, that the administrative actions should be reversed. That means an appellant has the burden of providing relevant evidence which a reasonable mind, considering the record as a whole, would accept as sufficient to support a conclusion that the matter asserted is more likely to be true than not true.

CONTROLLING LAW AND REGULATIONS

The controlling law in this matter is contained in the Food and Nutrition Act of 2008, as amended (the “Act”)2, 7 U.S.C. § 2021 and promulgated through regulation under Title 7 of the Code of Federal Regulations (CFR),3 part 278. In particular CFR § 278.6(a) and (e)(1)(i) establish the authority upon which a permanent disqualification may be imposed against a retail food store or wholesale food concern.

7 U.S.C. § 2021(b)(3)(B) states, inter alia:

… a disqualification under subsection (a) shall be … permanent upon…the first occasion or any subsequent occasion of a disqualification based on the purchase of coupons or trafficking in coupons or authorization cards by a retail food store or wholesale food concern or a finding of the unauthorized redemption, use, transfer, acquisition, alteration, or possession of EBT cards…

2 Effective October 1, 2008, the Food Stamp Act of 1977 was superseded by the Food and Nutrition Act of 2008, as amended through P.L. 110-246. 3 Title 7 of the Code of Federal Regulations may be accessed in its entirety via the Internet at http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&tpl=/ecfrbrowse/Title07/7tab_02.tpl


7 CFR § 278.6(e)(1)(i) states, inter alia:

“FNS shall disqualify a firm permanently if personnel of the firm have trafficked as defined in §271.2.”

7 CFR § 271.2 states, inter alia:

“ Trafficking means the buying or selling of … [SNAP] benefits for cash or consideration other than eligible food…”

7 CFR § 271.2 states, inter alia:

“Eligible foods means: Any food or food product intended for human consumption except alcoholic beverages, tobacco and hot food and hot food products prepared for immediate consumption.”

7 CFR § 278.6(a) states, inter alia:

“FNS may disqualify any authorized retail food store … if the firm fails to comply with the Food & Nutrition Act of 2008, as amended, or this part. Such disqualification shall result from a finding of a violation on the basis of evidence that may include facts established through on-site investigations, inconsistent redemption data, evidence obtained through a transaction report under an electronic benefit transfer system….” (Emphasis added.)

7 CFR § 278.6(c) states, inter alia:

“Review of evidence. The letter of charges, the response, and any other information available to FNS shall be reviewed and considered by the appropriate FNS regional office, which shall then issue the determination…”

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).” [Emphasis added]

7 CFR § 278.6(i), states, inter alia:

“FNS may impose a civil money penalty in lieu of a permanent disqualification for trafficking as defined in §271.2 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.” [Emphasis added]

SUMMARY OF THE CHARGES

The Retailer Operations Division materials and the charge letter dated August 25, 2016, reveal that charges were based on an analysis of EBT SNAP benefit transaction data during the five (5) month period


of March 2016 through July 2016 and involved two (2) patterns of EBT transaction characteristics indicative of trafficking as follow:

Attachment #1 lists multiple SNAP EBT transactions made from individual benefit accounts in unusually short timeframes 7 USC 2018 (b)(7)(e) . Attachment #2 lists excessively large purchase transactions made from the accounts of SNAP recipients 7 USC 2018 (b)(7)(e) .

APPELLANT’S CONTENTIONS

In response to the August 25, 2016 letter of charges, Appellant, through counsel provided: • A sworn affidavit from Appellant’s owner denying the charges of trafficking dated August 31,

2016; • Explanation that multiple transactions in short time frames is due to the nature of the local

neighborhood walking distance business where customers frequently shop several times per day; and,

• Explanation that large purchase transactions occur with the purchase of meat and buying food in bulk which has increased with the closure of two (2) local retailers.

Appellant’s request for review letter, provided through counsel, dated September 16, 2016 indicates that:

• All allegations are denied, and a second affidavit under Appellant owner’s signature, dated September 16, 2016 is provided for consideration.

• A request is made for consideration of a civil money penalty in lieu of a permanent disqualification.

• Evidence of training provided to Appellant’s employees and affirmation that there are signs on the business welcoming EBT customers; Appellant offers for sale on a continuous basis at least three (3) varieties of qualifying foods; Appellant respects its customers; and Appellant monitors its employees activity to ensure compliance.

• USDA is invited to visit Appellant and observe the operation and customer base to affirm that customers walk to Appellant, sometimes several times per day, and make purchases for food in amounts between $50 and $100, due to the purchase of meats and other groceries; and, that customers sometimes add items creating a second transaction when the first transaction has been completed.

• USDA does not have any evidence beyond citing “inexplicable” activity because it has not conducted an on-site investigation.

• USDA has placed Appellant in a difficult position in trying to explain its innocence. In an October 10, 2016 letter Appellant, through counsel, provided a binder with 17 Exhibits referenced as “additional materials” in which the previously referenced documents and explanations were included and appended with 54 additional store photographs; evidence of bulk/group item specials; inventory receipts and analysis for the focus period; and Appellant analysis of the suspicious transactions.

The preceding represents only a brief 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

On review, the investigative materials provided by the Retailer Operations Division, including computer printouts of transaction data available from Federal records, store visit observations, information regarding area competitor firms, and household shopping patterns, were analyzed.

With regards to Appellant’s contentions in explanation of questionable transactions, the issue in review is whether there is sufficient evidence, through a preponderance of that evidence, that it is more likely true than not true that the questionable transactions were the result of trafficking.

Store Visit:

The record reveals that in reaching a disqualification determination, the Retailer Operations Division considered information obtained during a store visit conducted by FNS contracted personnel on July 19, 2016. The record indicates the July 19, 2016 visit was authorized by a self-identified “cashier”. Materials reflecting observations made during the store visit describe the nature and scope of the Appellant’s operation, as well as the stock and facilities.

Appellant is reported to be open seven (7) days per week from 7:30AM until 10:00PM. Appellant is documented to be located in an urban area, within a commercial neighborhood, in a strip shopping mall arrangement. The store visit materials estimate Appellant to operate in approximately 2800 square feet of space. There is no out of public view storage area reported. On appeal Appellant has provided photographs of stock of drinks in case quantities, and explained that these drinks are easily accessible to the checkout area and represent added items to initial buys. However, on review it is noted that the same volume of drinks was not viewed in the July 19, 2016 store visit certified photographs.

The materials describe Ala Cell as a convenience store, in accordance with FNS definitions, operating with two (2) cash registers that are not equipped with scanning technology; and, one (1) point-of-sale terminal (POS). Appellant explains, on appeal, that the second cash register, seen in photograph #13 below just left of the enclosed Plexiglas area, is used for U-Haul transactions only.

The checkout area is seen in the store visit photographs to be located behind a Plexiglas enclosure with a pass-through window available for merchandise exchange, explained in Appellant materials as necessary due to the high crime area where Appellant is located.

The counter behind the Plexiglas is staged with several merchandise displays and there is no evident bagging or sorting area available.

Photos from the July 19, 2016 store visit are presented below


Photo #3 – Ala Cell is identified as occupying space under two signs – the one with Ala Cell clearly identifiable (left) and the one to the right (faded) that advertises cell phones, phone cards, check cashing, bill paying and U-Haul services. In Appellant photographs the faded signage has been changed to “Chisholm Package Store.”

Merchandise pass through drawer


Photo #19 Photo #9

Photo #13 Photo #8


The inventory at the time of the July 19, 2016 store visit is shown to include a moderate inventory in the four (4) staple food groups including:

• Four (4) varieties of dairy products; • Eleven (11) varieties of fruits and vegetables, however only 100 percent fruit juices were

identified to be fresh/frozen/or refrigerated, leaving the balance of the varieties available as canned or packaged;

• Eight (8) varieties of breads and cereals; and, • Seven (7) varieties of meat, poultry and fish including eggs and fresh/frozen/refrigerated

commercially packaged meats. No fresh meats are identified.

The store visit documents no hand-held shopping baskets or shopping carts are available to support the delivery of purchases to the counter area where placement would occur on top of a narrow

Photo #2 Photo #4

Photo #5 Photo #11


(approximately one (1) foot wide) shelf on which candy is also displayed) to slip into sliding drawer for pass through to the checkout area. (Photo #13)

Ala Cell is noted to sell tobacco products, alcohol, baseball caps, general merchandise (see photo #13), paper products, household goods such as cleaning products, personal care products, and pet products. Charge Letter Attachment Analysis: Attachment #1: Multiple SNAP EBT transactions made from individual benefit accounts in unusually short timeframes.

7 USC 2018 (b)(7)(e) .

Appellant contends that it operates as a local neighborhood walking distance business where customers frequently shop several times per day; and, that second purchases represent customers adding forgotten items after the completion of a first transaction.

7 USC 2018 (b)(7)(e) .

7 USC 2018 (b)(7)(e) .

7 USC 2018 (b)(7)(e) .

Absent reasonable explanations and/or evidence it is clear that the transactions cited for Attachment #2 in the letter of charges represent anomalous situations that cannot be reasonably supported with Appellant’s operational infrastructure and photographed inventory.

Attachment #2: Excessively large purchase transactions made from the accounts of SNAP recipients.

7 USC 2018 (b)(7)(e) .

Appellant, by way of sworn affidavits provided by its owner of record, dated August 31, 2016 and September 16, 2016 explains that all customers are charged the same price for meat that is purchased in bulk. In Exhibit #10 of the October 10, 2016 “additional” information, Appellant through counsel provided photographs of 18 bundles/packs of groceries (see example below) reported to be sold in those specified bundles thereby facilitating large customer purchases. No evidence of advertisement of those bundles/packs were identified in the store visit materials and notably the store visit reviewer specifically indicated that no packs//bundles were available.


Several of the bundles/packs included large quantities of drinks and snack foods; such as, the example above advertising “30 pack chips + 2 big box cereal + 24 pack Faygo + Gallon milk + Eggs for $29.99. Other pack or bundles included advertisement for 24 packs of 20 ounce cold drinks paired with a 30 pack of chips is listed for $34.99; five (5) containers of carbonated soda (Faygo) ipaired with a 30 pack of chips selling for $39.99; cereal in quantity is noted to be available for a single box at $2.99; two (2) boxes for $5.00, and five (5) boxes for $12.29; and, “Pick any 5 meat for $21.99”. On review the store visit materials shows first that there is no out-of-public view storage available; and, second, that there is limited stock of the individual inventory items included in the bundle/pack products seen on site. The administrative record does not support the existence of the cited bundles/ packs as presented by Appellant on review.

The Appellant provided photographs show prepackaged bacon, lunch meat, sausage in eight (8) of the 54 photographs provided in the “additional materials” as Exhibit 12; and, show canned fish (Starkist Tuna) in one (1) photograph. The store visit materials show these same products, together with what appear to be frozen chicken nuggets. Notably the store visit materials show lesser inventory than the Appellant provided photographs.

7 USC 2018 (b)(7)(e) . Further, as previously indicated, Appellant’s operational infrastructure which includes limited counter space; customer hand carrying items to a limited checkout space due to the absence of carts or baskets; and, the manual key entry of each eligible food amount while separating ineligible items, passed through a drawer in a Plexiglas enclosure, also likely included from the general Appellant inventory; it is not reasonable that the transactions in the amounts depicted in Attachment #2 are reasonably legitimate transactions.

7 USC 2018 (b)(7)(e) .

Absent specific food purchased in combination repeatedly that the same total numbers are repeated implies that the numbers are contrived. Neither the store visit materials nor Appellant materials indicate that there are any pre-priced bundles, boxes or specials that would account for the repeated total patterns.

Absent reasonable explanations and/or evidence it is clear that the transactions cited for Attachment #2 in the letter of charges represent anomalous situations that can be reasonably concluded represent instances of trafficking.

Comparison/Competitor Firms: Retailer Operations Division documents that there are 17 SNAP authorized firms within a two-mile radius


of Appellant including a superstore that is 1.3 miles away; and, four (4) alternative/ competitor convenience stores within a one-mile radius. 7 USC 2018 (b)(7)(e) . On review of the FNS Retailer Locator public website @ http://www.fns.usda.gove/snap/retailerlocator on January 17, 2016 there were seven (7) alternative SNAP authorized retailers within a one-mile radius of Appellant.

7 USC 2018 (b)(7)(e) .

In verifying Appellant’s claim of increased sales due to alternate SNAP retailer closures it was verified that one (1) of the two (2) stores withdrew from SNAP on December 15, 2014, one (1) year and three (3) months before the first uptick in SNAP redemptions at Appellant. The second firm cited by Appellant as having “closed” has remained SNAP authorized although redemptions for that firm have not remained constant. The firm is verified to have redeemed SNAP in four (4) of the five (5) months in the Appellant focus period. It is not reasonable to consider any correlation between the SNAP redemptions of the two (2) firms cited by Appellant and those of Appellant.

Inventory Invoices:

In the October 10, 2016 “additional” materials Appellant included Exhibits #13 to #17 representing inventory purchases during the focus period. Appellant tallied the information to include totals as follows:

Exhibit #13 includes receipts from Allstate Beverage totaling $5,442.73. Although the documents include both non-alcoholic (soda) and alcoholic (beer), the Appellant provided totals represent only the soda inventory purchases. 7 USC 2018 (b)(7)(e) .

http://www.fns.usda.gove/snap/retailerlocator

http://www.fns.usda.gov/snap/retailerlocator%20%20on%20August%208


The materials provided clearly reveal that a majority of the Sam’s Club purchases were for tobacco products which are not SNAP eligible; therefore, these documents are not considered evidence that qualifying SNAP food inventory was purchased from this vendor in the focus period.

Exhibit #15 includes six (6) pages of an invoice dated June 17, 2016 for $4,132.97, from International Wholesale for products such as: powdered sugar, wax paper, windshield washer liquid, wing sauce, various types of vinegar, spray paint, a stacking display, tea bags, tire gauges, spices, shampoo, conditioner, soups, rain ponchos, crackers, screwdrivers, cornbread, shower caps, personal care products, paper products, canned fish, plastic shot glasses, power steering fluid, flour, foam plates, dish and laundry detergent, over-the-counter medications, etc.

Exhibit #16 includes seven (7) invoices from US 1 Discount Wholesale totaling $3,150.98 for products such as candy, batteries, over-the-counter medication, and tobacco supplies such as butane lighters, and top paper.

Exhibit #17 includes inventory invoices from Kelley Foods of Alabama for the purchase of frozen foods including meats such as ham hocks, turkey breast, chicken breast, and chicken nuggets; vegetables such as potato fries, and okra; dairy products such as margarine and sliced cheese; combination foods such as macaroni and cheese and hot pockets; bread products such as frozen biscuits; and deli meats such as bologna, various sausages, and franks, totaling $2,246.37. There is no other evidence of meats, fresh, frozen, canned or dried, beyond jerky products purchased with the candy and snack stock from two (2) of the wholesalers previously cited. 7 USC 2018 (b)(7)(e) .

Denial of Trafficking Charges and Lack of Evidence:

In two (2) sworn affidavits, dated August 31, 2016 and September 16, 2016, Appellant’s owner of record, indicates that she has read the definition of trafficking as provided in 7 CFR § 271.2 and she has no knowledge of Appellant committing any of the acts defined as trafficking. However, assertions that Appellant has not violated program rules, albeit sworn without supporting evidence and rationale do not constitute valid grounds for dismissal of the current charges of violations or for mitigating their impact.

Appellant, through counsel describes that USDA has put Appellant in a difficult position to explain its innocence; charged trafficking without evidence citing “inexplicable” activity because it has not conducted an on-site investigation”; and, invites USDA to visit Appellant and observe the operation and customer base to affirm the explanations provided for the anomalous transactions identified in the letter of charges. The present review has encompassed and documented the examination of the primary and relevant information, the purpose of which is, as noted above, to determine whether the Appellant demonstrates by a preponderance of the evidence that the permanent disqualification should be reversed. As previously stated the SNAP regulations at 7 CFR § 278.6(a) provide the authority for USDA/FNS to disqualify any authorized retail food store based on 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 instant case although no on-site investigation has been conducted, the evidence as presented in the transaction reports cited support a finding of permanent disqualification. Additionally, although no investigative visit has been recorded in the instant case it is noted that the contracted store visit of July 19, 2016 provides baseline information regarding Appellant operations and inventory during the focus period and supports the analysis as conducted by Retailer Operations Division. Further, as evidenced in the present


material Appellant provided evidence has been given fully and complete consideration.

General Information:

The data reflected in the letter of charges dated August 25, 2016 is the result of information gained primarily from the Anti-Fraud Locator using Electronic Benefits Transfer (EBT) Retailer Transactions (ALERT) system which is a fraud detection, decision support system designed to monitor and track electronically conducted retail transactions completed by SNAP recipients in authorized meal program and food retailer locations.

The ALERT System facilitates management of the program by providing transaction-level information to Federal personnel charged with the responsibility of SNAP retailer management and compliance. The system uses pre-defined criteria or patterns for potential fraud detection. Pre-formatted reports provide information on those stores and transactions meeting the criteria. ALERT supports both online analysis and online queries and reports for use by FNS. The system does not make the final determination, instead is used by Retailer Operations Division to develop information and evidence for consideration and an ultimate decision. Therefore, based on the available empirical data, and in the absence of any reasonable or evidence supported explanations for the anomalous transaction patterns, a conclusion can be drawn, through a preponderance of evidence that the majority of the “unusual, irregular, and inexplicable” transactions and patterns cited in the letter of charges evidence trafficking as the most likely explanation.

CIVIL MONEY PENALTY

In Appellant’s September 16, 2016 request consideration for the imposition of a civil money penalty (CMP) is made, “if the department must impose a penalty that a money penalty be imposed in lieu of the harsh penalty of disqualification”. As previously indicated the September 20, 2016 determination letter advised Appellant of the ineligibility for consideration for a trafficking civil money penalty (CMP) according to the terms of Section §278.6(i) of the SNAP regulations.

The letter of charges dated August 25, 2016 advised Appellant that documentation of eligibility for that alternative sanction was to be provided within 10 days. The regulations specify that such documentation must, in part, establish that there was an effective compliance policy and training program and that both were in effect and implemented prior to the occurrence of violations. Retailer Operations Division advised Appellant that no timely information had been provided for consideration. On appeal included with the “additional” information as Exhibit #A appended to the sworn statement of Appellant’s owner dated September 16, 2016, are eight (8) training acknowledgment documents dated December 4, 2015 through September 13, 2016, annotated to have been signed by both past and current employees. Notably these materials were provided on appeal, well after the expiration of the 10 day period allowed in the August 25, 2016 letter of charges; and, do not represent substantial evidence of the existence of an effective compliance policy and training program in effect and implemented prior to the occurrence of the violations. A review of the administrative record finds no evidence of materials or information timely provided. Therefore, on review the Retailer Operations Division’s determination that Appellant firm is ineligible for the imposition of civil money penalties in lieu of disqualification is affirmed.


CONCLUSION

The Retailer Operations Division analysis of Appellant’s EBT transaction records, upon which charges of violations are based, together with observations made during the contracted store visits provide substantial evidence that questionable transactions during the focus period have characteristics that are not consistent with legitimate sales of eligible food to SNAP customers at a store of the nature and scope as described in the preceding materials. Rather, the characteristics are indicative of illegal trafficking in program benefits.

Therefore, based on a review of the evidence in this case, it is more likely true than not true that program violations did, in fact, occur as charged and that the Retailer Operations Division has provided substantial evidence of trafficking violations.

Based on the discussion above, the decision to impose a permanent disqualification from participation in the SNAP against Ala Cell is sustained.

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 (FOIA), it may be necessary to release this document and related correspondence and records upon request. If such a request is received, FNS will seek to protect, to the extent provided by law, personal information that if released could constitute an unwarranted invasion of privacy.

January 17, 2016

NANCY BACA-STEPAN DATE ADMINISTRATIVE REVIEW OFFICER

u.s. department of agriculture food and nutrition service ... · response to the letter of charges,...

Documents